SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-13017
File No. 811-750
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 111 X
_____
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 111
_____
DELAWARE GROUP EQUITY FUNDS II, INC.
_______________________________________________________________________
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
_______________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
_______________________________________________________________________
(Name and Address of Agent for Service)
Approximate Date of Public Offering: January 29, 1999
----------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on January 29, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered
------------------------------------
Decatur Income Fund A Class
Decatur Income Fund B Class
Decatur Income Fund C Class
Decatur Income Fund Institutional Class
Decatur Total Return Fund A Class
Decatur Total Return Fund B Class
Decatur Total Return Fund C Class
Decatur Total Return Fund Institutional Class
Blue Chip Fund A Class
Blue Chip Fund B Class
Blue Chip Fund C Class
Blue Chip Fund Institutional Class
Social Awareness Fund A Class
Social Awareness Fund B Class
Social Awareness Fund C Class
Social Awareness Fund Institutional Class
Diversified Value Fund A Class
Diversified Value Fund B Class
Diversified Value Fund C Class
Diversified Value Institutional Class
--- C O N T E N T S ---
This Post-Effective Amendment No. 111 to Registration File
No. 2-13017 includes the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectuses
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET*
----------------------
PART A
-------
Location in Prospectuses
Decatur Income Fund/
Decatur Total Return Decatur Income Fund/
Class A Decatur Total Return Fund
Class B Institutional Class
Item No. Description Class C -------------------------
- -------- ----------- -------
<S> <C> <C> <C>
1 Front and Back Cover Same Same
Pages
2 Risk/Return Summary: Fund profiles Fund profiles
Investments, Risks and
Performance
3 Risk/Return Summary: Fund profiles Fund profiles
Fee Table
4 Investment Objectives, How we manage the How we manage the
Principal Investment Funds Funds
Strategies, and Related
Risks
5 Management's Discussion N/A N/A
of Performance
6 Management, Organization, Who manages the Funds Who manages the Funds
and Capital Structure
7 Shareholder Information How to buy shares; How to buy shares;
How to redeem shares; How to redeem shares;
Special services; Dividends, distributions
Dividends, and taxes all under
distributions About your account
and taxes all under
About your account
8 Distribution Arrangements Choosing a share About your account
class; How to reduce
sales charges under
About your account
9 Financial Highlights Financial Highlights Financial Highlights
Information
</TABLE>
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET
----------------------
PART A
-------
(Continued)
Location in Prospectuses
Blue Chip Fund/
Class A Blue Chip Fund/
Class B Institutional
Item No. Description Class C Account
- -------- ----------- ------- -------
<S> <C> <C> <C>
1 Front and Back Cover Same Same
Pages
2 Risk/Return Summary: Fund profile Fund profile
Investments, Risks
and Performance
3 Risk/Return Summary: Fund profile Fund profile
Fee Table
4 Investment Objectives, How we manage the How we manage the
Principal Investment Fund Fund
Strategies, and Related
Risks
5 Management's Discussion N/A N/A
of Performance
6 Management, Who manages the Fund Who manages the Fund
Organization, and
Capital Structure
7 Shareholder Information How to buy shares; How to buy shares;
How to redeem shares; How to redeem shares;
Special services; Special services;
Dividends, Dividends,
distributions distributions
and taxes all under and taxes all under
About your account About your account
8 Distribution
Arrangements Choosing a share About your account
class;
How to reduce
sales charges
under About
your account
9 Financial Highlights Financial Highlights Financial Highlights
Information
</TABLE>
<TABLE>
<CAPTION>
PART A
-------
(Continued)
Location in Prospectuses
Social Awareness
Fund/
Class A Social Awareness
Class B Fund/
Item No. Description Class C Institutional Class
- -------- ----------- ------- -------------------
<S> <C> <C> <C>
1 Front and Back Same Same
Cover Pages
2 Risk/Return Summary: Fund profile Fund profile
Investments, Risks
and Performance
3 Risk/Return Summary: Fund profile Fund profile
Fee Table
4 Investment Objectives, How we manage the How we manage the
Principal Investment Fund Fund
Strategies, and
Related Risks
5 Management's Discussion N/A N/A
of Performance
6 Management, Who manages the Fund Who manages the Fund
Organization, and
Capital Structure
7 Shareholder Information How to buy shares; How to buy shares;
How to redeem shares; How to redeem shares;
Special services; Special services;
Dividends, Dividends,
distributions distributions
and taxes all under and taxes all under
About your account About your account
8 Distribution Choosing a share About your account
class; Arrangements
How to reduce sales
charges under About
your account
9 Financial Highlights Financial Highlights Financial Highlights
Information
</TABLE>
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET*
----------------------
PART A
-------
(Continued)
Location in Prospectuses
Diversified Value
Fund
Class A
Class B Diversified Value Fund
Item No. Description Class C Institutional Class
- -------- ----------- ------- -------------------
<S> <C> <C> <C>
1 Front and Back Same Same
Cover Pages
2 Risk/Return Summary: Fund profile Fund profile
Investments, Risks
and Performance
3 Risk/Return Summary: Fund profile Fund profile
Fee Table
4 Investment Objectives, How we manage the How we manage the
Principal Investment Fund Fund
Strategies, and Related
Risks
5 Management's Discussion N/A N/A
of Performance
6 Management, Who manages the Fund Who manages the Fund
Organization,
and Capital Structure
7 Shareholder Information How to buy shares; How to buy shares;
How to redeem shares; How to redeem shares;
Special services; Dividends, distributions
Dividends, and taxes all under
distributions About your account
and taxes all under
About your account
8 Distribution Choosing a share About your account
Arrangements class; How to
reduce sales
charges under
About your account
9 Financial Highlights Financial Highlights Financial Highlights
Information
</TABLE>
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET*
----------------------
PART B
-------
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
<S> <C> <C>
10 Cover Page and Table of Contents Same
11 Fund History General Information
12 Description of the Fund and Its Investment Restrictions
Investments and Risks and Policies
13 Management of the Fund Officers and Directors;
Purchasing Shares
14 Control Persons and Principal Officers and Directors
Holders of Securities
15 Investment Advisory and Other Officers and Directors;
Services Purchasing Shares; Investment
Management Agreement;
General Information;
Financial Statements
16 Brokerage Allocation and Other Trading Practices and Brokerage
Practices
17 Capital Stock and Other Securities Capitalization and
Noncumulative Voting
(under General Information)
18 Purchase, Redemption and Pricing Purchasing Shares; Redemption
of Shares and Exchange; Determining
Offering Price and Net Asset Value
19 Taxation of the Fund Accounting and Tax Issues; Taxes
20 Underwriters Purchasing Shares
21 Calculation of Performance Data Performance Information
22 Financial Statements Financial Statements
<CAPTION>
PART C
------
Item No. Description Location in Part C
<S> <C> <C>
23 Exhibits Item 23
24 Persons Controlled by or under Common Item 24
Control with Registrant
25 Indemnification Item 25
26 Business and Other Connections of the Item 26
Investment Adviser
27 Principal Underwriters Item 27
28 Location of Accounts and Records Item 28
29 Management Services Item 29
30 Undertakings Item 30
</TABLE>
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Decatur Equity Income Fund
Growth and Income Fund
Class A
[bullet] Class B
[bullet] Class C
Prospectus January 29, 1999
Total Return Funds
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
[inside front cover]
Table of Contents
Fund profiles page
Decatur Equity Income Fund
Growth and Income Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Who's who?
About your account page
Investing in the Funds
Choosing a share class
How to reduce your sales charge
How to buy shares
How to redeem shares
Special services
Dividends, distributions and taxes
Retirement plans
Financial highlights page
[sidebar copy at bottom of page]
How to use this prospectus
Here are guidelines to help you use this prospectus to make well-
informed investment decisions about our funds. If you're looking for a
specific piece of information, the table of contents can guide you
directly to the appropriate section.
Step 1
- ------------------------------------------------------------------------
Take a look at the fund profiles for an overview of each Fund.
Step 2
- ------------------------------------------------------------------------
Learn in-depth information about how the Funds invest, the risks
involved and the people and organizations responsible for the Funds'
day-to-day operations.
Step 3
- ------------------------------------------------------------------------
Determine which fund features and services you would like to take
advantage of.
Step 4
- ------------------------------------------------------------------------
Use the glossary that begins on page X to find definitions of words
printed in bold type throughout the prospectus.
Investing for total return...
Investors with long-term goals often choose mutual funds designed to
provide total return. These funds provide moderate growth potential as
well as some current income. They generally involve less risk than
aggressive stock funds but more risk than bond funds. Like all mutual
funds, total return funds allow you to invest conveniently in a
diversified portfolio without having to select and monitor individual
securities on your own.
with Delaware Investments
Your personal financial adviser, working with Delaware Investments, can
help you define, evaluate and set your personal investment objectives.
Your adviser can also explain the role total return funds like Decatur
Equity Income Fund and the Growth and Income Fund can play in a long-
term investment program designed to meet your goals.
The Delaware Investments family includes a full range of mutual funds-
including total return funds-designed to fit your particular investment
needs. With 70 years of investment management experience, we follow
time-tested strategies that emphasize long-term performance and
consistent application of investment disciplines. Today, as part of the
Lincoln Financial Group, a $105 billion financial services complex,
Delaware Investments has access to a variety of experienced and talented
investment managers. We are dedicated to working closely with financial
advisers to bring investors the highest quality investment management
and services.
["House" graphic, with total return "room" highlighted]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Growth Equity Funds
International and Global Funds
Asset Allocation Funds
[Table Highlighted] Moderate Growth Equity Funds for...
Total Return
These stock-oriented funds provide moderate growth potential as well as
some current income, with less risk than aggressive stock funds but more
risk than bond funds.
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
Profile: Decatur Equity Income Fund
What are the Fund's goals?
Decatur Equity Income Fund seeks to provide the highest possible current
income by investing primarily in common stocks that provide the
potential for income and capital appreciation without undue risk to
principal. Although the Fund will strive to achieve its goals, there is
no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in dividend-paying stocks of large, well-established
companies. Typically, we consider buying a stock when its dividend
yield is higher than the average of the unmanaged S&P 500 Composite
Stock Price Index. The manager then considers the financial strength of
the company, the nature of its management and any developments affecting
the security, the company or its industry. If the yield on a stock
already in the portfolio falls below the average of the S&P 500, we
generally sell that stock.
Decatur Equity Income Fund also may invest up to 15% of its net assets
in high-yield, higher risk corporate bonds, commonly known as junk
bonds. These bonds involve the risk that the issuing company may be
unable to pay interest or repay principal. However, they can offer high
income potential which we believe can make a positive contribution to
the Fund's performance.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be affected by changes in stock and
bond prices. An investment in the Fund is not a deposit of any bank and
is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. For a more complete
discussion of risk, please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors looking for growth potential combined with regular
income.
[bullet] Investors looking for supplemental monthly income from an
investment that also offers possible protection against
inflation.
Who should not invest in the Fund
[bullet] Investors with short-term financial goals.
[bullet] Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly, over the short term.
[bullet] Investors seeking an investment primarily in fixed income
securities.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has the Decatur Equity Income Fund performed?
This bar chart and table can help you evaluate the potential risks and
rewards of investing in Decatur Equity Income Fund. We show how returns
for the Fund's Class A shares have varied over the past ten calendar
years, as well as average annual returns of all shares for one, five,
and ten years -- all compared to the performance of the S&P 500 Index.
You should remember that unlike the Fund, the index is unmanaged and
doesn't include the actual costs of buying, selling, and holding
securities. The Fund's past performance does not necessarily indicate
how it will perform in the future.
* Decatur Equity Income Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A)
FPO]
Decatur Equity Income Fund S&P 500
1989
1990
1991
1992
1993
1994
1995
1996
1998
[bar chart]
Year-by-year total return (Class A)
The maximum Class A sales charge of 5.75%, which is normally deducted
when you purchase shares, is not reflected in these total returns. If
this fee were included, the returns would be less than those shown. The
average annual returns shown below do include the sales charge.
As of December 31, 1998, Decatur Equity Income Fund had a year-to-date
return of XX%. During the ten years illustrated in this bar chart, the
Fund's highest return in any quarter was XX% and its lowest return in
any quarter was XX%.
[table]
Average annual return as of 12/31/98
CLASS A B B (if C C (if S&P 500
redeemed) redeemed)
1 year 00.0% 00.0% 00.0% 00.0% 00.0% 00.0
5 years 00.0% 00.0% 00.0% 00.0% 00.0% 00.0
10 years 00.0% 00.0% 00.0% 00.0% 00.0% 00.0
What are Decatur Equity Income Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy
or sell shares of Decatur Equity Income Fund. The Fund may waive or
reduce sales charges; please see the Statement of Additional Information
for details.
CLASS A B C
Maximum sales charge (load) imposed on
purchases as a percentage of offering
price 5.75% none none
Maximum contingent deferred sales charge
(load) as a percentage of original
purchase price or redemption price,
whichever is lower none (1) 5% (2) 1% (3)
Maximum sales charge (load) imposed on
reinvested dividends none none none
Redemption fees none none none
Annual fund operating expenses are deducted from Decatur Equity Income
Fund's income or assets before it pays dividends and before its total
return is calculated. We will not charge you separately for these
expenses.
Management fees 00.0% 00.0% 00.0%
Distribution and service (12b-1) fees (5) 00.0% (6) 00.0% 00.0%
Other expenses 00.0% 00.0% 00.0%
Total operating expenses 00.0% 00.0% 00.0%
This example is intended to help you compare the cost of investing in
Decatur Equity Income Fund to the cost of investing in other mutual
funds with similar investment objectives. We show the cumulative amount
of Fund expenses on a hypothetical investment of $10,000 with an annual
5% return over the time shown. 7 This is an example only, and does not
represent future expenses, which may be greater or less than those shown
here.
CLASS (8) A B B (if redeemed) C C (if redeemed)
1 year 00.0% 00.0% 00.0% 00.0% 00.0%
3 years 00.0% 00.0% 00.0% 00.0% 00.0%
5 years 00.0% 00.0% 00.0% 00.0% 00.0%
10 years 00.0% 00.0% 00.0% 00.0% 00.0%
1 A purchase of Class A shares at $1 million or more may be made at net
asset value. However, if you buy the shares through a financial
adviser who is paid a commission, a contingent deferred sales charge
of 1% will be imposed on certain redemptions within the first year of
purchase and 0.50% within the second year of purchase. Additional
Class A purchase options that involve a contingent deferred sales
charge may be permitted from time to time and will be disclosed in the
prospectus if they are available.
2 If you redeem Class B shares during the first year after you buy them,
you will pay a contingent deferred sales charge of 5%. The contingent
deferred sales charge is 4% during the second year, 3% during the
third and fourth years, 2% during the fifth year, 1% during the sixth
year, and 0% thereafter. Your Class B shares will automatically
convert to Class A shares after approximately eight years.
3 Class C shares redeemed within one year of purchase are subject to a
1% contingent deferred sales charge.
4 First Union Bank, N.A., the bank through which we wire money,
currently charges $7.50 per redemption for redemptions payable by
wire.
5 The Fund has adopted a plan under rule 12b-1 that allows the Fund to
pay distribution fees for the sales and distribution of its shares.
Because these fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. Each
share class is subject to a separate 12b-1 plan.
6 The Board of Directors adopted a formula for calculating 12b-1 plan
expenses that went into effect on May 2, 1994. Under this formula,
12b-1 plan expenses will not be more than 0.30% or less than 0.10%.
7 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
8 The Class B example reflects the conversion of Class B shares to Class
A shares at the end of the eighth year. However, the conversion may
occur as late as three months after the eighth anniversary of
purchase, during which time the higher 12b-1 plan fees payable by
Class B shares will continue to be assessed. Information for the ninth
and tenth years reflects expenses of the Class A shares.
Profile: Growth and Income Fund
What are the Fund's goals?
The Growth and Income Fund seeks long-term growth by investing primarily
in securities that provide the potential for income and capital
appreciation without undue risk to principal. Although the Fund will
strive to meet its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in dividend-paying stocks of large, well-established
companies. Typically, we consider buying a stock when its dividend
yield is higher than the average of the unmanaged S&P 500 Index. The
manager then considers the financial strength of the company, the nature
of its management and any developments affecting the security, the
company or its industry. If the yield on a stock already in the
portfolio falls below the average of the S&P 500, we generally sell that
stock.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be particularly affected by changes
in stock prices, which tend to fluctuate more than bond prices.
Moreover, an investment in the Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. For a more complete discussion of risk,
please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors seeking long-term capital appreciation.
[bullet] Investors seeking an investment primarily in common stocks.
[bullet] Investors seeking moderate quarterly income with the
opportunity for inflation protection.
Who should not invest in the Fund
[bullet] Investors seeking an investment primarily in fixed-income
securities.
[bullet] Investors with short-term financial goals.
[bullet] Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly over the short term.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has Growth and Income Fund performed?
This bar chart and table can help you evaluate the potential risks and
rewards of investing in Growth and Income Fund. We show how returns for
the Fund's Class A shares have varied over the past ten calendar years,
as well as average annual returns of all shares for one, five, and ten
years -- all compared to the performance of the S&P 500 Index. You
should remember that unlike the Fund, the index is unmanaged and doesn't
include the actual costs of buying, selling, and holding securities.
The Fund's past performance does not necessarily indicate how it will
perform in the future.
*Growth and Income Fund
*S&P 500
Year-by-year total return (Class A)
The maximum Class A sales charge of 5.75%, assessed when you purchase
shares, is not reflected in these total returns. If this fee were
included, the returns would be less than those shown. The average annual
returns shown below do include the sales charge.
As of December 31, 1998, Growth and Income Fund had a year-to-date
return of XX%. During the four years illustrated in this bar chart, the
Fund's highest return in any one quarter was XX% and its lowest return
in any one quarter was XX%.
[GRAPHIC OMITTED: BARCHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A)
FPO]
Growth and Income Fund S&P 500
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
[table]
Average annual return as of 12/31/98
CLASS A B B (if C C (if S&P 500
redeemed) redeemed)
1 year 00.0% 00.0% 00.0% 00.0% 00.0% 00.0%
5 year 00.0% 00.0% 00.0% 00.0% 00.0% 00.0%
10 year 00.0% 00.0% 00.0% 00.0% 00.0% 00.0%
What are Growth and Income Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy
or sell shares of Growth and Income Fund. The Fund may waive or reduce
sales charges; please see the Statement of Additional Information for
details.
CLASS A B C
Maximum sales charge (load) imposed on
purchases as a percentage of offering
price 5.75% none none
Maximum contingent deferred sales charge
(load) as a percentage of original
purchase price or redemption price,
whichever is lower none (1) 4% (2) 1% (3)
Maximum sales charge (load) imposed on
reinvested dividends none none none
Redemption fees none none none
Annual fund operating expenses are deducted from Growth and Income
Fund's income or assets before it pays dividends and before its total
return is calculated. We will not charge you separately for these
expenses.
Management fees 00.0% 00.0% 00.0%
Distribution and service (12b-1) fees (5) 00.0% (6) 00.0% 00.0%
Other expense 00.0% 00.0% 00.0%
Total operating expenses 00.0% 00.0% 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. (6) This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
CLASS (7) A B B (if redeemed) C C (if redeemed)
1 year 00.0% 00.0% 00.0% 00.0% 00.0%
3 years 00.0% 00.0% 00.0% 00.0% 00.0%
5 years 00.0% 00.0% 00.0% 00.0% 00.0%
10 years 00.0% 00.0% 00.0% 00.0% 00.0%
1 A purchase of Class A shares at $1 million or more may be made at net
asset value. However, if you buy the shares through a financial
adviser who is paid a commission, a contingent deferred sales charge
of 1% will be imposed on certain redemptions within the first year of
purchase and 0.50% within the second year of purchase. Additional
Class A purchase options that involve a contingent deferred sales
charge may be permitted from time to time and will be disclosed in the
prospectus if they are available.
2 If you redeem Class B shares during the first year after you buy them,
you will pay a contingent deferred sales charge of 5%. The contingent
deferred sales charge is 4% during the second year, 3% during the
third and fourth years, 2% during the fifth year, 1% during the sixth
year, and 0% thereafter. Your Class B shares will automatically
convert to Class A shares after approximately eight years.
3 Class C shares redeemed within one year of purchase are subject to a
1% contingent deferred sales charge.
4 First Union, N.A., the bank through which we wire money, currently
charges $7.50 per redemption for redemptions payable by wire.
5 The Fund has adopted a plan under rule 12b-1 that allows the Fund to
pay distribution fees for the sales and distribution of its shares.
Because these fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. Each
share class is subject to a separate 12b-1 fee plan.
6 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods in this example.
7 The Class B example reflects the conversion of Class B shares to Class
A shares at the end of the eighth year. However, the conversion may
occur as late as three months after the eighth anniversary of
purchase, during which time the higher 12b-1 plan fees payable by
Class B shares will continue to be assessed. Information for the ninth
and tenth years reflects expenses of the Class A shares.
How we manage the Funds
Our investment strategies
We first identify companies that have above-average dividend yields
compared to the unmanaged S&P 500 Index, a commonly used measure of U.S.
stocks. We then research individual companies and analyze economic and
market conditions, seeking to identify the securities that we think are
the best investments for each Fund. Following are descriptions of how
the portfolio manager pursues the Funds' investment goals.
We take a disciplined approach to investing, combining investment
strategies and risk management techniques that can help shareholders
meet their goals.
Decatur Equity Income Fund
Decatur Equity Income Fund is total return fund that invests primarily
stocks, but also in corporate bonds. It strives to provide high current
income and capital appreciation to its shareholders.
We invest primarily in the common stocks of established companies that
we believe have long-term total return potential. That is, they offer
both current income through dividends and capital growth potential
through increases in stock prices. Our focus on stocks with high
dividend yields is generally considered to be a value-oriented
investment approach.
To help supplement the dividend income provided by the stocks in the
portfolio, the Fund may also invest up to 15% of its net assets in high-
yield, higher risk corporate bonds. The companies that issue these
bonds do not generally have good credit ratings; as a result, the bonds
generally pay more interest than better quality bonds. We carefully
evaluate individual bonds before they are purchased and monitor them
carefully while in the portfolio. We look closely at each company and
the characteristics of the bond to better ensure that the company will
be able to pay interest and repay principal.
We conduct ongoing analysis of both the stock and bond markets to
determine how much of the portfolio should be allocated to stocks and
how much to high-yield bonds.
Growth and Income Fund
The Growth and Income Fund is also a total return fund, but it generally
does not hold bonds in the portfolio. This Fund has an objective of
long-term growth of capital. It also seeks to provide a moderate amount
of current income.
The Growth and Income Fund invests primarily in the common stocks of
established companies that we believe have long-term total return
potential. These stocks offer both current income through dividends and
capital growth potential through possible increases in stock prices. A
focus on stocks with high dividend yields, such as the one we use, is
generally considered to be a value-oriented investment approach.
The Growth and Income Fund offers slightly greater growth potential and
slightly less income potential than Decatur Equity Income Fund due to
its greater focus on common stocks.
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may
pay dividends as well. High-yield bonds offer the potential for greater
income payments than stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------
<S> <C> <C>
Decatur Equity Income Growth and Income
Fund Fund
---------------------- ----------------------
Common stocks: Securities that Generally, we invest Generally, 90% to 100%
represent shares of ownership in a 85% to 100% of net of the Fund's net
corporation. Stockholders assets in dividend- assets will be
participate in the corporation's paying common stocks. invested in dividend-
profits and losses, proportionate paying common stocks.
to the number of shares they own.
- ------------------------------------------------------------------------------------
High-Yield Corporate Bonds: Decatur Equity The Growth and Income
Securities that are rated lower Income Fund may Fund generally does
than Investment Grade by an invest up to 15% of not invest in high-
NRSRO or, if unrated, that we net assets in high- yield corporate bonds.
believe are of comparable yield corporate
quality. These securities are bonds, typically
considered to be of poor standing those rated B or BB
and predominately speculative. by an NRSRO.
- ------------------------------------------------------------------------------------
American Depositary Receipts: We may invest without limitation in ADRs. We
The certificates issued by a U.S. use them when we believe they offer better
bank which represent a stated number total return opportunities than U.S.
of shares of a foreign corporation securities.
that the bank holds in its vault.
An ADR entitles the holder to all
dividends and capital gains earned
by the underlying foreign shares,
and an ADR is bought and sold the
same as U.S. securities.
- ------------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase agreements as a
between a buyer and seller of short-term investment for a Fund's cash
securities in which the seller position. In order to enter into these
agrees to buy the securities back repurchase agreements, a Fund must have
within a specified time at the collateral of at least 102% of the repurchase
same price the buyer paid for them, price.
plus an amount equal to an agreed
upon interest rate. Repurchase
agreements are often viewed as
equivalent to cash.
- ------------------------------------------------------------------------------------
Restricted securities: Privately We may invest without limitation in privately
placed securities whose resale is placed securities that are eligible for resale
restricted under securities law. among certain institutional buyers.
- ------------------------------------------------------------------------------------
Illiquid Securities: Securities We may invest up to 10% of a Fund's total
that do not have a ready market, assets in illiquid securities.
and cannot be easily sold, if at
all, at approximately the price
that the Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
The Funds are permitted to invest in all available types of equity
securities including preferred stock, rights and warrants and
convertible securities. The Funds may also invest in fixed-income
securities and enter into futures and options transactions for defensive
purposes. Both Decatur Equity Income Fund and Growth and Income Fund
may invest in global and European depositary receipts and directly in
foreign securities; however, the manager has no present intention of
doing so. Each Fund reserves the right to hold a substantial part of its
assets in cash or cash equivalents as a temporary, defensive strategy.
Please see the Statement of Additional Information for additional
descriptions and risk information on these securities as well as those
listed in the table above. You can find additional information about
the investments in each Fund's portfolio in the annual or semi-annual
shareholder report.
Lending securities
Each Fund may lend up to 25% of its assets to qualified brokers, dealers
and institutional investors for their use in security transactions.
Purchasing securities on a when-issued or delayed delivery basis
Each Fund may buy or sell securities on a when-issued or delayed
delivery basis; that is, paying for securities before delivery or taking
delivery at a later date.
Portfolio turnover
Both Funds anticipate that their annual portfolio turnover will be less
than 100%. A turnover rate of 100% would occur if a Fund sold and
replaced securities valued at 100% of its net assets within one year.
Borrowing from banks
Each Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions.
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you
may receive little or no return on your investment, and the risk that
you may lose part or all of the money you invest. Before you invest in a
Fund you should carefully evaluate the risks. Because of the nature of
the Funds, you should consider an investment in either one to be a long-
term investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when
investing in Decatur Equity Income Fund and the Growth and Income Fund.
Please see the Statement of Additional Information for further
discussion of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------
<S> <C> <C>
Decatur Equity Income Growth and Income
Fund Fund
---------------------- ----------------------
Market risk is the risk that all We maintain a long-term investment approach
or a majority of the securities in and focus on stocks we believe can appreciate
a certain market -- like the stock over an extended time frame regardless of
or bond market -- will decline in interim market fluctuations. We do not try to
value because of factors such as predict overall stock market movements and do
economic conditions, future not trade for short-term purposes.
expectations or investor confidence.
- ------------------------------------------------------------------------------------
Industry and security risk is the We limit the amount of each Fund's assets
risk that the value of securities invested in any one industry and in any
in a particular industry or the individual security. We also follow a rigorous
value of an individual stock or bond selection process designed to identify under-
will decline because of changing valued securities before choosing securities
expectations for the performance of for the portfolio.
that industry or for the individual
company issuing the stock or bond.
- ------------------------------------------------------------------------------------
Interest rate risk is the risk that We limit the amount of The Growth and Income
securities will decrease in value high-yield bonds in Fund does not
if interest rates rise. The risk the portfolio to 15% generally hold a
is greater for bonds with of net assets. significant portion
longer maturities than for those of assets in bonds,
with shorter maturities. so interest rate risk
not a major risk in
this Fund.
- ------------------------------------------------------------------------------------
Credit Risk: The possibility that We limit the amount of The Growth and Income
a bond's issuer (or an entity that high-yield bonds in Fund is generally not
insures the bond) will be unable the portfolio to 15% subject to credit
to make timely payments of interest of net assets and we risk.
and principal. only invest in these
high-yield bonds
rated at least C or
Ca by an NRSRO or,
if unrated, that we
believe are of
comparable quality.
This limitation,
combined with our
careful, credit-
oriented bond
selection and our
commitment to hold
a diversified
selection of high-
yield bonds are
designed to manage
this risk.
- ------------------------------------------------------------------------------------
Foreign risk is the risk that We typically invest only a small portion of
foreign securities may be each Fund's portfolio in foreign corporations
adversely affected by political through American Depositary Receipts. We do
instability, changes in currency not invest directly in foreign securities.
exchange rates, foreign economic When we do purchase ADRs, they are generally
conditions or inadequate regulatory denominated in U.S. dollars and traded on a
and accounting standards. U.S. exchange.
- ------------------------------------------------------------------------------------
Liquidity risk is the possibility We limit exposure to illiquid securities.
that securities cannot be readily
sold, or can only be sold at a price
lower than the price that the Fund
has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface the first time they
appear in the prospectus. So if you would like to know the meaning of a
word that isn't in boldface, you might still find it in the glossary.
Glossary A-B
Amortized cost
- ------------------------------------------------------------------------
Similar to depreciated value, amortized cost reflects the value of a
fixed-income security adjusted to account for any premium that was paid
above the par value when the security was purchased. The purpose of
amortization is to reflect resale or redemption value.
Appreciation
- ------------------------------------------------------------------------
An increase in the value of an investment.
Average maturity
- ------------------------------------------------------------------------
An average of when the individual bonds and other debt securities held
in a portfolio will mature.
Bond
- ------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or
government agency. In return for lending money to the issuer, a bond
buyer generally receives fixed periodic interest payments and repayment
of the loan amount on a specified maturity date. A bond's price prior to
maturity changes and is inversely related to current interest rates.
When interest rates rise, prices fall, and when interest rates fall,
prices rise.
Bond ratings
- ------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA
(highest quality) to D (lowest quality). Bonds rated Baa/BBB or better
are considered investment grade. Bonds rated Ba/BB or lower are
commonly known as junk bonds.
C-C
Capital
- ------------------------------------------------------------------------
The amount of money you invest.
Capital gains distributions
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of profits (realized gains) from
the sale of a fund's portfolio securities. Usually paid once a year; may
be either short-term gains or long-term gains.
Commission
- ------------------------------------------------------------------------
The fee an investor pays to a financial adviser for investment advice
and help in buying or selling mutual funds, stocks, bonds or other
securities.
Compounding
- ------------------------------------------------------------------------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- ------------------------------------------------------------------------
Measurement of U.S. inflation; represents the price of a basket of
commonly purchased goods.
Contingent deferred sales charge (CDSC)
- ------------------------------------------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to
the fund) within a set number of years; an alternative method for
investors to compensate a financial adviser for advice and service,
rather than an up-front commission.
Corporate bond
- ------------------------------------------------------------------------
A debt security issued by a corporation. See "bond."
[glossary to be continued]
Who manages the Funds
Investment Manager
The Funds are managed by Delaware Management Company, a series of
Delaware Management Business Trust which is an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc. Delaware Management
Company makes investment decisions for the Funds, manages the Funds'
business affairs and provides daily administrative services. For these
services, the manager was paid a fee for the last fiscal year as
follows:
Investment Management Fees
Decatur Growth
Equity and
Income Income
As a percentage of average daily net assets 0.00% 0.00%
Portfolio Manager
John B. Fields has primary responsibility for making day-to-day
investment decisions for each Fund. He has been Senior Portfolio
Manager for Decatur Equity Income Fund since 1993 and for Growth and
Income Fund since 1992. Mr. Fields, who has 27 years experience in
investment management, earned a bachelor's degree and an MBA from Ohio
State University. Before joining Delaware Investments in 1992, he was
Director of Domestic Equity Risk Management at DuPont. Prior to that
time, he was Director of Equity Research at Comerica Bank. Mr. Fields
is a member of the Financial Analysts Society of Wilmington, Delaware.
Year 2000
As with other mutual funds, financial and business organizations and
individuals around the world, each Fund could be adversely affected if
the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." Each Fund is
taking steps to obtain satisfactory assurances that its major service
providers are taking steps reasonably designed to address the Year 2000
Problem with respect to the computer systems that such service providers
use. There can be no assurance that these steps will be sufficient to
avoid any adverse impact on the business of the Funds.
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the
"Euro." It is anticipated that each such participating country will
replace its existing currency with the Euro on January 1, 1999.
Additional European countries may elect to participate after that date.
If a Fund is invested in securities of participating countries, it could
be adversely affected if the computer systems used by its major service
providers are not properly prepared to handle the implementation of this
single currency or the adoption of the Euro by additional countries in
the future. Each Fund is taking steps to obtain satisfactory assurances
that its major service providers are taking steps reasonably designed to
address these matters with respect to the computer systems that such
service providers use. There can be no assurances that these steps will
be sufficient to avoid any adverse impact on the business of the Funds.
[glossary continued]
C-E
Cost basis
- ------------------------------------------------------------------------
The original purchase price of an investment, used in determining
capital gains and losses.
Currency exchange rates
- ------------------------------------------------------------------------
The price at which one country's currency can be converted into
another's. This exchange rate varies almost daily according to a wide
range of political, economic and other factors.
Depreciation
- ------------------------------------------------------------------------
A decline in an investment's value.
Diversification
- ------------------------------------------------------------------------
The process of spreading investments among a number of different
securities, asset classes or investment styles to reduce the risks of
investing.
[glossary to be continued]
[sidebar]
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio Service agent Distributor
managers Delaware Service Company, Inc. Delaware Distributors, L.P.
(see page X 1818 Market Street 1818 Market Street
for details) Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors
which has oversight responsibility for the management of the fund's
business affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the performance of
the investment manager, the distributor and others that perform services
for the fund. At least 40% of the board of directors must be independent
of the fund's investment manager or distributor. These independent fund
directors, in particular, are advocates for shareholder interests.
Custodian Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified bank
custodian who segregates fund securities from other bank assets.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager places
portfolio orders with broker/dealers and is responsible for obtaining
the best overall execution of those orders. A written contract between a
mutual fund and its investment manager specifies the services the
manager performs. Most management contracts provide for the manager to
receive an annual fee based on a percentage of the fund's average net
assets. The manager is subject to numerous legal restrictions,
especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment
manager to make investment decisions for individual portfolios on a day-
to-day basis.
Service agent Mutual fund companies employ service agents (sometimes
called transfer agents) to maintain records of shareholder accounts,
calculate and disburse dividends and capital gains and prepare and mail
shareholder statements and tax information, among other functions. Many
service agents provide customer service to shareholders, as well.
Distributor Most mutual funds continuously offer new shares to the
public through distributors who are regulated as broker-dealers and are
subject to National Association of Securities Dealers, Inc. (NASD) rules
governing mutual fund sales practices.
Financial advisers Financial advisers provide investment advice to
their clients, analyzing their financial objectives and recommending
appropriate funds or other investments. Financial advisers are
compensated for their services, generally through sales commissions, and
through 12b-1 and/or service fees deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund
shareholders have specific voting rights, including the right to elect
directors. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change
fundamental investment objectives or policies must also seek shareholder
approval.
[glossary continued]
Dividend distribution
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of dividends passed along from the
fund's portfolio of securities.
Duration
- ------------------------------------------------------------------------
A measurement of a fixed-income investment's price volatility. The
larger the number, the greater the likely price change for a given
change in interest rates.
Expense ratio
- ------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of
its total net assets. Operating expenses are the costs of running a
mutual fund, including management fees, offices, staff, equipment and
expenses related to maintaining the fund's portfolio of securities. They
are paid from the fund's assets before any earnings are distributed to
shareholders.
[glossary to be continued]
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because
each share class has a different combination of sales charges, fees, and
other features, you should consult your financial adviser to determine
which class best suits your investment goals and time frame.
Choosing a share class
Class A
[bullet] Class A shares have an up-front sales charge of up to 5.75% that
you pay when you buy the shares. The offering price for Class A
shares includes the front-end sales charge.
[bullet] If you invest $50,000 or more, your front-end sales charge will be
reduced.
[bullet] You may qualify for other reduced sales charges, as described in
"How to reduce your sales charge," and under certain circumstances
the sales charge may be waived; please see the Statement of
Additional Information.
[bullet] Class A shares are also subject to an annual 12b-1 fee no greater
than 0.30% of average daily net assets, which is lower than the 12b-1
fee for Class B and Class C shares.
[bullet] Class A shares generally are not subject to a contingent deferred
sales charge.
Class B
[bullet] Class B shares have no up-front sales charge, so the full amount of
your purchase is invested in the appropriate Fund. However, you will
pay a contingent deferred sales charge if you redeem your shares
within six years after you buy them.
[bullet] If you redeem Class B shares during the first year after you buy
them, the shares will be subject to a contingent deferred sales
charge of 5%. The contingent deferred sales charge is 4% during the
second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year, and 0% thereafter.
[bullet] Under certain circumstances the contingent deferred sales charge
may be waived; please see the Statement of Additional Information.
[bullet] For approximately eight years after you buy your Class B shares, they
are subject to annual 12b-1 fees no greater than 1% of average daily
net assets, of which 0.25% are service fees paid to the distributor,
dealers or others for providing services and maintaining shareholder
accounts.
[bullet] Because of the higher 12b-1 fees, Class B shares have higher expenses
and any dividends paid on these shares are lower than dividends on
Class A shares.
[bullet] Approximately eight years after you buy them, Class B shares
automatically convert into Class A shares with a 12b-1 fee of no more
than 0.30%.
[bullet] You may purchase up to $250,000 of Class B shares at any one time.
The limitation on maximum purchases varies for retirement plans.
[glossary continued]
F-M
Financial adviser
- ------------------------------------------------------------------------
Financial professional (e.g., broker, banker, accountant, planner or
insurance agent) who analyzes clients' finances and prepares
personalized programs to meet objectives.
Fixed-income securities
- ------------------------------------------------------------------------
With fixed-income securities, the money you originally invested is
returned to you at a prespecified maturity date. These securities, which
include government, corporate or municipal bonds, as well as money
market securities, typically pay a fixed rate of return.
[glossary to be continued]
Class C
[bullet] Class C shares have no up-front sales charge, so the full amount of
your purchase is invested in the appropriate Fund. However, you will
pay a contingent deferred sales charge if you redeem your shares
within 12 months after you buy them.
[bullet] Under certain circumstances the contingent deferred sales charge may
be waived; please see the Statement of Additional Information.
[bullet] Class C shares are subject to an annual 12b-1 fee which may not be
greater than 1% of average daily net assets, of which 0.25% are
service fees paid to the distributor, dealers or others for providing
personal services and maintaining shareholder accounts.
[bullet] Because of the higher 12b-1 fees, Class C shares have higher expenses
and pay lower dividends than Class A shares.
[bullet] Unlike Class B shares, Class C shares do not automatically convert
into another class.
[bullet] You may purchase any amount less than $1,000,000 of Class C shares at
any one time. The limitation on maximum purchases varies for
retirement plans.
<TABLE>
<CAPTION>
Class A Sales Charges
Sales charge as % Sales charge as % Dealer's commission
Amount of purchase of offering price of amount invested as % of offering price
Decatur Growth
Equity and
Income Income
Fund Fund
<S> <C> <C> <C> <C>
Less than $50,000 5.75% X.XX% X.XX% 5.00%
$50,000 but 4.75% X.XX% X.XX% 4.00%
under $100,000
$100,000 but
under $250,000 3.75% X.XX% X.XX% 3.00%
$250,000 but
under $500,000 2.50% X.XX% X.XX% 2.00%
$500,000 but
under $1 million 2.00% X.XX% X.XX% 1.60%
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1
million or more of Class A shares. However, if your financial adviser is
paid a commission on your purchase, you may have to pay a limited
contingent deferred sales charge of 1% if you redeem these shares within
the first year and 0.50% if you redeem them within the second year.
<TABLE>
<CAPTION>
Sales charge as % Sales charge as % Dealer's commission
Amount of purchase of offering price of amount invested as % of offering price
Decatur Growth
Equity and
Income Income
Fund Fund
<S> <C> <C> <C> <C>
$1,000,000 up to
$5 million none none none 1.00
Next $20 million
up to $25 million none none none 0.50
Amount over $25
million none none none 0.25
</TABLE>
[glossary continued]
Inflation
- ------------------------------------------------------------------------
The increase in the cost of goods and services over time. U.S. inflation
is measured by the Consumer Price Index (CPI).
Investment goal
- ------------------------------------------------------------------------
The objective, such as long-term capital growth or high current income,
that a mutual fund pursues.
Investment grade
- ------------------------------------------------------------------------
A bond with a "bond" rating in one of the four highest ratings
categories by an NRSRO or, if unrated, that the manager believes is of
comparable quality.
Management fee
- ------------------------------------------------------------------------
The amount paid by a mutual fund to the investment adviser for
management services, expressed as a percentage of the fund's net assets.
[glossary to be continued]
About your account continued
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on
shares. Please refer to the Statement of Additional Information for
detailed information and eligibility requirements. You can also get
additional information from your financial adviser. You or your
financial adviser must notify us at the time you purchase shares if you
are eligible for any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share class
Program How it works A B C
- ------------------------------------------------------------------------------------
Letter of Intent Through a Letter of Intent X Although the
you agree to invest a Letter of Intent
certain amount in Delaware and Rights of
Investment Funds (except Accumulation do
money market funds with no not apply to the
sales charge) over a 13-month purchase of Class
period to qualify for reduced B and C shares,
front-end sales charges. you can combine
your purchase of
Class B and C
shares to fulfill
your Letter of
Intent or qualify
for Rights of
Accumulation.
- ------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings X
of all funds in the Delaware
Investments family (except
money market funds with no
sales charge) as well as the
holdings of your spouse and
children under 21 to qualify
for reduced front-end sales
charges.
- ------------------------------------------------------------------------------------
Reinvestment of Redeemed Up to 12 months after you X
Shares redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, These investment plans may X
SARSEP, Prototype Profit qualify for reduced sales
Sharing, Pension, charges by combining the
SIMPLE 401(k), 403(b)(7), purchases of all members
and 457 Retirement Plans of the group. Members of
these groups may also qualify
to purchase shares without a
front-end sales charge and a
waiver of any contingent
deferred sales charges.
- ------------------------------------------------------------------------------------
</TABLE>
[glossary continued]
M-P
Market capitalization
- ------------------------------------------------------------------------
The value of a corporation determined by multiplying the current market
price of a share of common stock by the number of shares held by
shareholders. A corporation with one million shares outstanding and the
market price per share of $10 has a market capitalization of $10
million.
Maturity
- ------------------------------------------------------------------------
The length of time until a bond issuer must repay the underlying loan
principal to bondholders.
NASD (National Association of Securities Dealers)
- ------------------------------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the
actions of its members.
[glossary to be continued]
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to
the fund and class of shares you wish to purchase to Delaware
Investments, 1818 Market Street, Philadelphia, PA 19103. If you are
making an initial purchase by mail, you must include a completed
investment application, or an appropriate retirement plan application if
you are opening a retirement account, with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank,
ABA #031201467, Bank Account number 2014128934013. Include your account
number and the name of the fund in which you want to invest. If you are
making an initial purchase by wire, you must call us so we can assign an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in
the Delaware Investments family for shares of other funds in the family.
Please keep in mind, however, that you may not exchange Class A shares
for Class B or Class C shares. To open an account by exchange, call the
Shareholder Service Center at 800-523-1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated
telephone service, or through our web site, www.delawarefunds.com. For
more information about how to sign up for these services, call our
Shareholder Service Center at 800-523-1918.
[glossary continued]
NAV (Net asset value)
- ------------------------------------------------------------------------
The daily dollar value of one mutual fund share. Equal to a fund's net
assets divided by the number of shares outstanding.
NRSRO (Nationally recognized statistical rating organization)
- ------------------------------------------------------------------------
A company that assesses the quality and potential performance of bonds,
commercial paper, preferred and common stocks and municipal short-term
issues, rating the probability that the issuer of the debt will meet the
scheduled interest payments and repay the principal. Ratings are
published by such companies as Moody's Investors Service (Moody's),
Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Preferred stock
- ------------------------------------------------------------------------
Preferred stock has preference over common stock in the payment of
dividends and liquidation of assets. Preferred stocks also pay dividends
at a fixed rate.
[glossary to be continued]
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an
initial investment of $1,000, and make additional investments at any
time for as little as $100. If you are buying shares in an IRA or Roth
IRA; under the Uniform Gifts to Minors Act or the Uniform Transfers to
Minors Act; or through an Automatic Investing Plan, the minimum purchase
is $250, and you can make additional investments of only $25. If you are
buying shares in an Education IRA, the minimum purchase is $500, and
you can made additional investments of only $25. The minimums vary for
retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your
purchase order. If we or an authorized agent receives your order before
the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on a business day, you will pay that day's closing share
price which is based on the Fund's net asset value. If we receive your
order after the close of trading, you will pay the next business day's
price. A business day is any day that the New York Stock Exchange is
open for business. We reserve the right to reject any purchase order.
We determine the Funds' net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the
Exchange is open. We calculate this value by adding the market value of
all the securities and assets in a Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. We price
securities and other assets for which market quotations are available at
their market value. We price debt securities on the basis of valuations
provided to us by an independent pricing service that uses methods
approved by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the
board of directors.
[glossary continued]
P-S
Price/earnings ratio
- ------------------------------------------------------------------------
A measure of a stock's value calculated by dividing the current market
price of a share of stock by its annual earnings per share. A stock
selling for $100 per share with annual earnings of $5 has a P/E of 20.
Principal
- ------------------------------------------------------------------------
Amount of money you invest. Also refers to a bond's original face value,
due to be repaid at maturity.
Prospectus
- ------------------------------------------------------------------------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives,
policies, services and fees.
[glossary to be continued]
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your
shares. Your adviser may charge a fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by
writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA
19103. All owners of the account must sign the request, and for
redemptions of $50,000 or more, you must include a signature guarantee
for each owner. Signature guarantees are also required when redemption
proceeds are going to anyone other than the account holder(s) of record.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have
the proceeds sent to you by check, or if you redeem at least $1,000 of
shares, you may have the proceeds sent directly to your bank by wire.
Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds
deposited directly to your bank account the next business day after we
receive your request. If you request a wire deposit, the First Union
Bank fee (currently $7.50) will be deducted from your proceeds. Bank
information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone
service, or through our web site, www.delawarefunds.com. For more
information about how to sign up for these services, call our
Shareholder Service department at 800-523-1918.
[glossary continued]
Redeem
- ------------------------------------------------------------------------
To cash in your shares by selling them back to the mutual fund.
Risk
- ------------------------------------------------------------------------
Generally defined as variability of value; also credit risk, inflation
risk, currency and interest rate risk. Different investments involve
different types and degrees of risk.
S&P 500 Index
- ------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of
500 widely held common stocks that is often used to represent
performance of the U.S. stock market.
Sales charge
- ------------------------------------------------------------------------
Charge on the purchase of fund shares sold through financial advisers.
May vary with the amount invested. Typically used to compensate advisers
for advice and service provided.
[glossary to be continued]
About your account continued
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the
certificates with your request to sell the shares. We recommend that you
send your certificates by certified mail.
When you send us a properly completed request to redeem or exchange
shares, you will receive the net asset value as determined at the close
of business on the day we receive your request. We will deduct any
applicable contingent deferred sales charges. You may also have to pay
taxes on the proceeds from your sale of shares. We will send you a
check, normally the next business day, but no later than seven days
after we receive your request to sell your shares. If you purchased your
shares by check, we will wait until your check has cleared, which can
take up to 15 days, before we honor your request to sell these shares.
If you are required to pay a contingent deferred sales charge when you
redeem your shares, the amount subject to the fee will be based on the
shares' net asset value when you purchased them or their net asset value
when you redeem them, whichever is less. This arrangement assures that
you will not pay a contingent deferred sales charge on any increase in
the value of your shares. You also will not pay the charge on any shares
acquired by reinvesting dividends or capital gains. If you exchange
shares of one fund for shares of another, and later redeem those shares,
the purchase price for purposes of the contingent deferred sales charge
formula will be the price you paid for the original shares not the
exchange price. The redemption price for purposes of this formula will
be the NAV of the shares you are actually redeeming.
Account Minimum
If you redeem shares and your account balance falls below the required
account minimum of $1,000 ($250 for IRAs and Roth IRAs, Uniform Gift to
Minors Act accounts or accounts with automatic investing plans, and $500
for Education IRAs) for three or more consecutive months, you will have
until the end of the current calendar quarter to raise the balance to
the minimum. If your account is not at the minimum by the required time,
you will be charged a $9 fee for that quarter and each quarter after
that until your account reaches the minimum balance. If your account
does not reach the minimum balance, your Fund may redeem your account
after 60 days' written notice to you.
[glossary continued]
S-S
SEC (Securities and Exchange Commission)
- ------------------------------------------------------------------------
Federal agency established by Congress to administer the laws governing
the securities industry, including mutual fund companies.
Share classes
- ------------------------------------------------------------------------
Different classifications of shares; mutual fund share classes offer a
variety of sales charge choices.
Signature guarantee
- ------------------------------------------------------------------------
Certification by a bank, brokerage firm or other financial institution
that a customer's signature is valid.
[glossary to be continued]
Special services
To help make investing with us as easy as possible, and to help you
build your investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly
investments directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions or direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly
exchanges from your shares in one or more Delaware Investments funds
into any other Delaware Investments fund. Wealth Builder Exchanges are
subject to the same rules as regular exchanges and require a minimum
monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in
the Delaware Investments family. The shares that you purchase through
the Dividend Reinvestment Plan are not subject to a front-end sales
charge or to a contingent deferred sales charge.
[glossary continued]
Standard deviation
- ------------------------------------------------------------------------
A measure of an investment's volatility; for mutual funds, measures how
much a fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- ------------------------------------------------------------------------
The document serving as "Part B" of a fund's prospectus that provides
more detailed information about the fund's organization, investments,
policies and risks.
Stock
- ------------------------------------------------------------------------
An investment that represents a share of ownership (equity) in a
corporation. Stocks are often referred to as "equities."
[glossary to be continued]
About your account (continued)
Special services (continued)
Exchanges
You can exchange all or part of your shares for shares of the same class
in another Delaware Investments fund without paying a sales charge and
without paying a contingent deferred sales charge on the shares of the
fund from which you make your exchange. However, if you exchange shares
from a money market fund that does not have a sales charge you will pay
any applicable sales charges on your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When exchanging
Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred
sales charge as the shares you originally purchased. The holding period
for the CDSC will also remain the same, with the amount of time you held
your original shares being credited toward the holding period of your
new shares. When you exchange shares, you are purchasing shares in
another fund so you should be sure to get a copy of the fund's
prospectus and read it carefully before buying shares through an
exchange.
MoneyLineSM On Demand Service
Through our MoneylineSM On Demand Service, you or your financial adviser
may transfer money from your Fund account to your predesignated bank
account by telephone request. This service is not available for
retirement plans.
MoneyLineSM Direct Deposit Service
Through our MoneylineSM Direct Deposit Service you can have $25 or more
in dividends and distributions deposited directly to your bank account.
Delaware Investments does not charge a fee for this service; however,
your bank may assess one. This service is not available for retirement
plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly
or quarterly payment from your account made to you or someone you
designate. If the value of your account is $5,000 or more, you can make
withdrawals of at least $25 monthly, or $75 quarterly. You may also have
your withdrawals deposited directly to your bank account through our
MoneylineSM Direct Deposit Service.
[glossary continued]
T-V
Total return
- ------------------------------------------------------------------------
An investment performance measurement, expressed as a percentage, based
on the combined earnings from dividends, capital gains and change in
price over a given period.
[glossary to be continued]
Dividends, distributions and taxes
For Decatur Equity Income Fund dividends, if any, are paid monthly,
while any capital gains are distributed annually. For Growth and Income
Fund dividends, if any, are paid quarterly, while any capital gains are
distributed annually. We automatically reinvest all dividends and any
capital gains, unless you tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be affected
by current tax law. The tax status of your dividends from these Funds is
the same whether you reinvest your dividends or receive them in cash.
Distributions from a Fund's long-term capital gains are taxable as
capital gains, while distributions from short-term capital gains and net
investment income are generally taxable as ordinary income. Any capital
gains may be taxable at different rates depending on the length of time
the Fund held the assets. In addition, you may be subject to state and
local taxes on distributions.
We will send you a statement each year by January 31 detailing the
amount and nature of all dividends and capital gains that you were paid
for the prior year.
Retirement plans
In addition to being an appropriate investment for your Individual
Retirement Account (IRA), Roth IRA and Education IRA, shares in the
Funds may be suitable for group retirement plans. You may establish your
IRA account even if you are already a participant in an employer-
sponsored retirement plan. For more information on how shares in these
Funds can play an important role in your retirement planning or for
details about group plans, please consult your financial adviser, or
call 800-523-1918.
[glossary continued]
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- ------------------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to
a minor with special tax advantages.
Volatility
- ------------------------------------------------------------------------
The tendency of an investment to go up or down in value by different
magnitudes. There are "low volatility" and "high volatility"
investments.
[end glossary]
Financial highlights
The financial highlights table is intended to help you understand
Decatur Income Fund's financial performance for the past five years. All
"per share" information reflects financial results for a single Fund
share. This information has been audited by Ernst & Young LLP, whose
report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800-
523-1918.
<TABLE>
<CAPTION>
Class A Shares
- ------------------------------------------------------------------------------------
Year Ended 10/31
Decatur Equity Income Fund 1998 (1) 1997 (1) 1996 (1) 1995 (1) 1994 (1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 21.320 19.070 15.570 18.240
Income From Investment
Operations
Net investment income ($) 0.000 0.600 0.650 0.700 0.670
Net realized & unrealized gains
(losses) on investments ($) 0.000 3.940 3.630 3.910 (0.730)
Total from investment
operations ($) 0.000 4.540 4.280 4.610 (0.060)
Less Distributions
Dividends from net investment
income ($) (0.000) (0.600) (0.690) (0.690) (0.860)
Distributions from realized
gains ($) (0.000) (2.680) (1.340) (0.420) (1.750)
Total distributions ($) (0.000) (3.280) (2.030) (1.110) (2.610)
Net asset value, end of
period ($) 00.000 22.580 21.320 19.070 15.570
Total Return (%)(2) 00.00 24.78 24.47 31.02 (0.57)
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000,000 1,906,726 1,616,315 1,382,693 1,153,884
Ratio of expenses to average
daily net assets (%) 0.00 0.88 0.85 0.87 0.81
Ratio of net investment income
to average daily net assets (%) 0.00 2.87 3.400 4.030 3.920
Portfolio turnover rate (%) 00 90 101 74 92
Volatility, as indicated by
year-to-year total return (%) 00.00 24.78 24.47 31.02 (0.57)
- ------------------------------------------------------------------------------------
</TABLE>
1 The data appearing above reflects 12b-1 distribution expenses that
apply on and after May 2, 1994.
2 Does not reflect the maximum sales charge of 5.75%, nor the Limited
CDSC that varies from 0.50% to 1% that would apply in the event of
certain redemptions within two years of purchase for Class A Shares.
<TABLE>
<CAPTION>
Class B Shares
- ------------------------------------------------------------------------------------
Year Ended 10/31 Period
9/6/94 (1)
through
Decatur Equity Income Fund 1998 1997 1996 1995 11/30/94
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 21.260 19.030 15.550 16.590
Income From Investment
Operations
Net investment income ($) 0.000 0.450 0.500 0.560 0.150
Net realized & unrealized gains
(losses) on investments ($) 0.000 3.900 3.610 3.890 (1.020)
Total from investment
operations ($) 0.000 4.350 4.110 4.450 (0.870)
Less Distributions
Dividends from net investment
income ($) (0.000) (0.450) (0.540) (0.550) (0.170)
Distributions from realized
gains ($) (0.000) (2.680) (1.340) (0.420) None
Total distributions ($) (0.000) (3.130) (1.880) (0.970) (0.170)
Net asset value, end of
period ($) 00.000 22.480 21.260 19.030 15.550
Total Return (%)(3) 00.00 23.73 23.43 29.85 (5.27)
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 00,000 123,180 60,689 19,665 2,765
Ratio of expenses to average
daily net assets (%) 0.00 1.68 1.69 1.74 1.70
Ratio of net investment income
to average daily net assets (%) 0.00 2.07 2.56 3.16 3.03
Portfolio turnover rate (%) 00 90 101 74 92
Volatility, as indicated by
year-by-year total return (%) 00.00 23.73 23.43 29.85 (5.27)
- ------------------------------------------------------------------------------------
Class C Shares
- ------------------------------------------------------------------------------------
Year Ended 10/31 Period
11/29/95 (2)
through
Decatur Equity Income Fund 1998 1997 1996 11/30/95
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 21.330 19.080 19.150
Income From Investment
Operations
Net investment income ($) 0.000 0.460 0.510 0.040
Net realized & unrealized gains
(losses) on investments ($) 0.000 3.910 3.630 (0.060)
Total from investment
operations ($) 0.000 4.370 4.140 (0.020)
Less Distributions
Dividends from net investment
income ($) (0.000) (0.450) (0.550) (0.050)
Distributions from realized
gains ($) (0.000) (2.680) (1.340) None
Total distributions ($) (0.000) (3.130) (1.890) (0.050)
Net asset value, end of
period ($) 00.000 22.570 21.330 19.080
Total Return (%)(3) 00.00 23.75 23.47 (4)
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 00,000 15,343 4,833 5
Ratio of expenses to average
daily net assets (%) 0.00 1.68 1.69 (4)
Ratio of net investment income
to average daily net assets (%) 0.00 2.07 2.56 (4)
Portfolio turnover rate (%) 00 90 101 (4)
Volatility, as indicated by
year-by-year total return (%) 00.00 23.75 23.47
- ------------------------------------------------------------------------------------
</TABLE>
1 Date of initial public offering; ratios have been annualized but total
return has not been annualized.
2 Date of initial public offering.
3 For Class B shares: does not reflect the contingent deferred sales
charge which varies from 1%-5% depending upon the holding period. For
Class C shares: does not reflect the1% contingent deferred sales
charge on redemptions within 12 months from the date of purchase.
4 The ratios of expenses and net investment income to average daily net
assets have been omitted as management believes that such ratios,
portfolio turnover and total return for this relatively short period
are not meaningful.
How to read the financial highlights
Net investment income
- ------------------------------------------------------------------------
Net investment income includes dividend and interest income earned from
the Fund's securities after expenses have been deducted.
Net gains (losses) on investments (both realized and unrealized)
- ------------------------------------------------------------------------
A realized gain occurs when we sell an investment at a profit, while a
realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we
record an unrealized gain or loss. The amount of realized gain per share
that we pay to shareholders is listed under "Less Distributions-
Distributions from realized gains."
Realized gains
- ------------------------------------------------------------------------
Profits realized from the sale of securities.
Net asset value (NAV)
- ------------------------------------------------------------------------
This is the value of a mutual fund share, calculated by dividing the net
assets by the number of shares outstanding.
Total return
- ------------------------------------------------------------------------
This represents the percentage increase or decrease in the value of a
share of a fund during specific periods, in this case, annual periods.
In calculating this figure for the financial highlights table, we
include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and
realized gains.
Net assets
- ------------------------------------------------------------------------
Net assets represent the total value of all the assets in the Fund's
portfolio, less any liabilities, that are attributable to that class of
the Fund.
(continues on page X)
Financial highlights (continued)
The financial highlights table is intended to help you understand Growth
and Income Fund's financial performance for the past five years. All
"per share" information reflects financial results for a single Fund
share. This information has been audited by Ernst & Young LLP, whose
report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800-
523-1918.
<TABLE>
<CAPTION>
Class A Shares
- ------------------------------------------------------------------------------------
Year Ended 10/31
Growth and Income Fund 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 17.520 15.610 12.320 14.380
Income From Investment
Operations
Net investment income ($) 0.000 0.280 0.340 0.370 0.370
Net realized & unrealized gains
(losses) on investments ($) 0.000 3.610 3.210 3.700 (0.340)
Total from investment
operations ($) 0.000 3.890 3.550 4.070 0.030
Less Distributions
Dividends from net investment
income ($) (0.000) (0.330) (0.350) (0.360) (0.430)
Distributions from realized
gains ($) (0.000) (1.850) (1.290) (0.420) (1.660)
Total distributions ($) (0.000) (2.180) (1.640) (0.780) (2.090)
Net asset value, end of
period ($) 00.000 19.230 17.520 15.610 12.320
Total Return (%)(1) 00.00 25.26 24.89 34.680 (0.040)
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000,000 863,855 670,912 534,342 402,849
Ratio of expenses to average
daily net assets (%) 0.00 1.13 1.11 1.19 1.26
Ratio of net investment income
to average daily net assets (%) 0.00 1.60 2.21 2.72 2.88
Portfolio turnover rate (%) 00 69 87 81 74
Volatility, as indicated by
year-by-year total return (%) 00.00 25.26 24.89 34.680 (0.040)
- ------------------------------------------------------------------------------------
</TABLE>
1 Does not reflect the maximum sales charge of 5.75%, nor the Limited
CDSC that varies from 0.50% to 1% that would apply in the event of
certain redemptions within two years of purchase for Class A Shares.
<TABLE>
<CAPTION>
Class B Shares
- ------------------------------------------------------------------------------------
Year Ended 10/31 Period
9/6/94 (1)
through
Growth and Income Fund 1998 1997 1996 1995 10/31/94
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 17.460 15.560 12.310 13.110
Income From Investment
Operations
Net investment income ($) 0.000 0.170 0.230 0.300 0.120
Net realized & unrealized gains
(losses) on investments ($) 0.000 3.600 3.200 3.670 (0.820)
Total from investment
operations ($) 0.000 3.770 3.430 3.970 (0.700)
Less Distributions
Dividends from net investment
income ($) (0.000) (0.180) (0.240) (0.300) (0.10)
Distributions from realized
gains ($) (0.000) (1.850) (1.290) (0.420) None
Total distributions ($) (0.000) (2.030) (1.530) (0.720) (0.10)
Net asset value, end of
period ($) 00.000 19.200 17.460 15.560 12.310
Total Return (%)(3) 00.00 24.45 24.01 33.79 (5.37)
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 00,000 135,737 53,467 14,745 1,738
Ratio of expenses to average
daily net assets (%) 0.00 1.83 1.81 1.89 1.96
Ratio of net investment income
to average daily net assets (%) 0.00 0.90 1.53 2.02 2.18
Portfolio turnover rate (%) 00 69 87 81 74
Volatility, as indicated by
year-by-year total return (%) 00.00 24.45 24.01 33.79 (5.37)
- ------------------------------------------------------------------------------------
Class C Shares
- ------------------------------------------------------------------------------------
Year Ended 10/31 Period
11/29/95 (2)
through
Growth and Income Fund 1998 1997 1996 10/31/96
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 17.430 15.610 15.610
Income From Investment
Operations
Net investment income ($) 0.000 0.170 0.330 None
Net realized & unrealized gains
(losses) on investments ($) 0.000 3.590 3.100 None
Total from investment
operations ($) 0.000 3.760 3.430 None
Less Distributions
Dividends from net investment
income ($) (0.000) (0.180) (0.320) None
Distributions from realized
gains ($) (0.000) (1.850) (1.290) None
Total distributions ($) (0.000) (2.030) (1.610) None
Net asset value, end of
period ($) 00.000 19.160 17.430 15.610
Total Return (%)(3) 00.00 24.44 24.04 (4)
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 00,000 26,231 7,591 5
Ratio of expenses to average
daily net assets (%) 0.00 1.83 1.81 (4)
Ratio of net investment income
to average daily net assets (%) 0.00 0.90 1.53 (4)
Portfolio turnover rate (%) 00 69 87 (4)
Volatility, as indicated by
year-by-year total return (%) 00.00 24.44 24.04
- ------------------------------------------------------------------------------------
</TABLE>
1 Date of initial public offering; ratios have been annualized but total
return has not been annualized.
2 Date of initial public offering.
3 Does not include any CDSC which varies from 1% to 5%, depending on the
holding period for Class B shares and 1% for Class C shares for shares
redeemed within 1 year from date of purchase.
4 The ratios of expenses and net investment income to average daily net
assets have been omitted as management believes that such ratios,
portfolio turnover and total return for this relatively short period
are not meaningful.
How to read the financial highlights
(begins on page X)
Ratio of expenses to average daily net assets
- ------------------------------------------------------------------------
The expense ratio is the percentage of total investment that a fund pays
annually for operating expenses and management fees. These expenses
include accounting and administration expenses, services for
shareholders, and similar expenses.
Ratio of net investment income to average daily net assets
- ------------------------------------------------------------------------
We determine this ratio by dividing net investment income by average net
assets.
Portfolio turnover rate
- ------------------------------------------------------------------------
This figure tells you the amount of trading activity in a fund's
portfolio. For example, a fund with a 50% turnover rate has bought and
sold half of the value of its total investment portfolio during the
stated period.
[back cover]
Decatur Equity Income Fund
Growth and Income Fund
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds'
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Funds' performance
during their last fiscal year. You can find more detailed information
about the Funds in the current Statement of Additional Information,
which we have filed electronically with the Securities and Exchange
Commission (SEC) and which is legally a part of this prospectus. If you
want a free copy of the Statement of Additional Information, the annual
or semi-annual report, or if you have any questions about investing in
these funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103, or call toll-free 800-523-1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC
web site (http://www.sec.gov), or you can get copies of this
information, after payment of a duplicating fee, by writing to the
Public Reference Section of the SEC, Washington, D.C. 20549-6009.
Information about the Funds, including their Statement of Additional
Information, can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1-800-
SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800-523-1918
Call the Shareholder Service Center:
Monday to Friday, 8 a.m. to 8 p.m. Eastern time.
For fund information; literature; price, yield and performance figures.
For information on existing regular investment accounts and retirement
plan accounts including wire investments; wire redemptions; telephone
redemptions and telephone exchanges.
Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance
information on all Delaware Investment Funds seven days a week, 24 hours
a day, use this Touch-ToneR service.
Registrant's Investment Company Act file number: 811-750
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
P-002 [--] PP 12/98
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Decatur Equity Income Fund
Growth and Income Fund
Institutional Classes
Prospectus January 29, 1999
Total Return Funds
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
[inside front cover]
Table of Contents
Fund profiles page
Decatur Equity Income Fund
Growth and Income Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Who's who? page
About your account page
Investing in the Funds
Institutional Class shares
How to buy shares
How to redeem shares
Dividends, distributions and taxes
Financial highlights page
[sidebar copy at bottom of page]
How to use this prospectus
Here are guidelines to help you use this prospectus to make well-
informed investment decisions about our funds. If you're looking for a
specific piece of information, the table of contents can guide you
directly to the appropriate section.
Step 1
- ------------------------------------------------------------------------
Take a look at the fund profiles for an overview of each Fund.
Step 2
- ------------------------------------------------------------------------
Learn in-depth information about how the Funds invest, the risks
involved and the people and organizations responsible for the Funds'
day-to-day operations.
Step 3
- ------------------------------------------------------------------------
Determine which fund features and services you would like to take
advantage of.
Step 4
- ------------------------------------------------------------------------
Use the glossary that begins on page x to find definitions of words
printed in bold type throughout the prospectus.
Investing for total return...
Investors with long-term goals often choose mutual funds designed to
provide total return. These funds provide moderate growth potential as
well as some current income. They generally involve less risk than
aggressive stock funds but more risk than bond funds. Like all mutual
funds, total return funds allow you to invest conveniently in a
diversified portfolio without having to select and monitor individual
securities on your own.
with Delaware Investments
Your personal financial adviser, working with Delaware Investments, can
help you define, evaluate and set your personal investment objectives.
Your adviser can also explain the role total return funds like Decatur
Equity Income Fund and the Growth and Income Fund can play in a long-
term investment program designed to meet your goals.
The Delaware Investments family includes a full range of mutual funds-
including total return funds-designed to fit your particular investment
needs. With 70 years of investment management experience, we follow
time-tested strategies that emphasize long-term performance and
consistent application of investment disciplines. Today, as part of the
Lincoln Financial Group, a $105 billion financial services complex,
Delaware Investments has access to a variety of experienced and talented
investment managers. We are dedicated to working closely with financial
advisers to bring investors the highest quality investment management
and services.
["House" graphic, with total return "room" highlighted]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Growth Equity Funds
International and Global Funds
Asset Allocation Funds
[Table Highlighted] Moderate Growth Equity Funds for...
Total Return
These stock-oriented funds provide moderate growth potential as well as
some current income, with less risk than aggressive stock funds but more
risk than bond funds.
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
Profile: Decatur Equity Income Fund
What are the Fund's goals?
Decatur Equity Income Fund seeks to provide the highest possible current
income by investing primarily in common stocks that provide the
potential for income and capital appreciation without undue risk to
principal. Although the Fund will strive to achieve its goals, there is
no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in dividend-paying stocks of large, well-established
companies. Typically, we consider buying a stock when its dividend
yield is higher than the average of the unmanaged S&P 500 Composite
Stock Price Index. The manager then considers the financial strength of
the company, the nature of its management and any developments affecting
the security, the company or its industry. If the yield on a stock
already in the portfolio falls below the average of the S&P 500, we
generally sell that stock.
Decatur Equity Income Fund also may invest up to 15% of its net assets
in high-yield, higher risk corporate bonds, commonly known as junk
bonds. These bonds involve the risk that the issuing company may be
unable to pay interest or repay principal. However, they can offer high
income potential which we believe can make a positive contribution to
the Fund's performance.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be affected by changes in stock and
bond prices. An investment in the Fund is not a deposit of any bank and
is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. For a more complete
discussion of risk, please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors looking for growth potential combined with regular
income.
[bullet] Investors looking for supplemental monthly income from an
investment that also offers possible protection against
inflation.
Who should not invest in the Fund
[bullet] Investors with short-term financial goals.
[bullet] Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly, over the short term.
[bullet] Investors seeking an investment primarily in fixed income
securities.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has the Decatur Equity Income Fund performed?
This bar chart and table can help you evaluate the potential risks and
rewards of investing in Decatur Equity Income Fund. We show how returns
for the Decatur Equity Income Fund's Institutional Class shares have
varied over the past ten calendar years, as well as average annual
returns of all shares for one, five, and ten years -- all compared to
the performance of the S&P 500 Index. Decatur Equity Income Fund's
Institutional Class commenced operations on January 13, 1994. Return
information for the Institutional Class for the periods prior to the
time the Institutional Class commenced operations is calculated by
taking the performance of Decatur Equity Income Fund A Class and
eliminating all sales charges that apply to Class A shares. However,
for those periods, Class A 12b-1 payments were not eliminated, and
performance would have been affected if this adjustment had been made.
You should remember that unlike the Fund, the index is unmanaged and
doesn't include the actual costs of buying, selling, and holding
securities. The Fund's past performance does not necessarily indicate
how it will perform in the future.
* Decatur Equity Income Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN
(INSTITUTIONAL CLASS) FPO]
Decatur Equity Income Fund S&P 500
1989
1990
1991
1992
1993
1994
1995
1996
1998
[bar chart]
Year-by-year total return (Institutional Class)
As of December 31, 1998, the Institutional Class had a year-to-date
return of XX%. During the ten years illustrated in this bar chart, the
Institutional Class' highest return in any quarter was XX% and its
lowest return in any quarter was XX%.
[table]
Average annual return as of 12/31/98
<TABLE>
<CAPTION>
Institutional Class S&P 500
<S> <C> <C> <C>
1 year 00.0% 00.0%
5 years 00.0% 00.0%
10 years 00.0% 00.0%
</TABLE>
What are Decatur Equity Income Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy
or sell shares of the Institutional Class.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price none
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
Maximum sales charge (load) imposed on
reinvested dividends none
Redemption fees none
Exchange fees (1) none
Annual fund operating expenses are deducted from the Fund's income or
assets before it pays dividends and before its total return is
calculated. We will not charge you separately for these expenses.
Management fees 00.0%
Distribution and service (12b-1) fees none
Other expenses 00.0%
Total operating expenses 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. 2 This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
1 year 00.0%
3 years 00.0%
5 years 00.0%
10 years 00.0%
1 Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you
exchange you shares for another fund.
2 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
Profile: Growth and Income Fund
What are the Fund's goals?
The Growth and Income Fund seeks long-term growth by investing primarily
in securities that provide the potential for income and capital
appreciation without undue risk to principal. Although the Fund will
strive to meet its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in dividend-paying stocks of large, well-established
companies. Typically, we consider buying a stock when its dividend
yield is higher than the average of the unmanaged S&P 500 Index. The
manager then considers the financial strength of the company, the nature
of its management and any developments affecting the security, the
company or its industry. If the yield on a stock already in the
portfolio falls below the average of the S&P 500, we generally sell that
stock.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be particularly affected by changes
in stock prices, which tend to fluctuate more than bond prices.
Moreover, an investment in the Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. For a more complete discussion of risk,
please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors seeking long-term capital appreciation.
[bullet] Investors seeking an investment primarily in common stocks.
[bullet] Investors seeking moderate quarterly income with the
opportunity for inflation protection.
Who should not invest in the Fund
[bullet] Investors seeking an investment primarily in fixed-income
securities.
[bullet] Investors with short-term financial goals.
[bullet] Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly over the short term.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has Growth and Income Fund performed?
This bar chart and table can help you evaluate the potential risks and
rewards of investing in Growth and Income Fund. We show how returns for
the Growth and Income Fund's Institutional Class shares have varied over
the past ten calendar years, as well as average annual returns of all
shares for one, five, and ten years -- all compared to the performance
of the S&P 500 Index. Growth and Income Fund's Institutional Class
commenced operations on July 26, 1993. Return information for the
Institutional Class for the periods prior to the time the Institutional
Class commenced operations is calculated by taking the performance of
Growth and Income Fund A Class and eliminating all sales charges that
apply to Class A shares. However, for those periods, Class A 12b-1
payments were not eliminated, and performance would have been affected
if this adjustment had been made. You should remember that unlike the
Fund, the index is unmanaged and doesn't include the actual costs of
buying, selling, and holding securities. The Fund's past performance
does not necessarily indicate how it will perform in the future.
* Growth and Income Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN
(INSTITUTIONAL CLASS) FPO]
Growth and Income Fund S&P 500
1989
1990
1991
1992
1993
1994
1995
1996
1998
[bar chart]
Year-by-year total return (Institutional Class)
As of December 31, 1998, the Institutional Class had a year-to-date
return of XX%. During the ten years illustrated in this bar chart, the
Institutional Class' highest return in any quarter was XX% and its
lowest return in any quarter was XX%.
[table]
Average annual return as of 12/31/98
<TABLE>
<CAPTION>
Institutional Class S&P 500
<S> <C> <C> <C>
1 year 00.0% 00.0%
5 years 00.0% 00.0%
10 years 00.0% 00.0%
</TABLE>
What are Growth and Income Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy
or sell shares of the Institutional Class.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price none
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
Maximum sales charge (load) imposed on
reinvested dividends none
Redemption fees none
Exchange fees (1) none
Annual fund operating expenses are deducted from the Fund's income or
assets before it pays dividends and before its total return is
calculated. We will not charge you separately for these expenses.
Management fees 00.0%
Distribution and service (12b-1) fees none
Other expenses 00.0%
Total operating expenses 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. 2 This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
1 year 00.0%
3 years 00.0%
5 years 00.0%
10 years 00.0%
1 Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you
exchange you shares for another fund.
2 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
How we manage the Funds
Our investment strategies
We first identify companies that have above-average dividend yields
compared to the unmanaged S&P 500 Index, a commonly used measure of U.S.
stocks. We then research individual companies and analyze economic and
market conditions, seeking to identify the securities that we think are
the best investments for each Fund. Following are descriptions of how
the portfolio manager pursues the Funds' investment goals.
We take a disciplined approach to investing, combining investment
strategies and risk management techniques that can help shareholders
meet their goals.
Growth and Income Fund
Growth and Income Fund is total return fund that invests primarily
stocks, but also in corporate bonds. It strives to provide high current
income and capital appreciation to its shareholders.
We invest primarily in the common stocks of established companies that
we believe have long-term total return potential. That is, they offer
both current income through dividends and capital growth potential
through increases in stock prices. Our focus on stocks with high
dividend yields is generally considered to be a value-oriented
investment approach.
To help supplement the dividend income provided by the stocks in the
portfolio, the Fund may also invest up to 15% of its net assets in high-
yield, higher risk corporate bonds. The companies that issue these
bonds do not generally have good credit ratings; as a result, the bonds
generally pay more interest than better quality bonds. We carefully
evaluate individual bonds before they are purchased and monitor them
carefully while in the portfolio. We look closely at each company and
the characteristics of the bond to better ensure that the company will
be able to pay interest and repay principal.
We conduct ongoing analysis of both the stock and bond markets to
determine how much of the portfolio should be allocated to stocks and
how much to high-yield bonds.
Growth and Income Fund
The Growth and Income Fund is also a total return fund, but it generally
does not hold bonds in the portfolio. This Fund has an objective of
long-term growth of capital. It also seeks to provide a moderate amount
of current income.
The Growth and Income Fund invests primarily in the common stocks of
established companies that we believe have long-term total return
potential. These stocks offer both current income through dividends and
capital growth potential through possible increases in stock prices. A
focus on stocks with high dividend yields, such as the one we use, is
generally considered to be a value-oriented investment approach.
The Growth and Income Fund offers slightly greater growth potential and
slightly less income potential than Decatur Equity Income Fund due to
its greater focus on common stocks.
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface the first time they
appear in the prospectus. So if you would like to know the meaning of a
word that isn't in boldface, you might still find it in the glossary.
Glossary A-B
Amortized cost
- ------------------------------------------------------------------------
Similar to depreciated value, amortized cost reflects the value of a
fixed-income security adjusted to account for any premium that was paid
above the par value when the security was purchased. The purpose of
amortization is to reflect resale or redemption value.
Appreciation
- ------------------------------------------------------------------------
An increase in the value of an investment.
Average maturity
- ------------------------------------------------------------------------
An average of when the individual bonds and other debt securities held
in a portfolio will mature.
Bond
- ------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or
government agency. In return for lending money to the issuer, a bond
buyer generally receives fixed periodic interest payments and repayment
of the loan amount on a specified maturity date. A bond's price prior to
maturity changes and is inversely related to current interest rates.
When interest rates rise, prices fall, and when interest rates fall,
prices rise.
Bond ratings
- ------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA
(highest quality) to D (lowest quality). Bonds rated Baa/BBB or better
are considered investment grade. Bonds rated Ba/BB or lower are
commonly known as junk bonds.
C-C
Capital
- ------------------------------------------------------------------------
The amount of money you invest.
Capital gains distributions
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of profits (realized gains) from
the sale of a fund's portfolio securities. Usually paid once a year; may
be either short-term gains or long-term gains.
Commission
- ------------------------------------------------------------------------
The fee an investor pays to a financial adviser for investment advice
and help in buying or selling mutual funds, stocks, bonds or other
securities.
Compounding
- ------------------------------------------------------------------------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- ------------------------------------------------------------------------
Measurement of U.S. inflation; represents the price of a basket of
commonly purchased goods.
Contingent deferred sales charge (CDSC)
- ------------------------------------------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to
the fund) within a set number of years; an alternative method for
investors to compensate a financial adviser for advice and service,
rather than an up-front commission.
Corporate bond
- ------------------------------------------------------------------------
A debt security issued by a corporation. See "bond."
[glossary to be continued]
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may
pay dividends as well. High-yield bonds offer the potential for greater
income payments than stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------
<S> <C> <C>
Decatur Equity Income Growth and Income
Fund Fund
---------------------- ----------------------
Common stocks: Securities that Generally, we invest Generally, 90% to 100%
represent shares of ownership in a 85% to 100% of net of the Fund's net
corporation. Stockholders assets in dividend- assets will be
participate in the corporation's paying common stocks. invested in dividend-
profits and losses, proportionate paying common stocks.
to the number of shares they own.
- ------------------------------------------------------------------------------------
High-Yield Corporate Bonds: Decatur Equity The Growth and Income
Securities that are rated lower Income Fund may Fund generally does
than Investment Grade by an invest up to 15% of not invest in high-
NRSRO or, if unrated, that we net assets in high- yield corporate bonds.
believe are of comparable yield corporate
quality. These securities are bonds, typically
considered to be of poor standing those rated B or BB
and predominately speculative. by an NRSRO.
- ------------------------------------------------------------------------------------
American Depositary Receipts: We may invest without limitation in ADRs. We
Certificates issued by a U.S. use them when we believe they offer better
bank which represent a stated number total return opportunities than U.S.
of shares of a foreign corporation securities.
that the bank holds in its vault.
An ADR entitles the holder to all
dividends and capital gains earned
by the underlying foreign shares,
and an ADR is bought and sold the
same as U.S. securities.
- ------------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase agreements as a
between a buyer and seller of short-term investment for a Fund's cash
securities in which the seller position. In order to enter into these
agrees to buy the securities back repurchase agreements, a Fund must have
within a specified time at the collateral of at least 102% of the repurchase
same price the buyer paid for them, price.
plus an amount equal to an agreed
upon interest rate. Repurchase
agreements are often viewed as
equivalent to cash.
- ------------------------------------------------------------------------------------
Restricted securities: Privately We may invest without limitation in privately
placed securities whose resale is placed securities that are eligible for resale
restricted under securities law. among certain institutional buyers.
- ------------------------------------------------------------------------------------
Illiquid Securities: Securities We may invest up to 10% of a Fund's total
that do not have a ready market, assets in illiquid securities.
and cannot be easily sold, if at
all, at approximately the price
that the Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
The Funds are permitted to invest in all available types of equity
securities including preferred stock, rights and warrants and
convertible securities. The Funds may also invest in fixed-income
securities and enter into futures and options transactions for defensive
purposes. Both Decatur Equity Income Fund and Growth and Income Fund
may invest in global and European depositary receipts and directly in
foreign securities; however, the manager has no present intention of
doing so. Each Fund reserves the right to hold a substantial part of its
assets in cash or cash equivalents as a temporary, defensive strategy.
Please see the Statement of Additional Information for additional
descriptions and risk information on these securities as well as those
listed in the table above. You can find additional information about
the investments in each Fund's portfolio in the annual or semi-annual
shareholder report.
Lending securities
Each Fund may lend up to 25% of its assets to qualified brokers, dealers
and institutional investors for their use in security transactions.
Purchasing securities on a when-issued or delayed delivery basis
Each Fund may buy or sell securities on a when-issued or delayed
delivery basis; that is, paying for securities before delivery or taking
delivery at a later date.
Portfolio turnover
Both Funds anticipate that their annual portfolio turnover will be less
than 100%. A turnover rate of 100% would occur if a Fund sold and
replaced securities valued at 100% of its net assets within one year.
Borrowing from banks
Each Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions.
[glossary continued]
C-E
Cost basis
- ------------------------------------------------------------------------
The original purchase price of an investment, used in determining
capital gains and losses.
Currency exchange rates
- ------------------------------------------------------------------------
The price at which one country's currency can be converted into
another's. This exchange rate varies almost daily according to a wide
range of political, economic and other factors.
Depreciation
- ------------------------------------------------------------------------
A decline in an investment's value.
Diversification
- ------------------------------------------------------------------------
The process of spreading investments among a number of different
securities, asset classes or investment styles to reduce the risks of
investing.
[glossary to be continued]
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you
may receive little or no return on your investment, and the risk that
you may lose part or all of the money you invest. Before you invest in a
Fund you should carefully evaluate the risks. Because of the nature of
the Funds, you should consider an investment in either one to be a long-
term investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when
investing in Decatur Equity Income Fund and the Growth and Income Fund.
Please see the Statement of Additional Information for further
discussion of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------
<S> <C> <C>
Decatur Equity Income Growth and Income
Fund Fund
---------------------- ----------------------
Market risk is the risk that all We maintain a long-term investment approach
or a majority of the securities in and focus on stocks we believe can appreciate
a certain market -- like the stock over an extended time frame regardless of
or bond market -- will decline in interim market fluctuations. We do not try to
value because of factors such as predict overall stock market movements and do
economic conditions, future not trade for short-term purposes.
expectations or investor confidence.
- ------------------------------------------------------------------------------------
Industry and security risk is the We limit the amount of each Fund's assets
risk that the value of securities invested in any one industry and in any
in a particular industry or the individual security. We also follow a rigorous
value of an individual stock or bond selection process designed to identify under-
will decline because of changing valued securities before choosing securities
expectations for the performance of for the portfolio.
that industry or for the individual
company issuing the stock or bond.
- ------------------------------------------------------------------------------------
Interest rate risk is the risk that We limit the amount of The Growth and Income
securities will decrease in value high-yield bonds in Fund does not
if interest rates rise. The risk the portfolio to 15% generally hold a
is greater for bonds with of net assets. significant portion
longer maturities than for those of assets in bonds,
with shorter maturities. so interest rate risk
is not a major risk
in this Fund.
- ------------------------------------------------------------------------------------
Credit Risk: The possibility that We limit the amount of The Growth and Income
a bond's issuer (or an entity that high-yield bonds in Fund is generally not
insures the bond) will be unable the portfolio to 15% subject to credit
to make timely payments of interest of net assets and we risk.
and principal. only invest in these
high-yield bonds
rated at least C or
Ca by an NRSRO or,
if unrated, that we
believe are of
comparable quality.
This limitation,
combined with our
careful, credit-
oriented bond
selection and our
commitment to hold
a diversified
selection of high-
yield bonds are
designed to manage
this risk.
- ------------------------------------------------------------------------------------
Foreign risk is the risk that We typically invest only a small portion of
foreign securities may be each Fund's portfolio in foreign corporations
adversely affected by political through American Depositary Receipts. We do
instability, changes in currency not invest directly in foreign securities.
exchange rates, foreign economic When we do purchase ADRs, they are generally
conditions or inadequate regulatory denominated in U.S. dollars and traded on a
and accounting standards. U.S. exchange.
- ------------------------------------------------------------------------------------
Liquidity risk is the possibility We limit exposure to illiquid securities.
that securities cannot be readily
sold, or can only be sold at a price
lower than the price that the Fund
has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
Who manages the Funds
Investment Manager
The Funds are managed by Delaware Management Company, a series of
Delaware Management Business Trust which is an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc. Delaware Management
Company makes investment decisions for the Funds, manages the Funds'
business affairs and provides daily administrative services. For these
services, the manager was paid a fee for the last fiscal year as
follows:
Investment Management Fees
Decatur Equity Growth and
Income Income
As a percentage of average daily net assets 0.00% 0.00%
Portfolio Manager
John B. Fields has primary responsibility for making day-to-day
investment decisions for each Fund. He has been Senior Portfolio
Manager for Decatur Equity Income Fund since 1993 and for Growth and
Income Fund since 1992. Mr. Fields, who has 27 years experience in
investment management, earned a bachelor's degree and an MBA from Ohio
State University. Before joining Delaware Investments in 1992, he was
Director of Domestic Equity Risk Management at DuPont. Prior to that
time, he was Director of Equity Research at Comerica Bank. Mr. Fields
is a member of the Financial Analysts Society of Wilmington, Delaware.
Year 2000
As with other mutual funds, financial and business organizations and
individuals around the world, each Fund could be adversely affected if
the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." Each Fund is
taking steps to obtain satisfactory assurances that its major service
providers are taking steps reasonably designed to address the Year 2000
Problem with respect to the computer systems that such service providers
use. There can be no assurance that these steps will be sufficient to
avoid any adverse impact on the business of the Funds.
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the
"Euro." It is anticipated that each such participating country will
replace its existing currency with the Euro on January 1, 1999.
Additional European countries may elect to participate after that date.
If a Fund is invested in securities of participating countries, it could
be adversely affected if the computer systems used by its major service
providers are not properly prepared to handle the implementation of this
single currency or the adoption of the Euro by additional countries in
the future. Each Fund is taking steps to obtain satisfactory assurances
that its major service providers are taking steps reasonably designed to
address these matters with respect to the computer systems that such
service providers use. There can be no assurances that these steps will
be sufficient to avoid any adverse impact on the business of the Funds.
[glossary continued]
Dividend distribution
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of dividends passed along from the
fund's portfolio of securities.
Duration
- ------------------------------------------------------------------------
A measurement of a fixed-income investment's price volatility. The
larger the number, the greater the likely price change for a given
change in interest rates.
Expense ratio
- ------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of
its total net assets. Operating expenses are the costs of running a
mutual fund, including management fees, offices, staff, equipment and
expenses related to maintaining the fund's portfolio of securities. They
are paid from the fund's assets before any earnings are distributed to
shareholders.
[glossary to be continued]
[sidebar]
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio Service agent Distributor
managers Delaware Service Company, Inc. Delaware Distributors, L.P.
(see page X 1818 Market Street 1818 Market Street
for details) Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors
which has oversight responsibility for the management of the fund's
business affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the performance of
the investment manager, the distributor and others that perform services
for the fund. At least 40% of the board of directors must be independent
of the fund's investment manager or distributor. These independent fund
directors, in particular, are advocates for shareholder interests.
Custodian Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified bank
custodian who segregates fund securities from other bank assets.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager places
portfolio orders with broker/dealers and is responsible for obtaining
the best overall execution of those orders. A written contract between a
mutual fund and its investment manager specifies the services the
manager performs. Most management contracts provide for the manager to
receive an annual fee based on a percentage of the fund's average net
assets. The manager is subject to numerous legal restrictions,
especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment
manager to make investment decisions for individual portfolios on a day-
to-day basis.
Service agent Mutual fund companies employ service agents (sometimes
called transfer agents) to maintain records of shareholder accounts,
calculate and disburse dividends and capital gains and prepare and mail
shareholder statements and tax information, among other functions. Many
service agents provide customer service to shareholders, as well.
Distributor Most mutual funds continuously offer new shares to the
public through distributors who are regulated as broker-dealers and are
subject to National Association of Securities Dealers, Inc. (NASD) rules
governing mutual fund sales practices.
Financial advisers Financial advisers provide investment advice to
their clients, analyzing their financial objectives and recommending
appropriate funds or other investments. Financial advisers are
compensated for their services, generally through sales commissions, and
through 12b-1 and/or service fees deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund
shareholders have specific voting rights, including the right to elect
directors. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change
fundamental investment objectives or policies must also seek shareholder
approval.
[glossary continued]
F-M
Financial adviser
- ------------------------------------------------------------------------
Financial professional (e.g., broker, banker, accountant, planner or
insurance agent) who analyzes clients' finances and prepares
personalized programs to meet objectives.
Fixed-income securities
- ------------------------------------------------------------------------
With fixed-income securities, the money you originally invested is
returned to you at a prespecified maturity date. These securities, which
include government, corporate or municipal bonds, as well as money
market securities, typically pay a fixed rate of return.
[glossary to be continued]
About your account
Investing in the Funds
Institutional Class shares are available for purchase only by the
following:
[bullet] 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
[bullet] tax-exempt employee benefit plans of the manager or its
affiliates and securities dealer firms with a selling agreement
with the distributor
[bullet] institutional advisory accounts of the manager, or its
affiliates and those having client relationships with Delaware
Investment Advisers, an affiliate 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
[bullet] 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
[bullet] 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
[glossary continued]
Inflation
- ------------------------------------------------------------------------
The increase in the cost of goods and services over time. U.S. inflation
is measured by the Consumer Price Index (CPI).
Investment goal
- ------------------------------------------------------------------------
The objective, such as long-term capital growth or high current income,
that a mutual fund pursues.
Investment grade
- ------------------------------------------------------------------------
A bond with a "bond" rating in one of the four highest ratings
categories by an NRSRO or, if unrated, that the manager believes is of
comparable quality.
Management fee
- ------------------------------------------------------------------------
The amount paid by a mutual fund to the investment adviser for
management services, expressed as a percentage of the fund's net assets.
[glossary to be continued]
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to
the fund and class of shares you wish to purchase to Delaware
Investments, 1818 Market Street, Philadelphia, PA 19103. If you are
making an initial purchase by mail, you must include a completed
investment application, or an appropriate retirement plan application if
you are opening a retirement account, with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank,
ABA #031201467, Bank Account number 2014128934013. Include your account
number and the name of the fund in which you want to invest. If you are
making an initial purchase by wire, you must call us at 800-510-4015 so
we can assign an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in
the Delaware Investments family for shares of other funds in the family.
Please keep in mind, however, that you may not exchange your shares for
Class B or Class C shares. To open an account by exchange, call the
Shareholder Service Center at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a fee for this
service.
[glossary continued]
M-P
Market capitalization
- ------------------------------------------------------------------------
The value of a corporation determined by multiplying the current market
price of a share of common stock by the number of shares held by
shareholders. A corporation with one million shares outstanding and the
market price per share of $10 has a market capitalization of $10
million.
Maturity
- ------------------------------------------------------------------------
The length of time until a bond issuer must repay the underlying loan
principal to bondholders.
NASD (National Association of Securities Dealers)
- ------------------------------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the
actions of its members.
[glossary to be continued]
About your account continued
How to buy shares (continued)
The price you pay for shares will depend on when we receive your
purchase order. If we or an authorized agent receives your order before
the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on a business day, you will pay that day's closing share
price which is based on the Fund's net asset value. If we receive your
order after the close of trading, you will pay the next business day's
price. A business day is any day that the New York Stock Exchange is
open for business. We reserve the right to reject any purchase order.
We determine the Funds' net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the
Exchange is open. We calculate this value by adding the market value of
all the securities and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. We price
securities and other assets for which market quotations are available at
their market value. We price debt securities on the basis of valuations
provided to us by an independent pricing service that uses methods
approved by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the
board of directors.
[glossary continued]
NAV (Net asset value)
- ------------------------------------------------------------------------
The daily dollar value of one mutual fund share. Equal to a fund's net
assets divided by the number of shares outstanding.
NRSRO (Nationally recognized statistical rating organization)
- ------------------------------------------------------------------------
A company that assesses the quality and potential performance of bonds,
commercial paper, preferred and common stocks and municipal short-term
issues, rating the probability that the issuer of the debt will meet the
scheduled interest payments and repay the principal. Ratings are
published by such companies as Moody's Investors Service (Moody's),
Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Preferred stock
- ------------------------------------------------------------------------
Preferred stock has preference over common stock in the payment of
dividends and liquidation of assets. Preferred stocks also pay dividends
at a fixed rate.
[glossary to be continued]
[glossary continued]
P-S
Price/earnings ratio
- ------------------------------------------------------------------------
A measure of a stock's value calculated by dividing the current market
price of a share of stock by its annual earnings per share. A stock
selling for $100 per share with annual earnings of $5 has a P/E of 20.
Principal
- ------------------------------------------------------------------------
Amount of money you invest. Also refers to a bond's original face value,
due to be repaid at maturity.
Prospectus
- ------------------------------------------------------------------------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives,
policies, services and fees.
[glossary to be continued]
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by
writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA
19103. All owners of the account must sign the request, and for
redemptions of $50,000 or more, you must include a signature guarantee
for each owner. You can also fax your written request to 215-255-8864.
Signature guarantees are also required when redemption proceeds are
going to anyone other than the account holder(s) of record.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have
the proceeds sent to you by check, or if you redeem at least $1,000 of
shares, you may have the proceeds sent directly to your bank by wire.
Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds
deposited directly to your bank account the next business day after we
receive your request. Bank information must be on file before you
request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your
shares. Your adviser may charge a fee for this service.
[glossary continued]
Redeem
- ------------------------------------------------------------------------
To cash in your shares by selling them back to the mutual fund.
Risk
- ------------------------------------------------------------------------
Generally defined as variability of value; also credit risk, inflation
risk, currency and interest rate risk. Different investments involve
different types and degrees of risk.
S&P 500 Index
- ------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of
500 widely held common stocks that is often used to represent
performance of the U.S. stock market.
Sales charge
- ------------------------------------------------------------------------
Charge on the purchase of fund shares sold through financial advisers.
May vary with the amount invested. Typically used to compensate advisers
for advice and service provided.
[glossary to be continued]
About your account continued
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the
certificates with your request to sell the shares. We recommend that you
send your certificates by certified mail.
When you send us a properly completed request to redeem or exchange
shares, you will receive the net asset value as determined on the
business day we receive your request. We will send you a check,
normally the next business day, but no later than seven days after we
receive your request to sell your shares. If you purchased your shares
by check, we will wait until your check has cleared, which can take up
to 15 days, before we honor your request to sell these shares.
Account Minimum
If you redeem shares and your account balance falls below $250, the Fund
may redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class
in another Delaware Investments fund. You may not exchange your shares
for Class B and Class C shares of the funds in the Delaware Investments
family. If you exchange shares to a fund that has a sales charge you
will pay any applicable sales charges on your new shares. You don't pay
sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange
shares, you are purchasing shares in another fund so you should be sure
to get a copy of the fund's prospectus and read it carefully before
buying shares through an exchange.
[glossary continued]
S-S
SEC (Securities and Exchange Commission)
- ------------------------------------------------------------------------
Federal agency established by Congress to administer the laws governing
the securities industry, including mutual fund companies.
Share classes
- ------------------------------------------------------------------------
Different classifications of shares; mutual fund share classes offer a
variety of sales charge choices.
Signature guarantee
- ------------------------------------------------------------------------
Certification by a bank, brokerage firm or other financial institution
that a customer's signature is valid.
[glossary to be continued]
[glossary continued]
Standard deviation
- ------------------------------------------------------------------------
A measure of an investment's volatility; for mutual funds, measures how
much a fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- ------------------------------------------------------------------------
The document serving as "Part B" of a fund's prospectus that provides
more detailed information about the fund's organization, investments,
policies and risks.
Stock
- ------------------------------------------------------------------------
An investment that represents a share of ownership (equity) in a
corporation. Stocks are often referred to as "equities."
[glossary to be continued]
[glossary continued]
T-V
Total return
- ------------------------------------------------------------------------
An investment performance measurement, expressed as a percentage, based
on the combined earnings from dividends, capital gains and change in
price over a given period.
[glossary to be continued]
Dividends, distributions and taxes
For Decatur Equity Income Fund dividends, if any, are paid monthly,
while any capital gains are distributed annually. For Growth and Income
Fund dividends, if any, are paid quarterly, while any capital gains are
distributed annually. We automatically reinvest all dividends and any
capital gains.
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be affected
by current tax law. The tax status of your dividends from these Funds is
the same whether you reinvest your dividends or receive them in cash.
Distributions from a Fund's long-term capital gains are taxable as
capital gains, while distributions from short-term capital gains and net
investment income are generally taxable as ordinary income. Any capital
gains may be taxable at different rates depending on the length of time
the Fund held the assets. In addition, you may be subject to state and
local taxes on distributions.
We will send you a statement each year by January 31 detailing the
amount and nature of all dividends and capital gains that you were paid
for the prior year.
[glossary continued]
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- ------------------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to
a minor with special tax advantages.
Volatility
- ------------------------------------------------------------------------
The tendency of an investment to go up or down in value by different
magnitudes. There are "low volatility" and "high volatility"
investments.
[end glossary]
Financial highlights
The financial highlights table is intended to help you understand
Decatur Equity Income Fund's financial performance for the past five
years. All "per share" information reflects financial results for a
single Fund share. This information has been audited by Ernst & Young
LLP, whose report, along with the Fund's financial statements, is
included in the Fund's annual report, which is available upon request by
calling 800-523-1918.
<TABLE>
<CAPTION>
Institutional Class
- ------------------------------------------------------------------------------------
Year Ended 11/30 Period
1/13/94
through
Decatur Equity Income Fund 1998 (2) 1997 (2) 1996 (2) 1995 (2) 11/30/94 (2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 21.310 19.060 15.590 16.720
Income From Investment
Operations
Net investment income ($) 0.000 0.650 0.690 0.710 0.590
Net realized & unrealized gains
(losses) on investments ($) 0.000 3.930 3.620 3.920 (1.100)
Total from investment
operations ($) 0.000 4.580 4.310 4.630 (0.510)
Less Distributions
Dividends from net investment
income ($) (0.000) (0.640) (0.720) (0.740) (0.620)
Distributions from realized
gains ($) (0.000) (2.680) (1.340) (0.420) None
Total distributions ($) (0.000) (3.320) (2.060) (1.160) (0.620)
Net asset value, end of
period ($) 00.000 22.570 21.310 19.060 15.590
Total Return (%) 00.00 25.02 24.65 31.14 (0.450)
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000,000 278,384 244,048 211,409 182,105
Ratio of expenses to average
daily net assets (%) 0.00 0.68 0.69 0.74 0.70
Ratio of net investment income
to average daily net assets (%) 0.00 3.07 3.56 4.16 4.03
Portfolio turnover rate (%) 00 90 101 74 92
Volatility, as indicated by
year-to-year total return (%) 00.00 25.02 24.65 31.14 (0.450)
- ------------------------------------------------------------------------------------
Institutional Class
- ------------------------------------------------------------------------------------
Year
Ended
Decatur Equity Income Fund 11/30/94 (1)
- ------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning
of Period ($) 14.380
Income From Investment
Operations
Net investment income ($) 0.370
Net realized & unrealized gains
(losses) on investments ($) (0.340)
Total from investment
operations ($) 0.030
Less Distributions
Dividends from net investment
income ($) (0.430)
Distributions from realized
gains ($) (1.660)
Total distributions ($) (2.090)
Net asset value, end of
period ($) 12.320
Total Return (%) (0.040) (3)
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 402,849
Ratio of expenses to average
daily net assets (%) 1.26
Ratio of net investment income
to average daily net assets (%) 2.88
Portfolio turnover rate (%) 74
Volatility, as indicated by
year-to-year total return (%) (0.040)
- ------------------------------------------------------------------------------------
</TABLE>
1 Data for Decatur Equity Income Fund Institutional Class are derived
from data of Decatur Equity Income Fund A Class, which prior to May 2,
1994 was not subject to 12b-1 fees.
2 Data are derived from data for Decatur Equity Income Fund
Institutional Class, which began operating on January 13, 1994.
Ratios and total return have been annualized.
3 Does not reflect current maximum sales charges that are or were in
effect for Decatur Equity Income Fund A Class.
How to read the financial highlights
Net investment income
- ------------------------------------------------------------------------
Net investment income includes dividend and interest income earned from
the Fund's securities after expenses have been deducted.
Net gains (losses) on investments (both realized and unrealized)
- ------------------------------------------------------------------------
A realized gain occurs when we sell an investment at a profit, while a
realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we
record an unrealized gain or loss. The amount of realized gain per share
that we pay to shareholders is listed under "Less Distributions-
Distributions from realized gains."
Realized gains
- ------------------------------------------------------------------------
Profits realized from the sale of securities.
Net asset value (NAV)
- ------------------------------------------------------------------------
This is the value of a mutual fund share, calculated by dividing the net
assets by the number of shares outstanding.
Total return
- ------------------------------------------------------------------------
This represents the percentage increase or decrease in the value of a
share of a fund during specific periods, in this case, annual periods.
In calculating this figure for the financial highlights table, we
include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and
realized gains.
Net assets
- ------------------------------------------------------------------------
Net assets represent the total value of all the assets in the Fund's
portfolio, less any liabilities, that are attributable to that class of
the Fund.
(continues on page x)
Financial highlights (continued)
The financial highlights table is intended to help you understand Growth
and Income Fund's financial performance for the past five years. All
"per share" information reflects financial results for a single Fund
share. This information has been audited by Ernst & Young LLP, whose
report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800-
523-1918.
<TABLE>
<CAPTION>
Institutional Class
- ------------------------------------------------------------------------------------
Year Ended 11/30
Growth and Income Fund 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 17.570 15.65 12.350 14.40
Income From Investment
Operations
Net investment income ($) 0.000 0.350 0.370 0.470 0.430
Net realized & unrealized gains
(losses) on investments ($) 0.000 3.600 3.230 3.650 (0.370)
Total from investment
operations ($) 0.000 3.950 3.600 4.120 0.060
Less Distributions
Dividends from net investment
income ($) (0.000) (0.410) (0.390) (0.400) (0.450)
Distributions from realized
gains ($) (0.000) (1.850) (1.290) (0.420) (1.660)
Total distributions ($) (0.000) (2.260) (1.680) (0.820) (2.110)
Net asset value, end of
period ($) 00.000 19.260 17.570 15.650 12.350
Total Return (%) 00.00 25.65 25.24 35.13 0.19
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000,000 78,813 45,958 11,520 1,376
Ratio of expenses to average
daily net assets (%) 0.00 0.83 0.81 0.89 0.96
Ratio of net investment income
to average daily net assets (%) 0.00 1.90 2.53 3.02 3.18
Portfolio turnover rate (%) 00 69 87 91 74
Volatility, as indicated by
year-to-year total return (%) 00.00 25.65 25.24 35.13 0.19
- ------------------------------------------------------------------------------------
</TABLE>
How to read the financial highlights
(begins on page x)
Ratio of expenses to average daily net assets
- ------------------------------------------------------------------------
The expense ratio is the percentage of total investment that a fund pays
annually for operating expenses and management fees. These expenses
include accounting and administration expenses, services for
shareholders, and similar expenses.
Ratio of net investment income to average daily net assets
- ------------------------------------------------------------------------
We determine this ratio by dividing net investment income by average net
assets.
Portfolio turnover rate
- ------------------------------------------------------------------------
This figure tells you the amount of trading activity in a fund's
portfolio. For example, a fund with a 50% turnover rate has bought and
sold half of the value of its total investment portfolio during the
stated period.
[back cover]
Decatur Equity Income Fund
Growth and Income Fund
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds'
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Funds' performance
during their last fiscal year. You can find more detailed information
about the Funds in the current Statement of Additional Information,
which we have filed electronically with the Securities and Exchange
Commission (SEC) and which is legally a part of this prospectus. If you
want a free copy of the Statement of Additional Information, the annual
or semi-annual report, or if you have any questions about investing in
these funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103, or call toll-free 800-523-1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC
web site (http://www.sec.gov), or you can get copies of this
information, after payment of a duplicating fee, by writing to the
Public Reference Section of the SEC, Washington, D.C. 20549-6009.
Information about the Funds, including their Statement of Additional
Information, can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1-800-
SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Client Services Representative
800-510-4015
[Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance
information on all Delaware Investment Funds seven days a week, 24 hours
a day, use this Touch-ToneR service.]
Registrant's Investment Company Act file number: 811-750
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
P- ____[--] PP 12/98
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Blue Chip Fund
Class A
[bullet] Class B
[bullet] Class C
Prospectus January 29, 1999
Total Return Fund
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
[inside front cover]
Table of Contents
Fund profile page
Blue Chip Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager and Sub-adviser
Portfolio manager
Who's who?
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares
How to redeem shares
Special services
Dividends, distributions and taxes
Retirement plans
Financial highlights page
[sidebar copy at bottom of page]
How to use this prospectus
Here are guidelines to help you use this prospectus to make well-
informed investment decisions about our funds. If you're looking for a
specific piece of information, the table of contents can guide you
directly to the appropriate section.
Step 1
- ------------------------------------------------------------------------
Take a look at the fund profiles for an overview of the Fund.
Step 2
- ------------------------------------------------------------------------
Learn in-depth information about how the Fund invests, the risks
involved and the people and organizations responsible for the Fund's
day-to-day operations.
Step 3
- ------------------------------------------------------------------------
Determine which fund features and services you would like to take
advantage of.
Step 4
- ------------------------------------------------------------------------
Use the glossary that begins on page x to find definitions of words
printed in bold type throughout the prospectus.
Investing for total return...
Investors with long-term goals often choose mutual funds designed to
provide total return. These funds provide moderate growth potential as
well as some current income. They generally involve less risk than
aggressive stock funds but more risk than bond funds. Like all mutual
funds, total return funds allow you to invest conveniently in a
diversified portfolio without having to select and monitor individual
securities on your own.
with Delaware Investments
Your personal financial adviser, working with Delaware Investments, can
help you define, evaluate and set your personal investment objectives.
Your adviser can also explain the role total return funds like Blue Chip
Fund can play in a long-term investment program designed to meet your
goals.
The Delaware Investments family includes a full range of mutual funds-
including total return funds-designed to fit your particular investment
needs. With 70 years of investment management experience, we follow
time-tested strategies that emphasize long-term performance and
consistent application of investment disciplines. Today, as part of the
Lincoln Financial Group, a $105 billion financial services complex,
Delaware Investments has access to a variety of experienced and talented
investment managers. We are dedicated to working closely with financial
advisers to bring investors the highest quality investment management
and services.
["House" graphic, with total return "room" highlighted]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Growth Equity Funds
International and Global Funds
Asset Allocation Funds
[Table Highlighted] Moderate Growth Equity Funds for...
Total Return
These stock-oriented funds provide moderate growth potential as well as
some current income, with less risk than aggressive stock funds but more
risk than bond funds.
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
Profile: Blue Chip Fund
What are the Fund's goals?
Blue Chip Fund seeks long-term capital appreciation. Current income is a
secondary objective. Although the Fund will strive to meet its goals,
there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of large companies that we expect to grow
significantly faster than the average stock in the unmanaged S&P 500
Composite Stock Price Index. We use a computer-driven selection process
that evaluates stocks on a variety of characteristics including dividend
yield, earnings growth and price to earnings ratio.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be particularly affected by changes
in stock prices, which tend to fluctuate more than bond prices.
Moreover, an investment in the Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. For a more complete discussion of risk,
please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors seeking long-term capital appreciation.
[bullet] Investors seeking an investment primarily in common stocks.
Who should not invest in the Fund
[bullet] Investors with short-term financial goals.
[bullet] Investors whose primary goal is current income.
[bullet] Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly over the short term.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has the Fund performed?
This bar chart and table can help you evaluate the potential risks and
rewards of investing in the Fund. We show how returns for the Fund's
Class A shares have varied over the past calendar year and since
inception, as well as average annual returns of all shares for the past
year and since inception -- all compared to the performance of the S&P
500 Index. You should remember that unlike the Fund, the index is
unmanaged and doesn't include the actual costs of buying, selling, and
holding securities. The Fund's past performance does not necessarily
indicate how it will perform in the future. The Classes' returns reflect
a voluntary expense cap of 1.20% (excluding 12b-1 fees). The returns
would be lower without this voluntary cap.
* Blue Chip Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A)
FPO]
[bar chart]
Year-by-year total return (Class A)
The maximum Class A sales charge of 5.75%, which is normally deducted
when you purchase shares, is not reflected in these total returns. If
this fee were included, the returns would be less than those shown. The
average annual returns shown below do include the sales charge.
As of December 31, 1998, the Fund had a year-to-date return of XX%.
During the periods illustrated in this bar chart, the Fund's highest
return in any quarter was XX% and its lowest return in any quarter was
XX%.
[table]
<TABLE>
<CAPTION>
Average annual return as of 12/31/98
CLASS A B B (if C C (if S&P500
redeemed) redeemed)
<S> <C> <C> <C> <C> <C> <C>
1 year 00.0% 00.0% 00.0% 00.0% 00.0% 00.0
Since
inception
(2/24/97) 00.0% 00.0% 00.0% 00.0% 00.0% 00.0
</TABLE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy
or sell shares of the Fund. The Fund may waive or reduce sales charges;
please see the Statement of Additional Information for details.
CLASS A B C
Maximum sales charge (load) imposed on
purchases as a percentage of offering
price 5.75% none none
Maximum contingent deferred sales charge
(load) as a percentage of original
purchase price or redemption price,
whichever is lower none (1) 5% (2) 1% (3)
Maximum sales charge (load) imposed on
reinvested dividends none none none
Redemption fees none none none
Annual fund operating expenses are deducted from the Fund's income or
assets before it pays dividends and before its total return is
calculated. We will not charge you separately for these expenses.
Management fees 00.0% 00.0% 00.0%
Distribution and service (12b-1) fees (5) 00.0% 00.0% 00.0%
Other expenses 00.0% 00.0% 00.0%
Total operating expenses (6) 00.0% 00.0% 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. (7) This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
CLASS (8) A B B (if redeemed) C C (if redeemed)
1 year 00.0% 00.0% 00.0% 00.0% 00.0%
3 years 00.0% 00.0% 00.0% 00.0% 00.0%
5 years 00.0% 00.0% 00.0% 00.0% 00.0%
10 years 00.0% 00.0% 00.0% 00.0% 00.0%
1 A purchase of Class A shares at $1 million or more may be made at net
asset value. However, if you buy the shares through a financial
adviser who is paid a commission, a contingent deferred sales charge
of 1% will be imposed on certain redemptions within the first year of
purchase and 0.50% within the second year of purchase. Additional
Class A purchase options that involve a contingent deferred sales
charge may be permitted from time to time and will be disclosed in the
prospectus if they are available.
2 If you redeem Class B shares during the first year after you buy them,
you will pay a contingent deferred sales charge of 5%. The contingent
deferred sales charge is 4% during the second year, 3% during the third
and fourth years, 2% during the fifth year, 1% during the sixth year,
and 0% thereafter. Your Class B shares will automatically convert to
Class A shares after approximately eight years.
3 Class C shares redeemed within one year of purchase are subject to a
1% contingent deferred sales charge.
4 First Union Bank, N.A., the bank through which we wire money,
currently charges $7.50 per redemption for redemptions payable by wire.
5 The Fund has adopted a plan under rule 12b-1 that allows the Fund to
pay distribution fees for the sales and distribution of its shares.
Because these fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. Each
share class is subject to a separate 12b-1 plan.
6 The investment manager has agreed to waive fees and pay expenses
through _________________ in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees, extraordinary expenses
and 12b-1 fees) from exceeding 1.20% of average daily net assets.
7 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
8 The Class B example reflects the conversion of Class B shares to Class
A shares at the end of the eighth year. However, the conversion may
occur as late as three months after the eighth anniversary of
purchase, during which time the higher 12b-1 plan fees payable by
Class B shares will continue to be assessed. Information for the ninth
and tenth years reflects expenses of the Class A shares.
How we manage the Fund
Our investment strategies
We use a computer-driven selection process designed to identify stocks
of companies that are likely to grow faster than the average of the
companies in the S&P 500. Aided by this technology, we evaluate and
rank hundreds of stocks daily, using a variety of factors such as
dividend yield, earnings growth and price to earnings ratios. Decisions
to buy and sell stocks are determined by this objective evaluation
process.
We take a disciplined approach to investing, combining investment
strategies and risk management techniques that can help shareholders
meet their goals.
The Blue Chip Fund is a total return fund. Under normal conditions, at
least 65% of the Fund's net assets will be invested in stocks we
consider "blue chip" stocks. "Blue chip" stocks are those whose market
capitalization is greater than $2.5 billion and which generally exhibit
positive characteristics like a lengthy history of profit growth and
dividend payments, a reputation for quality products and services, and a
sound management structure. They are generally easy to buy and sell.
Our goal is to select stocks of companies that have the potential to
grow significantly faster than the average of the companies in the S&P
500. We believe this growth, if achieved, will result in a rising share
price that will provide long-term appreciation to our investors.
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may
pay dividends as well.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------
<S> <C>
Blue Chip Fund
----------------------------------------------
Common stocks: Securities that Generally, we invest 90% to 100% of net assets
represent shares of ownership in a in common stock of medium- to large-size
corporation. Stockholders companies.
participate in the corporation's
profits and losses, proportionate
to the number of shares they own.
- ------------------------------------------------------------------------------------
American Depositary Receipts: We generally invest only in those ADRs
Certificates issued by a U.S. included in the S&P 500 Index. Although Blue
bank which represent a stated number Chip Fund may invest up to 20% of its net
of shares of a foreign corporation assets in depositary receipts, ADRs normally
that the bank holds in its vault. make up less than 10% of the Fund's net
An ADR entitles the holder to all assets.
dividends and capital gains earned
by the underlying foreign shares,
and an ADR is bought and sold the
same as U.S. securities.
- ------------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase agreements as a
between a buyer and seller of short-term investment for a Fund's cash
securities in which the seller position. In order to enter into these
agrees to buy the securities back repurchase agreements, the Fund must have
within a specified time at the collateral of at least 102% of the repurchase
same price the buyer paid for them, price. Blue Chip Fund may have no more than
plus an amount equal to an agreed 10% of its total assets in repurchase
upon interest rate. Repurchase agreements with maturities of over seven
agreements are often viewed as days.
equivalent to cash.
- ------------------------------------------------------------------------------------
Restricted securities: Privately We may invest without limitation in privately
placed securities whose resale is placed securities that are eligible for resale
restricted under securities law. among certain institutional buyers.
- ------------------------------------------------------------------------------------
Illiquid Securities: Securities We may invest up to 15% of the Fund's net
that do not have a ready market, assets in illiquid securities.
and cannot be easily sold, if at
all, at a reasonable price.
- ------------------------------------------------------------------------------------
</TABLE>
Blue Chip Fund is permitted to invest in all available types of equity
securities, including preferred stocks, warrants and convertible
securities. The Fund may invest in foreign securities directly
(although we have no present intention to do so) and through global and
European depositary receipts. It may hold cash, invest in short-term
debt securities and money market instruments; and engage in futures and
options transactions for defensive purposes. Please see the Statement
of Additional Information for additional descriptions and risk
information on these securities as well as those listed in the table
above. You can find additional information about the investments in the
Fund's portfolio in the annual and semi-annual shareholder reports.
Lending securities
Blue Chip Fund may lend up to 25% of its assets to qualified brokers,
dealers and institutional investors for their use in security
transactions.
Portfolio turnover
We anticipate that Blue Chip Fund's annual portfolio turnover will be
less than 100%. A turnover rate of 100% would occur if the Fund sold and
replaced securities valued at 100% of its net assets within one year.
Borrowing from Banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions.
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you
may receive little or no return on your investment, and the risk that
you may lose part or all of the money you invest. Before you invest in
the Fund you should carefully evaluate the risks. Because of the nature
of the Fund, you should consider an investment to be a long-term
investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when
investing in Blue Chip Fund. Please see the Statement of Additional
Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------
<S> <C>
Blue Chip Fund
----------------------------------------------
Market risk is the risk that all We maintain a long-term investment approach
or a majority of the securities in and focus on stocks we believe can appreciate
a certain market -- like the stock over an extended time frame regardless of
or bond market -- will decline in interim market fluctuations. We do not try to
value because of factors such as predict overall stock market movements and do
economic conditions, future not trade for short-term purposes.
expectations or investor confidence.
We may hold a substantial part of Blue Chip
Fund's assets in cash or cash equivalents as
a temporary, defensive strategy.
- ------------------------------------------------------------------------------------
Industry and security risk is the We limit the amount of Blue Chip Fund's assets
risk that the value of securities invested in any one industry and in any
in a particular industry or the individual security. We generally allocate
value of an individual stock or bond assets to various sectors in roughly the same
will decline because of changing proportions as the S&P 500 sector allocation.
expectations for the performance of
that industry or for the individual
company issuing the stock or bond.
- ------------------------------------------------------------------------------------
Foreign risk is the risk that We typically invest only a small portion of
foreign securities may be Blue Chip Fund's portfolio in American
adversely affected by political Depositary Receipts. When we do purchase them,
instability, changes in currency they are generally denominated in U.S. dollars
exchange rates, foreign economic and traded on a U.S. stock exchange.
conditions or inadequate regulatory
and accounting standards.
- ------------------------------------------------------------------------------------
Liquidity risk is the possibility We limit exposure to illiquid securities.
that securities cannot be readily
sold, at approximately the price
that the Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface the first time they
appear in the prospectus. So if you would like to know the meaning of a
word that isn't in boldface, you might still find it in the glossary.
Glossary A-B
Amortized cost
- ------------------------------------------------------------------------
Similar to depreciated value, amortized cost reflects the value of a
fixed-income security adjusted to account for any premium that was paid
above the par value when the security was purchased. The purpose of
amortization is to reflect resale or redemption value.
Appreciation
- ------------------------------------------------------------------------
An increase in the value of an investment.
Average maturity
- ------------------------------------------------------------------------
An average of when the individual bonds and other debt securities held
in a portfolio will mature.
Bond
- ------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or
government agency. In return for lending money to the issuer, a bond
buyer generally receives fixed periodic interest payments and repayment
of the loan amount on a specified maturity date. A bond's price prior to
maturity changes and is inversely related to current interest rates.
When interest rates rise, prices fall, and when interest rates fall,
prices rise.
Bond ratings
- ------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA
(highest quality) to D (lowest quality). Bonds rated Baa/BBB or better
are considered investment grade. Bonds rated Ba/BB or lower are
commonly known as junk bonds.
C-C
Capital
- ------------------------------------------------------------------------
The amount of money you invest.
Capital gains distributions
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of profits (realized gains) from
the sale of a fund's portfolio securities. Usually paid once a year; may
be either short-term gains or long-term gains.
Commission
- ------------------------------------------------------------------------
The fee an investor pays to a financial adviser for investment advice
and help in buying or selling mutual funds, stocks, bonds or other
securities.
Compounding
- ------------------------------------------------------------------------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- ------------------------------------------------------------------------
Measurement of U.S. inflation; represents the price of a basket of
commonly purchased goods.
Contingent deferred sales charge (CDSC)
- ------------------------------------------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to
the fund) within a set number of years; an alternative method for
investors to compensate a financial adviser for advice and service,
rather than an up-front commission.
[glossary to be continued]
Who manages the Fund
Investment Manager and Sub-Adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary
of Delaware Management Holdings, Inc. Vantage Investment Advisors is the
Fund's sub-adviser. As sub-adviser, Vantage is responsible for day-to-
day management of the Fund's assets. Delaware Management Company
administers the Fund's affairs and has ultimate responsibility for all
investment advisory services for the Fund. Delaware Management Company
also supervises the sub-adviser's performance. For their services to
the Fund, the manager and sub-adviser were paid an aggregate fee for the
last fiscal year as follows:
Investment Management Fees
Blue Chip Fund
As a percentage of average daily net assets 0.00%
Portfolio Manager
T. Scott Wittman, President and Chief Investment Officer of Vantage
Investment Advisors, has had primary responsibility for making day-to-
day investment decisions for the Fund since its inception. His
responsibilities with Vantage Investment Advisors include both business
administration and equity portfolio management. Mr. Wittman is a
Certified Financial Analyst (CFA). 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.
Year 2000
As with other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if
the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." The Fund is
taking steps to obtain satisfactory assurances that the Fund's major
service providers are taking steps reasonably designed to address the
Year 2000 Problem with respect to the computer systems that such service
providers use. There can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund.
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the
"Euro." It is anticipated that each such participating country will
replace its existing currency with the Euro on January 1, 1999.
Additional European countries may elect to participate after that date.
If the Fund is invested in securities of participating countries, it
could be adversely affected if the computer systems used by its major
service providers are not properly prepared to handle the implementation
of this single currency or the adoption of the Euro by additional
countries in the future. Equity Funds III, Inc. is taking steps to
obtain satisfactory assurances that the major service providers of the
Fund are taking steps reasonably designed to address these matters with
respect to the computer systems that such service providers use. There
can be no assurances that these steps will be sufficient to avoid any
adverse impact on the business of the Fund.
[glossary continued]
C-E
Cost basis
- ------------------------------------------------------------------------
The original purchase price of an investment, used in determining
capital gains and losses.
Currency exchange rates
- ------------------------------------------------------------------------
The price at which one country's currency can be converted into
another's. This exchange rate varies almost daily according to a wide
range of political, economic and other factors.
Depreciation
- ------------------------------------------------------------------------
A decline in an investment's value.
Diversification
- ------------------------------------------------------------------------
The process of spreading investments among a number of different
securities, asset classes or investment styles to reduce the risks of
investing.
[glossary to be continued]
[sidebar]
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-Adviser
Vantage Investment Advisors
630 Fifth Avenue
New York, NY 10111
Portfolio Service agent Distributor
managers Delaware Service Company, Inc. Delaware Distributors, L.P.
(see page x 1818 Market Street 1818 Market Street
for details) Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors
which has oversight responsibility for the management of the fund's
business affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the performance of
the investment manager, the distributor and others that perform services
for the fund. At least 40% of the board of directors must be independent
of the fund's investment manager or distributor. These independent fund
directors, in particular, are advocates for shareholder interests.
Custodian Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified bank
custodian who segregates fund securities from other bank assets.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager places
portfolio orders with broker/dealers and is responsible for obtaining
the best overall execution of those orders. A written contract between a
mutual fund and its investment manager specifies the services the
manager performs. Most management contracts provide for the manager to
receive an annual fee based on a percentage of the fund's average net
assets. The manager is subject to numerous legal restrictions,
especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the
management of the fund's assets. They are selected and supervised by
the investment manager.
Portfolio managers Portfolio managers are employed by the investment
manager or sub-adviser to make investment decisions for individual
portfolios on a day-to-day basis.
Service agent Mutual fund companies employ service agents (sometimes
called transfer agents) to maintain records of shareholder accounts,
calculate and disburse dividends and capital gains and prepare and mail
shareholder statements and tax information, among other functions. Many
service agents provide customer service to shareholders, as well.
Distributor Most mutual funds continuously offer new shares to the
public through distributors who are regulated as broker-dealers and are
subject to National Association of Securities Dealers, Inc. (NASD) rules
governing mutual fund sales practices.
Financial advisers Financial advisers provide investment advice to
their clients, analyzing their financial objectives and recommending
appropriate funds or other investments. Financial advisers are
compensated for their services, generally through sales commissions, and
through 12b-1 and/or service fees deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund
shareholders have specific voting rights, including the right to elect
directors. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change
fundamental investment objectives or policies must also seek shareholder
approval.
[glossary continued]
Dividend distribution
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of dividends passed along from the
fund's portfolio of securities.
Expense ratio
- ------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of
its total net assets. Operating expenses are the costs of running a
mutual fund, including management fees, offices, staff, equipment and
expenses related to maintaining the fund's portfolio of securities. They
are paid from the fund's assets before any earnings are distributed to
shareholders.
[glossary to be continued]
About your account
Investing in the Fund
You can choose from a number of share classes for the Fund. Because each
share class has a different combination of sales charges, fees, and
other features, you should consult your financial adviser to determine
which class best suits your investment goals and time frame.
Choosing a share class
Class A
[bullet] Class A shares have an up-front sales charge of up to 5.75%
that you pay when you buy the shares. The offering price for
Class A shares includes the front-end sales charge.
[bullet] If you invest $50,000 or more, your front-end sales charge will
be reduced.
[bullet] You may qualify for other reduced sales charges, as described
in "How to reduce your sales charge," and under certain
circumstances the sales charge may be waived; please see the
Statement of Additional Information.
[bullet] Class A shares are also subject to an annual 12b-1 fee no
greater than 0.30% of average daily net assets, which is lower
than the 12b-1 fee for Class B and Class C shares.
[bullet] Class A shares generally are not subject to a contingent
deferred sales charge.
Class B
[bullet] Class B shares have no up-front sales charge, so the full
amount of your purchase is invested in the Fund. However, you
will pay a contingent deferred sales charge if you redeem your
shares within six years after you buy them.
[bullet] If you redeem Class B shares during the first year after you
buy them, the shares will be subject to a contingent deferred
sales charge of 5%. The contingent deferred sales charge is 4%
during the second year, 3% during the third and fourth years,
2% during the fifth year, 1% during the sixth year, and 0%
thereafter.
[bullet] Under certain circumstances the contingent deferred sales
charge may be waived; please see the Statement of Additional
Information.
[bullet] For approximately eight years after you buy your Class B
shares, they are subject to annual 12b-1 fees no greater than
1% of average daily net assets, of which 0.25% are service fees
paid to the distributor, dealers or others for providing
services and maintaining shareholder accounts.
[bullet] Because of the higher 12b-1 fees, Class B shares have higher
expenses and any dividends paid on these shares are lower than
dividends on Class A shares.
[bullet] Approximately eight years after you buy them, Class B shares
automatically convert into Class A shares with a 12b-1 fee of
no more than 0.30%.
[bullet] You may purchase up to $250,000 of Class B shares at any one
time. The limitation on maximum purchases varies for retirement
plans.
[glossary continued]
F-M
Financial adviser
- ------------------------------------------------------------------------
Financial professional (e.g., broker, banker, accountant, planner or
insurance agent) who analyzes clients' finances and prepares
personalized programs to meet objectives.
Fixed-income securities
- ------------------------------------------------------------------------
With fixed-income securities, the money you originally invested is
returned to you at a prespecified maturity date. These securities, which
include government, corporate or municipal bonds, as well as money
market securities, typically pay a fixed rate of return.
[glossary to be continued]
Class C
[bullet] Class C shares have no up-front sales charge, so the full
amount of your purchase is invested in the Fund. However, you
will pay a contingent deferred sales charge if you redeem your
shares within 12 months after you buy them.
[bullet] Under certain circumstances the contingent deferred sales
charge may be waived; please see the Statement of Additional
Information.
[bullet] Class C shares are subject to an annual 12b-1 fee which may not
be greater than 1% of average daily net assets, of which 0.25%
are service fees paid to the distributor, dealers or others for
providing personal services and maintaining shareholder
accounts.
[bullet] Because of the higher 12b-1 fees, Class C shares have higher
expenses and pay lower dividends than Class A shares.
[bullet] Unlike Class B shares, Class C shares do not automatically
convert into another class.
[bullet] You may purchase any amount less than $1,000,000 of Class C
shares at any one time. The limitation on maximum purchases
varies for retirement plans.
<TABLE>
<CAPTION>
Class A Sales Charges
Sales charge as % Sales charge as % Dealer's commission
Amount of purchase of offering price of amount invested as % of offering price
<S> <C> <C> <C>
Less than $50,000 5.75% X.XX% 5.00%
$50,000 but
under $100,000 4.75% X.XX% 4.00%
$100,000 but
under $250,000 3.75% X.XX% 3.00%
$250,000 but
under $500,000 2.50% X.XX% 2.00%
$500,000 but
under $1 million 2.00% X.XX% 1.60%
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1
million or more of Class A shares. However, if your financial adviser is
paid a commission on your purchase, you may have to pay a limited
contingent deferred sales charge of 1% if you redeem these shares within
the first year and 0.50% if you redeem them within the second year.
<TABLE>
<CAPTION>
Sales charge as % Sales charge as % Dealer's commission
Amount of purchase of offering price of amount invested as % of offering price
<S> <C> <C> <C>
$1,000,000 up to
$5 million none None 1.00
Next $20 million
up to $25 million none None 0.50
Amount over $25
million none None 0.25
</TABLE>
[glossary continued]
Inflation
- ------------------------------------------------------------------------
The increase in the cost of goods and services over time. U.S. inflation
is measured by the Consumer Price Index (CPI).
Investment goal
- ------------------------------------------------------------------------
The objective, such as long-term capital growth or high current income,
that a mutual fund pursues.
Management fee
- ------------------------------------------------------------------------
The amount paid by a mutual fund to the investment adviser for
management services, expressed as a percentage of the fund's net assets.
[glossary to be continued]
About your account continued
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on
shares. Please refer to the Statement of Additional Information for
detailed information and eligibility requirements. You can also get
additional information from your financial adviser. You or your
financial adviser must notify us at the time you purchase shares if you
are eligible for any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Share class
Program How it works A B C
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Letter of Intent Through a Letter of Intent X Although the
you agree to invest a Letter of Intent
certain amount in Delaware and Rights of
Investment Funds (except Accumulation do
money market funds with no not apply to the
sales charge) over a 13-month purchase of Class
period to qualify for reduced B and C shares,
front-end sales charges. you can combine
your purchase of
Class B and C
shares to fulfill
your Letter of
Intent or qualify
for Rights of
Accumulation.
- ------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings X
of all funds in the Delaware
Investments family (except
money market funds with no
sales charge) as well as the
holdings of your spouse and
children under 21 to qualify
for reduced front-end sales
charges.
- ------------------------------------------------------------------------------------
Reinvestment of Redeemed Up to 12 months after you X
Shares redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, These investment plans may X
SARSEP, Prototype Profit qualify for reduced sales
Sharing, Pension, charges by combining the
SIMPLE 401(k), 403(b)(7), purchases of all members
and 457 Retirement Plans of the group. Members of
these groups may also qualify
to purchase shares without a
front-end sales charge and a
waiver of any contingent
deferred sales charges.
- ------------------------------------------------------------------------------------
</TABLE>
[glossary continued]
M-P
Market capitalization
- ------------------------------------------------------------------------
The value of a corporation determined by multiplying the current market
price of a share of common stock by the number of shares held by
shareholders. A corporation with one million shares outstanding and the
market price per share of $10 has a market capitalization of $10
million.
NASD (National Association of Securities Dealers)
- ------------------------------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the
actions of its members.
[glossary to be continued]
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to
the fund and class of shares you wish to purchase to Delaware
Investments, 1818 Market Street, Philadelphia, PA 19103. If you are
making an initial purchase by mail, you must include a completed
investment application, or an appropriate retirement plan application if
you are opening a retirement account, with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank,
ABA #031201467, Bank Account number 2014128934013. Include your account
number and the name of the fund in which you want to invest. If you are
making an initial purchase by wire, you must call us so we can assign an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in
the Delaware Investments family for shares of other funds in the family.
Please keep in mind, however, that under most circumstances, you may
only exchange between the same class of shares. To open an account by
exchange, call the Shareholder Service Center at 800-523-1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated
telephone service, or through our web site, www.delawarefunds.com. For
more information about how to sign up for these services, call our
Shareholder Service Center at 800-523-1918.
[glossary continued]
NAV (Net asset value)
- ------------------------------------------------------------------------
The daily dollar value of one mutual fund share. Equal to a fund's net
assets divided by the number of shares outstanding.
NRSRO (Nationally recognized statistical rating organization)
- ------------------------------------------------------------------------
A company that assesses the quality and potential performance of bonds,
commercial paper, preferred and common stocks and municipal short-term
issues, rating the probability that the issuer of the debt will meet the
scheduled interest payments and repay the principal. Ratings are
published by such companies as Moody's Investors Service (Moody's),
Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Preferred stock
- ------------------------------------------------------------------------
Preferred stock has preference over common stock in the payment of
dividends and liquidation of assets. Preferred stocks also pay dividends
at a fixed rate.
[glossary to be continued]
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an
initial investment of $1,000, and make additional investments at any
time for as little as $100. If you are buying shares in an IRA or Roth
IRA; under the Uniform Gifts to Minors Act or the Uniform Transfers to
Minors Act; or through an Automatic Investing Plan, the minimum purchase
is $250, and you can make additional investments of only $25. If you are
buying shares in an Education IRA, the minimum purchase is $500, and
you can made additional investments of only $25. The minimums vary for
retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your
purchase order. If we or an authorized agent receives your order before
the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on a business day, you will pay that day's closing share
price which is based on the Fund's net asset value. If we receive your
order after the close of trading, you will pay the next business day's
price. A business day is any day that the New York Stock Exchange is
open for business. We reserve the right to reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the
Exchange is open. We calculate this value by adding the market value of
all the securities and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. We price
securities and other assets for which market quotations are available at
their market value. We price debt securities on the basis of valuations
provided to us by an independent pricing service that uses methods
approved by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the
board of directors.
[glossary continued]
P-S
Price/earnings ratio
- ------------------------------------------------------------------------
A measure of a stock's value calculated by dividing the current market
price of a share of stock by its annual earnings per share. A stock
selling for $100 per share with annual earnings of $5 has a P/E of 20.
Principal
- ------------------------------------------------------------------------
Amount of money you invest. Also refers to a bond's original face value,
due to be repaid at maturity.
Prospectus
- ------------------------------------------------------------------------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives,
policies, services and fees.
[glossary to be continued]
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your
shares. Your adviser may charge a fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by
writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA
19103. All owners of the account must sign the request, and for
redemptions of $50,000 or more, you must include a signature guarantee
for each owner. Signature guarantees are also required when redemption
proceeds are going to anyone other than the account holder(s) of record.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have
the proceeds sent to you by check, or if you redeem at least $1,000 of
shares, you may have the proceeds sent directly to your bank by wire.
Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds
deposited directly to your bank account the next business day after we
receive your request. If you request a wire deposit, the First Union
Bank fee (currently $7.50) will be deducted from your proceeds. Bank
information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone
service, or through our web site, www.delawarefunds.com. For more
information about how to sign up for these services, call our
Shareholder Service department at 800-523-1918.
[glossary continued]
Redeem
- ------------------------------------------------------------------------
To cash in your shares by selling them back to the mutual fund.
Risk
- ------------------------------------------------------------------------
Generally defined as variability of value; also credit risk, inflation
risk, currency and interest rate risk. Different investments involve
different types and degrees of risk.
S&P 500 Index
- ------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of
500 widely held common stocks that is often used to represent
performance of the U.S. stock market.
Sales charge
- ------------------------------------------------------------------------
Charge on the purchase of fund shares sold through financial advisers.
May vary with the amount invested. Typically used to compensate advisers
for advice and service provided.
[glossary to be continued]
About your account continued
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the
certificates with your request to sell the shares. We recommend that you
send your certificates by certified mail.
When you send us a properly completed request to redeem or exchange
shares, you will receive the net asset value as determined at the close
of business on the day we receive your request. We will deduct any
applicable contingent deferred sales charges. You may also have to pay
taxes on the proceeds from your sale of shares. We will send you a
check, normally the next business day, but no later than seven days
after we receive your request to sell your shares. If you purchased your
shares by check, we will wait until your check has cleared, which can
take up to 15 days, before we honor your request to sell these shares.
If you are required to pay a contingent deferred sales charge when you
redeem your shares, the amount subject to the fee will be based on the
shares' net asset value when you purchased them or their net asset value
when you redeem them, whichever is less. This arrangement assures that
you will not pay a contingent deferred sales charge on any increase in
the value of your shares. You also will not pay the charge on any shares
acquired by reinvesting dividends or capital gains. If you exchange
shares of one fund for shares of another, and later redeem those shares,
the purchase price for purposes of the contingent deferred sales charge
formula will be the price you paid for the original shares not the
exchange price. The redemption price for purposes of this formula will
be the NAV of the shares you are actually redeeming.
Account Minimum
If you redeem shares and your account balance falls below the required
account minimum of $1,000 ($250 for IRAs and Roth IRAs, Uniform Gift to
Minors Act accounts or accounts with automatic investing plans, and $500
for Education IRAs) for three or more consecutive months, you will have
until the end of the current calendar quarter to raise the balance to
the minimum. If your account is not at the minimum by the required time,
you will be charged a $9 fee for that quarter and each quarter after
that until your account reaches the minimum balance. If your account
does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
[glossary continued]
S-S
SEC (Securities and Exchange Commission)
- ------------------------------------------------------------------------
Federal agency established by Congress to administer the laws governing
the securities industry, including mutual fund companies.
Share classes
- ------------------------------------------------------------------------
Different classifications of shares; mutual fund share classes offer a
variety of sales charge choices.
Signature guarantee
- ------------------------------------------------------------------------
Certification by a bank, brokerage firm or other financial institution
that a customer's signature is valid.
[glossary to be continued]
Special services
To help make investing with us as easy as possible, and to help you
build your investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly
investments directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions or direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly
exchanges from your shares in one or more Delaware Investments funds
into any other Delaware Investments fund. Wealth Builder Exchanges are
subject to the same rules as regular exchanges and require a minimum
monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in
the Delaware Investments family. The shares that you purchase through
the Dividend Reinvestment Plan are not subject to a front-end sales
charge or to a contingent deferred sales charge.
[glossary continued]
Standard deviation
- ------------------------------------------------------------------------
A measure of an investment's volatility; for mutual funds, measures how
much a fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- ------------------------------------------------------------------------
The document serving as "Part B" of a fund's prospectus that provides
more detailed information about the fund's organization, investments,
policies and risks.
Stock
- ------------------------------------------------------------------------
An investment that represents a share of ownership (equity) in a
corporation. Stocks are often referred to as "equities."
[glossary to be continued]
About your account (continued)
Special services (continued)
Exchanges
You can exchange all or part of your shares for shares of the same class
in another Delaware Investments fund without paying a sales charge and
without paying a contingent deferred sales charge on the shares of the
fund from which you make your exchange. However, if you exchange shares
from a money market fund that does not have a sales charge you will pay
any applicable sales charges on your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When exchanging
Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred
sales charge as the shares you originally purchased. The holding period
for the CDSC will also remain the same, with the amount of time you held
your original shares being credited toward the holding period of your
new shares. When you exchange shares, you are purchasing shares in
another fund so you should be sure to get a copy of the fund's
prospectus and read it carefully before buying shares through an
exchange.
MoneyLineSM On Demand Service
Through our MoneylineSM On Demand Service, you or your financial adviser
may transfer money from your Fund account to your predesignated bank
account by telephone request. This service is not available for
retirement plans.
MoneyLineSM Direct Deposit Service
Through our MoneylineSM Direct Deposit Service you can have $25 or more
in dividends and distributions deposited directly to your bank account.
Delaware Investments does not charge a fee for this service; however,
your bank may assess one. This service is not available for retirement
plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly
or quarterly payment from your account made to you or someone you
designate. If the value of your account is $5,000 or more, you can make
withdrawals of at least $25 monthly, or $75 quarterly. You may also have
your withdrawals deposited directly to your bank account through our
MoneylineSM Direct Deposit Service.
[glossary continued]
T-V
Total return
- ------------------------------------------------------------------------
An investment performance measurement, expressed as a percentage, based
on the combined earnings from dividends, capital gains and change in
price over a given period.
[glossary to be continued]
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We
automatically reinvest all dividends and any capital gains, unless you
tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be affected
by current tax law. The tax status of your dividends from the Fund is
the same whether you reinvest your dividends or receive them in cash.
Distributions from the Fund's long-term capital gains are taxable as
capital gains, while distributions from short-term capital gains and net
investment income are generally taxable as ordinary income. Any capital
gains may be taxable at different rates depending on the length of time
the Fund held the assets. In addition, you may be subject to state and
local taxes on distributions.
We will send you a statement each year by January 31 detailing the
amount and nature of all dividends and capital gains that you were paid
for the prior year.
Retirement plans
In addition to being an appropriate investment for your Individual
Retirement Account (IRA), Roth IRA and Education IRA, shares in the Fund
may be suitable for group retirement plans. You may establish your IRA
account even if you are already a participant in an employer-sponsored
retirement plan. For more information on how shares in the Fund can play
an important role in your retirement planning or for details about group
plans, please consult your financial adviser, or call 800-523-1918.
[glossary continued]
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- ------------------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to
a minor with special tax advantages.
Volatility
- ------------------------------------------------------------------------
The tendency of an investment to go up or down in value by different
magnitudes. There are "low volatility" and "high volatility"
investments.
[end glossary]
Financial highlights
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. All "per share"
information reflects financial results for a single Fund share. This
information has been audited by Ernst & Young LLP, whose report, along
with the Fund's financial statements, is included in the Fund's annual
report, which is available upon request by calling 800-523-1918.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
- ------------------------------------------------------------------------------------
Year Period Year Period
Ended 2/24/97 (1) Ended 2/24/97 (1)
11/30 through 11/30 through
Blue Chip Fund 1998 11/30/97 1998 11/30/97
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 8.500 00.000 8.500
Income From Investment
Operations
Net investment income ($) 0.000 0.041 (2) (0.000) (0.009) (2)
Net realized & unrealized gains
(losses) on investments ($) 0.000 1.309 0.000 1.309
Total from investment
operations ($) 0.000 1.350 0.000 1.300
Less Distributions
Dividends from net investment
income ($) (0.000) none (0.000) none
Distributions from realized
gains ($) (0.000) none (0.000) none
Total distributions ($) (0.000) none (0.000) none
Net asset value, end of
period ($) 00.000 9.850 00.000 9.800
Total Return (%)(3)(4) 00.00 15.88 00.00 15.29
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000,000 2,272 000,000 1,144
Ratio of expenses to average
daily net assets (%) 0.00 1.50 0.00 2.20
Ratio of net investment income
to average daily net assets (%) 0.00 0.69 0.00 (0.01)
Portfolio turnover rate (%) 00 25 00 25
Volatility, as indicated by
year-by-year return (%) 00.00 15.88 00.00 15.29
- ------------------------------------------------------------------------------------
Class C Shares
- ------------------------------------------------------------------------------------
Year Period
Ended 2/24/97 (1)
11/30 through
Blue Chip Fund 1998 11/30/97
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 8.500
Income From Investment
Operations
Net investment income ($) 0.000 (0.011) (2)
Net realized & unrealized gains
(losses) on investments ($) 0.000 1.311
Total from investment
operations ($) 0.000 1.300
Less Distributions
Dividends from net investment
income ($) (0.000) none
Distributions from realized
gains ($) (0.000) none
Total distributions ($) (0.000) none
Net asset value, end of
period ($) 00.000 9.800
Total Return (%)(3)(4) 00.00 15.29
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000,000 239
Ratio of expenses to average
daily net assets (%) 0.00 2.20
Ratio of net investment income
to average daily net assets (%) 0.00 (0.01)
Portfolio turnover rate (%) 00 25
Volatility, as indicated by
year-by-year return (%) 00.00 15.29
- ------------------------------------------------------------------------------------
</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 For Class A shares: does not reflect the maximum sales charge of
5.75%, nor the Limited CDSC that varies from 0.50% to 1% that
would apply in the event of certain redemptions within two years
of purchase. For Class B shares: does not reflect the contingent
deferred sales charge which varies from 1%-5% depending upon the
holding period. For Class C shares: does not reflect the 1%
contingent deferred sales charge on redemptions within 12 months
from the date of purchase.
4 Total return reflects the expense limitations referenced on page x.
How to read the financial highlights
Net investment income
- ------------------------------------------------------------------------
Net investment income includes dividend and interest income earned from
the Fund's securities after expenses have been deducted.
Net gains (losses) on investments (both realized and unrealized)
- ------------------------------------------------------------------------
A realized gain occurs when we sell an investment at a profit, while a
realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we
record an unrealized gain or loss. The amount of realized gain per share
that we pay to shareholders is listed under "Less Distributions-
Distributions from realized gains."
Realized gains
- ------------------------------------------------------------------------
Profits realized from the sale of securities.
Net asset value (NAV)
- ------------------------------------------------------------------------
This is the value of a mutual fund share, calculated by dividing the net
assets by the number of shares outstanding.
Total return
- ------------------------------------------------------------------------
This represents the percentage increase or decrease in the value of a
share of a fund during specific periods, in this case, annual periods.
In calculating this figure for the financial highlights table, we
include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and
realized gains.
Net assets
- ------------------------------------------------------------------------
Net assets represent the total value of all the assets in the Fund's
portfolio, less any liabilities, that are attributable to that class of
the Fund.
How to read the financial highlights
(continued)
Ratio of expenses to average daily net assets
- ------------------------------------------------------------------------
The expense ratio is the percentage of total investment that a fund pays
annually for operating expenses and management fees. These expenses
include accounting and administration expenses, services for
shareholders, and similar expenses.
Ratio of net investment income to average daily net assets
- ------------------------------------------------------------------------
We determine this ratio by dividing net investment income by average net
assets.
Portfolio turnover rate
- ------------------------------------------------------------------------
This figure tells you the amount of trading activity in a fund's
portfolio. For example, a fund with a 50% turnover has bought and sold
half of the value of its total investment portfolio during the stated
period.
[back cover]
Blue Chip Fund
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during their last fiscal year. You can find more detailed information
about the Fund in the current Statement of Additional Information, which
we have filed electronically with the Securities and Exchange Commission
(SEC) and which is legally a part of this prospectus. If you want a free
copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have any questions about investing in the Fund,
you can write to us at 1818 Market Street, Philadelphia, PA 19103, or
call toll-free 800-523-1918. You may also obtain additional information
about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web
site (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. Information about the
Fund, including its Statement of Additional Information, can be reviewed
and copied at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. You can get information on the public reference
room by calling the SEC at 1-800-SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800-523-1918
Call the Shareholder Service Center:
Monday to Friday, 8 a.m. to 8 p.m. Eastern time.
For fund information; literature; price, yield and performance figures.
For information on existing regular investment accounts and retirement
plan accounts including wire investments; wire redemptions; telephone
redemptions and telephone exchanges.
Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance
information on all Delaware Investment Funds seven days a week, 24 hours
a day, use this Touch-ToneR service.
Registrant's Investment Company Act file number: 811-750
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
P-___ [--] PP 1/99
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
BLUE CHIP FUND
Institutional Class
Prospectus January 29, 1999
Total Return Fund
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
[inside front cover]
Table of Contents
Fund profile page
Blue Chip Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager and Sub-adviser
Portfolio manager
Who's who? page
About your account page
Investing in the Fund
Institutional Class shares
How to buy shares
How to redeem shares
Dividends, distributions and taxes
Financial highlights page
[sidebar copy at bottom of page]
How to use this prospectus
Here are guidelines to help you use this prospectus to make well-
informed investment decisions about our funds. If you're looking for a
specific piece of information, the table of contents can guide you
directly to the appropriate section.
Step 1
- ---------------------------------------------------------------------
Take a look at the fund profiles for an overview of the Fund.
Step 2
- ---------------------------------------------------------------------
Learn in-depth information about how the Fund invests, the risks
involved and the people and organizations responsible for the Fund's
day-to-day operations.
Step 3
- ---------------------------------------------------------------------
Determine which fund features and services you would like to take
advantage of.
Step 4
- ---------------------------------------------------------------------
Use the glossary that begins on page x to find definitions of words
printed in bold type throughout the prospectus.
Investing for total return...
Investors with long-term goals often choose mutual funds designed to
provide total return. These funds provide moderate growth potential as
well as some current income. They generally involve less risk than
aggressive stock funds but more risk than bond funds. Like all mutual
funds, total return funds allow you to invest conveniently in a
diversified portfolio without having to select and monitor individual
securities on your own.
with Delaware Investments
Your personal financial adviser, working with Delaware Investments, can
help you define, evaluate and set your personal investment objectives.
Your adviser can also explain the role total return funds like Blue Chip
Fund can play in a long-term investment program designed to meet your
goals.
The Delaware Investments family includes a full range of mutual funds-
including total return funds-designed to fit your particular investment
needs. With 70 years of investment management experience, we follow
time-tested strategies that emphasize long-term performance and
consistent application of investment disciplines. Today, as part of the
Lincoln Financial Group, a $105 billion financial services complex,
Delaware Investments has access to a variety of experienced and talented
investment managers. We are dedicated to working closely with financial
advisers to bring investors the highest quality investment management
and services.
["HOUSE" GRAPHIC, WITH TOTAL RETURN "ROOM" HIGHLIGHTED]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Growth Equity Funds
International and Global Funds
Asset Allocation Funds
[Table Highlighted] Moderate Growth Equity Funds for...
Total Return
These stock-oriented funds provide moderate growth potential as well as
some current income, with less risk than aggressive stock funds but more
risk than bond funds.
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
Profile: Blue Chip Fund
What are the Fund's goals?
Blue Chip Fund seeks long-term capital appreciation. Current income is
a secondary objective. Although the Fund will strive to meet its goals,
there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of large companies that we expect to grow
significantly faster than the average stock in the unmanaged S&P 500
Composite Stock Price Index. We use a computer-driven selection process
that evaluates stocks on a variety of characteristics including dividend
yield, earnings growth and price to earnings ratio.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be particularly affected by changes
in stock prices, which tend to fluctuate more than bond prices.
Moreover, an investment in the Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. For a more complete discussion of risk,
please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors seeking long-term capital appreciation.
[bullet] Investors seeking an investment primarily in common stocks.
Who should not invest in the Fund
[bullet] Investors with short-term financial goals.
[bullet] Investors whose primary goal is current income.
[bullet] Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly over the short term.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has the Fund performed?
This bar chart and table can help you evaluate the potential risks and
rewards of investing in Blue Chip Fund. We show how returns for the Blue
Chip Fund's Institutional Class shares have varied over the past
calendar year and since inception, as well as average annual returns of
all shares for the past year and since inception -- all compared to the
performance of the S&P 500 Index. You should remember that unlike the
Fund, the index is unmanaged and doesn't include the actual costs of
buying, selling, and holding securities. The Fund's past performance
does not necessarily indicate how it will perform in the future. The
Class' returns reflect a voluntary expense cap of 1.20%. The returns
would be lower without this voluntary cap.
* Blue Chip Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN
(INSTITUTIONAL CLASS) FPO]
Blue Chip Fund S&P 500
[bar chart]
Year-by-year total return (Institutional Class)
As of December 31, 1998, the Institutional Class had a year-to-date
return of XX%. During the periods illustrated in this bar chart, the
Institutional Class' highest return in any quarter was XX% and its
lowest return in any quarter was XX%.
[table]
Average annual return as of 12/31/98
Institutional S&P 500
Class
1 year 00.0% 00.0%
Since inception 00.0% 00.0%
(2/24/97)
What are Blue Chip Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy
or sell shares of the Institutional Class.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price none
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
Maximum sales charge (load) imposed on
reinvested dividends none
Redemption fees none
Exchange fees (1) none
Annual fund operating expenses are deducted from the Fund's income or
assets before it pays dividends and before its total return is
calculated. We will not charge you separately for these expenses.
Management fees 00.0%
Distribution and service (12b-1) fees none
Other expenses 00.0%
Total operating expenses (2) 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. 3 This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
1 year 00.0%
3 years 00.0%
5 years 00.0%
10 years 00.0%
1 Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you
exchange your shares for another fund.
2 The investment manager has agreed to waive fees and pay expenses
through _________________ in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary
expenses) from exceeding 1.20% of average daily net assets.
3 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
How we manage the Fund
Our investment strategies
We use a computer-driven selection process designed to identify stocks
of companies that are likely to grow faster than the average of the
companies in the S&P 500. Aided by this technology, we evaluate and
rank hundreds of stocks daily, using a variety of factors such as
dividend yield, earnings growth and price to earnings ratios. Decisions
to buy and sell stocks are determined by this objective evaluation
process.
We take a disciplined approach to investing, combining investment
strategies and risk management techniques that can help shareholders
meet their goals.
The Blue Chip Fund is a total return fund. Under normal conditions, at
least 65% of the Fund's net assets will be invested in stocks we
consider "blue chip" stocks. "Blue chip" stocks are those whose market
capitalization is greater than $2.5 billion and which generally exhibit
positive characteristics like a lengthy history of profit growth and
dividend payments, a reputation for quality products and services, and a
sound management structure. They are generally easy to buy and sell.
Our goal is to select stocks of companies that have the potential to
grow significantly faster than the average of the companies in the S&P
500. We believe this growth, if achieved, will result in a rising share
price that will provide long-term appreciation to our investors.
The securities we typically invest in Stocks offer investors the
potential for capital appreciation, and may pay dividends as well.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------
<S> <C>
Blue Chip Fund
----------------------------------------------
Common stocks: Securities that Generally, we invest 90% to 100% of net assets
represent shares of ownership in a in common stock of medium- to large-size
corporation. Stockholders companies.
participate in the corporation's
profits and losses, proportionate
to the number of shares they own.
- ------------------------------------------------------------------------------------
American Depositary Receipts: We generally invest only in those ADRs
Certificates issued by a U.S. included in the S&P 500 Index. Although Blue
bank which represent a stated number Chip Fund may invest up to 20% of its net
of shares of a foreign corporation assets in depositary receipts, ADRs normally
that the bank holds in its vault. make up less than 10% of the Fund's net
An ADR entitles the holder to all assets.
dividends and capital gains earned
by the underlying foreign shares,
and an ADR is bought and sold the
same as U.S. securities.
- ------------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase agreements as a
between a buyer and seller of short-term investment for a Fund's cash
securities in which the seller position. In order to enter into these
agrees to buy the securities back repurchase agreements, the Fund must have
within a specified time at the collateral of at least 102% of the repurchase
same price the buyer paid for them, price. Blue Chip Fund may have no more than
plus an amount equal to an agreed 10% of its total assets in repurchase
upon interest rate. Repurchase agreements with maturities of over seven
agreements are often viewed as days.
equivalent to cash.
- ------------------------------------------------------------------------------------
Restricted securities: Privately We may invest without limitation in privately
placed securities whose resale is placed securities that are eligible for resale
restricted under securities law. among certain institutional buyers.
- ------------------------------------------------------------------------------------
Illiquid Securities: Securities We may invest up to 15% of the Fund's net
that do not have a ready market, assets in illiquid securities.
and cannot be easily sold, if at
all, at a reasonable price.
- ------------------------------------------------------------------------------------
</TABLE>
Blue Chip Fund is permitted to invest in all available types of equity
securities, including preferred stocks, warrants and convertible
securities. The Fund may invest in foreign securities directly
(although we have no present intention to do so) and through global and
European depositary receipts. It may hold cash, invest in short-term
debt securities and money market instruments; and engage in futures and
options transactions for defensive purposes. Please see the Statement
of Additional Information for additional descriptions and risk
information on these securities as well as those listed in the table
above. You can find additional information about the investments in the
Fund's portfolio in the annual and semi-annual shareholder reports.
Lending securities
Blue Chip Fund may lend up to 25% of its assets to qualified brokers,
dealers and institutional investors for their use in security
transactions.
Portfolio turnover
We anticipate that Blue Chip Fund's annual portfolio turnover will be
less than 100%. A turnover rate of 100% would occur if the Fund sold and
replaced securities valued at 100% of its net assets within one year.
Borrowing from Banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions.
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface the first time they
appear in the prospectus. So if you would like to know the meaning of a
word that isn't in boldface, you might still find it in the glossary.
Glossary A-B
Amortized cost
- ------------------------------------------------------------------------
Similar to depreciated value, amortized cost reflects the value of a
fixed-income security adjusted to account for any premium that was paid
above the par value when the security was purchased. The purpose of
amortization is to reflect resale or redemption value.
Appreciation
- ------------------------------------------------------------------------
An increase in the value of an investment.
Average maturity
- ------------------------------------------------------------------------
An average of when the individual bonds and other debt securities held
in a portfolio will mature.
Bond
- ------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or
government agency. In return for lending money to the issuer, a bond
buyer generally receives fixed periodic interest payments and repayment
of the loan amount on a specified maturity date. A bond's price prior to
maturity changes and is inversely related to current interest rates.
When interest rates rise, prices fall, and when interest rates fall,
prices rise.
Bond ratings
- ------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA
(highest quality) to D (lowest quality). Bonds rated Baa/BBB or better
are considered investment grade. Bonds rated Ba/BB or lower are
commonly known as junk bonds.
C-C
Capital
- ------------------------------------------------------------------------
The amount of money you invest.
Capital gains distributions
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of profits (realized gains) from
the sale of a fund's portfolio securities. Usually paid once a year; may
be either short-term gains or long-term gains.
Commission
- ------------------------------------------------------------------------
The fee an investor pays to a financial adviser for investment advice
and help in buying or selling mutual funds, stocks, bonds or other
securities.
Compounding
- ------------------------------------------------------------------------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- ------------------------------------------------------------------------
Measurement of U.S. inflation; represents the price of a basket of
commonly purchased goods.
Contingent deferred sales charge (CDSC)
- ------------------------------------------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to
the fund) within a set number of years; an alternative method for
investors to compensate a financial adviser for advice and service,
rather than an up-front commission.
[glossary to be continued]
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you
may receive little or no return on your investment, and the risk that
you may lose part or all of the money you invest. Before you invest in
the Fund you should carefully evaluate the risks. Because of the nature
of the Fund, you should consider an investment to be a long-term
investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when
investing in Blue Chip Fund. Please see the Statement of Additional
Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------
<S> <C>
Blue Chip Fund
----------------------------------------------
Market risk is the risk that all We maintain a long-term investment approach
or a majority of the securities in and focus on stocks we believe can appreciate
a certain market -- like the stock over an extended time frame regardless of
or bond market -- will decline in interim market fluctuations. We do not try to
value because of factors such as predict overall stock market movements and do
economic conditions, future not trade for short-term purposes.
expectations or investor confidence.
We may hold a substantial part of Blue Chip
Fund's assets in cash or cash equivalents as
a temporary, defensive strategy.
- ------------------------------------------------------------------------------------
Industry and security risk is the We limit the amount of Blue Chip Fund's assets
risk that the value of securities invested in any one industry and in any
in a particular industry or the individual security. We generally allocate
value of an individual stock or bond assets to various sectors in roughly the same
will decline because of changing proportions as the S&P 500 sector allocation.
expectations for the performance of
that industry or for the individual
company issuing the stock or bond.
- ------------------------------------------------------------------------------------
Foreign risk is the risk that We typically invest only a small portion of
foreign securities may be Blue Chip Fund's portfolio in American
adversely affected by political Depositary Receipts. When we do purchase them,
instability, changes in currency they are generally denominated in U.S. dollars
exchange rates, foreign economic and traded on a U.S. stock exchange.
conditions or inadequate regulatory
and accounting standards.
- ------------------------------------------------------------------------------------
Liquidity risk is the possibility We limit exposure to illiquid securities.
that securities cannot be readily
sold, at approximately the price
that the Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
[glossary continued]
C-E
Cost basis
- ------------------------------------------------------------------------
The original purchase price of an investment, used in determining
capital gains and losses.
Currency exchange rates
- ------------------------------------------------------------------------
The price at which one country's currency can be converted into
another's. This exchange rate varies almost daily according to a wide
range of political, economic and other factors.
Depreciation
- ------------------------------------------------------------------------
A decline in an investment's value.
Diversification
- ------------------------------------------------------------------------
The process of spreading investments among a number of different
securities, asset classes or investment styles to reduce the risks of
investing.
[glossary to be continued]
Who manages the Fund
Investment Manager and Sub-Adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary
of Delaware Management Holdings, Inc. Vantage Investment Advisors is the
Fund's sub-adviser. As sub-adviser, Vantage is responsible for day-to-
day management of the Fund's assets. Delaware Management Company
administers the Fund's affairs and has ultimate responsibility for all
investment advisory services for the Fund. Delaware Management Company
also supervises the sub-adviser's performance. For their services to
the Fund, the manager and sub-adviser were paid an aggregate fee for the
last fiscal year as follows:
Investment Management Fees
Blue Chip Fund
As a percentage of average daily net assets 0.00%
Portfolio Manager
T. Scott Wittman, President and Chief Investment Officer of Vantage
Investment Advisors, has had primary responsibility for making day-to-
day investment decisions for the Fund since its inception. His
responsibilities with Vantage Investment Advisors include both business
administration and equity portfolio management. Mr. Wittman is a
Certified Financial Analyst (CFA). 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.
Year 2000
As with other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if
the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." The Fund is
taking steps to obtain satisfactory assurances that the Fund's major
service providers are taking steps reasonably designed to address the
Year 2000 Problem with respect to the computer systems that such service
providers use. There can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund.
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the
"Euro." It is anticipated that each such participating country will
replace its existing currency with the Euro on January 1, 1999.
Additional European countries may elect to participate after that date.
If the Fund is invested in securities of participating countries, it
could be adversely affected if the computer systems used by its major
service providers are not properly prepared to handle the implementation
of this single currency or the adoption of the Euro by additional
countries in the future. Equity Funds III, Inc. is taking steps to
obtain satisfactory assurances that the major service providers of the
Fund are taking steps reasonably designed to address these matters with
respect to the computer systems that such service providers use. There
can be no assurances that these steps will be sufficient to avoid any
adverse impact on the business of the Fund.
[glossary continued]
Dividend distribution
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of dividends passed along from the
fund's portfolio of securities.
Expense ratio
- ------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of
its total net assets. Operating expenses are the costs of running a
mutual fund, including management fees, offices, staff, equipment and
expenses related to maintaining the fund's portfolio of securities. They
are paid from the fund's assets before any earnings are distributed to
shareholders.
[glossary to be continued]
[sidebar]
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-Adviser
Vantage Investment Advisors
630 Fifth Avenue
New York, NY 10111
Portfolio Service agent Distributor
managers Delaware Service Company, Inc. Delaware Distributors, L.P.
(see page x 1818 Market Street 1818 Market Street
for details) Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors
which has oversight responsibility for the management of the fund's
business affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the performance of
the investment manager, the distributor and others that perform services
for the fund. At least 40% of the board of directors must be independent
of the fund's investment manager or distributor. These independent fund
directors, in particular, are advocates for shareholder interests.
Custodian Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified bank
custodian who segregates fund securities from other bank assets.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager places
portfolio orders with broker/dealers and is responsible for obtaining
the best overall execution of those orders. A written contract between a
mutual fund and its investment manager specifies the services the
manager performs. Most management contracts provide for the manager to
receive an annual fee based on a percentage of the fund's average net
assets. The manager is subject to numerous legal restrictions,
especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the
management of the fund's assets. They are selected and supervised by
the investment manager.
Portfolio managers Portfolio managers are employed by the investment
manager or sub-adviser to make investment decisions for individual
portfolios on a day-to-day basis.
Service agent Mutual fund companies employ service agents (sometimes
called transfer agents) to maintain records of shareholder accounts,
calculate and disburse dividends and capital gains and prepare and mail
shareholder statements and tax information, among other functions. Many
service agents provide customer service to shareholders, as well.
Distributor Most mutual funds continuously offer new shares to the
public through distributors who are regulated as broker-dealers and are
subject to National Association of Securities Dealers, Inc. (NASD) rules
governing mutual fund sales practices.
Financial advisers Financial advisers provide investment advice to
their clients, analyzing their financial objectives and recommending
appropriate funds or other investments. Financial advisers are
compensated for their services, generally through sales commissions, and
through 12b-1 and/or service fees deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund
shareholders have specific voting rights, including the right to elect
directors. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change
fundamental investment objectives or policies must also seek shareholder
approval.
[glossary continued]
F-M
Financial adviser
- ------------------------------------------------------------------------
Financial professional (e.g., broker, banker, accountant, planner or
insurance agent) who analyzes clients' finances and prepares
personalized programs to meet objectives.
Fixed-income securities
- ------------------------------------------------------------------------
With fixed-income securities, the money you originally invested is
returned to you at a prespecified maturity date. These securities, which
include government, corporate or municipal bonds, as well as money
market securities, typically pay a fixed rate of return.
[glossary to be continued]
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
[bullet] 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
[bullet] tax-exempt employee benefit plans of the manager or its
affiliates and securities dealer firms with a selling agreement
with the distributor
[bullet] institutional advisory accounts of the manager, or its
affiliates and those having client relationships with Delaware
Investment Advisers, an affiliate 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
[bullet] 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
[bullet] 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
[glossary continued]
Inflation
- ------------------------------------------------------------------------
The increase in the cost of goods and services over time. U.S. inflation
is measured by the Consumer Price Index (CPI).
Investment goal
- ------------------------------------------------------------------------
The objective, such as long-term capital growth or high current income,
that a mutual fund pursues.
Management fee
- ------------------------------------------------------------------------
The amount paid by a mutual fund to the investment adviser for
management services, expressed as a percentage of the fund's net assets.
[glossary to be continued]
[glossary continued]
M-P
Market capitalization
- ------------------------------------------------------------------------
The value of a corporation determined by multiplying the current market
price of a share of common stock by the number of shares held by
shareholders. A corporation with one million shares outstanding and the
market price per share of $10 has a market capitalization of $10
million.
NASD (National Association of Securities Dealers)
- ------------------------------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the
actions of its members.
[glossary to be continued]
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to
the fund and class of shares you wish to purchase to Delaware
Investments, 1818 Market Street, Philadelphia, PA 19103. If you are
making an initial purchase by mail, you must include a completed
investment application, or an appropriate retirement plan application if
you are opening a retirement account, with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank,
ABA #031201467, Bank Account number 2014128934013. Include your account
number and the name of the fund in which you want to invest. If you are
making an initial purchase by wire, you must call us at 800-510-4015 so
we can assign an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in
the Delaware Investments family for shares of other funds in the family.
Please keep in mind, however, that you may not exchange your shares for
Class B or Class C shares. To open an account by exchange, call the
Shareholder Service Center at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a fee for this
service.
[glossary continued]
NAV (Net asset value)
- ------------------------------------------------------------------------
The daily dollar value of one mutual fund share. Equal to a fund's net
assets divided by the number of shares outstanding.
NRSRO (Nationally recognized statistical rating organization)
- ------------------------------------------------------------------------
A company that assesses the quality and potential performance of bonds,
commercial paper, preferred and common stocks and municipal short-term
issues, rating the probability that the issuer of the debt will meet the
scheduled interest payments and repay the principal. Ratings are
published by such companies as Moody's Investors Service (Moody's),
Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Preferred stock
- ------------------------------------------------------------------------
Preferred stock has preference over common stock in the payment of
dividends and liquidation of assets. Preferred stocks also pay dividends
at a fixed rate.
[glossary to be continued]
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your
purchase order. If we or an authorized agent receives your order before
the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on a business day, you will pay that day's closing share
price which is based on the Fund's net asset value. If we receive your
order after the close of trading, you will pay the next business day's
price. A business day is any day that the New York Stock Exchange is
open for business. We reserve the right to reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the
Exchange is open. We calculate this value by adding the market value of
all the securities and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. We price
securities and other assets for which market quotations are available at
their market value. We price debt securities on the basis of valuations
provided to us by an independent pricing service that uses methods
approved by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the
board of directors.
[glossary continued]
P-S
Price/earnings ratio
- ------------------------------------------------------------------------
A measure of a stock's value calculated by dividing the current market
price of a share of stock by its annual earnings per share. A stock
selling for $100 per share with annual earnings of $5 has a P/E of 20.
Principal
- ------------------------------------------------------------------------
Amount of money you invest. Also refers to a bond's original face value,
due to be repaid at maturity.
Prospectus
- ------------------------------------------------------------------------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives,
policies, services and fees.
[glossary to be continued]
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by
writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA
19103. All owners of the account must sign the request, and for
redemptions of $50,000 or more, you must include a signature guarantee
for each owner. You can also fax your written request to 215-255-8864.
Signature guarantees are also required when redemption proceeds are
going to anyone other than the account holder(s) of record.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have
the proceeds sent to you by check, or if you redeem at least $1,000 of
shares, you may have the proceeds sent directly to your bank by wire.
Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds
deposited directly to your bank account the next business day after we
receive your request. Bank information must be on file before you
request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your
shares. Your adviser may charge a fee for this service.
[glossary continued]
Redeem
- ------------------------------------------------------------------------
To cash in your shares by selling them back to the mutual fund.
Risk
- ------------------------------------------------------------------------
Generally defined as variability of value; also credit risk, inflation
risk, currency and interest rate risk. Different investments involve
different types and degrees of risk.
S&P 500 Index
- ------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of
500 widely held common stocks that is often used to represent
performance of the U.S. stock market.
Sales charge
- ------------------------------------------------------------------------
Charge on the purchase of fund shares sold through financial advisers.
May vary with the amount invested. Typically used to compensate advisers
for advice and service provided.
[glossary to be continued]
About your account continued
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the
certificates with your request to sell the shares. We recommend that you
send your certificates by certified mail.
When you send us a properly completed request to redeem or exchange
shares, you will receive the net asset value as determined on the
business day we receive your request. We will send you a check,
normally the next business day, but no later than seven days after we
receive your request to sell your shares. If you purchased your shares
by check, we will wait until your check has cleared, which can take up
to 15 days, before we honor your request to sell these shares.
Account Minimum
If you redeem shares and your account balance falls below $250, the Fund
may redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class
in another Delaware Investments fund. You may not exchange your shares
for Class B and Class C shares of the funds in the Delaware Investments
family. If you exchange shares to a fund that has a sales charge you will
pay any applicable sales charges on your new shares. You don't pay sales
charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange
shares, you are purchasing shares in another fund so you should be sure
to get a copy of the fund's prospectus and read it carefully before
buying shares through an exchange.
[glossary continued]
S-S
SEC (Securities and Exchange Commission)
- ------------------------------------------------------------------------
Federal agency established by Congress to administer the laws governing
the securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a
variety of sales charge choices.
Signature guarantee
- ------------------------------------------------------------------------
Certification by a bank, brokerage firm or other financial institution
that a customer's signature is valid.
[glossary to be continued]
[glossary continued]
Standard deviation
- ------------------------------------------------------------------------
A measure of an investment's volatility; for mutual funds, measures how
much a fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- ------------------------------------------------------------------------
The document serving as "Part B" of a fund's prospectus that provides
more detailed information about the fund's organization, investments,
policies and risks.
Stock
- ------------------------------------------------------------------------
An investment that represents a share of ownership (equity) in a
corporation. Stocks are often referred to as "equities."
[glossary to be continued]
[glossary continued]
T-V
Total return
- ------------------------------------------------------------------------
An investment performance measurement, expressed as a percentage, based
on the combined earnings from dividends, capital gains and change in
price over a given period.
[glossary to be continued]
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We
automatically reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be affected
by current tax law. The tax status of your dividends from the Fund is
the same whether you reinvest your dividends or receive them in cash.
Distributions from the Fund's long-term capital gains are taxable as
capital gains, while distributions from short-term capital gains and net
investment income are generally taxable as ordinary income. Any capital
gains may be taxable at different rates depending on the length of time
the Fund held the assets. In addition, you may be subject to state and
local taxes on distributions.
We will send you a statement each year by January 31 detailing the
amount and nature of all dividends and capital gains that you were paid
for the prior year.
[glossary continued]
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- ------------------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to
a minor with special tax advantages.
Volatility
- ------------------------------------------------------------------------
The tendency of an investment to go up or down in value by different
magnitudes. There are "low volatility" and "high volatility"
investments.
[end glossary]
Financial highlights
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. All "per share"
information reflects financial results for a single Fund share. This
information has been audited by Ernst & Young LLP, whose report, along
with the Fund's financial statements, is included in the Fund's annual
report, which is available upon request by calling 800-523-1918.
<TABLE>
<CAPTION>
Institutional Class
- ---------------------------------------------------------------------------
Period
Year ended 2/24/97 (1)
11/30 Through
Blue Chip Fund 1998 11/30/97
- ---------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ($) 0.000 8.500
Income From Investment Operations
Net investment income ($) 0.000 0.062 (2)
Net realized & unrealized gains (losses)
on investments ($) 0.000 1.308
Total from investment operations ($) 0.000 1.370
Less Distributions
Dividends from net investment income ($) 0.000 None
Distributions from realized gains ($) 0.000 None
Total distributions ($) 0.000 None
Net asset value, end of period ($) 0.000 9.870
Total Return (%)(3) 00.00 16.12
Ratios and Supplemental Data:
Net asset value, end of period (000's omitted) ($) 0,000 1,834
Ratio of expenses to average daily net assets (%) 0.00 1.20
Ratio of net investment income to average daily
net assets (%) 0.00 0.99
Portfolio turnover rate (%) 00 25
Volatility, as indicated by year-by-year
return (%) 00.00 16.12
- ---------------------------------------------------------------------------
</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 referenced on page x.
How to read the financial highlights
Net investment income
- ------------------------------------------------------------------------
Net investment income includes dividend and interest income earned from
the Fund's securities after expenses have been deducted.
Net gains (losses) on investments (both realized and unrealized)
- ------------------------------------------------------------------------
A realized gain occurs when we sell an investment at a profit, while a
realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we
record an unrealized gain or loss. The amount of realized gain per share
that we pay to shareholders is listed under "Less Distributions-
Distributions from realized gains."
Realized gains
- ------------------------------------------------------------------------
Profits realized from the sale of securities.
Net asset value (NAV)
- ------------------------------------------------------------------------
This is the value of a mutual fund share, calculated by dividing the net
assets by the number of shares outstanding.
Total return
- ------------------------------------------------------------------------
This represents the percentage increase or decrease in the value of a
share of a fund during specific periods, in this case, annual periods.
In calculating this figure for the financial highlights table, we
include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and
realized gains.
Net assets
- ------------------------------------------------------------------------
Net assets represent the total value of all the assets in the Fund's
portfolio, less any liabilities that are attributable to that class of
the Fund.
How to read the financial highlights
(continued)
Ratio of expenses to average daily net assets
- ------------------------------------------------------------------------
The expense ratio is the percentage of total investment that a fund pays
annually for operating expenses and management fees. These expenses
include accounting and administration expenses, services for
shareholders, and similar expenses.
Ratio of net investment income to average daily net assets
- ------------------------------------------------------------------------
We determine this ratio by dividing net investment income by average net
assets.
Portfolio turnover rate
- ------------------------------------------------------------------------
This figure tells you the amount of trading activity in a fund's
portfolio. For example, a fund with a 50% turnover has bought and sold
half of the value of its total investment portfolio during the stated
period.
[back cover]
Blue Chip Fund
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during their last fiscal year. You can find more detailed information
about the Fund in the current Statement of Additional Information, which
we have filed electronically with the Securities and Exchange Commission
(SEC) and which is legally a part of this prospectus. If you want a free
copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have any questions about investing in the Fund,
you can write to us at 1818 Market Street, Philadelphia, PA 19103, or
call toll-free 800-523-1918. You may also obtain additional information
about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web
site (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. Information about the
Fund, including its Statement of Additional Information, can be reviewed
and copied at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. You can get information on the public reference
room by calling the SEC at 1-800-SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Client Services Representative
800-510-4015
[Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance
information on all Delaware Investment Funds seven days a week, 24 hours
a day, use this Touch-ToneR service.]
Registrant's Investment Company Act file number: 811-750
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
P-___ [--] PP 1/99
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Social Awareness Fund
Class A
[bullet] Class B
[bullet] Class C
Prospectus January 29, 1999
Growth of Capital Fund
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
[inside front cover]
Table of Contents
Fund profile page
Social Awareness Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager and Sub-adviser
Portfolio manager
Who's who?
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares
How to redeem shares
Special services
Dividends, distributions and taxes
Retirement plans
Financial highlights page
[sidebar copy at bottom of page]
How to use this prospectus
Here are guidelines to help you use this prospectus to make well-
informed investment decisions about our funds. If you're looking for a
specific piece of information, the table of contents can guide you
directly to the appropriate section.
Step 1
- ------------------------------------------------------------------------
Take a look at the fund profiles for an overview of the Fund.
Step 2
- ------------------------------------------------------------------------
Learn in-depth information about how the Fund invests, the risks
involved and the people and organizations responsible for the Fund's
day-to-day operations.
Step 3
- ------------------------------------------------------------------------
Determine which fund features and services you would like to take
advantage of.
Step 4
- ------------------------------------------------------------------------
Use the glossary that begins on page x to find definitions of words
printed in bold type throughout the prospectus.
Investing for growth of capital...
Investors with long-term goals often choose mutual funds designed to
provide growth of capital. These funds provide the potential to increase
the value of your investment through increases in stock prices. These
funds generally may experience a relatively high level of volatility,
but generally offer greater return opportunities than total return
equity funds or bond funds. Like all mutual funds, funds seeking growth
of capital allow you to invest conveniently in a diversified portfolio
without having to select and monitor individual securities on your own.
with Delaware Investments
Your personal financial adviser, working with Delaware Investments, can
help you define, evaluate and set your personal investment objectives.
Your adviser can also explain the role growth of capital funds like
Social Awareness Fund can play in a long-term investment program
designed to meet your goals.
The Delaware Investments family includes a full range of mutual funds-
including growth of capital funds-designed to fit your particular
investment needs. With 70 years of investment management experience, we
follow time-tested strategies that emphasize long-term performance and
consistent application of investment disciplines. Today, as part of the
Lincoln Financial Group, a $105 billion financial services complex,
Delaware Investments has access to a variety of experienced and talented
investment managers. We are dedicated to working closely with financial
advisers to bring investors the highest quality investment management
and services.
[House Graphic - Highlight 2nd blue tier of the house - growth of
capital funds]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Growth Equity Funds for...
Growth of Capital
These stock funds provide long-term growth potential with relatively
high volatility.
International and Global Funds
Asset Allocation Funds
Total Return
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
Profile: Social Awareness Fund
What is the Fund's goal?
Social Awareness Fund seeks long-term capital appreciation. Although
the Fund will strive to achieve its goal, there is no assurance that
it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of medium to large-sized companies that
meet certain socially responsible criteria and which we expect to grow
over time. Our socially responsible criteria excludes companies that:
--------
[bullet] engage in activities likely to result in damage to the
natural environment
[bullet] produce nuclear power, design or construct nuclear
power plants or manufacture equipment for the production of
nuclear power
[bullet] manufacture or contract for military weapons
[bullet] are in the liquor, tobacco or gambling industries
[bullet] conduct animal testing for cosmetic or personal care products.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be affected by changes in stock
prices. An investment in the Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. For a more complete discussion of risk,
please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors looking for capital growth potential.
[bullet] Investors who would like an investment that incorporates social
responsibility into its security selection process.
Who should not invest in the Fund
[bullet] Investors with short-term financial goals.
[bullet] Investors who are unwilling to accept share prices
that may fluctuate, sometimes significantly, over the short
term.
[bullet] Investors whose primary goal is to receive current income.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has the Fund performed?
This bar chart and table can help you evaluate the potential risks and
rewards of investing in the Fund. We show how returns for the Fund's
Class A shares have varied over the past calendar year and since
inception, as well as average annual returns of all shares for the past
year and since inception - - all compared to the performance of the S&P
500 Index. You should remember that unlike the Fund, the index is
unmanaged and doesn't include the actual costs of buying, selling, and
holding securities. The Fund's past performance does not necessarily
indicate how it will perform in the future. The Classes' returns reflect
a voluntary expense Cap of 1.20% (excluding 12b-1 fees) as well as a
voluntary Class A 12b-1 fee cap of 0.25%. The returns would be lower
without the voluntary caps.
* Social Awareness Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A)
FPO]
[bar chart]
Year-by-year total return (Class A)
The maximum Class A sales charge of 5.75%, which is normally deducted
when you purchase shares, is not reflected in these total returns. If
this fee were included, the returns would be less than those shown. The
average annual returns shown below do include the sales charge.
As of September 30, 1998, the Fund had a year-to-date return of XX%.
During the periods illustrated in this bar chart, the Fund's highest
return in any quarter was XX% and its lowest return in any quarter was
XX%.
[table]
Average annual return as of 12/31/98
<TABLE>
<CAPTION>
CLASS A B B (if redeemed) C C (if redeemed) S&P 500
<S> <C> <C> <C> <C> <C> <C>
1 year 00.0% 00.0% 00.0% 00.0% 00.0% 00.0
Since
inception
(2/24/97) 00.0% 00.0% 00.0% 00.0% 00.0% 00.0
</TABLE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy
or sell shares of the Fund. The Fund may waive or reduce sales charges;
please see the Statement of Additional Information for details.
CLASS A B C
Maximum sales charge (load) imposed on
purchases as a percentage of offering
price 5.75% none none
Maximum contingent deferred sales charge
(load) as a percentage of original
purchase price or redemption price,
whichever is lower none (1) 5% (2) 1% (3)
Maximum sales charge (load) imposed on
reinvested dividends none none none
Redemption fees none none none
Annual fund operating expenses are deducted from the Fund's income or
assets before it pays dividends and before its total return is
calculated. We will not charge you separately for these expenses.
Management fees 00.0% 00.0% 00.0%
Distribution and service (12b-1) fees (5) 0.25% (6) 1.00% 1.00%
Other expenses 00.0% 00.0% 00.0%
Total operating expenses (7) 00.0% 00.0% 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. 8 This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
CLASS (9) A B B (if redeemed) C C (if redeemed)
1 year 00.0% 00.0% 00.0% 00.0% 00.0%
3 years 00.0% 00.0% 00.0% 00.0% 00.0%
5 years 00.0% 00.0% 00.0% 00.0% 00.0%
10 years 00.0% 00.0% 00.0% 00.0% 00.0%
1 A purchase of Class A shares at $1 million or more may be made at net
asset value. However, if you buy the shares through a financial
adviser who is paid a commission, a contingent deferred sales charge
of 1% will be imposed on certain redemptions within the first year of
purchase and 0.50% within the second year of purchase. Additional
Class A purchase options that involve a contingent deferred sales
charge may be permitted from time to time and will be disclosed in the
prospectus if they are available.
2 If you redeem Class B shares during the first year after you buy them,
you will pay a contingent deferred sales charge of 5%. The contingent
deferred sales charge is 4% during the second year, 3% during the
third and fourth years, 2% during the fifth year, 1% during the sixth
year, and 0% thereafter. Your Class B shares will automatically
convert to Class A shares after approximately eight years.
3 Class C shares redeemed within one year of purchase are subject to a
1% contingent deferred sales charge.
4 First Union Bank, N.A., the bank through which we wire money,
currently charges $7.50 per redemption for redemptions payable by
wire.
5 The Fund has adopted a plan under rule 12b-1 that allows the Fund to
pay distribution fees for the sales and distribution of its shares.
Because these fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. Each
share class is subject to a separate 12b-1 plan.
6 Class A shares are subject to a 12b-1 fee of 0.30% of average daily net
assets. The distributor has agreed to waive a portion of 12b-1 fees
through ______________ in order to prevent these fees from exceeding
0.25% of average daily net assets.
7 The investment manager has agreed to waive fees and pay expenses
through _________________ in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees, extraordinary expenses
and 12b-1 fees) from exceeding 1.20% of average daily net assets.
8 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
9 The Class B example reflects the conversion of Class B shares to Class
A shares at the end of the eighth year. However, the conversion may
occur as late as three months after the eighth anniversary of
purchase, during which time the higher 12b-1 plan fees payable by
Class B shares continue to be assessed. Information for the ninth and
tenth years reflects expenses of the Class A shares.
How we manage the Fund
Our investment strategies
We use a computer-driven selection process designed to identify stocks
of companies that are likely to grow faster than the average of the
companies in the S&P 500. Aided by this technology, we evaluate and
rank hundreds of stocks daily, using a variety of factors such as
dividend yield, earnings growth and price to earnings ratios. Decisions
to buy and sell stocks are determined by this objective evaluation
process.
We take a disciplined approach to investing, combining investment
strategies and risk management techniques that can help shareholders
meet their goals.
Social Awareness Fund is a socially responsible fund that invests
primarily in stocks that meet certain socially responsible criteria. It
strives to provide long-term capital appreciation to its shareholders.
We invest primarily in the common stocks of medium and large-sized
companies (generally $1.0 billion or more in market capitalization at
the time of purchase) that have met the established socially responsible
criteria. We use the Social Investment Database published by Kinder,
Lyndberg, Domini & Company, Inc. to determine which companies to exclude
from our selection process. The approved stocks are then evaluated
using the computer selection process described above.
Our goal is to seek stocks of companies that have the potential to grow
significantly faster than the average of the companies in the S&P 500.
We believe this growth, if achieved, will result in a rising share price
that will provide long-term appreciation to investors.
The securities we typically invest in
Stocks offer investors the potential for capital appreciation and may
pay dividends as well.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------
<S> <C>
Social Awareness Fund
----------------------------------------------
Common stocks: Securities that Generally, we invest 90% to 100% of net assets
represent shares of ownership in a in common stock of medium- to large-size
corporation. Stockholders companies.
participate in the corporation's
profits and losses, proportionate
to the number of shares they own.
- ------------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase agreements as a
between a buyer and seller of short-term investment for the Fund's cash
securities in which the seller position. In order to enter into these
agrees to buy the securities back repurchase agreements, the fund must have
within a specified time at the collateral of at least 102% of the repurchase
same price the buyer paid for them, price. The Fund may have no more than 10% of
plus an amount equal to an agreed its total assets in repurchase agreements
upon interest rate. Repurchase with maturities of over seven days.
agreements are often viewed as
equivalent to cash.
- ------------------------------------------------------------------------------------
Restricted securities: Privately We may invest without limitation in privately
placed securities whose resale is placed securities that are eligible for resale
restricted under securities law. among certain institutional buyers.
- ------------------------------------------------------------------------------------
Illiquid Securities: Securities We may invest up to 15% of the Fund's net
that do not have a ready market, assets in illiquid securities.
and cannot be easily sold, if at
all, at approximately the price
that the Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
Social Awareness Fund is permitted to invest in all available types of equity
securities, including preferred stock, warrants and convertible
securities. The Fund may also invest in foreign securities directly
(although we have no present intention to do so) or through depositary
receipts. It may hold cash; short-term debt securities and money market
instruments and engage in futures and options transactions for defensive
purposes. Please see the Statement of Additional Information for
additional descriptions and risk information on these securities as well
as those listed in the table above. You can find additional information
about the investments in each Fund's portfolio in the annual or semi-
annual shareholder report.
Lending securities
Social Awareness Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for their use in security
transactions.
Portfolio turnover
We anticipate that Social Awareness Fund's annual portfolio turnover
will be less than 100%. A turnover rate of 100% would occur if the Fund
sold and replaced securities valued at 100% of its net assets within one
year.
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions.
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you
may receive little or no return on your investment, and the risk that
you may lose part or all of the money you invest. Before you invest in
the Fund you should carefully evaluate the risks. Because of the nature
of the Fund, you should consider an investment to be a long-term
investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when
investing in Social Awareness Fund. Please see the Statement of
Additional Information for further discussion of these risks and the
other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------
<S> <C> <C>
Social Awareness Fund
----------------------------------------------
Market risk is the risk that all We maintain a long-term investment approach
or a majority of the securities in and focus on stocks we believe can appreciate
a certain market -- like the stock over an extended time frame regardless of
or bond market -- will decline in interim market fluctuations. We do not try to
value because of factors such as predict overall stock market movements and do
economic conditions, future not trade for short-term purposes.
expectations or investor confidence.
We may hold a substantial part of the Fund's
assets in cash or cash equivalents as a
temporary, defensive strategy.
- ------------------------------------------------------------------------------------
Industry and security risk is the We limit the amount of the Fund's assets
risk that the value of securities invested in any one industry and in any
in a particular industry or the individual security.
value of an individual stock or bond
will decline because of changing Because Social Awareness Fund avoids investing
expectations for the performance of in companies that don't meet socially
that industry or for the individual responsible criteria, its exposure to certain
company issuing the stock or bond. industry sectors may be greater or less than
similar funds or market indexes. This could
affect its performance positively or
negatively, depending on the performance of
those sectors.
- ------------------------------------------------------------------------------------
Liquidity risk is the possibility We limit exposure to illiquid securities.
that securities cannot be readily
sold, or can only be sold at
approximately the price that the
Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface the first time they
appear in the prospectus. So if you would like to know the meaning of a
word that isn't in boldface, you might still find it in the glossary.
Glossary A-B
Amortized cost
- ------------------------------------------------------------------------
Similar to depreciated value, amortized cost reflects the value of a
fixed-income security adjusted to account for any premium that was paid
above the par value when the security was purchased. The purpose of
amortization is to reflect resale or redemption value.
Appreciation
- ------------------------------------------------------------------------
An increase in the value of an investment.
Average maturity
- ------------------------------------------------------------------------
An average of when the individual bonds and other debt securities held
in a portfolio will mature.
Bond
- ------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or
government agency. In return for lending money to the issuer, a bond
buyer generally receives fixed periodic interest payments and repayment
of the loan amount on a specified maturity date. A bond's price prior to
maturity changes and is inversely related to current interest rates.
When interest rates rise, prices fall, and when interest rates fall,
prices rise.
Bond ratings
- ------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA
(highest quality) to D (lowest quality). Bonds rated Baa/BBB or better
are considered investment grade. Bonds rated Ba/BB or lower are
commonly known as junk bonds.
C-C
Capital
- ------------------------------------------------------------------------
The amount of money you invest.
Capital gains distributions
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of profits (realized gains) from
the sale of a fund's portfolio securities. Usually paid once a year; may
be either short-term gains or long-term gains.
Commission
- ------------------------------------------------------------------------
The fee an investor pays to a financial adviser for investment advice
and help in buying or selling mutual funds, stocks, bonds or other
securities.
Compounding
- ------------------------------------------------------------------------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- ------------------------------------------------------------------------
Measurement of U.S. inflation; represents the price of a basket of
commonly purchased goods.
Contingent deferred sales charge (CDSC)
- ------------------------------------------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to
the fund) within a set number of years; an alternative method for
investors to compensate a financial adviser for advice and service,
rather than an up-front commission.
[glossary to be continued]
Who manages the Fund
Investment Manager and Sub-Adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary
of Delaware Management Holdings, Inc. Vantage Investment Advisors is the
Fund's sub-adviser. As sub-adviser, Vantage is responsible for day-to-
day management of the Fund's assets. Delaware Management Company
administers the Fund's affairs and has ultimate responsibility for all
investment advisory services for the Fund. Delaware Management Company
also supervises the sub-adviser's performance. For their services to
the Fund, the manager and sub-adviser were paid an aggregate fee for the
last fiscal year as follows:
Investment Management Fees
Social Awareness Fund
As a percentage of average daily net assets 0.00%
Portfolio Manager
T. Scott Wittman, President and Chief Investment Officer of Vantage
Investment Advisors, has had primary responsibility for making day-to-
day investment decisions for the Fund since its inception. His
responsibilities with Vantage Investment Advisors include both business
administration and equity portfolio management. Mr. Wittman is a
Certified Financial Analyst (CFA). 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.
Year 2000
As with other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if
the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." The Fund is
taking steps to obtain satisfactory assurances that the Fund's major
service providers are taking steps reasonably designed to address the
Year 2000 Problem with respect to the computer systems that such service
providers use. There can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund.
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the
"Euro." It is anticipated that each such participating country will
replace its existing currency with the Euro on January 1, 1999.
Additional European countries may elect to participate after that date.
If the Fund is invested in securities of participating countries, it
could be adversely affected if the computer systems used by its major
service providers are not properly prepared to handle the implementation
of this single currency or the adoption of the Euro by additional
countries in the future. Equity Funds III, Inc. is taking steps to
obtain satisfactory assurances that the major service providers of the
Fund are taking steps reasonably designed to address these matters with
respect to the computer systems that such service providers use. There
can be no assurances that these steps will be sufficient to avoid any
adverse impact on the business of the Fund.
[glossary continued]
Cost basis
- ------------------------------------------------------------------------
The original purchase price of an investment, used in determining
capital gains and losses.
Currency exchange rates
- ------------------------------------------------------------------------
The price at which one country's currency can be converted into
another's. This exchange rate varies almost daily according to a wide
range of political, economic and other factors.
Depreciation
- ------------------------------------------------------------------------
A decline in an investment's value.
Diversification
- ------------------------------------------------------------------------
The process of spreading investments among a number of different
securities, asset classes or investment styles to reduce the risks of
investing.
[glossary to be continued]
[sidebar]
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-Adviser
Vantage Investment Advisors
630 Fifth Avenue
New York, NY 10111
Portfolio Service agent Distributor
managers Delaware Service Company, Inc. Delaware Distributors, L.P.
(see page x 1818 Market Street 1818 Market Street
for details) Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors
which has oversight responsibility for the management of the fund's
business affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the performance of
the investment manager, the distributor and others that perform services
for the fund. At least 40% of the board of directors must be independent
of the fund's investment manager or distributor. These independent fund
directors, in particular, are advocates for shareholder interests.
Custodian Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified bank
custodian who segregates fund securities from other bank assets.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager places
portfolio orders with broker/dealers and is responsible for obtaining
the best overall execution of those orders. A written contract between a
mutual fund and its investment manager specifies the services the
manager performs. Most management contracts provide for the manager to
receive an annual fee based on a percentage of the fund's average net
assets. The manager is subject to numerous legal restrictions,
especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the
management of the fund's assets. They are selected and supervised by
the investment manager.
Portfolio managers Portfolio managers are employed by the investment
manager or sub-adviser to make investment decisions for individual
portfolios on a day-to-day basis.
Service agent Mutual fund companies employ service agents (sometimes
called transfer agents) to maintain records of shareholder accounts,
calculate and disburse dividends and capital gains and prepare and mail
shareholder statements and tax information, among other functions. Many
service agents provide customer service to shareholders, as well.
Distributor Most mutual funds continuously offer new shares to the
public through distributors who are regulated as broker-dealers and are
subject to National Association of Securities Dealers, Inc. (NASD) rules
governing mutual fund sales practices.
Financial advisers Financial advisers provide investment advice to
their clients, analyzing their financial objectives and recommending
appropriate funds or other investments. Financial advisers are
compensated for their services, generally through sales commissions, and
through 12b-1 and/or service fees deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund
shareholders have specific voting rights, including the right to elect
directors. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change
fundamental investment objectives or policies must also seek shareholder
approval.
[glossary continued]
Dividend distribution
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of dividends passed along from the
fund's portfolio of securities.
Expense ratio
- ------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of
its total net assets. Operating expenses are the costs of running a
mutual fund, including management fees, offices, staff, equipment and
expenses related to maintaining the fund's portfolio of securities. They
are paid from the fund's assets before any earnings are distributed to
shareholders.
[glossary to be continued]
About your account
Investing in the Fund
You can choose from a number of share classes for the Fund. Because each
share class has a different combination of sales charges, fees, and
other features, you should consult your financial adviser to determine
which class best suits your investment goals and time frame.
Choosing a share class
Class A
[bullet] Class A shares have an up-front sales charge of up to 5.75% that
you pay when you buy the shares. The offering price for Class A
shares includes the front-end sales charge.
[bullet] If you invest $50,000 or more, your front-end sales charge will be
reduced.
[bullet] You may qualify for other reduced sales charges, as described in
"How to reduce your sales charge," and under certain circumstances
the sales charge may be waived; please see the Statement of
Additional Information.
[bullet] Class A shares are also subject to an annual 12b-1 fee no
greater than 0.30% of average daily net assets, which is lower
than the 12b-1 fee for Class B and Class C shares.
[bullet] Class A shares generally are not subject to a contingent
deferred sales charge.
Class B
[bullet] Class B shares have no up-front sales charge, so the full amount
of your purchase is invested in the Fund. However, you will
pay a contingent deferred sales charge if you redeem your shares
within six years after you buy them.
[bullet] If you redeem Class B shares during the first year after you
buy them, the shares will be subject to a contingent deferred
sales charge of 5%. The contingent deferred sales charge is
4% during the second year, 3% during the third and fourth
years, 2% during the fifth year, 1% during the sixth year, and
0% thereafter.
[bullet] Under certain circumstances the contingent deferred sales
charge may be waived; please see the Statement of Additional
Information.
[bullet] For approximately eight years after you buy your Class B shares,
they are subject to annual 12b-1 fees no greater than 1% of
average daily net assets, of which 0.25% are service fees paid
to the distributor, dealers or others for providing services and
maintaining shareholder accounts.
[bullet] Because of the higher 12b-1 fees, Class B shares have higher
expenses and any dividends paid on these shares are lower than
dividends on Class A shares.
[bullet] Approximately eight years after you buy them, Class B shares
automatically convert into Class A shares with a 12b-1 fee of
no more than 0.30%.
[bullet] You may purchase up to $250,000 of Class B shares at any one
time. The limitation on maximum purchases varies for retirement
plans.
[glossary continued]
F-M
Financial adviser
- ------------------------------------------------------------------------
Financial professional (e.g., broker, banker, accountant, planner or
insurance agent) who analyzes clients' finances and prepares
personalized programs to meet objectives.
Fixed-income securities
- ------------------------------------------------------------------------
With fixed-income securities, the money you originally invested is
returned to you at a prespecified maturity date. These securities, which
include government, corporate or municipal bonds, as well as money
market securities, typically pay a fixed rate of return.
[glossary to be continued]
Class C
[bullet] Class C shares have no up-front sales charge, so the full amount
of your purchase is invested in the Fund. However, you will
pay a contingent deferred sales charge if you redeem your shares
within 12 months after you buy them.
[bullet] Under certain circumstances the contingent deferred sales
charge may be waived; please see the Statement of Additional
Information.
[bullet] Class C shares are subject to an annual 12b-1 fee which may not
be greater than 1% of average daily net assets, of which 0.25%
are service fees paid to the distributor, dealers or others for
providing personal services and maintaining shareholder accounts.
[bullet] Because of the higher 12b-1 fees, Class C shares have higher
expenses and pay lower dividends than Class A shares.
[bullet] Unlike Class B shares, Class C shares do not automatically
convert into another class.
[bullet] You may purchase any amount less than $1,000,000 of Class C
shares at any one time. The limitation on maximum purchases
varies for retirement plans.
<TABLE>
<CAPTION>
Class A Sales Charges
Sales charge as % Sales charge as % Dealer's commission
Amount of purchase of offering price of amount invested as % of offering price
<S> <C> <C> <C>
Less than $50,000 5.75% X.XX% 5.00%
$50,000 but 4.75% X.XX% 4.00%
under $100,000
$100,000 but
under $250,000 3.75% X.XX% 3.00%
$250,000 but
under $500,000 2.50% X.XX% 2.00%
$500,000 but
under $1 million 2.00% X.XX% 1.60%
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1
million or more of Class A shares. However, if your financial adviser is
paid a commission on your purchase, you may have to pay a limited
contingent deferred sales charge of 1% if you redeem these shares within
the first year and 0.50% if you redeem them within the second year.
<TABLE>
<CAPTION>
Sales charge as % Sales charge as % Dealer's commission
Amount of purchase of offering price of amount invested as % of offering price
<S> <C> <C> <C>
$1,000,000 up to
$5 million none None 1.00
Next $20 million
up to $25 million none None 0.50
Amount over $25
million none None 0.25
</TABLE>
[glossary continued]
Inflation
- ------------------------------------------------------------------------
The increase in the cost of goods and services over time. U.S. inflation
is measured by the Consumer Price Index (CPI).
Investment goal
- ------------------------------------------------------------------------
The objective, such as long-term capital growth or high current income,
that a mutual fund pursues.
Management fee
- ------------------------------------------------------------------------
The amount paid by a mutual fund to the investment adviser for
management services, expressed as a percentage of the fund's net assets.
[glossary to be continued]
About your account continued
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on
shares. Please refer to the Statement of Additional Information for
detailed information and eligibility requirements. You can also get
additional information from your financial adviser. You or your
financial adviser must notify us at the time you purchase shares if you
are eligible for any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share class
Program How it works A B C
- ------------------------------------------------------------------------------------
Letter of Intent Through a Letter of Intent X Although the
you agree to invest a Letter of Intent
certain amount in Delaware and Rights of
Investment Funds (except Accumulation do
money market funds with no not apply to the
sales charge) over a 13-month purchase of Class
period to qualify for reduced B and C shares,
front-end sales charges. you can combine
your purchase of
Class B and C
shares to fulfill
your Letter of
Intent or qualify
for Rights of
Accumulation.
- ------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings X
of all funds in the Delaware
Investments family (except
money market funds with no
sales charge) as well as the
holdings of your spouse and
children under 21 to qualify
for reduced front-end sales
charges.
- ------------------------------------------------------------------------------------
Reinvestment of Redeemed Up to 12 months after you X
Shares redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, These investment plans may X
SARSEP, Prototype Profit qualify for reduced sales
Sharing, Pension, charges by combining the
SIMPLE 401(k), 403(b)(7), purchases of all members
and 457 Retirement Plans of the group. Members of
these groups may also qualify
to purchase shares without a
front-end sales charge and a
waiver of any contingent
deferred sales charges.
- ------------------------------------------------------------------------------------
</TABLE>
[glossary continued]
M-P
Market capitalization
- ------------------------------------------------------------------------
The value of a corporation determined by multiplying the current market
price of a share of common stock by the number of shares held by
shareholders. A corporation with one million shares outstanding and the
market price per share of $10 has a market capitalization of $10
million.
NASD (National Association of Securities Dealers)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the
actions of its members.
[glossary to be continued]
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to
the fund and class of shares you wish to purchase to Delaware
Investments, 1818 Market Street, Philadelphia, PA 19103. If you are
making an initial purchase by mail, you must include a completed
investment application, or an appropriate retirement plan application if
you are opening a retirement account, with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank,
ABA #031201467, Bank Account number 2014128934013. Include your account
number and the name of the fund in which you want to invest. If you are
making an initial purchase by wire, you must call us so we can assign an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in
the Delaware Investments family for shares of other funds in the family.
Please keep in mind, however, that under most circumstances, you may
only exchange between the same class of shares. To open an account by
exchange, call the Shareholder Service Center at 800-523-1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated
telephone service, or through our web site, www.delawarefunds.com. For
more information about how to sign up for these services, call our
Shareholder Service Center at 800-523-1918.
[glossary continued]
NAV (Net asset value)
- ------------------------------------------------------------------------
The daily dollar value of one mutual fund share. Equal to a fund's net
assets divided by the number of shares outstanding.
NRSRO (Nationally recognized statistical rating organization)
- ------------------------------------------------------------------------
A company that assesses the quality and potential performance of bonds,
commercial paper, preferred and common stocks and municipal short-term
issues, rating the probability that the issuer of the debt will meet the
scheduled interest payments and repay the principal. Ratings are
published by such companies as Moody's Investors Service (Moody's),
Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Preferred stock
- ------------------------------------------------------------------------
Preferred stock has preference over common stock in the payment of
dividends and liquidation of assets. Preferred stocks also pay dividends
at a fixed rate.
[glossary to be continued]
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an
initial investment of $1,000, and make additional investments at any
time for as little as $100. If you are buying shares in an IRA or Roth
IRA; under the Uniform Gifts to Minors Act or the Uniform Transfers to
Minors Act; or through an Automatic Investing Plan, the minimum purchase
is $250, and you can make additional investments of only $25. If you are
buying shares in an Education IRA, the minimum purchase is $500, and
you can made additional investments of only $25. The minimums vary for
retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your
purchase order. If we or an authorized agent receives your order before
the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on a business day, you will pay that day's closing share
price which is based on the Fund's net asset value. If we receive your
order after the close of trading, you will pay the next business day's
price. A business day is any day that the New York Stock Exchange is
open for business. We reserve the right to reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the
Exchange is open. We calculate this value by adding the market value of
all the securities and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. We price
securities and other assets for which market quotations are available at
their market value. We price debt securities on the basis of valuations
provided to us by an independent pricing service that uses methods
approved by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the
board of directors.
[glossary continued]
P-S
Price/earnings ratio
- ------------------------------------------------------------------------
A measure of a stock's value calculated by dividing the current market
price of a share of stock by its annual earnings per share. A stock
selling for $100 per share with annual earnings of $5 has a P/E of 20.
Principal
- ------------------------------------------------------------------------
Amount of money you invest. Also refers to a bond's original face value,
due to be repaid at maturity.
Prospectus
- ------------------------------------------------------------------------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives,
policies, services and fees.
[glossary to be continued]
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your
shares. Your adviser may charge a fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by
writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA
19103. All owners of the account must sign the request, and for
redemptions of $50,000 or more, you must include a signature guarantee
for each owner. Signature guarantees are also required when redemption
proceeds are going to anyone other than the account holder(s) of record.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have
the proceeds sent to you by check, or if you redeem at least $1,000 of
shares, you may have the proceeds sent directly to your bank by wire.
Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds
deposited directly to your bank account the next business day after we
receive your request. If you request a wire deposit, the First Union
Bank fee (currently $7.50) will be deducted from your proceeds. Bank
information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone
service, or through our web site, www.delawarefunds.com. For more
information about how to sign up for these services, call our
Shareholder Service department at 800-523-1918.
[glossary continued]
Redeem
- ------------------------------------------------------------------------
To cash in your shares by selling them back to the mutual fund.
Risk
- ------------------------------------------------------------------------
Generally defined as variability of value; also credit risk, inflation
risk, currency and interest rate risk. Different investments involve
different types and degrees of risk.
S&P 500 Index
- ------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of
500 widely held common stocks that is often used to represent
performance of the U.S. stock market.
Sales charge
- ------------------------------------------------------------------------
Charge on the purchase of fund shares sold through financial advisers.
May vary with the amount invested. Typically used to compensate advisers
for advice and service provided.
[glossary to be continued]
About your account continued
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the
certificates with your request to sell the shares. We recommend that you
send your certificates by certified mail.
When you send us a properly completed request to redeem or exchange
shares, you will receive the net asset value as determined at the close
of business on the day we receive your request. We will deduct any
applicable contingent deferred sales charges. You may also have to pay
taxes on the proceeds from your sale of shares. We will send you a
check, normally the next business day, but no later than seven days
after we receive your request to sell your shares. If you purchased your
shares by check, we will wait until your check has cleared, which can
take up to 15 days, before we honor your request to sell these shares.
If you are required to pay a contingent deferred sales charge when you
redeem your shares, the amount subject to the fee will be based on the
shares' net asset value when you purchased them or their net asset value
when you redeem them, whichever is less. This arrangement assures that
you will not pay a contingent deferred sales charge on any increase in
the value of your shares. You also will not pay the charge on any shares
acquired by reinvesting dividends or capital gains. If you exchange
shares of one fund for shares of another, and later redeem those shares,
the purchase price for purposes of the contingent deferred sales charge
formula will be the price you paid for the original shares not the
exchange price. The redemption price for purposes of this formula will
be the NAV of the shares you are actually redeeming.
Account Minimum
If you redeem shares and your account balance falls below the required
account minimum of $1,000 ($250 for IRAs and Roth IRAs, Uniform Gift to
Minors Act accounts or accounts with automatic investing plans, and $500
for Education IRAs) for three or more consecutive months, you will have
until the end of the current calendar quarter to raise the balance to
the minimum. If your account is not at the minimum by the required time,
you will be charged a $9 fee for that quarter and each quarter after
that until your account reaches the minimum balance. If your account
does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
[glossary continued]
S-S
SEC (Securities and Exchange Commission)
- ------------------------------------------------------------------------
Federal agency established by Congress to administer the laws governing
the securities industry, including mutual fund companies.
Share classes
- ------------------------------------------------------------------------
Different classifications of shares; mutual fund share classes offer a
variety of sales charge choices.
Signature guarantee
- ------------------------------------------------------------------------
Certification by a bank, brokerage firm or other financial institution
that a customer's signature is valid.
[glossary to be continued]
Special services
To help make investing with us as easy as possible, and to help you
build your investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly
investments directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions or direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly
exchanges from your shares in one or more Delaware Investments funds
into any other Delaware Investments fund. Wealth Builder Exchanges are
subject to the same rules as regular exchanges and require a minimum
monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in
the Delaware Investments family. The shares that you purchase through
the Dividend Reinvestment Plan are not subject to a front-end sales
charge or to a contingent deferred sales charge.
[glossary continued]
Standard deviation
- ------------------------------------------------------------------------
A measure of an investment's volatility; for mutual funds, measures how
much a fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- ------------------------------------------------------------------------
The document serving as "Part B" of a fund's prospectus that provides
more detailed information about the fund's organization, investments,
policies and risks.
Stock
- ------------------------------------------------------------------------
An investment that represents a share of ownership (equity) in a
corporation. Stocks are often referred to as "equities."
[glossary to be continued]
About your account (continued)
Special services (continued)
Exchanges
You can exchange all or part of your shares for shares of the same class
in another Delaware Investments fund without paying a sales charge and
without paying a contingent deferred sales charge on the shares of the
fund from which you make your exchange. However, if you exchange shares
from a money market fund that does not have a sales charge you will pay
any applicable sales charges on your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When exchanging
Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred
sales charge as the shares you originally purchased. The holding period
for the CDSC will also remain the same, with the amount of time you held
your original shares being credited toward the holding period of your
new shares. When you exchange shares, you are purchasing shares in
another fund so you should be sure to get a copy of the fund's
prospectus and read it carefully before buying shares through an
exchange.
MoneyLineSM On Demand Service
Through our MoneylineSM On Demand Service, you or your financial adviser
may transfer money from your Fund account to your predesignated bank
account by telephone request. This service is not available for
retirement plans.
MoneyLineSM Direct Deposit Service
Through our MoneylineSM Direct Deposit Service you can have $25 or more
in dividends and distributions deposited directly to your bank account.
Delaware Investments does not charge a fee for this service; however,
your bank may assess one. This service is not available for retirement
plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly
or quarterly payment from your account made to you or someone you
designate. If the value of your account is $5,000 or more, you can make
withdrawals of at least $25 monthly, or $75 quarterly. You may also have
your withdrawals deposited directly to your bank account through our
MoneylineSM Direct Deposit Service.
[glossary continued]
T-V
Total return
- ------------------------------------------------------------------------
An investment performance measurement, expressed as a percentage, based
on the combined earnings from dividends, capital gains and change in
price over a given period.
[glossary to be continued]
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains, unless you tell us
otherwise.
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be affected
by current tax law. The tax status of your dividends from the Fund is
the same whether you reinvest your dividends or receive them in cash.
Distributions from the Fund's long-term capital gains are taxable as
capital gains, while distributions from short-term capital gains and net
investment income are generally taxable as ordinary income. Any capital
gains may be taxable at different rates depending on the length of time
the Fund held the assets. In addition, you may be subject to state and
local taxes on distributions.
We will send you a statement each year by January 31 detailing the
amount and nature of all dividends and capital gains that you were paid
for the prior year.
Retirement plans
In addition to being an appropriate investment for your Individual
Retirement Account (IRA), Roth IRA and Education IRA, shares in the Fund
may be suitable for group retirement plans. You may establish your IRA
account even if you are already a participant in an employer-sponsored
retirement plan. For more information on how shares in the Fund can play
an important role in your retirement planning or for details about group
plans, please consult your financial adviser, or call 800-523-1918.
[glossary continued]
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- ------------------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to
a minor with special tax advantages.
Volatility
- ------------------------------------------------------------------------
The tendency of an investment to go up or down in value by different
magnitudes. There are "low volatility" and "high volatility"
investments.
[end glossary]
Financial highlights
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. All "per share"
information reflects financial results for a single Fund share. This
information has been audited by Ernst & Young LLP, whose report, along
with the Fund's financial statements, is included in the Fund's annual
report, which is available upon request by calling 800-523-1918.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
- ------------------------------------------------------------------------------------
Year Period Year Period
Ended 2/24/97 (1) Ended 2/24/97 (1)
11/30/ through 11/30/ through
Social Awareness Fund 1998 11/30/97 1998 11/30/97
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 8.500 00.000 8.500
Income From Investment
Operations
Net investment income ($) 0.000 0.007 (2) 0.000 (0.044) (2)
Net realized & unrealized gains
(losses) on investments ($) 0.000 1.823 0.000 1.824
Total from investment
operations ($) 0.000 1.830 0.000 1.780
Less Distributions
Dividends from net investment
income ($) (0.000) none (0.000) none
Distributions from realized
gains ($) (0.000) none (0.000) none
Total distributions ($) (0.000) none (0.000) none
Net asset value, end of
period ($) 00.000 10.330 00.000 10.280
Total Return (%)(3)(4) 00.00 21.53 00.00 20.94
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000,000 9,115 000,000 6,919
Ratio of expenses to average
daily net assets (%) 0.00 1.50 0.00 2.20
Ratio of net investment income
to average daily net assets (%) 0.00 0.38 0.00 (0.32)
Portfolio turnover rate (%) 00 29 00 29
Volatility, as indicated by
year-by-year return (%) 00.00 21.53 00.00 20.94
- ------------------------------------------------------------------------------------
Class C Shares
- ------------------------------------------------------------------------------------
Year Period
Ended 2/24/97 (1)
11/30/ through
Social Awareness Fund 1998 11/30/97
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ($) 00.000 8.500
Income From Investment
Operations
Net investment income ($) 0.000 (0.044) (2)
Net realized & unrealized gains
(losses) on investments ($) 0.000 1.824
Total from investment
operations ($) 0.000 1.780
Less Distributions
Dividends from net investment
income ($) (0.000) none
Distributions from realized
gains ($) (0.000) none
Total distributions ($) (0.000) none
Net asset value, end of
period ($) 00.000 10.280
Total Return (%)(3)(4) 00.00 20.94
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000,000 1,290
Ratio of expenses to average
daily net assets (%) 0.00 2.20
Ratio of net investment income
to average daily net assets (%) 0.00 (0.32)
Portfolio turnover rate (%) 00 29
Volatility, as indicated by
year-by-year return (%) 00.00 20.94
- ------------------------------------------------------------------------------------
</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 For Class A shares: does not reflect the maximum sales charge of
5.75%, nor the Limited CDSC that varies from 0.50% to 1% that would
apply in the event of certain redemptions within two years of
purchase. For Class B shares: does not reflect the contingent deferred
sales charge which varies from 1%-5% depending upon the holding
period. For Class C shares: does not reflect the1% contingent deferred
sales charge on redemptions within 12 months from the date of
purchase.
4 Total return reflects the expense limitations referenced on page x.
How to read the financial highlights
Net investment income
- ------------------------------------------------------------------------
Net investment income includes dividend and interest income earned from
the Fund's securities after its expenses have been deducted.
Net gains (losses) on investments (both realized and unrealized)
- ------------------------------------------------------------------------
A realized gain occurs when we sell an investment at a profit, while a
realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we
record an unrealized gain or loss. The amount of realized gain per share
that we pay to shareholders is listed under "Less Distributions-
Distributions from realized gains."
Realized gains
- ------------------------------------------------------------------------
Profits realized from the sale of securities.
Net asset value (NAV)
- ------------------------------------------------------------------------
This is the value of a mutual fund share, calculated by dividing the net
assets by the number of shares outstanding.
Total return
- ------------------------------------------------------------------------
This represents the percentage increase or decrease in the value of a
share of a fund during specific periods, in this case, annual periods.
In calculating this figure for the financial highlights table, we
include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and
realized gains.
Net assets
- ------------------------------------------------------------------------
Net assets represent the total value of all the assets in the Fund's
portfolio, less any liabilities, that are attributable to that class of
the Fund.
How to read the financial highlights
(continued)
Ratio of expenses to average daily net assets
- ------------------------------------------------------------------------
The expense ratio is the percentage of total investment that a fund pays
annually for operating expenses and management fees. These expenses
include accounting and administration expenses, services for
shareholders, and similar expenses.
Ratio of net investment income to average daily net assets
- ------------------------------------------------------------------------
We determine this ratio by dividing net investment income by average net
assets.
Portfolio turnover rate
- ------------------------------------------------------------------------
This figure tells you the amount of trading activity in a fund's
portfolio. For example, a fund with a 50% turnover has bought and sold
half of the value of its total investment portfolio during the stated
period.
[back cover]
Social Awareness Fund
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during their last fiscal year. You can find more detailed information
about the Fund in the current Statement of Additional Information, which
we have filed electronically with the Securities and Exchange Commission
(SEC) and which is legally a part of this prospectus. If you want a free
copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have any questions about investing in the Fund,
you can write to us at 1818 Market Street, Philadelphia, PA 19103, or
call toll-free 800-523-1918. You may also obtain additional information
about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web
site (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. Information about the
Fund, including its Statement of Additional Information, can be reviewed
and copied at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. You can get information on the public reference
room by calling the SEC at 1-800-SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800-523-1918
Call the Shareholder Service Center:
Monday to Friday, 8 a.m. to 8 p.m. Eastern time.
For fund information; literature; price, yield and performance figures.
For information on existing regular investment accounts and retirement
plan accounts including wire investments; wire redemptions; telephone
redemptions and telephone exchanges.
Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance
information on all Delaware Investment Funds seven days a week, 24 hours
a day, use this Touch-ToneR service.
Registrant's Investment Company Act file number: 811-750
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
P-___ [--] PP 1/99
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
SOCIAL AWARENESS FUND
Institutional Class
Prospectus January 29, 1999
Growth of Capital Fund
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and
any representation to the contrary is a criminal offense.
[inside front cover]
Table of Contents
Fund profile page
Social Awareness Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager and Sub-adviser
Portfolio manager
Who's who? page
About your account page
Investing in the Fund
Institutional Class shares
How to buy shares
How to redeem shares
Dividends, distributions and taxes
Financial highlights page
[sidebar copy at bottom of page]
How to use this prospectus
Here are guidelines to help you use this prospectus to make well-
informed investment decisions about our funds. If you're looking for a
specific piece of information, the table of contents can guide you
directly to the appropriate section.
Step 1
Take a look at the fund profiles for an overview of the Fund.
Step 2
Learn in-depth information about how the Fund invests, the risks
involved and the people and organizations responsible for the Fund's
day-to-day operations.
Step 3
Determine which fund features and services you would like to take
advantage of.
Step 4
Use the glossary that begins on page x to find definitions of words
printed in bold type throughout the prospectus.
Investing for growth of capital...
Investors with long-term goals often choose mutual funds designed to
provide growth of capital. These funds provide the potential to increase
the value of your investment through increases in stock prices. These
funds generally may experience a relatively high level of volatility,
but generally offer greater return opportunities than total return
equity funds or bond funds. Like all mutual funds, funds seeking growth
of capital allow you to invest conveniently in a diversified portfolio
without having to select and monitor individual securities on your own.
with Delaware Investments
Your personal financial adviser, working with Delaware Investments, can
help you define, evaluate and set your personal investment objectives.
Your adviser can also explain the role growth of capital funds like
Social Awareness Fund can play in a long-term investment program
designed to meet your goals.
The Delaware Investments family includes a full range of mutual funds-
including growth of capital funds-designed to fit your particular
investment needs. With 70 years of investment management experience, we
follow time-tested strategies that emphasize long-term performance and
consistent application of investment disciplines. Today, as part of the
Lincoln Financial Group, a $105 billion financial services complex,
Delaware Investments has access to a variety of experienced and talented
investment managers. We are dedicated to working closely with financial
advisers to bring investors the highest quality investment management
and services.
[House Graphic - Highlight 2nd blue tier of the house - growth of
capital funds]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Growth Equity Funds for...
Growth of Capital
These stock funds provide long-term growth potential with relatively
high volatility.
International and Global Funds
Asset Allocation Funds
Total Return
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
Profile: Social Awareness Fund
What is the Fund's goal?
Social Awareness Fund seeks long-term capital appreciation. Although
the Fund will strive to achieve its goal, there is no assurance that it
will.
What are the Fund's main investment strategies?
We invest primarily in stocks of medium to large-sized companies that
meet certain socially responsible criteria and which we expect to grow
over time. Our socially responsible criteria excludes companies that:
--------
[bullet] engage in activities likely to result in damage to the natural
environment
[bullet] produce nuclear power, design or construct nuclear power
plants or manufacture equipment for the production of nuclear
power
[bullet] manufacture or contract for military weapons
[bullet] are in the liquor, tobacco or gambling industries
[bullet] conduct animal testing for cosmetic or personal care products.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be affected by changes in stock
prices. An investment in the Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. For a more complete discussion of risk,
please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors looking for capital growth potential.
[bullet] Investors who would like an investment that incorporates
social responsibility into its security selection process.
Who should not invest in the Fund
[bullet] Investors with short-term financial goals.
[bullet] Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
[bullet] Investors whose primary goal is to receive current income.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has the Fund performed?
This bar chart and table can help you evaluate the potential risks and
rewards of investing in Social Awareness Fund. We show how returns for
the Social Awareness Fund's Institutional Class shares have varied over
the past calendar year and since inception, as well as average annual
returns of all shares for the past year and since inception -- all
compared to the performance of the S&P 500 Index. You should remember
that unlike the Fund, the index is unmanaged and doesn't include the
actual costs of buying, selling, and holding securities. The Fund's
past performance does not necessarily indicate how it will perform in
the future. The Class' returns reflect a voluntary expense cap of
1.20%. The returns would be lower without this voluntary cap.
* Social Awareness Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN
(INSTITUTIONAL CLASS) FPO]
Social Awareness Fund S&P 500
[bar chart]
Year-by-year total return (Institutional Class)
As of December 31, 1998, the Institutional Class had a year-to-date
return of XX%. During the periods illustrated in this bar chart, the
Institutional Class' highest return in any quarter was XX% and its
lowest return in any quarter was XX%.
[table]
Average annual return as of 12/31/98
Institutional Class S&P 500
1 year 00.0% 00.0%
Since inception 00.0% 00.0%
(2/24/97)
What are Social Awareness Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy
or sell shares of the Institutional Class.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price none
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
Maximum sales charge (load) imposed on
reinvested dividends none
Redemption fees none
Exchange fees (1) none
Annual fund operating expenses are deducted from the Fund's income or
assets before it pays dividends and before its total return is
calculated. We will not charge you separately for these expenses.
Management fees 00.0%
Distribution and service (12-1) fees None
Other expenses 00.0%
Total operating expenses (2) 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. (3) This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
1 year 00.0%
3 years 00.0%
5 years 00.0%
10 years 00.0%
(1) Exchanges are subject to the requirements of each fund in the
Delaware Investments family. A front-end sales charge may apply if
you exchange your shares for another fund.
(2) The investment manager has agreed to waive fees and pay expenses
through _________________ in order to prevent total operating
expenses (excluding any taxes, interest, brokerage fees and
extraordinary expenses) from exceeding 1.20% of average daily net
assets.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
How we manage the Fund
Our investment strategies
We use a computer-driven selection process designed to identify stocks
of companies that are likely to grow faster than the average of the
companies in the S&P 500. Aided by this technology, we evaluate and
rank hundreds of stocks daily, using a variety of factors such as
dividend yield, earnings growth and price to earnings ratios. Decisions
to buy and sell stocks are determined by this objective evaluation
process.
We take a disciplined approach to investing, combining investment
strategies and risk management techniques that can help shareholders
meet their goals.
Social Awareness Fund is a socially responsible fund that invests
primarily in stocks that meet certain socially responsible criteria. It
strives to provide long-term capital appreciation to its shareholders.
We invest primarily in the common stocks of medium and large-sized
companies (generally $1.0 billion or more in market capitalization at
the time of purchase) that have met the established socially responsible
criteria. We use the Social Investment Database published by Kinder,
Lyndberg, Domini & Company, Inc. to determine which companies to exclude
from our selection process. The approved stocks are then evaluated
using the computer selection process described above.
Our goal is to seek stocks of companies that have the potential to grow
significantly faster than the average of the companies in the S&P 500.
We believe this growth, if achieved, will result in a rising share price
that will provide long-term appreciation to investors.
The securities we typically invest in
Stocks offer investors the potential for capital appreciation and may
pay dividends as well.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------
<S> <C>
Social Awareness Fund
----------------------------------------------
Common stocks: Securities that Generally, we invest 90% to 100% of net assets
represent shares of ownership in a in common stock of medium- to large-size
corporation. Stockholders companies.
participate in the corporation's
profits and losses, proportionate
to the number of shares they own.
- ------------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase agreements as a
between a buyer and seller of short-term investment for the Fund's cash
securities in which the seller position. In order to enter into these
agrees to buy the securities back repurchase agreements, the fund must have
within a specified time at the collateral of at least 102% of the repurchase
same price the buyer paid for them, price. The Fund may have no more than 10% of
plus an amount equal to an agreed its total assets in repurchase agreements
upon interest rate. Repurchase with maturities of over seven days.
agreements are often viewed as
equivalent to cash.
- ------------------------------------------------------------------------------------
Restricted securities: Privately We may invest without limitation in privately
placed securities whose resale is placed securities that are eligible for resale
restricted under securities law. among certain institutional buyers.
- ------------------------------------------------------------------------------------
Illiquid Securities: Securities We may invest up to 15% of the Fund's net
that do not have a ready market, assets in illiquid securities.
and cannot be easily sold, if at
all, at approximately the price
that the Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
Social Awareness Fund is permitted to invest in all available types of equity
securities, including preferred stock, warrants and convertible
securities. The Fund may also invest in foreign securities directly
(although we have no present intention to do so) or through depositary
receipts. It may hold cash; short-term debt securities and money market
instruments and engage in futures and options transactions for defensive
purposes. Please see the Statement of Additional Information for
additional descriptions and risk information on these securities as well
as those listed in the table above. You can find additional information
about the investments in each Fund's portfolio in the annual or semi-
annual shareholder report.
Lending securities
Social Awareness Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for their use in security
transactions.
Portfolio turnover
We anticipate that Social Awareness Fund's annual portfolio turnover
will be less than 100%. A turnover rate of 100% would occur if the Fund
sold and replaced securities valued at 100% of its net assets within one
year.
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions.
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you
may receive little or no return on your investment, and the risk that
you may lose part or all of the money you invest. Before you invest in
the Fund you should carefully evaluate the risks. Because of the nature
of the Fund, you should consider an investment to be a long-term
investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when
investing in Social Awareness Fund. Please see the Statement of
Additional Information for further discussion of these risks and the
other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------
<S> <C> <C>
Social Awareness Fund
----------------------------------------------
Market risk is the risk that all We maintain a long-term investment approach
or a majority of the securities in and focus on stocks we believe can appreciate
a certain market -- like the stock over an extended time frame regardless of
or bond market -- will decline in interim market fluctuations. We do not try to
value because of factors such as predict overall stock market movements and do
economic conditions, future not trade for short-term purposes.
expectations or investor confidence.
We may hold a substantial part of the Fund's
assets in cash or cash equivalents as a
temporary, defensive strategy.
- ------------------------------------------------------------------------------------
Industry and security risk is the We limit the amount of the Fund's assets
risk that the value of securities invested in any one industry and in any
in a particular industry or the individual security.
value of an individual stock or bond
will decline because of changing Because Social Awareness Fund avoids investing
expectations for the performance of in companies that don't meet socially
that industry or for the individual responsible criteria, its exposure to certain
company issuing the stock or bond. industry sectors may be greater or less than
similar funds or market indexes. This could
affect its performance positively or
negatively, depending on the performance of
those sectors.
- ------------------------------------------------------------------------------------
Liquidity risk is the possibility We limit exposure to illiquid securities.
that securities cannot be readily
sold, or can only be sold at
approximately the price that the
Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface the first time they
appear in the prospectus. So if you would like to know the meaning of a
word that isn't in boldface, you might still find it in the glossary.
Glossary A-B
Amortized cost
- ------------------------------------------------------------------------
Similar to depreciated value, amortized cost reflects the value of a
fixed-income security adjusted to account for any premium that was paid
above the par value when the security was purchased. The purpose of
amortization is to reflect resale or redemption value.
Appreciation
- ------------------------------------------------------------------------
An increase in the value of an investment.
Average maturity
- ------------------------------------------------------------------------
An average of when the individual bonds and other debt securities held
in a portfolio will mature.
Bond
- ------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or
government agency. In return for lending money to the issuer, a bond
buyer generally receives fixed periodic interest payments and repayment
of the loan amount on a specified maturity date. A bond's price prior to
maturity changes and is inversely related to current interest rates.
When interest rates rise, prices fall, and when interest rates fall,
prices rise.
Bond ratings
- ------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA
(highest quality) to D (lowest quality). Bonds rated Baa/BBB or better
are considered investment grade. Bonds rated Ba/BB or lower are
commonly known as junk bonds.
C-C
Capital
- ------------------------------------------------------------------------
The amount of money you invest.
Capital gains distributions
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of profits (realized gains) from
the sale of a fund's portfolio securities. Usually paid once a year; may
be either short-term gains or long-term gains.
Commission
- ------------------------------------------------------------------------
The fee an investor pays to a financial adviser for investment advice
and help in buying or selling mutual funds, stocks, bonds or other
securities.
Compounding
- ------------------------------------------------------------------------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- ------------------------------------------------------------------------
Measurement of U.S. inflation; represents the price of a basket of
commonly purchased goods.
Contingent deferred sales charge (CDSC)
- ------------------------------------------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to
the fund) within a set number of years; an alternative method for
investors to compensate a financial adviser for advice and service,
rather than an up-front commission.
[glossary to be continued]
Who manages the Fund
Investment Manager and Sub-Adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary
of Delaware Management Holdings, Inc. Vantage Investment Advisors is the
Fund's sub-adviser. As sub-adviser, Vantage is responsible for day-to-
day management of the Fund's assets. Delaware Management Company
administers the Fund's affairs and has ultimate responsibility for all
investment advisory services for the Fund. Delaware Management Company
also supervises the sub-adviser's performance. For their services to
the Fund, the manager and sub-adviser were paid an aggregate fee for the
last fiscal year as follows:
Investment Management Fees
Social Awareness Fund
As a percentage of average daily net assets 0.00%
Portfolio Manager
T. Scott Wittman, President and Chief Investment Officer of Vantage
Investment Advisors, has had primary responsibility for making day-to-
day investment decisions for the Fund since its inception. His
responsibilities with Vantage Investment Advisors include both business
administration and equity portfolio management. Mr. Wittman is a
Certified Financial Analyst (CFA). 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.
Year 2000
As with other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if
the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." The Fund is
taking steps to obtain satisfactory assurances that the Fund's major
service providers are taking steps reasonably designed to address the
Year 2000 Problem with respect to the computer systems that such service
providers use. There can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund.
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the
"Euro." It is anticipated that each such participating country will
replace its existing currency with the Euro on January 1, 1999.
Additional European countries may elect to participate after that date.
If the Fund is invested in securities of participating countries, it
could be adversely affected if the computer systems used by its major
service providers are not properly prepared to handle the implementation
of this single currency or the adoption of the Euro by additional
countries in the future. Equity Funds III, Inc. is taking steps to
obtain satisfactory assurances that the major service providers of the
Fund are taking steps reasonably designed to address these matters with
respect to the computer systems that such service providers use. There
can be no assurances that these steps will be sufficient to avoid any
adverse impact on the business of the Fund.
[glossary continued]
C-E
Cost basis
- ------------------------------------------------------------------------
The original purchase price of an investment, used in determining
capital gains and losses.
Currency exchange rates
- ------------------------------------------------------------------------
The price at which one country's currency can be converted into
another's. This exchange rate varies almost daily according to a wide
range of political, economic and other factors.
Depreciation
- ------------------------------------------------------------------------
A decline in an investment's value.
Diversification
- ------------------------------------------------------------------------
The process of spreading investments among a number of different
securities, asset classes or investment styles to reduce the risks of
investing.
[glossary to be continued]
[sidebar]
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-Adviser
Vantage Investment Advisors
630 Fifth Avenue
New York, NY 10111
Portfolio Service agent Distributor
managers Delaware Service Company, Inc. Delaware Distributors, L.P.
(see page x 1818 Market Street 1818 Market Street
for details) Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors
which has oversight responsibility for the management of the fund's
business affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the performance of
the investment manager, the distributor and others that perform services
for the fund. At least 40% of the board of directors must be independent
of the fund's investment manager or distributor. These independent fund
directors, in particular, are advocates for shareholder interests.
Custodian Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified bank
custodian who segregates fund securities from other bank assets.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager places
portfolio orders with broker/dealers and is responsible for obtaining
the best overall execution of those orders. A written contract between a
mutual fund and its investment manager specifies the services the
manager performs. Most management contracts provide for the manager to
receive an annual fee based on a percentage of the fund's average net
assets. The manager is subject to numerous legal restrictions,
especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the
management of the fund's assets. They are selected and supervised by
the investment manager.
Portfolio managers Portfolio managers are employed by the investment
manager or sub-adviser to make investment decisions for individual
portfolios on a day-to-day basis.
Service agent Mutual fund companies employ service agents (sometimes
called transfer agents) to maintain records of shareholder accounts,
calculate and disburse dividends and capital gains and prepare and mail
shareholder statements and tax information, among other functions. Many
service agents provide customer service to shareholders, as well.
Distributor Most mutual funds continuously offer new shares to the
public through distributors who are regulated as broker-dealers and are
subject to National Association of Securities Dealers, Inc. (NASD) rules
governing mutual fund sales practices.
Financial advisers Financial advisers provide investment advice to
their clients, analyzing their financial objectives and recommending
appropriate funds or other investments. Financial advisers are
compensated for their services, generally through sales commissions, and
through 12b-1 and/or service fees deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund
shareholders have specific voting rights, including the right to elect
directors. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change
fundamental investment objectives or policies must also seek shareholder
approval.
[glossary continued]
Dividend distribution
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of dividends passed along from the
fund's portfolio of securities.
Expense ratio
- ------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of
its total net assets. Operating expenses are the costs of running a
mutual fund, including management fees, offices, staff, equipment and
expenses related to maintaining the fund's portfolio of securities. They
are paid from the fund's assets before any earnings are distributed to
shareholders.
[glossary to be continued]
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
[bullet] 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
[bullet] tax-exempt employee benefit plans of the manager or its
affiliates and securities dealer firms with a selling
agreement with the distributor
[bullet] institutional advisory accounts of the manager, or its
affiliates and those having client relationships with Delaware
Investment Advisers, an affiliate 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
[bullet] 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
[bullet] 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
[glossary continued]
F-M
Financial adviser
- ------------------------------------------------------------------------
Financial professional (e.g., broker, banker, accountant, planner or
insurance agent) who analyzes clients' finances and prepares
personalized programs to meet objectives.
Fixed-income securities
- ------------------------------------------------------------------------
With fixed-income securities, the money you originally invested is
returned to you at a prespecified maturity date. These securities, which
include government, corporate or municipal bonds, as well as money
market securities, typically pay a fixed rate of return.
Inflation
- ------------------------------------------------------------------------
The increase in the cost of goods and services over time. U.S. inflation
is measured by the Consumer Price Index (CPI).
Investment goal
- ------------------------------------------------------------------------
The objective, such as long-term capital growth or high current income,
that a mutual fund pursues.
Management fee
- ------------------------------------------------------------------------
The amount paid by a mutual fund to the investment adviser for
management services, expressed as a percentage of the fund's net assets.
[glossary to be continued]
[glossary continued]
M-P
Market capitalization
- ------------------------------------------------------------------------
The value of a corporation determined by multiplying the current market
price of a share of common stock by the number of shares held by
shareholders. A corporation with one million shares outstanding and the
market price per share of $10 has a market capitalization of $10
million.
NASD (National Association of Securities Dealers)
- ------------------------------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the
actions of its members.
[glossary to be continued]
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to
the fund and class of shares you wish to purchase to Delaware
Investments, 1818 Market Street, Philadelphia, PA 19103. If you are
making an initial purchase by mail, you must include a completed
investment application, or an appropriate retirement plan application if
you are opening a retirement account, with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank,
ABA #031201467, Bank Account number 2014128934013. Include your account
number and the name of the fund in which you want to invest. If you are
making an initial purchase by wire, you must call us at 800-510-4015 so
we can assign an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in
the Delaware Investments family for shares of other funds in the family.
Please keep in mind, however, that you may not exchange your shares for
Class B or Class C shares. To open an account by exchange, call the
Shareholder Service Center at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a fee for this
service.
[glossary continued]
NAV (Net asset value)
The daily dollar value of one mutual fund share. Equal to a fund's net
assets divided by the number of shares outstanding.
NRSRO (Nationally recognized statistical rating organization)
A company that assesses the quality and potential performance of bonds,
commercial paper, preferred and common stocks and municipal short-term
issues, rating the probability that the issuer of the debt will meet the
scheduled interest payments and repay the principal. Ratings are
published by such companies as Moody's Investors Service (Moody's),
Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Preferred stock
Preferred stock has preference over common stock in the payment of
dividends and liquidation of assets. Preferred stocks also pay dividends
at a fixed rate.
[glossary to be continued]
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your
purchase order. If we or an authorized agent receives your order before
the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on a business day, you will pay that day's closing share
price which is based on the Fund's net asset value. If we receive your
order after the close of trading, you will pay the next business day's
price. A business day is any day that the New York Stock Exchange is
open for business. We reserve the right to reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the
Exchange is open. We calculate this value by adding the market value of
all the securities and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. We price
securities and other assets for which market quotations are available at
their market value. We price debt securities on the basis of valuations
provided to us by an independent pricing service that uses methods
approved by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the
board of directors.
[glossary continued]
P-S
Price/earnings ratio
- ------------------------------------------------------------------------
A measure of a stock's value calculated by dividing the current market
price of a share of stock by its annual earnings per share. A stock
selling for $100 per share with annual earnings of $5 has a P/E of 20.
Principal
- ------------------------------------------------------------------------
Amount of money you invest. Also refers to a bond's original face value,
due to be repaid at maturity.
Prospectus
- ------------------------------------------------------------------------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives,
policies, services and fees.
[glossary to be continued]
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by
writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA
19103. All owners of the account must sign the request, and for
redemptions of $50,000 or more, you must include a signature guarantee
for each owner. You can also fax your written request to 215-255-8864.
Signature guarantees are also required when redemption proceeds are
going to anyone other than the account holder(s) of record.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have
the proceeds sent to you by check, or if you redeem at least $1,000 of
shares, you may have the proceeds sent directly to your bank by wire.
Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds
deposited directly to your bank account the next business day after we
receive your request. Bank information must be on file before you
request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your
shares. Your adviser may charge a fee for this service.
[glossary continued]
Redeem
- ------------------------------------------------------------------------
To cash in your shares by selling them back to the mutual fund.
Risk
- ------------------------------------------------------------------------
Generally defined as variability of value; also credit risk, inflation
risk, currency and interest rate risk. Different investments involve
different types and degrees of risk.
S&P 500 Index
- ------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of
500 widely held common stocks that is often used to represent
performance of the U.S. stock market.
Sales charge
- ------------------------------------------------------------------------
Charge on the purchase of fund shares sold through financial advisers.
May vary with the amount invested. Typically used to compensate advisers
for advice and service provided.
[glossary to be continued]
About your account continued
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the
certificates with your request to sell the shares. We recommend that you
send your certificates by certified mail.
When you send us a properly completed request to redeem or exchange
shares, you will receive the net asset value as determined at the close
of business on the day we receive your request. We will deduct any
applicable contingent deferred sales charges. You may also have to pay
taxes on the proceeds from your sale of shares. We will send you a
check, normally the next business day, but no later than seven days
after we receive your request to sell your shares. If you purchased your
shares by check, we will wait until your check has cleared, which can
take up to 15 days, before we honor your request to sell these shares.
Account Minimum
If you redeem shares and your account balance falls below $250, the Fund
may redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class
in another Delaware Investments fund. You may not exchange your shares
for Class B and Class C shares of the funds in the Delaware Investments
family. If you exchange shares to a fund that has a sales charge you will pay
any applicable sales charges on your new shares. You don't pay sales
charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange
shares, you are purchasing shares in another fund so you should be sure
to get a copy of the fund's prospectus and read it carefully before
buying shares through an exchange.
[glossary continued]
S-S
SEC (Securities and Exchange Commission)
- ------------------------------------------------------------------------
Federal agency established by Congress to administer the laws governing
the securities industry, including mutual fund companies.
Share classes
- ------------------------------------------------------------------------
Different classifications of shares; mutual fund share classes offer a
variety of sales charge choices.
Signature guarantee
- ------------------------------------------------------------------------
Certification by a bank, brokerage firm or other financial institution
that a customer's signature is valid.
[glossary to be continued]
[glossary continued]
Standard deviation
- ------------------------------------------------------------------------
A measure of an investment's volatility; for mutual funds, measures how
much a fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- ------------------------------------------------------------------------
The document serving as "Part B" of a fund's prospectus that provides
more detailed information about the fund's organization, investments,
policies and risks.
Stock
- ------------------------------------------------------------------------
An investment that represents a share of ownership (equity) in a
corporation. Stocks are often referred to as "equities."
[glossary to be continued]
[glossary continued]
T-V
Total return
- ------------------------------------------------------------------------
An investment performance measurement, expressed as a percentage, based
on the combined earnings from dividends, capital gains and change in
price over a given period.
[glossary to be continued]
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We
automatically reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be affected
by current tax law. The tax status of your dividends from the Fund is
the same whether you reinvest your dividends or receive them in cash.
Distributions from the Fund's long-term capital gains are taxable as
capital gains, while distributions from short-term capital gains and net
investment income are generally taxable as ordinary income. Any capital
gains may be taxable at different rates depending on the length of time
the Fund held the assets. In addition, you may be subject to state and
local taxes on distributions.
We will send you a statement each year by January 31 detailing the
amount and nature of all dividends and capital gains that you were paid
for the prior year.
Retirement plans
In addition to being an appropriate investment for your Individual
Retirement Account (IRA), Roth IRA and Education IRA, shares in the Fund
may be suitable for group retirement plans. You may establish your IRA
account even if you are already a participant in an employer-sponsored
retirement plan. For more information on how shares in the Fund can play
an important role in your retirement planning or for details about group
plans, please consult your financial adviser, or call 800-523-1918.
[glossary continued]
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- ------------------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to
a minor with special tax advantages.
Volatility
- ------------------------------------------------------------------------
The tendency of an investment to go up or down in value by different
magnitudes. There are "low volatility" and "high volatility"
investments.
[end glossary]
Financial highlights
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. All "per share"
information reflects financial results for a single Fund share. This
information has been audited by Ernst & Young LLP, whose report, along
with the Fund's financial statements, is included in the Fund's annual
report, which is available upon request by calling 800-523-1918.
<TABLE>
<CAPTION>
Institutional Class
- ---------------------------------------------------------------------------
Year Period
Ended 2/24/97 (1)
11/30/ Through
1998 11/30/97
- ---------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ($) 0.000 8.500
Income From Investment Operations
Net investment income ($) 0.000 0.029 (2)
Net realized & unrealized gains (losses) on
investments ($) 0.000 1.821
Total from investment operations ($) 0.000 1.850
Less Distributions
Dividends from net investment income ($) 0.000 None
Distributions from realized gains ($) 0.000 None
Total distributions ($) 0.000 None
Net asset value, end of period ($) 00.000 10.350
Total Return (%)(3) 00.00 21.77
Ratios and Supplemental Data:
Net asset value, end of period
(000's omitted) ($) 000 107
Ratio of expenses to average daily net
assets (%) 0.00 1.20
Ratio of net investment income to average daily
net assets (%) 0.00 0.68
Portfolio turnover rate (%) 00 29
Volatility, as indicated by year-by-year return (%) 00.00 21.77
- ---------------------------------------------------------------------------
</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 referenced on page x.
How to read the financial highlights
Net investment income
- ------------------------------------------------------------------------
Net investment income includes dividend and interest income earned from
the Fund's securities after its expenses have been deducted.
Net gains (losses) on investments (both realized and unrealized)
- ------------------------------------------------------------------------
A realized gain occurs when we sell an investment at a profit, while a
realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we
record an unrealized gain or loss. The amount of realized gain per share
that we pay to shareholders is listed under "Less Distributions-
Distributions from realized gains."
Realized gains
- ------------------------------------------------------------------------
Profits realized from the sale of securities.
Net asset value (NAV)
- ------------------------------------------------------------------------
This is the value of a mutual fund share, calculated by dividing the net
assets by the number of shares outstanding.
Total return
- ------------------------------------------------------------------------
This represents the percentage increase or decrease in the value of a
share of a fund during specific periods, in this case, annual periods.
In calculating this figure for the financial highlights table, we
include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and
realized gains.
Net assets
- ------------------------------------------------------------------------
Net assets represent the total value of all the assets in the Fund's
portfolio, less any liabilities, that are attributable to that class of
the Fund.
How to read the financial highlights
(continued)
Ratio of expenses to average daily net assets
- ------------------------------------------------------------------------
The expense ratio is the percentage of total investment that a fund pays
annually for operating expenses and management fees. These expenses
include accounting and administration expenses, services for
shareholders, and similar expenses.
Ratio of net investment income to average daily net assets
- ------------------------------------------------------------------------
We determine this ratio by dividing net investment income by average net
assets.
Portfolio turnover rate
- ------------------------------------------------------------------------
This figure tells you the amount of trading activity in a fund's
portfolio. For example, a fund with a 50% turnover has bought and sold
half of the value of its total investment portfolio during the stated
period.
[back cover]
Social Awareness Fund
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during their last fiscal year. You can find more detailed information
about the Fund in the current Statement of Additional Information, which
we have filed electronically with the Securities and Exchange Commission
(SEC) and which is legally a part of this prospectus. If you want a free
copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have any questions about investing in the Fund,
you can write to us at 1818 Market Street, Philadelphia, PA 19103, or
call toll-free 800-523-1918. You may also obtain additional information
about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web
site (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. Information about the
Fund, including its Statement of Additional Information, can be reviewed
and copied at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. You can get information on the public reference
room by calling the SEC at 1-800-SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Client Services Representative
800-510-4015
[Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance
information on all Delaware Investment Funds seven days a week, 24 hours
a day, use this Touch-ToneR service.]
Registrant's Investment Company Act file number: 811-750
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
P-___ [--] PP 1/99
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Diversified Value Fund
Class A
[bullet] Class B
[bullet] Class C
Prospectus January 29, 1999
Total Return Fund
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
[inside front cover]
Table of Contents
Fund profile page
Diversified Value Fund
How we manage the Fund page
Our investment strategy
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio manager
Who's who? page
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares
How to redeem shares
Special services
Dividends, distributions and taxes
Retirement plans
Other investment policies and
risk considerations page
Financial highlights page
Glossary page
How to use this prospectus
Here are guidelines to help you use this prospectus to make well-
informed investment decisions about our funds. If you're looking for a
specific piece of information, the table of contents can guide you
directly to the appropriate section.
Step 1
- ------------------------------------------------------------------------
Take a look at the fund profiles for an overview of the Fund.
Step 2
- ------------------------------------------------------------------------
Learn in-depth information about how the Fund invests, the risks
involved and the people and organizations responsible for the Fund's
day-to-day operations.
Step 3
- ------------------------------------------------------------------------
Determine which fund features and services you would like to take
advantage of.
Step 4
- ------------------------------------------------------------------------
Use the glossary that begins on page x to find definitions of words
printed in bold type throughout the prospectus.
Investing for total return...
Investors with long-term goals often choose mutual funds designed to
provide total return. These funds provide moderate growth potential as
well as some current income. They generally involve less risk than
aggressive stock funds but more risk than bond funds. Like all mutual
funds, total return funds allow you to invest conveniently in a
diversified portfolio without having to select and monitor individual
securities on your own.
with Delaware Investments
Your personal financial adviser, working with Delaware Investments, can
help you define, evaluate and set your personal investment objectives.
Your adviser can also explain the role total return funds like
Diversified Value Fund can play in a long-term investment program
designed to meet your goals.
The Delaware Investments family includes a full range of mutual funds-
including total return funds-designed to fit your particular investment
needs. With nearly 70 years of investment management experience, we
follow time-tested strategies that emphasize long-term performance and
consistent application of investment disciplines. Today, as part of the
Lincoln Financial Group, a $105 billion financial services complex,
Delaware Investments has access to a variety of experienced and talented
investment managers. We are dedicated to working closely with financial
advisers to bring investors the highest quality investment management
and services.
["House" graphic, with total return "room" highlighted]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Growth Equity Funds
International and Global Funds
Asset Allocation Funds
[Table Highlighted] Moderate Growth Equity Funds for...
Total Return
These stock-oriented funds provide moderate growth potential as well as
some current income, with generally less risk than aggressive stock
funds but more risk than bond funds.
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
Profile: Diversified Value Fund
What are the Fund's goals?
Diversified Value Fund seeks capital appreciation with current income as
a secondary objective. Although the Fund will strive to achieve its
goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in dividend-paying stocks and income producing
securities that are convertible into common stocks. Typically the
stocks selected for the portfolio will have one or more of the following
characteristics based on a comparison to the S&P 500 Composite Stock
Index: lower price to earnings ratio, lower price to cash flow ratio, a
lower price to book ratio or favorable trends in earnings estimates.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be affected by changes in stock
prices. An investment in the Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. For a more complete discussion of risk,
please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors looking for growth potential.
[bullet] Investors looking for a core investment to act as a foundation
for their equity portfolio.
Who should not invest in the Fund
[bullet] Investors with short-term financial goals.
[bullet] Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly, over the short term.
[bullet] Investors whose primary goal is income.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has the Fund performed?
This table can help you evaluate the potential risks and rewards of
investing in the Fund. We show average annual return of Class A shares
since inception compared to the performance of the S&P 500 Index. Class
B shares and Class C shares have not commenced operations. You should
remember that unlike the Fund, the index is unmanaged and doesn't
include the actual costs of buying, selling, and holding securities.
The Fund's past performance does not necessarily indicate how it will
perform in the future.
The maximum Class A sales charge of 5.75%, which is normally deducted
when you purchase shares, is reflected in the total returns. This
return also reflects a voluntary fee cap equal to 0.75% and a waiver of
12b-1 fees. The return would be lower without this voluntary fee cap
and 12b-1 waiver.
[table]
Average annual return as of 12/31/98
CLASS A S&P 500
Since
inception
(9/14/98) 00.0% 00.0
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy
or sell shares of the Fund. The Fund may waive or reduce sales charges;
please see the Statement of Additional Information for details.
CLASS A B C
Maximum sales charge (load) imposed on
purchases as a percentage of offering
price 5.75% none none
Maximum contingent deferred sales charge
(load) as a percentage of original
purchase price or redemption price,
whichever is lower none (1) 5% (2) 1% (3)
Maximum sales charge (load) imposed on
reinvested dividends none none none
Redemption fees none none none
Annual fund operating expenses are deducted from the Fund's income or
assets before it pays dividends and before its total return is
calculated. We will not charge you separately for these expenses.
Management fees 00.0% 00.0% 00.0%
Distribution and service (12b-1) fees (5)(6) 00.0% 00.0% 00.0%
Other expenses (7) 00.0% 00.0% 00.0%
Total operating expenses (8) 00.0% 00.0% 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. (9) This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
CLASS (1) A B B (if redeemed) C C (if redeemed)
1 year 00.0% 00.0% 00.0% 00.0% 00.0%
3 years 00.0% 00.0% 00.0% 00.0% 00.0%
1 A purchase of Class A shares at $1 million or more may be made at net
asset value. However, if you buy the shares through a financial
adviser who is paid a commission, a contingent deferred sales charge
of 1% will be imposed on certain redemptions within the first year of
purchase and 0.50% within the second year of purchase. Additional
Class A purchase options that involve a contingent deferred sales
charge may be permitted from time to time and will be disclosed in
the prospectus if they are available.
2 If you redeem Class B shares during the first year after you buy
them, you will pay a contingent deferred sales charge of 5%. The
contingent deferred sales charge is 4% during the second year, 3%
during the third and fourth years, 2% during the fifth year, 1%
during the sixth year, and 0% thereafter. Your Class B shares will
automatically convert to Class A shares after approximately eight
years.
3 Class C shares redeemed within one year of purchase are subject to a
1% contingent deferred sales charge.
4 First Union Bank, N.A., the bank through which we wire money,
currently charges $7.50 per redemption for redemptions payable by
wire.
5 The Fund has adopted a plan under rule 12b-1 that allows the Fund to
pay distribution fees for the sales and distribution of its shares.
Because these fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. Each
share class is subject to a separate 12b-1 plan.
6 The Class A shares are subject to a 12b-1 fee of 0.30% of average
daily net assets and Class B and C shares are each subject to a 12b-1
fee of 1.00% of average daily net assets. The distributor has agreed
to waive these 12b-1 fees through July 31, 1999.
7 Other expenses are based on estimated amounts for the current fiscal
year.
8 The investment manager has agreed to waive fees and pay expenses
through July 31, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees, extraordinary
expenses and 12b-1 fees) from exceeding 0.75% of average daily net
assets.
9 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
10 Class B shares automatically convert to Class A shares at the end of
the eighth year. The example does not assume this conversion since it
only reflects expenses for one and three years.
How we manage the Fund
Our investment strategy
We rank a broad universe of stocks using both value characteristics (low
price-to-earnings ratio, low price to book ratio, low price to cashflow
ratio) and growth characteristics (favorable trends in earnings
estimates). Based on the ranking, we then do in-depth research on the
most attractive companies. A combination of these two analyses is used
to select stocks for the portfolios. We rely more heavily on the
initial quantitative ranking in our final selection.
We take a disciplined approach to investing, combining investment
strategies and risk management techniques that can help shareholders
meet their goals.
The investment objective of Diversified Value Fund is to achieve capital
appreciation with current income as a secondary objective. The Fund
seeks to achieve this objective by investing primarily in dividend
paying stocks and income producing securities that are convertible into
common stocks. The Fund will generally invest in companies currently
having a market capitalization of at least $1 billion. The manager
seeks companies that have one or more of the following characteristics
in relation to the market as represented by the S&P 500 Index: a lower
price-to-earnings ratio; a lower price-to-cash flow ratio; a lower
price-to-book ratio; or favorable trends in earnings estimates.
The manager ranks a broad universe of stocks using quantitative models
that assess each company on a variety of value and growth
characteristics such as those mentioned above. Generally speaking, a
value orientation focuses on stocks that the manager believes are
undervalued in price and will eventually be recognized by the market. A
growth oriented strategy, on the other hand, typically concentrates on
stocks with earnings that the manager believes will grow faster than the
overall market. A composite ranking is generated which seeks to
identify companies with favorable valuations and/or improving
fundamentals. The manager will then perform qualitative assessments of
these companies in selecting securities that the manager believes will
best help the Fund achieve its objectives. In selecting portfolio
securities, the manger will structure a portfolio that is weighted
towards those securities that are more highly ranked by the quantitative
models.
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
Risk Considerations.
The Fund will invest in convertible fixed-income securities for their
equity characteristics and without respect to investment ratings. As a
result, the Fund may hold convertible fixed-income securities that are
rated below investment grade (i.e., rated below BBB by Standard & Poor's
Ratings Group or Baa by Moody's Investors Service, Inc.). Although such
securities entail higher risks, they are typically less risky than
similarly rated non-convertible fixed-income securities by virtue of the
convertibility feature. See High-Yield Securities under Other
Investment Policies and Risk Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in foreign securities, including investments in American,
European and Global Depositary Receipts. See Foreign Investment
Information under Other Investment Policies and Risk Considerations.
The Fund may enter into 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 the Fund's positions in cash,
short-term debt securities and other money market instruments, at times
when the 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. 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 manager'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 Ratings Group or Aaa by Moody's Investors Service) or,
if unrated, judged to be of comparable quality as determined by the
manager. 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.
The Fund may also engage in short sales. See Short Sales under Other
Investment Policies and Risk Considerations.
Although the Fund will constantly strive to attain its objective, there
can be no assurance that it will be attained. The objective of the Fund
may be changed without shareholder approval. For a description of the
Fund's other investment policies, see Other Investment Policies and Risk
Considerations. The Statement of Additional Information contains other
investment restrictions.
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you
may receive little or no return on your investment, and the risk that
you may lose part or all of the money you invest. Before you invest in
the Fund you should carefully evaluate the risks. Because of the nature
of the Fund, you should consider an investment to be a long-term
investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when
investing in Diversified Value Fund. Please see the Statement of
Additional Information for further discussion of these risks and the
other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------
<S> <C>
Diversified Value Fund
----------------------------------------------
Market risk is the risk that all We maintain a long-term investment approach
or a majority of the securities in and focus on stocks we believe can appreciate
a certain market -- like the stock over an extended time frame regardless of
or bond market -- will decline in interim market fluctuations. We do not try to
value because of factors such as predict overall stock market movements and do
economic conditions, future not trade for short-term purposes.
expectations or investor confidence.
We may hold a substantial part of the Fund's
assets in cash or cash equivalents as a
temporary, defensive strategy.
- ------------------------------------------------------------------------------------
Industry and security risk is the We limit the amount of the Fund's assets
risk that the value of securities invested in any one industry and in any
in a particular industry or the individual security. We also follow a rigorous
value of an individual stock or bond selection process designed to identify under-
will decline because of changing valued securities before choosing securities
expectations for the performance of for the portfolio.
that industry or for the individual
company issuing the stock or bond.
- ------------------------------------------------------------------------------------
Liquidity risk is the possibility We limit exposure to illiquid securities.
that securities cannot be readily
sold, or can only be sold at a price
lower than the Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
Who manages the Fund
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary
of Delaware Management Holdings, Inc. Delaware Management Company makes
investment decisions for the Funds, manages the Funds' business affairs
and provides daily administrative services. For these services, the
manager will be paid an annual fee equal to 0.65% on the first $500
million of average daily net assets, 0.60% on the next $500 million,
0.55% on the next $1.5 billion and 0.50% on the average daily net assets
in excess of $2.5 billion.
Portfolio manager
J. Paul Dokas, Vice President/Portfolio Manager, has had primary
responsibility for making day-to-day investment decisions for the Fund
since its inception. Mr. Dokas holds a BBA in Business from Loyola
College and an MBA in Business from the University of Maryland. Prior
to joining Delaware Investments in 1997, he was a Director of Trust
Investments for Bell Atlantic Corporation in Philadelphia. Mr. Dokas is
a Certified Financial Analyst.
Year 2000
As with other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if
the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." The Fund is
taking steps to obtain satisfactory assurances that the Fund's major
service providers are taking steps reasonably designed to address the
Year 2000 Problem with respect to the computer systems that such service
providers use. There can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund.
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the
"Euro." It is anticipated that each such participating country will
replace its existing currency with the Euro on January 1, 1999.
Additional European countries may elect to participate after that date.
If the Fund is invested in securities of participating countries, it
could be adversely affected if the computer systems used by its major
service providers are not properly prepared to handle the implementation
of this single currency or the adoption of the Euro by additional
countries in the future. Equity Funds III, Inc. is taking steps to
obtain satisfactory assurances that the major service providers of the
Fund are taking steps reasonably designed to address these matters with
respect to the computer systems that such service providers use. There
can be no assurances that these steps will be sufficient to avoid any
adverse impact on the business of the Fund.
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio Service agent Distributor
managers Delaware Service Company, Inc. Delaware Distributors, L.P.
(see page x 1818 Market Street 1818 Market Street
for details) Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors
which has oversight responsibility for the management of the fund's
business affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the performance of
the investment manager, the distributor and others that perform services
for the fund. At least 40% of the board of directors must be independent
of the fund's investment manager or distributor. These independent fund
directors, in particular, are advocates for shareholder interests.
Custodian Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified bank
custodian who segregates fund securities from other bank assets.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager places
portfolio orders with broker/dealers and is responsible for obtaining
the best overall execution of those orders. A written contract between a
mutual fund and its investment manager specifies the services the
manager performs. Most management contracts provide for the manager to
receive an annual fee based on a percentage of the fund's average net
assets. The manager is subject to numerous legal restrictions,
especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment
manager to make investment decisions for individual portfolios on a day-
to-day basis.
Service agent Mutual fund companies employ service agents (sometimes
called transfer agents) to maintain records of shareholder accounts,
calculate and disburse dividends and capital gains and prepare and mail
shareholder statements and tax information, among other functions. Many
service agents provide customer service to shareholders, as well.
Distributor Most mutual funds continuously offer new shares to the
public through distributors who are regulated as broker-dealers and are
subject to National Association of Securities Dealers, Inc. (NASD) rules
governing mutual fund sales practices.
Financial advisers Financial advisers provide investment advice to
their clients, analyzing their financial objectives and recommending
appropriate funds or other investments. Financial advisers are
compensated for their services, generally through sales commissions, and
through 12b-1 and/or service fees deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund
shareholders have specific voting rights, including the right to elect
directors. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change
fundamental investment objectives or policies must also seek shareholder
approval.
About your account
Investing in the Fund
You can choose from a number of share classes for the Fund. Because each
share class has a different combination of sales charges, fees, and
other features, you should consult your financial adviser to determine
which class best suits your investment goals and time frame.
Choosing a share class
Class A
[bullet] Class A shares have an up-front sales charge of up to 5.75%
that you pay when you buy the shares. The offering price for
Class A shares includes the front-end sales charge.
[bullet] If you invest $50,000 or more, your front-end sales charge will
be reduced.
[bullet] You may qualify for other reduced sales charges, as described
in "How to reduce your sales charge," and under certain
circumstances the sales charge may be waived; please see the
Statement of Additional Information.
[bullet] Absent 12b-1 fee waivers, Class A shares are also subject to an
annual 12b-1 fee no greater than 0.30% of average daily net
assets, which is lower than the 12b-1 fee for Class B and
Class C shares.
[bullet] Class A shares generally are not subject to a contingent
deferred sales charge.
Class B
[bullet] Class B shares have no up-front sales charge, so the full
amount of your purchase is invested in the Fund. However, you
will pay a contingent deferred sales charge if you redeem your
shares within six years after you buy them.
[bullet] If you redeem Class B shares during the first year after you
buy them, the shares will be subject to a contingent deferred
sales charge of 5%. The contingent deferred sales charge is 4%
during the second year, 3% during the third and fourth years,
2% during the fifth year, 1% during the sixth year, and 0%
thereafter.
[bullet] Under certain circumstances the contingent deferred sales
charge may be waived; please see the Statement of Additional
Information.
[bullet] For approximately eight years after you buy your Class B
shares, absent 12b-1 fee waivers, they are subject to annual
12b-1 fees no greater than 1% of average daily net assets, of
which 0.25% are service fees paid to the distributor, dealers
or others for providing services and maintaining shareholder
accounts.
[bullet] Because of the higher 12b-1 fees, Class B shares have higher
expenses and any dividends paid on these shares are lower than
dividends on Class A shares.
[bullet] Approximately eight years after you buy them, Class B shares
automatically convert into Class A shares with a 12b-1 fee of
no more than 0.30%, which is currently being waived.
[bullet] You may purchase up to $250,000 of Class B shares at any one
time. The limitation on maximum purchases varies for retirement
plans.
Class C
[bullet] Class C shares have no up-front sales charge, so the full
amount of your purchase is invested in the Fund. However, you
will pay a contingent deferred sales charge if you redeem your
shares within 12 months after you buy them.
[bullet] Under certain circumstances the contingent deferred sales
charge may be waived; please see the Statement of Additional
Information.
[bullet] Absent 12b-1 fee waivers, Class C shares are subject to an
annual 12b-1 fee which may not be greater than 1% of average
daily net assets, of which 0.25% are service fees paid to the
distributor, dealers or others for providing personal services
and maintaining shareholder accounts.
[bullet] Because of the higher 12b-1 fees, Class C shares have higher
expenses and pay lower dividends than Class A shares.
[bullet] Unlike Class B shares, Class C shares do not automatically
convert into another class.
[bullet] You may purchase any amount less than $1,000,000 of Class C
shares at any one time. The limitation on maximum purchases
varies for retirement plans.
<TABLE>
<CAPTION>
Class A Sales Charges
Amount of Sales charge Sales charge as Dealer's
purchase as % % of amount commission as %
of offering price invested of offering price
<C> <S> <S> <S>
Less than $50,000 5.75% X.XX% 5.00%
$50,000 but 4.75% X.XX% 4.00%
Under $100,000
$100,000 but 3.75% X.XX% 3.00%
Under $250,000
$250,000 but 2.50% X.XX% 2.00%
Under $500,000
$500,000 but 2.00% X.XX% 1.60%
Under $1 million
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1
million or more of Class A shares. However, if your financial adviser is
paid a commission on your purchase, you may have to pay a limited
contingent deferred sales charge of 1% if you redeem these shares within
the first year and 0.50% if you redeem them within the second year.
<TABLE>
<CAPTION>
Amount of Sales charge Sales charge as Dealer's
purchase as % % of amount commission as %
of offering price invested of offering price
<C> <S> <S> <S>
$1,000,000 up
to $5 million none none 1.00
Next $20 million
up to $25 million none none 0.50
Amount over
$25 million none none 0.25
</TABLE>
About your account continued
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on
shares. Please refer to the Statement of Additional Information for
detailed information and eligibility requirements. You can also get
additional information from your financial adviser. You or your
financial adviser must notify us at the time you purchase shares if you
are eligible for any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Share class
Program How it works A B C
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Letter of Intent Through a Letter of Intent you agree X
to invest a certain amount in
Delaware Investment Funds (except
money market funds with no sales
charge) over a 13-month period to
qualify for reduced front-end sales
charges.
- ------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings of all X
funds in the Delaware Investments
family (except money market funds with
no sales charge) as well as the holdings
of your spouse and children under 21 to
qualify for reduced front-end sales
charges.
- ------------------------------------------------------------------------------------
Reinvestment of Redeemed Up to 12 months after you redeem shares, X
Shares you can reinvest the proceeds without
paying a front-end sales charge.
- ------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, These investment plans may qualify for X
SARSEP, Prototype Profit reduced sales charges by combining the
Sharing, Pension, purchases of all members of the group.
SIMPLE 401(k), 403(b)(7), Members of these groups may also qualify
and 457 Retirement Plans to purchase shares without a front-end
sales charge and a waiver of any
contingent deferred sales charges.
- ------------------------------------------------------------------------------------
</TABLE>
How to buy shares
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a fee for this
service.
By mail
Complete an investment slip and mail it with your check, made payable to
the fund and class of shares you wish to purchase to Delaware
Investments, 1818 Market Street, Philadelphia, PA 19103. If you are
making an initial purchase by mail, you must include a completed
investment application, or an appropriate retirement plan application if
you are opening a retirement account, with your check.
By wire
Ask your bank to wire the amount you want to invest to First Union Bank,
ABA #031201467, Bank Account number 2014128934013. Include your account
number and the name of the fund in which you want to invest. If you are
making an initial purchase by wire, you must call us so we can assign an
account number.
By exchange
You can exchange all or part of your investment in one or more funds in
the Delaware Investments family for shares of other funds in the family.
Please keep in mind, however, that you may not exchange Class A shares
for Class B or Class C shares. To open an account by exchange, call the
Shareholder Service Center at 800-523-1918.
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated
telephone service, or through our web site, www.delawarefunds.com. For
more information about how to sign up for these services, call our
Shareholder Service Center at 800-523-1918.
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an
initial investment of $1,000, and make additional investments at any
time for as little as $100. If you are buying shares in an IRA, Roth IRA
or Education IRA; under the Uniform Gifts to Minors Act or the Uniform
Transfers to Minors Act; or through an Automatic Investing Plan, the
minimum purchase is $250, and you can make additional investments of
only $25. The minimums vary for retirement plans other than IRAs, Roth
IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your
purchase order. If we or an authorized agent receives your order before
the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on a business day, you will pay that day's closing share
price which is based on the Fund's net asset value. If we receive your
order after the close of trading, you will pay the next business day's
price. A business day is any day that the New York Stock Exchange is
open for business. We reserve the right to reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the
Exchange is open. We calculate this value by adding the market value of
all the securities and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. We price
securities and other assets for which market quotations are available at
their market value. We price debt securities on the basis of valuations
provided to us by an independent pricing service that uses methods
approved by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the
board of directors.
How to redeem shares
Through your financial adviser
Your financial adviser can handle all the details of redeeming your
shares. Your adviser may charge a fee for this service.
By mail
You can redeem your shares (sell them back to the fund) by mail by
writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA
19103. All owners of the account must sign the request, and for
redemptions of $50,000 or more, you must include a signature guarantee
for each owner. Signature guarantees are also required when redemption
proceeds are going to anyone other than the account holder(s) of record.
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have
the proceeds sent to you by check, or if you redeem at least $1,000 of
shares, you may have the proceeds sent directly to your bank by wire.
Bank information must be on file before you request a wire redemption.
By wire
You can redeem $1,000 or more of your shares and have the proceeds
deposited directly to your bank account the next business day after we
receive your request. If you request a wire deposit, the First Union
Bank fee (currently $7.50) will be deducted from your proceeds. Bank
information must be on file before you request a wire redemption.
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone
service, or through our web site, www.delawarefunds.com. For more
information about how to sign up for these services, call our
Shareholder Service department at 800-523-1918.
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the
certificates with your request to sell the shares. We recommend that you
send your certificates by certified mail.
When you send us a properly completed request to redeem or exchange
shares, you will receive the net asset value as determined on the
business day we receive your request. We will deduct any applicable
contingent deferred sales charges. You may also have to pay taxes on the
proceeds from your sale of shares. We will send you a check, normally
the next business day, but no later than seven days after we receive
your request to sell your shares. If you purchased your shares by check,
we will wait until your check has cleared, which can take up to 15 days,
before we honor your request to sell these shares.
If you are required to pay a contingent deferred sales charge when you
redeem your shares, the amount subject to the fee will be based on the
shares' net asset value when you purchased them or their net asset value
when you redeem them, whichever is less. This arrangement assures that
you will not pay a contingent deferred sales charge on any increase in
the value of your shares. You also will not pay the charge on any shares
acquired by reinvesting dividends or capital gains. If you exchange
shares of one fund for shares of another, and later redeem those shares,
the purchase price for purposes of the contingent deferred sales charge
formula will be the price you paid for the original shares rather than
the exchange price. The redemption price for purposes of this formula
will be the NAV of the shares you are actually redeeming.
Account Minimum
If you redeem shares and your account balance falls below the required
account minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act
accounts or accounts with automatic investing plans) for three or more
consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at
the minimum by the required time, you will be charged a $9 fee for that
quarter and each quarter after that until your account reaches the
minimum balance. If your account does not reach the minimum balance, the
Fund may redeem your account after 60 days' written notice to you.
Special services
To help make investing with us as easy as possible, and to help you
build your investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly
investments directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions or direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly
exchanges from your shares in one or more Delaware Investments funds
into any other Delaware Investments fund. Wealth Builder Exchanges are
subject to the same rules as regular exchanges and require a minimum
monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in
the Delaware Investments family. The shares that you purchase through
the Dividend Reinvestment Plan are not subject to a front-end sales
charge or to a contingent deferred sales charge.
Exchanges
You can exchange all or part of your shares for shares of the same class
in another Delaware Investments fund without paying a sales charge and
without paying a contingent deferred sales charge on the shares of the
fund from which you make your exchange. However, if you exchange shares
from a money market fund that does not have a sales charge you will pay
any applicable sales charges on your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When exchanging
Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred
sales charge as the shares you originally purchased. The holding period
for the CDSC will also remain the same, with the amount of time you held
your original shares being credited toward the holding period of your
new shares. When you exchange shares, you are purchasing shares in
another fund so you should be sure to get a copy of the fund's
prospectus and read it carefully before buying shares through an
exchange.
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We
automatically reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be affected
by current tax law. The tax status of your dividends from the Fund is
the same whether you reinvest your dividends or receive them in cash.
Distributions from the Fund's long-term capital gains are taxable as
capital gains, while distributions from short-term capital gains and net
investment income are generally taxable as ordinary income. Any capital
gains may be taxable at different rates depending on the length of time
the Fund held the assets. In addition, you may be subject to state and
local taxes on distributions.
We will send you a statement each year by January 31 detailing the
amount and nature of all dividends and capital gains that you were paid
for the prior year.
Retirement plans
In addition to being an appropriate investment for your Individual
Retirement Account (IRA), Roth IRA and Education IRA, shares in the Fund
may be suitable for group retirement plans. You may establish your IRA
account even if you are already a participant in an employer-sponsored
retirement plan. For more information on how shares in the Fund can play
an important role in your retirement planning or for details about group
plans, please consult your financial adviser, or call 800-523-1918.
Other investment policies and risk considerations
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. The Fund will not borrow money
in excess of one-third of the value of its net assets. The Fund has no
intention of increasing its net income through borrowing. Any borrowing
will be done from a bank and, to the extent that such borrowing exceeds
5% of the value of the Fund's net assets, asset coverage of at least
300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter (not
including 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%. The Fund will not pledge
more than 10% of its net assets, or issue senior securities as defined
in the 1940 Act, except for notes to banks. Investment securities will
not be purchased while the Fund has an outstanding borrowing.
Convertible, debt and non-traditional equity securities
The 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 typically senior to common stocks in
a corporation's capital structure, although convertible securities are
usually subordinated to similar nonconvertible securities. Convertible
and debt securities typically 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.
The 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.
The 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.
Depositary receipts
The 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 with respect to 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.
Foreign securities
The Fund may invest up to 20% of its total assets in foreign securities
(which include American, European and Global Depositary Receipts).
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. The
Fund may also experience delays in foreign securities settlement.
Futures contracts
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 the Fund's current or intended
investments from broad fluctuations in stock prices. For example, the
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 the 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.
The 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. The Fund may sell futures contracts on a
foreign currency, for example, when it holds securities denominated in
such currency and it anticipates a decline in the value of such currency
relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be
offset, in whole or in part, by gains on the futures contracts.
However, if the value of the foreign currency increases relative to the
dollar, the Fund's loss on the foreign currency futures contract may or
may not be offset by an increase in the value of the securities because
a decline in the price of the security stated in terms of the foreign
currency may be greater than the increase in value as a result of the
change in exchange rates.
Conversely, the 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 the 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.
The Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities,
as described below, except that options on futures give the purchaser
the right, in return for the premium paid, to assume a position in a
futures contract, rather than to actually purchase or sell the futures
contract, at a specified exercise price at any time during the period of
the option. In the event that an option written by the Fund is
exercised, the Fund will be subject to all the risks associated with the
trading of futures contracts, such as payment of variation margin
deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin
requirements on the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the
initial position. Likewise, a position in an option on a futures
contract may be terminated by the purchaser or seller prior to
expiration by effecting a closing purchase or sale transaction, subject
to availability of a secondary market, which is the purchase or sale of
an option of the same series (i.e., the same exercise price and
expiration date) as the option previously purchased or sold. The 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, the Fund may not achieve the anticipated
benefits of investing in futures contracts and options thereon, or may
realize a loss. To the extent that the Fund purchases an option on a
futures contract and fails to exercise the option prior to the exercise
date, it will suffer a loss of the premium paid. Further, the possible
lack of a secondary market could prevent the Fund from closing out its
positions relating to futures. See Part B for a further discussion of
this investment technique.
High yield securities
The Fund will invest in convertible fixed-income securities for their
equity characteristics and without respect to investment ratings. As a
result, the Fund may hold convertible fixed-income securities which are
rated below investment grade (i.e., rated below BBB by S&P or Baa by
Moody's). See Appendix A of the Statement of Additional Information for
a description of ratings. Below investment grade fixed-income
securities are considered to be of poor standing and predominantly
speculative. Such securities are subject to a substantial degree of
credit risk.
In the past, in the opinion of the manager, the high yields from these
bonds have more than compensated for their higher default rates. There
can be no assurance, however, that yields will continue to offset
default rates on these bonds in the future. The manager intends to
maintain an adequately diversified portfolio of these bonds. While
diversification can help to reduce the effect of an individual default
on the Fund, there can be no assurance that diversification will protect
the Fund from widespread bond defaults brought about by a sustained
economic downturn.
Medium and low-grade bonds held by the Fund may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs,
mergers, acquisitions, debt recapitalizations or similar events. Also
these bonds are often issued by smaller, less creditworthy companies or
by highly leveraged (indebted) firms, which are generally less able than
more financially stable firms to make scheduled payments of interest and
principal. The risks posed by bonds issued under such circumstances are
substantial.
The economy and interest rates may affect these high yield, high risk
securities differently than other securities. Prices have been found to
be less sensitive to interest rate changes than higher rated
investments, but more sensitive to adverse economic changes or
individual corporate developments. Also, during an economic downturn or
substantial period of rising interest rates, highly leveraged issuers
may experience financial stress which would adversely affect their
ability to service principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. Changes by
recognized rating agencies in their rating of any security and in the
ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these
investments than on the values of higher-rated securities. Such changes
in value will not affect cash income derived from these securities,
unless the issuers fail to pay interest or dividends when due. Such
changes will, however, affect the Fund's net asset value per share.
Investment company securities
Any investments that the Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve
an indirect payment of a portion of the expenses, including advisory
fees, of such other investment companies. Under the 1940 Act's current
limitations, the Fund may not
[bullet] own more than 3% of the voting stock of another investment
company
[bullet] invest more than 5% of the Fund's total assets in the shares of
any one investment company nor
[bullet] invest more than 10% of the Fund's total assets in shares of
other investment companies.
If the Fund elects to limit its investment in other investment companies
to closed-end investment companies, the 3% limitation described above is
increased to 10%. These percentage limitations also apply to the Fund's
investments in unregistered investment companies. Among investment
companies in which the Fund may invest subject to the above limitations
are certain exchange traded investment companies which replicate U.S. or
foreign stock indices, such as SPDRs or WWEBs.
Options
The Fund may write covered call options on individual issues as well as
write call options on stock indices. The Fund may also purchase put
options on individual issues and on stock indices. The manager will
employ these techniques in an attempt to protect appreciation attained,
to offset capital losses and to take advantage of the liquidity
available in the option markets. The ability to hedge effectively using
options on stock indices will depend, in part, on the correlation
between the composition of the index and the Fund's portfolio as well as
the price movement of individual securities. The manager may also write
covered call options to achieve income to offset the cost of purchasing
put options.
Call options
Writing covered call options - A covered call option obligates the Fund
to sell one of its securities for an agreed price up to an agreed date.
When the 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. Because the
Fund must possess a sufficient amount of the security to meet any
potential call while the option is outstanding, the call option is
considered to be "covered." The advantage is that the Fund receives
premium income for the limited purpose of offsetting the costs of
purchasing put options or offsetting any capital loss or decline in the
market value of the security. However, if the manager's forecast is
wrong, the Fund may not fully participate in the market appreciation if
the security's price rises.
Writing a call option on stock indices - Writing a call option on stock
indices is similar to the writing of a call option on an individual
stock. Stock indices used will include, but not be limited to, the S&P
500, the S&P 100 and the S&P Over-The-Counter ("OTC") 250. While the
option is outstanding, the Fund must segregate cash and/or securities
sufficient to meet the call.
Purchasing a call option - When the Fund purchases a call option, in
return for a premium paid by the Fund to the writer of the option, the
Fund obtains the right to buy the security underlying the option at a
specified exercise price at any time during the term of the option. The
writer of the call option, who receives the premium upon writing the
option, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. The
advantage of purchasing call options is that the Fund may alter
portfolio characteristics and modify portfolio maturities without
incurring the cost associated with portfolio transactions.
Put options
Purchasing a put option - A put option gives the 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.
Writing a put option - A put option obligates the writer, in return for
the premium received, to buy the security underlying the option at the
exercise price during the option period, and the purchaser of the option
has the right to sell the security to the writer. The Fund will only
write put options on a secured basis which means that the Fund will
maintain, in a segregated account with its Custodian Bank, cash or U.S.
government securities in an amount not less than the exercise price of
the option at all times during the option period. The advantage is that
the writer receives premium income while the purchaser can be protected
should the market value of the security decline.
Closing transactions - Closing transactions essentially let the 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.
Repurchase agreements
In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund may enter into repurchase agreements with
banks or broker/dealers deemed to be creditworthy by its manager, 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 the 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. The Fund
will limit its investments in repurchase agreements to those which its
manager 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.
Restricted/illiquid securities
The 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 Fund.
The 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 the
Fund's manager the day-to-day functions of determining whether or not
individual Rule 144A Securities are liquid for purposes of the Fund's
limitation on investments in illiquid assets. The Board has instructed
the Fund's manager to consider the following factors in determining the
liquidity of a Rule 144A Security:
[bullet] the frequency of trades and trading volume for the security
[bullet] whether at least three dealers are willing to purchase or sell
the security and the number of potential purchasers
[bullet] whether at least two dealers are making a market in the
security
[bullet] the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer).
If the manager determines that a Rule 144A Security 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 manager will determine what action shall be taken
to ensure that the Fund continues to adhere to such limitation.
Securities lending activities
The Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors for their use relating to short sales or other
security transactions.
The major risk to which the 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, the 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 the Fund.
Short sales
The Fund may make short sales in an attempt to protect against market
declines. Typically, short sales are transactions in which the Fund
sells a security it does not own in anticipation of a decline in the
market value of that security. The Fund may borrow the security sold
short in order to make delivery on the sale. At the time a short sale
is effected, the Fund incurs an obligation to replace the security
borrowed at whatever its price may be at the time the Fund purchases it
for redelivery to the lender. The price at such time may be more or
less than the price at which the security was sold by the Fund. When a
short sale transaction is closed out by redelivery of the security, any
gain or loss on the transaction is taxable as capital gain or loss.
Until the security is replaced, the Fund is required to pay to the
lender amounts equal to any dividends or interest which accrue during
the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to
the extent necessary to meet margin requirements, until the short
position is closed out.
While the short position is open and until the Fund replaces a borrowed
security in connection with a short sale, the Fund will be required to
maintain daily a segregated account, containing cash or securities,
marked to market daily, at such a level that (i) the amount deposited in
the account plus the amount deposited with the broker as collateral will
at all times be equal to at least 100% of the current value of the
security sold short, and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not
be less than the market value of the security at the time it was sold
short.
The Fund will incur a loss as a result of a short sale if the price of
the security sold short increases between the date of the short sale and
the date on which the Fund replaces the borrowed security; conversely,
the Fund will realize a gain if the security declines in price between
those dates. This result is the opposite of what one would expect from
a cash purchase of a long position in a security. The amount of any
gain will be decreased, and the amount of any loss increased, by the
amount of any premium or amounts in lieu of interest the Fund may be
required to pay in connection with a short sale.
In addition to the short sales discussed above, the Fund also may make
short sales "against the box," a transaction in which the Fund enters
into a short sale of a security which the Fund owns. The proceeds of
the short sale are held by a broker until the settlement date, at which
time the Fund delivers the security to close the short position. The
Fund receives the net proceeds from the short sale. Because the Fund
already owns the security, it is not required to segregate cash and/or
securities, although it is required to segregate the security in the
amount sold short against the box.
The ability of the Fund to effect short sales may be limited because of
certain requirements the Fund must satisfy to maintain its status as a
regulated investment company. See Accounting and Tax Issues - Other Tax
Requirements in the Statement of Additional Information.
Short-term investments
The short-term investments in which the Fund will invest are:
[bullet] 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 the Fund, and time deposits maturing from two business days
through seven calendar days will not exceed 15% of the 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).
The Fund will not 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;
[bullet] 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 the Fund's investment
adviser;
[bullet] 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 the Fund's
investment adviser
[bullet] U.S. government securities
[bullet] Repurchase agreements collateralized by securities listed
below.
See Appendix A of the Statement of Additional Information for a
description of applicable ratings.
When-issued and delayed delivery securities
The 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. The
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 the Fund enters into the commitment
and no interest accrues to the 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 the 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.
Financial highlights
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. All "per share"
information reflects financial results for a single Fund share. This
information has been audited by Ernst & Young LLP, whose report, along
with the Fund's financial statements, is included in the Fund's annual
report, which is available upon request by calling 800-523-1918.
- -----------------------------------------------------------------------
Period
9/14/98(1)
Through
Diversified Value Fund 11/30/98
- -----------------------------------------------------------------------
Net Asset Value, Beginning of Period ($) 0.00
Income From Investment Operations 0.00
Net investment income ($) 0.00
Net realized & unrealized gains (losses)
on investments ($) 0.00
Total from investment operations ($) 0.00
Less Distributions 0.00
Dividends from net investment income ($) 0.00
Distributions from realized gains ($) 0.00
Total distributions ($) 0.00
Net asset value, end of period ($) 0.00
Total Return (%)(2) 0.00
Ratios and Supplemental Data:
Net asset value, end of period (000's
omitted) ($) 0.00
Ratio of expenses to average daily
net assets (%) 0.00
Ratio of net investment income to average
daily net assets (%) 0.00
Portfolio turnover rate (%) 0.00
- -----------------------------------------------------------------------
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 Does not reflect the maximum sales charge of 5.75%, nor the Limited
CDSC that varies from 0.50% to 1% that would apply in the event of
certain redemptions within two years of purchase for Class A Shares.
Total return reflects the voluntary fee caps and 12b-1 fee waivers
referenced on page x.
How to read the financial highlights
Net investment income
- ------------------------------------------------------------------------
Net investment income includes dividend and interest income earned from
the Fund's securities; its expenses have been deducted.
Net gains (losses) on investments (both realized and unrealized)
- ------------------------------------------------------------------------
A realized gain occurs when we sell an investment at a profit, while a
realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we
record an unrealized gain or loss. The amount of realized gain per share
that we pay to shareholders is listed under "Less Distributions-
Distributions from realized gains."
Realized gains
- ------------------------------------------------------------------------
Profits realized from the sale of securities.
Net asset value (NAV)
- ------------------------------------------------------------------------
This is the value of a mutual fund share, calculated by dividing the net
assets by the number of shares outstanding.
Total return
- ------------------------------------------------------------------------
This represents the percentage increase or decrease in the value of a
share of a fund during specific periods, in this case, annual periods.
In calculating this figure for the financial highlights table, we
include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and
realized gains.
Net assets
- ------------------------------------------------------------------------
Net assets represent the total value of all the assets in the Fund's
portfolio, less any liabilities, that are attributable to that class of
the Fund.
Ratio of expenses to average daily net assets
- ------------------------------------------------------------------------
The expense ratio is the percentage of total investment that a fund pays
annually for operating expenses and management fees. These expenses
include accounting and administration expenses, services for
shareholders, and similar expenses.
Ratio of net investment income to average daily net assets
- ------------------------------------------------------------------------
We determine this ratio by dividing net investment income by average net
assets.
Portfolio turnover rate
- ------------------------------------------------------------------------
This figure tells you the amount of trading activity in a fund's
portfolio. For example, a fund with a 50% turnover has bought and sold
half of the value of its total investment portfolio during the stated
period.
Glossary
How to use this glossary
Words found in the glossary are printed in boldface the first time they
appear in the prospectus. So if you would like to know the meaning of a
word that isn't in boldface, you might still find it in the glossary.
Amortized cost
- ------------------------------------------------------------------------
Similar to depreciated value, amortized cost reflects the value of a
fixed-income security adjusted to account for any premium that was paid
above the par value when the security was purchased. The purpose of
amortization is to reflect resale or redemption value.
Appreciation
- ------------------------------------------------------------------------
An increase in the value of an investment.
Average maturity
- ------------------------------------------------------------------------
An average of when the individual bonds and other debt securities held
in a portfolio will mature.
Bond
- ------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or
government agency. In return for lending money to the issuer, a bond
buyer generally receives fixed periodic interest payments and repayment
of the loan amount on a specified maturity date. A bond's price prior to
maturity changes and is inversely related to current interest rates.
When interest rates rise, prices fall, and when interest rates fall,
prices rise.
Bond ratings
- ------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA
(highest quality) to D (lowest quality). Bonds rated Baa/BBB or better
are considered investment grade. Bonds rated Ba/BB or lower are
commonly known as junk bonds.
Capital
- ------------------------------------------------------------------------
The amount of money you invest.
Capital gains distributions
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of profits (realized gains) from
the sale of a fund's portfolio securities. Usually paid once a year; may
be either short-term gains or long-term gains.
Commission
- ------------------------------------------------------------------------
The fee an investor pays to a financial adviser for investment advice
and help in buying or selling mutual funds, stocks, bonds or other
securities.
Compounding
- ------------------------------------------------------------------------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- ------------------------------------------------------------------------
Measurement of U.S. inflation; represents the price of a basket of
commonly purchased goods.
Contingent deferred sales charge (CDSC)
- ------------------------------------------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to
the fund) within a set number of years; an alternative method for
investors to compensate a financial adviser for advice and service,
rather than an up-front commission.
Corporate bond
- ------------------------------------------------------------------------
A debt security issued by a corporation. See "bond."
Cost basis
- ------------------------------------------------------------------------
The original purchase price of an investment, used in determining
capital gains and losses.
Currency exchange rates
- ------------------------------------------------------------------------
The price at which one country's currency can be converted into
another's. This exchange rate varies almost daily according to a wide
range of political, economic and other factors.
Depreciation
- ------------------------------------------------------------------------
A decline in an investment's value.
Diversification
- ------------------------------------------------------------------------
The process of spreading investments among a number of different
securities, asset classes or investment styles to reduce the risks of
investing.
Dividend distribution
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of dividends passed along from the
fund's portfolio of securities.
Duration
- ------------------------------------------------------------------------
A measurement of a fixed-income investment's price volatility. The
larger the number, the greater the likely price change for a given
change in interest rates.
Expense ratio
- ------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of
its total net assets. Operating expenses are the costs of running a
mutual fund, including management fees, offices, staff, equipment and
expenses related to maintaining the fund's portfolio of securities. They
are paid from the fund's assets before any earnings are distributed to
shareholders.
Financial adviser
- ------------------------------------------------------------------------
Financial professional (e.g., broker, banker, accountant, planner or
insurance agent) who analyzes clients' finances and prepares
personalized programs to meet objectives.
Fixed-income securities
- ------------------------------------------------------------------------
With fixed-income securities, the money you originally invested is
returned to you at a prespecified maturity date. These securities, which
include government, corporate or municipal bonds, as well as money
market securities, typically pay a fixed rate of return.
Government securities
- ------------------------------------------------------------------------
Securities issued by U.S. Government or its agencies. They include
Treasuries as well as agency-backed securities such as FANNIE MAEs.
Inflation
- ------------------------------------------------------------------------
The increase in the cost of goods and services over time. U.S. inflation
is measured by the Consumer Price Index (CPI).
Investment goal
- ------------------------------------------------------------------------
The objective, such as long-term capital growth or high current income,
that a mutual fund pursues.
Lehman Brothers Aggregate Bond Index
- ------------------------------------------------------------------------
An index that measures the total returns of about 6,500 U.S. corporate
and government bonds.
Management fee
- ------------------------------------------------------------------------
The amount paid by a mutual fund to the investment adviser for
management services, expressed as a percentage of the fund's net assets.
Market capitalization
- ------------------------------------------------------------------------
The value of a corporation determined by multiplying the current market
price of a share of common stock by the number of shares held by
shareholders. A corporation with one million shares outstanding and the
market price per share of $10 has a market capitalization of $10
million.
Maturity
- ------------------------------------------------------------------------
The length of time until a bond issuer must repay the underlying loan
principal to bondholders.
NASD (National Association of Securities Dealers)
- ------------------------------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the
actions of its members.
NAV (Net asset value)
- ------------------------------------------------------------------------
The daily dollar value of one mutual fund share. Equal to a fund's net
assets divided by the number of shares outstanding.
NRSRO (Nationally recognized statistical rating organization)
- ------------------------------------------------------------------------
A company that assesses the quality and potential performance of bonds,
commercial paper, preferred and common stocks and municipal short-term
issues, rating the probability that the issuer of the debt will meet the
scheduled interest payments and repay the principal. Ratings are
published by such companies as Moody's Investors Service (Moody's),
Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Preferred stock
- ------------------------------------------------------------------------
Preferred stock has preference over common stock in the payment of
dividends and liquidation of assets. Preferred stocks also pay dividends
at a fixed rate.
Price/earnings ratio
- ------------------------------------------------------------------------
A measure of a stock's value calculated by dividing the current market
price of a share of stock by its annual earnings per share. A stock
selling for $100 per share with annual earnings of $5 has a P/E of 20.
Principal
- ------------------------------------------------------------------------
Amount of money you invest. Also refers to a bond's original face value,
due to be repaid at maturity.
Prospectus
- ------------------------------------------------------------------------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives,
policies, services and fees.
Redeem
- ------------------------------------------------------------------------
To cash in your shares by selling them back to the mutual fund.
Risk
- ------------------------------------------------------------------------
Generally defined as variability of value; also credit risk, inflation
risk, currency and interest rate risk. Different investments involve
different types and degrees of risk.
S&P 500 Index
- ------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of
500 widely held common stocks that is often used to represent
performance of the U.S. stock market.
Sales charge
- ------------------------------------------------------------------------
Charge on the purchase of fund shares sold through financial advisers.
May vary with the amount invested. Typically used to compensate advisers
for advice and service provided.
SEC (Securities and Exchange Commission)
- ------------------------------------------------------------------------
Federal agency established by Congress to administer the laws governing
the securities industry, including mutual fund companies.
Share classes
- ------------------------------------------------------------------------
Different classifications of shares; mutual fund share classes offer a
variety of sales charge choices.
Signature guarantee
- ------------------------------------------------------------------------
Certification by a bank, brokerage firm or other financial institution
that a customer's signature is valid.
Standard deviation
- ------------------------------------------------------------------------
A measure of an investment's volatility; for mutual funds, measures how
much a fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- ------------------------------------------------------------------------
The document serving as "Part B" of a fund's prospectus that provides
more detailed information about the fund's organization, investments,
policies and risks.
Stock
- ------------------------------------------------------------------------
An investment that represents a share of ownership (equity) in a
corporation. Stocks are often referred to as "equities."
Total return
- ------------------------------------------------------------------------
An investment performance measurement, expressed as a percentage, based
on the combined earnings from dividends, capital gains and change in
price over a given period.
Treasury bills
- ------------------------------------------------------------------------
Securities issued by the U.S. Treasury with maturities of one year or
less.
Treasury bonds
- ------------------------------------------------------------------------
Securities issued by the U.S. Treasury with maturities of 10 years or
longer.
Treasury notes
- ------------------------------------------------------------------------
Securities issued by the U.S. Treasury with maturities of one to 10
years.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- ------------------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to
a minor with special tax advantages.
Volatility
- ------------------------------------------------------------------------
The tendency of an investment to go up or down in value by different
magnitudes. There are "low volatility" and "high volatility"
investments.
[back cover]
Diversified Value Fund
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during their last fiscal year. You can find more detailed information
about the Fund in the current Statement of Additional Information, which
we have filed electronically with the Securities and Exchange Commission
(SEC) and which is legally a part of this prospectus. If you want a free
copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have any questions about investing in the Fund,
you can write to us at 1818 Market Street, Philadelphia, PA 19103, or
call toll-free 800-523-1918. You may also obtain additional information
about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web
site (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. Information about the
Fund, including its Statement of Additional Information, can be reviewed
and copied at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. You can get information on the public reference
room by calling the SEC at 1-800-SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800-523-1918
Call the Shareholder Service Center:
Monday to Friday, 8 a.m. to 8 p.m. Eastern time.
For fund information; literature; price, yield and performance figures.
For information on existing regular investment accounts and retirement
plan accounts including wire investments; wire redemptions; telephone
redemptions and telephone exchanges.
Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance
information on all Delaware Investment Funds seven days a week, 24 hours
a day, use this Touch-ToneR service.
Registrant's Investment Company Act file number: 811-750
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
P-002 [--] PP 12/98
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Diversified Value Fund
Institutional Class
Prospectus January 29, 1999
Total Return Fund
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
[inside front cover]
Table of Contents
Fund profile page
Diversified Value Fund
How we manage the Fund page
Our investment strategy
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio manager
Who's who? page
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Dividends, distributions and taxes
Retirement plans
Other investment policies and
risk considerations page
Financial highlights page
Glossary page
How to use this prospectus
Here are guidelines to help you use this prospectus to make well-
informed investment decisions about our funds. If you're looking for a
specific piece of information, the table of contents can guide you
directly to the appropriate section.
Step 1
- ------------------------------------------------------------------------
Take a look at the fund profiles for an overview of the Fund.
Step 2
- ------------------------------------------------------------------------
Learn in-depth information about how the Fund invests, the risks
involved and the people and organizations responsible for the Fund's
day-to-day operations.
Step 3
- ------------------------------------------------------------------------
Determine which fund features and services you would like to take
advantage of.
Step 4
- ------------------------------------------------------------------------
Use the glossary that begins on page x to find definitions of words
printed in bold type throughout the prospectus.
Investing for total return...
Investors with long-term goals often choose mutual funds designed to
provide total return. These funds provide moderate growth potential as
well as some current income. They generally involve less risk than
aggressive stock funds but more risk than bond funds. Like all mutual
funds, total return funds allow you to invest conveniently in a
diversified portfolio without having to select and monitor individual
securities on your own.
with Delaware Investments
Your personal financial adviser, working with Delaware Investments, can
help you define, evaluate and set your personal investment objectives.
Your adviser can also explain the role total return funds like
Diversified Value Fund can play in a long-term investment program
designed to meet your goals.
The Delaware Investments family includes a full range of mutual funds-
including total return funds-designed to fit your particular investment
needs. With 70 years of investment management experience, we follow
time-tested strategies that emphasize long-term performance and
consistent application of investment disciplines. Today, as part of the
Lincoln Financial Group, a $105 billion financial services complex,
Delaware Investments has access to a variety of experienced and talented
investment managers. We are dedicated to working closely with financial
advisers to bring investors the highest quality investment management
and services.
["House" graphic, with total return "room" highlighted]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Growth Equity Funds
International and Global Funds
Asset Allocation Funds
[Table Highlighted] Moderate Growth Equity Funds for...
Total Return
These stock-oriented funds provide moderate growth potential as well as
some current income, with generally less risk than aggressive stock
funds but more risk than bond funds.
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
Profile: Diversified Value Fund
What are the Fund's goals?
Diversified Value Fund seeks capital appreciation with current income as
a secondary objective. Although the Fund will strive to achieve its
goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in dividend-paying stocks and income producing
securities that are convertible into common stocks. Typically the
stocks selected for the portfolio will have one or more of the following
characteristics based on a comparison to the S&P 500 Composite Stock
Index: lower price to earnings ratio, lower price to cash flow ratio, a
lower price to book ratio or favorable trends in earnings estimates.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you
may lose part or all of the money you invest. The price of Fund shares
will increase and decrease according to changes in the value of the
Fund's investments. This Fund will be affected by changes in stock
prices. An investment in the Fund is not a deposit of any bank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. For a more complete discussion of risk,
please turn to page x.
Who should invest in the Fund
[bullet] Investors with long-term financial goals.
[bullet] Investors looking for growth potential.
[bullet] Investors looking for a core investment to act as a foundation
for their equity portfolio.
Who should not invest in the Fund
[bullet] Investors with short-term financial goals.
[bullet] Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly, over the short term.
[bullet] Investors whose primary goal is income.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser
to determine whether it is an appropriate choice for you.
How has the Fund performed?
This table can help you evaluate the potential risks and rewards of
investing in the Fund. We show average annual return of the
Institutional Class shares since inception compared to the performance
of the S&P 500 Index. You should remember that unlike the Fund, the
index is unmanaged and doesn't include the actual costs of buying,
selling, and holding securities. The Fund's past performance does not
necessarily indicate how it will perform in the future.
This return reflects a voluntary fee cap equal to 0.75%. The return
would be lower without this voluntary fee cap.
[table]
Average annual return as of 12/31/98
CLASS A S&P 500
Since
inception
(9/14/98) 00.0% 00.0
What are the Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy
or sell shares of the Institutional Class.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price none
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
Maximum sales charge (load) imposed on
reinvested dividends none
Redemption fees none
Exchange fees (1) none
Annual fund operating expenses are deducted from the Fund's income or
assets before it pays dividends and before its total return is
calculated. We will not charge you separately for these expenses.
Management fees 00.0%
Distribution and service (12b-1) fees none
Other expenses 00.0%
Total operating expenses (2) 00.0%
This example is intended to help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Fund expenses on
a hypothetical investment of $10,000 with an annual 5% return over the
time shown. (3) This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
1 year 00.0%
3 years 00.0%
5 years 00.0%
10 years 00.0%
1 Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you
exchange you shares for another fund.
2 The investment manager has agreed to waive fees and pay expenses
through _________________ in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary
expenses) from exceeding 0.75% of average daily net assets.
3 The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that
the Fund's total operating expenses remain unchanged in each of the
periods we show.
How we manage the Fund
Our investment strategy
We rank a broad universe of stocks using both value characteristics (low
price-to-earnings ratio, low price to book ratio, low price to cashflow
ratio) and growth characteristics (favorable trends in earnings
estimates). Based on the ranking, we then do in-depth research on the
most attractive companies. A combination of these two analyses is used
to select stocks for the portfolios. We rely more heavily on the
initial quantitative ranking in our final selection.
We take a disciplined approach to investing, combining investment
strategies and risk management techniques that can help shareholders
meet their goals.
The investment objective of Diversified Value Fund is to achieve capital
appreciation with current income as a secondary objective. The Fund
seeks to achieve this objective by investing primarily in dividend
paying stocks and income producing securities that are convertible into
common stocks. The Fund will generally invest in companies currently
having a market capitalization of at least $1 billion. The manager
seeks companies that have one or more of the following characteristics
in relation to the market as represented by the S&P 500 Index: a lower
price-to-earnings ratio; a lower price-to-cash flow ratio; a lower
price-to-book ratio; or favorable trends in earnings estimates.
The manager ranks a broad universe of stocks using quantitative models
that assess each company on a variety of value and growth
characteristics such as those mentioned above. Generally speaking, a
value orientation focuses on stocks that the manager believes are
undervalued in price and will eventually be recognized by the market. A
growth oriented strategy, on the other hand, typically concentrates on
stocks with earnings that the manager believes will grow faster than the
overall market. A composite ranking is generated which seeks to
identify companies with favorable valuations and/or improving
fundamentals. The manager will then perform qualitative assessments of
these companies in selecting securities that the manager believes will
best help the Fund achieve its objectives. In selecting portfolio
securities, the manger will structure a portfolio that is weighted
towards those securities that are more highly ranked by the quantitative
models.
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
Risk Considerations.
The Fund will invest in convertible fixed-income securities for their
equity characteristics and without respect to investment ratings. As a
result, the Fund may hold convertible fixed-income securities that are
rated below investment grade (i.e., rated below BBB by Standard & Poor's
Ratings Group or Baa by Moody's Investors Service, Inc.). Although such
securities entail higher risks, they are typically less risky than
similarly rated non-convertible fixed-income securities by virtue of the
convertibility feature. See High-Yield Securities under Other
Investment Policies and Risk Considerations.
Up to 20% of the Fund's total assets may be invested directly or
indirectly in foreign securities, including investments in American,
European and Global Depositary Receipts. See Foreign Investment
Information under Other Investment Policies and Risk Considerations.
The Fund may enter into 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 the Fund's positions in cash,
short-term debt securities and other money market instruments, at times
when the 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. 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 manager'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 Ratings Group or Aaa by Moody's Investors Service) or,
if unrated, judged to be of comparable quality as determined by the
manager. 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.
The Fund may also engage in short sales. See Short Sales under Other
Investment Policies and Risk Considerations.
Although the Fund will constantly strive to attain its objective, there
can be no assurance that it will be attained. The objective of the Fund
may be changed without shareholder approval. For a description of the
Fund's other investment policies, see Other Investment Policies and Risk
Considerations. The Statement of Additional Information contains other
investment restrictions.
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you
may receive little or no return on your investment, and the risk that
you may lose part or all of the money you invest. Before you invest in
the Fund you should carefully evaluate the risks. Because of the nature
of the Fund, you should consider an investment to be a long-term
investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when
investing in Diversified Value Fund. Please see the Statement of
Additional Information for further discussion of these risks and the
other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------
<S> <C>
Diversified Value Fund
----------------------------------------------
Market risk is the risk that all We maintain a long-term investment approach
or a majority of the securities in and focus on stocks we believe can appreciate
a certain market -- like the stock over an extended time frame regardless of
or bond market -- will decline in interim market fluctuations. We do not try to
value because of factors such as predict overall stock market movements and do
economic conditions, future not trade for short-term purposes.
expectations or investor confidence.
We may hold a substantial part of the Fund's
assets in cash or cash equivalents as a
temporary, defensive strategy.
- ------------------------------------------------------------------------------------
Industry and security risk is the We limit the amount of the Fund's assets
risk that the value of securities invested in any one industry and in any
in a particular industry or the individual security. We also follow a rigorous
value of an individual stock or bond selection process designed to identify under-
will decline because of changing valued securities before choosing securities
expectations for the performance of for the portfolio.
that industry or for the individual
company issuing the stock or bond.
- ------------------------------------------------------------------------------------
Liquidity risk is the possibility We limit exposure to illiquid securities.
that securities cannot be readily
sold, or can only be sold at a price
lower than the Fund has valued them.
- ------------------------------------------------------------------------------------
</TABLE>
Who manages the Fund
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary
of Delaware Management Holdings, Inc. Delaware Management Company makes
investment decisions for the Funds, manages the Funds' business affairs
and provides daily administrative services. For these services, the
manager will be paid an annual fee equal to 0.65% on the first $500
million of average daily net assets, 0.60% on the next $500 million,
0.55% on the next $1.5 billion and 0.50% on the average daily net assets
in excess of $2.5 billion.
Portfolio manager
J. Paul Dokas, Vice President/Portfolio Manager, has had primary
responsibility for making day-to-day investment decisions for the Fund
since its inception. Mr. Dokas holds a BBA in Business from Loyola
College and an MBA in Business from the University of Maryland. Prior
to joining Delaware Investments in 1997, he was a Director of Trust
Investments for Bell Atlantic Corporation in Philadelphia. Mr. Dokas is
a Certified Financial Analyst.
Year 2000
As with other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if
the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." The Fund is
taking steps to obtain satisfactory assurances that the Fund's major
service providers are taking steps reasonably designed to address the
Year 2000 Problem with respect to the computer systems that such service
providers use. There can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund.
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the
"Euro." It is anticipated that each such participating country will
replace its existing currency with the Euro on January 1, 1999.
Additional European countries may elect to participate after that date.
If the Fund is invested in securities of participating countries, it
could be adversely affected if the computer systems used by its major
service providers are not properly prepared to handle the implementation
of this single currency or the adoption of the Euro by additional
countries in the future. Equity Funds III, Inc. is taking steps to
obtain satisfactory assurances that the major service providers of the
Fund are taking steps reasonably designed to address these matters with
respect to the computer systems that such service providers use. There
can be no assurances that these steps will be sufficient to avoid any
adverse impact on the business of the Fund.
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio Service agent Distributor
managers Delaware Service Company, Inc. Delaware Distributors, L.P.
(see page x 1818 Market Street 1818 Market Street
for details) Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors
which has oversight responsibility for the management of the fund's
business affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the performance of
the investment manager, the distributor and others that perform services
for the fund. At least 40% of the board of directors must be independent
of the fund's investment manager or distributor. These independent fund
directors, in particular, are advocates for shareholder interests.
Custodian Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified bank
custodian who segregates fund securities from other bank assets.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager places
portfolio orders with broker/dealers and is responsible for obtaining
the best overall execution of those orders. A written contract between a
mutual fund and its investment manager specifies the services the
manager performs. Most management contracts provide for the manager to
receive an annual fee based on a percentage of the fund's average net
assets. The manager is subject to numerous legal restrictions,
especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment
manager to make investment decisions for individual portfolios on a day-
to-day basis.
Service agent Mutual fund companies employ service agents (sometimes
called transfer agents) to maintain records of shareholder accounts,
calculate and disburse dividends and capital gains and prepare and mail
shareholder statements and tax information, among other functions. Many
service agents provide customer service to shareholders, as well.
Distributor Most mutual funds continuously offer new shares to the
public through distributors who are regulated as broker-dealers and are
subject to National Association of Securities Dealers, Inc. (NASD) rules
governing mutual fund sales practices.
Financial advisers Financial advisers provide investment advice to
their clients, analyzing their financial objectives and recommending
appropriate funds or other investments. Financial advisers are
compensated for their services, generally through sales commissions, and
through 12b-1 and/or service fees deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund
shareholders have specific voting rights, including the right to elect
directors. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change
fundamental investment objectives or policies must also seek shareholder
approval.
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
[bullet] 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
[bullet] tax-exempt employee benefit plans of the manager or its
affiliates and securities dealer firms with a selling agreement
with the distributor
[bullet] institutional advisory accounts of the manager, or its
affiliates and those having client relationships with Delaware
Investment Advisers,an affiliate of the manager, or its
affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plansand rollover
individual retirement accounts from such institutional advisory
accounts
[bullet] a bank, trust company and similar financial institution
investing forits own account or for the account of its trust
customers for whom such financial institution is exercising
investment discretion inpurchasing shares of the Class, except
where the investment is part of a program that requires payment
to the financial institution of a Rule12b-1 Plan fee
[bullet] 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
How to buy shares
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By mail
Complete an investment slip and mail it with your check, made payable to
the fund and class of shares you wish to purchase to Delaware
Investments, 1818 Market Street, Philadelphia, PA 19103. If you are
making an initial purchase by mail, you must include a completed
investment application, or an appropriate retirement plan application if
you are opening a retirement account, with your check.
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By wire
Ask your bank to wire the amount you want to invest to First Union Bank,
ABA #031201467, Bank Account number 2014128934013. Include your account
number and the name of the fund in which you want to invest. If you are
making an initial purchase by wire, you must call us at 800-510-4015 so
we can assign an account number.
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By exchange
You can exchange all or part of your investment in one or more funds in
the Delaware Investments family for shares of other funds in the family.
Please keep in mind, however, that you may not exchange your shares for
Class B or Class C shares. To open an account by exchange, call the
Shareholder Service Center at 800-510-4015.
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Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a fee for this
service.
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your
purchase order. If we or an authorized agent receives your order before
the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on a business day, you will pay that day's closing share
price which is based on the Fund's net asset value. If we receive your
order after the close of trading, you will pay the next business day's
price. A business day is any day that the New York Stock Exchange is
open for business. We reserve the right to reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the
Exchange is open. We calculate this value by adding the market value of
all the securities and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. We price
securities and other assets for which market quotations are available at
their market value. We price debt securities on the basis of valuations
provided to us by an independent pricing service that uses methods
approved by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the
board of directors.
How to redeem shares
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By mail
You can redeem your shares (sell them back to the fund) by mail by
writing to: Delaware Investments, 1818 Market Street, Philadelphia, PA
19103. All owners of the account must sign the request, and for
redemptions of $50,000 or more, you must include a signature guarantee
for each owner. You can also fax your written request to 215-255-8864.
Signature guarantees are also required when redemption proceeds are
going to anyone other than the account holder(s) of record.
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By telephone
You can redeem up to $50,000 of your shares by telephone. You may have
the proceeds sent to you by check, or if you redeem at least $1,000 of
shares, you may have the proceeds sent directly to your bank by wire.
Bank information must be on file before you request a wire redemption.
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By wire
You can redeem $1,000 or more of your shares and have the proceeds
deposited directly to your bank account the next business day after we
receive your request. Bank information must be on file before you
request a wire redemption.
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Through your financial adviser
Your financial adviser can handle all the details of redeeming your
shares. Your adviser may charge a fee for this service.
About your account continued
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the
certificates with your request to sell the shares. We recommend that you
send your certificates by certified mail.
When you send us a properly completed request to redeem or exchange
shares, you will receive the net asset value as determined on the
business day we receive your request. We will send you a check,
normally the next business day, but no later than seven days after we
receive your request to sell your shares. If you purchased your shares
by check, we will wait until your check has cleared, which can take up
to 15 days, before we honor your request to sell these shares.
Account Minimum
If you redeem shares and your account balance falls below $250, the Fund
may redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class
in another Delaware Investments fund. You may not exchange your shares
for Class B and Class C shares of the funds in the Delaware Investments
family. If you exchange shares to a fund that has a sales charge you
will pay any applicable sales charges on your new shares. You don't pay
sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange
shares, you are purchasing shares in another fund so you should be sure
to get a copy of the fund's prospectus and read it carefully before
buying shares through an exchange.
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We
automatically reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax
adviser about your particular tax situation and how it might be affected
by current tax law. The tax status of your dividends from the Fund is
the same whether you reinvest your dividends or receive them in cash.
Distributions from the Fund's long-term capital gains are taxable as
capital gains, while distributions from short-term capital gains and net
investment income are generally taxable as ordinary income. Any capital
gains may be taxable at different rates depending on the length of time
the Fund held the assets. In addition, you may be subject to state and
local taxes on distributions.
We will send you a statement each year by January 31 detailing the
amount and nature of all dividends and capital gains that you were paid
for the prior year.
Other investment policies and risk considerations
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. The Fund will not borrow money
in excess of one-third of the value of its net assets. The Fund has no
intention of increasing its net income through borrowing. Any borrowing
will be done from a bank and, to the extent that such borrowing exceeds
5% of the value of the Fund's net assets, asset coverage of at least
300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter (not
including 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%. The Fund will not pledge
more than 10% of its net assets, or issue senior securities as defined
in the 1940 Act, except for notes to banks. Investment securities will
not be purchased while the Fund has an outstanding borrowing.
Convertible, debt and non-traditional equity securities
The 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 typically senior to common stocks in
a corporation's capital structure, although convertible securities are
usually subordinated to similar nonconvertible securities. Convertible
and debt securities typically 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.
The 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.
The 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.
Depositary receipts
The 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 with respect to 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.
Foreign securities
The Fund may invest up to 20% of its total assets in foreign securities
(which include American, European and Global Depositary Receipts).
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. The
Fund may also experience delays in foreign securities settlement.
Futures contracts
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 the Fund's current or intended
investments from broad fluctuations in stock prices. For example, the
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 the 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.
The 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. The Fund may sell futures contracts on a
foreign currency, for example, when it holds securities denominated in
such currency and it anticipates a decline in the value of such currency
relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be
offset, in whole or in part, by gains on the futures contracts.
However, if the value of the foreign currency increases relative to the
dollar, the Fund's loss on the foreign currency futures contract may or
may not be offset by an increase in the value of the securities because
a decline in the price of the security stated in terms of the foreign
currency may be greater than the increase in value as a result of the
change in exchange rates.
Conversely, the 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 the 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.
The Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities,
as described below, except that options on futures give the purchaser
the right, in return for the premium paid, to assume a position in a
futures contract, rather than to actually purchase or sell the futures
contract, at a specified exercise price at any time during the period of
the option. In the event that an option written by the Fund is
exercised, the Fund will be subject to all the risks associated with the
trading of futures contracts, such as payment of variation margin
deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin
requirements on the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the
initial position. Likewise, a position in an option on a futures
contract may be terminated by the purchaser or seller prior to
expiration by effecting a closing purchase or sale transaction, subject
to availability of a secondary market, which is the purchase or sale of
an option of the same series (i.e., the same exercise price and
expiration date) as the option previously purchased or sold. The 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, the Fund may not achieve the anticipated
benefits of investing in futures contracts and options thereon, or may
realize a loss. To the extent that the Fund purchases an option on a
futures contract and fails to exercise the option prior to the exercise
date, it will suffer a loss of the premium paid. Further, the possible
lack of a secondary market could prevent the Fund from closing out its
positions relating to futures. See Part B for a further discussion of
this investment technique.
High yield securities
The Fund will invest in convertible fixed-income securities for their
equity characteristics and without respect to investment ratings. As a
result, the Fund may hold convertible fixed-income securities which are
rated below investment grade (i.e., rated below BBB by S&P or Baa by
Moody's). See Appendix A of the Statement of Additional Information for
a description of ratings. Below investment grade fixed-income
securities are considered to be of poor standing and predominantly
speculative. Such securities are subject to a substantial degree of
credit risk.
In the past, in the opinion of the manager, the high yields from these
bonds have more than compensated for their higher default rates. There
can be no assurance, however, that yields will continue to offset
default rates on these bonds in the future. The manager intends to
maintain an adequately diversified portfolio of these bonds. While
diversification can help to reduce the effect of an individual default
on the Fund, there can be no assurance that diversification will protect
the Fund from widespread bond defaults brought about by a sustained
economic downturn.
Medium and low-grade bonds held by the Fund may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs,
mergers, acquisitions, debt recapitalizations or similar events. Also
these bonds are often issued by smaller, less creditworthy companies or
by highly leveraged (indebted) firms, which are generally less able than
more financially stable firms to make scheduled payments of interest and
principal. The risks posed by bonds issued under such circumstances are
substantial.
The economy and interest rates may affect these high yield, high risk
securities differently than other securities. Prices have been found to
be less sensitive to interest rate changes than higher rated
investments, but more sensitive to adverse economic changes or
individual corporate developments. Also, during an economic downturn or
substantial period of rising interest rates, highly leveraged issuers
may experience financial stress which would adversely affect their
ability to service principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. Changes by
recognized rating agencies in their rating of any security and in the
ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these
investments than on the values of higher-rated securities. Such changes
in value will not affect cash income derived from these securities,
unless the issuers fail to pay interest or dividends when due. Such
changes will, however, affect the Fund's net asset value per share.
Investment company securities
Any investments that the Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve
an indirect payment of a portion of the expenses, including advisory
fees, of such other investment companies. Under the 1940 Act's current
limitations, the Fund may not
[bullet] own more than 3% of the voting stock of another investment
company
[bullet] invest more than 5% of the Fund's total assets in the shares of
any one investment company nor
[bullet] invest more than 10% of the Fund's total assets in shares of
other investment companies.
If the Fund elects to limit its investment in other investment companies
to closed-end investment companies, the 3% limitation described above is
increased to 10%. These percentage limitations also apply to the Fund's
investments in unregistered investment companies. Among investment
companies in which the Fund may invest subject to the above limitations
are certain exchange traded investment companies which replicate U.S. or
foreign stock indices, such as SPDRs or WWEBs.
Options
The Fund may write covered call options on individual issues as well as
write call options on stock indices. The Fund may also purchase put
options on individual issues and on stock indices. The manager will
employ these techniques in an attempt to protect appreciation attained,
to offset capital losses and to take advantage of the liquidity
available in the option markets. The ability to hedge effectively using
options on stock indices will depend, in part, on the correlation
between the composition of the index and the Fund's portfolio as well as
the price movement of individual securities. The manager may also write
covered call options to achieve income to offset the cost of purchasing
put options.
Call options
Writing covered call options - A covered call option obligates the Fund
to sell one of its securities for an agreed price up to an agreed date.
When the 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. Because the
Fund must possess a sufficient amount of the security to meet any
potential call while the option is outstanding, the call option is
considered to be "covered." The advantage is that the Fund receives
premium income for the limited purpose of offsetting the costs of
purchasing put options or offsetting any capital loss or decline in the
market value of the security. However, if the manager's forecast is
wrong, the Fund may not fully participate in the market appreciation if
the security's price rises.
Writing a call option on stock indices - Writing a call option on stock
indices is similar to the writing of a call option on an individual
stock. Stock indices used will include, but not be limited to, the S&P
500, the S&P 100 and the S&P Over-The-Counter ("OTC") 250. While the
option is outstanding, the Fund must segregate cash and/or securities
sufficient to meet the call.
Purchasing a call option - When the Fund purchases a call option, in
return for a premium paid by the Fund to the writer of the option, the
Fund obtains the right to buy the security underlying the option at a
specified exercise price at any time during the term of the option. The
writer of the call option, who receives the premium upon writing the
option, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. The
advantage of purchasing call options is that the Fund may alter
portfolio characteristics and modify portfolio maturities without
incurring the cost associated with portfolio transactions.
Put options
Purchasing a put option - A put option gives the 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.
Writing a put option - A put option obligates the writer, in return for
the premium received, to buy the security underlying the option at the
exercise price during the option period, and the purchaser of the option
has the right to sell the security to the writer. The Fund will only
write put options on a secured basis which means that the Fund will
maintain, in a segregated account with its Custodian Bank, cash or U.S.
government securities in an amount not less than the exercise price of
the option at all times during the option period. The advantage is that
the writer receives premium income while the purchaser can be protected
should the market value of the security decline.
Closing transactions - Closing transactions essentially let the 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.
Repurchase agreements
In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund may enter into repurchase agreements with
banks or broker/dealers deemed to be creditworthy by its manager, 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 the 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. The Fund
will limit its investments in repurchase agreements to those which its
manager 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.
Restricted/illiquid securities
The 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 Fund.
The 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 the
Fund's manager the day-to-day functions of determining whether or not
individual Rule 144A Securities are liquid for purposes of the Fund's
limitation on investments in illiquid assets. The Board has instructed
the Fund's manager to consider the following factors in determining the
liquidity of a Rule 144A Security:
[bullet] the frequency of trades and trading volume for the security
[bullet] whether at least three dealers are willing to purchase or sell
the security and the number of potential purchasers
[bullet] whether at least two dealers are making a market in the
security
[bullet] the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer).
If the manager determines that a Rule 144A Security 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 manager will determine what action shall be taken
to ensure that the Fund continues to adhere to such limitation.
Securities lending activities
The Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors for their use relating to short sales or other
security transactions.
The major risk to which the 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, the 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 the Fund.
Short sales
The Fund may make short sales in an attempt to protect against market
declines. Typically, short sales are transactions in which the Fund
sells a security it does not own in anticipation of a decline in the
market value of that security. The Fund may borrow the security sold
short in order to make delivery on the sale. At the time a short sale
is effected, the Fund incurs an obligation to replace the security
borrowed at whatever its price may be at the time the Fund purchases it
for redelivery to the lender. The price at such time may be more or
less than the price at which the security was sold by the Fund. When a
short sale transaction is closed out by redelivery of the security, any
gain or loss on the transaction is taxable as capital gain or loss.
Until the security is replaced, the Fund is required to pay to the
lender amounts equal to any dividends or interest which accrue during
the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to
the extent necessary to meet margin requirements, until the short
position is closed out.
While the short position is open and until the Fund replaces a borrowed
security in connection with a short sale, the Fund will be required to
maintain daily a segregated account, containing cash or securities,
marked to market daily, at such a level that (i) the amount deposited in
the account plus the amount deposited with the broker as collateral will
at all times be equal to at least 100% of the current value of the
security sold short, and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not
be less than the market value of the security at the time it was sold
short.
The Fund will incur a loss as a result of a short sale if the price of
the security sold short increases between the date of the short sale and
the date on which the Fund replaces the borrowed security; conversely,
the Fund will realize a gain if the security declines in price between
those dates. This result is the opposite of what one would expect from
a cash purchase of a long position in a security. The amount of any
gain will be decreased, and the amount of any loss increased, by the
amount of any premium or amounts in lieu of interest the Fund may be
required to pay in connection with a short sale.
In addition to the short sales discussed above, the Fund also may make
short sales "against the box," a transaction in which the Fund enters
into a short sale of a security which the Fund owns. The proceeds of
the short sale are held by a broker until the settlement date, at which
time the Fund delivers the security to close the short position. The
Fund receives the net proceeds from the short sale. Because the Fund
already owns the security, it is not required to segregate cash and/or
securities, although it is required to segregate the security in the
amount sold short against the box.
The ability of the Fund to effect short sales may be limited because of
certain requirements the Fund must satisfy to maintain its status as a
regulated investment company. See Accounting and Tax Issues - Other Tax
Requirements in the Statement of Additional Information.
Short-term investments
The short-term investments in which the Fund will invest are:
[bullet] 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 the Fund, and time deposits maturing from two business days
through seven calendar days will not exceed 15% of the 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).
The Fund will not 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;
[bullet] 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 the Fund's investment
adviser;
[bullet] 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 the Fund's
investment adviser
[bullet] U.S. government securities
[bullet] Repurchase agreements collateralized by securities listed
below.
See Appendix A of the Statement of Additional Information for a
description of applicable ratings.
When-issued and delayed delivery securities
The 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. The
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 the Fund enters into the commitment
and no interest accrues to the 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 the 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.
Financial highlights
The financial highlights table is intended to help you understand the
Fund's financial performance. All "per share" information reflects
financial results for a single Fund share. This information has been
audited by Ernst & Young LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report, which is
available upon request by calling 800-523-1918.
Institutional Class
- ------------------------------------------------------------------------
Period
9/14/98(1)
Through
Diversified Value Fund 11/30/98
- ------------------------------------------------------------------------
Net Asset Value, Beginning of Period ($) 0.00
Income From Investment Operations 0.00
Net investment income ($) 0.00
Net realized & unrealized gains (losses)
on investments ($) 0.00
Total from investment operations ($) 0.00
Less Distributions 0.00
Dividends from net investment income ($) 0.00
Distributions from realized gains ($) 0.00
Total distributions ($) 0.00
Net asset value, end of period ($) 0.00
Total Return (%)(2) 0.00
Ratios and Supplemental Data:
Net asset value, end of period (000's
omitted) ($) 0.00
Ratio of expenses to average daily
net assets (%) 0.00
Ratio of net investment income to
average daily net assets (%) 0.00
Portfolio turnover rate (%) 0.00
- ------------------------------------------------------------------------
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 Total return reflects voluntary fee waivers and payments.
How to read the financial highlights
Net investment income
- ------------------------------------------------------------------------
Net investment income includes dividend and interest income earned from
the Fund's securities; its expenses have been deducted.
Net gains (losses) on investments (both realized and unrealized)
- ------------------------------------------------------------------------
A realized gain occurs when we sell an investment at a profit, while a
realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we
record an unrealized gain or loss. The amount of realized gain per share
that we pay to shareholders is listed under "Less Distributions-
Distributions from realized gains."
Realized gains
- ------------------------------------------------------------------------
Profits realized from the sale of securities.
Net asset value (NAV)
- ------------------------------------------------------------------------
This is the value of a mutual fund share, calculated by dividing the net
assets by the number of shares outstanding.
Total return
- ------------------------------------------------------------------------
This represents the percentage increase or decrease in the value of a
share of a fund during specific periods, in this case, annual periods.
In calculating this figure for the financial highlights table, we
include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and
realized gains.
Net assets
- ------------------------------------------------------------------------
Net assets represent the total value of all the assets in the Fund's
portfolio, less any liabilities, that are attributable to that class of
the Fund.
Ratio of expenses to average daily net assets
- ------------------------------------------------------------------------
The expense ratio is the percentage of total investment that a fund pays
annually for operating expenses and management fees. These expenses
include accounting and administration expenses, services for
shareholders, and similar expenses.
Ratio of net investment income to average daily net assets
- ------------------------------------------------------------------------
We determine this ratio by dividing net investment income by average net
assets.
Portfolio turnover rate
- ------------------------------------------------------------------------
This figure tells you the amount of trading activity in a fund's
portfolio. For example, a fund with a 50% turnover has bought and sold
half of the value of its total investment portfolio during the stated
period.
Glossary
How to use this glossary
Words found in the glossary are printed in boldface the first time they
appear in the prospectus. So if you would like to know the meaning of a
word that isn't in boldface, you might still find it in the glossary.
Amortized cost
- ------------------------------------------------------------------------
Similar to depreciated value, amortized cost reflects the value of a
fixed-income security adjusted to account for any premium that was paid
above the par value when the security was purchased. The purpose of
amortization is to reflect resale or redemption value.
Appreciation
- ------------------------------------------------------------------------
An increase in the value of an investment.
Average maturity
- ------------------------------------------------------------------------
An average of when the individual bonds and other debt securities held
in a portfolio will mature.
Bond
- ------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or
government agency. In return for lending money to the issuer, a bond
buyer generally receives fixed periodic interest payments and repayment
of the loan amount on a specified maturity date. A bond's price prior to
maturity changes and is inversely related to current interest rates.
When interest rates rise, prices fall, and when interest rates fall,
prices rise.
Bond ratings
- ------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA
(highest quality) to D (lowest quality). Bonds rated Baa/BBB or better
are considered investment grade. Bonds rated Ba/BB or lower are
commonly known as junk bonds.
Capital
- ------------------------------------------------------------------------
The amount of money you invest.
Capital gains distributions
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of profits (realized gains) from
the sale of a fund's portfolio securities. Usually paid once a year; may
be either short-term gains or long-term gains.
Commission
- ------------------------------------------------------------------------
The fee an investor pays to a financial adviser for investment advice
and help in buying or selling mutual funds, stocks, bonds or other
securities.
Compounding
- ------------------------------------------------------------------------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- ------------------------------------------------------------------------
Measurement of U.S. inflation; represents the price of a basket of
commonly purchased goods.
Contingent deferred sales charge (CDSC)
- ------------------------------------------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to
the fund) within a set number of years; an alternative method for
investors to compensate a financial adviser for advice and service,
rather than an up-front commission.
Corporate bond
- ------------------------------------------------------------------------
A debt security issued by a corporation. See "bond."
Cost basis
- ------------------------------------------------------------------------
The original purchase price of an investment, used in determining
capital gains and losses.
Currency exchange rates
- ------------------------------------------------------------------------
The price at which one country's currency can be converted into
another's. This exchange rate varies almost daily according to a wide
range of political, economic and other factors.
Depreciation
- ------------------------------------------------------------------------
A decline in an investment's value.
Diversification
- ------------------------------------------------------------------------
The process of spreading investments among a number of different
securities, asset classes or investment styles to reduce the risks of
investing.
Dividend distribution
- ------------------------------------------------------------------------
Payments to mutual fund shareholders of dividends passed along from the
fund's portfolio of securities.
Duration
- ------------------------------------------------------------------------
A measurement of a fixed-income investment's price volatility. The
larger the number, the greater the likely price change for a given
change in interest rates.
Expense ratio
- ------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of
its total net assets. Operating expenses are the costs of running a
mutual fund, including management fees, offices, staff, equipment and
expenses related to maintaining the fund's portfolio of securities. They
are paid from the fund's assets before any earnings are distributed to
shareholders.
Financial adviser
- ------------------------------------------------------------------------
Financial professional (e.g., broker, banker, accountant, planner or
insurance agent) who analyzes clients' finances and prepares
personalized programs to meet objectives.
Fixed-income securities
- ------------------------------------------------------------------------
With fixed-income securities, the money you originally invested is
returned to you at a prespecified maturity date. These securities, which
include government, corporate or municipal bonds, as well as money
market securities, typically pay a fixed rate of return.
Government securities
- ------------------------------------------------------------------------
Securities issued by U.S. Government or its agencies. They include
Treasuries as well as agency-backed securities such as FANNIE MAEs.
Inflation
- ------------------------------------------------------------------------
The increase in the cost of goods and services over time. U.S. inflation
is measured by the Consumer Price Index (CPI).
Investment goal
- ------------------------------------------------------------------------
The objective, such as long-term capital growth or high current income,
that a mutual fund pursues.
Lehman Brothers Aggregate Bond Index
- ------------------------------------------------------------------------
An index that measures the total returns of about 6,500 U.S. corporate
and government bonds.
Management fee
- ------------------------------------------------------------------------
The amount paid by a mutual fund to the investment adviser for
management services, expressed as a percentage of the fund's net assets.
Market capitalization
- ------------------------------------------------------------------------
The value of a corporation determined by multiplying the current market
price of a share of common stock by the number of shares held by
shareholders. A corporation with one million shares outstanding and the
market price per share of $10 has a market capitalization of $10
million.
Maturity
- ------------------------------------------------------------------------
The length of time until a bond issuer must repay the underlying loan
principal to bondholders.
NASD (National Association of Securities Dealers)
- ------------------------------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the
actions of its members.
NAV (Net asset value)
- ------------------------------------------------------------------------
The daily dollar value of one mutual fund share. Equal to a fund's net
assets divided by the number of shares outstanding.
NRSRO (Nationally recognized statistical rating organization)
- ------------------------------------------------------------------------
A company that assesses the quality and potential performance of bonds,
commercial paper, preferred and common stocks and municipal short-term
issues, rating the probability that the issuer of the debt will meet the
scheduled interest payments and repay the principal. Ratings are
published by such companies as Moody's Investors Service (Moody's),
Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Preferred stock
- ------------------------------------------------------------------------
Preferred stock has preference over common stock in the payment of
dividends and liquidation of assets. Preferred stocks also pay dividends
at a fixed rate.
Price/earnings ratio
- ------------------------------------------------------------------------
A measure of a stock's value calculated by dividing the current market
price of a share of stock by its annual earnings per share. A stock
selling for $100 per share with annual earnings of $5 has a P/E of 20.
Principal
- ------------------------------------------------------------------------
Amount of money you invest. Also refers to a bond's original face value,
due to be repaid at maturity.
Prospectus
- ------------------------------------------------------------------------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives,
policies, services and fees.
Redeem
- ------------------------------------------------------------------------
To cash in your shares by selling them back to the mutual fund.
Risk
- ------------------------------------------------------------------------
Generally defined as variability of value; also credit risk, inflation
risk, currency and interest rate risk. Different investments involve
different types and degrees of risk.
S&P 500 Index
- ------------------------------------------------------------------------
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of
500 widely held common stocks that is often used to represent
performance of the U.S. stock market.
Sales charge
- ------------------------------------------------------------------------
Charge on the purchase of fund shares sold through financial advisers.
May vary with the amount invested. Typically used to compensate advisers
for advice and service provided.
SEC (Securities and Exchange Commission)
- ------------------------------------------------------------------------
Federal agency established by Congress to administer the laws governing
the securities industry, including mutual fund companies.
Share classes
- ------------------------------------------------------------------------
Different classifications of shares; mutual fund share classes offer a
variety of sales charge choices.
Signature guarantee
- ------------------------------------------------------------------------
Certification by a bank, brokerage firm or other financial institution
that a customer's signature is valid.
Standard deviation
- ------------------------------------------------------------------------
A measure of an investment's volatility; for mutual funds, measures how
much a fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- ------------------------------------------------------------------------
The document serving as "Part B" of a fund's prospectus that provides
more detailed information about the fund's organization, investments,
policies and risks.
Stock
- ------------------------------------------------------------------------
An investment that represents a share of ownership (equity) in a
corporation. Stocks are often referred to as "equities."
Total return
- ------------------------------------------------------------------------
An investment performance measurement, expressed as a percentage, based
on the combined earnings from dividends, capital gains and change in
price over a given period.
Treasury bills
- ------------------------------------------------------------------------
Securities issued by the U.S. Treasury with maturities of one year or
less.
Treasury bonds
- ------------------------------------------------------------------------
Securities issued by the U.S. Treasury with maturities of 10 years or
longer.
Treasury notes
- ------------------------------------------------------------------------
Securities issued by the U.S. Treasury with maturities of one to 10
years.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- ------------------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to
a minor with special tax advantages.
Volatility
- ------------------------------------------------------------------------
The tendency of an investment to go up or down in value by different
magnitudes. There are "low volatility" and "high volatility"
investments.
[back cover]
Diversified Value Fund
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during their last fiscal year. You can find more detailed information
about the Fund in the current Statement of Additional Information, which
we have filed electronically with the Securities and Exchange Commission
(SEC) and which is legally a part of this prospectus. If you want a free
copy of the Statement of Additional Information, the annual or semi-
annual report, or if you have any questions about investing in the Fund,
you can write to us at 1818 Market Street, Philadelphia, PA 19103, or
call toll-free 800-523-1918. You may also obtain additional information
about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web
site (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. Information about the
Fund, including its Statement of Additional Information, can be reviewed
and copied at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. You can get information on the public reference
room by calling the SEC at 1-800-SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Client Services Representative
800-510-4015
[Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance
information on all Delaware Investment Funds seven days a week, 24 hours
a day, use this Touch-ToneR service.]
Registrant's Investment Company Act file number: 811-750
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
P-___ [--] PP 1/99
STATEMENT OF ADDITIONAL INFORMATION
January 29, 1999
DELAWARE GROUP EQUITY FUNDS II, INC
Decatur Equity Income Fund
Growth and Income Fund
Blue Chip Fund
Social Awareness Fund
Diversified Value Fund
1818 Market Street
Philadelphia, PA 19103
For more information about Institutional Classes:
800-510-4015
For Prospectus, Performance and Information on Existing Accounts of
Class A Shares, Class B Shares and Class C Shares:
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY) Nationwide 800-362-7500
Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc.") is a
professionally-managed mutual fund of the series type which currently
offers five series of shares: Decatur Equity Income Fund, Growth and
Income Fund, Blue Chip Fund, Social Awareness Fund and Diversified Value
Fund (individually, a "Fund", and collectively, the "Funds").
Each Fund offers Class A Shares, Class B Shares, Class C Shares
(Class A Shares, Class B Shares and Class C Shares together referred to
as the "Fund Classes"), and Institutional Class shares ("Institutional
Classes"). All references to "shares" in this Part B refer to all
Classes of shares of Equity Funds II, Inc., except where noted.
This Statement of Additional Information ("Part B" of the
registration statement) supplements the information contained in the
current Prospectus for the Fund Classes dated January 29, 1999 and the
current Prospectus for the Institutional Classes dated January 29, 1999,
as they may be amended from time to time. Part B should be read in
conjunction with the respective Class' Prospectus. Part B is not itself
a prospectus but is, in its entirety, incorporated by reference into
each Class' Prospectus. A prospectus relating to the Fund Classes and a
prospectus relating to the Institutional Classes may be obtained by
writing or calling your investment dealer or by contacting each Fund's
national distributor, Delaware Distributors, L.P. (the "Distributor"),
at the above address or by calling the above phone numbers. The Funds'
financial statements, the notes relating thereto, the financial
highlights and the report of independent auditors are incorporated by
reference from the Annual Report into this Part B. The Annual Report
will accompany any request for Part B. The Annual Report can be
obtained, without charge, by calling 800-523-1918.
TABLE OF CONTENTS
Cover Page
Investment Restrictions and Policies
Accounting and Tax Issues
Performance Information
Trading Practices and Brokerage
Purchasing Shares
Investment Plans
Determining Offering Price and Net Asset Value
Redemption and Exchange
Dividends and Realized Securities Profits Distributions
Taxes
Investment Management Agreements
Officers and Directors
General Information
Appendix A--Description of Ratings
Appendix B--Investment Objectives of the Other Funds in the Delaware
Investments Family
Financial Statements
INVESTMENT RESTRICTIONS AND POLICIES
Investment Restrictions--Each Fund has adopted the following
restrictions which cannot be changed without approval by the holders of
a "majority" of such Fund's outstanding shares, which is a vote by the
holders of the lesser of (i) 67% or more of the voting securities
present in person or by proxy at a meeting, if the holders of more than
50% of the outstanding voting securities are present or represented by
proxy; or (ii) more than 50% of the outstanding voting securities. The
percentage limitations contained in the restrictions and policies set
forth herein apply at the time of purchase of securities.
Decatur Equity Income Fund shall not:
1. Invest more than 5% of the value of its assets in
securities of any one company (except U.S. government bonds) or purchase
more than 10% of the voting or nonvoting securities of any one company.
2. Acquire control of any company. (Equity Funds II, Inc.'s
Certificate of Incorporation permits control of companies to protect
investments already made, but its policy is not to acquire control.)
3. Purchase or retain securities of a company which has an
officer or director who is an officer or director of Equity Funds II,
Inc., or an officer, director or partner of its investment manager if,
to the knowledge of Equity Funds II, Inc., one or more of such persons
own beneficially more than 1/2 of 1% of the shares of the company, and
in the aggregate more than 5% thereof.
4. Allow long or short positions on shares of the Fund to be
taken by Equity Funds II, Inc.'s officers, directors or any of its
affiliated persons. Such persons may buy shares of the Fund for
investment purposes, however.
5. Purchase any security issued by any other investment
company if after such purchase it would: (a) own more than 3% of the
voting stock of such company, (b) own securities of such company having
a value in excess of 5% of the Fund's assets or (c) own securities of
investment companies having an aggregate value in excess of 10% of the
Fund's assets.
6. Invest more than 10% of the value of its total assets in
illiquid assets.
7. Invest in securities of other investment companies except
at customary brokerage commission rates or in connection with mergers,
consolidations or offers of exchange.
8. Make any investment in real estate unless necessary for
office space or the protection of investments already made. (This
restriction does not preclude the Fund's purchase of securities issued
by real estate investment trusts.)
9. Sell short any security or property.
10. Deal in commodities, except that the Fund may invest in
financial futures, including futures contracts on stocks and stock
indices, interest rates and foreign currencies and other types of
financial futures that may be developed in the future, and may purchase
or sell options on such futures, and enter into closing transactions
with respect to those activities.
11. Borrow, except as a temporary measure for extraordinary or
emergency purposes, and then not in excess of 10% of gross assets taken
at cost or market, whichever is lower, and not to pledge more than 15%
of gross assets taken at cost. Any borrowing will be done from a bank,
and to the extent that such borrowing exceeds 5% of the value of the
Fund's assets, asset coverage of at least 300% is required. In the
event that such asset coverage shall at any time fall below 300%, the
Fund shall, within three days thereafter (not including Sunday and
holidays) or such longer period as the Securities and Exchange
Commission (the "SEC") may prescribe by rules and regulations, reduce
the amount of its borrowings to an extent that the asset coverage of
such borrowings shall be at least 300%. The Fund shall not issue senior
securities as defined in the Investment Company Act of 1940 (the "1940
Act"), except for notes to banks.
12. Make loans. However, the purchase of a portion of an issue
of publicly distributed bonds, debentures, or other securities, whether
or not the purchase was made upon the original issuance of the
securities, and the entry into "repurchase agreements" are not to be
considered the making of a loan by the Fund and the Fund may loan up to
25% of its assets to qualified broker/dealers or institutional investors
for their use relating to short sales or other transactions.
13. Invest more than 5% of the value of its total assets in
securities of companies less than three years old. Such three-year
period shall include the operation of any predecessor company or
companies.
14. The Fund may act as an underwriter of securities of other
issuers, but its present policy is not to do so.
In addition, notwithstanding restriction 8 above and although not a
matter of fundamental policy, Equity Funds II, Inc. has made a
commitment that the Fund's investments in securities issued by real
estate investment trusts will not exceed 10% of its total assets. In
addition, the Fund may not concentrate investments in any particular
industry, which means not investing more than 25% of its assets in any
industry.
Growth and Income Fund shall not:
1. Invest more than 5% of the market or other fair value of its
assets in the securities of any one issuer (other than obligations of,
or guaranteed by, the U.S. government, its agencies or
instrumentalities).
2. Invest in securities of other investment companies except as
part of a merger, consolidation or other acquisition.
3. Make loans. However, (i) the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities, or
of other securities authorized to be purchased by the Fund's investment
policies, whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase agreements"
are not to be considered the making of a loan by the Fund; and (ii) the
Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors for their use relating to short sales or other
security transactions.
4. Purchase or sell real estate but this shall not prevent the
Fund from investing in companies which own real estate or in securities
secured by real estate or interests therein.
5. Purchase more than 10% of the outstanding voting or
nonvoting securities of any issuer, or invest in companies for the
purpose of exercising control or management.
6. Act as an underwriter of securities of other issuers, except
that the Fund may acquire restricted or not readily marketable
securities under circumstances where, if such securities are sold, the
Fund might be deemed to be an underwriter for the purposes of the
Securities Act of 1933 (the "1933 Act").
7. Make any investment which would cause more than 25% of the
market or other fair value of its total assets to be invested in the
securities of issuers all of which conduct their principal business
activities in the same industry. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
8. Deal in commodities, except that the Fund may invest in
financial futures, including futures contracts on stocks and stock
indices, interest rates and foreign currencies and other types of
financial futures that may be developed in the future, and may purchase
or sell options on such futures, and enter into closing transactions
with respect to those activities.
9. Purchase securities on margin, make short sales of
securities or maintain a net short position.
10. Invest more than 5% of the value of its total assets in
securities of companies less than three years old. Such three-year
period shall include the operation of any predecessor company or
companies.
11. Invest in warrants valued at the lower of cost or market
exceeding 5% of the Fund's net assets. Included in that amount, but not
to exceed 2% of the Fund's net assets, may be warrants not listed on the
New York Stock Exchange or American Stock Exchange.
12. Purchase or retain the securities of any issuer which has
an officer, director or security holder who is a director or officer of
Equity Funds II, Inc. or of its investment manager if or so long as the
directors and officers of Equity Funds II, Inc. and of its investment
manager together own beneficially more than 5% of any class of
securities of such issuer.
13. Invest in interests in oil, gas or other mineral
exploration or development programs.
14. Invest more than 10% of the value of the Fund's net assets
in repurchase agreements maturing in more than seven days and in other
illiquid assets.
15. Borrow money in excess of one-third of the value of its net
assets and then only as a temporary measure for extraordinary purposes
or to facilitate redemptions. The Fund has no intention of increasing
its net income through borrowing. Any borrowing will be done from a
bank and to the extent that such borrowing exceeds 5% of the value of
the Fund's net assets, asset coverage of at least 300% is required. In
the event that such asset coverage shall at any time fall below 300%,
the Fund shall, within three days thereafter (not including Sunday or
holidays) or such longer period as the SEC may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that
the asset coverage of such borrowings shall be at least 300%. The Fund
will not pledge more than 10% of its net assets. The Fund will not
issue senior securities as defined in the 1940 Act except for notes to
banks.
The application of the investment policy of Decatur Equity Income
Fund and Growth and Income Fund will be dependent upon the judgment of
Delaware Management Company (the "Manager"). In accordance with the
judgment of the Manager, the proportions of a Fund's assets invested in
particular industries will vary from time to time. The securities in
which a Fund invests may or may not be listed on a national stock
exchange, but if they are not so listed will generally have an
established over-the-counter market. While management believes that the
investment objective of Decatur Equity Income Fund and Growth and Income
Fund can be achieved by investing primarily in common stocks, each Fund
may be invested in other securities including, but not limited to,
convertible securities, preferred stocks, bonds, warrants and foreign
securities. Decatur Equity Income Fund may invest up to 15% of its net
assets in high yield, high risk securities. In periods during which the
Manager feels that market conditions warrant a more defensive portfolio
positioning, each Fund may also invest in various types of fixed-income
obligations.
Blue Chip Fund will not:
1. With respect to 75% of its total assets, invest more than 5%
of its total assets in the securities of any one issuer (other than
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities or certificates of deposit for any such securities and
cash and cash items) or purchase more than 10% of the voting securities
of any one company.
2. Make any investment in real estate. This restriction does
preclude the Fund's purchase of securities issued by real estate
investment trusts, the purchase of securities issued by companies that
deal in real estate, or the investment in securities secured by real
estate or interests therein.
3. Sell short any security or property.
4. Buy or sell commodities or commodity contracts except that
the Fund may enter into futures contracts and options thereon.
5. Borrow money in excess of one-third of the value of its net
assets. Any borrowing will be done in accordance with the rules and
regulations prescribed from time to time by the SEC with respect to
open-end investment companies. Blue Chip Fund shall not issue senior
securities as defined in the 1940 Act, except for notes to banks.
6. Make loans. However, (i) the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities, or
of other securities authorized to be purchased by the Fund's investment
policies, whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase agreements"
are not to be considered the making of a loan by the Fund; and (ii) the
Fund may loan securities to qualified broker/dealers or institutional
investors for their use relating to short sales and other security
transactions.
7. Act as an underwriter of securities of other issuers, except
that the Fund may acquire restricted or not readily marketable
securities under circumstances where, if such securities are sold, the
Fund may be deemed to be an underwriter for purposes of the 1933 Act.
8. Invest more than 25% of its total assets in securities of
issuers all of which conduct their principal business activities in the
same industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
In addition to the above fundamental investment restrictions, Blue
Chip Fund has the following investment restrictions which may be amended
or changed without approval of shareholders. Blue Chip Fund will not:
1. Invest for the purpose of acquiring control of any company.
2. Invest in securities of other investment companies, except
the Fund may invest in securities of open-end, closed-end and
unregistered investment companies, in accordance with the limitations
contained in the 1940 Act at the time of the investment.
3. Purchase or retain the securities of any issuer which has an
officer, director or security holder who is a director or officer of
Equity Funds II, Inc. or of the Manager or Sub-Adviser if or so long as
the directors and officers of Equity Funds II, Inc. and of the Manager
and Sub-Adviser together own beneficially more than 5% of any class of
securities of such issuer.
4. Invest in interests in oil, gas and other mineral leases or
other mineral exploration or development programs.
5. Purchase securities on margin except short-term credits that
may be necessary for the clearance of purchases and sales of securities.
Social Awareness Fund will not:
1. With respect to 75% of its total assets, invest more than 5%
of its total assets in the securities of any one issuer (other than
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities or certificates of deposit for any such securities and
cash and cash items) or purchase more than 10% of the voting securities
of any one company.
2. Make any investment in real estate. This restriction does
preclude the Fund's purchase of securities issued by real estate
investment trusts, the purchase of securities issued by companies that
deal in real estate, or the investment in securities secured by real
estate or interests therein.
3. Sell short any security or property.
4. Buy or sell commodities or commodity contracts except that
the Fund may enter into futures contracts and options thereon.
5. Borrow money in excess of one-third of the value of its net
assets. Any borrowing will be done in accordance with the rules and
regulations prescribed from time to time by the SEC with respect to
open-end investment companies. Social Awareness Fund shall not issue
senior securities as defined in the 1940 Act, except for notes to banks.
6. Make loans. However, (i) the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities, or
of other securities authorized to be purchased by the Fund's investment
policies, whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase agreements"
are not to be considered the making of a loan by the Fund; and (ii) the
Fund may loan securities to qualified broker/dealers or institutional
investors for their use relating to short sales and other security
transactions.
7. Act as an underwriter of securities of other issuers, except
that the Fund may acquire restricted or not readily marketable
securities under circumstances where, if such securities are sold, the
Fund may be deemed to be an underwriter for purposes of the 1933 Act.
8. Invest more than 25% of its total assets in securities of
issuers all of which conduct their principal business activities in the
same industry. This restriction does not apply to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
In addition to the above fundamental investment restrictions,
Social Awareness Fund has the following investment restrictions which
may be amended or changed without approval of shareholders. Social
Awareness Fund will not:
1. Invest for the purpose of acquiring control of any company.
2. Invest in securities of other investment companies, except
the Fund may invest in securities of open-end, closed-end and
unregistered investment companies, in accordance with the limitations
contained in the 1940 Act at the time of the investment.
3. Purchase or retain the securities of any issuer which has an
officer, director or security holder who is a director or officer of
Equity Funds II, Inc. or of the Manager or Sub-Adviser if or so long as
the directors and officers of Equity Funds II, Inc. and of the Manager
or Sub-Adviser together own beneficially more than 5% of any class of
securities of such issuer.
4. Invest in interests in oil, gas and other mineral leases or
other mineral exploration or development programs.
5. Purchase securities on margin except short-term credits that
may be necessary for the clearance of purchases and sales of securities.
Diversified Value Fund will not:
1. Make investments that will result in the concentration (as
that term may be defined in the 1940 Act, any rule or order thereunder,
or SEC staff interpretation thereof) of its investments in the
securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit the Fund from investing in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or in certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940
Act, any rule or order thereunder, or SEC staff interpretation thereof,
may permit.
3. Underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition
or resale of its portfolio securities under circumstances where it may
be considered to be an underwriter under the 1933 Act.
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from investing in issuers which
invest, deal or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a
result of ownership of securities or other instruments and provided that
this restriction does not prevent the Fund from engaging in transactions
involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
6. Make loans, provided that this restriction does not prevent
the Fund from purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker/dealers or institutional
investors and investing in loans, including assignments and
participation interests.
In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described
in its Prospectus, Diversified Value Fund will be subject to the
following investment restrictions, which are considered non-fundamental
and may be changed by the Board of Directors without shareholder
approval.
1. The Fund is permitted to invest in other investment
companies, including open-end, closed-end or unregistered investment
companies, either within the percentage limits set forth in the 1940
Act, any rule or order thereunder, or SEC staff interpretation thereof,
or without regard to percentage limits in connection with a merger,
reorganization, consolidation or other similar transaction. However,
the Fund may not operate as a "fund of funds" which invests primarily in
the shares of other investment companies as permitted by Section
12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
2. The Fund may not invest more than 15% of its net assets in
securities which it can not sell or dispose of in the ordinary course of
business within seven days at approximately the value at which the Fund
has valued the investment.
Securities will not normally be purchased by a Fund while it has an
outstanding borrowing.
Each Fund may engage in the following investment techniques:
Equity Securities
Equity securities represent ownership interests in a company and
consist of common stocks, preferred stocks, warrants to acquire common
stock and securities convertible into common stock. Investments in
equity securities in general are subject to market risks that may cause
their prices to fluctuate over time. The value of convertible equity
securities is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions. Fluctuations in the
value of equity securities in which a Fund invests will cause the net
asset value of the Fund to fluctuate.
Warrants
Each Fund may purchase warrants and similar rights, which are
privileges issued by corporations enabling the owners to subscribe to
and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. The purchase of
warrants involves the risk that a Fund could lose the purchase value
of a warrant if the right to subscribe to additional shares is not
exercised prior to the warrant's expiration. Also, the purchase of
warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may
exceed the value of the subscribed security's market price such as when
there is no movement in the level of the underlying security.
Rule 144A Securities
Each Fund may invest in restricted securities, including
unregistered securities eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the 1933 Act. Rule
144A Securities may be freely traded among qualified institutional
investors without registration under the 1933 Act.
Investing in Rule 144A Securities could have the effect of
increasing the level of a Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in
purchasing these securities. After the purchase of a Rule 144A
Security, however, the Board of Directors and the Manager will continue
to monitor the liquidity of that security to ensure that Decatur Equity
Income Fund and Growth and Income Fund each has no more than 10%, and
Blue Chip Fund, Social Awareness Fund and Diversified Value Fund each
has no more than 15%, of its net assets in illiquid securities.
Repurchase Agreements
In order to invest its cash reserves or when in a temporary
defensive posture, a Fund may enter into repurchase agreements with
banks or broker/dealers deemed to be creditworthy by the Manager, under
guidelines approved by the Board of Directors. A repurchase agreement
is a short-term investment in which the purchaser (i.e., a Fund)
acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby
determining the yield during the purchaser's holding period. Generally,
repurchase agreements are of short duration, often less than one week,
but on occasion for longer periods. Not more than 10% of the assets of
each Fund (except Diversified Value Fund) may be invested in repurchase
agreements of over seven-days' maturity. Not more than 15% of
Diversified Value Fund's assets may be invested in illiquid assets,
including repurchase agreements of over seven days' maturity. Should an
issuer of a repurchase agreement fail to repurchase the underlying
security, the loss to a Fund, if any, would be the difference between
the repurchase price and the market value of the security. A Fund will
limit its investments in repurchase agreements, to those which the
Manager, under the guidelines of the Board of Directors, determines to
present minimal credit risks and which are of high quality. In
addition, the Fund must have collateral of at least 102% of the
repurchase price, including the portion representing a Fund's yield
under such agreements, which is monitored on a daily basis. Such
collateral is held by the Custodian in book entry form. Such agreements
may be considered loans under the 1940 Act, but the Funds consider
repurchase agreements contracts for the purchase and sale of securities,
and it seeks to perfect a security interest in the collateral securities
so that it has the right to keep and dispose of the underlying
collateral in the event of a default.
The funds in the Delaware Investments family have obtained an
exemption from the joint-transaction prohibitions of Section 17(d) of
the 1940 Act to allow the funds in the Delaware Investments family
jointly to invest cash balances. Each Fund may invest cash balances in
a joint repurchase agreement in accordance with the terms of the Order
and subject generally to the conditions described above.
Portfolio Loan Transactions
Each Fund may loan up to 25% of its assets to qualified
broker/dealers or institutional investors for their use relating to
short sales or other security transactions.
It is the understanding of the Manager that the staff of the SEC
permits portfolio lending by registered investment companies if certain
conditions are met. These conditions are as follows: 1) each
transaction must have 100% collateral in the form of cash, short-term
U.S. government securities, or irrevocable letters of credit payable by
banks acceptable to a Fund involved from the borrower; 2) this
collateral must be valued daily and should the market value of the
loaned securities increase, the borrower must furnish additional
collateral to the Fund involved; 3) the Fund must be able to terminate
the loan after notice, at any time; 4) the Fund must receive reasonable
interest on any loan, and any dividends, interest or other distributions
on the lent securities, and any increase in the market value of such
securities; 5) the Fund may pay reasonable custodian fees in connection
with the loan; and 6) the voting rights on the lent securities may pass
to the borrower; however, if the directors of Equity Funds II, Inc. know
that a material event will occur affecting an investment loan, they must
either terminate the loan in order to vote the proxy or enter into an
alternative arrangement with the borrower to enable the directors to
vote the proxy.
The major risk to which a Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time
when the value of the security goes up. Therefore, each Fund will only
enter into loan arrangements after a review of all pertinent facts by
the Manager, under the supervision of the Board of Directors, including
the creditworthiness of the borrowing broker, dealer or institution and
then only if the consideration to be received from such loans would
justify the risk. Creditworthiness will be monitored on an ongoing
basis by the Manager.
Options
Each Fund may write call options on a covered basis only and
purchase put options, and will not engage in option writing strategies
for speculative purposes.
Covered Call Writing
Each Fund may write covered call options from time to time on such
portion of its portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Fund's investment objective. A
call option gives the purchaser of such option the right to buy, and the
writer, in this case a Fund, has the obligation to sell the underlying
security at the exercise price during the option period. The advantage
to a Fund of writing covered calls is that the Fund receives additional
income, in the form of a premium, which may offset any capital loss or
decline in market value of the security. However, if the security rises
in value, the Fund may not fully participate in the market appreciation.
During the option period, a covered call option writer may be
assigned an exercise notice by the broker/dealer through whom such call
option was sold requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation is terminated
upon the expiration of the option period or at such earlier time in
which the writer effects a closing purchase transaction. A closing
purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
With respect to both options on actual portfolio securities owned
by a Fund and options on stock indices, a Fund may enter into closing
purchase transactions. A closing purchase transaction is one in which a
Fund, when obligated as a writer of an option, terminates its obligation
by purchasing an option of the same series as the option previously
written.
Closing purchase transactions will ordinarily be effected to
realize a profit on an outstanding call option, to prevent an underlying
security from being called, to permit the sale of the underlying
security or to enable a Fund to write another call option on the
underlying security with either a different exercise price or expiration
date or both. A Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be partially or entirely offset by
the premium received from a sale of a different call option on the same
underlying security. Such a loss may also be wholly or partially offset
by unrealized appreciation in the market value of the underlying
security. Conversely, a gain resulting from a closing purchase
transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-
term capital gain in the amount of the premium on the option, less the
commission paid. Such a gain, however, may be offset by depreciation in
the market value of the underlying security during the option period.
If a call option is exercised, a Fund will realize a gain or loss from
the sale of the underlying security equal to the difference between the
cost of the underlying security, and the proceeds of the sale of the
security plus the amount of the premium on the option, less the
commission paid.
The market value of a call option generally reflects the market
price of an underlying security. Other principal factors affecting
market value include supply and demand, interest rates, the price
volatility of the underlying security and the time remaining until the
expiration date.
A Fund will write call options only on a covered basis, which means
that Fund will own the underlying security subject to the call option at
all times during the option period. Unless a closing purchase
transaction is effected, the Fund would be required to continue to hold
a security which it might otherwise wish to sell, or deliver a security
it would want to hold. Options written by a Fund will normally have
expiration dates between one and nine months from the date written. The
exercise price of a call option may be below, equal to or above the
current market value of the underlying security at the time the option
is written.
Purchasing Call Options
Diversified Value Fund may purchase call options to enhance income
or to hedge its portfolio securities. When the Fund purchases a call
option, in return for a premium paid by the Fund to the writer of the
option, the Fund obtains the right to buy the security underlying the
option at a specified exercise price at any time during the term of the
option. The writer of the call option, who receives the premium upon
writing the option, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price.
The advantage of purchasing call options is that the Fund may alter
portfolio characteristics and modify portfolio maturities without
incurring the cost associated with portfolio transactions.
Diversified Value Fund may, following the purchase of a call
option, liquidate its positions by effecting a closing sale transaction.
This is accomplished by selling an option of the same series as the
option previously purchased. The Fund will realize a profit from a
closing sale transaction if the price received on the transaction is
more than the premium paid to purchase the original call option; the
Fund will realize a loss from a closing sale transaction if the price
received on the transaction is less than the premium paid to purchase
the original call option.
Although Diversified Value Fund will generally purchase only those
call options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some
options no secondary market on an exchange may exist. In such event, it
may not be possible to effect closing transactions in particular
options, with the result that the Fund would have to exercise their
options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise
of such options. Further, unless the price of the underlying security
changes sufficiently, a call option purchased by the Fund may expire
without any value to the Fund.
Purchasing Put Options
Each Fund may invest in put options, provided that each of Decatur
Equity Income Fund and Growth and Income Fund may invest no more than 2%
of its total assets in the purchase of put options. A Fund will, at all
times during which it holds a put option, own the security covered by
such option. A Fund may invest in put options to enhance income or
hedge its portfolio securities.
Each Fund may purchase put options in order to protect against a
decline in the market value of the underlying security below the
exercise price less the premium paid for the option ("protective puts").
The ability to purchase put options will allow a Fund to protect an
unrealized gain in an appreciated security in its portfolio without
actually selling the security. If the security does not drop in value,
the Fund will lose the value of the premium paid. A Fund may sell a put
option which it has previously purchased prior to the sale of the
securities underlying such option. Such sales will result in a net gain
or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put option
which is sold.
A Fund may sell a put option purchased on individual portfolio
securities or stock indices. Additionally, a Fund may enter into
closing sale transactions. A closing sale transaction is one in which a
Fund, when it is the holder of an outstanding option, liquidates its
position by selling an option of the same series as the option
previously purchased.
Writing Put Options
A put option written by Diversified Value Fund obligates it to buy
the security underlying the option at the exercise price during the
option period and the purchaser of the option has the right to sell the
security to the Fund. During the option period, the Fund, as writer of
the put option, may be assigned an exercise notice by the broker/dealer
through whom the option was sold requiring the Fund to make payment of
the exercise price against delivery of the underlying security. The
obligation terminates upon expiration of the put option or at such
earlier time at which the writer effects a closing purchase transaction.
Diversified Value Fund may write put options only if the Fund will
maintain in a segregated account with its Custodian Bank, cash, U.S.
government securities or other assets in an amount not less than the
exercise price of the option at all times during the option period. The
amount of cash, U.S. government securities or other assets held in the
segregated account will be adjusted on a daily basis to reflect changes
in the market value of the securities covered by the put option written
by the Fund. Consistent with the limited purposes for which Diversified
Value Fund intends to engage in the writing of put options, such put
options will generally be written in circumstances where the investment
adviser wishes to purchase the underlying security for the Fund at a
price lower than the current market price of the security. In such
event, Diversified Value Fund would write a put option at an exercise
price which, reduced by the premium received on the option, reflects the
lower price it is willing to pay.
Following the writing of a put option, Diversified Value Fund may
wish to terminate the obligation to buy the security underlying the
option by effecting a closing purchase transaction. This is
accomplished by buying an option of the same series as the option
previously written. The Fund may not, however, effect such a closing
transaction after it has been notified of the exercise of the option.
Options on Stock Indices
A stock index assigns relative values to the common stocks included
in the index with the index fluctuating with changes in the market
values of the underlying common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to
take or make delivery of the underlying stock at a specified price. A
stock index option gives the holder the right to receive a cash
"exercise settlement amount" equal to (i) the amount by which the fixed
exercise price of the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (ii) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the
stock index upon which the option is based being greater than (in the
case of a call) or less than (in the case of a put) the exercise price
of the option. The amount of cash received will be equal to such
difference between the closing price of the index and exercise price of
the option expressed in dollars times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make
delivery of this amount. Gain or loss to a Fund on transactions in
stock index options will depend on price movements in the stock market
generally (or in a particular industry or segment of the market) rather
than price movements of individual securities.
As with stock options, a Fund may offset its position in stock
index options prior to expiration by entering into a closing transaction
on an Exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the
stock so included. Some stock index options are based on a broad market
index such as the Standard & Poor's 500 (R) Composite Stock Price Index
("S&P 500") or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100 ("S&P 100").
Indices are also based on an industry or market segment such as the AMEX
Oil and Gas Index or the Computer and Business Equipment Index. Options
on stock indices are currently traded on the following Exchanges among
others: The Chicago Board Options Exchange, New York Stock Exchange and
American Stock Exchange.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements
in a Fund's portfolio correlate with price movements of the stock index
selected. Because the value of an index option depends upon movements
in the level of the index rather than the price of a particular stock,
whether a Fund will realize a gain or loss from the purchase or writing
of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indices,
in an industry or market segment, rather than movements in the price of
a particular stock. Since a Fund's portfolio will not duplicate the
components of an index, the correlation will not be exact.
Consequently, a Fund bears the risk that the prices of the securities
being hedged will not move in the same amount as the hedging instrument.
It is also possible that there may be a negative correlation between the
index or other securities underlying the hedging instrument and the
hedged securities which would result in a loss on both such securities
and the hedging instrument. Accordingly, successful use of options on
stock indices will be subject to the Manager's ability to predict
correctly movements in the direction of the stock market generally or of
a particular industry. This requires different skills and techniques
than predicting changes in the price of individual stocks.
Positions in stock index options may be closed out only on an
Exchange which provides a secondary market. There can be no assurance
that a liquid secondary market will exist for any particular stock index
option. Thus, it may not be possible to close such an option. The
inability to close options positions could have an adverse impact on a
Fund's ability to effectively hedge its securities. A Fund will enter
into an option position only if there appears to be a liquid secondary
market for such options.
A Fund will not engage in transactions in options on stock indices
for speculative purposes but only to protect appreciation attained, to
offset capital losses and to take advantage of the liquidity available
in the option markets.
Futures Contracts and Options on Futures Contracts
As noted in the Prospectuses, each Fund may enter into futures
contracts relating to securities, securities indices, interest rates or
foreign currencies. (Unless otherwise specified, interest rate futures
contracts, securities and securities index futures contracts and foreign
currency futures contracts are collectively referred to as "futures
contracts.") Such investment strategies will be used as a hedge and not
for speculation.
As noted in the Prospectuses, each Fund may purchase and write
options on the types of futures contracts, described in the
Prospectuses.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in a Fund's
portfolio. If the futures price at expiration of the option is below
the exercise price, a Fund will retain the full amount of the option
premium, which provides a partial hedge against any decline that may
have occurred in the Fund's portfolio holdings. The writing of a put
option on a futures contract constitutes a partial hedge against
increasing prices of the securities or other instruments required to be
delivered under the terms of the futures contract. If the futures price
at expiration of the put option is higher than the exercise price, a
Fund will retain the full amount of the option premium, which provides a
partial hedge against any increase in the price of securities which a
Fund intends to purchase. If a put or call option that a Fund has
written is exercised, the Fund will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and
changes in the value of its options on futures positions, a Fund's
losses from exercised options on futures may to some extent be reduced
or increased by changes in the value of portfolio securities.
A Fund may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures
contracts. For example, where a decrease in the value of portfolio
securities is anticipated as a result of a projected market-wide decline
or changes in interest or exchange rates, a Fund could, in lieu of
selling futures contracts, purchase put options thereon. In the event
that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund
will suffer a loss equal to the price of the put. Where it is projected
that the value of securities to be acquired by a Fund will increase
prior to acquisition, due to a market advance or changes in interest or
exchange rates, the Fund could purchase call options on futures
contracts, rather than purchasing the underlying futures contracts. If
the market advances, the increased cost of securities to be purchased
may be offset by a profit on the call. However, if the market declines,
the Fund will suffer a loss equal to the price of the call, but the
securities which the Fund intends to purchase may be less expensive.
Foreign and Emerging Market Securities
Each Fund has the ability to purchase securities in any foreign
country. Investors should consider carefully the substantial risks
involved in investing in securities issued by companies and governments
of foreign nations. These risks are in addition to the usual risks
inherent in domestic investments. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of
income earned in foreign nations or other taxes imposed with respect to
investments in foreign nations, foreign exchange controls (which may
include suspension of the ability to transfer currency from a given
country), default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in those nations.
In addition, in many countries, there is substantially less
publicly available information about issuers than is available in
reports about companies in the United States. Foreign companies are not
subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable
to those applicable to United States companies. Consequently, financial
data about foreign companies may not accurately reflect the real
condition of those issuers and securities markets.
Further, a Fund may encounter difficulty or be unable to pursue
legal remedies and obtain judgments in foreign courts. Commission rates
on securities transactions in foreign countries, which are sometimes
fixed rather than subject to negotiation as in the United States, are
likely to be higher. Further, the settlement period of securities
transactions in foreign markets may be longer than in domestic markets,
and may be subject to administrative uncertainties. In many foreign
countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed
companies than in the United States, and capital requirements for
brokerage firms are generally lower. The foreign securities markets of
many of the countries in which a Fund may invest may also be smaller,
less liquid and subject to greater price volatility than those in the
United States.
Each Fund may also invest in securities of issuers located in
emerging market nations. Compared to the United States and other
developed countries, emerging countries may have volatile social
conditions, relatively unstable governments and political systems,
economies based on only a few industries and economic structures that
are less diverse and mature, and securities markets that trade a small
number of securities, which can result in a low or nonexistent volume of
trading. Prices in these securities markets tend to be volatile and, in
the past, securities in these countries have offered greater potential
for gain (as well as loss) than securities of companies located in
developed countries. Until recently, there has been an absence of a
capital market structure or market-oriented economy in certain emerging
countries. Further, investments and opportunities for investments by
foreign investors are subject to a variety of national policies and
restrictions in many emerging countries. Also, the repatriation of both
investment income and capital from several foreign countries is
restricted and controlled under certain regulations, including, in some
cases, the need for certain governmental consents. Countries such as
those in which a Fund may invest have historically experienced and may
continue to experience, substantial, and in some periods extremely high
rates of inflation for many years, high interest rates, exchange rate
fluctuations or currency depreciation, large amounts of external debt,
balance of payments and trade difficulties and extreme poverty and
unemployment. Other factors which may influence the ability or
willingness to service debt include, but are not limited to, a country's
cash flow situation, the availability of sufficient foreign exchange on
the date a payment is due, the relative size of its debt service burden
to the economy as a whole, its government's policy towards the
International Monetary Fund, the World Bank and other international
agencies and the political constraints to which a government debtor may
be subject.
There has been in the past, and there may be again in the future,
an interest equalization tax levied by the United States in connection
with the purchase of foreign securities such as those purchased by a
Fund. Payment of such interest equalization tax, if imposed, would
reduce the Fund's rate of return on its investment. Dividends paid by
foreign issuers may be subject to withholding and other foreign taxes
which may decrease the net return on such investments as compared to
dividends paid to the Fund by United States corporations. Special rules
govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other
than the U.S. dollar. The types of transactions covered by the special
rules generally include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including,
to the extent provided in Treasury Regulations, preferred stock); (ii)
the accruing of certain trade receivables and payables; and (iii) the
entering into or acquisition of any forward contract, futures contract,
option and similar financial instruments other than any "regulated
futures contract" or "nonequity option" marked to market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer
is also treated as a transaction subject to the special currency rules.
However, foreign currency-related regulated futures contracts and
nonequity options are generally not subject to the special currency
rules, if they are or would be treated as sold for their fair market
value at year-end under the marking to market rules applicable to other
futures contracts, unless an election is made to have such currency
rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss
foreign currency gain or loss arising from certain identified forward
contracts, futures contracts and options that are capital assets in the
hands of the taxpayer and which are not part of a straddle. Certain
transactions subject to the special currency rules that are part of a
"section 988 hedging transaction" (as defined in the Internal Revenue
Code of 1986, as amended (the "Code"), and the Treasury Regulations)
will be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. The income tax effects
of integrating and treating a transaction as a single transaction are
generally to create a synthetic debt instrument that is subject to the
original discount provisions. It is anticipated that some of the non-
U.S. dollar denominated investments and foreign currency contracts a
Fund may make or enter into will be subject to the special currency
rules described above.
Foreign Currency Transactions
Although each Fund values its assets daily in terms of U.S.
dollars, they do not intend to convert holdings of foreign currencies
into U.S. dollars on a daily basis. Each Fund will, however, from time
to time, purchase or sell foreign currencies and/or engage in forward
foreign currency transactions in order to expedite settlement of
portfolio transactions and to minimize currency value fluctuations. A
Fund may conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into contracts to purchase or sell
foreign currencies at a future date (i.e., a "forward foreign currency"
contract or "forward" contract). A forward contract involves an
obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract,
agreed upon by the parties, at a price set at the time of the contract.
The Fund will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion.
A Fund may enter into forward contracts to "lock in" the price of a
security it has agreed to purchase or sell, in terms of U.S. dollars or
other currencies in which the transaction will be consummated. By
entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars or foreign currency, of the amount of foreign
currency involved in the underlying security transaction, the Fund will
be able to protect itself against a possible loss resulting from an
adverse change in currency exchange rates during the period between the
date the security is purchased or sold and the date on which payment is
made or received.
When the Manager or Sub-Adviser, with respect to Blue Chip Fund and
Social Awareness Fund, believes that the currency of a particular
country may suffer a significant decline against the U.S. dollar or
against another currency, a Fund may enter into a forward foreign
currency contract to sell, for a fixed amount of U.S. dollars or other
appropriate currency, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such
foreign currency.
A Fund will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's securities or other assets denominated in that
currency.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity
date, the same amount of the foreign currency. The Fund may realize a
gain or loss from currency transactions. With respect to forward
foreign currency contracts, the precise matching of forward contract
amounts and the value of the securities involved is generally not
possible since the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency strategy is
highly uncertain.
It is impossible to forecast the market value of Fund securities at
the expiration of the contract. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot market (and
bear the expense of such purchase) if the market value of the security
is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery
of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of a
security if its market value exceeds the amount of foreign currency the
Fund is obligated to deliver.
Depositary Receipts
Each Fund may invest in sponsored and unsponsored American
Depositary Receipts, European Depositary Receipts, or Global Depositary
Receipts ("Depositary Receipts"). Depositary Receipts are receipts
typically issued by a 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, and "unsponsored" Depositary Receipts are
issued without the participation of the issuer of the deposited
security.
Investment Company Securities
Any investments that a Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve
an indirect payment of a portion of the expenses, including advisory
fees, of such other investment companies. Under the 1940 Act's current
limitations, a Fund may not (1) own more than 3% of the voting stock of
another investment company; (2) invest more than 5% of the Fund's total
assets in the shares of any one investment company; nor (3) invest more
than 10% of the Fund's total assets in shares of other investment
companies. If a Fund elects to limit its investment in other investment
companies to closed-end investment companies, the 3% limitation
described above is increased to 10%. These percentage limitations also
apply to the Fund's investments in unregistered investment companies.
Fixed-Income Securities
Fixed-income securities consists of bonds, notes debentures and
other interest-bearing securities that represent indebtedness. The
market value of the fixed-income investments in which a Fund invests
will change in response to interest rate changes and other factors.
During periods of falling interest rates, the values of outstanding
fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed-income
security and in the ability of an issuer to make payments of interest
and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income
derived from these securities but will affect a Fund's net asset value.
Money Market Instruments
Each Fund may invest for defensive purposes in corporate government
bonds and notes and money market instruments. Money market instruments
in which the Funds may invest include U.S. government securities;
certificates of deposit, time deposits and bankers' acceptances issued
by domestic banks (including their branches located outside the U.S. and
subsidiaries located in Canada), domestic branches of foreign banks,
savings and loan associations and similar institutions; high grade
commercial paper; and repurchase agreements with respect to the
foregoing types of instruments.
Unseasoned Companies
Blue Chip Fund, Social Awareness Fund and Diversified Value Fund
may invest in relatively new or unseasoned companies which are in their
early stages of development, or small companies positioned in new and
emerging industries where the opportunity for rapid growth is expected
to be above average. Securities of unseasoned companies present greater
risks than securities of larger, more established companies. The
companies in which a Fund may invest may have relatively small revenues,
limited product lines, and may have a small share of the market for
their products or services. Small companies may lack depth of
management, they may be unable to internally generate funds necessary
for growth or potential development or to generate such funds through
external financing or favorable terms, or they may be developing or
marketing new products or services for which markets are not yet
established and may never become established. Due these and other
factors, small companies may suffer significant losses as well as
realize substantial growth, and investments in such companies tend to be
volatile and are therefore speculative.
In addition, as a matter of non-fundamental policy, Social
Awareness Fund will adhere to a Social Criteria strategy:
The Sub-Adviser will utilize the Social Investment Database
published by KLD in determining whether a company is engaged in any
activity precluded by the Fund's Social Criteria. The Social Investment
Database reflects KLD's determination of the extent to which a company's
involvement in the activities prohibited by the Social Criteria is
significant enough to merit a concern or a major concern. Significance
may be determined on the basis of percentage of revenue generated by, or
the size of the operations attributable to, activities related to such
Social Criteria, or other factors selected by KLD. The social screening
undergoes continual refinement and modification.
Pursuant to the Social Criteria presently in effect, the Fund will
not knowingly invest in or hold securities of companies which engage in:
1. Activities which result or are likely to result in damage to
the natural environment;
2. The production of nuclear power, the design or construction
of nuclear power plants, or the manufacture of equipment
for the production of nuclear power;
3. The manufacture of, or contracting for, military weapons; or
4. The alcoholic beverage, tobacco or gambling industries.
5. Conducting animal testing for cosmetic or personal care
products
Because of its Social Criteria, the Fund may not be able to take
the same advantage of certain investment opportunities as do funds which
do not have Social Criteria. Only securities of companies not excluded
by any of the Social Criteria will be eligible for consideration for
purchase by the Fund according to its objective and policies described
in the Fund's 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 Securities
Convertible securities entitle the holder to receive interest paid
or accrued on debt or the dividend paid on preferred stock until the
convertible securities mature or are redeemed, converted or exchanged.
Prior to conversion, convertible securities have characteristics similar
to ordinary debt securities in that they normally provide a stable
stream of income with generally higher yields than those of common stock
of the same or similar issuers. Convertible securities rank senior to
common stock in a corporation's capital structure and therefore
generally entail less risk than the corporation's common stock, although
the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a
fixed-income security.
The value of convertible securities is a function of their
investment value (determined by yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and their conversion value (their worth, at market
value, if converted into the underlying common stock). The investment
value of convertible securities is influenced by changes in interest
rates, with investment value declining as interest rates increase and
increasing as interest rates decline, and by the credit standing of the
issuer and other factors. The conversion value of convertible
securities is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying
common stock approaches or exceeds the conversion price, the price of
the convertible securities will be increasingly influenced by their
conversion value. In addition, convertible securities generally sell at
a premium over their conversion value determined by the extent to which
investors place value on the right to acquire the underlying common
stock while holding fixed-income securities.
Capital appreciation for a Fund may result from an improvement in
the credit standing of an issuer whose securities are held in the Fund
or from a general lowering of interest rates, or a combination of both.
Conversely, a reduction in the credit standing of an issuer whose
securities are held by a Fund or a general increase in interest rates
may be expected to result in capital depreciation to the Fund.
In general, investments in non-investment grade convertible
securities are subject to a significant risk of a change in the credit
rating or financial condition of the issuing entity. Investments in
convertible securities of medium or lower quality are also likely to be
subject to greater market fluctuation and to greater risk of loss of
income and principal due to default than investments of higher rated
fixed-income securities. Such lower-rated securities generally tend to
reflect short-term corporate and market developments to a greater extent
than higher rated securities, which react more to fluctuations in the
general level of interest rates. A Fund will generally reduce risk to
the investor by diversification, credit analysis and attention to
current developments in trends of both the economy and financial
markets. However, while diversification reduces the effect on a Fund of
any single investment, it does not reduce the overall risk of investing
in lower rated securities.
Concentration
In applying Diversified Value Fund's policy on concentration: (i)
utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be
considered a separate industry; (ii) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (iii) asset backed securities will
be classified according to the underlying assets securing such
securities.
ACCOUNTING AND TAX ISSUES
When a Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's assets and
liabilities as an asset and as an equivalent liability. The amount of
the liability is subsequently "marked to market" to reflect the current
market value of the option written. The current market value of a
written option is the last sale price on the principal Exchange on which
such option is traded or, in the absence of a sale, the mean between the
last bid and asked prices. If an option which a Fund has written
expires on its stipulated expiration date, the Fund reports a realized
gain. If a Fund enters into a closing purchase transaction with respect
to an option which the Fund has written, the Fund realizes a gain (or
loss if the cost of the closing transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. Any such gain or loss is a short-term capital gain or
loss for federal income tax purposes. If a call option which a Fund has
written is exercised, the Fund realizes a capital gain or loss (long-
term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from
such sale are increased by the premium originally received.
Other Tax Requirements--Each Fund intends to qualify as a regulated
investment company under Subchapter M of the Code. As such, a Fund will
not be subject to federal income tax, or to any excise tax, to the
extent its earnings are distributed as provided in the Code and it
satisfies other requirements relating to the sources of its income and
diversification of its assets.
In order to qualify as a regulated investment company for federal
income tax purposes, each Fund must meet certain specific requirements,
including:
(i) Each Fund must maintain a diversified portfolio of
securities, wherein no security (other than U.S. government securities
and securities of other regulated investment companies) can exceed 25%
of the Fund's total assets, and, with respect to 50% of the Fund's total
assets, no investment (other than cash and cash items, U.S. government
securities and securities of other regulated investment companies) can
exceed 5% of the Fund's total assets;
(ii) Each Fund must derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and
gains from the sale or disposition of stock and securities or foreign
currencies, or other income derived with respect to its business of
investing in such stock, securities, or currencies;
(iii) Each Fund must distribute to its shareholders at least
90% of its investment company taxable income and net tax-exempt income
for each of its fiscal years, and
(iv) Each Fund must realize less than 30% of its gross income
for each fiscal year from gains from the sale of securities and certain
other assets that have been held by the Fund for less than three months
("short-short income"). The Taxpayer Relief Act of 1997, as amended,
(the "1997 Act") repealed the 30% short-short income test for tax years
of regulated investment companies beginning after August 5, 1997;
however, this rule may have continuing effect in some states for
purposes of classifying the Fund as a regulated investment company.
The Code requires the Funds to distribute at least 98% of its
taxable ordinary income earned during the calendar year and 98% of its
capital gain net income earned during the 12 month period ending
November 30 (in addition to amounts from the prior year that were
neither distributed nor taxed to a Fund) to you by December 31 of each
year in order to avoid federal excise taxes. The Funds intend as a
matter of policy to declare and pay sufficient dividends in December or
January (which are treated by you as received in December) but does not
guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
The straddle rules of Section 1092 may apply. Generally, the
straddle provisions require the deferral of losses to the extent of
unrecognized gains related to the offsetting positions in the straddle.
Excess losses, if any, can be recognized in the year of loss. Deferred
losses will be carried forward and recognized in the year that
unrealized losses exceed unrealized gains or when the offsetting
position is sold.
The 1997 Act has also added new provisions for dealing with
transactions that are generally called "Constructive Sale Transactions."
Under these rules, a Fund must recognize gain (but not loss) on any
constructive sale of an appreciated financial position in stock, a
partnership interest or certain debt instruments. The Fund will
generally be treated as making a constructive sale when it: 1) enters
into a short sale on the same or substantially identical property; 2)
enters into an offsetting notional principal contract; or 3) enters into
a futures or forward contract to deliver the same or substantially
identical property. Other transactions (including certain financial
instruments called collars) will be treated as constructive sales as
provided in Treasury regulations to be published. There are also
certain exceptions that apply for transactions that are closed before
the end of the 30th day after the close of the taxable year.
Investment in Foreign Currencies and Foreign Securities--The Funds
are authorized to invest certain limited amounts in foreign securities.
Such investments, if made, will have the following additional tax
consequences to each Fund:
Under the Code, gains or losses attributable to fluctuations in
foreign currency exchange rates which occur between the time a Fund
accrues income (including dividends), or accrues expenses which are
denominated in a foreign currency, and the time a Fund actually collects
such income or pays such expenses generally are treated as ordinary
income or loss. Similarly, on the disposition of debt securities
denominated in a foreign currency and on the disposition of certain
options, futures, forward contracts, gain or loss attributable to
fluctuations in the value of foreign currency between the date of
acquisition of the security or contract and the date of its disposition
are also treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's net investment company
taxable income, which, in turn, will affect the amount of income to be
distributed to you by a Fund.
If a Fund's Section 988 losses exceed a Fund's other investment
company taxable income during a taxable year, a Fund generally will not
be able to make ordinary dividend distributions to you for that year, or
distributions made before the losses were realized will be
recharacterized as return of capital distributions for federal income
tax purposes, rather than as an ordinary dividend or capital gain
distribution. If a distribution is treated as a return of capital, your
tax basis in your Fund shares will be reduced by a like amount (to the
extent of such basis), and any excess of the distribution over your tax
basis in your Fund shares will be treated as capital gain to you.
The 1997 Act generally requires that foreign income be translated
into U.S. dollars at the average exchange rate for the tax year in which
the transactions are conducted. Certain exceptions apply to taxes paid
more than two years after the taxable year to which they relate. This
new law may require a Fund to track and record adjustments to foreign
taxes paid on foreign securities in which it invests. Under a Fund's
current reporting procedure, foreign security transactions are recorded
generally at the time of each transaction using the foreign currency
spot rate available for the date of each transaction. Under the new
law, a Fund will be required to record at fiscal year end (and at
calendar year end for excise tax purposes) an adjustment that reflects
the difference between the spot rates recorded for each transaction and
the year-end average exchange rate for all of a Fund's foreign
securities transactions. There is a possibility that the mutual fund
industry will be given relief from this new provision, in which case no
year-end adjustments will be required.
The Funds may be subject to foreign withholding taxes on income
from certain of its foreign securities. If more than 50% of the total
assets of a Fund at the end of its fiscal year are invested in
securities of foreign corporations, a Fund may elect to pass-through to
you your pro rata share of foreign taxes paid by a Fund. If this
election is made, you will be: (i) required to include in your gross
income your pro rata share of foreign source income (including any
foreign taxes paid by a Fund); and (ii) entitled to either deduct your
share of such foreign taxes in computing your taxable income or to claim
a credit for such taxes against your U.S. income tax, subject to certain
limitations under the Code. You will be informed by a Fund at the end
of each calendar year regarding the availability of any such foreign tax
credits and the amount of foreign source income (including any foreign
taxes paid by a Fund). If a Fund elects to pass-through to you the
foreign income taxes that it has paid, you will be informed at the end
of the calendar year of the amount of foreign taxes paid and foreign
source income that must be included on your federal income tax return.
If a Fund invests 50% or less of its total assets in securities of
foreign corporations, it will not be entitled to pass-through to you
your pro-rata shares of foreign taxes paid by a Fund. In this case,
these taxes will be taken as a deduction by a Fund, and the income
reported to you will be the net amount after these deductions. The 1997
Act also simplifies the procedures by which investors in funds that
invest in foreign securities can claim tax credits on their individual
income tax returns for the foreign taxes paid by a Fund. These
provisions will allow investors who pay foreign taxes of $300 or less on
a single return or $600 or less on a joint return during any year (all
of which must be reported on IRS Form 1099-DIV from a Fund to the
investor) to claim a tax credit against their U.S. federal income tax
for the amount of foreign taxes paid by a Fund. This process will allow
you, if you qualify, to bypass the burdensome and detailed reporting
requirements on the foreign tax credit schedule (Form 1116) and report
your foreign taxes paid directly on page 2 of Form 1040.
Investment in Passive Foreign Investment Company securities--The
Funds may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies
("PFICs"). In general, a foreign corporation is classified as a PFIC if
at least one-half of its assets constitute investment-type assets or 75%
or more of its gross income is investment-type income. If a Fund
receives an "excess distribution" with respect to PFIC stock, the Fund
itself may be subject to U.S. federal income tax on a portion of the
distribution, whether or not the corresponding income is distributed by
a Fund to you. In general, under the PFIC rules, an excess distribution
is treated as having been realized ratably over the period during which
a Fund held the PFIC shares. A Fund itself will be subject to tax on
the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years, and an interest factor will be added to the
tax, as if the tax had been payable in such prior taxable years. In
this case, you would not be permitted to claim a credit on your own tax
return for the tax paid by a Fund. Certain distributions from a PFIC as
well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary
income even though, absent application of the PFIC rules, certain
distribution might have been classified as capital gain. This may have
the effect of increasing Fund distributions to you that are treated as
ordinary dividends rather than long-term capital gain dividends.
A Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available
in some circumstances, a Fund generally would be required to include in
its gross income its share of the earnings of a PFIC on a current basis,
regardless of whether distributions are received from the PFIC during
such period. If this election were made, the special rules, discussed
above, relating to the taxation of excess distributions, would not
apply. In addition, the 1997 Act provides for another election that
would involve marking-to-market the Fund's PFIC shares at the end of
each taxable year (and on certain other dates as prescribed in the
Code), with the result that unrealized gains would be treated as though
they were realized. The Fund would also be allowed an ordinary
deduction for the excess, if any, of the adjusted basis of its
investment in the PFIC stock over its fair market value at the end of
the taxable year. This deduction would be limited to the amount of any
net mark-to-market gains previously included with respect to that
particular PFIC security. If a Fund were to make this second PFIC
election, tax at the Fund level under the PFIC rules would generally be
eliminated.
The application of the PFIC rules may affect, among other things,
the amount of tax payable by a Fund (if any), the amounts distributable
to you by a Fund, the time at which these distributions must be made,
and whether these distributions will be classified as ordinary income or
capital gain distributions to you.
You should be aware that it is not always possible at the time
shares of a foreign corporation are acquired to ascertain that the
foreign corporation is a PFIC, and that there is always a possibility
that a foreign corporation will become a PFIC after a Fund acquires
shares in that corporation. While a Fund will generally seek to avoid
investing in PFIC shares to avoid the tax consequences detailed above,
there are no guarantees that it will do so and it reserves the right to
make such investments as a matter of its fundamental investment policy.
Most foreign exchange gains are classified as ordinary income which
will be taxable to you as such when distributed. Similarly, you should
be aware that any foreign exchange losses realized by a Fund, including
any losses realized on the sale of foreign debt securities, are
generally treated as ordinary losses for federal income tax purposes.
This treatment could increase or reduce a Fund's income available for
distribution to you, and may cause some or all of a Fund's previously
distributed income to be classified as a return of capital.
PERFORMANCE INFORMATION
From time to time, each Fund may state its Classes' total return in
advertisements and other types of literature. Any statement of total
return performance data for a Class will be accompanied by information
on the average annual compounded rate of return for that Class over, as
relevant, the most recent one-, five- and ten-year, or life-of-fund,
periods, as applicable. Each Fund may also advertise aggregate and
average total return information for its Classes over additional periods
of time.
In presenting performance information for Class A Shares, the
Limited CDSC, or other CDSC, applicable only to certain redemptions of
those shares will not be deducted from any computation of total return.
See the Prospectuses for the Fund Classes for a description of the
Limited CDSC, or other CDSC, and the limited instances in which it
applies. All references to a CDSC in this Performance Information
section will apply to Class B Shares or Class C Shares.
The average annual total rate of return for each Class is based on
a hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be
used for the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of $1,000
from which, in the case of Class A Shares only, the
maximum front-end sales charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical $1,000
purchase at the end of the period after the
deduction of the applicable CDSC, if any, with
respect to Class B Shares and Class C Shares.
Total return performance for each Class will be computed by adding
all reinvested income and realized securities profits distributions plus
the change in net asset value during a specific period and dividing by
the offering price at the beginning of the period. It will reflect, as
applicable, the maximum sales charge, or CDSC, paid with respect to the
illustrated investment amount, but not any income taxes payable by
shareholders on the reinvested distributions included in the
calculation.
Aggregate or cumulative total return is calculated in a similar
manner, except that the results are not annualized. Each calculation
assumes the maximum front-end sales charge, if any, is deducted from the
initial $1,000 investment at the time it is made with respect to Class A
Shares and that all distributions are reinvested at net asset value,
and, with respect to Class B Shares and Class C Shares, reflects the
deduction of the CDSC that would be applicable upon complete redemption
of such shares. In addition, each Fund may present total return
information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
The performance of Class A Shares, Class B Shares, Class C Shares
and the Institutional Class of Decatur Equity Income Fund, Growth and
Income Fund, Blue Chip Fund and Social Awareness Fund, as shown below,
is the average annual total return quotations through November 30, 1998,
computed as described above.
The average annual total return for Class A Shares at offer
reflects the maximum front-end sales charge of 5.75% paid on the
purchase of shares. The average annual total return for Class A Shares
at net asset value (NAV) does not reflect the payment of any front-end
sales charge. Pursuant to applicable regulation, total return shown for
the Institutional Classes of Decatur Equity Income Fund and Growth and
Income Fund for the periods prior to the commencement of operations of
such Classes is calculated by taking the performance of the respective
Class A Shares and adjusting it to reflect the elimination of all sales
charges. However, for those periods for Growth and Income Fund
Institutional Class, no adjustment has been made to eliminate the impact
of 12b-1 payments by Growth and Income Fund, and performance for Growth
and Income Fund Institutional Class would have been affected had such an
adjustment been made.
The average annual total return for Class B Shares and Class C
Shares including deferred sales charge reflects the deduction of the
applicable CDSC that would be paid if the shares were redeemed at
November 30, 1998. The average annual total return for Class B Shares
and Class C Shares excluding deferred sales charge assumes the shares
were not redeemed at November 30, 1998 and therefore does not reflect
the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future
performance.
<TABLE>
<CAPTION>
Average Annual Total Return
Decatur Equity Income Fund
Class A Class A Institutional Class B Class B
(At Offer) (At NAV) Class (Including (Excluding
(1)(2) (2) CDSC) CDSC)
<S> <C> <C> <C> <C> <C>
1 year
ended
11/30/98
3 years
ended
11/30/98
5 years
ended
11/30/98
10 years
ended
11/30/98
15 years
ended
11/30/98
Life of
Fund(3)
Class C Class C
(Including (Excluding
CDSC) CDSC)
<C> <C>
<S>
1 year
ended
11/30/98
3 years
ended
11/30/98
5 years
ended
11/30/98
10 years
ended
11/30/98
15 years
ended
11/30/98
Life of
Fund(3)
(1) Effective November 2, 1998, the maximum front-end sales charge is 5.75%. The
above performance numbers are calculated using 5.75% as the applicable sales
charge for all time periods.
(2) Performance figures reflect the applicable Rule 12b-1 distribution expenses
that apply on and after May 2, 1994.
(3) Date of initial public offering of Decatur Equity Income Fund A Class was
March 18, 1957; Decatur Equity Income Fund Institutional Class was January 13,
1994, Decatur Equity Income Fund B Class was September 6, 1994; Decatur
Equity Income Fund C Class was November 29, 1995.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Growth and Income Fund
Class A Class A Institutional Class B Class B
(At Offer) (At NAV) Class (Including (Excluding
(1) CDSC) CDSC)
<S> <C> <C> <C> <C> <C>
1 year
ended
11/30/98
3 years
ended
11/30/98
5 years
ended
11/30/98
10 years
ended 11/30/98
Life of
Fund(2)
Class C Class C
(Including (Excluding
CDSC) CDSC)
<C> <C>
<S> <
1 year
ended
11/30/98
3 years
ended
11/30/98
5 years
ended
11/30/98
10 years
ended 11/30/98
Life of
Fund(2)
(1) Effective November 2, 1998, the maximum front-end sales charge is 5.75%.
The above performance numbers are calculated using 5.75% as the applicable
sales charge for all time periods.
(2) Date of initial public offering of Growth and Income Fund A Class was
August 27, 1986; Growth and Income Fund Institutional Class was July
26, 1993; Growth and Income Fund B Class was September 6,
1994; Growth and Income Fund C Class was November 29, 1995.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Blue Chip Fund
Class A Class A Institutional Class B Class B
(At Offer) (At NAV) Class (Including (Excluding
(2) CDSC) CDSC)
<S> <C> <C> <C> <C> <C>
1 year
ended
11/30/98
Life of
Fund(3)
Class C Class C
(Including (Excluding
CDSC) CDSC)
<S> <C> <C>
1 year
ended
11/30/98
Life of
Fund(3)
(1) Reflects voluntary fee waivers and expense payments to limit total operating
expenses to 1.20% (excluding 12b-1 payments) of average daily net assets.
In the absence of the voluntary fee waiver and payment of expenses, performance
would have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense payments.
(2) Effective November 2, 1998, the maximum front-end sales charge is 5.75%. The
above performance numbers are calculated using 5.75% as the applicable sales
charge for all time periods.
(3) Each Class commenced operations on February 24, 1997.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Social Awareness Fund(1)
Class A Class A Institutional Class B Class B
(At Offer) (At NAV) Class (Including (Excluding
(2)(3) (3) CDSC) CDSC)
<S> <C> <C> <C> <C> <C>
1 year
ended
11/30/98
Life of
Fund(3)
Class C Class C
(Including (Excluding
CDSC) CDSC)
<S> <C> <C>
1 year
ended
11/30/98
Life of
Fund(3)
(1) Reflects voluntary fee waivers and expense payments to limit total operating
expenses to 1.20% (excluding 12b-1 payments) of average daily net assets.
In the absence of the voluntary fee waiver and payment of expenses, performance
would have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense payments.
(2) Effective November 2, 1998, the maximum front-end sales charge is 5.75%. The
above performance numbers are calculated using 5.75% as the applicable sales
charge for all time periods.
(3) Reflects voluntary 12b-1 fee waivers to limit 12b-1 expenses to 0.25% of average
daily net assets. In the absence of the voluntary fee waiver and payment of
expenses, performance would have been affected negatively.
(4) Each Class commenced operations on February 27, 1997.
</TABLE>
As stated in the Funds' Prospectuses, Decatur Equity Income Fund
and Growth and Income Fund may also quote their respective Classes'
current yield in advertisements and investor communications.
The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price
per share on the last day of the period and annualizing the resulting
figure, according to the following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends;
d = the maximum offering price per share on the last day
of the period.
The above formula will be used in calculating quotations of yield
of each Class, based on specified 30-day periods identified in
advertising by the Funds. The 30-day yields of each Class of each Fund
listed below as of November 30, 1998 were as follows:
Decatur Social
Decatur Total Blue Chip Awareness
Income Return Fund Fund
Fund Fund
Class A
Shares 0.00% 0.00% 0.00% 0.00%
Class B
Shares 0.00% 0.00% 0.00% 0.00%
Class C
Shares 0.00% 0.00% 0.00% 0.00%
Institutional
Class shares 0.00% 0.00% 0.00% 0.00%
Yield calculations assume the maximum front-end sales charge, if
any, and do not reflect the deduction of any contingent deferred sales
charge. Actual yield on Class A Shares may be affected by variations in
front-end sales charges on investments. Actual yields on Class A
Shares, Class B Shares and Class C Shares would have been lower had any
Limited CDSC or CDSC been applied.
Past performance, such as reflected in quoted yields, should not be
considered as a representation of the results which may be realized from
an investment in any class of the Funds in the future. Investors should
note that the income earned and dividends paid by each Fund will vary
with the fluctuation of interest rates and performance of the portfolio.
Each of the Decatur Equity Income Fund's and Growth and Income
Fund's investment strategy relies on the consistency, reliability and
predictability of corporate dividends. Dividends tend to rise over
time, despite market conditions, and keep pace with rising prices; they
are paid out in "current" dollars. And, just as important, current
dividend income can help lessen the effects of adverse market
conditions. This dividend discipline, coupled with the potential for
capital gains, seeks to provide investors with a consistently higher
total-rate-of-return over time.
In 1972, Delaware Investment Advisers, a division of the Manager,
offered the time-proven Decatur investment style to the institutional
investing community. As of December 31, 1998, Delaware Investment
Advisers managed approximately $0 billion in institutional assets under
management in that style.
From time to time, a Fund may also quote each Class' actual total
return performance, dividend results and other performance information
in advertising and other types of literature. This information may be
compared to that of other mutual funds with similar investment
objectives and to stock, bond and other relevant indices or to rankings
prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example,
the performance of a Fund (or Class) may be compared to data prepared by
Lipper Analytical Services, Inc. ("Lipper"), Morningstar, Inc. or to the
S&P 500 or the Dow Jones Industrial Average.
Lipper maintains statistical performance databases, as reported by
a diverse universe of independently-managed mutual funds. Morningstar,
Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare a Fund's
performance to another fund in appropriate categories over specific time
periods also may be quoted in advertising and other types of literature.
The S&P 500 and the Dow Jones Industrial Average are industry-accepted
unmanaged indices of generally-conservative securities used for
measuring general market performance. The Russell 2000 Index TR is a
total return weighted index which is comprised of 2,000 of the smallest
stocks (on the basis of capitalization) in the Russell 3000 Index and is
calculated on a monthly basis. The NASDAQ Composite Index is a market
capitalization price only index that tracks the performance of domestic
common stocks traded on the regular NASDAQ market as well as National
Market System traded foreign common stocks and American Depository
Receipts. The total return performance reported for these indices will
reflect the reinvestment of all distributions on a quarterly basis and
market price fluctuations. The indices do not take into account any
sales charge or other fees. A direct investment in an unmanaged index
is not possible.
In addition, the performance of multiple indices compiled and
maintained by statistical research firms, such as Salomon Brothers and
Lehman Brothers may be combined to create a blended performance result
for comparative performances. Generally, the indices selected will be
representative of the types of securities in which the Funds may invest
and the assumptions that were used in calculating the blended
performance will be described.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the Consumer Price Index), and combinations of various capital markets.
The performance of these capital markets is based on the returns of
different indices. The Funds may use the performance of these capital
markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a
hypothetical investment in any of these capital markets. The risks
associated with the security types in any capital market may or may not
correspond directly to those of a Fund. A Fund may also compare
performance to that of other compilations or indices that may be
developed and made available in the future.
The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that
describe general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting, questionnaires
designed to help create a personal financial profile, worksheets used to
project savings needs based on assumed rates of inflation and
hypothetical rates of return and action plans offering investment
alternatives), investment management techniques, policies or investment
suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments), economic and political
conditions, the relationship between sectors of the economy and the
economy as a whole, the effects of inflation and historical performance
of various asset classes, including but not limited to, stocks, bonds
and Treasury bills. From time to time advertisements, sales literature,
communications to shareholders or other materials may summarize the
substance of information contained in shareholder reports (including the
investment composition of a Fund), as well as the views as to current
market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related
matters believed to be of relevance to a Fund. In addition, selected
indices may be used to illustrate historic performance of selected asset
classes. The Funds may also include in advertisements, sales
literature, communications to shareholders or other materials, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to,
stocks, bonds, treasury bills and shares of a Fund. In addition,
advertisements, sales literature, communications to shareholders or
other materials may include a discussion of certain attributes or
benefits to be derived by an investment in a Fund and/or other mutual
funds, shareholder profiles and hypothetical investor scenarios, timely
information on financial management, tax and retirement planning (such
as information on Roth IRAs and Education IRAs) and investment
alternative to certificates of deposit and other financial instruments.
Such sales literature, communications to shareholders or other materials
may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail therein.
Materials may refer to the CUSIP numbers of the Funds and may
illustrate how to find the listings of the Funds in newspapers and
periodicals. Materials may also include discussions of other funds,
products, and services.
The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these
measures to those of other funds. Measures of volatility seek to
compare the historical share price fluctuations or total returns to
those of a benchmark. Measures of benchmark correlation indicate how
valid a comparative benchmark may be. Measures of volatility and
correlation may be calculated using averages of historical data. A Fund
may advertise its current interest rate sensitivity, duration, weighted
average maturity or similar maturity characteristics. Advertisements
and sales materials relating to a Fund may include information regarding
the background and experience of its portfolio managers.
The following tables are examples, for purposes of illustration
only, of cumulative total return performance for each Class of each Fund
through November 30, 1998. Pursuant to applicable regulation, total
return shown for the Institutional Classes of Decatur Equity Income Fund
and Growth and Income Fund for the periods prior to the commencement of
operations of such Classes is calculated by taking the performance of
the respective Class A Shares and adjusting it to reflect the
elimination of all sales charges. However, for those periods, no
adjustment has been made to eliminate the impact of 12b-1 payments by
Growth and Income Fund, and performance for Growth and Income Fund
Institutional Class would have been affected had such an adjustment been
made. For these purposes, the calculations assume the reinvestment of
any realized securities profits distributions and income dividends paid
during the indicated periods, but does not reflect any income taxes
payable by shareholders on the reinvested distributions. The
performance of Class A Shares reflects the maximum front-end sales
charge of 5.75% paid on the purchases of shares but may also be shown
without reflecting the impact of any front-end sales charge. The
performance of Class B Shares and Class C Shares is calculated both with
the applicable CDSC included and excluded. Past performance is no
guarantee of future results.
<TABLE>
<CAPTION>
Cumulative Total Return
Decatur Equity Income Fund
Class A Institutional Class B Class B
(At Offer) Class (Including (Excluding
(1)(2) CDSC) CDSC)
<S> <C> <C> <C> <C>
3 months
ended
11/30/98
6 months
ended
11/30/98
(3)
9 months
ended
11/30/98
1 year
ended
11/30/98
3 years
ended
11/30/98
5 years
ended
11/30/98
10 years
ended
11/30/98
15 years
ended
11/30/98
Life of
Fund(4)
Class C Class C
(Including (Excluding
CDSC) CDSC)
<S> <C> <C>
3 months
ended
11/30/98
6 months
ended
11/30/98
9 months
ended
11/30/98
1 year
ended
11/30/98
3 years
ended
11/30/98
5 years
ended
11/30/98
10 years
ended
11/30/98
15 years
ended
11/30/98
Life of
Fund(4)
(1) Effective November 2, 1998, the maximum front-end sales charge is 5.75%. The
above performance numbers are calculated using 5.75% as the applicable sales
charge for all time periods.
(2) Performance figures reflect the applicable Rule 12b-1 distribution expenses
that apply on and after May 2, 1994.
(3) For the six months ended November 30, 1998, cumulative total return at net
asset value was 0.00%.
(4) Date of initial public offering of Decatur Equity Income Fund A Class was
March 18, 1957; Decatur Equity Income Fund Institutional Class was January
13, 1994, Decatur Equity Income Fund B Class was September 6, 1994; Decatur
Equity Income Fund C Class was November 29, 1995.
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total Return
Growth and Income Fund
Class A Institutional Class B Class B
(At Offer) Class (Including (Excluding
(1) CDSC) CDSC)
<S> <C> <C> <C> <C>
3 months
ended
11/30/98
6 months
ended
11/30/98 (2)
9 months
ended
11/30/98
1 year
ended
11/30/98
3 years
ended
11/30/98
5 years
ended
11/30/98
10 years
ended
11/30/98
Life of
Fund(3)
Class C Class C
(Including (Excluding
CDSC) CDSC)
<S> <C> <C>
3 months
ended
11/30/98
6 months
ended
11/30/98
9 months
ended
11/30/98
1 year
ended
11/30/98
3 years
ended
11/30/98
5 years
ended
11/30/98
10 years
ended
11/30/98
Life of
Fund(3)
(1) Effective November 2, 1998, the maximum front-end sales charge is 5.75%. The
above performance numbers are calculated using 5.75% as the applicable sales
charge for all time periods.
(2) For the six months ended November 30, 1998, cumulative total return at net
asset value was 0.00%.
(3) Date of initial public offering of Growth and Income Fund A Class was August
27, 1986; Growth and Income Fund Institutional Class was July 26, 1993; Growth
and Income Fund B Class was September 6, 1994; Growth and Income Fund C Class
was November 29, 1995.
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total Return
Blue Chip Fund (1)
Class A Institutional Class B Class B
(At Offer) Class (Including (Excluding
(2) CDSC) CDSC)
<S> <C> <C> <C> <C>
3 months
ended
11/30/98
6 months
ended
11/30/98 (3)
9 months
ended
11/30/98
1 year
ended
11/30/98
Life of
Fund(4)
Class C Class C
(Including (Excluding
CDSC) CDSC)
<S> <C> <C>
3 months
ended
11/30/98
6 months
ended
11/30/98
9 months
ended
11/30/98
1 year
ended
11/30/98
Life of
Fund(4)
(1) Reflects voluntary fee waivers and expense payments to limit total operating
expenses to 1.20% (excluding 12b-1 payments) of average daily net assets. In
the absence of the voluntary fee waiver and payment of expenses, performance
would have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense payments.
(2) Effective November 2, 1998, the maximum front-end sales charge is 5.75%. The
above performance numbers are calculated using 5.75% as the applicable sales
charge for all time periods.
(3) For the six months ended November 30, 1998, cumulative total return at net
asset value was 0.00%.
(4) Each Class commenced operations on February 24, 1997.
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total Return
Social Awareness Fund (1)
Class A Institutional Class B Class B
(At Offer) Class (Including (Excluding
(2)(3) CDSC) CDSC)
<S> <C> <C> <C> <C>
3 months
ended
11/30/98
6 months
ended
11/30/98 (4)
9 months
ended
11/30/98
1 year
ended
11/30/98
Life of
Fund(5)
Class C Class C
(Including (Excluding
CDSC) CDSC)
<S> <C> <C>
3 months
ended
11/30/98
6 months
ended
11/30/98
9 months
ended
11/30/98
1 year
ended
11/30/98
Life of
Fund(5)
(1) Reflects voluntary fee waivers and expense payments to limit total operating
expenses to 1.20% (excluding 12b-1 payments) of average daily net assets.
In the absence of the voluntary fee waiver and payment of expenses, performance
would have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense payments.
(2) Effective November 2, 1998, the maximum front-end sales charge is 5.75%. The
above performance numbers are calculated using 5.75% as the applicable sales
charge for all time periods.
(3) Reflects voluntary 12b-1 fee waivers to limit 12b-1 expenses to 0.25% of
average daily net assets. In the absence of the voluntary fee waiver,
performance would have been affected negatively.
(4) For the six months ended November 30, 1998, cumulative total return at net
asset value was 0.00%.
(5) Each Class commenced operations on February 27, 1997.
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total Return
Diversified Value Fund (1)
Class A Institutional Class
(At Offer) (2)(3)
<S> <C> <C>
Life of Fund(4)
(1) Reflects voluntary fee waivers and expense payments to limit total operating
expenses to 0.75% (excluding 12b-1 payments) of average daily net assets. In
the absence of the voluntary fee waiver and payment of expenses, performance
would have been affected negatively. See Investment Management Agreements and
Sub-Advisory Agreements for information about fee waivers and expense payments.
(2) Effective November 2, 1998, the maximum front-end sales charge is 5.75%. The
above performance number for Class A Shares is calculated using 5.75% as the
applicable sales charge.
(3) Reflects voluntary 12b-1 fee waivers. In the absence of the voluntary fee waiver,
performance would have been affected negatively.
(4) Commenced operations on September 14, 1998.
</TABLE>
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Funds and other mutual funds
available from the Delaware Investments family will provide general
information about investment alternatives and scenarios that will allow
investors to assess their personal goals. This information will include
general material about investing as well as materials reinforcing
various industry-accepted principles of prudent and responsible personal
financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has
to attain these goals to his or her risk threshold. In addition, the
Distributor will provide information that discusses the Manager's
overriding investment philosophy and how that philosophy impacts the
investment disciplines employed in seeking the objectives of the Funds
and the other funds in the Delaware Investments family. The Distributor
may also from time to time cite general or specific information about
the institutional clients of the Manager, including the number of such
clients serviced by the Manager.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult
decision. Security prices tend to move up and down over various market
cycles and logic says to invest when prices are low. However, even
experts can't always pick the highs and the lows. By using a strategy
known as dollar-cost averaging, you schedule your investments ahead of
time. If you invest a set amount on a regular basis, that money will
always buy more shares when the price is low and fewer when the price is
high. You can choose to invest at any regular interval--for example,
monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important
things to remember.
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining
markets. If you need to sell your investment when prices are low, you
may not realize a profit no matter what investment strategy you utilize.
That's why dollar-cost averaging can make sense for long-term goals.
Since the potential success of a dollar-cost averaging program depends
on continuous investing, even through periods of fluctuating prices, you
should consider your dollar-cost averaging program a long-term
commitment and invest an amount you can afford and probably won't need
to withdraw. Investors also should consider their financial ability to
continue to purchase shares during periods of high fund share prices.
Delaware Investments offers three services -- Automatic Investing
Program, Direct Deposit Program and the Wealth Builder Option -- that
can help to keep your regular investment program on track. See Direct
Deposit Purchase Plan, Automatic Investing Plan and Wealth Builder
Option under Purchasing Shares - Investing by Electronic Fund Transfer
for a complete description of these services, including restrictions or
limitations.
The example below illustrates how dollar-cost averaging can work.
In a fluctuating market, the average cost per share of a stock or bond
fund over a period of time will be lower than the average price per
share of a Fund for the same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended
to represent the actual performance of a Fund or any stock or bond fund
in the Delaware Investments family.
Dollar-cost averaging can be appropriate for investments in shares
of funds that tend to fluctuate in value. Please obtain the prospectus
of any fund in the Delaware Investments family in which you plan to
invest through a dollar-cost averaging program. The prospectus contains
additional information, including charges and expenses. Please read it
carefully before you invest or send money.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's
called the Power of Compounding. Each Fund may include illustrations
showing the power of compounding in advertisements and other types of
literature.
TRADING PRACTICES AND BROKERAGE
Equity Funds II, Inc. selects brokers or dealers to execute
transactions on behalf of a Fund to execute transactions for the
purchase or sale of portfolio securities on the basis of its judgment of
their professional capability to provide the service. The primary
consideration is to have brokers or dealers execute transactions at best
price and execution. Best price and execution refers to many factors,
including the price paid or received for a security, the commission
charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors
affecting the overall benefit obtained by the account on the
transaction. Some trades are made on a net basis where a Fund either
buys securities directly from the dealer or sells them to the dealer.
In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the
equivalent of a commission. When a commission is paid, the Fund
involved pays reasonably competitive brokerage commission rates based
upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities
industry. In some instances, the Fund pays a minimal share transaction
cost when the transaction presents no difficulty. A number of trades
are made on a net basis where the Funds either buy the securities
directly from the dealer or sell them to the dealer. In these
instances, there is no direct commission charged but there is a spread
(the difference between the buy and sell price) which is the equivalent
of a commission.
During the fiscal years ended November 30, 1996, 1997 and 1998, the
aggregate dollar amounts of brokerage commissions paid by Decatur Equity
Income Fund were $4,041,197, $3,714,766 and $0, respectively. During
the same periods, the aggregate dollar amounts of brokerage commissions
paid by Growth and Income Fund were $1,488,884, $1,634,268 and $0,
respectively. For the period February 24, 1997 (commencement of
operations) through November 30, 1997 and the fiscal year ended November
30, 1998, the aggregate dollar amounts of brokerage commissions paid by
Blue Chip Fund were $4,339 and $0, respectively. During the same
periods, the aggregate dollar amounts of brokerage commissions paid by
Social Awareness Fund were $14,989 and $0, respectively.
The Manager may allocate out of all commission business generated
by all of the funds and accounts under its management, brokerage
business to brokers or dealers who provide brokerage and research
services. These services include advice, either directly or through
publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities;
furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends;
assisting in determining portfolio strategy; providing computer software
and hardware used in security analyses; and providing portfolio
performance evaluation and technical market analyses. Such services are
used by the Manager in connection with its investment decision-making
process with respect to one or more funds and accounts managed by it,
and may not be used, or used exclusively, with respect to the fund or
account generating the brokerage.
During the fiscal year ended November 30, 1998, portfolio
transactions of Decatur Equity Income Fund, Growth and Income Fund, Blue
Chip Fund and Social Awareness Fund in the amounts of $0, $0, $0 and $0,
respectively, resulting in brokerage commissions of $0, $0, $0 and $0,
respectively, were directed to brokers for brokerage and research
services provided.
As provided in the Securities Exchange Act of 1934 (the "1934 Act")
and each Fund's Investment Management Agreement, higher commissions are
permitted to be paid to broker/dealers who provide brokerage and
research services than to broker/dealers who do not provide such
services if such higher commissions are deemed reasonable in relation to
the value of the brokerage and research services provided. Although
transactions are directed to broker/dealers who provide such brokerage
and research services, the Funds believe that the commissions paid to
such broker/dealers are not, in general, higher than commissions that
would be paid to broker/dealers not providing such services and that
such commissions are reasonable in relation to the value of the
brokerage and research services provided. In some instances, services
may be provided to the Manager which constitute in some part brokerage
and research services used by the Manager in connection with its
investment decision-making process and constitute in some part services
used by the Manager in connection with administrative or other functions
not related to its investment decision-making process. In such cases,
the Manager will make a good faith allocation of brokerage and research
services and will pay out of its own resources for services used by the
Manager in connection with administrative or other functions not related
to its investment decision-making process. In addition, so long as no
fund is disadvantaged, portfolio transactions which generate commissions
or their equivalent are allocated to broker/dealers who provide daily
portfolio pricing services to a Fund and to other funds in the Delaware
Investments family. Subject to best price and execution, commissions
allocated to brokers providing such pricing services may or may not be
generated by the funds receiving the pricing service.
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its
judgment, joint execution is in the best interest of each participant
and will result in best price and execution. Transactions involving
commingled orders are allocated in a manner deemed equitable to each
account or fund. When a combined order is executed in a series of
transactions at different prices, each account participating in the
order may be allocated an average price obtained from the executing
broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and
funds. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the
security that a particular account or fund may obtain, it is the opinion
of the Manager and Equity Funds II, Inc.'s Board of Directors that the
advantages of combined orders outweigh the possible disadvantages of
separate transactions.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price
and execution, the Funds may place orders with broker/dealers that have
agreed to defray certain expenses of the funds in the Delaware
Investments family, such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of funds in the
Delaware Investments family as a factor in the selection of brokers and
dealers to execute Fund portfolio transactions.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish a
Fund's objective in relation to anticipated movements in the general
level of interest rates. The Funds are free to dispose of portfolio
securities at any time, subject to complying with the Code and the 1940
Act, when changes in circumstances or conditions make such a move
desirable in light of the investment objective. The Funds will not
attempt to achieve or be limited to a predetermined rate of portfolio
turnover, such a turnover always being incidental to transactions
undertaken with a view to achieving a Fund's investment objective.
The degree of portfolio activity may affect brokerage costs of a
Fund and taxes payable by a Fund's shareholders to the extent of any net
realized capital gains. Each Fund's portfolio turnover rate is not
expected to exceed 100%; however, under certain market conditions a Fund
may experience a rate of portfolio turnover which could exceed 100%.
Each Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities
owned by such Fund during the particular fiscal year, exclusive of
securities whose maturities at the time of acquisition are one year or
less. A turnover rate of 100% would occur, for example, if all the
investments in a Fund's portfolio at the beginning of the year were
replaced by the end of the year.
For the past two fiscal years, portfolio turnover rates were as follows:
1998 1997
Decatur Equity Income Fund 90%
Growth and Income Fund 69%
Blue Chip Fund(1) 25%(3)
Social Awareness Fund(1) 29%(3)
Diversified Value Fund(2) (3) N/A
(1) Blue Chip Fund and Social Awareness Fund commenced operations on
February 24, 1997.
(2) Diversified Value Fund commenced operations on September 14, 1998.
(3) Annualized
Each Fund may hold securities for any period of time. A Fund's
portfolio turnover will be increased if the Fund writes a large number
of call options which are subsequently exercised. The portfolio
turnover rate also may be affected by cash requirements from redemptions
and repurchases of Fund shares. Total brokerage costs generally
increase with higher portfolio turnover rates.
PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's
shares and has agreed to use its best efforts to sell shares of each
Fund. See the Prospectuses for information on how to invest. Shares of
each Fund are offered on a continuous basis and may be purchased through
authorized investment dealers or directly by contacting Equity Funds II,
Inc. or the Distributor.
The minimum initial investment generally is $1,000 for Class A
Shares, Class B Shares and Class C Shares. Subsequent purchases of such
Classes generally must be at least $100. The initial and subsequent
investment minimums for Class A Shares will be waived for purchases by
officers, directors and employees of any Delaware Investments fund, the
Manager or any of the Manager's affiliates if the purchases are made
pursuant to a payroll deduction program. Shares purchased pursuant to
the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act and
shares purchased in connection with an Automatic Investing Plan are
subject to a minimum initial purchase of $250 and a minimum subsequent
purchase of $25. Accounts opened under the Delaware Investments Asset
Planner service are subject to a minimum initial investment of $2,000
per Asset Planner Strategy selected. There are no minimum purchase
requirements for the Institutional Classes, but certain eligibility
requirements must be satisfied.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an
amount that is less than $1,000,000. See Investment Plans for purchase
limitations applicable to retirement plans. Equity Funds II, Inc. will
reject any purchase order for more than $250,000 of Class B Shares and
$1,000,000 or more of Class C Shares. An investor may exceed these
limitations by making cumulative purchases over a period of time. In
doing so, an investor should keep in mind, however, that reduced front-
end sales charges apply to investments of $50,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan
expenses than Class B Shares and Class C Shares and generally are not
subject to a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Equity Funds II, Inc. reserves the right to reject any order for the
purchase of its shares of either Fund if in the opinion of management
such rejection is in such Fund's best interest. 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 Investments family.
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 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
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.
The NASD has adopted amendments to its Conduct Rules, as amended,
relating to investment company sales charges. Equity Funds II, Inc. and
the Distributor intend to operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 5.75%; however, lower front-end sales
charges apply for larger purchases. See the table in the Fund Classes'
Prospectus. Class A Shares are also subject to annual 12b-1 Plan
expenses for the life of the investment.
Class B Shares are purchased at net asset value and are subject to
a CDSC of: (i) 5% if shares are redeemed within one year of purchase;
(ii) 4% if shares are redeemed within two years of purchase; (iii) 3% if
shares are redeemed during the third or fourth year following purchase;
(iv) 2% if shares are redeemed during the fifth year following purchase;
and (v) 1% if shares are redeemed during the sixth year following
purchase. Class B Shares are also subject to annual 12b-1 Plan expenses
which are higher than those to which Class A Shares are subject and are
assessed against Class B Shares for approximately eight years after
purchase. See Automatic Conversion of Class B Shares, below.
Class C Shares are purchased at net asset value and are subject to
a CDSC of 1% if shares are redeemed within 12 months following purchase.
Class C Shares are also subject to annual 12b-1 Plan expenses for the
life of the investment which are equal to those to which Class B Shares
are subject.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales
charge or 12b-1 Plan expenses. See Plans Under Rule 12b-1 for the Fund
Classes under Purchasing Shares, and Determining Offering Price and Net
Asset Value in this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional
Class shares represent a proportionate interest in a Fund's assets and
will receive a proportionate interest in that Fund's income, before
application, as to Class A, Class B and Class C Shares, of any expenses
under that Fund's 12b-1 Plans.
The Distributor has voluntarily elected to waive the payment of
12b-1 Plan expenses by Diversified Value Fund from the commencement of
public offering through July 31, 1999.
Certificates representing shares purchased are not ordinarily
issued unless, in the case of Class A Shares or Institutional Class
shares, a shareholder submits a specific request. Certificates are not
issued in the case of Class B Shares or Class C Shares or in the case of
any retirement plan account including self-directed IRAs. However,
purchases not involving the issuance of certificates are confirmed to
the investor and credited to the shareholder's account on the books
maintained by Delaware Service Company, Inc. (the "Transfer Agent").
The investor will have the same rights of ownership with respect to such
shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing
full share denominations purchased by sending a letter signed by each
owner of the account to the Transfer Agent requesting the certificate.
No charge is assessed by Equity Funds II, Inc. for any certificate
issued. A shareholder may be subject to fees for replacement of a lost
or stolen certificate, under certain conditions, including the cost of
obtaining a bond covering the lost or stolen certificate. Please contact
a Fund for further information. Investors who hold certificates
representing any of their shares may only redeem those shares by written
request. The investor's certificate(s) must accompany such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A Shares, Class B
Shares and Class C Shares permit investors to choose the method of
purchasing shares that is most suitable for their needs given the amount
of their purchase, the length of time they expect to hold their shares
and other relevant circumstances. Investors should determine whether,
given their particular circumstances, it is more advantageous to
purchase Class A Shares and incur a front-end sales charge and annual
12b-1 Plan expenses of up to a maximum of 0.30% of the average daily net
assets of Class A Shares, or to purchase either Class B or Class C
Shares and have the entire initial purchase amount invested in the Fund
with the investment thereafter subject to a CDSC and annual 12b-1 Plan
expenses. Class B Shares are subject to a CDSC if the shares are
redeemed within six years of purchase, and Class C Shares are subject to
a CDSC if the shares are redeemed within 12 months of purchase. Class B
and Class C Shares are each subject to annual 12b-1 Plan expenses of up
to a maximum of 1% (0.25% of which are service fees to be paid to the
Distributor, dealers or others for providing personal service and/or
maintaining shareholder accounts) of average daily net assets of the
respective Class. Class B Shares will automatically convert to Class A
Shares at the end of approximately eight years after purchase and,
thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum
of 0.30% of average daily net assets of such shares. Unlike Class B
Shares, Class C Shares do not convert to another Class.
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 addition, the effect of any
return earned on such additional money will diminish over time. In
comparing Class B Shares to Class C Shares, investors should also
consider the duration of the annual 12b-1 Plan expenses to which each of
the classes is subject and the desirability of an automatic conversion
feature, which is available only for Class B Shares.
For the distribution and related services provided to, and the
expenses borne on behalf of, the Funds, the Distributor and others will
be paid, in the case of Class A Shares, from the proceeds of the front-
end sales charge and 12b-1 Plan fees and, in the case of Class B Shares
and Class C Shares, from the proceeds of the 12b-1 Plan fees and, if
applicable, the CDSC incurred upon redemption. Financial advisers may
receive different compensation for selling Class A Shares, Class B
Shares 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 Plans Under Rule 12b-1 for
the Fund Classes.
Dividends, if any, paid on Class A Shares, Class B Shares and Class
C Shares will be calculated in the same manner, at the same time and on
the same day and will be in the same amount, except that the additional
amount of 12b-1 Plan expenses relating to Class B Shares and Class C
Shares will be borne exclusively by such shares. See Determining
Offering Price and Net Asset Value.
Class A Shares
Purchases of $50,000 or more of Class A Shares at the offering
price carry reduced front-end sales charges as shown in the table in the
Fund Classes' Prospectus, and may include a series of purchases over a
13- month period under a Letter of Intention signed by the purchaser.
See Special Purchase Features - Class A Shares, below for more
information on ways in which investors can avail themselves of reduced
front-end sales charges and other purchase features.
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. In addition, certain dealers who enter into an
agreement to provide extra training and information on Delaware
Investments products and services and who increase sales of Delaware
Investments funds may receive an additional commission of up to 0.15% of
the offering price in connection with sales of Class A Shares. Such
dealers must meet certain requirements in terms of organization and
distribution capabilities and their ability to increase sales. The
Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the
additional commission will be paid. Participating dealers may be deemed
to have additional responsibilities under the securities laws. Dealers
who receive 90% or more of the sales charge may be deemed to be
underwriters under the 1933 Act.
Dealer's Commission
As described in the Prospectus, for initial purchases of Class A
Shares of $1,000,000 or more, a dealer's commission may be paid by the
Distributor to financial advisers through whom such purchases are
effected.
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 Investments funds as to which a Limited CDSC applies (see
Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange) 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 Investments funds will not qualify
for payment of the dealer's commission, unless a dealer's commission or
similar payment has not been previously paid on the assets being
exchanged. The schedule and program for payment of the dealer's
commission are subject to change or termination at any time by the
Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may
be subject to a CDSC at the rates set forth above, and Class C Shares
redeemed within 12 months of purchase may be subject to a CDSC of 1%.
CDSCs are charged as a percentage of the dollar amount subject to the
CDSC. The charge will be assessed on an amount equal to the lesser of
the net asset value at the time of purchase of the shares being redeemed
or the net asset value of those shares at the time of redemption. No
CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares
acquired through reinvestment of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at
the time of purchase" will be the net asset value at purchase of Class B
Shares or Class C Shares of a Fund, even if those shares are later
exchanged for shares of another Delaware Investments 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. See Waiver of Contingent Deferred Sales
Charge--Class B Shares and Class C Shares under Redemption and Exchange
for the Fund Classes for a list of the instances in which the CDSC is
waived.
During the seventh year after purchase and, thereafter, until
converted automatically into Class A Shares, Class B Shares will still
be subject to the annual 12b-1 Plan expenses of up to 1% of average
daily net assets of those shares. At the end of approximately eight
years after purchase, the investor's Class B Shares will be
automatically converted into Class A Shares of the same Fund. See
Automatic Conversion of Class B Shares under Classes of Shares in the
Fund Classes' Prospectus. Such conversion will constitute a tax-free
exchange for federal income tax purposes. See Taxes. Investors are
reminded that the Class A Shares into which Class B Shares will convert
are subject to ongoing annual 12b-1 Plan expenses of up to a maximum of
0.30% of average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are
redeemed first, followed by shares acquired through the reinvestment of
dividends or distributions, and finally by shares held longest during
the six-year period. With respect to Class C Shares, it will be assumed
that shares held for more than 12 months are redeemed first followed by
shares acquired through the reinvestment of dividends or distributions,
and finally by shares held for 12 months or less.
All investments made during a calendar month, regardless of what
day of the month the investment occurred, will age one month on the last
day of that month and each subsequent month.
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 compensates 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 5% of the dollar amount purchased. In addition, from time to time,
upon written notice to all of its dealers, the Distributor may hold
special promotions for specified periods during which the Distributor
may pay additional compensation to dealers or brokers for selling Class
B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if redeemed within
six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to
the Distributor and others for providing distribution and related
services, and bearing related expenses, in connection with the sale of
Class B Shares. These payments support the compensation paid to dealers
or brokers for selling Class B Shares. Payments to the Distributor and
others under the Class B 12b-1 Plan may be in an amount equal to no more
than 1% annually. The combination of the CDSC and the proceeds of the
12b-1 Plan fees makes it possible for a Fund 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
Class B Shares described in this Part B, even after the exchange. Such
CDSC schedule may be higher than the CDSC schedule for 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 compensates 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, Class C
Shares are subject to annual 12b-1 Plan expenses and, if redeemed within
12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to
the Distributor and others for providing distribution and related
services, and bearing related expenses, in connection with the sale of
Class C Shares. These payments support the compensation paid to dealers
or brokers for selling Class C Shares. Payments to the Distributor and
others under the Class C 12b-1 Plan may be in an amount equal to no more
than 1% annually.
Holders of Class C Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for
Class C Shares as described in this Part B. See Redemption and
Exchange.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, Equity Funds II, Inc.
has adopted a separate plan for each of the Class A Shares, Class B
Shares and Class C Shares of each Fund (the "Plans"). Each Plan permits
the relevant Fund to pay for certain distribution, promotional and
related expenses involved in the marketing of only the Class of shares
to which the Plan applies. The Plans do not apply to Institutional
Classes of shares. Such shares are not included in calculating the
Plans' fees, and the Plans are not used to assist in the distribution
and marketing of shares of Institutional Classes. Shareholders of
Institutional Classes may not vote on matters affecting the Plans.
The Plans permit a Fund, pursuant to its Distribution Agreement, to
pay out of the assets of the Class A Shares, Class B Shares and Class C
Shares monthly fees to the Distributor for its services and expenses in
distributing and promoting sales of shares of such classes. These
expenses include, among other things, preparing and distributing
advertisements, sales literature and prospectuses and reports used for
sales purposes, compensating sales and marketing personnel, and paying
distribution and maintenance fees to securities brokers and dealers who
enter into agreements with the Distributor. The Plan expenses relating
to Class B 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.
In addition, each Fund may make payments out of the assets of Class
A Shares, Class B Shares and Class C Shares directly to other
unaffiliated parties, such as banks, who either aid in the distribution
of shares of, or provide services to, such classes.
The maximum aggregate fee payable by a Fund under its Plans, and a
Fund's Distribution Agreements, is on an annual basis, up to 0.30% of
average daily net assets for the year of Class A Shares, and up to 1%
(0.25% of which are service fees to be paid to the Distributor, dealers
and others for providing personal service and/or maintaining shareholder
accounts) of each of the Class B Shares' and the Class C Shares' average
daily net assets for the year. Equity Fund II, Inc.'s Board of
Directors may reduce these amounts at any time. The Distributor has
elected to voluntarily waive all payments under the 12b-1 Plan for Class
A Shares, B Shares and Class C Shares of the Fund during the
commencement of the public offering of the Fund through July 31, 1999.
Although the maximum fee payable under the 12b-1 Plan relating to
Decatur Equity Income Fund A Class is 0.30% of average daily net assets
of such class, the Board of Directors has determined that the annual
fee, payable on a monthly basis, under the Plan relating to Decatur
Equity Income Fund A Class, will be equal to the sum of: (i) the amount
obtained by multiplying 0.30% by the average daily net assets
represented by Decatur Equity Income Fund A Class shares that were or
are acquired by shareholders on or after May 2, 1994, and (ii) the
amount obtained by multiplying 0.10% by the average daily net assets
represented by Decatur Equity Income Fund A Class shares that were
acquired before May 2, 1994. While this is the method to be used to
calculate the 12b-1 fees to be paid by Decatur Equity Income Fund A
Class under its Plan, the fee is a Class A Shares' expense so that all
shareholders of Decatur Equity Income Fund A Class, regardless of when
they purchased their shares, will bear 12b-1 expenses at the same rate.
As Class A Shares are sold on or after May 2, 1994, the initial rate of
at least 0.10% will increase over time. Thus as the proportion of
Decatur Equity Income Fund A Class shares purchased on or after May 2,
1994 to outstanding Class A Shares of Decatur Equity Income Fund
increases, the expenses attributable to payments under the Plan will
also increase (but will not exceed 0.30% of average daily net assets).
While this describes the current basis for calculating the fees which
will be payable under Decatur Equity Income Fund A Class' Plan, such
Plan permits a full 0.30% on each Fund's (except Diversified Value Fund)
Class A Shares' assets to be paid at any time following appropriate
Board approval. The Board of Directors set the fee for Diversified
Value Fund Class A Shares, pursuant to its Plan, at 0.25% of average
daily net assets. The Distributor has elected voluntarily to waive all
payments under the 12b-1 Plan for Class A Shares, Class B Shares and
Class C Shares of the Fund during the commencement of the public
offering of the Fund through July 31, 1999.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf
of Class A Shares, Class B Shares and Class C Shares would be borne by
such persons without any reimbursement from such Fund Classes. Subject
to seeking best price and execution, a Fund may, from time to time, buy
or sell portfolio securities from or to firms which receive payments
under the Plans.
From time to time, the Distributor may pay additional amounts from
its own resources to dealers for aid in distribution or for aid in
providing administrative services to shareholders.
The Plans and the Distribution Agreements, as amended, have all
been approved by the Board of Directors of Equity Funds II, Inc.,
including a majority of the directors who are not "interested persons"
(as defined in the 1940 Act) of Equity Funds II, Inc. and who have no
direct or indirect financial interest in the Plans, by vote cast in
person at a meeting duly called for the purpose of voting on the Plans
and such Agreements. Continuation of the Plans and the Distribution
Agreements, as amended, must be approved annually by the Board of
Directors in the same manner as specified above.
Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A
Shares, Class B Shares and Class C Shares of the respective Funds and
that there is a reasonable likelihood of the Plan relating to a Fund
Class providing a benefit to that Class. The Plans and the Distribution
Agreements, as amended, may be terminated with respect to a Class at any
time without penalty by a majority of those directors who are not
"interested persons" or by a majority vote of the outstanding voting
securities of the relevant Fund Class. Any amendment materially
increasing the percentage payable under the Plans must likewise be
approved by a majority vote of the outstanding voting securities of the
relevant Fund Class, as well as by a majority vote of those directors
who are not "interested persons." With respect to each Class A Shares'
Plan, any material increase in the maximum percentage payable thereunder
must also be approved by a majority of the outstanding voting securities
of that Fund's B Class. Also, any other material amendment to the Plans
must be approved by a majority vote of the directors including a
majority of the noninterested directors of Equity Funds II, Inc. having
no interest in the Plans. In addition, in order for the Plans to remain
effective, the selection and nomination of directors who are not
"interested persons" of Equity Funds II, Inc. must be effected by the
directors who themselves are not "interested persons" and who have no
direct or indirect financial interest in the Plans. Persons authorized
to make payments under the Plans must provide written reports at least
quarterly to the Board of Directors for their review.
For the fiscal year ended November 30, 1998, payments from Decatur
Equity Income Fund A Class, Decatur Equity Income Fund B Class and
Decatur Equity Income Fund C Class amounted to $0, $0 and $0,
respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
Decatur Income Decatur Income Decatur Income
Fund A Class Fund B Class Fund C Class
------------ ------------ ------------
<S> <C> <C> <C>
Advertising $0 ---- ----
Annual/Semi-Annual Reports $0 ---- ----
Broker Trails $0 $0 $0
Broker Sales Charges ---- $0 $0
Dealer Service Expenses $0 ---- $0
Interest on Broker Sales Charges ---- $0 $0
Commissions to Wholesalers $0 $0 $0
Promotional-Broker Meetings $0 $0 $0
Promotional-Other $0 ---- ----
Prospectus Printing $0 ---- ----
Telephone $0 $0 $0
Wholesaler Expenses $0 $0 $0
Other ---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
For the fiscal year ended November 30, 1998, payments from Growth and Income
Fund A Class, Growth and Income Fund B Class and Growth and Income Fund C Class
amounted to $0, $0 and $0, respectively. Such amounts were used for the following
purposes:
Decatur Total Decatur Total Decatur Total
Return Return Return
Fund A Class Fund B Class Fund C Class
------------ ------------ ------------
<S> <C> <C> <C>
Advertising $0 ---- ----
Annual/Semi-Annual Reports $0 ---- ----
Broker Trails $0 $0 $0
Broker Sales Charges ---- $0 $0
Dealer Service Expenses $0 ---- ----
Interest on Broker Sales Charges ---- $0 $0
Commissions to Wholesalers $0 $0 $0
Promotional-Broker Meetings $0 $0 $0
Promotional-Other $0 ---- ----
Prospectus Printing $0 ---- ----
Telephone $0 $0 $0
Wholesaler Expenses $0 $0 $0
Other ---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
For the fiscal year ended November 30, 1998, payments from Blue Chip Fund A
Class, Blue Chip Fund B Class and Blue Chip Fund C Class amounted to $0, $0 and $0,
respectively. Such amounts were used for the following purposes:
Blue Chip Blue Chip Blue Chip
Fund A Class Fund B Class Fund C Class
------------ ------------ ------------
<S> <C> <C> <C>
Advertising ---- ---- ----
Annual/Semi-Annual Reports ---- ---- ----
Broker Trails $0 $0 $0
Broker Sales Charges ---- $0 $0
Dealer Service Expenses $0 ---- $0
Interest on Broker Sales Charges ---- $0 $0
Commissions to Wholesalers $0 $0 $0
Promotional-Broker Meetings $0 $0 $0
Promotional-Other $0 ---- ----
Prospectus Printing ---- ---- ----
Telephone ---- $0 ----
Wholesaler Expenses $0 ---- $0
Other ---- $0 ----
</TABLE>
<TABLE>
<CAPTION>
For the fiscal year ended November 30, 1998, payments from Social Awareness
Fund A Class, Social Awareness Fund B Class and Social Awareness Fund C Class
amounted to $0, $0 and $0, respectively. Such amounts were used for the following
purposes:
Social Awareness Social Awareness Social Awareness
Fund A Class Fund B Class Fund C Class
------------ ------------ ------------
<S> <C> <C> <C>
Advertising $0 ---- ----
Annual/Semi-Annual Reports $0 ---- ----
Broker Trails $0 $0 $0
Broker Sales Charges $0 $0 $0
Dealer Service Expenses ---- ---- ----
Interest on Broker Sales Charges ---- $0 $0
Commissions to Wholesalers $0 $0 $0
Promotional-Broker Meetings $0 $0 $0
Promotional-Other $0 ---- ----
Prospectus Printing ---- ---- ----
Telephone ---- ---- $0
Wholesaler Expenses ---- ---- ----
Other ---- ---- ----
</TABLE>
Other Payments to Dealers - Class A Shares, Class B Shares and Class C
Shares
From time to time, at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of Fund Classes exceed
certain limits as set by the Distributor, may receive from the
Distributor an additional payment of up to 0.25% of the dollar amount of
such sales. The Distributor may also provide additional promotional
incentives or payments to dealers that sell shares of the Delaware
Investments family of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold
or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting
the sale of Delaware Investments fund shares.
Subject to pending amendments to the NASD's Conduct Rules, in
connection with the promotion of Delaware Investments 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.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value
under the Delaware Investments Dividend Reinvestment Plan and, under
certain circumstances, the Exchange Privilege and the 12-Month
Reinvestment Privilege.
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 Investments family, 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. Class A Shares may
also be purchased at net asset value by current and former officers,
directors and employees (and members of their families) of the Dougherty
Financial Group LLC.
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 funds in the Delaware
Investments family. Officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may
purchase Class A Shares at net asset value. Moreover, purchases may be
effected at net asset value for the benefit of the clients of brokers,
dealers and registered investment advisers affiliated with a broker or
dealer, if such broker, dealer or investment adviser has entered into an
agreement with the Distributor providing specifically for the purchase
of Class A Shares in connection with special investment products, such
as wrap accounts or similar fee based programs. Investors may be
charged a fee when effecting transactions in Class A Shares through a
broker or agent that offers these special investment products.
Purchases of Class A Shares of each Fund except Social Awareness
Fund at net asset value may also be made by the following: financial
institutions investing for the account of their trust customers if they
are not eligible to purchase shares of the Institutional Class of a
Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant
records are maintained on the Retirement Financial Services, Inc.
(formerly known as Delaware Investment & Retirement Services, Inc.)
proprietary record keeping system that (i) has in excess of $500,000 of
plan assets invested in Class A Shares of funds in the Delaware
Investments family and any stable value account available to investment
advisory clients of the Manager or its affiliates; or (ii) is sponsored
by an employer that has at any point after May 1, 1997 had more than 100
employees while such plan has held Class A Shares of a fund in the
Delaware Investments family and such employer has properly represented
to, and received written confirmation back from, Retirement Financial
Services, Inc. in writing that it has the requisite number of employees.
See Group Investment Plans for information regarding the applicability
of the Limited CDSC.
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 funds in the Delaware
Investments family and any stable value product available through
Delaware Investments, 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 Investments fund and such employer has
properly represented to Retirement Financial Services, Inc. in writing
that it has the requisite number of employees and has received written
confirmation back from Retirement Financial Services, Inc. See Group
Investment Plans for information regarding the applicability of the
Limited CDSC.
Purchases of Class A Shares at net asset value may also be made by
bank sponsored retirement plans that are no longer eligible to purchase
Institutional Class Shares or purchase interests in a collective trust
as a result of a change in distribution arrangements.
Investors in Delaware Investments Unit Investment Trusts may
reinvest monthly dividend checks and/or repayment of invested capital
into Class A Shares of any of the funds in the Delaware Investments
family at net asset value.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken
from such accounts will be made at net asset value. Loan repayments
made to a fund account in connection with loans originated from accounts
previously maintained by another investment firm will also be invested
at net asset value.
Equity Funds II, Inc. must be notified in advance that the trade
qualifies for purchase at net asset value.
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
Investments funds ("eligible Delaware Investments fund shares"), as well
as shares of designated classes of non-Delaware Investments funds
("eligible non-Delaware Investments 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 Investments and eligible non-Delaware
Investments 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
Investments fund shares. See Combined Purchases Privilege, below.
Participants in Allied Plans may exchange all or part of their
eligible Delaware Investments fund shares for other eligible Delaware
Investments fund shares or for eligible non-Delaware Investments fund
shares at net asset value without payment of a front-end sales charge.
However, exchanges of eligible fund shares, both Delaware Investments
and non-Delaware Investments, which were not subject to a front end
sales charge, will be subject to the applicable sales charge if
exchanged for eligible Delaware Investments 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 Investments 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 Investments fund shares in
connection with Allied Plans, all participant holdings in the Allied
Plan will be aggregated. See Class A Shares, above.
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 Investments and non-
Delaware Investments fund shares. When eligible Delaware Investments
fund shares are exchanged into eligible non-Delaware Investments 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.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases
made within a 13-month period pursuant to a written Letter of Intention
provided by the Distributor and signed by the purchaser, and not legally
binding on the signer or Equity Funds II, Inc. which provides for the
holding in escrow by the Transfer Agent, of 5% of the total amount of
Class A Shares intended to be purchased until such purchase is completed
within the 13-month period. A Letter of Intention may be dated to
include shares purchased up to 90 days prior to the date the Letter is
signed. The 13-month period begins on the date of the earliest
purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the
difference between the front-end sales charge on Class A Shares
purchased at the reduced rate and the front-end sales charge otherwise
applicable to the total shares purchased. If such payment is not made
within 20 days following the expiration of the 13-month period, the
Transfer Agent will surrender an appropriate number of the escrowed
shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level
designated in their Letter of Intention) of all their shares of the
Funds and of any class of any of the other mutual funds in Delaware
Investments (except shares of any Delaware Investments fund which do not
carry a front-end sales charge, CDSC or Limited CDSC other than shares
of Delaware Group Premium Fund, Inc. beneficially owned in connection
with the ownership of variable insurance products, unless they were
acquired through an exchange from a Delaware Investments fund which
carried a front-end sales charge, CDSC or Limited CDSC) previously
purchased and still held as of the date of their Letter of Intention
toward the completion of such Letter.
Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales
charge on investments of Class A Shares made by the plan. The aggregate
investment level of the Letter of Intention will be determined and
accepted by the Transfer Agent at the point of plan establishment. The
level and any reduction in front-end sales charge will be based on
actual plan participation and the projected investments in Delaware
Investments funds that are offered with a front-end sales charge, CDSC
or Limited CDSC for a 13-month period. The Transfer Agent reserves the
right to adjust the signed Letter of Intention based on this acceptance
criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments
exceed the anticipated level and equal an amount that would qualify the
plan for further discounts, any front-end sales charges will be
automatically adjusted. In the event this Letter of Intention is not
fulfilled within the 13-month period, the plan level will be adjusted
(without completing another Letter of Intention) and the employer will
be billed for the difference in front-end sales charges due, based on
the plan's assets under management at that time. Employers may also
include the value (at offering price at the level designated in their
Letter of Intention) of all their shares intended for purchase that are
offered with a front-end sales charge, CDSC or Limited CDSC of any
class. Class B Shares and Class C Shares of a Fund and other Delaware
Investments funds which offer corresponding classes of shares may also
be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales
charge previously set forth with respect to Class A Shares, purchasers
may combine the total amount of any combination of Class A Shares, Class
B Shares and/or Class C Shares of the Funds, as well as shares of any
other class of any of the other Delaware Investments funds (except
shares of any Delaware Investments fund which do not carry a front-end
sales charge, CDSC or Limited CDSC, other than shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with the ownership
of variable insurance products, unless they were acquired through an
exchange from a Delaware Investments fund which carried a front-end
sales charge, CDSC or Limited CDSC). In addition, assets held by
investment advisory clients of the Manager or its affiliates in a stable
value account may be combined with other Delaware Investments fund
holdings.
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under
21; or a trustee or other fiduciary of trust estates or fiduciary
accounts for the benefit of such family members (including certain
employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales
charge with respect to the Class A Shares, purchasers may also combine
any subsequent purchases of Class A Shares, Class B Shares and Class C
Shares of a Fund, as well as shares of any other class of any of the
other Delaware Investments funds which offer such classes (except shares
of any Delaware Investments fund which do not carry a front-end sales
charge, CDSC or Limited CDSC, other than shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with the ownership
of variable insurance products, unless they were acquired through an
exchange from a Delaware Investments fund which carried a front-end
sales charge, CDSC or Limited CDSC). If, for example, any such
purchaser has previously purchased and still holds Class A Shares and/or
shares of any other of the classes described in the previous sentence
with a value of $40,000 and subsequently purchases $10,000 at offering
price of additional shares of Class A Shares, the charge applicable to
the $10,000 purchase would currently be 4.75%. For the purpose of this
calculation, the shares presently held shall be valued at the public
offering price that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should refer to the
table of sales charges for Class A Shares to determine the applicability
of the Right of Accumulation to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund (and of Institutional Classes
holding shares which were acquired through an exchange from one of the
other mutual funds in Delaware Investments offered with a front-end
sales charge) who redeem such shares have one year from the date of
redemption to reinvest all or part of their redemption proceeds in Class
A Shares of that Fund or in Class A Shares of any of the other funds in
the Delaware Investments family, subject to applicable eligibility and
minimum purchase requirements, in states where shares of such other
funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where
the redemption of the shares triggered the payment of a Limited CDSC.
Persons investing redemption proceeds from direct investments in mutual
funds in the Delaware Investments family offered without a front-end
sales charge will be required to pay the applicable sales charge when
purchasing Class A Shares. The reinvestment privilege does not extend
to a redemption of either Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus
any amount necessary to purchase a full share). The reinvestment will
be made at the net asset value next determined after receipt of
remittance. A redemption and reinvestment could have income tax
consequences. It is recommended that a tax adviser be consulted with
respect to such transactions. Any reinvestment directed to a fund in
which the investor does not then have an account will be treated like
all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in
which the investment is intended to be made before investing or sending
money. The prospectus contains more complete information about the
fund, including charges and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Funds' shareholder servicing agent,
about the applicability of the Limited CDSC (see Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange) in connection with the
features described above.
Group Investment Plans
Group Investment Plans which are not eligible to purchase shares of
the Institutional Classes may also benefit from the reduced front-end
sales charges for investments in Class A Shares described in the
Prospectus, based on total plan assets. If a company has more than one
plan investing in the Delaware Investments family of funds, then the
total amount invested in all plans would be used in determining the
applicable front-end sales charge reduction upon each purchase, both
initial and subsequent, upon notification to the Fund in which the
investment is being made at the time of each such purchase. Employees
participating in such Group Investment Plans may also combine the
investments made in their plan account when determining the applicable
front-end sales charge on purchases to non-retirement Delaware
Investments investment accounts if they so notify the Fund in which they
are investing in connection with each purchase. See Retirement Plans
for the Fund Classes under Investment Plans for information about
Retirement Plans.
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 a fund in the Delaware
Investments family. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange.
Institutional Classes
The Institutional Class of each Fund is available for purchase only
by: (a) retirement plans introduced by persons not associated with
brokers or dealers that are primarily engaged in the retail securities
business and rollover individual retirement accounts from such plans;
(b) tax-exempt employee benefit plans of the Manager 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, an affiliate of the Manager, or its other
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 of 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.
Shares of Institutional Classes are available for purchase at net
asset value, without the imposition of a front-end or contingent
deferred sales charge and are not subject to Rule 12b-1 expenses.
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends
from net investment income and distributions from realized securities
profits, if any, will be automatically reinvested in additional shares
in which an investor has an account (based on the net asset value in
effect on the reinvestment date) and will be credited to the
shareholder's account on that date. All dividends and distributions of
the Fund Classes of Diversified Value Fund and the Institutional Classes
of each Fund are reinvested in the accounts of the holders of such
shares (based on the net asset value in effect on the reinvestment
date). A confirmation of each dividend payment from net investment
income will be mailed to shareholders quarterly. A confirmation of any
distributions from realized securities profits will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase
and add full and fractional shares to their plan accounts at any time
either through their investment dealers or by sending a check or money
order to the specific Fund and Class in which shares are being
purchased. Such purchases, which must meet the minimum subsequent
purchase requirements set forth in the Prospectuses and this Part B, are
made for Class A Shares at the public offering price, and for Class B
Shares, Class C Shares and Institutional Classes at the net asset value,
at the end of the day of receipt. A reinvestment plan may be terminated
at any time. This plan does not assure a profit nor protect against
depreciation in a declining market.
Reinvestment of Dividends in Other Delaware Investments Family of Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A
Shares, Class B Shares and Class C Shares may automatically reinvest
dividends and/or distributions in any of the mutual funds in the
Delaware Investments, including the Funds, in states where their shares
may be sold. Such investments will be at net asset value at the close
of business on the reinvestment date without any front-end sales charge
or service fee. The shareholder must notify the Transfer Agent in
writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment
directed to a fund in which the investor does not then have an account
will be treated like all other initial purchases of a fund's shares.
Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is intended to be made
before investing or sending money. The prospectus contains more
complete information about the fund, including charges and expenses.
Subject to the following limitations, dividends and/or
distributions from other funds in Delaware Investments may be invested
in shares of the Funds, provided an account has been established.
Dividends from Class A Shares may not be directed to Class B Shares or
Class C Shares. Dividends from Class B Shares may only be directed to
other Class B Shares and dividends from Class C Shares may only be
directed to other Class C Shares.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same
Delaware Investments fund in which their investments are held: SAR/SEP,
SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457
Deferred Compensation Plans.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family, you may write and authorize an exchange of part or
all of your investment into shares of a Fund. If you wish to open an
account by exchange, call the Shareholder Service Center for more
information. All exchanges are subject to the eligibility and minimum
purchase requirements set forth in each fund's prospectus. See
Redemption and Exchange for more complete information concerning your
exchange privileges.
Holders of Class A Shares of a Fund may exchange all or part of
their shares for certain of the shares of other funds in the Delaware
Investments family, including other Class A Shares, but may not exchange
their Class A Shares for Class B Shares or Class C Shares of the Fund or
of any other fund in the Delaware Investments family. 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 Investments 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 Investments 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.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for either Fund
to accept for investment in Class A Shares, Class B Shares or Class C
Shares, through an agent bank, preauthorized government or private
recurring payments. This method of investment assures the timely credit
to the shareholder's account of payments such as social security,
veterans' pension or compensation benefits, federal salaries, Railroad
Retirement benefits, private payroll checks, dividends, and disability
or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan--Shareholders of Class A Shares, Class B
Shares and Class C Shares may make automatic investments by authorizing,
in advance, monthly payments directly from their checking account for
deposit into their Fund account. This type of investment will be
handled in either of the following ways. (1) If the shareholder's bank
is a member of the National Automated Clearing House Association
("NACHA"), the amount of the investment will be electronically deducted
from his or her account by Electronic Fund Transfer ("EFT"). The
shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the
transaction. (2) If the shareholder's bank is not a member of NACHA,
deductions will be made by preauthorized checks, known as Depository
Transfer Checks. Should the shareholder's bank become a member of NACHA
in the future, his or her investments would be handled electronically
through EFT.
This option is not available to participants in the following
plans: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and
Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or
403(b)(7) or 457 Deferred Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent
investments under such plans must be for $25 or more. An investor
wishing to take advantage of either service must complete an
authorization form. Either service can be discontinued by the
shareholder at any time without penalty by giving written notice.
Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account
after such payments should have been terminated by reason of death or
otherwise. Any such payments are subject to reclamation by the federal
government or its agencies. Similarly, under certain circumstances,
investments from private sources may be subject to reclamation by the
transmitting bank. In the event of a reclamation, a Fund may liquidate
sufficient shares from a shareholder's account to reimburse the
government or the private source. In the event there are insufficient
shares in the shareholder's account, the shareholder is expected to
reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or
employer, to make investments directly to their Fund accounts. Either
Fund will accept these investments, such as bank-by-phone, annuity
payments and payroll allotments, by mail directly from the third party.
Investors should contact their employers or financial institutions who
in turn should contact Equity Funds II, Inc. for proper instructions.
MONEYLINE (SM) On Demand
You or your investment dealer may request purchases of Fund Class
shares of Decatur Equity Income Fund, Growth and Income Fund, Blue Chip
Fund and Social Awareness Fund by phone using MoneyLine (SM) On Demand.
When you authorize a Fund to accept such requests from you or your
investment dealer, funds will be withdrawn from (for share purchases)
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 $50,000 maximum limit for MoneyLine (SM) On Demand
transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this service by completing an Account
Services form. If your name and address are not identical to the name
and address on your Fund account, you must have your signature
guaranteed. The Funds do not charge a fee for this service; however,
your bank may charge a fee.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the
Fund Classes through regular liquidations of shares in their accounts in
other mutual funds in the Delaware Investments family. Shareholders of
the Fund Classes may elect to invest in one or more of the other mutual
funds in Delaware Investments family through the Wealth Builder Option.
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.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated
from their account and invested automatically into other mutual funds in
the Delaware Investments family, subject to the conditions and
limitations set forth in the Fund Classes' Prospectus. The investment
will be made on the 20th day of each month (or, if the fund selected is
not open that day, the next business day) at the public offering price
or net asset value, as applicable, of the fund selected on the date of
investment. No investment will be made for any month if the value of
the shareholder's account is less than the amount specified for
investment.
Periodic investment through the Wealth Builder Option does not
insure profits or protect against losses in a declining market. The
price of the fund into which investments are made could fluctuate.
Since this program involves continuous investment regardless of such
fluctuating value, investors selecting this option should consider their
financial ability to continue to participate in the program through
periods of low fund share prices. This program involves automatic
exchanges between two or more fund accounts and is treated as a purchase
of shares of the fund into which investments are made through the
program. See Redemption and Exchange for a brief summary of the tax
consequences of exchanges. Shareholders can terminate their
participation in Wealth Builder at any time by giving written notice to
the fund from which exchanges are made.
This option is not available to participants in the following
plans: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and
Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or
403(b)(7) or 457 Deferred Compensation Plans. This option also is not
available to shareholders of the Institutional Classes.
Asset Planner
To invest in Delaware Investments funds using the Asset Planner
asset allocation service, you should complete an Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner
Service is only available to financial advisers or investment dealers
who have previously used this service. The Asset Planner service offers
a choice of four predesigned asset allocation strategies (each with a
different risk/reward profile) in predetermined percentages in Delaware
Investments funds. With the help of a financial adviser, you may also
design a customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service
is determined by the individual sales charges of the underlying funds
and their percentage allocation in the selected Strategy. Exchanges
from existing Delaware Investments accounts into the Asset Planner
service may be made at net asset value under the circumstances described
under Investing by Exchange. Also see Buying Class A Shares at Net
Asset Value. The minimum initial investment per Strategy is $2,000;
subsequent investments must be at least $100. Individual fund minimums
do not apply to investments made using the Asset Planner service. Class
A, Class B and Class C Shares are available through the Asset Planner
service. Generally, only shares within the same class may be used
within the same Strategy. However, Class A Shares of a Fund and of
other funds in the Delaware Investments family may be used in the same
Strategy with consultant class shares that are offered by certain other
Delaware Investments funds.
An annual maintenance fee, currently $35 per Strategy, is due at
the time of initial investment and by September 30 of each subsequent
year. The fee, payable to Delaware Service Company, Inc. to defray
extra costs associated with administering the Asset Planner service,
will be deducted automatically from one of the funds within your Asset
Planner account if not paid by September 30. However, effective
November 1, 1996, the annual maintenance fee is waived until further
notice. Investors who utilize the Asset Planner for an IRA will
continue to pay an annual IRA fee of $15 per Social Security number.
Investors will receive a customized quarterly Strategy Report
summarizing all Asset Planner investment performance and account
activity during the prior period. Confirmation statements will be sent
following all transactions other than those involving a reinvestment of
distributions.
Certain shareholder services are not available to investors using
the Asset Planner service, due to its special design. These include
Delaphone, Checkwriting, Wealth Builder Option and Letter of Intention.
Systematic Withdrawal Plans are available after the account has been
open for two years.
Retirement Plans for the Fund Classes
An investment in the Funds may be suitable for tax-deferred
retirement plans. Delaware Investments offers a full spectrum of
retirement plans, including the 401(k) Defined Contribution Plan,
Individual Retirement Account ("IRA") and the new Roth IRA and Education
IRA.
Among the retirement plans that Delaware Investments offers, Class
B Shares are available only by Individual Retirement Accounts, SIMPLE
IRAs, Roth IRAs, Education IRAs, Simplified Employee Pension Plans,
Salary Reduction Simplified Employee Pension Plans, and 403(b)(7) and
457 Deferred Compensation Plans. The CDSC may be waived on certain
redemptions of Class B Shares and Class C Shares. See Waiver of
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
under Redemption and Exchange in the Prospectus for the Fund Classes for
a list of the instances in which the CDSC is waived.
Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C
Shares must be in an amount that is less than $1,000,000 for such plans.
The maximum purchase limitations apply only to the initial purchase of
shares by the retirement plan.
Minimum investment limitations generally applicable to other
investors do not apply to retirement plans other than Individual
Retirement Accounts, for which there is a minimum initial purchase of
$250 and a minimum subsequent purchase of $25, regardless of which Class
is selected. Retirement plans may be subject to plan establishment
fees, annual maintenance fees and/or other administrative or trustee
fees. Fees are based upon the number of participants in the plan as
well as the services selected. Additional information about fees is
included in retirement plan materials. Fees are quoted upon request.
Annual maintenance fees may be shared by Delaware Management Trust
Company, the Transfer Agent, other affiliates of the Manager and others
that provide services to such Plans.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders.
Certain retirement plans may qualify to purchase shares of the
Institutional Class shares. See Institutional Classes, above. For
additional information on any of the plans and Delaware's retirement
services, call the Shareholder Service Center telephone number.
It is advisable for an investor considering any one of the
retirement plans described below to consult with an attorney, accountant
or a qualified retirement plan consultant. For further details,
including applications for any of these plans, contact your investment
dealer or the Distributor.
Taxable distributions from the retirement plans described below may
be subject to withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the Plans described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations.
These plans can be maintained as Section 401(k), profit sharing or money
purchase pension plans. Contributions may be invested only in Class A
Shares and Class C Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an
IRA and make contributions which may be tax-deductible, even if the
individual is already participating in an employer-sponsored retirement
plan. Even if contributions are not deductible for tax purposes, as
indicated below, earnings will be tax-deferred. In addition, an
individual may make contributions on behalf of a spouse who has no
compensation for the year; however, participation may be restricted
based on certain income limits.
IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that
can be utilized depending on the individual's circumstances. A new Roth
IRA and Education IRA are available in addition to the existing
deductible IRA and non-deductible IRA.
Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each
year. Contributions may or may not be deductible depending upon the
taxpayer's adjusted gross income ("AGI") and whether the taxpayer is an
active participant in an employer sponsored retirement plan. Even if a
taxpayer is an active participant in an employer sponsored retirement
plan, the full $2,000 is still available if the taxpayer's AGI is below
$30,000 ($50,000 for taxpayers filing joint returns) for years beginning
after December 31, 1997. A partial deduction is allowed for married
couples with income between $50,000 and $60,000, and for single
individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available
for contributions to IRAs by taxpayers whose AGI after IRA deductions
exceeds the maximum income limit established for each year and who are
active participants in an employer sponsored retirement plan.
Taxpayers who are not allowed deductions on IRA contributions still
can make non-deductible IRA contributions of as much as $2,000 for each
working spouse and defer taxes on interest or other earnings from the
IRAs.
Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined
AGI is below $150,000. The maximum deductible IRA contribution for a
married individual who is not an active participant, but whose spouse
is, is phased out for combined AGI between $150,000 and $160,000.
Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive
eligible rollover distributions from an employer-sponsored retirement
plan or another IRA may rollover the distribution tax-free to a Conduit
IRA. The rollover of the eligible distribution must be completed by the
60th day after receipt of the distribution; however, if the rollover is
in the form of a direct trustee-to-trustee transfer without going
through the distributee's hand, the 60-day limit does not apply.
A distribution qualifies as an "eligible rollover distribution" if
it is made from a qualified retirement plan, a 403(b) plan or another
IRA and does not constitute one of the following:
(1) Substantially equal periodic payments over the employee's
life or life expectancy or the joint lives or life expectancies
of the employee and his/her designated beneficiary;
(2) Substantially equal installment payments for a period certain
of 10 or more years;
(3) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;
(4) A distribution due to a Qualified Domestic Relations Order
to an alternate payee who is not the spouse (or former spouse)
of the employee; and
(5) A distribution of after-tax contributions which is not
includable in income.
Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA.
As a result of the Internal Revenue Service Restructuring and Reform Act
of 1998 (the "1998 Act"), the $2,000 annual limit will not be reduced by
any contributions to a deductible or nondeductible IRA for the same
year. The maximum contribution that can be made to a Roth IRA is phased
out for single filers with AGI between $95,000 and $110,000, and for
couples filing jointly with AGI between $150,000 and $160,000.
Qualified distributions from a Roth IRA would be exempt from federal
taxes. Qualified distributions are distributions (1) made after the
five-taxable year period beginning with the first taxable year for which
a contribution was made to a Roth IRA and (2) that are (a) made on or
after the date on which the individual attains age 59 1/2, (b) made to a
beneficiary on or after the death of the individual, (c) attributed to
the individual being disabled, or (d) for a qualified special purpose
(e.g., first time homebuyer expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated
earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA.
Earnings and contributions from a deductible IRA are subject to a tax
upon conversion; however, no 10% excise tax for early withdrawal would
apply. If the conversion is done prior to January 1, 1999, then the
income from the conversion can be included in income ratably over a
four-year period beginning with the year of conversion.
Education IRAs
For taxable years beginning after December 31, 1997, an Education
IRA has been created exclusively for the purpose of paying qualified
higher education expenses. Taxpayers can make non-deductible
contributions up to $500 per year per beneficiary. The $500 annual
limit is in addition to the $2,000 annual contribution limit applicable
to IRAs and Roth IRAs. Eligible contributions must be in cash and made
prior to the date the beneficiary reaches age 18. Similar to the Roth
IRA, earnings would accumulate tax-free. There is no requirement that
the contributor be related to the beneficiary, and there is no limit on
the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can be created for
the same beneficiaries, however, the contribution limit of all
contributions for a single beneficiary cannot exceed $500 annually.
This $500 annual contribution limit for Education IRAs is phased
out ratably for single contributors with modified AGI between $95,000
and $110,000, and for couples filing jointly with modified AGI of
between $150,000 and $160,000. Individuals with modified AGI above the
phase-out range are not allowed to make contributions to an Education
IRA established on behalf of any other individual.
Distributions from an Education IRA are excludable from gross
income to the extent that the distribution does not exceed qualified
higher education expenses incurred by the beneficiary during the year
the distribution is made regardless of whether the beneficiary is
enrolled at an eligible educational institution on a full-time, half-
time, or less than half-time basis.
Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of
such a distribution will be includible in gross income of the
beneficiary and subject to an additional 10% penalty tax if the
distribution is not for qualified higher educations expenses. Tax-free
(and penalty-free) transfers and rollovers of account balances from one
Education IRA benefiting one beneficiary to another Education IRA
benefiting a different beneficiary (as well as redesignations of the
named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or
rollover is made before the time the old beneficiary reaches age 30 and
the new beneficiary reaches age 18.
A company or association may establish a Group IRA or Group Roth
IRA for employees or members who want to purchase shares of the Fund.
Investments generally must be held in the IRA until age 59 1/2 in
order to avoid premature distribution penalties, but distributions
generally must commence no later than April 1 of the calendar year
following the year in which the participant reaches age 70 1/2.
Individuals are entitled to revoke the account, for any reason and
without penalty, by mailing written notice of revocation to Delaware
Management Trust Company within seven days after the receipt of the IRA
Disclosure Statement or within seven days after the establishment of the
IRA, except, if the IRA is established more than seven days after
receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the
year received. Excess contributions removed after the tax filing
deadline, plus extensions, for the year in which the excess
contributions were made are subject to a 6% excise tax on the amount of
excess. Premature distributions (distributions made before age 59 1/2,
except for death, disability and certain other limited circumstances)
will be subject to a 10% excise tax on the amount prematurely
distributed, in addition to the income tax resulting from the
distribution. For information concerning the applicability of a CDSC
upon redemption of Class B Shares and Class C Shares, see Contingent
Deferred Sales Charge - Class B Shares and Class C Shares.
Effective January 1, 1997, the 10% premature distribution penalty
will not apply to distributions from an IRA that are used to pay medical
expenses in excess of 7.5% of adjusted gross income or to pay health
insurance premiums by an individual who has received unemployment
compensation for 12 consecutive weeks. In addition, effective January
1, 1998, the new law allows for premature distribution without a 10%
penalty if (i) the amounts are used to pay qualified higher education
expenses (including graduate level courses) of the taxpayer, the
taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer,
taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse. A qualified first-time homebuyer is someone who has
had no ownership interest in a residence during the past two years. The
aggregate amount of distribution for first-time home purchases cannot
exceed a lifetime cap of $10,000.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of
all eligible employees. Each of the Classes is available for investment
by a SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after December
31, 1996, existing plans may continue to be maintained by employers
having 25 or fewer employees. An employer may elect to make additional
contributions to such existing plans.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1,
1997, non-governmental tax-exempt organizations may establish 401(k)
plans. Plan documents are available to enable employers to establish a
plan. An employer may also elect to make profit sharing contributions
and/or matching contributions with investments in only Class A Shares
and Class C Shares or certain other funds in the Delaware Investments
family. Purchases under the Plan may be combined for purposes of
computing the reduced front-end sales charge applicable to Class A
Shares as set forth in the table the Prospectus for the Fund Classes.
Deferred Compensation Plan for Public Schools and Non-Profit
Organizations ("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and
certain non-profit organizations to use mutual fund shares held in a
custodial account to fund deferred compensation arrangements for their
employees. A custodial account agreement is available for those
employers who wish to purchase shares of any of the Classes in
conjunction with such an arrangement. Purchases under the Plan may be
combined for purposes of computing the reduced front-end sales charge
applicable to Class A Shares as set forth in the table the Prospectus
for the Fund Classes.
Deferred Compensation Plan for State and Local Government Employees
("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation
plan for their employees who wish to participate. This enables
employees to defer a portion of their salaries and any federal (and
possibly state) taxes thereon. Such plans may invest in shares of the
Fund. Although investors may use their own plan, there is available a
Delaware Investments 457 Deferred Compensation Plan. Interested
investors should contact the Distributor or their investment dealers to
obtain further information. Purchases under the Plan may be combined
for purposes of computing the reduced front-end sales charge applicable
to Class A Shares as set forth in the table in the Prospectus for the
Fund Classes.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k)
Plan but is easier to administer than a typical 401(k) Plan. It
requires employers to make contributions on behalf of their employees
and also has a salary deferral feature that permits employees to defer a
portion of their salary into the plan on a pre-tax basis. A SIMPLE IRA
is available only to plan sponsors with 100 or fewer employees.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is
available only to plan sponsors 100 or fewer employees and, in exchange
for mandatory plan sponsor contributions, discrimination testing is no
longer required. Class B Shares are not available for purchase by such
plans.
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased
after receipt of the order by the Fund, its agent or certain other
authorized persons. See Distribution and Service under Investment
Management Agreements and Sub-Advisory Agreements. Orders for purchases
of Class B Shares, Class C Shares and Institutional Class shares are
effected at the net asset value per share next calculated by the Fund in
which shares are being purchased after receipt of the order by the Fund,
its agent or certain other authorized persons. Selling dealers are
responsible for transmitting orders promptly.
The offering price for Class A Shares consists of the net asset
value per share plus any applicable front-end sales charges. Offering
price and net asset value are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open. The New York Stock Exchange is
scheduled to be open Monday through Friday throughout the year except
for days on which the following holidays are observed: New Year's Day,
Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
When the New York Stock Exchange is closed, the Funds will generally be
closed, pricing calculations will not be made and purchase and
redemption orders will not be processed.
An example showing how to calculate the net asset value per share
and, in the case of Class A Shares, the offering price per share, is
included in the financial statements for the Funds which are
incorporated by reference into this Part B.
Each Fund's net asset value per share is computed by adding the
value of all the Fund's securities and other assets, deducting any
liabilities of the Fund, and dividing by the number of Fund shares
outstanding. Expenses and fees are accrued daily. Portfolio
securities, except for bonds, which are primarily traded on a national
or foreign securities exchange are valued at the last sale price on that
exchange. Options are valued at the last reported sales price or, if no
sales are reported, at the mean between bid and asked prices. Foreign
securities and the prices of foreign securities denominated in foreign
currencies are translated into U.S. dollars at the mean between the bid
and offer quotations of such currencies based on rates in effect as of
the close of the London Stock Exchange. Securities not traded on a
particular day, over-the-counter securities and government and agency
securities are valued at the mean value between bid and asked prices.
Money market instruments having a maturity of less than 60 days are
valued at amortized cost. Debt securities (other than short-term
obligations) are valued on the basis of valuations provided by a pricing
service when such prices are believed to reflect the fair value of such
securities. Use of a pricing service has been approved by the Board of
Directors. Subject to the foregoing, securities for which market
quotations are not readily available and other assets are valued at fair
value as determined in good faith and in a method approved by the Board
of Directors.
Each Class of a Fund will bear, pro-rata, all of the common
expenses of that Fund. The net asset values of all outstanding shares
of each Class of a Fund will be computed on a pro-rata basis for each
outstanding share based on the proportionate participation in that Fund
represented by the value of shares of that Class. All income earned and
expenses incurred by a Fund will be borne on a pro-rata basis by each
outstanding share of a Class, based on each Class' percentage in that
Fund represented by the value of shares of such Classes, except that the
Institutional Classes will not incur any of the expenses under the
relevant Fund's 12b-1 Plans and Class A Shares, Class B Shares and Class
C Shares alone will bear the 12b-1 Plan expenses payable under their
respective Plans. Due to the specific distribution expenses and other
costs that will be allocable to each Class, the net asset value of each
Class of a Fund will vary.
REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different
ways. The exchange service is useful if your investment requirements
change and you want an easy way to invest in other equity funds, tax-
advantaged funds, bond funds or money market funds. This service is
also useful if you are anticipating a major expenditure and want to move
a portion of your investment into a fund that has the checkwriting
feature. Exchanges are subject to the requirements of each fund and all
exchanges of shares constitute taxable events. [See Taxes.] Further,
in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment
dealer to discuss which funds in Delaware Investments will best meet
your changing objectives, and the consequences of any exchange
transaction. You may also call the Delaware Investments directly for
fund information.
Your shares will be redeemed or exchanged at a price based on the
net asset value next determined after a Fund receives your request in
good order, subject, in the case of a redemption, to any applicable CDSC
or Limited CDSC. For example, redemption or exchange requests received
in good order after the time the offering price and net asset value of
shares are determined will be processed on the next business day. A
shareholder submitting a redemption request may indicate that he or she
wishes to receive redemption proceeds of a specific dollar amount. In
the case of such a request, and in the case of certain redemptions from
retirement plan accounts, a Fund will redeem the number of shares
necessary to deduct the applicable CDSC in the case of Class B Shares
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.
In addition to redemption of Fund shares, the Distributor, acting
as agent of the Funds, offers to repurchase Fund shares from
broker/dealers acting on behalf of shareholders. The redemption or
repurchase price, which may be more or less than the shareholder's cost,
is the net asset value per share next determined after receipt of the
request in good order by the respective Fund, its agent, or certain
authorized persons, subject to applicable CDSC or Limited CDSC. This is
computed and effective at the time the offering price and net asset
value are determined. See Determining Offering Price and Net Asset
Value. The Funds and the Distributor end their business days at 5 p.m.,
Eastern time. This offer is discretionary and may be completely
withdrawn without further notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at
the net asset value per share computed that day (subject to the
applicable CDSC or Limited CDSC), if the repurchase order was received
by the broker/dealer from the shareholder prior to the time the offering
price and net asset value are determined on such day. The selling
dealer has the responsibility of transmitting orders to the Distributor
promptly. Such repurchase is then settled as an ordinary transaction
with the broker/dealer (who may make a charge to the shareholder for
this service) delivering the shares repurchased.
Payment for shares redeemed will ordinarily be mailed the next
business day, but in no case later than seven days, after receipt of a
redemption request in good order by the Fund or certain other authorized
persons (see Distribution and Service under Investment Management
Agreements and Sub-Advisory Agreements); provided, however, that each
commitment to mail or wire redemption proceeds by a certain time, as
described below, is modified by the qualifications described in the next
paragraph.
Each Fund will process written and telephone redemption requests to
the extent that the purchase orders for the shares being redeemed have
already settled. Each Fund will honor redemption requests as to shares
for which a check was tendered as payment, but a Fund will not mail or
wire the proceeds until it is reasonably satisfied that the purchase
check has cleared, which may take up to 15 days from the purchase date.
You can avoid this potential delay if you purchase shares by wiring
Federal Funds. Each Fund reserves the right to reject a written or
telephone redemption request or delay payment of redemption proceeds if
there has been a recent change to the shareholder's address of record.
If a shareholder has been credited with a purchase by a check which
is subsequently returned unpaid for insufficient funds or for any other
reason, the Fund involved will automatically redeem from the
shareholder's account the shares purchased by the check plus any
dividends earned thereon. Shareholders may be responsible for any
losses to a Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a
result of which disposal by a Fund of securities owned by it is not
reasonably practical, or it is not reasonably practical for a Fund
fairly to value its assets, or in the event that the SEC has provided
for such suspension for the protection of shareholders, a Fund may
postpone payment or suspend the right of redemption or repurchase. In
such case, the shareholder may withdraw the request for redemption or
leave it standing as a request for redemption at the net asset value
next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in
cash or kind, or partly in cash and partly in kind. Any portfolio
securities paid or distributed in kind would be valued as described in
Determining Offering Price and Net Asset Value. Subsequent sale by an
investor receiving a distribution in kind could result in the payment of
brokerage commissions. However, Equity Funds II, Inc. has elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which each Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of such Fund during any 90-day period for
any one shareholder.
The value of a Fund's investments is subject to changing market
prices. Thus, a shareholder reselling shares to a Fund may sustain
either a gain or loss, depending upon the price paid and the price
received for such shares.
Certain redemptions of Class A Shares purchased at net asset value
may result in the imposition of a Limited CDSC. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value, below. Class B Shares are subject to a CDSC of: (i) 5% if
shares are redeemed within one year of purchase (ii) 4% if shares are
redeemed within two years of purchase; (iii) 3% if shares are redeemed
during the third or fourth year following purchase; (iv) 2% if shares
are redeemed during the fifth year following purchase; (v) 1% if shares
are redeemed during the sixth year following purchase; (vi) and 0%
thereafter. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred
Sales Charge - Class B Shares and Class C Shares under Purchasing
Shares. Except for the applicable CDSC or Limited CDSC and, with
respect to the expedited payment by wire described below for which, in
the case of the Fund Classes, there is currently a $7.50 bank wiring
cost, neither the Funds nor the Distributor charges a fee for
redemptions or repurchases, but such fees could be charged at any time
in the future.
Holders of Class B Shares or Class C Shares that exchange their
shares ("Original Shares") for shares of other funds in the Delaware
Investments (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 Part B
and any CDSC assessed upon redemption will be charged by the fund from
which the Original Shares were exchanged. In an exchange of Class B
Shares from a Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the
exchange. For purposes of computing the CDSC that may be payable upon a
disposition of the New Shares, the period of time that an investor held
the Original Shares is added to the period of time that an investor held
the New Shares. With respect to Class B Shares, the automatic
conversion schedule of the Original Shares may be longer than that of
the New Shares. Consequently, an investment in New Shares by exchange
may subject an investor to the higher 12b-1 fees applicable to Class B
Shares of a Fund for a longer period of time than if the investment in
New Shares were made directly.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed
by all owners of the account or your investment dealer of record. For
redemptions of more than $50,000, or when the proceeds are not sent to
the shareholder(s) at the address of record, the Funds require a
signature by all owners of the account and a signature guarantee for
each owner. A signature guarantee can be obtained from a commercial
bank, a trust company or a member of a Securities Transfer Association
Medallion Program ("STAMP"). Each Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from
corporations, executors, retirement plans, administrators, trustees or
guardians.
Payment is normally mailed the next business day after receipt of
your redemption request. If your Class A Shares are in certificate
form, the certificate(s) must accompany your request and also be in good
order. Certificates are issued for Class A Shares only if a shareholder
submits a specific request. Certificates are not issued for Class B
Shares or Class C Shares.
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 Delaware Investments, subject to the
same conditions and limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and
exchange methods, you must have the Transfer Agent hold your shares
(without charge) for you. If you choose to have your Class A Shares in
certificate form, you may redeem or exchange only by written request and
you must return your certificates.
The Telephone Redemption - Check to Your Address of Record service
and the Telephone Exchange service, both of which are described below,
are automatically provided unless you notify the Fund in which you have
your account in writing that you do not wish to have such services
available with respect to your account. Each Fund reserves the right to
modify, terminate or suspend these procedures upon 60 days' written
notice to shareholders. It may be difficult to reach the Funds by
telephone during periods when market or economic conditions lead to an
unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone
instructions for redemption or exchange of Fund shares which are
reasonably believed to be genuine. With respect to such telephone
transactions, each Fund will follow reasonable procedures to confirm
that instructions communicated by telephone are genuine (including
verification of a form of personal identification) as, if it does not,
such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions
received by the Fund Classes are generally tape recorded, and a written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone. By exchanging shares by telephone,
you are acknowledging prior receipt of a prospectus for the fund into
which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to
redeem shares. You or your investment dealer of record can have
redemption proceeds of $50,000 or less mailed to you at your address of
record. Checks will be payable to the shareholder(s) of record.
Payment is normally mailed the next business day after receipt of the
redemption request. This service is only available to individual, joint
and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize
this service when you open your account. If you change your
predesignated bank account, you must complete an Authorization Form and
have your signature guaranteed. For your protection, your authorization
must be on file. If you request a wire, your funds will normally be
sent the next business day. If the proceeds are wired to the
shareholder's account at a bank which is not a member of the Federal
Reserve System, there could be a delay in the crediting of the funds to
the shareholder's bank account. First Union National Bank's fee
(currently $7.50) will be deducted from Fund Class 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.
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 Delaware Investments 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.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-
term swings in the securities market through frequent transactions in
and out of the funds in the Delaware Investments family. Telephone
exchanges may be subject to limitations as to amounts or frequency. The
Transfer Agent and each Fund reserve the right to record exchange
instructions received by telephone and to reject exchange requests at
any time in the future.
Moneyline (SM) On Demand
You or your investment dealer may request redemptions of Decatur
Equity Income Fund, Growth and Income Fund, Blue Chip Fund and Social
Awareness Fund shares by phone using MoneyLine (SM) On Demand. When you
authorize a Fund to accept such requests from you or your investment
dealer, funds will be 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
$50,000 maximum limit for Moneyline (SM) On Demand transactions. See
Moneyline (SM) On Demand under Investment Plans.
Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing
services ("Timing Firms") to purchase or redeem shares based on changing
economic and market conditions ("Timing Accounts"), the Funds will
refuse any new timing arrangements, as well as any new purchases (as
opposed to exchanges) in Delaware Investments funds from Timing Firms.
A Fund reserves the right to temporarily or permanently terminate the
exchange privilege or reject any specific purchase order for any person
whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange
request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value
to at least $5 million, or more than 1/4 of 1% of the Fund's net assets.
Accounts under common ownership or control, including accounts
administered so as to redeem or purchase shares based upon certain
predetermined market indicators, will be aggregated for purposes of the
exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Investments
funds: (1) Decatur Equity Income Fund, (2) Growth and Income Fund, (3)
Delaware Fund, (4) Limited-Term Government Fund, (5) USA Fund, (6)
Delaware Cash Reserve, (7) Delchester Fund and (8) Tax-Free Pennsylvania
Fund. No other Delaware Investments funds are available for timed
exchanges. Assets redeemed or exchanged out of Timing Accounts in
Delaware Investments funds not listed above may not be reinvested back
into that Timing Account. Each Fund reserves the right to apply these
same restrictions to the account(s) of any person whose transactions
seem to follow a time pattern (as described above).
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the
Manager's judgment, the Fund would be unable to invest effectively in
accordance with its investment objectives and policies, or would
otherwise potentially be adversely affected. A shareholder's purchase
exchanges may be restricted or refused if a Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets.
In particular, a pattern of exchanges that coincide with a "market
timing" strategy may be disruptive to a Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized
brokers of record will be permitted to make exchanges or redemptions.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares
who own or purchase $5,000 or more of shares at the offering price, or
net asset value, as applicable, for which certificates have not been
issued may establish a Systematic Withdrawal Plan for monthly
withdrawals of $25 or more, or quarterly withdrawals of $75 or more,
although the Funds do not recommend any specific amount of withdrawal.
This is particularly useful to shareholders living on fixed incomes,
since it can provide them with a stable supplemental amount. This
$5,000 minimum does not apply for a Fund's prototype retirement plans.
Shares purchased with the initial investment and through reinvestment of
cash dividends and realized securities profits distributions will be
credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the net asset value calculated on the third
business day preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as
selected by the shareholder (unless such date falls on a holiday or a
weekend), and are normally mailed within two business days. Both
ordinary income dividends and realized securities profits distributions
will be automatically reinvested in additional shares of the Class at
net asset value. This plan is not recommended for all investors and
should be started only after careful consideration of its operation and
effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends
and/or realized securities profits distributions paid on shares held
under the plan, the withdrawal payments will represent a return of
capital, and the share balance may in time be depleted, particularly in
a declining market. Shareholders should not purchase additional shares
while participating in a Systematic Withdrawal Plan.
The sale of shares for withdrawal payments constitutes a taxable
event and a shareholder may incur a capital gain or loss for federal
income tax purposes. This gain or loss may be long-term or short-term
depending on the holding period for the specific shares liquidated.
Premature withdrawals from retirement plans may have adverse tax
consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases
of Class A Shares through a periodic investment program in a fund
managed by the Manager must be terminated before a Systematic Withdrawal
Plan with respect to such shares can take effect, except if the
shareholder is a participant in one of our retirement plans or is
investing in Delaware Investments funds which do not carry a sales
charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was
made at net asset value and a dealer's commission has been paid on that
purchase. 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 Shares and Class C Shares, below.
An investor wishing to start a Systematic Withdrawal Plan must
complete an authorization form. If the recipient of Systematic
Withdrawal Plan payments is other than the registered shareholder, the
shareholder's signature on this authorization must be guaranteed. Each
signature guarantee must be supplied by an eligible guarantor
institution. The Funds reserve the right to reject a signature
guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the
Transfer Agent at any time by giving written notice.
Systematic Withdrawal Plan payments are normally made by check. In
the alternative, you may elect to have your payments transferred from
your Fund account to your predesignated bank account through the
MoneyLine (SM) Direct Deposit Service. Your funds will normally be
credited to your bank account up to four business days after the payment
date. There are no separate fees for this redemption method. It may
take up to four business days for the transactions to be completed. You
can initiate this service by completing an Account Services form. If
your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Funds do not
charge a fee for any this service; however, your bank may charge a fee.
This service is not available for retirement plans.
The Systematic Withdrawal Plan is not available to any Class of
Diversified Value Fund or to the Institutional Classes of the other
Funds. Shareholders should consult with their financial advisers to
determine whether a Systematic Withdrawal Plan would be suitable for
them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value
For purchases of $1,000,000 or more made on or after July 1, 1998,
a Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) according to
the following schedule: (1) 1.00% if shares are redeemed during the
first year after the purchase; and (2) 0.50% if such shares are redeemed
during the second year after the purchase, if such purchases were made
at net asset value and triggered the payment by the Distributor of the
dealer's commission described above.
The Limited CDSC will be paid to the Distributor and will be
assessed on an amount equal to the lesser 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
Investments 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 two years
will not be subjected to the Limited CDSC and an exchange of such Class
A Shares into another Delaware Investments 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 two-year holding period. The Limited CDSC
is assessed if such two year 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 Internal
Revenue 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 Purchasing Shares).
Waiver of Contingent Deferred Sales Charge - Class B Shares 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 Plan; (iii) periodic distributions from an IRA,
SIMPLE IRA, SAR/SEP, SEP/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 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 Internal
Revenue Code; (iv) distributions from a 403(b)(7) or 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) or 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 Shares 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.
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
Each Class of shares of a Fund will share proportionately in the
investment income and expenses of the Fund, except that Class A Shares,
Class B Shares and Class C Shares alone will incur distribution fees
under their respective 12b-1 Plans.
Decatur Equity Income Fund intends to pay dividends from net
investment income on a monthly basis. Growth and Income Fund intends to
pay dividends from net investment income on a quarterly basis. Blue
Chip Fund, Social Awareness Fund and Diversified Value Fund intend to
pay dividends from net investment income on an annual basis.
Distributions of net capital gains, if any, realized on sales of
investments will be distributed annually during the quarter following
the close of the fiscal year.
All dividends and any capital gains distributions will be
automatically credited to the shareholder's account in additional shares
of the same Class unless, in the case of shareholders in the Fund
Classes, the shareholder requests in writing that such dividends and/or
distributions be paid in cash. Dividend payments of $1.00 or less will
be automatically reinvested, notwithstanding a shareholder's election to
receive dividends in cash. If such a shareholder's dividends increase
to greater than $1.00, the shareholder would have to file a new election
in order to begin receiving dividends in cash again.
Any check in payment of dividends or other distributions which
cannot be delivered by the United States Post Office or which remains
uncashed for a period of more than one year may be reinvested in the
shareholder's account at the then-current net asset value and the
dividend option may be changed from cash to reinvest. A Fund may deduct
from a shareholder's account the costs of the Fund's effort to locate a
shareholder if a shareholder's mail is returned by the Post Office or
the Fund is otherwise unable to locate the shareholder or verify the
shareholder's mailing address. These costs may include a percentage of
the account when a search company charges a percentage fee in exchange
for their location services. See also Other Tax Requirements under
Accounting and Tax Issues.
Persons not subject to tax will not be required to pay taxes on
distributions.
Dividends from investment income and short-term capital gains
distributions are treated by shareholders as ordinary income for federal
income tax purposes, whether received in cash or in additional shares.
Distributions of long-term capital gains, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of
time an investor has held such shares, and these gains are currently
taxed at long-term capital gain rates described below. The tax status
of dividends and distributions paid to shareholders will not be affected
by whether they are paid in cash or in additional shares. Each Fund is
treated as a single tax entity and capital gains for each Fund will be
calculated separately.
A portion of a Funds' dividends may qualify for the dividends-
received deduction for corporations provided in the federal income tax
law. The portion of dividends paid by a Fund that so qualifies will be
designated each year in a notice mailed to Fund shareholders, and cannot
exceed the gross amount of dividends received by such Fund from domestic
(U.S.) corporations that would have qualified for the dividends-received
deduction in the hands of the Fund if the Fund was a regular
corporation. The availability of the dividends-received deduction is
subject to certain holding period and debt financing restrictions
imposed under the Code on the corporation claiming the deduction. Under
the 1997 Act, the amount that a Fund may designate as eligible for the
dividends-received deduction will be reduced or eliminated if the shares
on which the dividends earned by the Fund were debt-financed or held by
the Fund for less than a 46-day period during a 90-day period beginning
45 days before the ex-dividend date and ending 45 days after the ex-
dividend date. Similarly, if your Fund shares are debt-financed or held
by you for less than a 46-day period during a 90-day period beginning 45
days before the ex-dividend date and ending 45 days after the ex-
dividend date, then the dividends-received deduction for Fund dividends
on your shares may also be reduced or eliminated. Even if designated as
dividends eligible for the dividends-received deduction, all dividends
(including any deducted portion) must be included in your alternative
minimum taxable income calculation. For the fiscal year ended November
30, 1998, 00%, 00%, 00%, 00% and 00% of the dividends from net
investment income of Decatur Equity Income Fund, Growth and Income Fund,
Blue Chip Fund, Social Awareness Fund and Diversified Value Fund,
respectively, were eligible for this deduction.
Under the 1997 Act, as revised by the 1998 Act and the Omnibus
Consolidated and Emergency Supplemental Appropriations Act, a Fund is
required to track its sales of portfolio securities and to report its
capital gain distributions to you according to the following categories
of holding periods:
"Mid-term capital gains" or "28 percent rate gain": securities sold by
a Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%. This category of gains applied only
to gains and distributions in 1997.
"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by a Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund after
July 28, 1997 that were held for more than 18 months. As revised by the
1998 Act, this rate applies to securities held for more than 12 months
and sold in tax years beginning after December 1, 1997. These gains
will be taxable to individual investors at a maximum rate of 20% for
investors in the 28% or higher federal income tax brackets, and at a
maximum rate of 10% for investors in the 15% federal income tax bracket.
The Omnibus Consolidated and Emergency Supplemental Appropriations Act
passed in October of 1998 included technical corrections to the 1998
Act. The effect of this correction is that essentially all capital gain
distributions paid to shareholders during 1998 will be taxed at a
maximum rate of 20%.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individual who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as
qualified 5-year property. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket when sold after the five year
holding period.
Decatur Equity Income Fund, Growth and Income Fund, Blue Chip Fund
and Social Awareness Fund have qualified, and intend to continue to
qualify, and Diversified Value Fund intends to qualify, as regulated
investment companies under Subchapter M of the Code. As such, the Funds
will not be subject to federal income tax, or to any excise tax, to the
extent its earnings are distributed as provided in the Code and it
satisfies other requirements relating to the sources of its income and
diversification of its assets. In order to qualify as a regulated
investment company for federal income tax purposes, the Funds must meet
certain specific requirements that are described under Accounting and
Tax Issues-- Other Tax Requirements.
INVESTMENT MANAGEMENT AGREEMENTS AND SUB-ADVISORY AGREEMENTS
The Manager, located at One Commerce Square, Philadelphia, PA
19103, furnishes investment management services to the Funds, subject to
the supervision and direction of Equity Funds II, Inc.'s Board of
Directors.
The Manager and its predecessors have been managing the funds in
the Delaware Investments family since 1938. On November 30, 1998, the
Manager and its affiliates within Delaware Investments, including
Delaware International Advisers Ltd., were managing in the aggregate
more than $0 billion in assets in the various institutional or
separately managed (approximately $0) and investment company
(approximately $0) accounts.
The Investment Management Agreements for Decatur Equity Income Fund
and Growth and Income Fund are dated April 3, 1995 and were approved by
shareholders on March 29, 1995. The Investment Management Agreements
for Blue Chip Fund and Social Awareness Fund are dated February 24, 1997
and were approved by each Fund's respective initial shareholder on
February 24, 1997. The Investment Management Agreement for Diversified
Value Fund is dated September 14, 1998 and was approved by shareholders
on September 14, 1998.
Each Agreement has an initial term of two years and may be renewed
each year only so long as such renewal and continuance are specifically
approved at least annually by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund to which the
Agreement relates, and only if the terms and the renewal thereof have
been approved by the vote of a majority of the directors of Equity Funds
II, Inc. who are not parties thereto or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on
such approval. Each Agreement is terminable without penalty on 60 days'
notice by the directors of Equity Funds II, Inc. or by the Manager.
Each Agreement will terminate automatically in the event of its
assignment.
The annual compensation paid by Decatur Equity Income Fund for
investment management services is equal to 0.60% on the first $100
million of the Fund's average daily net assets, 0.525% on the next $150
million, 0.50% on the next $250 million and 0.475% on the average daily
net assets in excess of $500 million, less the Fund's proportionate
share of all directors' fees paid to the unaffiliated directors by
Equity Funds II, Inc.
The annual compensation paid by Growth and Income Fund for
investment management services is equal to 0.60% on the first $500
million of the Fund's average daily net assets, 0.575% on the next $250
million and 0.55% on the average daily net assets in excess of $750
million, less the Fund's proportionate share of all directors' fees paid
to the unaffiliated directors by Equity Funds II, Inc.
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.
Under the Investment Management Agreement for Diversified Value
Fund, the Manager is paid an annual fee equal to 0.65% on the first $500
million of average daily net assets, 0.60% on the next $500 million,
0.55% on the next $1.5 billion and 0.50% on the average daily net assets
in excess of $2.5 billion.
The Manager has elected voluntarily to waive that portion, if any,
of the annual management fees payable by Blue Chip Fund and Social
Awareness Fund and to pay certain expenses of a Fund to the extent
necessary to ensure that the total operating expenses of each Class of
that Fund do not exceed 1.20% (exclusive of taxes, interest, brokerage
commissions, extraordinary expenses and applicable 12b-1 expenses)
during the commencement of the public offering of the Fund through
_____________.
The Manager has elected voluntarily to waive that portion, if any,
of the annual management fees payable by Diversified Value Fund and to
pay certain expenses of the Fund to the extent necessary to ensure that
the Total Operating Expenses of the Fund (exclusive of 12b-1 Plan
expenses, taxes, interest, brokerage commissions and extraordinary
expenses) do not exceed, on an annualized basis, 0.75% of the average
daily net assets of each Class from the commencement of the public
offering of Classes through July 31, 1999.
Pursuant to the terms of a Sub-Advisory Agreement with the Manager,
the Sub-Adviser participates in the management of Blue Chip Fund's and
Social Awareness Fund's assets, is responsible for day-to-day investment
management of these Funds, makes investment decisions for each of these
Fund in accordance with a Fund's investment objectives and stated
policies and places orders on behalf of the Funds to effect the
investment decisions made. The Manager continues to have ultimate
responsibility for all investment advisory services in connection with
the management of the Funds pursuant to the Investment Management
Agreement and supervises the Sub-Adviser's performance of such services.
For the services provided to the Manager, the Manager pays the Sub-
Adviser the following fee with respect to Blue Chip Fund: (i) 0.15% of
average daily net assets averaging one year old or less; (ii) 0.20% of
average daily net assets averaging two years old or less, but greater
than one year old; and (iii) 0.35% of average daily net assets averaging
over two years old. For the services provided to the Manager, the
Manager pays the Sub-Adviser the following fee with respect to Social
Awareness Fund: (i) 0.20% of average daily net assets averaging one
year old or less; (ii) 0.25% of average daily net assets averaging two
years old or less, but greater than one year old; and (iii) 0.40% of
average daily net assets averaging over two years old.
The Sub-Adviser, 630 Fifth Avenue, New York, New York, 10111, is an
indirect, wholly-owned subsidiary of Lincoln National and an affiliate
of the Manager. Founded in 1979, it provides investment advice to
pension plans, endowments, insurance and commingled products and has
assets under management, as of November 30, 1998, in excess of $0
billion. The Sub-Adviser uses a quantitative approach. It evaluates
potential investments utilizing an internally developed statistical
model, based on securities financial characteristics.
On November 30, 1998, the total net assets of Equity Funds II, Inc.
were $0, broken down as follows:
Decatur Equity Income Fund $0
Growth and Income Fund $0
Blue Chip Fund $0
Social Awareness Fund $0
Diversified Value Fund $0
Set forth below is information regarding the amount of investment
advisory fees incurred, paid and waived, if any, by each Fund to the
Manager during the periods indicated.
<TABLE>
<CAPTION>
Investment Investment Investment Advisory
Advisory Fees Advisory Fees Fees
Incurred Paid Waived
<S> <C> <C> <C>
Decatur Equity Income Fund
12/1/97-11/30/98 $0 $0 N/A
12/1/96-11/30/97 $10,329,490 $10,329,490 N/A
12/1/95-11/30/96 $8,397,639 $8,397,639 N/A
Growth and Income Fund
12/1/97-11/30/98 $0 $0 N/A
12/1/96-11/30/97 $5,429,552 $5,429,552 N/A
12/1/95-11/30/96 $3,801,697 $3,801,697 N/A
Blue Chip Fund
12/1/97-11/30/98 $0 $0 $0
2/24/97(1)-11/30/97 $18,283 $-0- $18,283
Social Awareness Fund
12/1/97-11/30/98 $0 $0 $0
2/24/97(1)-11/30/97 $53,306 $13,785 $39,521
Diversified Value Fund
9/14/98(1)-11/30/98 $0 $0 $0
</TABLE>
(1) Commencement of operations.
For the fiscal year ended November 30, 1998, the Sub-Advisor received
fees of $000,000 with respect to Blue Chip Fund and $000,000 with
respect to Social Awareness Fund.
Under the general supervision of the Board of Directors, the
Manager makes all investment decisions which are implemented by Equity
Funds II, Inc.'s Trading Department. The Manager pays the salaries of
all directors, officers and employees of Equity Funds II, Inc. who are
affiliated with the Manager. Except for those expenses borne by the
Manager under the Investment Management Agreements and the Distributor
under the Distribution Agreements, each Fund is responsible for all of
its own expenses. Among others, these include each Fund's proportionate
share of rent and certain other administrative expenses; the investment
management fees; transfer and dividend disbursing agent fees and costs;
custodian expenses; federal and state securities registration fees;
proxy costs; and the costs of preparing prospectuses and reports sent to
shareholders.
Distribution and Service
The Distributor, Delaware Distributors, L.P., located at 1818
Market Street, Philadelphia, PA 19103, serves as the national
distributor of Decatur Equity Income Fund and Growth and Income Fund
shares under separate Distribution Agreements dated April 3, 1995, as
amended on November 29, 1995. The Distributor serves as the national
distributor of Blue Chip Fund and Social Awareness Fund shares under
separate Distribution Agreements dated February 24, 1997. The
Distributor serves as the national distributor of Diversified Value Fund
under a Distribution Agreement dated September 14, 1998. The
Distributor is an affiliate of the Manager and bears all of the costs of
promotion and distribution, except for payments by the Funds on behalf
of Class A Shares, Class B Shares and Class C Shares under their
respective 12b-1 Plan. The Distributor is an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another
affiliate of the Manager located at 1818 Market Street, Philadelphia, PA
19103, serves as the Funds' shareholder servicing, dividend disbursing
and transfer agent pursuant to an Amended and Restated Shareholders
Services Agreement dated as of September 14, 1998. The Transfer Agent
also provides accounting services to the Funds pursuant to the terms of
a separate Fund Accounting Agreement. The Transfer Agent is also an
indirect, wholly owned subsidiary of Delaware Management Holdings, Inc.
The Funds have authorized one or more brokers to accept on its
behalf purchase and redemption orders in addition to the Transfer Agent.
Such brokers are authorized to designate other intermediaries to accept
purchase and redemption orders on the behalf of the Funds. For purposes
of pricing, the Funds will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Investors may be charged a fee
when effecting transactions through a broker or agent.
OFFICERS AND DIRECTORS
The business and affairs of Equity Funds II, Inc. are managed under
the direction of its Board of Directors.
Certain officers and directors of Equity Funds II, Inc. hold
identical positions in each of the other funds in the Delaware
Investments family. On December 31, 1998, Equity Funds II, Inc.'s
officers and directors owned less than 1% of the outstanding shares of
each Class of Decatur Equity Income Fund, Growth and Income Fund, Blue
Chip Fund, Social Awareness Fund and Diversified Value Fund.
As of December 31, 1998, management believes the following
shareholders held 5% or more of the outstanding shares of a Class:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Decatur Income B Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246
Decatur Equity Merrill Lynch, Pierce, Fenner & Smith
Income Fund C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246
Decatur Equity The Northern Trust Co.
Income Fund Cust. J Paul Getty Trust
Institutional Class 401 Wilshire Blvd.
Santa Monica, CA 90401
RS 401(k) Plan
Price Waterhouse LLP Savings Plan
c/o DELPAC 16th floor
1818 Market Street
Philadelphia, PA 19103
Brigham Young University
RL Ball & Associates
c/o Richard White
Provo, UT 84602
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Decatur Equity Income
Fund RS Day & Zimmerman Start 401(k)
Institutional Class Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103
Growth and Income Fund Merrill Lynch, Pierce, Fenner & Smith
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246
Growth and Income Fund Merrill Lynch, Pierce, Fenner & Smith
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246
Growth and Income Fund First Trust NA
Institutional Class Trust Northern States Power
Employee Retirement Savings Plan
P.O. Box 64482
St. Paul, MN 55164
Federated Life Insurance Company
Separate Sub-Account A
Attn: Tom Koch
121 E. Park Square
Owatonna, MN 55060
Lincoln National Life Insurance Co.
Attn: Karen Gerke
1300 Clinton Street
Fort Wayne, IN 46802
Blue Chip Fund PaineWebber for the benefit of
A Class PaineWebber CDN FBO
Eric S. Petersen
P.O. Box 1108
New York, NY 10268
Blue Chip Fund NFSC FEBO
C Class Elizabeth S. Fleming
1915 Wyngate
Ames, IA 50010
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Fund C Class NFSC FEBO
Linda A. Benesh
2602 Caldwell Mill Ln.
Birmingham, AL 35243
NFSC FEBO
Elizabeth S. Fleming Cust.
Cody H. Fleming
1915 Wyngate
Ames, IA 50010
Prudential Securities Inc. FBO
Michael R. Katz MD TTEE
Atlantic Cardiology Assoc. PA
MPP Plan
FBO Mohamed H. Elnahal MD
Absecon, NJ 08201
Marvin E. Rushing and Shirley A.
Rushing JT WROS
354 Maple Ave.
Owensboro, KY 42301
Blue Chip Fund Lincoln Investment Management, Inc.
Institutional Class Attn: Patricia Roller
200 E. Berry St. See 3R04
Fort Wayne, IN 46802
Social Awareness Fund MLPF&S for the sole benefit of
C Class its customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Fl.
Jacksonville, FL 32246
Donaldson Lufkin Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
Social Awareness Fund RS DMC Employee Profit Sharing Plan
Institutional Class Delaware Management Co.
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103
</TABLE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust,
Delaware Management Company, Inc., Delaware Management Company (a series
of Delaware Management Business Trust), Delaware Investment Advisers (a
series of Delaware Management Business Trust), Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Management Trust Company, Delaware International Holdings Ltd.,
Founders Holdings, Inc., Delaware International Advisers Ltd., Delaware
Capital Management, Inc. and Retirement Financial Services, Inc. are
direct or indirect, wholly owned subsidiaries of Delaware Management
Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. 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.
Certain officers and trustees of Equity Funds II, Inc. hold
identical positions in each of the other funds in the Delaware
Investments family. Directors and principal officers of Equity Funds
II, Inc. are noted below along with their ages and their business
experience for the past five years. Unless otherwise noted, the address
of each officer and director is One Commerce Square, Philadelphia, PA
19103.
*Wayne A. Stork (61)
Chairman and Director and/or Trustee of Equity Funds II, Inc. and each
of the other 33 investment companies in the Delaware Investments family
and Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of DMH Corp.,
Delaware Distributors, Inc. and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company, Inc. and Delaware
Management Business Trust
Chairman, President, Chief Executive Officer and Chief Investment
Officer of Delaware Management
Company (a series of Delaware Management Business Trust)
Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management Business
Trust)
Chairman, Chief Executive Officer and Director of Delaware International
Advisers Ltd., Delaware International Holdings Ltd. and Delaware
Management Holdings, Inc.
President and Chief Executive Officer of Delvoy, Inc.
Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Retirement Financial
Services, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.
* Jeffrey J. Nick (45)
President, Chief Executive Officer and Director and/or Trustee of Equity
Funds II, Inc. and each of the other 33 investment companies in the
Delaware Investments family
President and Director of Delaware Management Holdings, Inc.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc.
Director of Delaware International Advisers Ltd.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National UK
plc and from 1989 to 1992, he was Senior Vice President responsible for
corporate planning and development for Lincoln National Corporation.
* Director affiliated with Equity Fund II, Inc.'s investment manager
and considered an "interested person" as defined in the 1940 Act.
Richard G. Unruh, Jr. (59)
Executive Vice President of Equity Funds II, Inc. and each of the other
33 investment companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Capital Management,
Inc.
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware organization.
Paul E. Suckow (51)
Executive Vice President/Chief Investment Officer, Fixed Income of
Equity Funds II, Inc. and each of the other 33 investment companies in
the Delaware Investments family, Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of Delaware Management
Business Trust) and Delaware Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and
Delaware Management Business Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for Oppenheimer
Management Corporation, New York, NY from 1985 to 1992. Prior to that,
Mr. Suckow was a fixed-income portfolio manager for Delaware
Investments.
David K. Downes (59)
Executive Vice President, Chief Operating Officer, Chief Financial
Officer of Equity Funds II, Inc. and each of the other 33 investment
companies in the Delaware Investments family, Delaware Management
Holdings, Inc, Founders CBO Corporation, Delaware Capital Management,
Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust) and Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH Corp.,
Delaware Distributors, Inc., Founders Holdings, Inc. and Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and Director
of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director
of Delaware International Holdings Ltd.
Chairman, Chief Executive Officer and Director of Delaware Management
Trust Company and Retirement Financial Services, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various executive
capacities at different times within the Delaware organization.
Walter P. Babich (71)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 investment companies in the Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from
1988 to 1991, he was a partner of I&L Investors.
John H. Durham (60)
Director and/or Trustee of Equity Funds II, Inc. and 18 other investment
companies in the Delaware Investments family.
Partner, Complete Care Services.
120 Gilbraltar Road, Horsham, PA 19044.
Mr. Durham served as Chairman of the Board of each fund in the Delaware
Investments family from 1986 to 1991; President of each fund from 1977
to 1990; and Chief Executive Officer of each fund from 1984 to 1990.
Prior to 1992, with respect to Delaware Management Holdings, Inc.,
Delaware Management Company, Delaware Distributors, Inc. and Delaware
Service Company, Inc., Mr. Durham served as a director and in various
executive capacities at different times.
Anthony D. Knerr (60)
Director and/or Trustee of Equity Funds II, Inc. and each of the 33
other investment companies in the Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to 1989, he was
also a lecturer in English at the University. In addition, Mr. Knerr
was Chairman of The Publishing Group, Inc., New York, from 1988 to 1990.
Mr. Knerr founded The Publishing Group, Inc. in 1988.
Ann R. Leven (58)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 other investment companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of
the Smithsonian Institution, Washington, DC, and from 1975 to 1992, she
was Adjunct Professor of Columbia Business School.
W. Thacher Longstreth (78)
Director and/or Trustee of Equity Funds II, Inc. each of the other 33
other investment companies in the Delaware Investments family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman
Thomas F. Madison (62)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 investment companies in the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications
Holdings, Inc. since 1996. From February to September 1994, Mr. Madison
served as Vice Chairman--Office of the CEO of The Minnesota Mutual Life
Insurance Company and from 1988 to 1993, he was President of U.S. WEST
Communications--Markets.
Charles E. Peck (63)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
33 investment companies in the Delaware Investments family
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of
The Ryland Group, Inc., Columbia, MD.
George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of Equity Funds II,
Inc. and each of the other 33 investment companies in the Delaware
Investments family
Senior Vice President and Secretary of Delaware Distributors, L.P.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of Delaware Management
Business Trust) and Delaware Management Holdings, Inc.
Senior Vice President, Secretary and Director/Trustee of DMH Corp.,
Delaware Management Company, Inc., Delaware Distributors, Inc., Delaware
Service Company, Inc., Founders Holdings, Inc., Retirement Financial
Services, Inc., Delaware Capital Management, Inc., Delvoy, Inc. and
Delaware Management Business Trust
Executive Vice President, Secretary and Director of Delaware Management
Trust Company
Senior Vice President and Director of Delaware International Holdings
Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various
executive capacities at different times within the Delaware
organization.
Joseph H. Hastings (49)
Senior Vice President/Corporate Controller of Equity Funds II, Inc. and
each of the other 33 investment companies in the Delaware Investments
family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Capital Management, Inc.,
Delaware International Holdings Ltd., Delvoy, Inc. and Delaware
Management Business Trust
Chief Financial Officer/Treasurer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
During the past five years, Mr. Hastings has served in various executive
capacities at different times within the Delaware organization.
Michael P. Bishof (36)
Senior Vice President/Treasurer of Equity Funds II, Inc. and each of the
other 33 investment companies in the Delaware Investments family and
Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust) and Delaware Service Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting of
Delaware Distributors, L.P. and Delaware Investment Advisers (a series
of Delaware Management Business Trust)
Senior Vice President and Manager of Investment Accounting of Delaware
International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a Vice
President for CS First Boston Investment Management, New York, NY from
1993 to 1994 and an Assistant Vice President for Equitable Capital
Management Corporation, New York, NY from 1987 to 1993.
John B. Fields (44)
Vice President/Senior Portfolio Manager of Equity Funds II, Inc., nine
other investment companies in the Delaware Investments family, Delaware
Capital Management, Inc. and Trustee of Delaware Management Business
Trust, Delaware Management Company, Inc., Delaware Management Company (a
series of Delaware Management Business Trust) and Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 1992, Mr. Fields served as a
director of domestic equity risk management for DuPont, Wilmington, DE.
J. Paul Dokas (38)
Vice President/Portfolio Manager of Equity Funds II, Inc. and nine other
investment companies in the Delaware Investments family
Before joining Delaware Investments in 1997, Mr. Dokas was a Director of
Trust Investments for Bell Atlantic Corporation in Philadelphia, where
he held various positions from 1985 to 1997.
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation expected to
be received from Equity Funds II, Inc. during its fiscal year and the
total compensation expected to be received from all investment companies
in the Delaware Investments family for which he or she serves as a
director or trustee during Equity Funds II, Inc.'s fiscal year and an
estimate of annual benefits to be received upon retirement under the
Delaware Group Retirement Plan for Directors/Trustees as of November 30,
1998. Only the independent directors of Equity Funds II, Inc. receive
compensation from Equity Funds II, Inc.
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual from the Investment
expected to be as Part of Equity Benefits Companies
received from Funds II, Inc.'s Upon in Delaware
Equity Funds II, Inc. Expenses Retirement(1) Investments(2)
<S> <C> <C> <C> <C>
Name
W. Thacher Longstreth $0 None $38,500 $0
Ann R. Leven $0 None $38,500 $0
Walter P. Babich $0 None $38,500 $0
Anthony D. Knerr $0 None $38,500 $0
Charles E. Peck $0 None $38,500 $0
Thomas F. Madison $0 None $38,500 $0
John H. Durham (3) $0 None $31,000 $0
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee who,
at the time of his or her retirement from the Board, has attained
the age of 70 and served on the Board for at least five continuous
years, is entitled to receive payments from each investment company
in the Delaware Investments family for which he or she serves as a
director or trustee for a period equal to the lesser of the number
of years that such person served as a director or trustee or the
remainder of such person's life. The amount of such payments will
be equal, on an annual basis, to the amount of the annual retainer
that is paid to directors/trustees of each investment company at
the time of such person's retirement. If an eligible
director/trustee retired as of November 30, 1998, he or she would
be entitled to annual payments totaling the amounts noted above, in
the aggregate, from all of the investment companies in the Delaware
Investments family for which he or she serves as a director or
trustee, based on the number of investment companies in the
Delaware Investments family as of that date.
(2) Each independent director/trustee (other than John H. Durham)
currently receives a total annual retainer fee of $38,500 for
serving as a director or trustee for all 34 investment companies in
Delaware Investments, plus $3,145 for each Board Meeting attended.
John H. Durham currently receives a total annual retainer fee of
$31,000 for serving as a director or trustee for 19 investment
companies in Delaware Investments, plus $1,757.50 for each Board
Meeting attended. Ann R. Leven, Walter P. Babich, Anthony D. Knerr
and Thomas F. Madison serve on the Fund's audit committee; Ms. Leven
is the chairperson. Members of the audit committee currently
receive additional annual compensation of $5,000 from all investment
companies, in the aggregate, with the exception of the chairperson,
who receives $6,000.
(3) John H. Durham joined the Board of Directors of Equity Funds II,
Inc. and 18 other investment companies in Delaware Investments on
April 16, 1998.
GENERAL INFORMATION
Equity Funds II, Inc. is an open-end management investment company.
Each Fund's portfolio of assets is diversified as defined by the
Investment Company Act of 1940. Equity Funds II, Inc. was first
organized as a Delaware corporation in 1956 and was subsequently
reorganized as a Maryland corporation on March 4, 1983. See Shares
under Management of the Funds.
The Manager is the investment manager of the Funds. The Manager
also provides investment management services to certain of the other
funds available from the Delaware Investments family. An affiliate of
the Manager manages private investment accounts. While investment
decisions of the Funds are made independently from those of the other
funds and accounts, investment decisions for such other funds and
accounts may be made at the same time as investment decisions for the
Funds.
The Manager, or its affiliate Delaware International Advisers Ltd.,
also manages the investment options for Delaware Medallion [SM] III
Variable Annuity. Medallion is issued by Allmerica Financial Life
Insurance and Annuity Company (First Allmerica Financial Life Insurance
Company in New York and Hawaii). Delaware Medallion offers a variety of
investment series ranging from domestic equity funds, international
equity and bond funds and domestic fixed income funds. Each investment
series available through Medallion utilizes an investment strategy and
discipline the same as or similar to one of the mutual funds in the
Delaware Investments family as available outside the annuity. See
Delaware Group Premium Fund, Inc. in Appendix B.
Access persons and advisory persons of the funds in the Delaware
Investments family, as those terms are defined in SEC Rule 17j-1 under
the 1940 Act, who provide services to the Manager, Delaware
International Advisers Ltd. or their affiliates, are permitted to engage
in personal securities transactions subject to the exceptions set forth
in Rule 17j-1 and the following general restrictions and procedures:
(1) certain blackout periods apply to personal securities transactions
of those persons; (2) transactions must receive advance clearance and
must be completed on the same day as the clearance is received; (3)
certain persons are prohibited from investing in initial public
offerings of securities and other restrictions apply to investments in
private placements of securities; (4) opening positions may only be
closed-out at a profit after a 60-day holding period has elapsed; and
(5) the Compliance Officer must be informed periodically of all
securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for each of the Funds
and for the other mutual funds in the Delaware Investments family. The
Distributor received net commissions from each Fund on behalf of their
respective Class A Shares, after reallowances to dealers, as follows:
Decatur Equity Income Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP
- ---------- ---------------------------- -----------
11/30/98 $0 $0 $0
11/30/97 2,632,798 2,164,821 467,977
11/30/96 2,178,120 1,814,559 363,561
Growth and Income Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP
- ---------- ---------------------------- -----------
11/30/98 $0 $0 $0
11/30/97 2,530,072 2,104,851 425,221
11/30/96 1,749,609 1,457,509 292,100
Blue Chip Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP
- ---------- ---------------------------- -----------
11/30/98 $0 $0 $0
11/30/97* 71,225 63,548 7,677
*Commenced operations on February 24, 1997.
Social Awareness Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP
- ---------- ---------------------------- -----------
11/30/98 $0 $0 $0
11/30/97* 258,024 224,473 33,551
*Commenced operations on February 24, 1997.
The Distributor received Limited CDSC payments with respect to
Class A Shares of each Fund as follows:
Limited CDSC Payments
Decatur Social
Fiscal Decatur Income Total Return Blue Chip Awareness
Year Ended Fund A Class Fund A Class Fund A Class* Fund A Class*
- ---------- ------------ ------------ ------------- -------------
11/30/98 $0 $0 $0 $0
11/30/97 -0- 2,399 -0- -0-
11/30/96 3,249 -0- N/A N/A
*Commenced operations on February 24, 1997.
The Distributor received CDSC payments with respect to Class B
Shares of each Fund as follows:
CDSC Payments
Decatur Social
Fiscal Decatur Income Total Return Blue Chip Awareness
Year Ended Fund B Class Fund B Class Fund B Class* Fund B Class*
- ---------- ------------ ------------ ------------- -------------
11/30/98 $0 $0 $0 $0
11/30/97 150,241 171,099 757 2,387
11/30/96 60,751 45,044 N/A N/A
*Commenced operations on February 24, 1997.
The Distributor received CDSC payments with respect to Class C
Shares of each Fund as follows:
CDSC Payments
Decatur Social
Fiscal Decatur Income Total Return Blue Chip Awareness
Year Ended Fund C Class Fund C Class Fund C Class* Fund C Class*
- ---------- ------------ ------------ ------------- -------------
11/30/98 $0 $0 $0 $0
11/30/97 3,768 5,019 -0- 10
11/30/96 1,439 1,584 N/A N/A
*Commenced operations on February 24, 1997.
The Transfer Agent, an affiliate of the Manager, acts as
shareholder servicing, dividend disbursing and transfer agent for each
Fund and for the other mutual funds in the Delaware Investments family.
The Transfer Agent is paid a fee by each Fund for providing these
services consisting of an annual per account charge of $5.50 plus
transaction charges for particular services according to a schedule.
Compensation is fixed each year and approved by the Board of Directors,
including a majority of the unaffiliated directors. The Transfer Agent
also provides accounting services to each Fund. Those services include
performing all functions related to calculating each Fund's net asset
value and providing all financial reporting services, regulatory
compliance testing and other related accounting services. For its
services, the Transfer Agent is paid a fee based on total assets of all
funds in the Delaware Investments family for which it provides such
accounting services. Such fee is equal to 0.25% multiplied by the total
amount of assets in the complex for which the Transfer Agent furnishes
accounting services, where such aggregate complex assets are $10 billion
or less, and 0.20% of assets if such aggregate complex assets exceed $10
billion. The fees are charged to each fund, including each Fund, on an
aggregate pro-rata basis. The asset-based fee payable to the Transfer
Agent is subject to a minimum fee calculated by determining the total
number of investment portfolios and associated classes.
The Manager and its affiliates own the name "Delaware Group."
Under certain circumstances, including the termination of Equity Funds
II, Inc.'s advisory relationship with the Manager or its distribution
relationship with the Distributor, the Manager and its affiliates could
cause Equity Funds II, Inc. to delete the words "Delaware Group" from
Equity Funds II, Inc.'s name.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center,
Brooklyn, NY 11245, is custodian of each Fund's securities and cash. As
custodian for a Fund, Chase maintains a separate account or accounts for
the Fund; receives, holds and releases portfolio securities on account
of the Fund; receives and disburses money on behalf of the Fund; and
collects and receives income and other payments and distributions on
account of the Fund's portfolio securities.
Capitalization
Equity Funds II, Inc. has a present authorized capitalization of
one billion two hundred million shares of capital stock with a $1.00
par value per share.
The Board of Directors has allocated the following number of shares
to each Fund and their respective classes:
Decatur Equity Income Fund 350 million
Decatur Equity Income Fund A Class 200 million
Decatur Equity Income Fund B Class 50 million
Decatur Equity Income Fund C Class 50 million
Decatur Equity Income Fund Institutional Class 50 million
Growth and Income Fund 250 million
Growth and Income Fund A Class 100 million
Growth and Income Fund B Class 50 million
Growth and Income Fund C Class 50 million
Growth and Income Fund Institutional Class 50 million
Blue Chip Fund 200 million
Blue Chip Fund A Class 100 million
Blue Chip Fund B Class 25 million
Blue Chip Fund C Class 25 million
Blue Chip Fund Institutional Class 50 million
Social Awareness Fund 200 million
Social Awareness Fund A Class 100 million
Social Awareness Fund B Class 25 million
Social Awareness Fund C Class 25 million
Social Awareness Fund Institutional Class 50 million
Diversified Value Fund 200 million
Diversified Value Fund A Class 100 million
Diversified Value Fund B Class 25 million
Diversified Value Fund C Class 25 million
Diversified Value Fund Institutional Class 50 million
While shares of Equity Funds II, Inc. have equal voting rights on
matters affecting the Funds, each Fund would vote separately on any
matter which it is directly affected by, such as any change in its
fundamental investment policies and as otherwise prescribed by the 1940
Act. Shares of each Fund have a priority in that Fund's assets, and in
gains on and income from the portfolio of that Fund.
All shares have no preemptive rights, are fully transferable and,
when issued, are fully paid and nonassessable.
Shares of each Class of a Fund represent a proportionate interest
in the assets of such Fund, and have the same voting and other rights
and preferences as the other classes of that Fund, except that shares of
a Fund's Institutional Class may not vote on any matter affecting the
Fund Classes' Plans under Rule 12b-1. Similarly, as a general matter,
shareholders of Class A Shares, Class B Shares and Class C Shares of a
Fund may vote only on matters affecting the 12b-1 Plan that relates to
the Class of shares that they hold. However, Class B Shares may vote on
any proposal to increase materially the fees to be paid by a Fund under
the 12b-1 Plan relating to its Class A Shares. General expenses of a
Fund will be allocated on a pro-rata basis to the classes according to
asset size, except that expenses of the 12b-1 Plans of each Fund's Class
A Shares, Class B Shares and Class C Shares will be allocated solely to
those classes.
Beginning January 29, 1999, Decatur Income Fund and its classes
were renamed Decatur Equity Income Fund. Beginning January 29, 1999,
Decatur Total Return and its classes were renamed Growth and Income
Fund.
Prior to January 13, 1994, Decatur Equity Income Fund offered only
one class of shares, the class currently designated Class A Shares.
Beginning January 13, 1994, Decatur Equity Income Fund began offering
its Institutional Class, beginning September 6, 1994, Decatur Income
Fund began offering its Class B Shares, and beginning November 29, 1995,
Decatur Income Fund began offering its Class C Shares. Prior to July
26, 1993, Growth and Income Fund offered only one class of shares, the
class currently designated Class A Shares. Beginning July 26, 1993,
Growth and Income Fund began offering its Institutional Class, beginning
September 6, 1994, Growth and Income Fund began offering its Class B
Shares, and beginning November 29, 1995, Growth and Income Fund began
offering its Class C Shares.
Prior to May 2, 1994, the Decatur Equity Income Fund series was
named the Decatur I Series (which was known and did business as Decatur
Fund I). From May 2, 1994 to September 5, 1994, Decatur Equity Income
Fund A Class was known as the Decatur Income Fund class and prior to May
2, 1994, it was known as the Decatur Fund I class. From May 2, 1994 to
September 5, 1994, Decatur Equity Income Fund Institutional Class was
known as the Decatur Income Fund (Institutional) class and prior to May
2, 1994, it was known as the Decatur Fund I (Institutional) class.
Prior to May 2, 1994, the Growth and Income Fund series was named
the Decatur II Series (which was known and did business as Decatur Fund
II). From May 2, 1994 to September 5, 1994, Growth and Income Fund A
Class was known as the Decatur Total Return Fund class and prior to May
2, 1994, it was known as the Decatur Fund II class. From May 2, 1994 to
September 5, 1994, Growth and Income Fund Institutional Class was known
as the Decatur Total Return Fund (Institutional) class and prior to May
2, 1994, it was known as the Decatur Fund II (Institutional) class.
Effective as of the close of business on February 21, 1997, the
name Delaware Group Decatur Fund, Inc. was changed to Delaware Group
Equity Funds II, Inc. Effective as of the close of business on January
28, 1998, the name of Quantum Fund series and its classes were renamed
Social Awareness Fund.
Noncumulative Voting
Equity Funds II, Inc.'s shares have noncumulative voting rights
which means that the holders of more than 50% of the shares of Equity
Funds II, Inc. voting for the election of directors can elect all the
directors if they choose to do so, and, in such event, the holders of
the remaining shares will not be able to elect any directors.
This Part B does not include all of the information contained in
the Registration Statement which is on file with the SEC.
APPENDIX A--RATINGS
Bonds
Excerpts from Moody's Investors Service, Inc. ("Moody's")
description of its bond ratings: Aaa-- judged to be the best quality.
They carry the smallest degree of investment risk; Aa--judged to be of
high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered as medium
grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time;
Ba--judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class; B-- generally lack characteristics of
the desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period of
time may be small; Caa--are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest; Ca--represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings; C--the lowest rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Excerpts from Standard & Poor's Rating Group ("S&P") description of
its bond ratings: AAA--highest grade obligations. They possess the
ultimate degree of protection as to principal and interest; AA--also
qualify as high grade obligations, and in the majority of instances
differ from AAA issues only in a small degree; A-- strong ability to pay
interest and repay principal although more susceptible to changes in
circumstances; BBB-- regarded as having an adequate capacity to pay
interest and repay principal; BB, B, CCC, CC--regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions; C--reserved for income
bonds on which no interest is being paid; D--in default, and payment of
interest and/or repayment of principal is in arrears.
APPENDIX B - INVESTMENT OBJECTIVES OF THE OTHER FUNDS IN THE DELAWARE
INVESTMENTS FAMILY
Delaware Balanced Fund seeks long-term growth by a balance of
capital appreciation, income and preservation of capital. It uses a
dividend-oriented valuation strategy to select securities issued by
established companies that are believed to demonstrate potential for
income and capital growth. Devon Fund seeks current income and capital
appreciation by investing primarily in income-producing common stocks,
with a focus on common stocks the Manager believes have the potential
for above average dividend increases over time.
Trend Fund seeks long-term growth by investing in common stocks
issued by emerging growth companies exhibiting strong capital
appreciation potential.
Small Cap Value Fund seeks capital appreciation by investing
primarily in common stocks whose market values appear low relative to
their underlying value or future potential.
DelCap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that
have a demonstrated history of growth and have the potential to support
continued growth.
Delchester Fund seeks as high a current income as possible by
investing principally in high yield, high risk corporate bonds, and also
in U.S. government securities and commercial paper. Strategic Income
Fund seeks to provide investors with high current income and total
return by using a multi-sector investment approach, investing
principally in three sectors of the fixed-income securities markets:
high yield, higher risk securities, investment grade fixed-income
securities and foreign government and other foreign fixed-income
securities. High-Yield Opportunities Fund seeks to provide investors
with total return and, as a secondary objective, high current income.
Corporate Bond Fund seeks to provide investors with total return by
investing primarily in corporate bonds. Extended Duration Bond Fund
seeks to provide investors with total return by investing primarily in
corporate bonds
U.S. Government Fund seeks high current income by investing
primarily in long-term debt obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities and instruments secured by such securities.
Delaware Cash Reserve seeks the highest level of income consistent
with the preservation of capital and liquidity through investments in
short-term money market instruments, while maintaining a stable net
asset value.
REIT Fund seeks to achieve maximum long-term total return with
capital appreciation as a secondary objective. it seeks to achieve its
objectives by investing in securities of companies primarily engaged in
the real estate industry.
Tax-Free USA Fund seeks high current income exempt from federal
income tax by investing in municipal bonds of geographically-diverse
issuers. Tax-Free Insured Fund invests in these same types of
securities but with an emphasis on municipal bonds protected by
insurance guaranteeing principal and interest are paid when due. Tax-
Free USA Intermediate Fund seeks a high level of current interest income
exempt from federal income tax, consistent with the preservation of
capital by investing primarily in municipal bonds.
Tax-Free Money Fund seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while
maintaining a stable net asset value.
Tax-Free New Jersey Fund seeks a high level of current interest
income exempt from federal income tax and New Jersey state and local
taxes, consistent with preservation of capital. Tax-Free Ohio Fund
seeks a high level of current interest income exempt from federal income
tax and Ohio state and local taxes, consistent with preservation of
capital. Tax-Free Pennsylvania Fund seeks a high level of current
interest income exempt from federal income tax and Pennsylvania state
and local taxes, consistent with the preservation of capital.
Foundation Funds are "fund of funds" which invest in other funds in
the Delaware Investments family (referred to as "Underlying Funds").
Foundation Funds Income Portfolio seeks a combination of current income
and preservation of capital with capital appreciation by investing
primarily in a mix of fixed income and domestic equity securities,
including fixed income and domestic equity Underlying Funds. Foundation
Funds Balanced Portfolio seeks capital appreciation with current income
as a secondary objective by investing primarily in domestic equity and
fixed income securities, including domestic equity and fixed income
Underlying Funds. Foundation Funds Growth Portfolio seeks long term
capital growth by investing primarily in equity securities, including
equity Underlying Funds, and, to a lesser extent, in fixed income
securities, including fixed-income Underlying Funds.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international
securities that provide the potential for capital appreciation and
income. Global Bond Fund seeks to achieve current income consistent
with the preservation of principal by investing primarily in global
fixed-income securities that may also provide the potential for capital
appreciation. Global Equity Fund seeks to achieve long-term total
return by investing in global securities that provide the potential for
capital appreciation and income. Emerging Markets Fund seeks long-term
capital appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries.
U.S. Growth Fund seeks to maximize capital appreciation by
investing in companies of all sizes which have low dividend yields,
strong balance sheets and high expected earnings growth rates relative
to their industry. Overseas Equity Fund seeks to maximize total return
(capital appreciation and income), principally through investments in an
internationally diversified portfolio of equity securities. New Pacific
Fund seeks long-term capital appreciation by investing primarily in
companies which are domiciled in or have their principal business
activities in the Pacific Basin.
Delaware Group Premium Fund, Inc. offers 16 funds available
exclusively as funding vehicles for certain insurance company separate
accounts. Decatur Total Return Series seeks the highest possible total
rate of return by selecting issues that exhibit the potential for
capital appreciation while providing higher than average dividend
income. Delchester Series seeks as high a current income as possible by
investing in rated and unrated corporate bonds, U.S. government
securities and commercial paper. Capital Reserves Series seeks a high
stable level of current income while minimizing fluctuations in
principal by investing in a diversified portfolio of short- and
intermediate-term securities. Cash Reserve Series seeks the highest
level of income consistent with preservation of capital and liquidity
through investments in short-term money market instruments. DelCap
Series seeks long-term capital appreciation by investing its assets in a
diversified portfolio of securities exhibiting the potential for
significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-
oriented valuation strategy to select securities issued by established
companies that are believed to demonstrate potential for income and
capital growth. International Equity Series seeks long-term growth
without undue risk to principal by investing primarily in equity
securities of foreign issuers that provide the potential for capital
appreciation and income. Small Cap Value Series seeks capital
appreciation by investing primarily in small-cap common stocks whose
market values appear low relative to their underlying value or future
earnings and growth potential. Emphasis will also be placed on
securities of companies that may be temporarily out of favor or whose
value is not yet recognized by the market. Trend Series seeks long-term
capital appreciation by investing primarily in small- cap common stocks
and convertible securities of emerging and other growth-oriented
companies. These securities will have been judged to be responsive to
changes in the market place and to have fundamental characteristics to
support growth. Income is not an objective. Global Bond Series seeks
to achieve current income consistent with the preservation of principal
by investing primarily in global fixed-income securities that may also
provide the potential for capital appreciation. Strategic Income Series
seeks high current income and total return by using a multi-sector
investment approach, investing primarily in three sectors of the fixed-
income securities markets: high-yield, higher risk securities;
investment grade fixed-income securities; and foreign government and
other foreign fixed-income securities. Devon Series seeks current
income and capital appreciation by investing primarily in income-
producing common stocks, with a focus on common stocks that the
investment manager believes have the potential for above-average
dividend increases over time. Emerging Markets Series seeks to achieve
long-term capital appreciation by investing primarily in equity
securities of issuers located or operating in emerging countries.
Convertible Securities Series seeks a high level of total return on its
assets through a combination of capital appreciation and current income
by investing primarily in convertible securities. Social Awareness
Series seeks to achieve long-term capital appreciation by investing
primarily in equity securities of medium to large-sized companies
expected to grow over time that meet the Series' "Social Criteria"
strategy. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in
securities of companies primarily engaged in the real estate industry.
Delaware-Voyageur US Government Securities Fund seeks to provide a
high level of current income consistent with the prudent investment risk
by investing in U.S. Treasury bills, notes, bonds, and other obligations
issued or unconditionally guaranteed by the full faith and credit of the
U.S. Treasury, and repurchase agreements fully secured by such
obligations.
Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the
Arizona personal income tax, consistent with the preservation of
capital. Delaware-Voyageur Minnesota Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the
Minnesota personal income tax, consistent with the preservation of
capital.
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to
provide a high level of current income exempt from federal income tax
and the Minnesota personal income tax, consistent with preservation of
capital. The Fund seeks to reduce market risk by maintaining an average
weighted maturity from five to ten years.
Delaware-Voyageur Tax-Free California Insured Fund seeks to
provide a high level of current income exempt from federal income tax
and the California personal income tax, consistent with the preservation
of capital. Delaware-Voyageur Tax-Free Florida Insured Fund seeks to
provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital. The Fund will seek to
select investments that will enable its shares to be exempt from the
Florida intangible personal property tax. Delaware-Voyageur Tax-Free
Florida Fund seeks to provide a high level of current income exempt from
federal income tax, consistent with the preservation of capital. The
Fund will seek to select investments that will enable its shares to be
exempt from the Florida intangible personal property tax. Delaware-
Voyageur Tax-Free Kansas Fund seeks to provide a high level of current
income exempt from federal income tax, the Kansas personal income tax
and the Kansas intangible personal property tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Missouri Insured
Fund seeks to provide a high level of current income exempt from federal
income tax and the Missouri personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free New Mexico Fund
seeks to provide a high level of current income exempt from federal
income tax and the New Mexico personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Oregon Insured Fund
seeks to provide a high level of current income exempt from federal
income tax and the Oregon personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Utah Fund seeks to
provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital. Delaware-Voyageur Tax-Free
Washington Insured Fund seeks to provide a high level of current income
exempt from federal income tax, consistent with the preservation of
capital.
Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free California Fund seeks to provide a high level
of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Iowa Fund seeks to provide a high level of
current income exempt from federal income tax and the Iowa personal
income tax, consistent with the preservation of capital. Delaware-
Voyageur Tax-Free Idaho Fund seeks to provide a high level of current
income exempt from federal income tax and the Idaho personal income tax,
consistent with the preservation of capital. Delaware-Voyageur
Minnesota High Yield Municipal Bond Fund seeks to provide a high level
of current income exempt from federal income tax and the Minnesota
personal income tax primarily through investment in medium and lower
grade municipal obligations. National High Yield Municipal Fund seeks
to provide a high level of income exempt from federal income tax,
primarily through investment in medium and lower grade municipal
obligations. Delaware-Voyageur Tax-Free New York Fund seeks to provide
a high level of current income exempt from federal income tax and the
personal income tax of the state of New York and the city of New York,
consistent with the preservation of capital. Delaware-Voyageur Tax-Free
Wisconsin Fund seeks to provide a high level of current income exempt
from federal income tax and the Wisconsin personal income tax,
consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high
level of current income exempt from federal income tax and the Colorado
personal income tax, consistent with the preservation of capital.
Aggressive Growth Fund seeks long-term capital appreciation, which
the Fund attempts to achieve by investing primarily in equity securities
believed to have the potential for high earnings growth. Although the
Fund, in seeking its objective, may receive current income from
dividends and interest, income is only an incidental consideration in
the selection of the Fund's investments. Growth Stock Fund has an
objective of long-term capital appreciation. The Fund seeks to achieve
its objective from equity securities diversified among individual
companies and industries. Tax-Efficient Equity Fund seeks to obtain for
taxable investors a high total return on an after-tax basis. The Fund
will attempt to achieve this objective by seeking to provide a high
long-term after-tax total return through managing its portfolio in a
manner that will defer the realization of accrued capital gains and
minimize dividend income.
Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high
level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free North Dakota Fund seeks to provide a high
level of current income exempt from federal income tax and the North
Dakota personal income tax, consistent with the preservation of capital.
For more complete information about any of the funds in the
Delaware Investments family, including charges and expenses, you can
obtain a prospectus from the Distributor. Read it carefully before you
invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware
Group Equity Funds II, Inc. and, in its capacity as such, audits the
annual financial statements of the Funds. Each Fund's Statement of Net
Assets, Statements of Operations, Statement of Changes in Net Assets,
Financial Highlights and Notes to Financial Statements, as well as the
report of Ernst & Young LLP, independent auditors, for the fiscal year
ended November 30, 1998 are included in Delaware Group Equity Funds II,
Inc. Annual Reports to shareholders. The financial statements and
financial highlights, the notes relating thereto and the reports of
Ernst & Young LLP, listed above are incorporated by reference from the
Annual Reports into this Part B.
Delaware Investments includes funds with a wide range of
investment objectives. Stock funds, income funds, national and state-
specific tax-exempt funds, money market funds, global and international
funds and closed-end funds give investors the ability to create a
portfolio that fits their personal financial goals. For more
information, shareholders of the Fund Classes should contact their
financial adviser or call Delaware Investments at 800-523-1918, and
shareholders of the Institutional Class should contact Delaware
Investments at 800-510-4015.
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Blue Chip Fund and
Social Awareness Fund:
Vantage Investment Advisors
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
DECATUR EQUITY INCOME FUND (formerly Decatur Income Fund)
GROWTH AND INCOME FUND (formerly Decatur Total Return Fund)
BLUE CHIP FUND
SOCIAL AWARENESS FUND (formerly Quantum Fund)
DIVERSIFIED VALUE FUND
A CLASSES
B CLASSES
C CLASSES
INSTITUTIONAL CLASSES
CLASSES OF DELAWARE GROUP
EQUITY FUNDS II, INC.
PART B
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 29, 1999
[LOGO OMITTED: DELAWARE INVESTMENTS]
PART C
Other Information
Item 23. Exhibits
(a) Articles of Incorporation.
(1) Articles of Incorporation, as amended and supplemented
through November 27, 1995, incorporated into this filing by reference to
Post-Effective Amendment No. 104 filed November 27, 1995.
(2) Executed Articles Supplementary (November 28, 1995)
incorporated into this filing by reference to Post-Effective Amendment
No. 105 filed January 30, 1996.
(3) Executed Articles Supplementary (March 24, 1997)
incorporated into this filing by reference to Post-Effective Amendment
No. 108 filed August 22, 1997.
(4) Executed Articles of Amendment (March 24, 1997)
incorporated into this filing by reference to Post-Effective Amendment
No. 108 filed August 22, 1997.
(5) Executed Articles of Amendment (January 6, 1998)
incorporated into this filing by reference to Post-Effective Amendment
No. 109 filed January 30, 1998.
(6) Articles Supplementary (August 26, 1998) attached as
Exhibit.
(7) Articles of Amendment (1999) to be filed by Amendment.
(b) By-Laws. By-Laws, as amended to date, incorporated into
this filing by reference to Post- Effective Amendment No. 104 filed
November 27, 1995.
(c) Instruments Defining the Rights of Security Holders.
(1) Articles of Incorporation, Articles of Amendment and
Articles Supplementary.
(i) Article Second of Articles Supplementary (June 30, 1993,
April 27, 1994 and September 2, 1994), Article Fifth of the Articles of
Incorporation (March 4, 1983) and Article Eleventh of Articles of
Amendment (May 2, 1985) incorporated into this filing by reference to
Post-Effective Amendment No. 104 filed November 27, 1995.
(ii) Articles Third and Fourth of Articles Supplementary
(November 28, 1995) incorporated into this filing by reference to Post-
Effective Amendment No. 105 filed January 30, 1996.
(iii) Article Fifth of Articles Supplementary (March 24, 1997)
incorporated by reference to Exhibit 24(b)(1)(c) incorporated into this
filing by reference to Post-Effective Amendment No. 108 filed August 22,
1997.
(iv) Article Fourth of Articles Supplementary (August 26, 1998)
Attached as Exhibit (a)(6).
(2) By-Laws. Article II, Article III, as amended, and Article
XIII, which was subsequently redesignated as Article XIV, incorporated
into this filing by reference to Post-Effective Amendment No. 104 filed
November 27, 1995.
(d) Investment Management Agreements.
(1) Investment Management Agreement (April 3, 1995) between
Delaware Management Company, Inc. and the Registrant on behalf of
Decatur Income Fund incorporated into this filing by reference to Post-
Effective Amendment No. 104 filed November 27, 1995.
(2) Investment Management Agreement (April 3, 1995) between
Delaware Management Company, Inc. and the Registrant on behalf of
Decatur Total Return Fund incorporated into this filing by reference to
Post-Effective Amendment No. 104 filed November 27, 1995.
(3) Executed Investment Management Agreement (February 24,
1997) between Delaware Management Company, Inc. and the Registrant on
behalf of Blue Chip Fund incorporated into this filing by reference to
Post-Effective Amendment No. 110 filed July 1, 1998.
(4) Executed Investment Management Agreement (February 24,
1997) between Delaware Management Company, Inc. and the Registrant on
behalf of Social Awareness Fund (formerly named Quantum Fund)
incorporated into this filing by reference to Post-Effective Amendment
No. 110 filed July 1, 1998.
(5) Form of Sub-Advisory Agreement (February __, 1997) between
Delaware Management Company, Inc. and Vantage Global Advisors, Inc. on
behalf of Blue Chip Fund incorporated into this filing by reference to
Post-Effective Amendment No. 106 filed December 10, 1996.
(6) Form of Sub-Advisory Agreement (February__, 1997) between
Delaware Management Company, Inc. and Vantage Global Advisors, Inc. on
behalf of Social Awareness Fund (formerly Quantum Fund) incorporated into
this filing by reference to Post-Effective Amendment No. 106 filed
December 10, 1996.
(7) Form of Investment Management Agreement (1997) between
Delaware Management Company and the Registrant on behalf of Diversified
Value Fund incorporated into this filing by reference to Post-Effective
Amendment No. 110 filed July 1, 1998.
(e) (1) Distribution Agreements.
(i) Forms of Distribution Agreements (April 1995) between
Delaware Distributors, L.P. and the Registrant on behalf of Decatur
Income Fund and Decatur Total Return Fund incorporated into this filing
by reference to Post-Effective Amendment No. 104 filed November 27,
1995.
(ii) Forms of Amendment No. 1 to Distribution Agreements
(November 1995) on behalf of Decatur Income Fund and Decatur Total
Return Fund incorporated into this filing by reference to Post-Effective
Amendment No. 104 filed November 27, 1995.
(iii) Executed Distribution Agreement (February 24, 1997)
between Delaware Distributors, L.P. and the Registrant on behalf of Blue
Chip Fund incorporated into this filing by reference to Post-Effective
Amendment No. 110 filed July 1, 1998.
(iv) Executed Distribution Agreement (February 24, 1997)
between Delaware Distributors, L.P. and the Registrant on behalf of
Social Awareness Fund (formerly named Quantum Fund) incorporated into
this filing by reference to Post-Effective Amendment No. 110 filed July
1, 1998.
(v) Form of Distribution Agreement (1998) between Delaware
Distributors, L.P. and the Registrant on behalf of Diversified Value
Fund incorporated into this filing by reference to Post-Effective
Amendment No. 110 filed July 1, 1998.
(2) Administration and Service Agreement. Form of
Administration and Service Agreement (as amended November 1995) (Module)
incorporated into this filing by reference to Post-Effective Amendment
No. 104 filed November 27, 1995.
(3) Dealer's Agreement. Dealer's Agreement (as amended
November 1995) (Module) incorporated into this filing by reference to
Post-Effective Amendment No. 104 filed November 27, 1995.
(4) Mutual Fund Agreement for the Delaware Group of Funds
(November 1995) (Module) incorporated into this filing by reference to
Post-Effective Amendment No. 105 filed January 30, 1996.
(f) Bonus, Profit Sharing, Pension Contracts.
(1) Amended and Restated Profit Sharing Plan incorporated into
this filing by reference to Post-Effective Amendment No. 104 filed
November 27, 1995.
(2) Amendment to Profit Sharing Plan (December 21, 1995)
(Module) incorporated into this filing by reference to Post-Effective
Amendment No. 105 filed January 30, 1996.
(g) Custodian Agreements.
(1) Executed Custodian Agreement with The Chase Manhattan
Bank attached as Exhibit.
(2) Amendment to Custodian Agreement (November 20, 1997) between
The Chase Manhattan Bank and the Registrant attached as Exhibit.
(3) Letter to The Chase Manhattan Bank (November 20, 1997) to
add Blue Chip Fund and Social Awareness Fund (formerly named Quantum
Fund) to the Custodian Agreement incorporated into this filing by
reference to Post-Effective Amendment No. 110 filed July 1, 1998.
(4) Form of Securities Lending Agreement (1997) between The
Chase Manhattan Bank and the Registrant incorporated into this filing by
reference to Post-Effective Amendment No. 106 filed December 10, 1996.
(5) Form of Letter to The Chase Manhattan Bank (1998) to add
Decatur Income Fund and Decatur Total Return Fund to the Custodian
Agreement attached as Exhibit.
(6) Form of Letter to The Chase Manhattan Bank (1998) to add
Diversified Value Fund to the Custodian Agreement incorporated into this
filing by reference to Post-Effective Amendment No. 110 filed July 1,
1998.
(h) Other Material Contracts.
(1) Executed Amended and Restated Shareholders Services
Agreement (February 24, 1997) between Delaware Service Company, Inc. and
the Registrant on behalf of each Fund incorporated into this filing by
reference to Post-Effective Amendment No. 110 filed July 1, 1998.
(2) Form of Second Amended and Restated Shareholders Services
Agreement (1998) between Delaware Service Company, Inc. and the
Registrant on behalf of each Fund incorporated into this filing by
reference to Post-Effective Amendment No. 110 filed July 1, 1998.
(3) Executed Fund Accounting Agreement (August 19, 1996)
between Delaware Service Company, Inc. and the Registrant incorporated
into this filing by reference to Post-Effective Amendment No. 106 filed
December 10, 1996.
(i) Form of Amendment No. 12 to Delaware Group of Funds Fund
Accounting Agreement attached as Exhibit.
(i) Legal Opinion. Attached as Exhibit.
(j) Consent of Auditors. To be filed by Amendment.
(k) Inapplicable.
(l) Innaplicable.
(m) Plans under Rule 12b-1.
(1) Form of Plan under Rule 12b-1 for Class A (November 1995)
for Decatur Income Fund and Decatur Total Return Fund incorporated into
this filing by reference to Post-Effective Amendment No. 104 filed
November 27, 1995.
(2) Form of Plan under Rule 12b-1 for Class B (November 1995)
for Decatur Income Fund and Decatur Total Return Fund incorporated into
this filing by reference to Post-Effective Amendment No. 104 filed
November 27, 1995.
(3) Form of Plan under Rule 12b-1 for Class C (November 1995)
for Decatur Income Fund and Decatur Total Return Fund incorporated into
this filing by reference to Post-Effective Amendment No. 104 filed
November 27, 1995.
(4) Plan under Rule 12b-1 Blue Chip Fund Class A (February 24,
1997) incorporated into this filing by reference to Post-Effective
Amendment No. 110 filed July 1, 1998.
(5) Plan under Rule 12b-1 for Blue Chip Fund Class B (February
24, 1997) incorporated into this filing by reference to Post-Effective
Amendment No. 110 filed July 1, 1998.
(6) Plan under Rule 12b-1 for Blue Chip Fund Class C (February
24, 1997) incorporated into this filing by reference to Post-Effective
Amendment No. 110 filed July 1, 1998.
(7) Plan under Rule 12b-1 Social Awareness Fund Class A
(February 24, 1997) incorporated into this filing by reference to Post-
Effective Amendment No. 110 filed July 1, 1998.
(8) Plan under Rule 12b-1 for Social Awareness Fund Class B
(February 24, 1997) incorporated into this filing by reference to Post-
Effective Amendment No. 110 filed July 1, 1998.
(9) Plan under Rule 12b-1 for Social Awareness Fund Class C
(February 24, 1997) incorporated into this filing by reference to Post-
Effective Amendment No. 110 filed July 1, 1998.
(10) Form of Plan under Rule 12b-1 for Diversified Value Fund
Class A (1998) incorporated into this filing by reference to Post-
Effective Amendment No. 110 filed July 1, 1998.
(11) Form of Plan under Rule 12b-1 for Diversified Value Fund
Class B (1998) incorporated into this filing by reference to Post-
Effective Amendment No. 110 filed July 1, 1998.
(12) Form of Plan under Rule 12b-1 for Diversified Value Fund
Class C (1998) incorporated into this filing by reference to Post-
Effective Amendment No. 110 filed July 1, 1998.
(n) Financial Data Schedules. To be filed by Amendment.
(o) Plan under Rule 18f-3.
(1) Amended Plan under Rule 18f-3 (September 18, 1997)
incorporated into this filing by reference to Post-Effective Amendment
No. 110 filed July 1, 1998.
(2) Form of Amended Appendix A to Plan under Rule 18f-3 (1998)
incorporated into this filing by reference to Post-Effective Amendment
No. 110 filed July 1, 1998.
(p) Other: Directors' Power of Attorney. Incorporated into
this filing by reference to Post- Effective Amendment No. 109 filed
January 30, 1998 and Post-Effective Amendment No. 110 filed July 1,
1998.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. Indemnification. Incorporated into this filing by reference to
Post-Effective Amendment No. 75 filed May 23, 1986 and Article VII of
the By-Laws, as amended, incorporated into this filing by reference to
Post-Effective Amendment No. 104 filed November 27, 1995.
Item 26. Business and Other Connections of Investment Adviser.
(a) Delaware Management Company, a series of Delaware
Management Business Trust, (the "Manager") serves as investment manager
to the Registrant and also serves as investment manager or sub-adviser
to certain of the other funds in the Delaware Investments family
(Delaware Group Equity Funds I, Inc., Delaware Group Equity Funds III,
Inc., Delaware Group Equity Funds IV, Inc., Delaware Group Equity Funds
V, Inc., Delaware Group Government Fund, Inc., Delaware Group Income
Funds, Inc., Delaware Group Limited-Term Government Funds, Inc.,
Delaware Group Cash Reserve, Inc., Delaware Group Tax-Free Fund, Inc.,
Delaware Group State Tax-Free Income Trust, Delaware Group Tax-Free
Money Fund, Inc., Delaware Group Premium Fund, Inc., Delaware Group
Global & International Funds, Inc., Delaware Pooled Trust, Inc.,
Delaware Group Adviser Funds, Inc., Delaware Group Dividend and Income
Fund, Inc., Delaware Group Global Dividend and Income Fund, Inc.,
Delaware Group Foundation Funds, Voyageur Intermediate Tax-Free Funds,
Inc., Voyageur Tax-Free Funds, Inc., Voyageur Funds, Inc., Voyageur
Insured Funds, Inc., Voyageur Investment Trust, Voyageur Investment
Trust II, Voyageur Mutual Funds, Inc., Voyageur Mutual Funds II, Inc.,
Voyageur Mutual Funds III, Inc., Voyageur Arizona Municipal Income Fund,
Inc., Voyageur Colorado Insured Municipal Income Fund, Inc., Voyageur
Florida Insured Municipal Income Fund, Voyageur Minnesota Municipal
Fund, Inc., Voyageur Minnesota Municipal Fund II, Inc. and Voyageur
Minnesota Municipal Fund III, Inc.). In addition, certain officers of
the Manager also serve as directors/trustees of the other funds in the
Delaware Investments family, and certain officers are also officers of
these other funds. A company indirectly owned by the Manager's indirect
parent company acts as principal underwriter to the mutual funds in the
Delaware Investments family (see Item 29 below) and another such company
acts as the shareholder services, dividend disbursing, accounting
servicing and transfer agent for all of the mutual funds in the Delaware
Investments family.
The following persons serving as officers of the Manager have held
the following positions during the past two years:
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Wayne A. Stork Chairman of the Board, President, Chief
Executive Officer, Chief Investment Officer and
Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business
Trust; Chairman of the Board, President, Chief
Executive Officer, Chief Investment Officer of
Delaware Management Company (a series of
Delaware Management Business Trust); Chairman
of the Board, President, Chief Executive
Officer and Director of DMH Corp., Delaware
Distributors, Inc. and Founders Holdings,
Inc.; Chairman, Chief Executive Officer and
Chief Investment Officer of Delaware Investment
Advisers (a series of Delaware Management
Business Trust); Chairman, Chief Executive
Officer and Director of Delaware International
Holdings Ltd. and Delaware International
Advisers Ltd.; Chairman of the Board and
Director of the Registrant, each of the other
funds in the Delaware Investments family,
Delaware Management Holdings, Inc., and
Delaware Capital Management, Inc.; Chairman of
Delaware Distributors, L.P.; President and
Chief Executive Officer of Delvoy, Inc.; and
Director and/or Trustee of Delaware Service
Company, Inc. and Retirement Financial
Services, Inc.
Richard G. Unruh, Jr. Executive Vice President of the Registrant,
each of the other funds in the Delaware
Investments family, Delaware Management
Holdings, Inc., Delaware Capital Management,
Inc. and Delaware Management Company (a series
of Delaware Management Business Trust);
Executive Vice President and Director/Trustee
of Delaware Management Company, Inc. and
Delaware Management Business Trust; President
of Delaware Investment Advisers (a series of
Delaware Management Business Trust); and
Director of Delaware International Advisers
Ltd.
Board of Directors, Chairman of Finance
Committee, Keystone Insurance Company since
1989, 2040 Market Street, Philadelphia, PA;
Board of Directors, Chairman of Finance
Committee, AAA Mid Atlantic, Inc. since 1989,
2040 Market Street, Philadelphia, PA; Board of
Directors, Metron, Inc. since 1995, 11911
Freedom Drive, Reston, VA
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Paul E. Suckow Executive Vice President/Chief Investment
Officer, Fixed Income of Delaware Management
Company, Inc., Delaware Management Company (a
series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of
Delaware Management Business Trust), the
Registrant, each of the other funds in the
Delaware Investments family and Delaware
Management Holdings, Inc.; Executive Vice
President and Director of Founders Holdings,
Inc.; Executive Vice President of Delaware
Capital Management, Inc. and Delaware
Management Business Trust; and Director of
Founders CBO Corporation
Director, HYPPCO Finance Company Ltd.
David K. Downes Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director
of Delaware Management Company, Inc., DMH Corp,
Delaware Distributors, Inc., Founders Holdings,
Inc. and Delvoy, Inc.; Executive Vice
President, Chief Financial Officer, Chief
Administrative Officer and Trustee of Delaware
Management Business Trust; Executive Vice
President, Chief Operating Officer and Chief
Financial Officer of the Registrant and each of
the other funds in the Delaware Investments
family, Delaware Management Holdings, Inc.,
Founders CBO Corporation, Delaware Capital
Management, Inc., Delaware Management Company
(a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series
of Delaware Management Business Trust) and
Delaware Distributors, L.P.; President, Chief
Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.;
President, Chief Operating Officer, Chief
Financial Officer and Director of Delaware
International Holdings Ltd.; Chairman, Chief
Executive Officer and Director of Retirement
Financial Services, Inc.; Chairman and Director
of Delaware Management Trust Company; and
Director of Delaware International Advisers
Ltd.
Chief Executive Officer and Director of
Forewarn, Inc. since 1993, 8 Clayton Place,
Newtown Square, PA
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
George M. Senior Vice President, Secretary and
Chamberlain, Jr. Director/Trustee of Delaware Management Company,
Inc., DMH Corp., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders
Holdings, Inc., Delaware Capital Management,
Inc., Retirement Financial Services, Inc.,
Delvoy, Inc. and Delaware Management Business
Trust; Senior Vice President, Secretary and
General Counsel of the Registrant and each of
the other funds in the Delaware Investments
family; Senior Vice President and Secretary of
Delaware Distributors, L.P., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series
of Delaware Management Business Trust) and
Delaware Management Holdings, Inc.; Senior Vice
President and Director of Delaware
International Holdings Ltd.; Executive Vice
President, Secretary and Director of Delaware
Management Trust Company; and Director of
Delaware International Advisers Ltd.
Richard J. Flannery Executive Vice President and General Counsel of
Delaware Management Holdings, Inc., DMH Corp.,
Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Distributors,
L.P., Delaware Management Trust Company,
Delaware Capital Management, Inc., Delaware
Service Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers
(a series of Delaware Management Business
Trust), Founders CBO Corporation and Retirement
Financial Services, Inc.; Executive Vice
President/General Counsel and Director of
Delaware International Holdings Ltd., Founders
Holdings, Inc. and Delvoy, Inc.; Senior Vice
President of the Registrant and each of the
other funds in the Delaware Investments family;
Director of Delaware International Advisers
Ltd.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since
1991, Bulltown Rd., Elverton, PA; Director and
Member of Executive Committee of Stonewall
Links, Inc. since 1991, Bulltown Rd., Elverton,
PA
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Michael P. Bishof Senior Vice President and Treasurer of the
Registrant, each of the other funds in the
Delaware Investments family and Founders
Holdings, Inc.; Senior Vice
President/Investment Accounting of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust) and Delaware Service Company,
Inc.; Senior Vice President and Treasurer/
Manager, Investment Accounting of Delaware
Distributors, L.P. and Delaware Investment
Advisers (a series of Delaware Management
Business Trust); Senior Vice President and
Assistant Treasurer of Founders CBO
Corporation; and Senior Vice President and
Manager of Investment Accounting of Delaware
International Holdings Ltd.
Joseph H. Hastings Senior Vice President/Corporate Controller and
Treasurer of Delaware Management Holdings,
Inc., DMH Corp., Delaware Management Company,
Inc., Delaware Distributors, Inc., Delaware
Capital Management, Inc., Delaware
Distributors, L.P., Delaware Service Company,
Inc., Delaware International Holdings Ltd.,
Delaware Management Company (a series of
Delaware Management Business Trust), Delvoy,
Inc. and Delaware Management Business Trust;
Senior Vice President/Corporate Controller of
the Registrant, each of the other funds in the
Delaware Investments family and Founders
Holdings, Inc.; Executive Vice President, Chief
Financial Officer and Treasurer of Delaware
Management Trust Company; Chief Financial
Officer and Treasurer of Retirement Financial
Services, Inc.; and Senior Vice
President/Assistant Treasurer of Founders CBO
Corporation
Michael T. Taggart Vice President/Facilities Management and
Administrative Services of Delaware Management
Company, Inc. and Delaware Management Company
(a series of Delaware Management Business
Trust)
Douglas L. Anderson Senior Vice President/Operations of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), Retirement Financial Services,
Inc. and Delaware Service Company, Inc.; Senior
Vice President/ Operations and Director of
Delaware Management Trust Company
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
James L. Shields Senior Vice President/Chief Information Officer
of Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Service
Company, Inc. and Retirement Financial
Services, Inc.
Eric E. Miller Vice President, Assistant Secretary and Deputy
General Counsel of the Registrant and each of
the other funds in the Delaware Investments
family, Delaware Management Company, Inc.,
Delaware Management Company (a series of
Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware
Management Business Trust), Delaware Management
Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors Inc.,
Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings,
Inc., Delaware Capital Management, Inc. and
Retirement Financial Services, Inc.; Assistant
Secretary of Delaware Management Business
Trust; and Vice President and Assistant
Secretary of Delvoy, Inc.
Richelle S. Maestro Vice President and Assistant Secretary of the
Registrant, each of the other funds in the
Delaware Investments family, Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers
(a series of Delaware Management Business
Trust), Delaware Management Holdings, Inc.,
Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company,
Inc., DMH Corp., Delaware Management Trust
Company, Delaware Capital Management, Inc.,
Retirement Financial Services, Inc., Founders
Holdings, Inc. and Delvoy, Inc.; Vice President
and Secretary of Delaware International
Holdings Ltd.; and Secretary of Founders CBO
Corporation
Partner of Tri-R Associates since 1989, 10001
Sandmeyer Lane, Philadelphia, PA
Richard Salus Vice President/Assistant Controller of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust) and Delaware Management Trust
Company
Bruce A. Ulmer Vice President/Director of LNC Internal Audit
of the Registrant, each of the other funds in
the Delaware Investments family, Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), Delaware Management Holdings,
Inc., DMH Corp., Delaware Management Trust
Company and Retirement Financial Services,
Inc.; Vice President/Director of Internal Audit
of Delvoy, Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Joel A. Ettinger1 Vice President/Director of Taxation of the
Registrant, each of the other funds in the
Delaware Investments family, Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust) and Delaware Management
Holdings, Inc., Founders Holdings,Inc. and
Founders CBO Corporation
Christopher Adams Vice President/Business Manager, Equity
Department of Delaware Management Company,
Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and
Delaware Service Company, Inc.
Dennis J. Mara2 Vice President/Acquisitions of Delaware
Management Company, Inc. and Delaware
Management Company (a series of Delaware
Management Business Trust)
Scott Metzger Vice President/Business Development of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust) and Delaware Service Company,
Inc.
Lisa O. Brinkley Vice President/Compliance of the Registrant,
Delaware Management Company, Inc., each of the
other funds in the Delaware Investments family,
Delaware Management Company (a series of
Delaware Management Business Trust), DMH Corp.,
Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company,
Inc., Delaware Management Trust Company,
Delaware Capital Management, Inc. and
Retirement Financial Services, Inc.; Vice
President/Compliance Officer of Delaware
Management Business Trust; and Vice President
of Delvoy, Inc.
Mary Ellen Carrozza Vice President/Client Services of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers
(a series of Delaware Management Business
Trust) and Delaware Pooled Trust, Inc.
Gerald T. Nichols Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust) and the fixed-income investment
companies in the Delaware Investments family;
Vice President of Founders Holdings, Inc.; and
Treasurer, Assistant Secretary and Director of
Founders CBO Corporation
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Paul A. Matlack Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust) and the fixed-income investment
companies in the Delaware Investments family;
Vice President of Founders Holdings, Inc.; and
President and Director of Founders CBO
Corporation
Gary A. Reed Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust), the fixed-income investment
companies in the Delaware Investments family
and Delaware Capital Management, Inc.
Patrick P. Coyne Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust), the fixed-income investment
companies in the Delaware Investments family
and Delaware Capital Management, Inc.
Roger A. Early Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust) and the fixed-income investment
companies in the Delaware Investments family
Mitchell L. Conery3 Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust), the fixed-income investment
companies in the Delaware Investments family
and Delaware Capital Management, Inc.
George H. Burwell Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), the Registrant and
the other equity investment companies in the
Delaware Investments family
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
John B. Fields Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust), the Registrant, the other
equity investment companies in the Delaware
Investments family, Delaware Capital
Management, Inc. and Trustee of Delaware
Management Business Trust
Gerald S. Frey Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust), the Registrant and the other
investment companies in the Delaware
Investments family
Christopher S. Beck4 Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management
Business Trust), the Registrant and the other
investment companies in the Delaware
Investments family
Elizabeth H. Howell5 Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust) and the fixed-income
investment companies in the Delaware
Investments family
Andrew M.
McCullagh, Jr.6 Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust) and the fixed-income
investment companies in the Delaware
Investments family
Babak Zenouzi Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware
Management Business Trust), the Registrant and
the other investment companies in the Delaware
Investments family
J. Paul Dokas7 Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), the Registrant and the other
investment company in the Delaware Investments
family
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Cynthia Isom Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust) and the fixed-income investment
companies in the Delaware Investments family
Paul Grillo Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers
(a series of Delaware Management Business
Trust) and the fixed-income investment
companies in the Delaware Investments family
Marshall T. Bassett8 Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers
(a series of Delaware Management Business
Trust), the Registrant and the other equity
investment companies in the Delaware
Investments family
John A. Heffern9 Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), the Registrant and the other
equity investment companies in the Delaware
Investments family
Lori P. Wachs Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management
Business Trust), the Registrant and the other
equity investment companies in the Delaware
Investments family
* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
1 TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
2 CORPORATE CONTROLLER, IIS prior to July 1997.
3 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
4 SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997.
5 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May
1997.
6 SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset
Management LLC prior to May 1997.
7 DIRECTOR OF TRUST INVESTMENTS, Bell Atlantic Corporation prior to
February 1997.
8 VICE PRESIDENT, Morgan Stanley Asset Management prior to March 1997.
9 SENIOR VICE PRESIDENT, EQUITY RESEARCH, NatWest Securities Corporation
prior to March 1997.
(b) Vantage Global Advisors, Inc. ("Vantage"), 630 Fifth
Avenue, New York, NY 10111, is an indirect, wholly owned
subsidiary of Lincoln National Corporation and an affiliate of
Delaware Management Company, Inc. Vantage provides investment
advice to pension plans, endowments, insurance and commingled
products. Vantage serves as sub-investment adviser to the Blue
Chip Fund series and the Social Awareness Fund (formerly named
Quantum Fund) series. The directors and officers of Vantage
are listed below. Unless otherwise indicated, the principal
business address of each person is 630 Fifth Avenue, New York,
NY 10111.
Name and Principal Positions and Offices with Vantage Global
Business Address Advisors, Inc. and its Principal
Affiliates and Other Positions and Offices Held
T. Scott Wittman President, Chief Investment Officer and
Director of Vantage Global Advisors, Inc.
Senior Vice President of Delaware Distributors,
L.P. since 1998, 1818 Market Street, Philadelphia,
PA.
Marc C. Viani Vice President of Vantage Global Advisors, Inc.
*Dennis A. Blume Director of Vantage Global Advisors, Inc.
Vice President and Director of Lincoln
Investment Management, Inc. since 1985, 200
East Berry Street, Fort Wayne, IN; Director of
Lynch & Mayer, Inc. since 1996, 520 Madison
Avenue, New York, NY
*H. Thomas McMeekin Director of Vantage Global Advisors, Inc.
President and Director of Lincoln Investment
Management, Inc., Lincoln National Convertible
Securities Fund, Inc., Lincoln National Income
Fund, Inc. since 1994; Executive Vice President
and Chief Investment Officer of Lincoln
National Corporation since 1994; President,
Chief Executive Officer and Director of Lincoln
National Mezzanine Corporation, 200 East Berry
Street, Fort Wayne, IN; Director of Lynch &
Mayer, Inc., 520 Madison Avenue, New York, NY
**Jeffrey J. Nick Director of Vantage Global Advisors, Inc.
President, Chief Executive Officer and Director
and/or Trustee of the Registrant and the the
other investment companies in the Delaware
Investments family; President and Director of
Delaware Management Holdings, Inc.; President,
Chief Executive Officer and Director of Lincoln
National Investment Companies, Inc.; Director
of Delaware International Advisers Ltd.,
1818 Market Street, Philadelphia, PA.
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices with Vantage Global
Business Address Advisors, Inc. and its Principal
Affiliates and Other Positions and Offices Held
**Bruce D. Barton1 Director of Vantage Global Advisors, Inc.
President and Chief Executive Officer of
Delaware Distributors, L.P. since 1996, 1818
Market Street, Philadelphia, PA;
1 SENIOR VICE PRESIDENT AND DIRECTOR, Lincoln National Investment
Companies February 1996 to October 1996; VICE PRESIDENT, Lincoln
National Corporation May 1992 to October 1996.
** Business address is 1818 Market Street, Philadelphia, PA 19103
Item 27. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal
underwriter for all the mutual funds in the Delaware
Investments family.
(b) Information with respect to each director, officer or
partner of principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Investment None Advisers Limited Partner
Delaware Capital Limited Partner None
Management, Inc.
Wayne A. Stork Chairman Chairman
Bruce D. Barton President and Chief None
Executive Officer
David K. Downes Executive Vice President, Executive Vice
President, Chief Chief Operating Officer Operating Officer and
Chief and Chief Financial Officer Financial Officer
Richard J. Flannery Executive Vice President/ Senior Vice President
General Counsel
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/
Secretary Secretary/General
Counsel
Joseph H. Hastings Senior Vice President/ Senior Vice President/
Corporate Controller Corporate Controller
& Treasurer
Terrence P. Cunningham Senior Vice President/ None
Financial Institutions
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division
J. Chris Meyer Senior Vice President/ None
Director Product Management
William M. Kimbrough Senior Vice President/ None
Wholesaler
Daniel J. Brooks Senior Vice President/ None
Wholesaler
Bradley L. Kolstoe Senior Vice President/ None
Western
Division Sales Manager
Henry W. Orvin Senior Vice President/ None
Eastern
Division Sales Manager
T. Scott Wittman Senior Vice President None
Michael P. Bishof Senior Vice President Senior Vice
and Treasurer/ President/Treasurer
Manager, Investment
Accounting
Eric E. Miller Vice President/ Vice Secretary/Deputy
Assistant Secretary/ General Counsel
Deputy General Counsel
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Lisa O. Brinkley Vice President/Compliance Vice President/
Compliance
Daniel H. Carlson Vice President/ None
Strategic Marketing
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Diane M. Anderson Vice President/Plan None
Record Keeping
and Administration
Anthony J. Scalia Vice President/Defined None
Contribution
Sales, SW Territory
Courtney S. West Vice President/Defined None
Contribution
Sales, NE Territory
Denise F. Guerriere Vice President/Client None
Services
Gordon E. Searles Vice President/Client None
Services
Lori M. Burgess Vice President/Client None
Services
Julia R. Vander Els Vice President/Participant None
Services
Jerome J. Alrutz Vice President/Retail Sales None
Scott Metzger Vice President/Business Vice President/
Development Business Development
Larry Carr Vice President/Sales Manager None
Stephen C. Hall Vice President/Institutional None
Sales
Gregory J. McMillan Vice President/ None
National Accounts
Holly W. Reimel Senior Vice President/ None
Manager, National Accounts
Christopher H. Price Vice President/Manager, None
Insurance
Stephen J. DeAngelis Senior Vice President, None
National
Director/Manager
Account Services
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Andrew W. Whitaker Vice President/ None
Financial Institutions
Jesse Emery Vice President/ None
Marketing Communications
Darryl S. Grayson Vice President, None
Broker/Dealer
Internal Sales
Dinah J. Huntoon Vice President/Product None
Manager Equity
Soohee Lee Vice President/Fixed Income None
Product Management
Michael J. Woods Vice President/UIT Product None
Management
Ellen M. Krott Vice President/Marketing None
Dale L. Kurtz Vice President/Marketing None
Support
David P. Anderson Vice President/Wholesaler None
Lee D. Beck Vice President/Wholesaler None
Gabriella Bercze Vice President/Wholesaler None
Larry D. Birdwell Vice President/Wholesaler None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William L. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Joseph Gallagher Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Douglas R. Glennon Vice President/Wholesaler None
Ronald A. Haimowitz Vice President/Wholesaler None
Edward J. Hecker Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
Michael P. Jordan Vice President/Wholesaler None
Jeffrey A. Keinert Vice President/Wholesaler None
Thomas P. Kennett Vice President/ Wholesaler None
Theodore T. Malone Vice President/Wholesaler None
Debbie A. Marler Vice President/Wholesaler None
Nathan W. Medin Vice President/Wholesaler None
Roger J. Miller Vice President/Wholesaler None
Andrew Morris Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Scott Naughton Vice President/Wholesaler None
Stephen C. Nell Vice President/Wholesaler None
Julia A. Nye Vice President/Wholesaler None
Joseph T. Owczarek Vice President/Wholesaler None
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
Mark A. Pletts Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Laura E. Roman Vice President/Wholesaler None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Linda Schulz Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Julia A. Stanton Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Edward J. Wagner Vice President/Wholesaler None
Wayne W. Wagner Vice President/Wholesaler None
John A. Wells Vice President/Marketing None
Technology
Scott Whitehouse Vice President/Wholesaler None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
(c) Inapplicable.
Item 28. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818 Market
Street, Philadelphia, PA 19103 or One Commerce Square, Philadelphia, PA
19103.
Item 29. Management Services. None.
Item 30. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
(d) Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in this City of Philadelphia and Commonwealth
of Pennsylvania on this 23rd day of November, 1998.
DELAWARE GROUP EQUITY FUNDS II, INC.
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
------------------ ------------ ----
<S> <C> <C>
/s/Wayne A. Stork Chairman and Director November 23, 1998
- ------------------
Wayne A. Stork
Executive Vice President/
Chief Operating Officer/Chief
Financial Officer
/s/David K. Downes (Principal Financial Officer
and Principal Accounting November 23, 1998
- ------------------ Officer)
David K. Downes
/s/Walter P. Babich * Director November 23, 1998
- -------------------
Walter P. Babich
/s/John H. Durham * Director November 23, 1998
- -----------------
John H. Durham
/s/Anthony D. Knerr * Director November 23, 1998
- -------------------
Anthony D. Knerr
/s/Ann R. Leven * Director November 23, 1998
- ---------------
Ann R. Leven
/s/W. Thacher Longstreth * Director November 23, 1998
- ------------------------
W. Thacher Longstreth
/s/Thomas F. Madison * Director November 23, 1998
- --------------------
Thomas F. Madison
/s/Jeffrey J. Nick * Director November 23, 1998
- ------------------
Jeffrey J. Nick
/s/Charles E. Peck * Director November 23, 1998
- ------------------
Charles E. Peck
*By /s/Wayne A. Stork
------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ---------- -------
EX-99.23A(6) Articles of Amendment (August 26, 1998)
EX-99.23G(1) Custodian Agreement with The Chase Manhattan
Bank
EX-99.23G(2) Amendment to Custodian Agreement (November 20, 1997)
between the Chase Manhattan Bank and the Registrant
EX-99.23G(5) Form of Letter to The Chase Manhattan Bank (1998) to
add Decatur Income Fund and Decatur Total Return Fund
to the Custodian Agreement
EX-99.23H(3)(I) Form of Amendment No. 12 to Delaware Group of Funds Fund
Accounting Agreement
EX-99.23H(3)(I) Opinion of Counsel
DELAWARE GROUP EQUITY FUNDS II, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
Delaware Group Equity Funds II, Inc. (formerly known as Delaware
Group Decatur Fund, Inc.), a Maryland corporation having its principal
office in Baltimore, Maryland (the "Corporation"), hereby certifies, in
accordance with Section 2-208 and Section 2-208.1 of the Maryland
General Corporation Law, to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation has authority to issue a total of One
Billion (1,000,000,000) shares of common stock with a par value of One
Dollar ($1.00) per share of the Corporation (the "Common Stock"), having
an aggregate par value of One Billion Dollars ($1,000,000,000.00). Of
such One Billion (1,000,000,000) shares of Common Stock, Three Hundred
Fifty Million (350,000,000) shares have been allocated to the Decatur
Income Fund series, Two Hundred Fifty Million (250,000,000) shares have
been allocated to the Decatur Total Return Fund series, Two Hundred
Million (200,000,000) shares have been allocated to the Blue Chip Fund
Series, and Two Hundred Million (200,000,000) have been allocated to the
Social Awareness Fund series. The Three Hundred Fifty Million
(350,000,000) shares of the Decatur Income Fund series of the Common
Stock have been allocated among four classes as follows: (1) Two
Hundred Million (200,000,000) shares have been allocated to the Decatur
Income Fund A Class, and (2) Fifty Million (50,000,000) shares have
been allocated to each of the Decatur Income Fund Institutional Class,
the Decatur Income Fund B Class and the Decatur Income Fund C Class.
The Two Hundred Fifty Million (250,000,000) shares of the Decatur Total
Return Fund series of the Common Stock have been allocated among four
classes as follows: (1) One Hundred Million (100,000,000) shares have
been allocated to the Decatur Total Return Fund A Class and (2) Fifty
Million (50,000,000) shares have been allocated to each of the Decatur
Total Return Fund Institutional Class, the Decatur Total Return Fund B
Class and the Decatur Total Return Fund C Class. The Two Hundred
Million (200,000,000) shares of the Blue Chip Fund Series of the Common
Stock have been allocated among four classes as follows: (1) One
Hundred Million (100,000,000) shares have been allocated to the Blue
Chip Fund A Class, (2) Fifty Million (50,000,000) shares have been
allocated to the Blue Chip Fund Institutional Class, and (3) Twenty-
Five Million (25,000,000) shares have been allocated to each of the Blue
Chip Fund B class and the Blue Chip Fund C Class. The Two Hundred
Million (200,000,000) shares of the Social Awareness Fund Series of the
Common Stock have been allocated among four classes as follows: (1)
One Hundred Million shares have been allocated to the Social Awareness
Fund A Class, (2) Fifty Million (50,000,000) shares have been allocated
to the Social Awareness Fund Institutional Class, and (3) Twenty-Five
Million (25,000,000) shares have been allocated to each of the Social
Awareness Fund B Class and the Social Awareness Fund C Class.
SECOND: The Board of Directors of the Corporation, at a
meeting held on July 16, 1998, adopted resolutions increasing the
aggregate number of shares of Common Stock that the Corporation has
authority to issue from One Billion (1,000,000,000) shares to One
Billion Two Hundred Million (1,200,000,000) shares, designating one
additional series of the Corporation's Common Stock as the Diversified
Value Fund series and classifying and allocating Two Hundred Million
(200,000,000) shares of authorized, unissued and unclassified Common
Stock to the Diversified Value Fund series. The Two Hundred Million
(200,000,000) shares of the Common Stock have been allocated to the
Diversified Value Fund series have been further allocated as follows:
(1) One Hundred Million (100,000,000) shares of the Diversified Value
Fund series of the Common Stock have been allocated to the Diversified
Value Fund A Class, (2) Fifty Million (50,000,000) shares of the
Diversified Value Fund series of the Common Stock have been allocated to
the Diversified Value Fund Institutional Class, and (3) Twenty-Five
Million (25,000,000) shares of the Diversified Value Fund series of the
Common Stock have been allocated to each of the Diversified Value Fund B
Class and the Diversified Value Fund C Class.
THIRD: As a result of the aforesaid reclassification and increase
in the authorized Common Stock, the Corporation has authority to issue
One Billion Two Hundred Million (1,200,000,000) shares of Common Stock
with a par value of One Dollar ($1.00) per share, having an aggregate
par value of One Billion Two Hundred Million Dollars
($1,200,000,000.00). Of such One Billion Two Hundred Million
(1,200,000,000) shares of Common Stock, One Billion Two Hundred Million
(1,200,000,000) shares of the Common Stock have been allocated as
follows: (1) Three Hundred Fifty Million (350,000,000) shares have
been allocated to the Decatur Income Fund series, (2) Two Hundred Fifty
Million (250,000,000) shares have been allocated to the Decatur Total
Return Fund series, (3) Two Hundred Million (200,000,000) shares have
been allocated to the Blue Chip Fund series, (4) Two Hundred Million
(200,000,000) shares have been allocated to the Social Awareness Fund
series and (5) Two Hundred Million (200,000,000) shares have been
allocated to the Diversified Value Fund series. The Three Hundred Fifty
Million (350,000,000) shares of the Corporation's Common Stock which
have been allocated to the Decatur Income Fund series have been further
classified and allocated as follows: (1) Two Hundred Million
(200,000,000) shares have been allocated to the Decatur Income Fund A
Class, and (2) Fifty Million (50,000,000) shares have been allocated to
each of the Decatur Income Fund Institutional Class, the Decatur Income
Fund B Class and the Decatur Income Fund C Class. The Two Hundred Fifty
Million (250,000,000) shares of the Corporation's Common Stock which
have been allocated to the Decatur Total Return Fund series have been
further classified and allocated as follows: (1) One Hundred Million
(100,000,000) shares have been allocated to the Decatur Total Return
Fund A Class, and (2) Fifty Million (50,000,000) shares have been
allocated to each of the Decatur Total Return Fund Institutional Class,
the Decatur Total Return Fund B Class and the Decatur Total Return Fund
C Class. The Two Hundred Million (200,000,000) shares of the
Corporation's Common Stock which have been allocated to the Blue Chip
Fund series have been further classified and allocated as follows: (1)
One Hundred Million (100,000,000) shares have been allocated to the Blue
Chip Fund A Class, (2) Fifty Million (50,000,000) shares have been
allocated to the Blue Chip Fund Institutional Class, and (3) Twenty-
Five Million (25,000,000) shares have been allocated to each of the Blue
Chip Fund B Class and the Blue Chip Fund C Class. The Two Hundred
Million (200,000,000) shares of the Corporation's Common Stock which
have been allocated to the Social Awareness Fund series have been
further classified and allocated as follows: (1) One Hundred Million
(100,000,000) shares have been allocated to the Social Awareness Fund A
Class, (2) Fifty Million (50,000,000) shares have been allocated to the
Social Awareness Fund Institutional Class, and (3) Twenty-Five Million
(25,000,000) shares have been allocated to each of the Social Awareness
Fund B Class and the Social Awareness Fund C Class. The Two Hundred
Million (200,000,000) shares of the Corporation's Common Stock which
have been allocated to Diversified Value Fund series have been further
classified and allocated as follows: (1) One Hundred Million
(100,000,000) shares have been allocated to the Diversified Value Fund A
Class, (2) Fifty Million (50,000,000) shares have been allocated to the
Diversified Value Fund Institutional Class, and (3) Twenty-Five Million
(25,000,000) shares have been allocated to each of the Diversified Value
Fund B Class and Diversified Value Fund C Class.
FOURTH: The shares of the Diversified Value Fund A Class, the
Diversified Value Fund B Class, the Diversified Value Fund C Class and
the Diversified Value Fund Institutional Class of the Diversified Value
Fund series shall represent proportionate interests in the same
portfolio of investments. The shares of the Diversified Value Fund A
Class, the Diversified Value Fund B Class, the Diversified Value Fund C
Class and the Diversified Value Fund Institutional Class of the
Diversified Value Fund series, shall have the same preferences,
conversion or other rights, voting powers, restrictions, limitations as
to dividends, qualifications, or terms or conditions as redemption, all
as set forth in the Articles of Incorporation of the Corporation, except
for the differences hereinafter set forth:
1. The dividends and distributions of investment income
and capital gains with respect to shares of the Diversified
Value Fund A Class, the Diversified Value Fund B Class, the
Diversified Value Fund C Class and the Diversified Value Fund
Institutional Class of the Diversified Value Fund series of
the Common Stock, shall be in such amounts as may be declared
from time to time by the Board of Directors, and such
dividends and distributions may vary with respect to each such
class from the dividends and distributions of investment
income and capital gains with respect to the other classes of
the Diversified Value Fund series of the Common Stock, to
reflect differing allocations of the expenses of the
Corporation among the classes and any resultant difference
among the net asset value per share of the classes, to such
extent and for such purposes as the Board of Directors may
deem appropriate. The allocation of investment income and
capital gains and expenses and liabilities of the Diversified
Value Fund series among its four classes of Common Stock,
shall be determined by the Board of Directors in a manner that
is consistent with the orders, as applicable, dated April 10,
1987 and September 6, 1994 (Investment Company Act of 1940
Release Nos. 15675 and 20529) issued by the Securities and
Exchange Commission, and any amendments to such orders, any
existing or future order or any Multiple Class Plan adopted by
the Corporation in accordance with Rule 18f-3 under the
Investment Company Act of 1940, as amended, that modifies or
supersedes such orders.
2. Except as may otherwise be required by law, pursuant
to any applicable order, rule or interpretation issued by the
Securities and Exchange Commission, or otherwise, the holders
of shares of the Diversified Value Fund A Class, the
Diversified Value Fund B Class, the Diversified Value Fund C
Class and the Diversified Value Fund Institutional Class of
the Diversified Value Fund series of the Common Stock shall
have (i) exclusive voting rights with respect to any matter
submitted to a vote of stockholders that affects only holders
of shares of the Diversified Value Fund A Class, the
Diversified Value Fund B Class, the Diversified Value Fund C
Class and the Diversified Value Fund Institutional Class of
the Diversified Value Fund series, respectively, including,
without limitation, the provisions of any Distribution Plan
adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (a "Distribution Plan"), applicable to
shares of the Diversified Value Fund A Class, the Diversified
Value Fund B Class and the Diversified Value Fund C Class, and
(ii) no voting rights with respect to the provisions of any
Distribution Plan applicable to any other class of the
Diversified Value Fund series of the Common Stock or with
regard to any other matter submitted to a vote of stockholders
which does not affect holders of shares of the Diversified
Value Fund A Class, the Diversified Value Fund B Class and the
Diversified Value Fund C Class.
3. (a) Other than shares described in paragraph 3(b)
herein, each share of the Diversified Value Fund B class shall
be converted automatically, and without any action or choice
on the part of the holder thereof, into shares of the
Diversified Value Fund A Class, on the Conversion Date. The
term "Conversion Date" when used herein shall mean a date set
forth in the prospectus of the Diversified Value Fund B Class,
as such prospectus may be amended from time to time, that is
no later than three months after either (i) the date on which
the eighth anniversary of the date of issuance of the share
occurs, or (ii) any such other anniversary date as may be
determined by the Board of Directors and set forth in the
prospectus of the Diversified Value Fund B Class, as such
prospectus may be amended from time to time; provided that any
such other anniversary date determined by the Board of
Directors shall be a date that will occur prior to the
anniversary date set forth in clause (i) and any such other
date theretofore determined by the Board of Directors pursuant
to this clause (ii); but further provided that, subject to the
provisions of the next sentence, for any shares of the
Diversified Value Fund B Class, acquired through an exchange,
or through a series of exchanges, as permitted by the
Corporation as provided in the prospectuses of the Diversified
Value Fund B Class, as such prospectus may be amended from
time to time, from another investment company or another
series of the Corporation (an "eligible investment company"),
the Conversion Date shall be the conversion date applicable to
the shares of stock of the eligible investment company
originally subscribed for in lieu of the Conversion Date of
any stock acquired through exchange if such eligible
investment company issuing the stock originally subscribed for
had a conversion feature, but not later than the Conversion
Date determined under (i) above. For the purpose of
calculating the holding period required for conversion, the
date of issuance of a share of the Diversified Value Fund B
Class shall mean (i) in the case of the Diversified Value Fund
B Class obtained by the holder thereof through an original
subscription to the Corporation, the date of the issuance of
such share of the Diversified Value Fund B Class or (ii) in
the case of a share of the Diversified Value Fund B Class
obtained by the holder thereof through an exchange, or through
a series of exchanges, from an eligible investment company,
the date of issuance of the share of the eligible investment
company to which the holder originally subscribed.
(b) Each share of the Diversified Value Fund B Class (i)
purchased through the automatic reinvestment of a dividend or
distribution with respect to the Diversified Value Fund B
Class, or the corresponding class of any other investment
company or of any other series of the Corporation issuing such
class of shares or (ii) issued pursuant to an exchange
privilege granted by the Corporation in an exchange or series
of exchanges for shares originally purchased through the
automatic reinvestment of a dividend or distribution with
respect to shares of capital stock of an eligible investment
company, shall be segregated in a separate sub-account on the
stock records of the Corporation for each of the holders of
record thereof. On any Conversion Date, a number of the
shares held in the separate sub-account of the holder of
record of the share or shares being converted, calculated in
accordance with the next following sentence, shall be
converted automatically, and without any action or choice on
the part of the holder, into shares of the Diversified Value
Fund A Class. The number of shares in the holder's separate
sub-account so converted shall (i) bear the same ratio to the
total number of shares maintained in the separate sub-account
on the Conversion Date (immediately prior to conversion) as
the number of shares of the holder converted on the Conversion
Date pursuant to paragraph 3(a) hereof bears to the total
number of Diversified Value Fund B Class shares, of the holder
on the Conversion Date (immediately prior to conversion) after
subtracting the shares then maintained in the holders'
separate sub-account, or (ii) be such other number as may be
calculated in such other manner as may be determined by the
Board of Directors and set forth in the prospectuses of the
Diversified Value Fund B Class, as such prospectuses may be
amended from time to time.
(c) The number of shares of the Diversified Value Fund A
Class into which a share of the Diversified Value Fund B
Class, are converted pursuant to paragraphs 3(a) and 3(b)
hereof shall equal the number (including for this purpose
fractions of a share) obtained by dividing the net asset value
per share of the Diversified Value Fund B Class, for purposes
of sales and redemption thereof on the Conversion Date by the
net asset value per share of the Diversified Value Fund A
Class, for purposes of sales and redemption thereof on the
Conversion Date.
(d) On the Conversion Date, the shares of the Diversified
Value Fund B Class converted into shares of the Diversified
Value Fund A Class, will no longer be deemed outstanding and
the rights of the holders thereof (except the right to receive
(i) the number of shares of the Diversified Value Fund A Class
into which the shares of the Diversified Value Fund B Class
have been converted, and (ii) declared but unpaid dividends to
the Conversion Date or such other date set forth in the
prospectus of the Diversified Value Fund B Class as such
prospectus may be amended from time to time and (iii) the
right to vote converting shares of the Diversified Value Fund
B Class, held as of any record date occurring on or before the
Conversion Date and theretofore set with respect to any
meeting held after the Conversion Date will cease.
Certificates representing shares of the Diversified Value Fund
A Class, resulting from the conversion need not be issued
until certificates representing shares of the Diversified
Value Fund B Class, converted, if issued, have been received
by the Corporation orits agent duly endorsed for transfer.
(e) The automatic conversions of the Diversified Value
Fund B Class into the Diversified Value Fund A Class, as set
forth in paragraphs 3(a) and 3(b) of this Article FOURTH shall
be suspended at any time that the Board of Directors
determines (i) that there is not available a reasonably
satisfactory opinion of counsel to the effect that (x) the
assessment of the higher fee under the Distribution Plan with
respect to the Diversified Value Fund B Class, does not result
in the Corporation's dividends or distributions constituting a
"preferential dividend" under the Internal Revenue Code of
1986, as amended, and (y) the conversion of the Diversified
Value Fund B Class, does not constitute a taxable event under
federal income tax law, or (ii) any other condition to
conversion set forth in the prospectuses of the Diversified
Value Fund B Class, as such prospectus may be amended from
time to time, is not satisfied.
(f) The automatic conversion of the Diversified Value Fund
B Class into Diversified Value Fund A Class, as set forth in
paragraphs 3(a) and 3(b) hereof, may also be suspended by
action of the Board of Directors at any time that the Board of
Directors determines such suspension to be appropriate in
order to comply with, or satisfy the requirements of the
Investment Company Act of 1940, as amended, and in effect from
time to time, or any rule, regulation or order issued
thereunder relating to the voting by the holders of the
Diversified Value Fund B Class, on any Distribution Plan with
respect to, as relevant, the Diversified Value Fund A Class,
and in effect from time to time, and in connection with, or in
lieu of, any such suspension, the Board of Directors may
provide holders of the Diversified Value Fund B Class, with
alternative conversion or exchange rights into other classes
of stock of the Corporation in a manner consistent with the
law, rule, regulation or order giving rise to the possible
suspension of the conversion right.
4. The shares of the Diversified Value Fund C Class and
the Diversified Value Fund Institutional Class shall not
automatically convert into shares of the Diversified Value
Fund A Class of the Diversified Value Fund series of the
Common Stock as do the shares of the Diversified Value Fund B
Class of the Diversified Value Fund series of the Common
Stock.
FIFTH: The shares of the Diversified Value Fund A Class, the
Diversified Value Fund B Class, the Diversified Value Fund C Class and
the Diversified Value Fund Institutional Class of the Diversified Value
Fund series, have been classified by the Board of Directors pursuant to
authority contained in the Articles of Incorporation of the Corporation.
SIXTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended.
SEVENTH: The total number of shares of Common Stock that the
Corporation has authority to issue has been increased by the Board of
Directors in accordance with Section 2-105(c) of the Maryland General
Corporation Law.
EIGHTH: These Articles Supplementary shall become effective
immediately upon filing.
IN WITNESS WHEREOF, Delaware Group Equity Funds II, Inc. has caused
these Articles Supplementary to be signed in its name and on its behalf
by its Vice President and attested by its Assistant Secretary on this
19th day of August, 1998.
DELAWARE GROUP EQUITY FUNDS II, INC.
By: /s/ Eric E. Miller
------------------------------------
Eric E. Miller
Vice President
ATTEST:
/s/Michael T. Pellegrino
- ------------------------------------
Michael T. Pellegrino
Assistant Secretary
THE UNDERSIGNED, Vice President of DELAWARE GROUP EQUITY FUNDS II, INC.,
who executed on behalf of the said Corporation the foregoing Articles
Supplementary, of which this instrument is made a part, hereby
acknowledges, in the name of and on behalf of said Corporation, said
Article Supplementary to be the corporate act of said Corporation and
further certifies that, to the best of his knowledge, information and
belief, the matters and facts set forth therein with respect to the
authorization and approval thereof are true in all material respects,
under the penalties of perjury.
/s/Eric E. Miller
------------------------------------
Eric E. Miller
Vice President
CHASE
GLOBAL CUSTODY AGREEMENT
AGREEMENT, effective May 1, 1996, between THE CHASE MANHATTAN BANK, N.A.
(the "Bank") and those registered investment companies listed on Schedule A
hereto (each a Customer ) on behalf of certain of their respective series,
as listed on Schedule A (individually and collectively the Series ).
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer on behalf of each
Series ("Custody Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of money, bullion, coin
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by the Bank or its
Subcustodian (as defined in Section 3) for the account of the Customer
("Securities"); and
(b) A deposit account in the name of the Customer on behalf of each
Series ("Deposit Account") for any and all cash in any currency received by
the Bank or its Subcustodian for the account of the Customer, which cash
shall not be subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11) concerning the Accounts. Such Instructions shall
specifically indicate to which Series such Assets belong or, if such Assets
belong to more than one Series, shall allocate such Assets to the appropriate
Series. The Bank may deliver securities of the same class in place of those
deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional
Accounts under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
To the extent available and permissible under applicable law and
regulation, Cash held pursuant to Instructions shall be held in interest
bearing accounts. If interest bearing accounts are not available, such cash
may be held in non-interest bearing accounts. The Bank is authorized to
maintain cash balances on deposit for the Customer with itself or one of its
affiliates. Interest bearing accounts shall bear interest at such reasonable
rates of interest as may from time to time be paid on such accounts by the
Bank or its affiliates.
(iii) For each Series that is exclusively a domestic Series, the following
additional provisions shall apply:
(x) In the event that during a given calendar month a Series has maintained
an average daily cash balance greater than zero, the Bank shall provide an
earnings credit against custody fees otherwise owing hereunder by such Series
during such calendar month in an amount equal to the product of (A) 75% of
the 90 day U.S. government Treasury bill rate as quoted in the Wall Street
Journal for the last Business Day (being a day on which the Bank is open
for the transaction of all its ordinary business) of such calendar month, (B)
the average daily cash balance for such month, and (C) the number of days in
such calendar month divided by 365.
(y) In the event that during a given calendar month a Series has maintained
an average daily cash balance less than or equal to zero, the Bank shall be
paid interest on such amount by such Series in an amount equal to the product
of (A) the Overnight Fed Funds Rate (as defined below) plus 25 basis points
for the last Business Day of such calendar month, (B) the average daily cash
balance for such month, and (C) the number of days in such calendar month
divided by 365.
(z) For purposes of (y) above, the term Overnight Fed Funds Rate shall mean
the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers,
as published by the Federal Reserve Bank of New York (with the rate for the
last Business Day of a given calendar month being the rate so published on
the Business Day immediately following such Day), or, if such rate is note so
published, the average quotations, for the last Business Day of a given
calendar month, of such transactions received by the Bank from three Federal
funds brokers of recognized standing selected by the Bank.
If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians as defined in Section
3 (or their securities depositories), such arrangement must be authorized by
a written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed
in Schedule B of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank
to hold Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians. The Bank and
Subcustodians are authorized to hold any of the Securities in their account
with any securities depository in which they participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule B. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
Upon receipt of Instructions, the Bank shall cease using any
Subcustodian with respect to the customer, and arrange for delivery of
Securities held with such Subcustodian to another entity as designated by the
Customer; provided that, the Bank shall have no responsibility for the
performance of such other entity.
4. Use of Subcustodian.
(a) The Bank will identify the Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging
to other customers of the Bank in accounts identified on such Subcustodian's
books as special custody accounts for the exclusive benefit of customers of
the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only
to the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding
its customer's assets shall provide that: (i) such assets will not be subject
to any right, charge, security interest, lien or claim of any kind in favor
of such Subcustodian except for safe custody or administration, (ii) the
beneficial ownership of such assets will be freely transferable without the
payment of money or value other than for safe custody or administration;
(iii) adequate records will be maintained identifying the assets held
pursuant to such agreement as belonging to the customers of the Bank; (iv)
subject to applicable law, Subcustodian shall permit independent public
accountants for Bank and customers of the Bank reasonable access to
Subcustodian s books and records as they pertain to the subcustody account in
connection with such accountants' examination of the books and records of
such account; and (v) the Bank will receive periodic reports with respect to
the safekeeping of assets in the subcustody account, including advices and/or
notifications of any transfers to or from such subcustody account. The
foregoing shall not apply to the extent of any special agreement or
arrangement made by the Customer with any particular Subcustodian.
(e) Upon request of the Customer, the Bank shall deliver to the Customer
annually a report stating: (i) the identity of each Subcustodian then acting
on behalf of the Bank and the name and address of the governmental agency or
other regulatory authority that supervises or regulates such Subcustodian;
(ii) the countries in which each Subcustodian is located; and (iii) as long
as Securities and Exchange Commission ("SEC") Rule 17f-5 under the Investment
Company Act of 1940, as amended ("1940 Act"), requires the Customer s Board
of Directors/Trustees directly to approve its foreign custody arrangements,
such other information relating to such Subcustodians as may reasonably be
requested by the Customer to ensure compliance with Rule 17f-5. As long as
Rule 17f-5 requires the Customer s Board of Directors/Trustees directly to
approve its foreign custody arrangements, the Bank shall also furnish
annually to the Customer information concerning such Subcustodians similar in
kind and scope as that furnished to the Customer in connection with the
initial approval hereof. The Bank shall timely advise the Customer of any
material adverse change in the facts or circumstances upon which such
information is based where such changes would affect the eligibility of the
Subcustodian under Rule 17f-5 as soon as practicable after it becomes aware
of any such material adverse change in the normal course of its custodial
activities.
5. Deposit Account Transactions
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required
by the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be deemed
a loan payable on demand, bearing interest at the rate customarily charged by
the Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount due, the
Customer will promptly return any such amount upon oral or written
notification: (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited. If the
Customer does not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the Customer, to
reverse such credit by debiting the Deposit Account for the amount previously
credited. The Bank or its Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of claim in any
insolvency proceeding or take any other action with respect to the collection
of such amount, but may act for the Customer upon Instructions after
consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of Instructions which include
all information required by the Bank. Settlement and payment for Securities
received for, and delivery of Securities out of, the Custody Account may be
made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation, delivery of
Securities to a purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery. Delivery of
Securities out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to the Bank.
(b) The Bank shall credit or debit the Accounts on a contractual
settlement date with cash or Securities with respect to any sale, exchange or
purchase of Securities in those countries set forth in Appendix A hereto;
provided that, the Bank may amend Appendix A from time to time in its sole
discretion and shall advise the Customer of such amendments. Otherwise,
transactions will be credited or debited to the Accounts on the date cash or
Securities are actually received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction; provided that, the Bank shall
give Customer prior notification of any such reversal. Where the foregoing
notification is oral, the Bank shall promptly provide written confirmation of
the same (which confirmation may be electronic).
(ii) If any Securities delivered pursuant to this Section 6 are returned
by the recipient thereof, the Bank may reverse the credits and debits of the
particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that the Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian, subject to applicable SEC rules and regulations under the Act.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer advises the Bank orally and then promptly sends
the Bank a written exception or objection to any Bank statement within 180
days of receipt, the Customer shall be deemed to have approved such
statement.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. Subject to the standard of care in Section 12 hereof, the Bank shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Bank or by its Subcustodians of any payment, redemption or other
transaction regarding Securities in the Custody Account in respect of which
the Bank has agreed to take any action under this Agreement.
8. Corporate Actions; Proxies; Tax Reclaims.
a. Corporate Actions. Whenever the Bank receives information
concerning the Securities which requires discretionary action by the
beneficial owner of the Securities (other than a proxy), such as subscription
rights, bonus issues, stock repurchase plans and rights offerings, or legal
notices or other material intended to be transmitted to securities holders
("Corporate Actions"), the Bank will give the Customer written notice (which
may be electronic) of such Corporate Actions to the extent that the Bank's
central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person (as defined in Section
10 hereof), but if Instructions are not received in time for the Bank to take
timely action, or actual notice of such Corporate Action was received too
late to seek Instructions, the Bank is authorized to sell such rights
entitlement or fractional interest and to credit the Deposit Account with the
proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
b. Proxy Voting. With respect to domestic U.S. and Canadian Securities
(the latter if held in DTC), the Bank will send to the Customer or the
Authorized Person (as defined in Section 10) for a Custody Account, such proxies
(signed in blank, if issued in the name of the Bank's nominee or the nominee
of a central depository) and communications with respect to Securities in the
Custody Account as call for voting or relate to legal proceedings within a
reasonable time after sufficient copies are received by the Bank for
forwarding to its customers. In addition, the Bank will follow coupon
payments, redemptions, exchanges or similar matters with respect to
Securities in the Custody Account and advise the Customer or the Authorized
Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Securities, in each case, of which
the Bank has received notice from the issuer of the Securities, or as to
which notice is published in publications routinely utilized by the Bank for
this purpose.
With respect to Securities other than the foregoing, proxy voting
services shall be provided in accordance with separate proxy voting agreement
annexed hereto a Appendix B.
The foregoing proxy voting services may be provided by Bank, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank), provided that the Bank shall be liable for the
performance of any such third parties to the same extent as the Bank would
have been if it performed such services itself..
c. Tax Reclaims. (i) Subject to the provisions hereof, the Bank will
apply for a reduction of withholding tax and any refund of any tax paid or
tax credits which apply in each applicable market in respect of income
payments on Securities for the benefit of the Customer which the Bank
believes may be available to such Customer. Where such reports are available,
the Bank shall periodically report to Customer concerning the making of
applications for a reduction of withholding tax and refund of any tax paid or
tax credits which apply in each applicable market in respect of income
payments on Securities for the benefit of the Customer.
(ii) The provision of tax reclaim services by the Bank is conditional
upon the Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from the Bank). The
Bank shall use reasonable means to advise the Customer of the declarations,
documentation and information which the Customer is to provide to the Bank in
order for the Bank to provide the tax reclaim services described herein. The
Customer acknowledges that, if the Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation will be
deducted from all income received in respect of Securities issued outside the
United Kingdom and that U.S. non-resident alien tax or U.S. backup
withholding tax will be deducted from U.S. source income. The Customer shall
provide to the Bank such documentation and information as it may require in
connection with taxation, and warrants that, when given, this information
shall be true and correct in every respect, not misleading in any way, and
contain all material information. The Customer undertakes to notify the Bank
immediately if any such information requires updating or amendment.
(iii) Subject to subsection (vii) hereof, the Bank shall not be liable
to the Customer or any third party for any tax, fines or penalties payable by
the Bank or the Customer, and shall be indemnified accordingly, whether these
result from the inaccurate completion of documents by the Customer or any
third party, or as a result of the provision to the Bank or any third party
of inaccurate or misleading information or the withholding of material
information by the Customer or any other third party, or as a result of any
delay of any revenue authority or any other matter beyond the control of the
Bank.
(iv) The Customer confirms that the Bank is authorized to deduct from
any cash received or credited to the Cash Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) The Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to the
Customer from time to time and the Bank may, by notification in writing, at
its absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this sub-
clause, the Bank shall have no responsibility with regard to the Customer's
tax position or status in any jurisdiction. Except as provided in Section
8(c)(ii) and pursuant to Instructions, the Bank shall take no action in the
servicing of the Customer s Securities which, in and of itself, creates a
taxable nexus for the Customer in any jurisdiction other than with respect to
interest, dividends and capital gains that may otherwise be subject to tax by
such jurisdiction with respect to a foreign investor not otherwise engaged in
a trade or business in such jurisdiction in a given taxable year. Bank shall
not be liable for any tax liability caused, directly or indirectly, by
Customer's actions or status in any jurisdiction.
(vi) In connection with obtaining tax relief, the Customer confirms
that the Bank is authorized to disclose any information requested by any
revenue authority or any governmental body in relation to the Customer or the
Securities and/or Cash held for the Customer. This provision does not
authorize any other voluntary disclosure to any revenue authority or any
governmental body without the prior written consent of Customer.
(vii) Tax reclaim services may be provided by the Bank or, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would have
been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities
depository, as the case may be. The Bank may without notice to the Customer
cause any such Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Customer. In the event that
any Securities registered in a nominee name are called for partial redemption
by the issuer, the Bank may allot the called portion to the respective
beneficial holders of such class of security in any manner the Bank deems to
be fair and equitable. The Customer agrees to hold the Bank, Subcustodians,
and their respective nominees harmless from any liability arising directly or
indirectly from their status as a mere record holder of Securities in the
Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer
or its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information
system acceptable to the Bank which the Bank reasonably believes in good
faith to have been given by Authorized Persons or which are transmitted with
proper testing or authentication pursuant to terms and conditions which the
Bank may specify. Unless otherwise expressly provided, all Instructions
shall continue in full force and effect until canceled or superseded. For
purposes hereof, reasonableness shall mean compliance with applicable
procedures.
Any Instructions delivered to the Bank by telephone (including cash
transfer instructions as described below) shall promptly thereafter be
confirmed in writing by any two Authorized Persons (which confirmation may
bear the facsimile signature of such Persons), but the Customer will hold the
Bank harmless for the failure of such Authorized Persons to send such
confirmation in writing, the failure of such confirmation to conform to the
telephone instructions received or the Bank's failure to produce such
confirmation at any subsequent time; provided that, where the Bank receives
a telephone Instruction from an Authorized Person requiring the transfer of
cash, prior to executing such Instruction the Bank will, to confirm such
Instruction, call back any one of the individuals on a list of persons
authorized to confirm such oral transfer Instructions (which Person shall be
a person other than the initiator of the transfer Instruction) and the Bank
shall not execute the Instruction until it has received such confirmation.
Either party may electronically record any Instructions given by telephone,
and any other telephone discussions with respect to the Custody Account. The
Customer shall be responsible for safeguarding any testkeys, identification
codes or other security devices which the Bank shall make available to the
Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in
Instructions which are consistent with the provisions of this Agreement as
follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be liable
to the Customer for any loss which shall occur as the result of the failure
of a Subcustodian to exercise reasonable care with respect to the safekeeping
of such Assets to the same extent that the Bank would be liable to the
Customer if the Bank were holding such Assets in New York. In the event that
Securities are lost by reason of the failure of the Bank or its Subcustodian
to use reasonable care, the Bank shall be liable to the Customer based on the
market value of the property which is the subject of the loss on the date it
is replaced by the Bank and without reference to any special conditions or
circumstances, it being understood that for purposes of measuring damages
hereunder, the value of Securities which are sold by the Customer prior to
the replacement thereof shall be equal to the sale price thereof less the
expenses of such sale incurred by the Customer. The Bank shall act with
reasonable promptness in making such replacements. In no event shall the
Bank be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits), even if the Bank
has been advised of the likelihood of such loss or damage and regardless of
the form of action. Subject to the Bank's obligations pursuant to Section 4(e)
hereof, the Bank will not be responsible for the insolvency of any
Subcustodian which is not a branch or affiliate of Bank.
(ii) The Bank will not be responsible for any act, omission, default or
the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
(iii) (a) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise pursuant to this Agreement if such act or omission
was in good faith, without negligence. In performing its obligations under
this Agreement, the Bank may rely on the genuineness of any Customer document
which it reasonably believes in good faith to have been validly executed.
(b) The Bank shall hold Customer harmless from, and shall indemnify Customer
for, any loss, liability, claim or expense incurred by Customer (including,
but not limited to, Customer's reasonable legal fees) to the extent that such
loss, liability, claim or expense arises from the negligence or willful mis-
conduct on the part of the Bank or a Subcustodian; provided that, in no event
shall the Bank be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits),
even if the Bank has been advised of the likelihood of such loss or damage
and regardless of the form of action. Subject to the Bank's obligations
pursuant to Section 4(e) hereof, the Bank will not be responsible for the
insolvency of any Subcustodian which is not a branch or affiliate of Bank.
(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes or
other governmental charges, and any related expenses with respect to income
from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for the Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
(vi) The Bank need not maintain any insurance for the benefit of the
Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable
for any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or affect the
value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty
or responsibility to:
(i) question Instructions or make any suggestions to the Customer or an
Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than a
Security.
(iv) except as may be otherwise provided in any securities lending
agreement between the Customer and the Bank, evaluate or report to the
Customer or an Authorized Person regarding the financial condition of any
broker, agent or other party to which Securities are delivered or payments
are made pursuant to this Agreement;
(v) except for trades settled at DTC where the broker provides to the
Bank the trade confirmation and the Customer provides for the Bank to receive
the trade instruction, review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined in Section 10)
issuing Instructions shall bear any responsibility to review such
confirmations against Instructions issued to and statements issued by the
Bank.
(c) The Customer authorizes the Bank to act, hereunder, in its capacity
as a custodian notwithstanding that the Bank or any of its divisions or
affiliates may have a material interest in a transaction, or circumstances
are such that the Bank may have a potential conflict of duty or interest
including the fact that the Bank or any of its affiliates may provide
brokerage services to other customers, act as financial advisor to the issuer
of Securities, act as a lender to the issuer of Securities, act in the same
transaction as agent for more than one customer, have a material interest in
the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing ("Fee Schedule"),
together with the Bank's reasonable out-of-pocket or incidental expenses (as
further defined in the Fee Schedule), including, but not limited to, legal
fees. The Bank shall have a lien on and is authorized to charge any Accounts
of the Customer for any amount owing to the Bank under any provision of this
Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
the Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians. Instructions,
including standing instructions, may be issued with respect to such contracts
but the Bank may establish rules or limitations concerning any foreign
exchange facility made available. In all cases where the Bank, its
subsidiaries, affiliates or Subcustodians enter into a foreign exchange
contract related to Accounts, the terms and conditions of the then current
foreign exchange contract of the Bank, its subsidiary, affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply
to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is
a resident of the United States and agrees to notify the Bank of any changes
in residency. The Bank may rely upon this certification or the certification
of such other facts as may be required to administer the Bank's obligations
under this Agreement. The Customer will indemnify the Bank against all
losses, liability, claims or demands arising directly or indirectly from any
such certifications.
(c) Access to Records. Applicable accounts, books and records of the
Bank shall be open to inspection and audit at all reasonable times during
normal business hours upon reasonable advance notice by Customer s
independent public accountants and by employees of Customer designated to the
Bank. All such materials shall, to the extent applicable, be maintained and
preserved in conformity with the Act and the rules and regulations
thereunder, including without limitation, SEC Rules 31a-1 and 31a-2. Subject
to restrictions under applicable law, the Bank shall also obtain an
undertaking to permit the Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the
examination of the Customer's books and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
the Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are Mutual Fund assets subject to certain
Securities and Exchange Commission ("SEC") rules and regulations.
This Agreement consists exclusively of this document together with
Schedules A and B, Appendices 1 and 2, Exhibits I - _______ and the following
Rider(s) [Check applicable rider(s)]:
X MUTUAL FUND
----
X SPECIAL TERMS AND CONDITIONS
----
There are no other provisions of this Agreement, and this Agreement
supersedes any other agreements, whether written or oral, between the
parties. Any amendment to this Agreement must be in writing, executed by
both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the validity,
legality and enforceability of such provision or provisions under other
circumstances or in other jurisdictions and of the remaining provisions will
not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure
or delay on the part of either party in exercising any power or right under
this Agreement operates as a waiver, nor does any single or partial exercise
of any power or right preclude any other or further exercise, or the exercise
of any other power or right. No waiver by a party of any provision of this
Agreement, or waiver of any breach or default, is effective unless in writing
and signed by the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses
or such other addresses as may subsequently be given to the other party in
writing:
Bank: The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:
-------------------------------------
Customer: Delaware Group of Funds
1818 Market St.
Philadelphia, PA 19103
att: Messrs. Bishof and O Conner
or telex:
--------------------------------------
(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the
Bank shall deliver the Assets in the Accounts. If notice of termination is
given by the Bank, the Customer shall, within sixty (60) days following
receipt of the notice, deliver to the Bank Instructions specifying the names
of the persons to whom the Bank shall deliver the Assets. In either case the
Bank will deliver the Assets to the persons so specified, after deducting any
amounts which the Bank determines in good faith to be owed to it under
Section 13. If within sixty (60) days following receipt of a notice of
termination by the Bank, the Bank does not receive Instructions from the
Customer specifying the names of the persons to whom the Bank shall deliver
the Assets, the Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and disposed
of pursuant to the provisions of this Agreement, or to Authorized Persons, or
may continue to hold the Assets until Instructions are provided to the Bank;
provided that, where the Bank is the terminating party and the Bank had not
notified the Customer that termination was for breach of this Agreement by
the Customer, such 60 day period shall be extended for an additional period
as requested by Customer of up to 120 days.
Termination as to One or More Series. This Agreement may be terminated
as to one or more Series (but less than all the Series) by delivery of an
amended Schedule A deleting such Series, in which case termination as to the
deleted Series shall take effect sixty (60) days after the date of such
delivery. The execution and delivery of an amended Schedule A which deletes
one or more Series, shall constitute a termination hereof only with respect
to such deleted Series, shall be governed by the preceding provisions of
Section 14 as to the identification of a successor custodian and the delivery
of the Assets of the Series so deleted to such successor custodian, and shall
not affect the obligations of the Bank and the Customer hereunder with
respect to the other Series set forth in Schedule A, as amended from time to
time.
(j) Several Obligations of the Series. With respect to any obligations
of the Customer on behalf of the Series and their related Accounts arising
hereunder, the Custodian shall look for payment or satisfaction of any such
obligation solely to the assets and property of the Series and such Accounts
to which such obligation relates as though the Customer had separately
contracted with the Custodian by separate written instrument with respect to
each Series and its Accounts.
CUSTOMER
By: /s/ Michael P. Bishof
---------------------
Title Vice President and Treasurer
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Rosemary M. Stidmon
-----------------------
Title Vice President
STATE OF Pennsylvania)
: ss.
COUNTY OF Philadelphia)
On this 9th day of July, 1996, before me personally came Michael P. Bishof,
to me known, who being by me duly sworn, did depose and say that he resides
in Blue Bell, PA at 110 Spyglass Drive; that he is Vice President/Treasurer
of Delaware Group of Funds, the entity described in and which executed the
foregoing instrument; that he knows the seal of said entity, that the seal
affixed to said instrument is such seal, that it was so affixed by order of
said entity, and that he signed his name thereto by like order.
/s/ Maritza H. Cruzado
-----------------------
Maritza H. Cruzado
Notary
Sworn to before me this 9th
day of July, 1996.
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this 24th day of May, 1996, before me personally came Rosemary
Stidmon, to me known, who being by me duly sworn, did depose and say that she
resides in New Providence, NJ at 31 Sagamore Drive; that she is a Vice
President of THE CHASE MANHATTAN BANK, (National Association), the
corporation described in and which executed the foregoing instrument; that
she knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the
Board of Directors of said corporation, and that she signed her name thereto
by like order.
Sworn to before me this 24th
day of May, 1996.
/s/ Laiyee Ng
- -------------
Laiyee Ng
Notary
Schedule A
Delaware Pooled Trust, Inc. - Global Fixed Income Portfolio
Delaware Pooled Trust, Inc. - International Equity Portfolio
Delaware Pooled Trust, Inc. - Labor Select International Equity Portfolio
Delaware Pooled Trust, Inc. - Real Estate Investment Trust Portfolio
Delaware Pooled Trust, Inc. - High Yield Portfolio
Delaware Pooled Trust, Inc. - International Fixed Income Portfolio
Delaware Pooled Trust, Inc. - Defensive Equity Utility Portfolio
Delaware Group Global & International Funds, Inc. - International Equity Fund
Delaware Group Global & International Funds, Inc. - Global Assets Fund
Delaware Group Global & International Funds, Inc. - Global Bond Fund
Delaware Group Global & International Funds, Inc. - Emerging Markets Fund
Delaware Group Premium Fund, Inc. - International Equity Series
Delaware Group Premium Fund, Inc. - Equity Income Series
Delaware Group Premium Fund, Inc. - High Yield Series
Delaware Group Premium Fund, Inc. - Capital Reserves Series
Delaware Group Premium Fund, Inc. - Money Market Series
Delaware Group Premium Fund, Inc. - Growth Series
Delaware Group Premium Fund, Inc. - Multiple Strategy Series
Delaware Group Premium Fund, Inc. - Value Series
Delaware Group Premium Fund, Inc. - Emerging Growth Series
Delaware Group Premium Fund, Inc. - Global Bond Series
Delaware Group Delchester High-Yield Bond Fund, Inc.
Delaware Group Delaware Fund, Inc. - Delaware Fund
Delaware Group Delaware Fund, Inc. - Devon Fund
Delaware Group Value Fund, Inc.
Delaware Group DelCap Fund, Inc.
Delaware Group Dividend & Income Fund, Inc.
Delaware Group Advisor Funds, Inc. - Enterprise Fund
Delaware Group Advisor Funds, Inc. - U.S. Growth Fund
Delaware Group Advisor Funds, Inc. - World Growth Fund
Delaware Group Advisor Funds, Inc. - New Pacific Fund
Delaware Group Advisor Funds, Inc. - Federal Bond Fund
Delaware Group Advisor Funds, Inc. - Corporate Income Fund
March, 1996 Schedule B
SUB-CUSTODIANS EMPLOYED BY
THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY
<TABLE>
<CAPTION>
<S> <C> <C>
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK
ARGENTINA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Arenales 707, 5th Floor Buenos Aires
De Mayo 130/140
1061Buenos Aires
ARGENTINA
AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank
Australia Limited Australia Limited
36th Floor Sydney
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA
AUSTRIA Creditanstalt - Bankverein Credit Lyonnais
Schottengasse 6 Vienna
A - 1011, Vienna
AUSTRIA
BANGLADESH Standard Chartered Bank Standard Chartered Bank
18-20 Motijheel C.A. Dhaka
Box 536,
Dhaka-1000
BANGLADESH
BELGIUM Generale Bank Credit Lyonnais Bank
3 Montagne Du Parc Brussels
1000 Bruxelles
BELGIUM
BOTSWANA Barclays Bank of Botswana Limited Barclays Bank of Botswana
Barclays House Gaborone
Khama Crescent
Gaborone
BOTSWANA
BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A.
Chase Manhattan Center Sao Paulo
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL
CANADA The Royal Bank of Canada Royal Bank of Canada
Royal Bank Plaza Toronto
Toronto
Ontario M5J 2J5
CANADA
Canada Trust Royal Bank of Canada
Canada Trust Tower Toronto
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA
CHILE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Agustinas 1235 Santiago
Casilla 9192
Santiago
CHILE
COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A.
Sociedad Fiduciaria Sociedad Fiduciaria
Carrera 9a No 99-02 Santafe de Bogota
Santafe de Bogota, DC
COLOMBIA
CZECH REPUBLIC
Ceskoslovenska Obchodni Banka, A.S. Komercni Banka, A.S.,
Na Prikope 14 Praha
115 20 Praha 1
CZECH REPUBLIC
DENMARK Den Danske Bank Den Danske Bank
2 Holmens Kanala DK 1091 Copenhagen
Copenhagen
DENMARK
EGYPT National Bank of Egypt National Bank of Egypt
24 Sherif Street Cairo
Cairo
EGYPT
EUROBONDS Cedel S.A. ECU:Lloyds Bank PLC
67 Boulevard Grande Duchesse Charlotte International Banking Division
LUXEMBOURG London
A/c The Chase Manhattan Bank, N.A. For all other currencies: see
London relevant country
A/c No. 17817
EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC
27 Leadenhall Street Banking Division London
London EC3A 1AA For all other currencies: see
UNITED KINGDOM relevant country
FINLAND Merita Bank KOP Merita Bank KOP
Aleksis Kiven 3-5 Helsinki
00500 Helsinki
FINLAND
FRANCE Banque Paribas Societe Generale
Ref 256 Paris
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE
GERMANY Chase Bank A.G. Chase Bank A.G.
Alexanderstrasse 59 Frankfurt
Postfach 90 01 09
60441 Frankfurt/Main
GERMANY
GHANA Barclays Bank of Ghana Barclays Bank
Barclays House Accra
High Street
Accra
GHANA
GREECE Barclays Bank Plc National Bank of Greece S.A.
1 Kolokotroni Street Athens
10562 Athens A/c Chase Manhattan Bank, N.A.,
GREECE London
A/c No. 040/7/921578-68
HONG KONG The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
40/F One Exchange Square Hong Kong
8, Connaught Place
Central, Hong Kong
HONG KONG
HUNGARY Citibank Budapest Rt. Citibank Budapest Rt.
Vaci Utca 19-21 Budapest
1052 Budapest V
HUNGARY
INDIA The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
52/60 Mahatma Gandhi Road Bombay
Bombay 400 001
INDIA
Deutsche Bank AG, Bombay Branch Deutsche Bank
Securities & Custody Services Bombay
Kodak House
222 D.N. Road, Fort
Bombay 400 001
INDIA
INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
Banking Corporation Limited Jakarta
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA
IRELAND Bank of Ireland Allied Irish Bank
International Financial Services Centre Dublin
1 Harbourmaster Place
Dublin 1
IRELAND
ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M.
19 Herzl Street Tel Aviv
61000 Tel Aviv
ISRAEL
ITALY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Piazza Meda 1 Milan
20121 Milan
ITALY
JAPAN The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1-3 Marunouchi 1-Chome Tokyo
Chiyoda-Ku
Tokyo 100
JAPAN
JORDAN Arab Bank Limited Arab Bank Limited
P O Box 950544-5 Amman
Amman
Shmeisani
JORDAN
KENYA Barclays Bank of Kenya Barclays Bank of Kenya
Third Floor Nairobi
Queensway House
Nairobi
Kenya
LUXEMBOURG
Banque Generale du Luxembourg S.A. Banque Generale du Luxembourg
50 Avenue J.F. Kennedy S.A.
L-2951 LUXEMBOURG Luxembourg
MALAYSIA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Pernas International Kuala Lumpur
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA
MAURITIUS Hongkong and Shanghai Banking The Hongkong and Shanghai Banking
Corporation Ltd Corporation Ltd.
Curepipe Road Curepipe
Curepipe
MAURITIUS
MEXICO The Chase Manhattan Bank, S.A. No correspondent Bank
(Equities)Montes Urales no. 470, 4th Floor
Col. Lomas de Chapultepec
11000 Mexico D.F.
(Government Banco Nacional de Mexico, No correspondent Bank
Bonds) Avenida Juarez No. 104 - 11 Piso
06040 Mexico D.F.
MEXICO
MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc
2 Boulevard Moulay Youssef Casablanca
Casablanca 20000
MOROCCO
NETHERLANDS
ABN AMRO N.V. Generale Bank
Securities Centre Nederland N.V.
P O Box 3200 Rotterdam
4800 De Breda
NETHERLANDS
NEW ZEALAND
National Nominees Limited National Bank of New Zealand
Level 2 BNZ Tower Wellington
125 Queen Street
Auckland
NEW ZEALAND
NORWAY Den Norske Bank Den Norske Bank
Kirkegaten 21 Oslo
Oslo 1
NORWAY
PAKISTAN Citibank N.A. Citibank N.A.
I.I. Chundrigar Road Karachi
AWT Plaza
Karachi
PAKISTAN
Deutsche Bank Deutsche Bank
Unitowers Karachi
I.I. Chundrigar Road
Karachi
PAKISTAN
PERU Citibank, N.A. Citibank N.A.
Camino Real 457 Lima
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU
PHILIPPINES
The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
Hong Kong Bank Centre 3/F Manila
San Miguel Avenue
Ortigas Commercial Centre
Pasig Metro Manila
PHILIPPINES
POLAND Bank Polska Kasa Opieki S.A. Bank Polska Kasa Opieki S.A.
Curtis Plaza Warsaw
Woloska 18
02-675 Warsaw
POLAND
For Mutual Funds:
Bank Handlowy W. Warsawie. S.A. Bank Polska Kasa Opieki S.A.
Custody Dept. Warsaw
Capital Markets Centre
Ul, Nowy Swiat 6/12
00-920 Warsaw
POLAND
PORTUGAL Banco Espirito Santo & Comercial Banco Nacional Ultra Marino
de Lisboa Lisbon
Servico de Gestaode Titulos
R. Mouzinho da Silveira, 36 r/c
1200 Lisbon
PORTUGAL
SHANGHAI The Hongkong and Shanghai Citibank
(CHINA) Banking Corporation Limited New York
Shanghai Branch
Corporate Banking Centre
Unit 504, 5/F Shanghai Centre
1376 Nanjing Xi Lu
Shanghai
THE PEOPLE'S REPUBLIC OF CHINA
SHENZHEN The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
(CHINA) Banking Corporation Limited Hong Kong
1st Floor
Central Plaza Hotel
No.1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF CHINA
SINGAPORE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Shell Tower Singapore
50 Raffles Place
Singapore 0104
SINGAPORE
SLOVAK REPUBLIC
Ceskoslovenska Obchodni Banka, A.S. Ceskoslovenska Obchodni Banka
Michalska 18 Slovak Republic
815 63 Bratislava
SLOVAK REPUBLIC
SOUTH AFRICA
Standard Bank of South Africa Standard Bank of South Africa
Standard Bank Chambers South Africa
46 Marshall Street
Johannesburg 2001
SOUTH AFRICA
SOUTH KOREA
The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
6/F Kyobo Building Seoul
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUTH KOREA
SPAIN The Chase Manhattan Bank, N.A. Banco Bilbao Vizcaya,
Calle Peonias 2 Madrid
7th Floor
La Piovera
28042 Madrid
SPAIN
SRI LANKA The Hongkong & Shanghai The Hongkong & Shangai
Banking Corporation Limited Banking Corporation Limited
Unit #02-02 West Block, Colombo
World Trade Center
Colombo 1,
SRI LANKA
SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken
Kungstradgardsgatan 8 Stockholm
Stockholm S-106 40
SWEDEN
SWITZERLAND
Union Bank of Switzerland Union Bank of Switzerland
45 Bahnhofstrasse Zurich
8021 Zurich
SWITZERLAND
TAIWAN The Chase Manhattan Bank, N.A. No correspondent Bank
115 Min Sheng East Road - Sec 3,
9th Floor
Taipei
TAIWAN
Republic of China
THAILAND The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Bubhajit Building Bangkok
20 North Sathorn Road
Silom, Bangrak
Bangkok 10500
THAILAND
TUNISIA Banque Internationale Arabe de Tunisie Banque Internationale Arabe de
70-72 Avenue Habib Bourguiba Tunisie, Tunisia
P.O. Box 520
1080 Tunis Cedex
Tunisia
TURKEY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Emirhan Cad. No: 145 Istanbul
Atakule, A Blok Kat:11
80700-Dikilitas/Besiktas
Istanbul
Turkey
U.K. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Woolgate House London
Coleman Street
London EC2P 2HD
UNITED KINGDOM
URUGUAY The First National Bank of Boston The First National Bank of Boston
Zabala 1463 Montevideo
Montevideo
URUGUAY
U.S.A. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza New York
New York
NY 10081
U.S.A.
VENEZUELA Citibank N.A. Citibank N.A.
Carmelitas a Altagracia Caracas
Edificio Citibank
Caracas 1010
VENEZUELA
ZAMBIA Barclays Bank of Zambia Barclays Bank of Zambia
Kafue House Lusaka
Cairo Road
P.O.Box 31936
Lusaka
ZAMBIA
ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe
Ground Floor Harare
Tanganyika House
Corner of 3rd Street & Union Avenue
Harare
ZIMBABWE
</TABLE>
AMENDMENT, dated November 20, 1997 to the May 1, 1996
custody agreement ("Agreement"), between those registered
investment companies listed on Schedule A to the Agreement (each
a "Customer"), having a place of business at 1818 Market Street,
Philadelphia, PA 19103 and The Chase Manhattan Bank ("Bank"),
having a place of business at 270 Park Ave., New York, N.Y. 10017-2070.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is
confirmed in all respects. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the
Agreement.
Section 2. The Agreement is amended by deleting the mutual
fund rider thereto and inserting, in lieu thereof, the following
mutual fund rider:
1. Add a new Section 15 to the Agreement as follows:
15. COMPLIANCE WITH SEC RULE 17F-5 ("RULE 17F-5").
(a) Customer's board of directors (or equivalent body)
(hereinafter "Board") hereby delegates to Bank, and Bank hereby
accepts the delegation to it, of the obligation to perform as
Customer's "Foreign Custody Manager" (as that term is defined in
Rule 17f-5(a)(2)) adopted under the Investment Company Act of
1940 ("Act"), as amended ("1940 Act"), the following
responsibilities in a manner consistent with Rule 17f-5, to: (i)
select Eligible Foreign Custodians (as that term is defined in
Rule 17f-5(a)(1), and as the same may be amended from time to
time, or that have otherwise been made exempt pursuant to an SEC
exemptive order); (ii) enter into written contracts with such
Eligible Foreign Custodians that are banks or trust companies and
with Eligible Foreign Custodians that are "Securities
Depositories" (as defined in Rule 17f-5(a)(6)) and that are not
Compulsory Depositories (as defined below) where the Depository
has such a contract; and (iii) to monitor the appropriateness of
maintaining Assets of the series of the Customer with such
Eligible Foreign Custodians; provided that, Bank shall not be
responsible for these duties with respect to any compulsory
Securities Depository ("Compulsory Depository"). A Compulsory
Depository shall mean a Securities Depository or clearing agency
the use of which is compulsory because: (1) its use is required
by law or regulation or (2) maintaining securities outside the
depository is not consistent with prevailing custodial practices
in the country which the Depository serves. Compulsory
Depositories used by Chase as of the date hereof are set forth in
Appendix 1-A hereto. Appendix 1-A may be amended on notice to
Customer from time to time. In that connection, Bank shall
notify Customer promptly of pending changes to Appendix 1-A.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports to Customer's Board upon the
placement of Assets with a particular Eligible Foreign
Custodian and of any Material Change (as defined below) in
the arrangements with such Eligible Foreign Custodians, with
such reports to be provided to Customer's Board at such
times as the Board deems reasonable and appropriate based on
the circumstances of Customer's foreign custody arrangements
(and until further notice from Customer such reports shall
be provided within 30 days after Bank becomes aware of any
such Material Change. For purposes of the foregoing, a
Material Change shall include, but shall not be limited to,
Bank's decision to remove Customer's Assets from a
particular Eligible Foreign Custodian, an event that has a
material adverse affect on an Eligible Foreign Custodian's
financial or operational strength, any non-compliance by an
Eligible Foreign Custodian with a "Material Term" of Bank's
subcustodian agreement with such Eligible Foreign Custodian
(as defined below) or any failure by an Eligible Foreign
Custodian to meet the requirements for its status as such
under Rule 17f-5. A Material Term shall mean a term which
provides that (a) the Customer will be adequately
indemnified or its Assets adequately insured, or an adequate
combination thereof, in the event of loss; (b) the Assets of
the Series will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of an
Eligible Foreign Custodian or such Eligible Foreign
Custodian's creditors, except a claim of payment for their
safe custody or administration, or in the case of cash
deposits, liens or rights in favor of creditors of the
Eligible Foreign Custodian arising under bankruptcy,
insolvency or similar laws; (c) beneficial ownership for the
Assets of the Series will be freely transferable without the
payment of money or value other than for safe custody or
administration of the Assets of the Series; (d) adequate
records will be maintained identifying the Assets as
belonging to the Customer or the Series or as being held by
a third party for the benefit of the Customer or the Series;
(e) the independent auditors for the Customer will be given
access to those records or confirmation of the contents of
those records; and (f) the Customer will receive periodic
reports with respect to the safekeeping of the Series'
Assets, including, but not necessarily limited to,
notification of any transfer to or from the Customer's
account or a third party account containing Assets held for
the benefit of the Customer. In addition, in the event that
a contract with an Eligible Foreign Custodian does not
include any or all of the terms described in (a) through (f)
of this paragraph 15(b)(i), a Material Term shall mean a
term which, in the Bank's judgment, if not complied with,
would cause the contract not to provide the same or greater
level of care and protection for Customer's Assets than if
the contract contained the provisions described in (a)
through (f) of this paragraph 15(b)(i).
(ii) exercise such reasonable care, prudence and diligence
in performing as Customer's Foreign Custody Manager as a
person having responsibility for the safekeeping of Assets
would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have
determined that Assets placed and maintained in the
safekeeping of such Eligible Foreign Custodian shall be
subject to reasonable care, based on the standards
applicable to custodians in the relevant market, after
having considered all factors relevant to the safekeeping of
such Assets, including, without limitation, those factors
set forth in Rule 17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with the Eligible
Foreign Custodian (or, in the case of an Eligible Foreign
Custodian that is a Securities Depository or clearing
agency, such contract, the rules or established practices or
procedures of the depository, or any combination of the
foregoing) requires that the Eligible Foreign Custodian will
provide reasonable care for Assets based on the standards
applicable to custodians in the relevant market.
(v) have established a system to monitor the continued
appropriateness of maintaining Assets with particular
Eligible Foreign Custodians based on the standards set forth
herein and of the governing contractual arrangements based
on the standards set forth in Rule 17f-5(c)(2), as it may be
amended from time to time.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place
and maintain Assets on behalf of Customer with Eligible Foreign
Custodians pursuant to a written contract which either contains
the terms described in Rule 17f-5(c)(2)(i) or which, in lieu of
any or all of the terms described in Rule 17f-5(c)(2)(i),
contains such other provisions which the Bank determines will
provide in their entirety, the same or a greater level of care
and protection for the Customer's Assets as the provisions of
Rule 17f-5(c)(2)(i) in their entirety. The written contract
shall be in such form as deemed appropriate by Bank. In
addition, with respect to Eligible Foreign Custodians that are
non-compulsory Securities Depositories, reliance may be had on
such a contract, the rules or established practices and
procedures of such Depository or any combination thereof.
(c) Except as expressly provided herein, Customer shall be
solely responsible to assure that the maintenance of Assets
hereunder complies with the rules, regulations, interpretations
and exemptive orders promulgated by or under the authority of the
SEC which are applicable to Fund's business or which have been
granted to Fund. Bank shall advise Customer of any exemptive
orders which it obtains which may have an impact on Bank's
relationship with Customer.
(d) Bank represents to Customer that it is a U.S. Bank as
defined in Rule 17f-5(a)(7). Customer represents to Bank that:
(1) the Assets being placed and maintained in Bank's custody are
subject to the 1940 Act, as the same may be amended from time to
time; (2) its Board has determined that it is reasonable to rely
on Bank to perform as Customer's Foreign Custody Manager.
Nothing contained herein shall require Bank, on Customer's
behalf, to make any selection regarding countries in which
Customer invests or to engage in any monitoring of Customer's
decision to invest in any particular country in which Bank
selects , contracts and monitors Eligible Foreign Custodians, as
Customer's Foreign Custody Manager pursuant to the Agreement.
(e) Bank shall provide to Customer such information as is
specified in Appendix 1-B hereto. Customer hereby acknowledges
that: (i) such information is solely designed to inform Customer
of market conditions and procedures, but is not intended to
influence Customer's investment decisions; and (ii) Bank has
gathered the information from sources it considers reliable, but
that Bank shall have no responsibility for inaccuracies or
incomplete information except to the extent that Bank was
negligent in selecting the sources of such information.
2. Add the following after the first sentence of Section 3
of the Agreement:
At the request of Customer, Bank may, but need not, add to
Schedule A an Eligible Foreign Custodian that is either a
bank or a non-Compulsory Depository where Bank has not acted
as Foreign Custody Manager with respect to the selection
thereof. Bank shall notify Customer in the event that it
elects not to add any such entity.
3. Add the following language to the end of Section 3 of
the Agreement:
The term Subcustodian as used herein shall mean the
following:
(a) a "U.S. Bank," which shall mean a U.S. bank as defined
in Rule 17f-5(a)(7); and
(b) with respect to Securities for which the primary market
is outside the U.S. an "Eligible Foreign Custodian," shall
mean (i) a banking institution or trust company,
incorporated or organized under the laws of a country other
than the United States, that is regulated as such by that
country's government or an agency thereof, (ii) a majority-
owned direct or indirect subsidiary of a U.S. Bank or bank
holding company which subsidiary is incorporated or
organized under the laws of a country other than the United
States; (iii) a Securities Depository or clearing agency
(other than a Compulsory Depository), incorporated or
organized under the laws of a country other than the United
States, that acts as a system for the central handling of
securities or equivalent book-entries in that country and
that is regulated by a foreign financial regulatory autho
rity as defined under section 2(a)(50) of the 1940 Act, (iv)
a Securities Depository or clearing agency organized under
the laws of a country other than the United States that acts
as a transnational system ("Transnational Depository") for
the central handling of securities or equivalent
book-entries, and (v) any other entity that shall have been
so qualified by exemptive order, rule or other appropriate
action of the SEC.
The term Subcustodian as used in Section 12(a)(i) (except
the last sentence thereof) shall not include any Eligible
Foreign Custodians as to which Bank has not acted as Foreign
Custody Manager, any Compulsory Depository and any
Transnational Depository.
4. Add the following after the word "administration" at the
end of Subsection 4(d)(i): "or, in the case of cash deposits,
liens or rights in favor of creditors of Subcustodian arising
under bankruptcy, insolvency, or similar laws".
5. Delete all of Subsection 4(e) after the word "located"
in (ii) thereof and add the word "and" between "Subcustodian" and
"(ii)".
*********************
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
Customer THE CHASE MANHATTAN BANK
By: /s/ Michael P. Bishof By: /s/ Rosemary M. Stidmon
Name: Michael P. Bishof Name: Rosemary M. Stidmon
Title: Senior Vice President/ Title: Vice President
Treasurer
Date: Nov. 20, 1997 Date: Nov. 20, 1997
APPENDIX A
Delaware Group Adviser Funds, Inc.
U.S. Growth Fund
Overseas Equity Fund
New Pacific Fund
Delaware Group Equity Funds I, Inc.
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc.
Blue Chip Fund
Quantum Fund
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Capital Appreciation Fund
Delaware Group Equity Funds V, Inc.
Retirement Income Fund
Small Cap Value Fund
Delaware Pooled Trust, Inc.
The International Equity Portfolio
The International Fixed Income Portfolio
The Global Equity Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Real Estate Investment Trust Portfolio II
The Emerging Markets Portfolio
Delaware Group Global & International Funds, Inc.
Emerging Markets Series
Global Assets Series
Global Bond Series
Global Equity Series
International Equity Series
International Small Cap Series
APPENDIX A CON'T
Delaware Group Premium Fund, Inc.
Convertible Securities Series
Devon Series
Emerging Markets Series
Quantum Series
Strategic Income Series
Global Bond Series
DelCap Series
International Equity Series
Delaware Series
Value Series
Voyageur Mutual Funds III, Inc.
Tax-Efficient Equity Fund
Dated: November 20, 1997
Appendix 1-A
COMPULSORY DEPOSITORIES
Argentina Caja de Valores Equity, Corporate &
Government Debt
Australia Austraclear Ltd. Corporate Debt, Money
Market & Semi-
Government Debt
CHESS Equity
(Clearing House Electronic Sub-
register System)
RITS Government Debt
(Reserve Bank Information and
Transfer System)
Austria Oesterreichische Kontrolbank AG Equity, Corporate +
Government Debt
Belgium CIK Equity + Corporate
(Caisse Interprofessionnelle de Debt
Depots et de Virements de Titres)
Banque Nationale de Belgique Treasury Bills +
Government Debt
Brazil BOVESPA Equity
(Bolsa de Valores de Sao Paolo)
BVRJ Equity
(Bolsa de Valores de Rio de
Janeiro)
Canada CDS Equity, Corporate +
(Canadian Depository for Government Debt
Securities)
China, SSCCRC Equity
Shanghai (Shanghai Securities Central
Clearing and Registration Corp.)
China, SSCC Equity
Shenzhen (Shenzhen Securities
Registration Co., Ltd.)
Czech SCP Equity + Long-Term
Republic (Securities Center) Government Debt
TKD Treasury Bills +
(Trh Kratkododich Dlluhopisu or Money Market
Short-Term Bond Market)
Denmark VP Equity, Corporate +
(Vaerdipapircentralen) Government Debt
Egypt Misr Clearing & Sec. Dep. Equity
Estonia EVK Equity
(Estonian Central Depository for
Securities Ltd.)
Euromarket Cedel & Euroclear Euro-Debt
Finland CSR Equity + Government
(Central Share Registry Finland) Debt
Helsinki Money Market Center Money Market
Ltd.
France SICOVAM Equity + Corporate
(Banque de France) Debt.
France SATURNE Government Debt.
(Banque de France)
Germany DKV Equity, Corporate +
(Deutscher Kassenverein) Government Debt
Greece Apothetirio Titlon A.E. Equity
Bank of Greece Government Debt
Hong Kong CCASS Equity
(Central Clearing and
Settlement System)
CMU Corporate +
(Central Moneymarkets Unit) Government Debt
Hungary Keler Ltd. Equity + Government
Debt
Ireland CREST Equity
GSO Government Debt
(Gilt Settlement Office)
Israel TASE Clearing House Equity, Corporate +
(Tel Aviv Stock Exchange Government Debt
Clearing House)
Italy Monte Titoli Equity + Corporate Debt
Bank of Italy Government Debt
Japan Bank of Japan Registered Government
Debt
Latvia LCD Equity + Government
(Latvian Central Depository) Debt
Lebanon Midclear Equity
(Custodian and Clearing Center
of Lebanon and the Middle East)
Luxembourg Cedel Equity
Malaysia MCD Equity
(Malaysian Central Depository
Snd Bhd)
Mauritius CDS Equity
(Central Depository System)
Mexico Indeval Equity, Corporate +
(Institucion para el Deposito Government Debt.
de Valores)
Morocco Maroclear Equity + Corporate Debt
Bank Al'Maghrib Government Debt
Netherlands NECIGEF/KAS Associate NV Equity, Corp. + Govt. D
De Nederlandsche Bank N.V. Money Market
Netherlands NIEC Premium Bonds
(Nederlands Interpforessioneel
Effectencentrum B.V.)
New Zealand Austraclear New Zealand Equity, Corporate +
Government Debt
Norway VPS Equity, Corporate +
(Verdipapirsentralen) Government Debt
Oman NONE
Pakistan CDC Equity
(Central Depository Company of
Pakistan Ltd.)
Peru CAVALI Equity
(Caja de Valores)
Philippines PCD Equity
(Philippine Central Depository)
Poland NDS Equity, Long-Term
(National Securities Government Debt +
Depository) Vouchers
CRT Treasury-Bills
(Central Registry of Treasury-
Bills)
Portugal Interbolsa Equity, Corporate +
Government Debt
Romania SNCDD - RASDAQ Equity
(National Company for Clearing,
Settlement and Depository for
Securities)
Budapest Stock Exchange Equity
Registry
National Bank of Romania Treasury-Bills
Russia MICEX GKO's
(Moscow Interbank Currency (Gosudarstvennye
Exchange) Kratkosrochnye
Obyazatelstva [T-
Bills])
OFZ's
(Obligatsyi
Federalnogo Zaima
[Federal Loan Bonds])s
Singapore CDP Equity + Corporate
(Central Depository Pte. Ltd.) Debt and Malaysian
equities traded on CLOB
Monetary Authority of Singapore Government Debt
Slovak SCP Equity + Government
Republic (Stredisko Cennych Papiru) Debt
National Bank of Slovakia Treasury-Bills
So. Africa CD Corporate + Government
(Central Depository) Debt
So. Korea KSD Equity, Corporate +
Government Debt
Spain SCLV Equity + Corporate
(Servicio de Compensacion y Debt
Liquidacion de Valores)
CBEO Government Debt
(Central Book Entry Office)
Sri Lanka CDS Equity
(Central Depository System
(Private) Ltd.)
Sweden VPC Equity, Corporate +
(Vardepapperscentralen AB) Government Debt
Switzerland SEGA Equity, Corporate +
(Schweizerische Effekten-Giro Government Debt
AG)
Taiwan TSCD Equity + Government
(Taiwan Securities Central Debt
Depository Co., Ltd.)
Thailand TSDC Equity, Corporate +
(Thailand Securities Depository Government Debt
Company Ltd.)
Tunisia STICODEVAM Equity
(Societe Tunisienne
Interprofessionnelle pour la
Compensation et le Depot des
Valeurs Mobilieres)
Ministry of Finance Government Debt
tradable on the stock
exchange (BTNBs)
Central Bank of Tunisia Government Debt not
tradable on the stock
exchange (BTCs)
Turkey Takas Bank Equity + Corporate
Debt
Central Bank of Turkey Government Debt
United CREST Equity + Corp. Debt
Kingdom
CMO Sterling CDs & CP
(Central Moneymarket Office)
CGO Gilts
(Central Gilts Office)
United DTC Equity + Corporate
States (Depository Trust Company) Debt
PTC Mortgage Back Debt
(Participants Trust Company)
Fed Book-Entry Government Debt
Zambia LuSE Equity + Government
(LuSE Central Shares Depository Debt
Ltd.)
Appendix 1-B
Information Regarding Country Risk
1. To aid Customer's board in its determinations
regarding Country Risk, Bank shall furnish board annually
and upon the initial placing of Assets into a country the
following information (check items applicable):
A Opinions of local counsel concerning:
___ i. Whether applicable foreign law would restrict
the access afforded Customer's independent public
accountants to books and records kept by an
eligible foreign custodian located in that
country.
___ ii. Whether applicable foreign law would restrict
the Customer's ability to recover its assets in
the event of the bankruptcy of an Eligible Foreign
Custodian located in that country.
___ iii. Whether applicable foreign law would restrict
the Customer's ability to recover assets that are
lost while under the control of an Eligible
Foreign Custodian located in the country.
B. Written information concerning:
___ i. The likelihood of expropriation,
nationalization, freezes, or confiscation of
Customer's assets.
___ ii. Whether difficulties in converting Customer's
cash and cash equivalents to U.S. dollars are
reasonably foreseeable.]
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign
ownership restrictions, (iii) foreign exchange, (iv)
securities settlement and registration, (v) taxation,
and (vi) compulsory depositories (including depository
evaluation).
2. To aid Customer's board in monitoring Country Risk,
Bank shall furnish board the following additional
information:
Market flashes, including with respect to changes in
the information in market reports.
As of
VIA UPS OVERNIGHT
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, New York 11245
Attention: Global Custody Division
Re: Global Custody Agreement, Effective May 1, 1996, as amended
November 20, 1997 between The Chase Manhattan Bank and those
registered investment companies (and on behalf of certain series
thereof), listed on Schedule A attached thereto ("Agreement")
Ladies and Gentlemen:
Pursuant to the provisions of Section 1 of the Agreement, the
undersigned, on behalf of Delaware Group Equity Funds II, Inc. for the
benefit of the Decatur Income Fund series and Decatur Total Return Fund
series (the "Series") hereby appoints The Chase Manhattan Bank to
provide custodial services for each Series under and in accordance with
the terms of the Agreement and accordingly, requests that the Series be
added to Schedule A to the Agreement effective , 1998. Kindly
acknowledge your agreement to provide such services and to add the
Series to Schedule A by signing in the space provided below.
DELAWARE GROUP EQUITY FUNDS II, INC.
on behalf of Decatur Income Fund and Decatur Total
Return Fund
By:
-----------------------------------
David K. Downes
Its: Executive Vice President
Chief Operating Officer
Chief Financial Officer
AGREED:
THE CHASE MANHATTAN BANK
By:
-----------------------------------
Its:
-----------------------------------
AMENDMENT NO. 12
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund (liquidated September 19, 1997)
Enterprise Fund (liquidated September 19, 1997)
Federal Bond Fund (liquidated September 19, 1997)
New Pacific Fund
U.S. Growth Fund
Overseas Equity Fund (formerly World Growth Fund)
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Social Awareness Fund (formerly Quantum Fund) (New)
Diversified Value Fund (New)
Delaware Group Equity Funds III, Inc. (formerly Trend)
Trend Fund
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Small Cap Value Fund (formerly Value Fund)
Retirement Income Fund (New)
__________________
*Except as otherwise noted, all Portfolios included on this
Schedule A are Existing Portfolios for purposes of the compensation
described on Schedule B to that Fund Accounting Agreement between
Delaware Service Company, Inc. and the Delaware Group of Funds dated as
of August 19, 1996 ("Agreement"). All portfolios added to this Schedule
A by amendment executed by a Company on behalf of such Portfolio hereof
shall be a New Portfolio for purposes of Schedule B to the Agreement.
Delaware Group Foundation Funds (New)
Balanced Portfolio (New)
Growth Portfolio (New)
Income Portfolio (New)
The Asset Allocation Portfolio (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Corporate Bond Fund (New)
Extended Duration Bond Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Large-Cap Value Equity Portfolio
(formerly The Defensive Equity Portfolio)
The Small/Mid-Cap Value Equity Portfolio (New)
(formerly The Defensive Equity Small/Mid-Cap Portfolio)
The Defensive Equity Utility Portfolio (deregistered January 14,
1997)
The Emerging Markets Portfolio (New)
The Intermediate Fixed Income Portfolio
(formerly The Fixed Income Portfolio)
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
The Global Equity Portfolio (New)
The Real Estate Investment Trust Portfolio II (New)
The Diversified Core Fixed Income Portfolio (New)
The Aggregate Fixed Income Portfolio (New)
The Small-Cap Growth Equity Portfolio (New)
The Growth and Income Portfolio (New)
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Social Awareness Series (formerly Quantum Series) (New)
REIT Series (New)
Strategic Income Series (New)
Trend Series
Small Cap Value Series (formerly Value Series)
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group State Tax-Free Income Trust (formerly DMCT Tax-Free
Income Trust-Pennsylvania)
Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Voyageur Funds, Inc.
Voyageur US Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
Dated as of September 14, 1998
DELAWARE SERVICE COMPANY, INC.
By:_____________________________________________________
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP FOUNDATION FUNDS
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
By: _____________________________________________________
Wayne A. Stork
Chairman
Law Office
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Direct Dial: (215) 564-8115
November 24, 1998
Delaware Group Equity Funds II, Inc.
1818 Market Street
Philadelphia, PA 19103
Re: Legal Opinion-Securities Act of 1933
Ladies and Gentlemen:
We have examined the Articles of Incorporation, as amended and
supplemented (the "Articles"), of Delaware Group Equity Funds II, Inc.
(the "Fund"), a series corporation organized under Maryland law, the By-
Laws of the Fund, and its proposed form of Share Certificates (if any),
all as amended to date, and the various pertinent corporate proceedings
we deem material. We have also examined the Notification of
Registration and the Registration Statements filed under the Investment
Company Act of 1940 as amended, (the "Investment Company Act") and the
Securities Act of 1933 as amended, (the "Securities Act"), all as
amended to date, as well as other items we deem material to this
opinion.
The Fund is authorized by the Articles to issue one billion
(1,000,000,000) shares of common stock at a par value of $1.00 and
currently issues shares of the Blue Chip Fund, Decatur Income Fund,
Decatur Total Return Fund, Social Awareness Fund, and the Diversified
Value Fund. The Articles also empower the Board to designate any
additional series or classes and allocate shares to such series or
classes.
The Fund has filed with the U.S. Securities and Exchange Commission, a
registration statement under the Securities Act, which registration
statement is deemed to register an indefinite number of shares of the
Fund pursuant to the provisions of Section 24(f) of the Investment
Company Act. You have further advised us that the Fund has filed, and
each year hereafter will timely file, a Notice pursuant to Rule 24f-2
under the Investment Company Act perfecting the registration of the
shares sold by the Fund during each fiscal year during which such
registration of an indefinite number of shares remains in effect.
You have also informed us that the shares of the Fund have been, and
will continue to be, sold in accordance with the Fund's usual method of
distributing its registered shares, under which prospectuses are made
available for delivery to offerees and purchasers of such shares in
accordance with Section 5(b) of the Securities Act.
Based upon the foregoing information and examination, so long as the
Fund remains a valid and subsisting entity under the laws of its state
of organization, and the registration of an indefinite number of shares
of the Fund remains effective, the authorized shares of the Fund when
issued for the consideration set by the Board of Directors pursuant to
the Articles, and subject to compliance with Rule 24f-2, will be legally
outstanding, fully-paid, and non-assessable shares, and the holders of
such shares will have all the rights provided for with respect to such
holding by the Articles and the laws of the State of Maryland.
We hereby consent to the use of this opinion, in lieu of any other, as
an exhibit to the Registration Statement of the Fund, along with any
amendments thereto, covering the registration of the shares of the Fund
under the Securities Act and the applications, registration statements
or notice filings, and amendments thereto, filed in accordance with the
securities laws of the several states in which shares of the Fund are
offered, and we further consent to reference in the registration
statement of the Fund to the fact that this opinion concerning the
legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
BY: /S/BRUCE G. LETO
Bruce G. Leto
