<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-13017
File No. 811-750
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.______ [ ]
Post-Effective Amendment No. 112 [X]
-------
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 112
-------
DELAWARE GROUP EQUITY FUNDS II, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
818 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)
[X] on January 29,1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
Title of Securities Being Registered
------------------------------------
Decatur Equity Income Fund A Class
Decatur Equity Income Fund B Class
Decatur Equity Income Fund C Class
Decatur Equity Income Fund Institutional Class
Growth and Income Fund A Class
Growth and Income Fund B Class
Growth and Income Fund C Class
Growth and Income 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
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 112 to Registration File No. 2-13017 includes
the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectuses
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
<PAGE>
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Location in Prospectuses
Decatur Equity
Income Fund/
Growth and Income Decatur Equity
Fund Income Fund/
Class A Growth and Income
Class B Fund
Item No. Description Class C Institutional Class
- -------- ----------- ------- -------------------
<S> <C> <C> <C>
1 Front and Back Cover Pages
Same Same
2 Risk/Return Summary:
Investments, Risks and Performance Fund profiles Fund profiles
3 Risk/Return Summary:
Fee Table Fund profiles Fund profiles
4 Investment Objectives, Principal
Investment Strategies, and Related How we manage the How we manage the
Risks Funds Funds
5 Management's Discussion of
Performance N/A N/A
6 Management, Organization, and
Capital Structure Who manages the Funds Who manages the Funds
7 Shareholder Information How to buy shares; How to buy shares;
How to redeem shares; How to redeem shares;
Special services; Dividends, distributions
Dividends, distributions and taxes all under
and taxes all under About your account
About your account
8 Distribution Arrangements Choosing a share class; About your account
How to reduce sales
charges under About
your account
9 Financial Highlights Information Financial Highlights Financial Highlights
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART A
(Continued)
<TABLE>
<CAPTION>
Location in Prospectuses
Blue Chip Fund/
Class A
Class B Blue Chip Fund/
Item No. Description Class C Institutional Class
- -------- ----------- ------- -------------------
<S> <C> <C> <C>
1 Front and Back Cover Pages Same Same
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, Principal How we manage the How we manage the
Investment Strategies, and Related Fund Fund
Risks
5 Management's Discussion of N/A N/A
Performance
6 Management, Organization, and Who manages the Fund Who manages the Fund
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, distributions Dividends, distributions
and taxes all under About and taxes all under
your account About your account
8 Distribution Arrangements Choosing a share class; About your account
How to reduce sales
charges under About
your account
9 Financial Highlights Information Financial Highlights Financial Highlights
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART A
(Continued)
<TABLE>
<CAPTION>
Location in Prospectuses
Social Awareness Fund/
Class A
Class B Social Awareness Fund/
Item No. Description Class C Institutional Class
- -------- ----------- ------- -------------------
<S> <C> <C> <C>
1 Front and Back Cover Pages Same Same
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, Principal How we manage the How we manage the
Investment Strategies, and Related Fund Fund
Risks
5 Management's Discussion of N/A N/A
Performance
6 Management, Organization, and Who manages the Fund Who manages the Fund
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, distributions Dividends, distributions
and taxes all under About and taxes all under
your account About your account
8 Distribution Arrangements Choosing a share class; About your account
How to reduce sales
charges under About
your account
9 Financial Highlights Information Financial Highlights Financial Highlights
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART A
(Continued)
<TABLE>
<CAPTION>
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 Cover Pages Same Same
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, Principal How we manage the How we manage the
Investment Strategies, and Related Fund Fund
Risks
5 Management's Discussion of N/A N/A
Performance
6 Management, Organization, and Who manages the Fund Who manages the Fund
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, distributions and taxes all under
and taxes all under About your account
About your account
8 Distribution Arrangements Choosing a share class; About your account
How to reduce sales
charges under About
your account
9 Financial Highlights Information Financial Highlights Financial Highlights
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
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 Investments and Risks Investment Restrictions
and Policies
13 Management of the Fund Officers and Directors;
Purchasing Shares
14 Control Persons and Principal Holders of Securities Officers and Directors
15 Investment Advisory and Other Services Officers and Directors;
Purchasing Shares; Investment
Management Agreement;
General Information;
Financial Statements
16 Brokerage Allocation and Other Practices Trading Practices and Brokerage
17 Capital Stock and Other Securities Capitalization and
Noncumulative Voting
(under General Information)
18 Purchase, Redemption and Pricing of Shares Purchasing Shares; Redemption 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
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART C
<TABLE>
<CAPTION>
Item No. Description Location in Part C
- -------- ----------- ------------------
<S> <C> <C>
23 Exhibits Item 23
24 Persons Controlled by or under Common
Control with Registrant Item 24
25 Indemnification Item 25
26 Business and Other Connections of the Investment Adviser Item 26
27 Principal Underwriters Item 27
28 Location of Accounts and Records Item 28
29 Management Services Item 29
30 Undertakings Item 30
</TABLE>
<PAGE>
DELAWARE
INVESTMENTS
--------------------
Philadelphia * London
Decatur Equity Income Fund
(formerly Decatur Income Fund)
Growth and Income Fund
(formerly Decatur Total Return Fund)
Class A o Class B o 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.
1
<PAGE>
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
Fund administration (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
Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial information page
2
<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___ to find definitions of words printed in
bold type in the text throughout the prospectus.
3
<PAGE>
Fund Profiles:
An investment overview
When choosing a mutual fund to invest in, you have a variety of options and
important information to consider. This prospectus provides information about
Decatur Equity Income Fund and the Growth and Income Fund, two mutual funds from
the Delaware Investments Family of Funds.
Before evaluating individual funds, however, your first step is to define your
personal financial goals. Knowing your goals and determining your investment
time horizon in advance can help you make a more appropriate fund selection. It
is also important to select a fund in the context of your entire investment
program. Diversification, or spreading your money among different types of
investments, is usually a sound investment strategy. This is commonly called
"asset allocation." The way you choose to allocate your money depends on a
number of factors. A professional financial adviser can help you build an
investment portfolio that fits your financial situation, your investment
objectives and your risk tolerance.
Investing for total return with Decatur Equity Income Fund and the Growth and
Income Fund
Decatur Equity Income Fund and the Growth and Income Fund are both total return
funds. Investors with long-term goals often choose mutual funds designed to
provide total return. Total return funds typically 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.
["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, generally 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)
4
<PAGE>
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 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, its management and any developments
affecting the security, the company or its industry. If the yield on a stock 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 declines in stock and high-yield bond prices, which could be
caused by a drop in the stock market, interest rate changes, problems in the
economy or poor performance from particular companies or sectors. For a more
complete discussion of risk, please turn to page___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for growth potential combined with regular income.
o Investors looking for supplemental monthly income from an
investment that also offers possible protection against inflation.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors seeking an investment primarily in fixed-income securities.
5
<PAGE>
How has Decatur Equity Income Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the 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 reflect the actual costs of operating a mutual fund, such as the 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]
Year-by-year total return (Class A)
Decatur Equity Income Fund S&P 500
1989 21.50% 31.50%
1990 -12.36% -3.20%
1991 21.78% 30.60%
1992 8.80% 7.70%
1993 15.35% 10.00%
1994 -0.76% 1.30%
1995 32.85% 37.40%
1996 20.31% 23.10%
1997 29.71% 33.40%
1998 9.87% 28.74%
As of December 31, 1998, the Fund's Class A shares had a year-to-date return of
9.87%. During the ten years illustrated in this bar chart, Class A's highest
return was 13.73% for the quarter ended June 30, 1997 and its lowest return was
- -15.08% for the quarter ended September 30, 1990.
The maximum Class A sales charge of 5.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above. If this fee were
included, the returns would be less than those shown. The average annual returns
shown on page ___ do include the sales charge.
6
<PAGE>
How has Decatur Equity Income Fund performed? (continued)
<TABLE>
<CAPTION>
Average annual returns for periods ending 12/31/98
<S> <C> <C> <C> <C>
CLASS A B C S&P 500**
(if redeemed)* (if redeemed)*
(Inception 3/18/57) (Inception 9/6/94) (Inception11/29/95)
1 year 3.55% 4.44% 8.08% 28.74%
5 years 16.33% N/A N/A 24.08%
10 years or lifetime** 13.24% 18.64% 19.11% 19.20%
</TABLE>
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be 8.98% and 18.90% for the one-year and lifetime periods,
respectively. Returns for Class C would be 8.99% and 19.11% for the one-year and
lifetime periods, respectively. ** Lifetime returns are shown if the Fund or
Class existed for less than 10 years. S&P returns are for 10 years. S&P 500
returns for Class B and Class C lifetime were 27.12% and 28.21%, respectively.
Maximum sales charges are included in the Fund returns above.
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.
<TABLE>
<CAPTION>
<S> <C> <C> <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
- -------------------------------------------------------------- ------------ ---------- ----------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
- ------------------------------------------------- --------- ---------- ---------
Management fees 0.48% 0.48% 0.48%
- ------------------------------------------------- --------- ---------- ---------
Distribution and service (12b-1) fees 0.20%(4) 1.00% 1.00%
- ------------------------------------------------- --------- ---------- ---------
Other expense 0.22% 0.22% 0.22%
- ------------------------------------------------- --------- ---------- ---------
Total operating expenses 0.90% 1.70% 1.70%
- ------------------------------------------------- --------- ---------- ---------
7
<PAGE>
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.(5) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
CLASS(6)
(if redeemed) (if redeemed)
- -------------- ----------- ------------ -------------- ----------- ----------
1 year $ 662 $ 173 $ 673 $ 173 $ 273
- -------------- ----------- ------------ -------------- ----------- ----------
3 years $ 845 $ 536 $ 836 $ 536 $ 536
- -------------- ----------- ------------ -------------- ----------- ----------
5 years $1,045 $ 923 $1,123 $ 923 $ 923
- -------------- ----------- ------------ -------------- ----------- ----------
10 years $1,619 $1,796 $1,796 $2,009 $2,009
- -------------- ----------- ------------ -------------- ----------- ----------
(1) A purchase of Class A shares of $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 will apply to certain
redemptions. 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%, which declines to 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.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Board of Directors adopted a formula for calculating 12b-1 plan expenses
for Decatur Equity Income Fund's Class A shares 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%.
(5) 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.
(6) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
8
<PAGE>
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. We then consider 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 affected by declines in stock prices, which could be caused by a drop in
the stock market or poor performance from particular companies or industries.
For a more complete discussion of risk, please turn to page ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking long-term capital appreciation.
o Investors seeking an investment primarily in common stocks.
o Investors seeking moderate quarterly income with the opportunity for
inflation protection.
Who should not invest in the Fund
o Investors seeking an investment primarily in fixed-income securities.
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
9
<PAGE>
How has Growth and Income Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the 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 reflect the actual costs of operating a mutual fund, such as the 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: BARCHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A) FPO]
Year-by-year total return (Class A)
Growth and Income Fund S&P 500
1989 26.57% 31.50%
1990 -8.33% -3.20%
1991 20.40% 30.60%
1992 8.17% 7.70%
1993 14.93% 10.00%
1994 -0.53% 1.30%
1995 36.51% 37.40%
1996 19.97% 23.10%
1997 31.24% 33.40%
1998 10.57% 28.74%
As of December 31, 1998, the Fund's Class A shares had a year-to-date return of
10.57%. During the ten years illustrated in this bar chart, Class A's highest
return was 15.30% for the quarter ended June 30, 1997 and its lowest return was
- -10.99% for the quarter ended September 30, 1990.
The maximum Class A sales charge of 5.75%, assessed when you purchase shares, is
not reflected in the total returns above. If this fee were included, the returns
would be less than those shown. The average annual returns shown on page ___ do
include the sales charge.
10
<PAGE>
How has Growth and Income Fund performed? (continued)
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
Average annual returns for periods ending 12/31/98
<S> <C>
CLASS A B C S&P 500**
(if redeemed)* (if redeemed)*
(Inception 8/27/86) (Inception 9/6/94) (Inception11/29/95)
1 year 4.21% 4.95% 8.89% 28.74%
5 years 17.37% N/A N/A 24.08%
10 years or lifetime** 14.49% 19.99% 19.92% 19.20%
</TABLE>
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be 9.76% and 20.24% for the one-year and lifetime periods,
respectively. Returns for Class C would be 9.85% and 19.92% for the one-year and
lifetime periods, respectively.
** Lifetime returns are shown if the Fund or Class existed for less than 10
years. S&P 500 returns are for 10 years. S&P 500 returns for Class B and Class C
lifetime were 28.48% and 28.21%, respectively. Maximum sales charges are
included in the Class returns above.
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.
- ------------------------------------------------------ --------- -------- ----
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 assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
- ----------------------------------------------- ----------- ---------- ---------
Management fees 0.57% 0.57% 0.57%
- ----------------------------------------------- ----------- ---------- ---------
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
- ----------------------------------------------- ----------- ---------- ---------
Other expenses 0.26% 0.26% 0.26%
- ----------------------------------------------- ----------- ---------- ---------
Total operating expenses 1.13% 1.83% 1.83%
- ----------------------------------------------- ----------- ---------- ---------
11
<PAGE>
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.(4) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
CLASS(5)
(if redeemed) (if redeemed)
- ----------------- ----------- ---------- ------------ ----------- --------------
1 year $ 684 $ 186 $ 686 $ 186 $ 286
- ----------------- ----------- ---------- ------------ ----------- --------------
3 years $ 913 $ 576 $ 876 $ 576 $ 576
- ----------------- ----------- ---------- ------------ ----------- --------------
5 years $1,161 $ 990 $1,190 $ 990 $ 990
- ----------------- ----------- ---------- ------------ ----------- --------------
10 years $1,871 $1,965 $1,965 $2,148 $2,148
- ----------------- ----------- ---------- ------------ ----------- --------------
(1) A purchase of Class A shares of $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 will apply to certain
redemptions. 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%, which declines to 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.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) 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.
(5) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
12
<PAGE>
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 a total return fund that invests primarily in
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 judge the ability of the
company 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's objective is to provide 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. This focus on stocks with high dividend
yields 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.
13
<PAGE>
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>
<S> <C> <C> <C>
- ------------------------------------------------------ -----------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------ ----------------------------------- -----------------------------------
Decatur Equity Income Fund Growth and Income Fund
- ------------------------------------------------------ ----------------------------------- -----------------------------------
Common stocks: Securities that represent shares of Generally, we invest 85% to Generally, 90% to 100% of the
ownership in a corporation. Stockholders 100% of net assets in Fund's net assets will be
participate in the corporation's profits and dividend-paying common stocks. invested in dividend-paying
losses, proportionate to the number of shares they common stocks.
own.
- ------------------------------------------------------ ----------------------------------- -----------------------------------
High-Yield Corporate Bonds: Securities that are Decatur Equity Income Fund may The Growth and Income Fund
rated lower than Investment Grade by an NRSRO or, invest up to 15% of net assets in generally does not invest in
if unrated, that we believe are of comparable high-yield corporate bonds, high-yield corporate bonds.
quality. These securities are generally considered typically those rated B or BB by
to be of poor quality and often speculative. an NRSRO.
- ------------------------------------------------------ ----------------------------------- -----------------------------------
American Depositary Receipts: Certificates issued by We may invest without limitation in ADRs. We use them when we
a U.S. bank which represent a stated number of believe they offer better total return opportunities than U.S.
shares of a foreign corporation that the bank holds securities.
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 between a buyer Typically, we use repurchase agreements as a short-term investment
and seller of securities in which the seller agrees for a Fund's cash position. In order to enter into these repurchase
to buy the securities back within a specified time agreements, a Fund must have collateral of at least 102% of the
at the same price the buyer paid for them, plus an
amount equal to an agreed upon interest rate.
Repurchase agreements are often viewed as
equivalent to cash.
- ------------------------------------------------------ -----------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest without limitation in privately placed securities that
whose resale is restricted under securities law. are eligible for resale among certain institutional buyers without
registration. These are commonly known as "Rule 144A Securities."
- ------------------------------------------------------ -----------------------------------------------------------------------
Illiquid Securities: Securities that do not have a We may invest up to 10% of a Fund's total assets in illiquid
ready market, and cannot be easily sold, if at all, securities.
at approximately the price that the Fund has valued
them.
- ------------------------------------------------------ -----------------------------------------------------------------------
</TABLE>
<PAGE>
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. 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.
14
<PAGE>
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>
- -------------------------------------------- ---------------------------------------------------------------------------------
<S> <C> <C>
Risks How we strive to manage them
- -------------------------------------------- ---------------------------------- ----------------------------------------------
Decatur Equity Income Fund Growth and Income Fund
- -------------------------------------------- ---------------------------------------------------------------------------------
Market risk is the risk that all or a We maintain a long-term investment approach and focus on stocks we believe can
majority of the securities in a certain appreciate over an extended time frame regardless of interim market
market -- like the stock or bond market -- fluctuations. We do not try to predict overall stock market movements and do
will decline in value because of factors not trade for short-term purposes.
such as economic conditions, future
expectations or investor confidence.
- -------------------------------------------- ---------------------------------------------------------------------------------
Industry and security risk is the risk We limit the amount of each Fund's assets invested in any one industry and in
that the value of securities in a any individual security. We also follow a rigorous selection process designed
particular industry or the value of an to identify under-valued securities before choosing securities for the
individual stock or bond will decline portfolio.
because of changing expectations for the
performance of that industry or for the
individual company issuing the stock or
bond.
- -------------------------------------------- ----------------------------------- ---------------------------------------------
Interest rate risk is the risk that We limit the amount of high-yield The Growth and Income Fund does not
securities will decrease in value if bonds in the portfolio to 15% of generally hold a significant portion of
interest rates rise. The risk is greater net assets. assets in bonds, so interest rate risk is
for bonds with longer maturities than for not a major risk in this Fund.
those with shorter maturities.
- -------------------------------------------- ----------------------------------- ---------------------------------------------
Credit Risk We limit the amount of high-yield The Growth and Income Fund is generally not
The possibility that a bond's issuer (or bonds in the portfolio to 15% of subject to credit risk.
an entity that insures the bond) will be net assets. We typically invest
unable to make timely payments of interest primarily in bonds rated BB or B
and principal. and do not invest in bonds rated
below 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 foreign We typically invest only a small portion of each Fund's portfolio in foreign
securities may be adversely affected by corporations through American Depositary Receipts. We do not invest directly
political instability, changes in currency in foreign securities. When we do purchase ADRs, they are generally
exchange rates, foreign economic denominated in U.S. dollars and traded on a U.S. exchange.
conditions or inadequate regulatory and
accounting standards.
- -------------------------------------------- ---------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold,
or can only be sold at a price lower than
the price that the Fund has valued them.
- -------------------------------------------- ---------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
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 and
Equity Income Income
- ---------------------------------------------------- --------------- -----------
As a percentage of average daily net assets 0.48% 0.57%
- ---------------------------------------------------- --------------- -----------
Portfolio managers
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. In researching
securities and making investment decisions for the Funds, Mr. Fields regularly
consults with a team of Delaware portfolio managers utilizing the same
investment strategy and with Richard G. Unruh.
Richard G. Unruh, Executive Vice President/Chief Investment Officer, Equity,
joined Delaware Investments in 1982 after 19 years of investment experience with
Kidder, Peabody & Co. Inc. Mr. Unruh was named an Executive Vice President of
the Funds in 1994 and was named Chief Investment Officer for equities in 1998.
He is also a member of the Board of Directors of the manager and was named
Executive Vice President of the manager in 1994.
14
<PAGE>
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]
<TABLE>
<CAPTION>
<S> <C>
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 managers Distributor Service agent
(see page ___ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
</TABLE>
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 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.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective 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 daily 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.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
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.
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 also provide
customer service to shareholders.
Financial advisers Financial advisers provide 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.
15
<PAGE>
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
o 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.
o If you invest $50,000 or more, your front-end sales charge will be reduced.
o 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.
o 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.
o Class A shares generally are not subject to a contingent deferred sales
charge.
Class B
o 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.
o 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.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o 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 accounts.
o 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.
o 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%.
Conversion may occur as late as three months after the eighth anniversary
of purchase, during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
16
<PAGE>
Class C
o 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.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o 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.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o 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.
Each share class of the Funds has adopted a separate 12b-1 plan that allows it
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.
17
<PAGE>
Class A Sales Charges
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------- ----------------------- -------------------------------------------- ------------------------------------
Amount of purchase Sales charge as % Sales charge as % of amount invested Dealer's commission as %
Of offering price of offering price
- -------------------------- ----------------------- -------------------- ----------------------- ------------------------------------
Decatur Equity Growth and Income Fund
Income Fund
- -------------------------- ----------------------- -------------------- ----------------------- ------------------------------------
Less than $50,000 5.75% 6.12% 6.12% 5.00%
$50,000 but 4.75% 5.00% 4.97% 4.00%
under $100,000
$100,000 but 3.75% 3.88% 3.87% 3.00%
under $250,000
$250,000 but 2.50% 2.57% 2.56% 2.00%
under $500,000
$500,000 but 2.00% 2.06% 2.04% 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>
<S> <C> <C>
- -------------------------- ----------------------- ---------------------------------------------- ----------------------------------
Amount of purchase Sales charge as % Sales charge as % of amount invested Dealer's commission as %
Of offering price of offering price
- -------------------------- ----------------------- ---------------------------------------------- ----------------------------------
Decatur Equity Growth and Income Fund
Income Fund
- -------------------------- ----------------------- -------------------- ------------------------- ----------------------------------
$1 million up to $5 none None None 1.00%
million
- -------------------------- ----------------------- -------------------- ------------------------- ----------------------------------
Next $20 million none None None 0.50%
Up to $25 million
- -------------------------- ----------------------- -------------------- ------------------------- ----------------------------------
Amount over $25 million none None None 0.25%
- -------------------------- ----------------------- -------------------- ------------------------- ----------------------------------
</TABLE>
18
<PAGE>
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>
- --------------------------------------------- ------------------------------------- ------------------------------------------
Program How it works Share class
A B C
- --------------------------------------------- ------------------------------------- -------------- ---------------------------
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of 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
or purchases of all funds in the
Delaware Investments family
(except money market funds with
no sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
- --------------------------------------------- ------------------------------------- -------------- ---------------------------
Reinvestment of redeemed shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- --------------------------------------------- ------------------------------------- -------------- ---------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X Not available.
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales
401(k), 403(b)(7), and 457 Retirement charges by combining the
Plans purchases of all members 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>
19
<PAGE>
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 separate 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 19103-3682. 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 2014 12893 4013. 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 you 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 are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800o523o1918.
[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
800o523o1918.
20
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can generally 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. The minimum for an Education IRA is $500.
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 receive 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. Currently the Exchange is closed when 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.
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 fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities 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.
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 800o523o1918.
21
<PAGE>
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 separate 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 19103-3682. 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 an address
other than the address of record on an account.
[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 Center at 800o523o1918.
22
<PAGE>
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 send your redemption proceeds.
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, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you 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, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $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.
23
<PAGE>
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, recurring government or private payments such as Social Security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) 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. Under most circumstances, you may reinvest dividends only
into like classes of shares.
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 at the time of the 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. 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. 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 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.
24
<PAGE>
About your account (continued)
Special services (continued)
MoneyLineSM On Demand Service
Through our MoneyLineSM On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine 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 MoneyLine Direct Deposit Service.
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.
25
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their 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 on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds.
Investments by Fund of Funds
Growth and Income Fund accepts investments from the series portfolios of
Delaware Group Foundation Funds, a fund of funds. From time to time, the Fund
may experience large investments or redemptions due to allocations or
rebalancings by Foundation Funds. While it is impossible to predict the overall
impact of these transactions over time, there could be adverse effects on
portfolio management. For example, the Fund may be required to sell securities
or invest cash at times when it would not otherwise do so. These transactions
could also have tax consequences if sales of securities result in gains, and
could also increase transactions costs or portfolio turnover. The manager will
monitor transactions by Foundation Funds and will attempt to minimize any
adverse effects on both Growth and Income Fund and Foundation Funds as a result
of these transactions.
26
<PAGE>
Financial information
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 800o523o1918.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------- ----------------------------------------------------------------------
Class A Shares
Year Ended 11/30
Decatur Equity Income Fund 1998(1) 1997(1) 1996(1) 1995(1) 1994(1)
- ------------------------------------------------------------- ----------- ------------- --------------- ------------- --------------
Net asset value, beginning of period $22.580 $21.320 $19.070 $15.570 $18.240
Income (loss) from investment operations
Net investment income 0.569 0.600 0.650 0.700 0.670
Net realized and unrealized gain (loss) on investments 1.811 3.940 3.630 3.910 (0.730)
----- ----- ----- ----- -------
Total from investment operations 2.380 4.540 4.280 4.610 (0.060)
----- ----- ----- ----- -------
Less dividends and distributions
Dividends from net investment income (0.490) (0.600) (0.690) (0.690) (0.860)
Distributions from net realized gain on investments (3.070) (2.680) (1.340) (0.420) (1.750)
------- ------- ------- ------- -------
Total dividends and distributions (3.560) (3.280) (2.030) (1.110) (2.610)
------- ------- ------- ------- -------
Net asset value, end of period $21.400 $22.580 $21.320 $19.070 $15.570
======= ======= ======= ======= =======
Total return (2) 12.03% 24.78% 24.47% 31.02% (0.57%)
Ratios and supplemental data
Net assets, end of period (000 omitted) $1,969,181 $1,906,726 $1,616,315 $1,382,693 $1,153,884
Ratio of expenses to average net assets 0.90% 0.88% 0.85% 0.87% 0.81%
Ratio of net investment income to average net assets 2.68% 2.87% 3.40% 4.03% 3.92%
Portfolio turnover 94% 90% 101% 74% 92%
Volatility
Volatility, as indicated by year-by-year total return(2) 1998 1997 1996 1995 1994
Volatility chart is not part of the Financial highlights and
has not been audited by Ernst & Young LLP. 12.03% 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) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset value
and does not reflect the impact of a sales charge.
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------- ---------------------------------------------------- ------------------------------------------
Class B Shares Class C Shares
Year Ended 11/30 Year Ended 11/30
Period Period
9/6/94(3) 11/29/95(4)
Through Through
Decatur Equity Income Fund 1998 1997 1996 1995 11/30/94 1998 1997 1996 11/30/95
- ---------------------------------- ---------- ---------- --------- --------- ---------- ---------- -------- ---------- -----------
Net asset value, beginning of $22.480 $21.260 $19.030 $15.550 $16.590 $22.570 $21.330 $19.080 $19.150
period
Income (loss) from investment
operations
Net investment income 0.403 0.450 0.500 0.560 0.150 0.402 0.460 0.510 0.040
Net realized and unrealized gain 1.797 3.900 3.610 3.890 (1.020) 1.808 3.910 3.630 (0.060)
(loss) on investments ----- ----- ----- ----- ------- ----- ----- ----- -------
Total from investment operations 2.200 4.350 4.110 4.450 (0.870) 2.210 4.370 4.140 (0.020)
----- ----- ----- ----- ------- ----- ----- ----- -------
Less dividends and distributions
Dividends from net investment (0.290) (0.450) (0.540) (0.550) (0.170) (0.290) (0.450) (0.550) (0.050)
income
Distributions from net realized (3.070) (2.680) (1.340) (0.420) None (3.070) (2.680) (1.340) None
gain on investments ------- ------- ------- ------- ------ ------- ------- ------- -------
Total dividends and distributions (3.360) (3.130) (1.880) (0.970) (0.170) (3.360) (3.130) (1.890) (0.050)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $21.320 $22.480 $21.260 $19.030 $15.550 $21.420 $22.570 $21.330 $19.080
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return (2) 11.14% 23.73% 23.43% 29.85% (5.27%) 11.14% 23.75% 23.47% (5)
Ratios and supplemental data
Net assets, end of period (000 $169,985 $123,180 $60,689 $19,665 $2,765 $23,076 $15,343 $4,833 $5
omitted)
Ratio of expenses to average net 1.70% 1.68% 1.69% 1.74% 1.70% 1.70% 1.68% 1.69% (5)
assets
Ratio of net investment income to 1.88% 2.07% 2.56% 3.16% 3.03% 1.88% 2.07% 2.56% (5)
average net assets
Portfolio turnover 94% 90% 101% 74% 92% 94% 90% 101% (5)
Volatility, as indicated by 11.14% 23.73% 23.43% 29.85% (5.27%) 11.14% 23.75% 23.47%
year-by-year total return(2)
Volatility chart is not part of the
Financial highlights and has not
been audited by Ernst & Young LLP.
</TABLE>
(3) Date of initial public offering; ratios have been annualized but total
return has not been annualized.
(4) Date of initial public offering.
(5) The ratios of expenses and net investment income to average net assets have
been omitted as management believes that such ratios, portfolio turnover and
total return for this relatively short period are not meaningful.
28
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
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 dividends and distributions-Distributions from net realized
gain on investments."
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 rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable 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 ___)
29
<PAGE>
Financial information (continued)
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 800o523o1918.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------- -----------------------------------------------------------------
Class A Shares
Year Ended 11/30
Growth and Income Fund 1998 1997 1996 1995 1994
- --------------------------------------------------------- ------------ -------------- ------------ ----------- ------------
Net asset value, beginning of period $19.23 $17.520 $15.610 $12.320 $14.380
Income (loss) from investment operations
Net investment income 0.280 0.280 0.340 0.370 0.370
Net realized and unrealized gain (loss) on investments 1.930 3.610 3.210 3.700 (0.340)
----- ----- ----- ----- -------
Total from investment operations 2.210 3.890 3.550 4.070 0.030
----- ----- ----- ----- -----
Less dividends and distributions
Dividends from net investment income (0.240) (0.330) (0.350) (0.360) (0.430)
Distributions from net realized gain on investments (2.080) (1.850) (1.290) (0.420) (1.660)
------- ------- ------- ------- -------
Total dividends and distributions (2.320) (2.180) (1.640) (0.780) (2.090)
------- ------- ------- ------- -------
Net asset value, end of period $19.120 $19.230 $17.520 $15.610 $12.320
======= ======= ======= ======= =======
Total return (1) 12.70% 25.26% 24.89% 34.68% (0.04%)
Ratios and supplemental data
Net assets, end of period (000 omitted) $1,006,642 $863,855 $670,912 $534,342 $402,849
Ratio of expenses to average net assets 1.13% 1.13% 1.11% 1.19% 1.26%
Ratio of net investment income to average net assets 1.52% 1.60% 2.21% 2.72% 2.88%
Portfolio turnover 87% 69% 87% 81% 74%
Volatility
Volatility, as indicated by year-by-year total return(1)
Volatility chart is not part of the Financial highlights 1998 1997 1996 1995 1994
and has not been audited by Ernst & Young LLP.
------------ -------------- ------------ ----------- ------------
12.70% 25.26% 24.89% 34.68% (0.04%)
</TABLE>
(1) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset value
and does not reflect the impact of a sales charge.
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------ ------------- --------- ------ ------ --------- -------- -------- ----------- -----------
Class B Shares Class C Shares
Year Ended 11/30 Period Year Ended 10/31 Period
9/6/94(2) 11/29/95(3)
------------------------------------- through ----------------------------- Through
Growth and Income Fund 1998 1997 1996 1995 11/30/94 1998 1997 1996 11/30/96
- ------------------------------------------ --------- --------- --------- ------- --------- --------- --------- --------- -----------
Net asset value, beginning of period $19.200 $17.460 $15.560 $12.310 $13.110 $19.16 $17.430 $15.610 $15.610
Income (loss) from investment operations
Net investment income 0.151 0.170 0.230 0.300 0.120 0.153 0.170 0.330 None
Net realized and unrealized gain (loss) on 1.917 3.600 3.200 3.670 (0.820) 1.915 3.590 3.100 None
----- ----- ----- ----- ------- ----- ----- ----- ----
investments
Total from investment operations 2.068 3.770 3.430 3.970 (0.700) 2.068 3.760 3.430 None
----- ----- ----- ----- ------- ----- ----- ----- ----
Less dividends and distributions
Dividends from net investment income (0.098) (0.180) (0.240) (0.300) (0.10) (0.098) (0.180) (0.320) None
Distributions from net realized gain on (2.080) (1.850) (1.290) (0.420) None (2.080) (1.850) (1.290) None
----- ----- ----- ----- ------- ----- ----- ----- ----
investments
Total dividends and distributions (2.178) (2.030) (1.530) (0.720) (0.10) (2.178) (2.030) (1.610) None
------- ------- ------- ------- ------ ------- ------- ------- ----
Net asset value, end of period $19.090 $19.200 $17.460 $15.560 $12.310 $19.050 $19.160 $17.430 $15.610
======= ====== ====== ====== ====== ======= ====== ====== ======
Total return (1) 11.92% 24.45% 24.01% 33.79% (5.37%) 12.00% 24.44% 24.04% (4)
Ratios and supplemental data
Net assets, end of period (000 omitted) $218,584 $135,737 $53,467 $14,745 $1,738 $48,683 $26,231 $7,591 $5
Ratio of expenses to average net assets 1.83% 1.83% 1.81% 1.89% 1.96% 1.83% 1.83% 1.81% (4)
Ratio of net investment income to average 0.82% 0.90% 1.53% 2.02% 2.18% 0.82% 0.90% 1.53% (4)
net assets
Portfolio turnover 87% 69% 87% 81% 74% 87% 69% 87% (4)
Volatility
Volatility, as indicated by year-by-year 1998 1997 1996 1995 1994 1998 1997 1996
return(1) --------- --------- --------- ------- --------- --------- --------- ---------
Volatility chart is not part of the
Financial highlights and has not been 11.92% 24.45% 24.01% 33.79% (5.37%) 12.00% 24.44% 24.04%
audited by Ernst & Young LLP. --------- --------- --------- ------- --------- --------- --------- ---------
</TABLE>
(2)Date of initial public offering; ratios have been annualized but total return
has not been annualized.
(3)Date of initial public offering.
(4)The ratios of expenses and net investment income to average net assets have
been omitted as management believes that such ratios, portfolio turnover and
total return for this relatively short period are not meaningful.
31
<PAGE>
How to read the financial highlights
(begins on page 22)
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets 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 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.
32
<PAGE>
[begin glossary - runs along the bottom of pages throughout document]
How to use this glossary
Words found in the glossary are printed in boldface only 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
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
[glossary to be continued]
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 changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond 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.
See also Nationally recognized statistical rating organization. See also
Nationally recognized statistical rating organization.
[glossary to be continued]
[glossary continued]
C-C
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
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.
33
<PAGE>
[glossary to be continued]
[glossary continued]
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]
[glossary continued]
C-E
Corporate bond
A debt security issued by a corporation. See Bond.
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]
[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 and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
[glossary to be continued]
[glossary continued]
34
<PAGE>
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 paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
[glossary to be continued]
[glossary continued]
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in 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 an annual percentage of the fund's average daily 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.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
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]
[glossary continued]
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality 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).
35
<PAGE>
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
[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 per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). 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]
[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 or redemption 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]
[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.
36
<PAGE>
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
[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 has typically varied 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]
[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.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
[end glossary]
37
<PAGE>
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' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. 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
19103-3682, or call toll-free 800o523o1918. 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
1o800oSECo0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800o523o1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
oFor fund information; literature; price, yield and performance figures.
oFor information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions and
telephone exchanges.
Delaphone Service
800o362oFUND (800o362o3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-750
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 1/99
38
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Decatur Equity Income Fund
(formerly Decatur Income Fund)
Growth and Income Fund
(formerly Decatur Total Return Fund)
Institutional Class
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.
<PAGE>
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
Fund administration (Who's who)
About your account page
Investing in the Funds
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial information page
2
<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 ___ to find definitions of words printed in
bold type in the text throughout the prospectus.
3
<PAGE>
Fund Profiles:
An investment overview
When choosing a mutual fund to invest in, you have a variety of options and
important information to consider. This prospectus provides information about
Decatur Equity Income Fund and the Growth and Income Fund, two mutual funds from
the Delaware Investments Family of Funds.
Before evaluating individual funds, however, your first step is to define your
personal financial goals. Knowing your goals and determining your investment
time horizon in advance can help you make a more appropriate fund selection. It
is also important to select a fund in the context of your entire investment
program. Diversification, or spreading your money among different types of
investments, is usually a sound investment strategy. This is commonly called
"asset allocation." The way you choose to allocate your money depends on a
number of factors. A professional financial adviser can help you build an
investment portfolio that fits your financial situation, your investment
objectives and your risk tolerance.
Investing for total return with Decatur Equity Income Fund and the Growth and
Income Fund Decatur Equity Income Fund and the Growth and Income Fund are both
total return funds. Investors with long-term goals often choose mutual funds
designed to provide total return. Total return funds typically 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.
["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, generally 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)
4
<PAGE>
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 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, its management and any developments
affecting the security, the company or its industry. If the yield on a stock 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 declines in stock and high-yield bond prices, which could be
caused by a drop in the stock market, interest rate changes, problems in the
economy or poor performance from particular companies or sectors. For a more
complete discussion of risk, please turn to page___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for growth potential combined with regular income.
o Investors looking for supplemental monthly income from an
investment that also offers possible protection against inflation.
Who should not invest in the Fund o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors seeking an investment primarily in fixed-income securities.
5
<PAGE>
How has the Decatur Equity Income Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
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. You should remember that unlike the Fund, the
index is unmanaged and doesn't include the costs of operating a mutual fund,
such as the costs of buying, selling, and holding the securities. 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. The Fund's past performance is not
necessarily an indication of 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]
Year-by-year total return (Institutional Class)
Decatur Equity Income Fund S&P 500
Institutional Class
1989 21.50% 31.50%
1990 -12.36% -3.20%
1991 21.78% 30.60%
1992 8.80% 7.70%
1993 15.35% 10.00%
1994 -0.69% 1.30%
1995 33.06% 37.40%
1996 20.51% 23.10%
1997 29.96% 33.40%
1998 10.10% 28.74%
As of December 31, 1998, the Institutional Class had a year-to-date return of
10.10%. During the ten years illustrated in this bar chart, the Institutional
Class' highest return was 13.86% for the quarter ended June 30, 1997 and its
lowest return was -15.08% for the quarter ended September 30, 1990.
Average annual return as of 12/31/98
Institutional S&P 500
Class
1 year 10.10% 28.74%
5 years 17.90% 24.08%
10 years 14.00% 19.20%
6
<PAGE>
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 None
a percentage of offering price
- ----------------------------------------------------------------
Maximum contingent deferred sales charge (load) None
as a percentage of original purchase price or
redemption price, whichever is lower
- ----------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested None
dividends
- ----------------------------------------------------------------
Redemption fees None
- ----------------------------------------------------------------
Exchange Fees(1) None
- ----------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
- -----------------------------------------------------------------
Management fees 0.48%
- -----------------------------------------------------------------
Distribution and service (12b-1) fees None
- ------------------------------------------------------------------
Other expenses 0.22%
- -----------------------------------------------------------------
Total operating expenses 0.70%
- -----------------------------------------------------------------
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 $72
- ---------------------------
3 years $224
- ---------------------------
5 years $390
- ---------------------------
10 years $871
- ---------------------------
(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 into a fund that has a front-end sales charge.
(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.
7
<PAGE>
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. We then consider 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 affected by declines in stock prices, which could be caused by a drop in
the stock market or poor performance from particular companies or industries.
For a more complete discussion of risk, please turn to page ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking long-term capital appreciation.
o Investors seeking an investment primarily in common stocks.
o Investors seeking moderate quarterly income with the opportunity for
inflation protection.
Who should not invest in the Fund
o Investors seeking an investment primarily in fixed-income securities.
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
8
<PAGE>
How has Growth and Income Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
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. You should remember that unlike the Fund, the
index is unmanaged and doesn't include the costs of operating a mutual fund,
such as the costs of buying, selling, and holding the securities. 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. The Fund's past performance is not necessarily an indication of 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]
Year-by-year total return (Institutional Class)
Growth and Income Fund S&P 500
1989 26.57% 31.50%
1990 -8.33% -3.20%
1991 20.40% 30.60%
1992 8.17% 7.70%
1993 15.08% 10.00%
1994 -0.29% 1.30%
1995 36.96% 37.40%
1996 20.38% 23.10%
1997 31.56% 33.40%
1998 10.90% 28.74%
As of December 31, 1998, the Institutional Class had a year-to-date return of
10.90%. During the ten years illustrated in this bar chart, the Institutional
Class' highest return was 15.35% for the quarter ended June 30, 1997 and its
lowest return was -10.99% for the quarter ended September 30, 1990.
Average annual return as of 12/31/98
Institutional S&P 500
Class
1 year 10.90% 28.74%
5 years 19.12% 24.08%
10 years 15.35% 19.20%
9
<PAGE>
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 none
a percentage of offering price
- ----------------------------------------------------------------
Maximum contingent deferred sales charge (load) as none
a percentage of original purchase price or redemption
price, whichever is lower
- ----------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested none
dividends
- ----------------------------------------------------------------
Redemption fees none
- ----------------------------------------------------------------
Exchange Fees(1) none
- ----------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
- -----------------------------------------------------------------
Management fees 0.57%
- -----------------------------------------------------------------
Distribution and service (12b-1) fees None
- -----------------------------------------------------------------
Other expenses 0.26%
- -----------------------------------------------------------------
Total operating expenses 0.83%
- -----------------------------------------------------------------
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 $85
- ---------------------------
3 years $265
- ---------------------------
5 years $460
- ---------------------------
10 years $1,025
- ---------------------------
(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 into a fund that has a front-end sales charge.
(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.
10
<PAGE>
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 a total return fund that invests primarily in
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 judge the ability of the
company 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's objective is to provide 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. This focus on stocks with high dividend
yields 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.
11
<PAGE>
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
- -----------------------------------------------------------------------------------------------------------------------------
Decatur Equity Income Fund Growth and Income Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stocks: Securities that represent shares of Generally, we invest 85% to Generally, 90% to 100% of the
ownership in a corporation. Stockholders 100% of net assets in Fund's net assets will be
participate in the corporation's profits and dividend-paying common stocks. invested in dividend-paying
losses, proportionate to the number of shares they common stocks.
own.
- -----------------------------------------------------------------------------------------------------------------------------
High-Yield Corporate Bonds: Securities that are Decatur Equity Income Fund may The Growth and Income Fund
rated lower than Investment Grade by an NRSRO or, invest up to 15% of net assets in generally does not invest in
if unrated, that we believe are of comparable high-yield corporate bonds, high-yield corporate bonds.
quality. These securities are generally considered typically those rated B or BB by
to be of poor quality and often speculative. an NRSRO.
- -----------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts: Certificates issued by We may invest without limitation in ADRs. We use them when we
a U.S. bank which represent a stated number of believe they offer better total return opportunities than U.S.
shares of a foreign corporation that the bank holds securities.
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 between a buyer Typically, we use repurchase agreements as a short-term investment
and seller of securities in which the seller agrees for a Fund's cash position. In order to enter into these repurchase
to buy the securities back within a specified time agreements, a Fund must have collateral of at least 102% of the
at the same price the buyer paid for them, plus an repurchase price.
amount equal to an agreed upon interest rate.
Repurchase agreements are often viewed as equivalent
to cash.
- ------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest without limitation in privately placed securities that
whose resale is restricted under securities law. are eligible for resale among certain institutional buyers without
registration. These are commonly known as "Rule 144A Securities."
- ------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities: Securities that do not have a We may invest up to 10% of a Fund's total assets in illiquid
ready market, and cannot be easily sold, if at all, securities.
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. 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.
12
<PAGE>
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
- ------------------------------------------------------------------------------------------------------------------------------
Decatur Equity Income Fund Growth and Income Fund
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market risk is the risk that all or a We maintain a long-term investment approach and focus on stocks we
majority of the securities in a certain believe can appreciate over an extended time frame regardless of interim
market -- like the stock or bond market -- market fluctuations. We do not try to predict overall stock market
will decline in value because of factors movements and do not trade for short-term purposes.
such as economic conditions, future
expectations or investor confidence.
- ------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk We limit the amount of each Fund's assets invested in any one industry and
that the value of securities in a in any individual security. We also follow a rigorous selection process
particular industry or the value of an designed to identify undervalued securities before choosing securities for
individual stock or bond will decline the portfolio.
because of changing expectations for the
performance of that industry or for the
individual company issuing the stock or
bond.
- ------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that We limit the amount of high-yield The Growth and Income Fund does
securities will decrease in value if bonds in the portfolio to 15% of not generally hold a significant
interest rates rise. The risk is greater net assets. portion of assets in bonds, so
bonds with longer maturities than for interest rate risk is for not a
those with shorter maturities. major risk in this Fund.
- ------------------------------------------------------------------------------------------------------------------------------
Credit Risk We limit the amount of high-yield The Growth and Income Fund is
The possibility that a bond's issuer (or net assets. We typically invest generally not subject to credit
an entity that insures the bond) will be primarily in bonds rated BB or B risk.
unable to make timely payments of interest and do not invest in bonds rated
and principal. below 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 foreign We typically invest only a small portion of each Fund's portfolio in foreign
securities may be adversely affected by corporations through American Depositary Receipts. We do not invest directly
political instability, changes in currency in foreign securities. When we do purchase ADRs, they are generally
exchange rates, foreign economic denominated in U.S. dollars and traded on a U.S. exchange.
conditions or inadequate regulatory and
accounting standards.
- ------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, or can
only be sold at a price lower than the
price that the Fund has valued them.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
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 and
Equity Income Income
- --------------------------------------------------------------------------------
As a percentage of average daily net assets 0.48% 0.57%
- --------------------------------------------------------------------------------
Portfolio managers
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. In researching
securities and making investment decisions for the Funds, Mr. Fields regularly
consults with a team of Delaware portfolio managers utilizing the same
investment strategy and with Richard G. Unruh.
Richard G. Unruh, Executive Vice President/Chief Investment Officer, Equity,
joined Delaware Investments in 1982 after 19 years of investment experience with
Kidder, Peabody & Co. Inc. Mr. Unruh was named an Executive Vice President of
the Funds in 1994 and was named Chief Investment Officer for equities in 1998.
He is also a member of the Board of Directors of the manager and was named
Executive Vice President of the manager in 1994.
14
<PAGE>
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
<TABLE>
Investment Manager The Funds Custodian
<S> <C> <C>
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page ___ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
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 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.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective 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 daily 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.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
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.
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 also provide
customer service to shareholders.
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.
15
<PAGE>
About your account
Investing in the Funds
o Institutional Class shares are available for purchase only by the
following:
o 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
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o 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
o 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
o 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
16
<PAGE>
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 19103-3682. 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 you 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 your Client Services Representative
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 separate fee for this
service.
17
<PAGE>
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 receive 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. Currently, the Exchange is closed when 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. 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 fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities 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.
18
<PAGE>
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 19103-3682. 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 an address other than the address of
record on an account.
[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 separate fee for this service.
19
<PAGE>
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 send your redemption proceeds.
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. 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. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
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.
20
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their 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 on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds.
Investments by Fund of Funds
Growth and Income Fund accepts investments from the series portfolios of
Delaware Group Foundation Funds, a fund of funds. From time to time, the Fund
may experience large investments or redemptions due to allocations or
rebalancings by Foundation Funds. While it is impossible to predict the overall
impact of these transactions over time, there could be adverse effects on
portfolio management. For example, the Fund may be required to sell securities
or invest cash at times when it would not otherwise do so. These transactions
could also have tax consequences if sales of securities result in gains, and
could also increase transactions costs or portfolio turnover. The manager will
monitor transactions by Foundation Funds and will attempt to minimize any
adverse effects on both Growth and Income Fund and Foundation Funds as a result
of these transactions.
21
<PAGE>
Financial information
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
Period
Year Ended 11/30/ 1/13/94 Year
Through Ended
Decatur Equity Income Fund 1998(2) 1997(2) 1996(2) 1995(2) 11/30/94(2) 11/30/94(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $22.570 $21.310 $19.060 $15.590 $16.720 $18.240
Income (loss) from investment operations
Net investment income (loss) 0.612 0.650 0.690 0.710 0.590 0.670
Net realized and unrealized gain on investments 1.808 3.930 3.620 3.920 (1.100) (0.730)
----- ----- ----- ----- ------- -------
Total from investment operations 2.420 4.580 4.310 4.630 (0.510) 0.060
----- ----- ----- ----- ------- -----
Less dividends and distributions
Dividends from net investment income (0.520) (0.640) (0.720) (0.740) (0.620) (0.860)
Distributions from realized gain on investments (3.070) (2.680) (1.340) (0.420) None (1.750)
------- ------- ------- ------- -------
Total dividends and distributions (3.590) (3.320) (2.060) (1.160) (0.620) (2.610)
------- ------- ------- ------- ------- -------
Net asset value, end of period $21.400 $22.570 $21.310 $19.060 $15.590 $15.570
======= ======= ======= ======= ======= =======
Total return 12.25% 25.02% 24.65% 31.14% (0.450%) (0.57%)(3)
Ratios and supplemental data
Net assets, end of period (000 omitted) $243,245 $278,384 $244,048 $211,409 $182,105 $1,512,194
Ratio of expenses to average net assets 0.70% 0.68% 0.69% 0.74% 0.70% 0.71%
Ratio of net investment income to average net assets 2.88% 3.07% 3.56% 4.16% 4.03% 4.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 94% 90% 101% 74% 92% 80%
- ------------------------------------------------------------------------------------------------------------------------------------
Volatility
Volatility, as indicated by year-by-year total return 1998 1998 1996 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Volatility chart is not part of the Financial highlights 12.25% 25.02% 24.65% 31.14% (0.456%) (0.57%)
and has not been audited by Ernst & Young LLP.
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
22
<PAGE>
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 11/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.260 $17.570 $15.65 $12.350 $14.400
Income (loss) from investment operations
Net investment income 0.346 0.350 0.370 0.470 0.430
Net realized and unrealized gain (loss) on investments 1.917 3.600 3.230 3.650 (0.370)
----- ----- ----- ----- -------
Total from investment operations 2.263 3.950 3.600 4.120 0.060
----- ----- ----- ----- -----
Less dividends and distributions
Dividends from net investment income (0.293) (0.410) (0.390) (0.400) (0.450)
Distributions from net realized gain on investments (2.080) (1.850) (1.290) (0.420) (1.660)
------- ------- ------- ------- -------
Total dividends and distributions (2.373) (2.260) (1.680) (0.820) (2.110)
------- ------- ------- ------- -------
Net asset value, end of period $19.150 $19.260 $17.570 $15.650 $12.350
======= ======= ======= ======= =======
Total return 13.07% 25.65% 25.24% 35.13% 0.19%
Ratios and supplemental data
Net assets, end of period (000 omitted) $112,381 $78,813 $45,958 $11,520 $1,376
Ratio of expenses to average net assets 0.83% 0.83% 0.81% 0.89% 0.96%
Ratio of net investment income to average net assets 1.82% 1.90% 2.53% 3.02% 3.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 87% 69% 87% 81% 74%
Volatility
Volatility, as indicated by year-by-year total return 13.07% 25.65% 25.24% 35.13% 0.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Volatility chart is not part of the Financial highlights and has
not been audited by Ernst & Young LLP.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
How to read the financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain occurs when we sell an investment at a profit, while a realized
loss occurs when we sell an investments 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 dividends and distributions-Distributions from net realized
gain on investments."
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 rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers 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 net assets
The expense ratio is the percentage of net assets 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 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.
24
<PAGE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface only 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-C
Amortized cost
Amortized cost is a method used to value a fixed income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
[glossary to be continued]
[glossary continued]
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 changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise. See also Nationally
recognized statistical rating organization.
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.
See also Nationally recognized statistical rating organization. See also
Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
[glossary to be continued]
[glossary continued]
C-D
Capital appreciation
An increase in the value of an investment.
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.
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.
[glossary to be continued]
25
<PAGE>
[glossary continued]
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.
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.
[glossary to be continued]
[glossary continued]
D-I
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 and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
[glossary to be continued]
[glossary continued]
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 paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
[glossary to be continued]
26
<PAGE>
[glossary continued]
I-N
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 an annual percentage of the fund' s average daily net
assets.
[glossary to be continued]
[glossary continued]
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.
National Association of Securities Dealers (NASD)
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]
[glossary continued]
N-S
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality 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).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
[glossary to be continued]
27
<PAGE>
[glossary continued]
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 per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). 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.
[glossary to be continued]
[glossary continued]
S-T
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 or redemption 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.
[glossary to be continued]
[glossary continued]
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied 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.
28
<PAGE>
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.
[glossary continued]
[glossary continued]
T-V
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
[end glossary]
29
<PAGE>
[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' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. 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
19103-3682, 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 Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Registrant's Investment Company Act file number: 811-750
P-002 [--] PP 1/99
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Blue Chip Fund
Class A* o Class B* o 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.
1
<PAGE>
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
Fund administration (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
Retirement plans
- ---------------------------------------------------
How to redeem shares
Account minimums
- ---------------------------------------------------
Special services
Dividends, distributions and taxes
Certain management considerations page
- ---------------------------------------------------
Financial information page
- ---------------------------------------------------
2
<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 profile 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 ___ to find definitions of words printed in
bold type in the text throughout the prospectus.
3
<PAGE>
Fund Profile:
An investment overview
When choosing a mutual fund to invest in, you have a variety of options and
important information to consider. This prospectus provides information about
Blue Chip Fund, a mutual fund from the Delaware Investments Family of Funds.
Before evaluating individual funds, however, your first step is to define your
personal financial goals. Knowing your goals and determining your investment
time horizon in advance can help you make a more appropriate fund selection. It
is also important to select a fund in the context of your entire investment
program. Diversification, or spreading your money among different types of
investments, is usually a sound investment strategy. This is commonly called
"asset allocation." The way you choose to allocate your money depends on a
number of factors. A professional financial adviser can help you build an
investment portfolio that fits your financial situation, your investment
objectives and your risk tolerance.
Investing for total return with Blue Chip Fund
Blue Chip Fund is a total return fund. Investors with long-term goals often
choose mutual funds designed to provide total return. Total return funds
typically 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.
["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, generally 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)
4
<PAGE>
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 declines in stock prices, which can be caused
by a drop in the stock market or poor performance in specific industries or
companies. For a more complete discussion of risk, please turn to page __.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking long-term capital appreciation.
o Investors seeking an investment primarily in common stocks.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
5
<PAGE>
How has Blue Chip Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show the returns for the Fund's Class A shares for the past
calendar year, as well as the 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 costs of operating a mutual fund, such as the costs of buying,
selling, and holding the securities. The Fund's past performance is not
necessarily an indication of how it will perform in the future. The returns
reflect voluntary expense caps. The returns would be lower without the voluntary
caps.
* Blue Chip Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (CLASS A) FPO]
Total return (Class A)
Blue Chip Fund S&P 500
- -----------------------------------------------------------------
- -----------------------------------------------------------------
1998 18.21% 28.74%
- -----------------------------------------------------------------
As of December 31, 1998, the Fund's Class A shares had a year-to-date return of
18.21%. During the period illustrated in this bar chart, Class A's highest
return was 20.24% for the quarter ended December 31, 1998 and its lowest return
was -13.31% for the quarter ended September 30, 1998.
The maximum Class A sales charge of 5.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above. If this fee were
included, the returns would be less than those shown. The average annual returns
shown on page ___ do include the sales charge.
6
<PAGE>
How has Blue Chip Fund performed? (continued)
<TABLE>
<CAPTION>
Average annual
returns for periods ending 12/31/98
-----------------------------------------------------------------------------
CLASS A B C S&P 500
- ----- - - - -------
(if redeemed)* (if redeemed)*
-------------- --------------
<S> <C> <C> <C> <C>
1 year 11.40% 12.37% 16.37% 28.74%
Since inception 15.86% 16.96% 18.84% 29.29%
2/24/97
</TABLE>
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be 17.37% and 18.84% for the one year and lifetime periods,
respectively. Returns for Class C would be 17.37% and 18.84% for the one year
and lifetime periods, respectively.
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <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
- ----------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees 0.65% 0.65% 0.65%
- ----------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------
Other expense 1.08% 1.08% 1.08%
- ----------------------------------------------------------------------------------------------
Total operating expenses(4) 2.03% 2.73% 2.73%
- ----------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
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.5 This is an
example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
CLASS (if redeemed) (if redeemed)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $769 $276 $776 $276 $376
- ----------------------------------------------------------------------------------------------
3 years $1,175 $847 $1,147 $847 $847
- ----------------------------------------------------------------------------------------------
5 years $1,605 $1,445 $1,645 $1,445 $1,445
- ----------------------------------------------------------------------------------------------
10 years $2,798 $2,893 $2,893 $3,061 $3,061
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) A purchase of Class A shares of $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 will apply to certain
redemptions. 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%, which declines to 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.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) Beginning February 1, 1999, 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 1.25% of average daily net assets. Prior to
February 1, 1999, the investment manager had agreed to waive fees and pay
expenses through January 31, 1999, 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.
(5) 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. In
addition, this example does not reflect the voluntary expense cap described in
footnote 4.
(6) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
8
<PAGE>
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.
9
<PAGE>
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
- --------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common stocks: Securities that represent shares Generally, we invest 90% to 100% of net assets in common stock of
of ownership in a corporation. Stockholders medium-to large-size companies.
participate in the corporation's profits and
losses, proportionate to the number of shares
they own.
- --------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts: Certificates We generally invest only in those ADRs included in the S&P 500
issued by a U.S. bank which represent a stated Index. Although Blue Chip Fund may invest up to 20% of its net
number of shares of a foreign corporation that assets in depositary receipts, ADRs normally make up less than 10% of
the bank holds in its vault. An ADR entitles the the Fund's net assets.
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 between a Typically, we use repurchase agreements as a short-term investment
buyer and seller of securities in which the for the Fund's cash position. In order to enter into these repurchase
seller agrees to buy the securities back within a agreements, the Fund must have collateral of at least 102% of the
specified time at the same price the buyer paid repurchase price. Blue Chip Fund may have more no than 10% of its
for them, plus an amount equal to an agreed upon total assets in repurchase agreements with maturities of over
interest rate. Repurchase agreements are often seven days.
viewed as equivalent to cash.
- --------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed We may invest without limitation in privately placed securities that
securities whose resale is restricted under are eligible for resale among certain institutional buyers without
securities law. registration. These are commonly known as "Rule 144A Securities."
- --------------------------------------------------------------------------------------------------------------------------
Illiquid Securities: Securities that do not have We may invest up to 15% of the Fund's net assets in illiquid
a ready market, and cannot be easily sold, if at securities.
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 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.
10
<PAGE>
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
- --------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a We maintain a long-term investment approach and focus on stocks we believe can
majority of the securities in a appreciate over an extended time frame regardless of interim market fluctuations.
certain market -- like the stock or We do not try to predict overall stock market movements and do not trade for
bond market -- will decline in value short-term purposes.
because of factors such as economic
conditions, future expectations or We may hold a substantial part of Blue Chip Fund's assets in cash or cash
investor confidence. equivalents as a temporary, defensive strategy.
- --------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk We limit the amount of Blue Chip Fund's assets invested in any one industry and
that the value of securities in a in any individual security. We generally allocate assets to various sectors in
particular industry or the value of an roughly the same proportions as the S&P 500 sector allocation.
individual stock or bond will decline
because of changing expectations for
the performance of that industry or
for the individual company issuing the
stock or bond.
- --------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign We typically invest only a small portion of Blue Chip Fund's portfolio in
securities may be adversely affected foreign companies, usually through American Depositary Receipts. These are
by political instability, changes in generally denominated in U.S. dollars and traded on a U.S. stock exchange.
currency exchange rates, foreign
economic conditions or inadequate
regulatory and accounting standards.
- --------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, at
approximately the price that the Fund
has valued them.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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 0.12%
- --------------------------------------------------------------------------------
Portfolio Managers
T. Scott Wittman, Enrique Chang and Christopher P. Harvey have primary
responsibility for making day-to-day investment decisions for the Fund.
T. Scott Wittman, President 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.
Enrique Chang, Senior Vice President and Chief Investment Officer of Vantage
Investment Advisors, became co-manager of the Fund in January 1999. Mr. Chang
oversees the management of all equity portfolios and directs Vantage's
quantitative research efforts. He received a BA in mathematics from Fairleigh
Dickinson University in May of 1985, an MBA in finance and quantitative analysis
from New York University in May of 1988, and an MS in statistics and operations
research from New York University in May of 1996. He was previously an actuary
with Prudential, Director of Quantitative Analysis and Strategy with General
Reinsurance Corporation, and Senior Vice President and Director of Quantitative
Analysis with J&W Seligman.
Christopher P. Harvey, Vice President of Vantage Investment Advisers, became
co-manager of the Fund in January 1999. Mr. Harvey manages portfolios, conducts
investment research and assists in equity trading. He graduated Bucknell
University with a BSBA degree in accounting. He received an M.B.A. from the
Stern School of Business at New York University. Prior to joining Vantage
Investment Advisors, Mr. Harvey was a financial analyst with Merrill Lynch.
12
<PAGE>
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
Board of Directors
Investment Manager
Custodian The Fund
- ------------------ ------------------------
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 managers
Service agent Distributor
- ------------------ ------------------------------
(see page __ for Delaware Distributors, L.P. Delaware Service Company, Inc.
details) 1818 Market Street 1818 Market Street
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 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.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective 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 daily 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.
13
<PAGE>
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.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
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.
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 also provide
customer service to shareholders.
Financial advisers Financial advisers provide 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.
14
<PAGE>
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
o 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.
o If you invest $50,000 or more, your front-end sales charge will be reduced.
o 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.
o 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.
o Class A shares generally are not subject to a contingent deferred sales
charge.
Class B
o 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.
o 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.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o 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 accounts.
o 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.
o 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%. Conversion
may occur as late as three months after the eighth anniversary of purchase,
during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
15
<PAGE>
Class C
o 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.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o 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.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and pay
lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o 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.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it 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.
16
<PAGE>
Class A Sales Charges
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Amount of purchase Sales charge as % Sales charge as % of amount Dealer's commission as %
of offering price invested of offering price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.11% 5.00%
$50,000 but 4.75% 5.01% 4.00%
under $100,000
$100,000 but 3.75% 3.92% 3.00%
under $250,000
$250,000 but 2.50% 2.55% 2.00%
under $500,000
$500,000 but 2.00% 2.01% 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 purchase Sales charge as % Sales charge as % of amount Dealer's commission as %
of offering price invested of offering price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1 million up to $5 none None 1.00%
million
- --------------------------------------------------------------------------------------------------------------------
Next $20 million none None 0.50%
Up to $25 million
- --------------------------------------------------------------------------------------------------------------------
Amount over $25 million none None 0.25%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
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>
- --------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of 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
or purchases of all funds in the
Delaware Investments family
(except money market funds with
no sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
- --------------------------------------------------------------------------------------------------------------------------
Reinvestment of redeemed shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- --------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X Not available.
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales
401(k), 403(b)(7), and 457 Retirement charges by combining the
Plans purchases of all members 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>
18
<PAGE>
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 separate 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 19103-3682. 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 2014 12893 4013. 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 you 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 are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800o523o1918.
[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
800o523o1918.
19
<PAGE>
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. The minimum for an Education IRA is $500. 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. Currently the Exchange is closed when 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. 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 fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities 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.
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 800o523o1918.
20
<PAGE>
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 separate 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 19103-3682. 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 an address
other than the address of record on an account.
[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 Center at 800o523o1918.
21
<PAGE>
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 send your redemption proceeds.
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, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you 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, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $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.
22
<PAGE>
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, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) 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. Under most circumstances, you may reinvest dividends only
into like classes of shares.
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 at the time of the 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. 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. 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 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.
23
<PAGE>
About your account (continued)
Special services (continued)
MoneyLine(SM) On Demand Service
Through our MoneyLineSM On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine 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 MoneyLine Direct Deposit Service.
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.
24
<PAGE>
Certain management considerations
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
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund.
Investments by Fund of Funds
Blue Chip Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, the Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, the Fund may be required to sell securities or invest cash at times
when it would not otherwise do so. These transactions could also have tax
consequences if sales of securities result in gains, and could also increase
transactions costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on both
Blue Chip Fund and Foundation Funds as a result of these transactions.
25
<PAGE>
Financial information
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 800o523o1918.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
----------------------------------------------------------------------
Year Period Year Period Year Period
Ended 2/24/97(1) Ended 2/24/97(1) Ended 2/24/97(1)
11/30 through 11/30 through 11/30 through
Blue Chip Fund 1998 11/30/97 1998 11/30/97 1998 11/30/97
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $9.850 $8.500 $9.800 $8.500 $9.800 $8.500
Income (loss) from investment operations
Net investment income (loss)(2) 0.048 0.041 (0.025) (0.009) (0.025) (0.011)
Net realized and unrealized gain on investments 1.122 1.309 1.115 1.309 1.115 1.311
----- ----- ----- ----- ----- -----
Total from investment operations 1.170 1.350 1.090 1.300 1.090 1.300
----- ----- ----- ----- ----- -----
Less dividends and distributions
Dividends from net investment income (0.040) none none none none none
Distributions from net realized gain on investments (0.010) none (0.010) none (0.010) none
------- ---- ------- ---- ------- ----
Total dividends and distributions (0.050) none (0.010) none (0.010) none
------- ---- ------- ---- ------- ----
Net asset value, end of period $10.970 $9.850 10.880 $9.800 $10.880 $9.800
======= ====== ======= ====== ======= ======
Total return (3) 11.94% 15.88% 11.14% 15.29% 11.14% 15.29%
Ratios and supplemental data
Net assets, end of period (000 omitted) $7,480 $2,272 $5,375 $1,144 $1,217 $239
Ratio of expenses to average net assets 1.50% 1.50% 2.20% 2.20% 2.20% 2.20%
Ratio of expenses to average net assets prior to expense 2.03% 2.95% 2.73% 3.65% 2.73% 3.65%
limitation
Ratio of net investment income (loss) to average net assets 0.45% 0.69% (0.25%) (0.01%) (0.25%) (0.01%)
Ratio of net investment income (loss) to average net
assets prior to expense limitation (0.08%) (0.76%) (0.78%) (1.46%) (0.78%) (1.46%)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 27% 25% 27% 25% 27% 25%
- ---------------------------------------------------------------------------------------------------------------------------------
Volatility
- ---------------------------------------------------------------------------------------------------------------------------------
Volatility, as indicated by year-by-year return(3) 11.94% 15.88% 11.14% 15.29% 11.14% 15.29%
Volatility chart is not part of the Financial Highlights
and has not been audited by Ernst & Young LLP
- ---------------------------------------------------------------------------------------------------------------------------------
</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 investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. Total return
reflects the expense limitations referenced in the Fund's profile on page
__.
27
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
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 dividends and distributions-Distributions from net realized
gain on investments."
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 rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include fee waivers, 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.
28
<PAGE>
How to read the financial highlights
(begins on page ___)
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets 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 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.
29
<PAGE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface only 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
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
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 changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond 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.
See also Nationally recognized statistical rating organization.
C-C
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
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.
30
<PAGE>
[glossary continued]
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.
C-E
Corporate bond
A debt security issued by a corporation. See Bond.
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 and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
31
<PAGE>
[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 paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in 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 an annual percentage of the fund's average daily net
assets.
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.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
32
<PAGE>
[glossary continued]
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality 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).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
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 per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). 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 or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
33
<PAGE>
[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; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied 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."
34
<PAGE>
[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.
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.
Investments that generally go up or down in value n relatively small amounts are
considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investment.
[end glossary]
35
<PAGE>
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 shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. 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 800o523o1918. 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 1o800oSECo0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800o523o1918
Call the Shareholder Service Center
Monday to Friday, 8 a.m. to 8 p.m. Eastern time:
oFor fund information; literature; price, yield and performance figures.
oFor information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions and
telephone exchanges.
Delaphone Service
800o362oFUND (800o362o3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-750
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 1/99
36
<PAGE>
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.
<PAGE>
[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
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial information page
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[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 ___ to find definitions of words printed in
bold type in the text throughout the prospectus.
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Fund Profile:
An investment overview
When choosing a mutual fund to invest in, you have a variety of options and
important information to consider. This prospectus provides information about
Blue Chip Fund, a mutual fund from the Delaware Investments Family of Funds.
Before evaluating individual funds, however, your first step is to define your
personal financial goals. Knowing your goals and determining your investment
time horizon in advance can help you make a more appropriate fund selection. It
is also important to select a fund in the context of your entire investment
program. Diversification, or spreading your money among different types of
investments, is usually a sound investment strategy. This is commonly called
"asset allocation." The way you choose to allocate your money depends on a
number of factors. A professional financial adviser can help you build an
investment portfolio that fits your financial situation, your investment
objectives and your risk tolerance.
Investing for total return with Blue Chip Fund
Blue Chip Fund is a total return fund. Investors with long-term goals often
choose mutual funds designed to provide total return. Total return funds
typically 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.
["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 funds provide moderate growth potential as well as some current
income, generally 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)
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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 declines in stock prices, which can be caused
by a drop in the stock market or poor performance in specific industries or
companies. For a more complete discussion of risk, please turn to page ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking long-term capital appreciation.
o Investors seeking an investment primarily in common stocks.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
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How has Blue Chip Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show the returns for the Fund's Institutional Class shares for the past
calendar year, as well as the average annual returns of these 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 costs of operating a mutual fund, such as the costs of
buying, selling, and holding the securities. The Fund's past performance is not
necessarily an indication of how it will perform in the future. The returns
reflect voluntary expense caps. The returns would be lower without the voluntary
caps.
* Blue Chip Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (INSTITUTIONAL CLASS) FPO]
Total return (Institutional Class)
Blue Chip Fund S&P 500
Institutional Class
1998 18.58% 28.74%
As of December 31, 1998, the Institutional Class had a year-to-date return of
18.58%. During the periods illustrated in this bar chart, the Institutional
Class' highest return was 20.35% for the quarter ended December 31, 1998 and its
lowest return was -13.20% for the quarter ended September 30, 1998.
How has Blue Chip Fund performed? (continued)
Average annual return as of 12/31/98
Institutional S&P 500
Class
1 year 18.58% 28.74%
Since inception 19.99% 29.29%
(2/24/97)
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What are Blue Chip Fund Institutional Class' 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 None
a percentage of offering price
- -----------------------------------------------------------------
Maximum contingent deferred sales charge None
(load) as a percentage of original purchase
price or redemption price, whichever is lower
- -----------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested None
dividends
- -----------------------------------------------------------------
Redemption fees None
- -----------------------------------------------------------------
Exchange Fees(1) None
- -----------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
- -----------------------------------------------------------------
Management fees 0.65%
- -----------------------------------------------------------------
Distribution and service (12b-1) fees None
- -----------------------------------------------------------------
Other expenses 1.08%
- -----------------------------------------------------------------
Total operating expenses(2) 1.73%
- -----------------------------------------------------------------
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 $176
- ----------------------------
3 years $545
- ----------------------------
5 years $939
- ----------------------------
10 years $2,041
- ----------------------------
(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 into a fund that has a front-end sales charge.
(2) Beginning February 1, 1999, 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 and extraordinary
expenses) from exceeding 1.25% of average daily net assets. Prior to February 1,
1999, the investment manager had agreed to waive fees and pay expenses through
January 31, 1999, in order to
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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. In
addition, this example does not reflect the voluntary expense caps described in
footnote 2.
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.
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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 represent shares Generally, we invest 90% to 100% of net assets in common stock of
of ownership in a corporation. Stockholders medium-to large-size companies.
participate in the corporation's profits and
losses, proportionate to the number of shares
they own.
- ------------------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts: Certificates issued We generally invest only in those ADRs included in the S&P 500
by a U.S. bank which represent a stated number of Index. Although Blue Chip Fund may invest up to 20% of its net
shares of a foreign corporation that the bank assets in depositary receipts, ADRs normally make up less than 10%
holds in its vault. An ADR entitles the holder of the Fund's net assets.
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 between a Typically, we use repurchase agreements as a short-term investment
buyer and seller of securities in which the for the Fund's cash position. In order to enter into these repurchase
seller agrees to buy the securities back within a agreements, the Fund must have collateral of at least 102% of the
specified time at the same price the buyer paid repurchase price. Blue Chip Fund may have more no than 10% of its
for them, plus an amount equal to an agreed upon total assets in repurchase agreements with maturities of over seven days.
interest rate. Repurchase agreements are often
viewed as equivalent to cash.
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed We may invest without limitation in privately placed securities that
securities whose resale is restricted under are eligible for resale among certain institutional buyers without
securities law. registration. These are commonly known as "Rule 144A Securities."
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities: Securities that do not have We may invest up to 15% of the Fund's net assets in illiquid securities.
a ready market, 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.
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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.
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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.
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Blue Chip Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Market risk is the risk that all or a We maintain a long-term investment approach and focus on stocks we believe can
majority of the securities in a certain market -- appreciate over an extended time frame regardless of interim market
like the stock or bond market -- will decline in fluctuations. We do not try to predict overall stock market movements and do
value because of factors such as economic not trade for short-term purposes.
conditions, future 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 risk that the We limit the amount of Blue Chip Fund's assets invested in any one industry
value of securities in a particular industry or and in any individual security. We generally allocate assets to various
the value of an individual stock or bond will sectors in roughly the same proportions as the S&P 500 sector allocation.
decline because of changing expectations for
the performance of that industry or for the
individual company issuing the stock or bond.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign We typically invest only a small portion of Blue Chip Fund's portfolio in
securities may be adversely affected by foreign companies, usually through American Depositary Receipts. These are
political instability, changes in currency generally foreign denominated in U.S. dollars and traded on a U.S. stock
exchange rates, foreign economic conditions exchange.
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>
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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 0.12%
- --------------------------------------------------------------------------------
Portfolio Managers
T. Scott Wittman, Enrique Chang and Christopher P. Harvey have primary
responsibility for making day-to-day investment decisions for the Fund.
T. Scott Wittman, President 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.
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Enrique Chang, Senior Vice President and Chief Investment Officer of Vantage
Investment Advisors, became co-manager of the Fund in January 1999. Mr. Chang
oversees the management of all equity portfolios and directs Vantage's
quantitative research efforts. He received a BA in mathematics from Fairleigh
Dickinson University in May of 1985, an MBA in finance and quantitative analysis
from New York University in May of 1988, and an MS in statistics and operations
research from New York University in May of 1996. He was previously an actuary
with Prudential, Director of Quantitative Analysis and Strategy with General
Reinsurance Corporation, and Senior Vice President and Director of Quantitative
Analysis with J&W Seligman.
Christopher P. Harvey, Vice President of Vantage Investment Advisers, became
co-manager of the Fund in January 1999. Mr. Harvey manages portfolios, conducts
investment research and assists in equity trading. He graduated Bucknell
University with a BS degree in accounting. He received an M.B.A. from the Stern
School of Business at New York University. Prior to joining Vantage Investment
Advisors, Mr. Harvey was a financial analyst with Merrill Lynch.
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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]
<TABLE>
<CAPTION>
Board of Directors
Investment Manager The Fund Custodian
<S> <C> <C>
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 managers Distributor Service agent
(see page __ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
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 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.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective 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 daily 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.
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Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
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.
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 also provide
customer service to shareholders.
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.
16
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About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o 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
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o 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
o 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
o 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
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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 19103-3682. 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 you 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 your Client Services Representative
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 separate fee for this
service.
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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. Currently, the Exchange is closed when 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. 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 fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities 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.
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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 19103-3682. 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 an address other than the address of
record on an account.
[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 separate fee for this service.
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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 send your redemption proceeds.
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. 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. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
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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 this 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.
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Certain management considerations
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
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund.
Investments by Fund of Funds
Blue Chip Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, the Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, the Fund may be required to sell securities or invest cash at times
when it would not otherwise do so. These transactions could also have tax
consequences if sales of securities result in gains, and could also increase
transactions costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on both
Blue Chip Fund and Foundation Funds as a result of these transactions.
23
<PAGE>
Financial information
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class
-------------------------
Period
Year 2/24/97(1)
Ended Through
11/30/98 11/30/97
------------ ----------
<S> <C> <C>
Blue Chip Fund
Net asset value, beginning of period $ 9.870 $8.500
Income from investment operations
Net investment income (2) 0.079 0.062
Net realized and unrealized gain on investments 1.116 1.308
------- ------
Total from investment operations 1.195 1.370
------- ------
Less dividends and distributions
Dividends from net investment income (0.065) None
Distributions from net realized gain on investments (0.010) None
------- ------
Total dividends and distributions (0.075) None
Net asset value, end of period $10.990 $9.870
======= ======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Institutional Class
-------------------------
Period
Year 2/24/97(1)
Ended Through
11/30/98 11/30/97
------------ ----------
<S> <C> <C>
Total return (3) 12.31% 16.12%
Ratios and supplemental data
Net assets, end of period (000 omitted) $1,042 $1,834
Ratio of expenses to average net assets 1.20% 1.20%
Ratio of expenses to average net assets prior to expense limitation 1.73% 2.65%
Ratio of net investment income to average net assets 0.75% 0.99%
Ratio of net investment income (loss) to average net assets prior to expense limitation 0.22% (0.46%)
------- ------
Portfolio turnover 27% 25%
------- ------
Volatility, as indicated by year-by-year return(3) 12.31% 16.12%
Volatility chart is not part of the Financial highlights and has not been audited
by Ernst & Young LLP.
</TABLE>
(1) Date of commencement of trading; 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 in Blue Chip Fund's
Profile on page ___.
25
<PAGE>
How to read the financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain on investments
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 dividends and distributions-Distributions from net realized
gain on investments."
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 rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include fee waivers 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.
26
<PAGE>
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets 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 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.
27
<PAGE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface only 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-C
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
[glossary to be continued]
[glossary continued]
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 changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond 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.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
[glossary to be continued]
[glossary continued]
C-D
Capital appreciation
An increase in the value of an investment.
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.
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.
[glossary to be continued]
[glossary continued]
28
<PAGE>
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.
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]
[glossary continued]
D-I
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 and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
[glossary to be continued]
[glossary continued]
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 paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
[glossary to be continued]
[glossary continued]
I-N
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 an annual percentage of the fund's average daily net
assets.
29
<PAGE>
[glossary to be continued]
[glossary continued]
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.
National Association of Securities Dealers (NASD)
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]
[glossary continued]
N-S
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
[glossary to be continued]
30
<PAGE>
[glossary continued]
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 per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). 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.
[glossary to be continued]
[glossary continued]
S-T
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 or redemption 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.
[glossary to be continued]
[glossary continued]
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied 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.
31
<PAGE>
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.
[glossary continued]
[glossary continued]
V
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
[end glossary]
32
<PAGE>
[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 shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. 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 this Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, 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 Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Registrant's Investment Company Act file number: 811-750
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Social Awareness Fund
Class A o Class B o 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.
1
<PAGE>
[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 managers
Fund administration (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 Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain Management Considerations page
Financial information page
[sidebar copy at bottom of page]
2
<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 ___ to find definitions of words printed in
bold type in the text throughout the prospectus.
3
<PAGE>
Fund Profile:
An investment overview
When choosing a mutual fund to invest in, you have a variety of options and
important information to consider. This prospectus provides information about
Social Awareness Fund, a mutual fund from the Delaware Investments Family of
Funds.
Before evaluating individual funds, however, your first step is to define your
personal financial goals. Knowing your goals and determining your investment
time horizon in advance can help you make a more appropriate fund selection. It
is also important to select a fund in the context of your entire investment
program. Diversification, or spreading your money among different types of
investments, is usually a sound investment strategy. This is commonly called
"asset allocation." The way you choose to allocate your money depends on a
number of factors. A professional financial adviser can help you build an
investment portfolio that fits your financial situation, your investment
objectives and your risk tolerance.
Investing for growth of capital with Social Awareness Fund
Social Awareness Fund is a growth of capital fund. Investors with long-term
goals often choose mutual funds designed to provide growth of capital. Growth of
capital 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.
["House" graphic, with growth of capital "room" highlighted]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Table Highlighted
Growth Equity Funds...
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)
4
<PAGE>
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 exclude companies that:
o engage in activities likely to result in damage to the natural environment
o produce nuclear power, design or construct nuclear power plants or
manufacture equipment for the production of nuclear power
o manufacture or contract for military weapons
o are in the liquor, tobacco or gambling industries
o 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 declines in stock prices, which can be caused by a drop in
the stock market or poor performance in specific industries or companies.
Because the Fund avoids certain companies not considered socially responsible,
it could miss out on strong performance from those companies. For a more
complete discussion of risk, please turn to page ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for capital growth potential.
o Investors who would like an investment that incorporates social
responsibility into its security selection process.
Who should not invest in the Fund o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors whose primary goal is to receive current income.
5
<PAGE>
How has Social Awareness Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show returns for the Fund's Class A shares for the past calendar
year, as well as the 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 reflect
the actual costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities. The Fund's past performance does not
necessarily indicate how it will perform in the future. The returns reflect
voluntary expense caps. The returns would be lower without the voluntary caps.
* Social Awareness Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (CLASS A) FPO]
Total Return (Class A)
Social Awareness Fund S&P 500
1998 15.75% 28.74%
As of December 31, 1998, the Fund's Class A shares had a year-to-date return of
15.75%. During the period illustrated in this bar chart, Class A's highest
return was 19.10% for the quarter ended December 31, 1998 and its lowest return
was -15.61% for the quarter ended September 30, 1998.
The maximum Class A sales charge of 5.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above. If this fee were
included, the returns would be less than those shown. The average annual returns
shown on page ___ do include the sales charge.
6
<PAGE>
How has Social Awareness Fund performed? (continued)
Average annual returns for
periods ending 12/31/98
CLASS A B C S&P 500
(if redeemed)* (if redeemed)*
1 year 9.12% 9.90% 13.90% 28.74%
Since inception 17.96% 19.03% 20.88% 29.29%
(2/24/97)
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be 14.90% and 20.88%, respectively, for the one year and
lifetime periods. Returns for Class C would be 14.90% and 20.88%, respectively,
for the one year and lifetime periods.
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.
- -------------------------------------------------------- -------- ------ -------
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 assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
----------------------------------------------- ----------- ------- ----------
Management fees 0.75% 0.75% 0.75%
----------------------------------------------- ----------- ------- ----------
Distribution and service (12b-1) fees 0.25%(4) 1.00% 1.00%
----------------------------------------------- ----------- ------- ----------
Other expenses 0.51% 0.51% 0.51%
----------------------------------------------- ----------- ------- ----------
Total operating expenses(5) 1.51% 2.26% 2.26%
----------------------------------------------- ----------- ------- ----------
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.
7
<PAGE>
-------- ---------- --------- ---------------- ------------ ------------------
CLASS(7) A B B C C
(if redeemed) (if redeemed)
--------- ---------- --------- ---------------- ------------ -----------------
1 year $720 $229 $729 $229 $329
--------- ---------- --------- ---------------- ------------ ------------------
3 years $1,025 $706 $1,006 $706 $706
--------- ---------- --------- ---------------- ------------ ------------------
5 years $1,351 $1,210 $1,410 $1,210 $1,210
--------- ---------- --------- ---------------- ------------ ------------------
10 years $2,273 $2,407 $2,407 $2,595 $2,595
--------- ---------- --------- ---------------- ------------ ------------------
(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 will apply to certain
redemptions. 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%, which declines to 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.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) 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 July
31, 1999 in order to prevent these fees from exceeding 0.25% of average daily
net assets.
(5) Beginning February 1, 1999, 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 1.25% of average daily net assets. Prior to
February 1, 1999, the investment manager had agreed to waive fees and pay
expenses through January 31, 1999, 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.
(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. In addition, this example does not reflect the voluntary expense cap
described in footnote 5.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
8
<PAGE>
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.
9
<PAGE>
The securities we typically invest in
Stocks offer investors the potential for capital appreciation and may pay
dividends as well.
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------- ---------------------------------------------------------------------
Securities How we use them
- --------------------------------------------------- ---------------------------------------------------------------------
Social Awareness Fund
- --------------------------------------------------- ---------------------------------------------------------------------
Common stocks: Securities that represent shares Generally, we invest 90% to 100% of net assets in common stock
of ownership in a corporation. Stockholders of medium-to large-size companies.
participate in the corporationAs profits and
losses, proportionate to the number of shares
they own.
- --------------------------------------------------- ---------------------------------------------------------------------
Repurchase agreements: An agreement between a Typically, we use repurchase agreements as a short-term investment
buyer and seller of securities in which the for the Fund's cash position. In order to enter into these
seller agrees to buy the securities back within a repurchase agreements, the Fund must have collateral of at least
specified time at the same price the buyer paid 102% of the repurchase price. The Fund may have no more than 10% of
for them, plus an amount equal to an agreed upon its total assets in repurchase agreements with maturities of over
interest rate. Repurchase agreements are often seven days.
viewed as equivalent to cash.
- --------------------------------------------------- ---------------------------------------------------------------------
Restricted securities: Privately placed We may invest without limitation in privately placed securities
securities whose resale is restricted under that are eligible for resale among certain institutional buyers.
securities law.
- --------------------------------------------------- ---------------------------------------------------------------------
Illiquid Securities: Securities that do not have We may invest up to 15% of the Fund's net assets in illiquid
a ready market, and cannot be easily sold, if at securities.
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 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 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.
10
<PAGE>
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. An investment in the Fund 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>
<S> <C>
- ---------------------------------------- -----------------------------------------------------------------------------------
Risks How we strive to manage them
- ---------------------------------------- -----------------------------------------------------------------------------------
Social Awareness Fund
- ---------------------------------------- -----------------------------------------------------------------------------------
Market risk is the risk that all or a We maintain a long-term investment approach and focus on stocks we believe can
majority of the securities in a appreciate over an extended time frame regardless of interim market fluctuations.
certain market -- like the stock or We do not try to predict overall stock market movements and do not trade for
bond market -- will decline in value short-term purposes.
because of factors such as economic
conditions, future expectations or We may hold a substantial part of the Fund's assets in cash or cash equivalents
investor confidence. as a temporary, defensive strategy.
- ---------------------------------------- -----------------------------------------------------------------------------------
Industry and security risk is the risk We limit the amount of Social Awareness Fund's assets invested in any one
that the value of securities in a industry and in any individual security.
particular industry or the value of an
individual stock or bond will decline Because Social Awareness Fund avoids investing in companies that don't meet
because of changing expectations for socially responsible criteria, its exposure to certain industry sectors may be
the performance of that industry or greater or less than similar funds or market indexes. This could affect its
for the individual company issuing the performance positively or negatively, depending on the performance of those
stock or bond. sectors.
- ---------------------------------------- -----------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, or
can only be sold at approximately the
price that the Fund has valued them.
- ---------------------------------------- -----------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
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 0.68%
- --------------------------------------------------------------- ---------------
Portfolio Managers
T. Scott Wittman, Enrique Chang and Christopher P. Harvey have primary
responsibility for making day-to-day investment decisions for the Fund.
T. Scott Wittman, President 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.
Enrique Chang, Senior Vice President and Chief Investment Officer of Vantage
Investment Advisors, became co-manager of the Fund in January 1999. Mr. Chang
oversees the management of all equity portfolios and directs Vantage's
quantitative research efforts. He received a BA in mathematics from Fairleigh
Dickinson University in May of 1985, an MBA in finance and quantitative analysis
from New York University in May of 1988, and an MS in statistics and operations
research from New York University in May of 1996. He was previously an actuary
with Prudential, Director of Quantitative Analysis and Strategy with General
Reinsurance Corporation, and Senior Vice President and Director of Quantitative
Analysis with J&W Seligman.
Christopher P. Harvey, Vice President of Vantage Investment Advisers, became
co-manager of the Fund in January 1999. Mr. Harvey manages portfolios, conducts
investment research and assists in equity trading. He graduated Bucknell
University with a BS degree in accounting. He received an M.B.A. from the Stern
School of Business at New York University. Prior to joining Vantage Investment
Advisors, Mr. Harvey was a financial analyst with Merrill Lynch.
12
<PAGE>
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]
<TABLE>
<CAPTION>
Board of Directors
<S> <C>
Investment Manager Custodian The Fund
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 managers Distributor Service agent
(see page ___ for details)
Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
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 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.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective 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 daily 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.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
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.
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 also provide
customer service to shareholders.
Financial advisers Financial advisers provide 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.
13
<PAGE>
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
o 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.
o If you invest $50,000 or more, your front-end sales charge will be reduced.
o 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.
o Class A shares are also subject to an annual 12b-1 fee no greater than
0.30% (currently waived to 0.25%) of average daily net assets, which is
lower than the 12b-1 fee for Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge.
Class B
o 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.
o 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.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o 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 accounts.
o 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.
o 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%.
Conversion may occur as late as three months after the eighth anniversary
of purchase, during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
14
<PAGE>
Class C
o 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.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o 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.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o 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.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it 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.
15
<PAGE>
Class A Sales Charges
<TABLE>
<CAPTION>
- --------------------- -------------------- ---------------------- ------------------------
Amount of purchase Sales charge as % Sales charge as % of Dealer's commission as %
of offering price amount invested of offering price
- --------------------- -------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 6.13% 5.00%
$50,000 but 4.75% 4.97% 4.00%
under $100,000
$100,000 but 3.75% 3.91% 3.00%
under $250,000
$250,000 but 2.50% 2.58% 2.00%
under $500,000
$500,000 but 2.00% 2.04% 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 purchase Sales charge as % Sales charge as % of Dealer's commission as %
of offering price amount invested of offering price
- ------------------------ ------------------- ----------------------- -------------------------
<S> <C> <C> <C>
$1 million up to $5 None None 1.00%
million
- ------------------------ ------------------- ----------------------- -------------------------
Next $20 million None None 0.50%
Up to $25 million
- ------------------------ ------------------- ----------------------- -------------------------
Amount over $25 million None None 0.25%
- ------------------------ ------------------- ----------------------- -------------------------
</TABLE>
16
<PAGE>
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>
- ------------------------------------------- ------------------------------------- ------------------------------------------
Program How it works Share class
A B C
- ------------------------------------------- ------------------------------------- -------------- ---------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of 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
or purchases of all funds in the
Delaware Investments family
(except money market funds with
no sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
- ------------------------------------------- ------------------------------------- -------------- ---------------------------
Reinvestment of redeemed shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------- ------------------------------------- -------------- ---------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X Not available.
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales
401(k), 403(b)(7), and 457 Retirement charges by combining the
Plans purchases of all members 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>
17
<PAGE>
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 separate 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 19103-3682. 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 2014 12893 4013. 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 you 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 are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800o523o1918.
[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
800o523o1918.
18
<PAGE>
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. The minimum for an Education IRA is $500. 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. Currently the Exchange is closed when 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. 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 fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities 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.
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 800o523o1918.
19
<PAGE>
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 separate 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 19103-3682. 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 an address
other than the address of record on an account.
[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 Center at 800o523o1918.
20
<PAGE>
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 send your redemption proceeds.
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, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you 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, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $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.
21
<PAGE>
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, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) 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. Under most circumstances, you may reinvest dividends only
into like classes of shares.
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 at the time of the 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. 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. 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 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.
22
<PAGE>
About your account (continued)
Special services (continued)
MoneyLineSM On Demand Service
Through our MoneyLineSM On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine 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 MoneyLine Direct Deposit Service.
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.
23
<PAGE>
Certain management considerations
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
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund.
24
<PAGE>
Financial information
Financial highlights
<TABLE>
<CAPTION>
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
800o523o1918.
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
------------------ ----------------- ------------------
Year Period Year Period Year Period
Ended 2/24/97(1) Ended 2/24/97(1) Ended 2/24/97(1)
11/30 Through 11/30 through 11/30 Through
Social Awareness Fund 1998 11/30/97 1998 11/30/97 1998 11/30/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.330 $8.500 $10.280 $8.500 $10.280 $8.500
Income (loss) From Investment Operations
Net investment income (loss) (2) 0.015 0.007 (0.066) (0.044) (0.068) (0.044)
Net realized and unrealized gain on investments 0.955 1.823 0.946 1.824 0.948 1.824
----- ----- ----- ----- ----- -----
Total from investment operations 0.970 1.830 0.880 1.780 0.880 1.780
----- ----- ----- ----- ----- -----
Less Distributions
Distributions from net realized gain on investments (0.040) None (0.040) None (0.040) None
------- ---- ------- ---- ------- ----
Total distributions (0.040) None (0.040) None (0.040) None
------- ---- ------- ---- ------- ----
Net asset value, end of period $11.260 $10.330 $11.120 $10.280 $11.120 $10.280
======= ======= ======= ======= ======= =======
Total Return (3) 9.52% 21.53% 8.60% 20.94% 8.60% 20.94%
Ratios and Supplemental Data
Net assets, end of period (000 omitted) $38,858 9,115 30,172 6,919 $8,683 1,290
Ratio of expenses to average net assets 1.45% 1.50% 2.20% 2.20% 2.20% 2.20%
Ratio of expenses to average net assets prior to
expense limitation 1.56% 1.96% 2.26% 2.66% 2.26% 2.66%
Ratio of net investment income (loss) to average net assets 0.14% 0.38% (0.61%) (0.32%) (0.61%) (0.32%)
Ratio of net investment income (loss) to average net assets
prior to expense limitation 0.03% (0.08%) (0.67%) (0.78%) (0.67%) (0.78%)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 22% 29% 22% 29% 22% 29%
- ------------------------------------------------------------------------------------------------------------------------------------
Volatility 1998 Period 1998 Period 1998 Period
2/24/97 2/24/97 2/24/97
through through through
11/30/97 11/30/97 11/30/97
- ------------------------------------------------------------------------------------------------------------------------------------
Volatility, as indicated by year-by-year return(3) 9.52% 21.53% 8.60% 20.94% 8.60% 20.94%
Volatility chart is not part of the Financial Highlights and has
not been audited by Ernst & Young LLP
- ------------------------------------------------------------------------------------------------------------------------------------
</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 investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. Total return
reflects the expense limitations and waiver of a portion of Class A 12b-1
expenses referenced in the Fund's profile on page ___.
25
<PAGE>
How to read the financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
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 on
investments."
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 rate that an investor would have earned or lost on an
investment in the Fund. 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 ___)
26
<PAGE>
Financial information (continued)
How to read the financial highlights
(begins on page ___)
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets 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 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.
27
<PAGE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface only 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
Amortized cost is a method used to value a fixed income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
[glossary to be continued]
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 changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond 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.
See also Nationally recognized statistical rating organization.
[glossary to be continued]
28
<PAGE>
[glossary continued]
C-C
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
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.
[glossary to be continued]
29
<PAGE>
[glossary continued]
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]
30
<PAGE>
[glossary continued]
C-E
Corporate bond
A debt security issued by a corporation. See "bond."
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]
[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 and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
[glossary to be continued]
31
<PAGE>
[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 paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
[glossary to be continued]
32
<PAGE>
[glossary continued]
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in 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 an annual percentage of the fund's average daily 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.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
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]
[glossary continued]
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality 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).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
[glossary to be continued]
33
<PAGE>
[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 per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). 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]
[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 or redemption 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]
34
<PAGE>
[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; signature guarantees can be provided by members
of the STAMP program.
[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 has typically varied 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]
[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.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
[end glossary]
35
<PAGE>
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 shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. 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 800o523o1918. 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 1o800oSECo0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800o523o1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m.
Eastern time:
oFor fund information; literature; price, yield and performance figures.
oFor information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions and
telephone exchanges.
Delaphone Service
800o362oFUND (800o362o3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-750
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 1/99
36
<PAGE>
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.
<PAGE>
[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
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
- ----------------------------------------
Exchanges
- ----------------------------------------
Dividends, distributions and taxes
Certain management considerations
Financial information page
2
<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 6 to find definitions of words printed in
bold type in the text throughout the prospectus.
3
<PAGE>
Fund Profile:
An investment overview
When choosing a mutual fund to invest in, you have a variety of options and
important information to consider. This prospectus provides information about
Social Awareness Fund, a mutual fund from the Delaware Investments Family of
Funds.
Before evaluating individual funds, however, your first step is to define your
personal financial goals. Knowing your goals and determining your investment
time horizon in advance can help you make a more appropriate fund selection. It
is also important to select a fund in the context of your entire investment
program. Diversification, or spreading your money among different types of
investments, is usually a sound investment strategy. This is commonly called
"asset allocation." The way you choose to allocate your money depends on a
number of factors. A professional financial adviser can help you build an
investment portfolio that fits your financial situation, your investment
objectives and your risk tolerance.
Investing for growth of capital with Social Awareness Fund
Social Awareness Fund is a growth of capital fund. Investors with long-term
goals often choose mutual funds designed to provide growth of capital. Growth of
capital 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.
["House" graphic, with growth of capital "room" highlighted]
Building Blocks of Asset Allocation
Aggressive Growth Equity Funds
Table Highlighted
Growth Equity Funds...
Growth of Capital
These stock funds provide long-term growth potential with relatively high
volatility
International and Global Funds
Asset Allocation Funds
Total Return
4
<PAGE>
Taxable Bond Funds
Tax-Exempt Bond Funds
Money Market Funds (Taxable and Tax-Exempt)
5
<PAGE>
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 exclude companies that:
o engage in activities likely to result in damage to the natural environment
o produce nuclear power, design or construct nuclear power plants or
manufacture equipment for the production of nuclear power
o manufacture or contract for military weapons
o are in the liquor, tobacco or gambling industries
o 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 declines in stock prices, which can be caused by a drop in
the stock market or poor performance in specific industries or companies.
Because the Fund avoids certain companies not considered socially responsible,
it could miss out on strong performance from those companies. For a more
complete discussion of risk, please turn to page ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for capital growth potential.
o Investors who would like an investment that incorporates social responsibility
into its security selection process.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors whose primary goal is to receive current income.
6
<PAGE>
How has Social Awareness Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show the returns for the Fund's Institutional Class shares for the past
calendar year, as well as the average annual returns of these 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 costs of operating a mutual fund, such as the costs of
buying, selling, and holding the securities. The Fund's past performance is not
necessarily an indication of how it will perform in the future. The returns
reflect voluntary expense caps. The returns would be lower without the voluntary
caps.
* Social Awareness Fund
* S&P 500
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (INSTITUTIONAL CLASS) FPO]
Total return (Institutional Class)
Social Awareness Fund S&P 500
1998 16.00% 28.74%
-------------------------------------------------
As of December 31, 1998, the Institutional Class had a year-to-date return of
16.00%. During the periods illustrated in this bar chart, the Institutional
Class' highest return was 19.12% for the quarter ended December 31, 1998 and its
lowest return was -15.55% for the quarter ended September 30, 1998.
Average annual return as of 12/31/98
Institutional S&P 500
Class
1 year 16.00% 28.74%
Since inception 22.07% 29.29%
(2/24/97)
7
<PAGE>
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 none
a percentage of offering price
- --------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load) as a percentage of none
original purchase price or redemption price, whichever is lower
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested none
dividends
- --------------------------------------------------------------------------------
Redemption fees none
- --------------------------------------------------------------------------------
Exchange Fees(1) none
- --------------------------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
- ------------------------------------------------------------------
Management fees 0.75%
- ------------------------------------------------------------------
Distribution and service (12b-1) fees none
- ------------------------------------------------------------------
Other expenses 0.51%
- ------------------------------------------------------------------
Total operating expenses(2) 1.26%
- ------------------------------------------------------------------
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 $128
- ----------------------------
3 years $400
- ----------------------------
5 years $692
- ----------------------------
10 years $1,523
- ----------------------------
8
<PAGE>
(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 into a fund that has a front-end sales charge.
(2) Beginning February 1, 1999, 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 and extraordinary
expenses) from exceeding 1.25% of average daily net assets. Prior to February 1,
1999, the investment manager had agreed to waive fees and pay expenses through
January 31, 1999, 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. In
addition, this example does not reflect the voluntary expense caps described in
footnote 2.
9
<PAGE>
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.
10
<PAGE>
The securities we typically invest in
Stocks offer investors the potential for capital appreciation and may pay
dividends as well.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -------------------------------------------------------------------------------------------------------------------------
Social Awareness Fund
- -------------------------------------------------------------------------------------------------------------------------
Common stocks: Securities that represent shares Generally, we invest 90% to 100% of net assets in common stock
of ownership in a corporation. Stockholders of medium-to large-size companies.
participate in the corporationAs profits and
losses, proportionate to the number of shares
they own.
- -------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a Typically, we use repurchase agreements as a short-term investment
buyer and seller of securities in which the for the Fund's cash position. In order to enter into these
seller agrees to buy the securities back within a repurchase agreements, the Fund must have collateral of at least
specified time at the same price the buyer paid 102% of the repurchase price. The Fund may have no more than 10% of
for them, plus an amount equal to an agreed upon its total assets in repurchase agreements with maturities of over
viewed as equivalent to cash interest rate. Repurchase agreements are often seven days.
.
- -------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed We may invest without limitation in privately placed securities
securities whose resale is restricted under that are eligible for resale among certain institutional buyers.
securities law.
- -------------------------------------------------------------------------------------------------------------------------
Illiquid Securities: Securities that do not have We may invest up to 15% of the Fund's net assets in illiquid
a ready market, and cannot be easily sold, if at securities.
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 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 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.
11
<PAGE>
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions.
12
<PAGE>
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. An investment in the Fund 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
- ---------------------------------------------------------------------------------------------------------------------------
Social Awareness Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a We maintain a long-term investment approach and focus on
majority of the securities in a stocks we believe can appreciate over an extended time frame
certain market -- like the stock or regardless of interim market fluctuations. We do not try to
bond market -- will decline predict overall stock market movements and do not trade for
in value because of factors short-term purposes.
such as economic conditions, future
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 risk We limit the amount of Social Awareness Fund's assets invested
that the value of securities in a in any one industry and in any individual security.
particular industry or the value of an
individual stock or bond will decline Because Social Awareness Fund avoids investing in companies that
because of changing expectations for don't meet socially responsible criteria, its exposure to certain
the performance of that industry or industry sectors may be greater or less than similar funds or
for the individual company issuing the market indexes. This could affect its performance positively
stock or bond. or negatively, depending on the performance of those sectors.
- ---------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, or
can only be sold at approximately the
price that the Fund has valued them.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
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 0.68%
- --------------------------------------------------------------------------------
Portfolio Managers
T. Scott Wittman, Enrique Chang and Christopher P. Harvey have primary
responsibility for making day-to-day investment decisions for the Fund.
T. Scott Wittman, President 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.
14
<PAGE>
Enrique Chang, Senior Vice President and Chief Investment Officer of Vantage
Investment Advisors, became co-manager of the Fund in January 1999. Mr. Chang
oversees the management of all equity portfolios and directs Vantage's
quantitative research efforts. He received a BA in mathematics from Fairleigh
Dickinson University in May of 1985, an MBA in finance and quantitative analysis
from New York University in May of 1988, and an MS in statistics and operations
research from New York University in May of 1996. He was previously an actuary
with Prudential, Director of Quantitative Analysis and Strategy with General
Reinsurance Corporation, and Senior Vice President and Director of Quantitative
Analysis with J&W Seligman.
Christopher P. Harvey, Vice President of Vantage Investment Advisers, became
co-manager of the Fund in January 1999. Mr. Harvey manages portfolios, conducts
investment research and assists in equity trading. He graduated Bucknell
University with a BS degree in accounting. He received an M.B.A. from the Stern
School of Business at New York University. Prior to joining Vantage Investment
Advisors, Mr. Harvey was a financial analyst with Merrill Lynch.
15
<PAGE>
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
<TABLE>
<CAPTION>
<S> <C> <C>
Portfolio managers Distributor Service agent
(see page 10 for details) Delaware Distributors, L.P.. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
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 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.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective 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 daily 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.
16
<PAGE>
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.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
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. 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 also provide customer service to shareholders.
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.
17
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o 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
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o 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
o 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
o 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
18
<PAGE>
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 19103-3682. 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 you 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 your Client Services Representative
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 separate fee for this
service.
19
<PAGE>
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. Currently, the Exchange is closed when 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. 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 fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities 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.
20
<PAGE>
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 19103-3682. 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 an address other than the address of
record on an account.
[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 separate fee for this service.
21
<PAGE>
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 send your redemption proceeds.
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. 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.
22
<PAGE>
You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
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 this 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.
23
<PAGE>
Certain management considerations
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
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund.
24
<PAGE>
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Institutional Class
-------------------------
Year Period
Ended 2/24/97(1)
11/30 Through
Social Awareness Fund 1998 11/30/97
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.350 $8.500
Income from investment operations
Net investment income (2) 0.043 0.029
Net realized and unrealized gain on investments 0.957 1.821
----- -----
Total from investment operations 1.000 1.850
----- -----
Less distributions
Distributions from net realized gain on investments (0.040) None
------- ----
Total distributions (0.040) None
------- ----
Net asset value, end of period $11.310 $10.350
======= =======
Total return (3) 9.70% 21.77%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $379 $107
Ratio of expenses to average net assets 1.20% 1.20%
Ratio of expenses to average net assets prior to expense limitation 1.26% 1.66%
Ratio of expenses to average net assets 0.39% 0.68%
Ratio of expenses to average net assets prior to expense limitation 0.33% 0.22%
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 22% 29%
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Volatility
- -----------------------------------------------------------------------------------------------------
Volatility, as indicated by year-by-year return(3) 9.70% 21.77%
Volatility chart is not part of the Financial highlights and has not been
audited by Ernst & Young LLP.
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of trading; 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 in Social Awareness
Fund's Profile on page x.
25
<PAGE>
How to read the financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain on investments
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 dividends and distributions-Distributions from realized gain
on investments."
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 rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include fee waivers 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 assets
The expense ratio is the percentage of net assets 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.
26
<PAGE>
[begin glossary]
How to use this glossary
Words found in the glossary are printed in boldface only 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-C
Amortized cost
Amortized cost is a method used to value a fixed income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
[glossary to be continued]
[glossary continued]
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 changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond 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.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
[glossary to be continued]
[glossary continued]
C-D
Capital appreciation
An increase in the value of an investment.
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.
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.
[glossary to be continued]
[glossary continued]
27
<PAGE>
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.
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]
[glossary continued]
D-I
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 and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
[glossary to be continued]
28
<PAGE>
[glossary continued]
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 paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
[glossary to be continued]
[glossary continued]
I-N
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 an annual percentage of the fund's average daily net
assets.
[glossary to be continued]
[glossary continued]
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.
National Association of Securities Dealers (NASD)
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]
[glossary continued]
N-S
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
29
<PAGE>
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
[glossary to be continued]
<PAGE>
[glossary continued]
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 per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). 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.
[glossary to be continued]
[glossary continued]
S-T
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 or redemption 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.
[glossary to be continued]
[glossary continued]
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied 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.
30
<PAGE>
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.
[glossary continued]
[glossary continued]
V
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
[end glossary]
31
<PAGE>
[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 shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. 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 this Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, 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 Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
DELAWARE
INVESTMENTS
Philadelphia * London
Registrant's Investment Company Act file number: 811-750
P__ [--] PP 1/99
32
<PAGE>
Diversified Value Fund Retail
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Diversified Value Fund
Class A * Class B * 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.
<PAGE>
[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
Fund administration (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 Retirement plans How to
redeem shares Account minimums Special services
Dividends, distributions and taxes
Other investment policies and
risk considerations page
Certain management considerations page
Financial highlights page
Glossary page
2
<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 ___ to find definitions of words printed in
bold type in the text throughout the prospectus.
3
<PAGE>
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 declines in stock prices, which can be caused by a drop in
the stock market or poor performance from particular industries or companies.
For a more complete discussion of risk, please turn to page x.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for growth potential.
o Investors looking for a core investment to act as a foundation for their
equity portfolio.
Who should not invest in the Fund o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors whose primary goal is income.
4
<PAGE>
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.
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <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
- -------------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees 0.65% 0.65% 0.65%
- ------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees(4) 0.00% 0.00% 0.00%
- ------------------------------------------------------------------------------------------
Other expenses(5) 0.59% 0.59% 0.59%
- ------------------------------------------------------------------------------------------
Total operating expenses(6) 1.24% 1.24% 1.24%
- ------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS(8) A B B (if redeemed) C C (if redeemed)
- ----------------------------------------------------------------------------------------------
1 year $694 $126 $626 $126 $225
- ----------------------------------------------------------------------------------------------
3 years $946 $393 $693 $393 $393
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) A purchase of Class A shares of $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 will apply to certain
redemptions. 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%, which declines to 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.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) 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.
(5) Other expenses are based on estimated amounts for the current fiscal year.
(6) 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.
(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. In
addition, this example does not reflect the voluntary expense cap described in
footnote 6.
(8) 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.
5
<PAGE>
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 fundamental 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.
6
<PAGE>
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.
7
<PAGE>
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
- ----------------------------------------------------------------------------------------------------------------------------
Diversified Value Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of We maintain a long-term investment approach and focus on
the securities in a certain market -- like the stocks we believe can appreciate over an extended time frame
stock or bond market -- will decline in value regardless of interim market fluctuations. We do not try to
because of factors such as economic conditions, predict overall stock market movements and generally do not
future expectations or investor confidence. trade for short-term purposes.
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 risk that the We limit the amount of the Fund's assets invested in any one
value of securities in a particular industry or industry and in any individual security. We also follow a
the value of an individual stock or bond will rigorous selection process designed to identify under-valued
decline because of changing expectations securities before choosing securities for the portfolio.
performance of that industry or for the
individual company issuing the stock or bond.
- ----------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that securities We limit exposure to illiquid securities.
cannot be readily sold, or can only be sold at a
price lower than the price that the Fund has
valued them.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
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 Chartered Financial Analyst. In researching
securities and making investment decisions for the Fund, Mr. Dokas regularly
consults with Richard G. Unruh.
Richard G. Unruh, Executive Vice President/Chief Investment Officer, Equity,
joined Delaware Investments in 1982 after 19 years of investment experience with
Kidder, Peabody & Co. Inc. Mr. Unruh was named an Executive Vice President of
the Funds in 1994. He is also a member of the Board of Directors of the manager
and was named Executive Vice President of the Manager in 1994.
9
<PAGE>
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
<TABLE>
<CAPTION>
Investment manager The Fund Custodian
<S> <C> <C>
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page ___ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
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 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.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective 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 daily 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.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
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.
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 also provide
customer service to shareholders.
Financial advisers Financial advisers provide 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.
10
<PAGE>
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
o 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.
o If you invest $50,000 or more, your front-end sales charge will be
reduced.
o 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.
o 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.
o Class A shares generally are not subject to a contingent deferred sales
charge.
Class B
o 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.
o 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.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o 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
accounts.
o 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.
o 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. Conversion may occur as late as three months
after the eighth anniversary of purchase, during which time Class B's
higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
11
<PAGE>
Class C
o 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.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o 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.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o 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.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it 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.
12
<PAGE>
Class A Sales Charges
<TABLE>
<CAPTION>
- -------------------------------------------------- ------------------------------------------------------
Amount of purchase Sales charge Sales charge as % of Dealer's commission as %
as % amount invested Of offering price
of offering price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 6.08% 5.00%
$50,000 but 4.75% 5.03% 4.00%
Under $100,000
$100,000 but 3.75% 3.88% 3.00%
Under $250,000
$250,000 but 2.50% 2.52% 2.00%
Under $500,000
$500,000 but 2.00% 1.99% 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 purchase Sales charge as % Sales charge as % Dealer's commission as %
of offering price of amount invested of offering price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,000,000 up to $5 None None 1.00%
million
- -----------------------------------------------------------------------------------------------------
Next $20 million None None 0.50%
up to $25 million
- -----------------------------------------------------------------------------------------------------
Amount over $25 million None None 0.25%
- -----------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
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>
- ------------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X
agree 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 X
or purchases of all funds in
the Delaware Investments family
(except money market funds with
no sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
- ------------------------------------------------------------------------------------------------------------------------------
Reinvestment of Up to 12 months after you X Not available.
redeemed shares redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, X Not available.
SARSEP, Prototype Profit
Sharing, Pension, 401(k),
SIMPLE 401(k), 403(b)(7),
and 457 Retirement Plans
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
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 separate 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 19103-3682. 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 2014 12893 4013. 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 you 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 under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800o523o1918.
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
800o523o1918.
15
<PAGE>
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. The minimum for an Education IRA is $500. 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. Currently the Exchange is closed when 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. 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 fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities 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.
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 800o523o1918.
16
<PAGE>
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 separate 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 19103-3682. 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 an address
other than the address of record on an account.
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 Center at 800o523o1918.
17
<PAGE>
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 send your redemption proceeds.
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, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you 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, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $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.
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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, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) 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. Under most circumstances, you may reinvest dividends only
into like classes of shares.
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 at the time of the 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. 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. 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 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.
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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.
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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.
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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.
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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 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
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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
o own more than 3% of the voting stock of another investment company
o invest more than 5% of the Fund's total assets in the shares of any one
investment company nor
o 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.
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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:
o the frequency of trades and trading volume for the security
o whether at least three dealers are willing to purchase or sell the
security and the number of potential purchasers
o whether at least two dealers are making a market in the security
o 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.
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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:
o 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.
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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;
o 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;
o 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
o U.S. government securities
o 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.
27
<PAGE>
Certain management considerations
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
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund.
28
<PAGE>
Financial highlights
Financial highlights are not provided for B and C shares because these classes
have not commenced commenced operations. As of November 30, 1998, the A Class
had one share outstanding, representing the initial seed purchase. Data for
this Class is excluded because the data is not believed to be meaningful.
29
<PAGE>
How to use this glossary
Words found in the glossary are printed in boldface only 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
Amortized cost is a method used to value a fixed income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
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 changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond 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.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
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."
30
<PAGE>
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 and distributing its shares. 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 paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in 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 an annual percentage of the fund's average daily 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.
31
<PAGE>
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality 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).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
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 per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). 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 or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
32
<PAGE>
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; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied 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.
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.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
[end glossary]
33
<PAGE>
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 shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. 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 800o523o1918. 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 1o800oSECo0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800o523o1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m.
Eastern time:
o For fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions
and telephone exchanges.
Delaphone
800o362oFUND (800o362o3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours
a day, use this Touch-Tone(R) service.
Investment Company Act file number: 811-750
DELAWARE
INVESTMENTS
Philadelphia * London
P-002 [--] PP 1/99
34
<PAGE>
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.
<PAGE>
[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
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Other investment policies and
risk considerations page
Certain management considerations
Financial highlights page
Glossary page
2
<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 ___ to find definitions of words printed in
bold type in the text throughout the prospectus.
3
<PAGE>
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 declines in stock prices, which can be caused by a drop in
the stock market or poor performance from particular industries or companies.
For a more complete discussion of risk, please turn to page x.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for growth potential.
o Investors looking for a core investment to act as a foundation for their
equity portfolio.
Who should not invest in the Fund o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors whose primary goal is income.
4
<PAGE>
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 None
a percentage of offering price
- -----------------------------------------------------------------
Maximum contingent deferred sales charge None
(load) as a percentage of original purchase
price or redemption price, whichever is lower
- -----------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested None
dividends
- -----------------------------------------------------------------
Redemption fees None
- -----------------------------------------------------------------
Exchange Fees(1) None
- -----------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year. .
- -----------------------------------------------------------------
Management fees 0.65%
- -----------------------------------------------------------------
Distribution and service (12-1) fees None
- -----------------------------------------------------------------
Other expenses 0.59%
- -----------------------------------------------------------------
Total operating expenses(2) 1.24%
- -----------------------------------------------------------------
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 $126
- ----------------------------
3 years $393
- ----------------------------
(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 into a fund that has a front-end sales charge.
(2) 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.
(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. In addition, this example does not reflect the voluntary expense cap
described in footnote 2.
5
<PAGE>
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 fundamental 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.
6
<PAGE>
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.
7
<PAGE>
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 or a majority We maintain a long-term investment approach and focus on stocks we
of the securities in a certain market -- like believe can appreciate over an extended time frame regardless of interim
the stock or bond market -- will decline in value market fluctuations. We do not try to predict overall stock market
because of factors such as economic conditions, movements and generally do not trade for short-term purposes.
future 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 risk that the We limit the amount of the Fund's assets invested in any one industry
value of securities in a particular industry or and in any individual security. We also follow a rigorous selection
the value of an individual stock or bond will process designed to identify under-valued securities before choosing
decline because of changing expectations for the securities for the portfolio.
for the performance of that industry or
individual company issuing the stock or bond.
- ------------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that secuities We limit exposure to illiquid securities.
cannot be readily sold, or can only be sold at a
price lower than the price that the Fund has
valued them.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
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 Chartered Financial Analyst. In researching
securities and making investment decisions for the Fund, Mr. Dokas regularly
consults with Richard G. Unruh.
Richard G. Unruh, Executive Vice President/Chief Investment Officer, Equity,
joined Delaware Investments in 1982 after 19 years of investment experience with
Kidder, Peabody & Co. Inc. Mr. Unruh was named an Executive Vice President of
the Funds in 1994. He is also a member of the Board of Directors of the manager
and was named Executive Vice President of the Manager in 1994.
9
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
Board of Directors
<S> <C> <C>
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 managers Distributor Service agent
(see page ___ for details) Delaware Distributors, L.P.. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
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 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.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective 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 daily 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.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
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.
10
<PAGE>
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 also provide
customer service to shareholders.
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.
11
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o 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
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o 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
o 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
o 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
12
<PAGE>
How to buy shares
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 19103-3682. 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 at 800-510-4015 so we can assign you 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 your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800-510-4015.
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
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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. Currently, the Exchange is closed when 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. 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 fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities 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.
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How to redeem shares
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 19103-3682. 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 an address other than the address of
record on an account.
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. Bank information must be on file before you request a wire redemption.
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
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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 send your redemption proceeds.
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. 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. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
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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 this 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.
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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.
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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.
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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.
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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
o own more than 3% of the voting stock of another investment company
o invest more than 5% of the Fund's total assets in the shares of any one
investment company nor
o 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.
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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:
o the frequency of trades and trading volume for the security
o whether at least three dealers are willing to purchase or sell the security
and the number of potential purchasers
o whether at least two dealers are making a market in the security
o 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.
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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:
o 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).
23
<PAGE>
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;
o 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;
o 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
o U.S. government securities
o 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.
24
<PAGE>
Certain management considerations
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
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund.
EURO
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. The Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address these matters on the computer systems that the service providers use.
However, there can be no assurances that these steps will be sufficient to avoid
any adverse impact on the business of the Fund.
25
<PAGE>
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
9/15/98(1)
Through
Diversified Value Fund 11/30/98
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $8.500
Income From Investment Operations
Net investment income 0.026
Net realized and unrealized gain on investments 1.014
-----
Total from investment operations 1.040
-----
Less dividends and distributions
Dividends from net investment income None
Distributions from net realized gain on investments None
Total dividends and distributions None
Net asset value, end of period $9.540
======
Total Return (2) 12.24%
26
<PAGE>
Ratios and Supplemental Data
Net assets, end of period (000 omitted) $2,244
Ratio of expenses to average net assets 0.75%
Ratio of expenses to average net assets prior to
expense limitation 1.24%
Ratio of net investment income to average net assets 1.41%
Ratio of net investment income to average net assets
prior to expense limitation 0.92%
- --------------------------------------------------------------------------------
Portfolio turnover 74%
- --------------------------------------------------------------------------------
(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 by the manager as
referenced in Diversified Value Fund's Profile on page ___.
27
<PAGE>
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.
28
<PAGE>
Glossary
How to use this glossary
Words found in the glossary are printed in boldface only 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
Amortized cost is a method used to value a fixed income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
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 changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond 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.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
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.
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.
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.
29
<PAGE>
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.
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 and distributing its shares. 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 paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in 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 an annual percentage of the fund's average daily 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.
30
<PAGE>
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
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 per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). 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 or redemption 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.
31
<PAGE>
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied 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.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
[end glossary]
32
<PAGE>
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 shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. 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 this Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, 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 Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Registrant's Investment Company Act file number: 811-750
<PAGE>
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.
-1-
<PAGE>
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.
-2-
<PAGE>
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
-3-
<PAGE>
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.
-4-
<PAGE>
11. Borrow, except as a temporary measure for extraordinary or
emergency purposes, and then not in excess of 10% of gross assets taken at cost
or market, whichever is lower, and not to pledge more than 15% of gross assets
taken at cost. Any borrowing will be done from a bank, and to the extent that
such borrowing exceeds 5% of the value of the Fund's assets, asset coverage of
at least 300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter (not
including Sunday and holidays) or such longer period as the Securities and
Exchange Commission (the "SEC") may prescribe by rules and regulations, reduce
the amount of its borrowings to an extent that the asset coverage of such
borrowings shall be at least 300%. The Fund shall not issue senior securities as
defined in the Investment Company Act of 1940 (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.
-5-
<PAGE>
6. Act as an underwriter of securities of other issuers, except that
the Fund may acquire restricted or not readily marketable securities under
circumstances where, if such securities are sold, the Fund might be deemed to be
an underwriter for the purposes of the Securities Act of 1933 (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.
-6-
<PAGE>
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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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;
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3. The manufacture of, or contracting for, military weapons;
4. The alcoholic beverage, tobacco or gambling industries; or
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.
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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.
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ACCOUNTING AND TAX ISSUES
When a Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's assets and liabilities
as an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which a Fund has written expires on its stipulated expiration date, the Fund
reports a realized gain. If a Fund enters into a closing purchase transaction
with respect to an option which the Fund has written, the Fund realizes a gain
(or loss if the cost of the closing transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is extinguished.
Any such gain or loss is a short-term capital gain or loss for federal income
tax purposes. If a call option which a Fund has written is exercised, the Fund
realizes a capital gain or loss (long-term or short-term, depending on the
holding period of the underlying security) from the sale of the underlying
security and the proceeds from such sale are increased by the premium originally
received.
Other Tax Requirements--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, 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.
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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
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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.
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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.
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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.
-27-
<PAGE>
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.
Average Annual Total Return
Decatur Equity Income Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Class B Class B Class C Class C
(At Offer) (At NAV) Institutional (Including (Excluding (Including (Excluding
(1)(2) (2) Class CDSC) CDSC) CDSC) CDSC)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
11/30/98 5.58% 12.03% 12.28% 6.39% 11.14% 10.19% 11.14%
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended
11/30/98 17.93% 20.28% 20.49% 18.58% 19.28% 19.30% 19.30%
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended
11/30/98 16.40% 17.78% 17.96% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
10 years ended
11/30/98 13.18% 13.86% 13.94% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
15 years ended
11/30/98 13.96% 14.41% 14.47% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Life of
Fund(3) 12.44% 12.60% 12.62% 18.71% 18.98% 19.23% 19.23%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
-28-
<PAGE>
Average Annual Total Return
Growth and Income Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Institutional Class B Class B Class C Class C
(At Offer) (At NAV) Class (Including (Excluding (Including (Excluding
(1) CDSC) CDSC) CDSC) CDSC)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
11/30/98 6.24% 12.70% 13.07% 6.95% 11.92% 11.01% 12.00%
- ------------------------------------------------------------------------------------------------------------------------------------
3 years ended
11/30/98 18.47% 20.83% 21.17% 19.28% 19.98% 20.02% 20.02%
- ------------------------------------------------------------------------------------------------------------------------------------
5 years ended
11/30/98 17.48% 18.88% 19.22% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
10 years ended
11/30/98 14.43% 15.11% 15.29% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Life of
Fund(2) 13.87% 14.42% 14.56% 20.03% 20.29% 19.98% 19.98%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
-29-
<PAGE>
Average Annual Total Return
Blue Chip Fund (1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Institutional Class B Class B Class C Class C
(At Offer) (At NAV) Class (Including (Excluding (Including (Excluding
(2) CDSC) CDSC) CDSC) CDSC)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
11/30/98 5.52% 11.94% 12.31% 6.14% 11.14% 10.14% 11.14%
- ------------------------------------------------------------------------------------------------------------------------------------
Life of
Fund(3) 12.04% 15.86% 16.21% 13.01% 15.06% 15.06% 15.06%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
-30-
<PAGE>
Average Annual Total Return
Social Awareness Fund(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A Institutional Class B Class B Class C Class C
(At Offer) (At NAV) Class (Including (Excluding (Including (Excluding
(2)(3) (3) CDSC) CDSC) CDSC) CDSC)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
11/30/98 3.23% 9.52% 9.70% 3.60% 8.60% 7.60% 8.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Life of 13.68% 17.56% 17.80% 14.65% 16.68% 16.68% 16.68%
Fund(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
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.
-31-
<PAGE>
The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:
a--b 6
YIELD = 2[(------ + 1) - 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends;
d = the maximum offering price per share on the last
day of the period.
The above formula will be used in calculating quotations of yield of
each Class, based on specified 30- day periods identified in advertising by the
Funds. The 30-day yields of each Class of each Fund listed below as of November
30, 1998 were as follows:
<TABLE>
<CAPTION>
Decatur Decatur Total Blue Chip Social Awareness Diversified
Income Fund Return Fund Fund Fund Value Fund
----------- ----------- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Class A Shares 2.60% 1.42% 0.39% 0.12% 1.51%
Class B Shares 2.04% 0.82% 0.09% (0.08%) N/A
Class C Shares 2.02% 0.82% (0.59%) (0.87%) N/A
Institutional Class shares 3.01% 1.79% (0.59%) (0.87%) 1.60%
</TABLE>
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.
-32-
<PAGE>
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
-33-
<PAGE>
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.
-34-
<PAGE>
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.
-35-
<PAGE>
Cumulative Total Return
Decatur Equity Income Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Class A Institutional Class B Class B Class C Class C
(At Offer) Class (Including (Excluding (Including (Excluding
(1)(2) CDSC) CDSC) CDSC) CDSC)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 months ended
11/30/98 8.17% 14.79% 9.49% 14.49% 13.54% 14.54%
- -----------------------------------------------------------------------------------------------------------------------
6 months ended
11/30/98 (6.24%)(3) (.40%) (5.82%) (0.90%) (1.88%) (0.89%)
- -----------------------------------------------------------------------------------------------------------------------
9 months ended
11/30.98 (3.48%) 2.58% (3.21%) 1.79% .82% 1.82%
- -----------------------------------------------------------------------------------------------------------------------
1 year ended
11/30/98 5.58% 12.25% 6.39% 11.14% 10.19% 11.14%
- -----------------------------------------------------------------------------------------------------------------------
3 years ended
11/30/98 64.03% 74.93% 66.72% 69.72% 69.80% 69.80%
- -----------------------------------------------------------------------------------------------------------------------
5 years ended
11/30/98 113.67% 128.37% N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
10 years ended
11/30/98 245.02% 268.81% N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
15 years ended
11/30/98 609.87% 658.83% N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
Life of
Fund(4) 13,199.65% 14,119.87% 106.75% 108.75% 69.67% 69.67%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 (0.51%).
(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.
-36-
<PAGE>
Cumulative Total Return
Growth and Income Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Class A Institutional Class B Class B Class C Class C
(At Offer) Class (Including (Excluding (Including (Excluding
(1) CDSC) CDSC) CDSC) CDSC)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 months ended
11/30/98 10.33% 17.15% 11.84% 16.84% 15.87% 16.87%
- -----------------------------------------------------------------------------------------------------------------------
6 months ended
11/30/98 (6.16%)(2) (0.30%) (5.74%) (0.79%) (1.73%) (0.74%)
- -----------------------------------------------------------------------------------------------------------------------
9 months ended
11/30.98 (3.43%) 2.70% (3.09%) 1.91% 0.97% 1.97%
- -----------------------------------------------------------------------------------------------------------------------
1 year ended
11/30/98 6.24% 13.07% 6.95% 11.92% 11.01% 12.00%
- -----------------------------------------------------------------------------------------------------------------------
3 years ended
11/30/98 66.28% 77.93% 69.73% 72.73% 72.87% 72.87%
- -----------------------------------------------------------------------------------------------------------------------
5 years ended
11/30/98 123.78% 140.89% N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
10 years ended
11/30/98 284.88% 314.84% N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
Life of
Fund(3) 391.52% 429.67% 116.67% 118.67% 72.87% 72.87%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 (0.43%).
(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.
-37-
<PAGE>
Cumulative Total Return
Blue Chip Fund (1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class A Institutional Class B Class B Class C Class C
(At Offer) Class (Including (Excluding (Including (Excluding
(2) CDSC) CDSC) CDSC) CDSC)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 months ended
11/30/98 11.26% 18.15% 12.88% 17.88% 16.75% 17.75%
- ----------------------------------------------------------------------------------------------------------------------
6 months ended
11/30/98 (5.43%)(3) 0.55% (5.00%) 0.00% (1.00%) 0.00%
- ----------------------------------------------------------------------------------------------------------------------
9 months ended
11/30/98 (2.92%) 3.29% (2.55%) 2.45% 1.45% 2.45%
- ----------------------------------------------------------------------------------------------------------------------
1 year ended
11/30/98 5.52% 12.31% 6.14% 11.14% 10.14% 11.14%
- ----------------------------------------------------------------------------------------------------------------------
Life of
Fund(4) 22.24% 30.41% 24.13% 28.13% 28.13% 28.13%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 (0.37%).
(4) Each Class commenced operations on February 24, 1997.
-38-
<PAGE>
Cumulative Total Return
Social Awareness Fund (1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class A Institutional Class B Class B Class C Class C
(At Offer) Class (Including (Excluding (Including (Excluding
(2)(3) CDSC) CDSC) CDSC) CDSC)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 months ended
11/30/98 8.05% 14.59% 9.40% 14.40% 13.40% 14.40%
- ----------------------------------------------------------------------------------------------------------------------
6 months ended
11/30/98 (9.04%)(4) (3.50%) (8.77%) (3.97%) (4.93%) (3.97%)
- ----------------------------------------------------------------------------------------------------------------------
9 months ended
11/30/98 (6.63%) (0.88%) (6.43%) (1.51%) (2.49%) (1.51%)
- ----------------------------------------------------------------------------------------------------------------------
1 year ended
11/30/98 3.23% 9.70% 3.60% 8.60% 7.60% 8.60%
- ----------------------------------------------------------------------------------------------------------------------
Life of
Fund(5) 25.45% 33.57% 27.34% 31.34% 31.34% 31.34%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 (3.50%).
(5) Each Class commenced operations on February 27, 1997.
Cumulative Total Return
Diversified Value Fund (1)
- ----------------------------------------------------------------
Class A Institutional
(At Offer)(2)(3) Class
- ----------------------------------------------------------------
Life of Fund(4) 5.77% 12.24%
- ----------------------------------------------------------------
(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 15, 1998.
-39-
<PAGE>
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)
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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 $4,579,028, 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 $2,533,774, 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 $10,866,
respectively. During the same periods, the aggregate dollar amounts of brokerage
commissions paid by Social Awareness Fund were $14,989 and $79,518,
respectively. For the period September 15, 1998 (commencement of operations)
through November 30, 1998, the aggregate dollar amount of brokerage commissions
paid by Diversified Value Fund was $5,090, respectively.
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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, Social
Awareness Fund and Diversified Value Fund in the amounts of $1,418,099,898,
$768,976,283, $8,671,912, $51,628,451 and $28,175 respectively, resulting in
brokerage commissions of $1,502,628, $837,156, $1,918, $15,184 and $1,691,
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.
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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.
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Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish a
Fund's objective in relation to anticipated movements in the general level of
interest rates. The Funds are free to dispose of portfolio securities at any
time, subject to complying with the Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Funds will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving a Fund's
investment objective.
The degree of portfolio activity may affect brokerage costs of a Fund
and taxes payable by a Fund's shareholders to the extent of any net realized
capital gains. Each Fund's portfolio turnover rate is not expected to exceed
100%; however, under certain market conditions a Fund may experience a rate of
portfolio turnover which could exceed 100%. Each Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly average of the value of
the portfolio securities owned by such Fund during the particular fiscal year,
exclusive of securities whose maturities at the time of acquisition are one year
or less. A turnover rate of 100% would occur, for example, if all the
investments in a Fund's portfolio at the beginning of the year were replaced by
the end of the year.
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For the past two fiscal years, portfolio turnover rates were as
follows:
- -----------------------------------------------------------
1998 1997
- -----------------------------------------------------------
Decatur Equity Income Fund 94% 90%
- -----------------------------------------------------------
Growth and Income Fund 87% 69%
- -----------------------------------------------------------
Blue Chip Fund(1) 27% 25%(3)
- -----------------------------------------------------------
Social Awareness Fund(1) 22% 29%(3)
- -----------------------------------------------------------
Diversified Value Fund(2) 74% (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 15, 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.
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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.
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Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the
minimum initial investment may be subject to involuntary redemption without the
imposition of a CDSC or Limited CDSC if he or she redeems any portion of his or
her account.
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.
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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.
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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.
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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.
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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.
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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.
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<PAGE>
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.
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 Distributor has elected
volunatarily to waive its right to receive 12b-1 Plan Expenses with respect to
Class A Shares of Social Awareness Fund to the extent necessary to ensure 12b-1
Plan Expenses for such Class do not exceed 0.25% of average daily net assets for
the period February 1, 1998 through July 31, 1999. 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 Diversified Value 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.
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<PAGE>
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 $4,086,243, $1,489,863 and $203,247,
respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
Decatur Equity Decatur Equity Decatur Equity
Income Income Income
Fund A Class Fund B Class Fund C Class
------------ ------------ ------------
<S> <C> <C> <C>
Advertising $177,365 ---- ----
Annual/Semi-Annual Reports $157,301 ---- ----
Broker Trails $3,108,284 $372,034 $85,936
Broker Sales Charges ---- $666,097 $75,782
Dealer Service Expenses $14,403 ---- ----
Interest on Broker Sales Charges ---- $376,355 3,672
Commissions to Wholesalers $285,852 $69,658 $29,404
Promotional-Broker Meetings $14,083 $3,122 $1,390
Promotional-Other $156,449 ---- ----
Prospectus Printing $125,564 ---- ----
Telephone ---- ---- $137
Wholesaler Expenses $46,942 $2,597 $6,926
Other ---- ---- ----
</TABLE>
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<PAGE>
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 $2,874,699, $2,475,411 and $387,264, respectively. Such
amounts were used for the following purposes:
<TABLE>
<CAPTION>
Growth and Income Growth and Income Growth and Income
Fund A Class Fund B Class Fund C Class
------------ ------------ ------------
<S> <C> <C> <C>
Advertising $101,772 ---- ----
Annual/Semi-Annual Reports $69,135 ---- ----
Broker Trails $2,334,073 $428,969 $133,734
Broker Sales Charges ---- $788,014 $152,875
Dealer Service Expenses ---- ---- ----
Interest on Broker Sales Charges ---- $466,662 $9,292
Commissions to Wholesalers $188,785 $785,738 $60,346
Promotional-Broker Meetings $9,976 $1,700 $2,594
Promotional-Other $106,435 ---- ----
Prospectus Printing $63,213 ---- ----
Telephone ---- ---- ----
Wholesaler Expenses $1,310 $4,328 $28,423
Other ---- ---- ----
</TABLE>
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<PAGE>
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
$12,815, $30,721 and $5,661, respectively. Such amounts were used for the
following purposes:
<TABLE>
<CAPTION>
Blue Chip Blue Chip Blue Chip
Fund A Class Fund B Class Fund C Class
------------ ----------- ------------
<S> <C> <C> <C>
Advertising $182 ---- ----
Annual/Semi-Annual Reports $331 ---- ----
Broker Trails $9,663 $6,443 $643
Broker Sales Charges ---- $14,207 $3,003
Dealer Service Expenses ---- ---- $9
Interest on Broker Sales Charges ---- $8,606 $262
Commissions to Wholesalers $2,104 $1,458 $1,521
Promotional-Broker Meetings $103 $7 ----
Promotional-Other $83 ---- ----
Prospectus Printing $349 ---- ----
Telephone ---- ---- ----
Wholesaler Expenses $0 ---- $223
Other ---- ---- ----
</TABLE>
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 $59,782, $188,259 and $36,037, respectively. Such amounts
were used for the following purposes:
<TABLE>
<CAPTION>
Social Awareness Social Awareness Social Awareness
Fund A Class Fund B Class Fund C Class
------------ ------------ ------------
<S> <C> <C> <C>
Advertising $154 ---- ----
Annual/Semi-Annual Reports $64 ---- ----
Broker Trails $51,131 $40,322 $5,410
Broker Sales Charges ---- $70,316 $15,812
Dealer Service Expenses ---- ---- ----
Interest on Broker Sales Charges ---- $60,108 $2,119
Commissions to Wholesalers $7,367 $16,649 $11,278
Promotional-Broker Meetings $170 $575 $133
Promotional-Other $681 ---- ----
Prospectus Printing $215 $289 $1,285
Telephone ---- ---- ----
Wholesaler Expenses ---- ---- ----
Other ---- ---- ----
</TABLE>
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund, its agent or certain other authorized persons.
See Distribution and Service under Investment Management Agreements and
Sub-Advisory Agreements. Orders for purchases of Class B Shares, Class C Shares
and Institutional Class shares are effected at the net asset value per share
next calculated by the Fund in which shares are being purchased after receipt of
the order by the Fund, its agent or certain other authorized persons. Selling
dealers are responsible for transmitting orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for 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.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, tax-advantaged funds, bond
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund and all exchanges of shares constitute taxable events. 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.
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Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order 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 during the second year
following 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
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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.
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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.
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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.
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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.
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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.
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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.
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Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the 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.
-81-
<PAGE>
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.
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<PAGE>
A portion of a Funds' dividends may qualify for the dividends-received
deduction for corporations provided in the federal income tax law. The portion
of dividends paid by a Fund that so qualifies will be designated each year in a
notice mailed to Fund shareholders, and cannot exceed the gross amount of
dividends received by such Fund from domestic (U.S.) corporations that would
have qualified for the dividends-received deduction in the hands of the Fund if
the Fund was a regular corporation. The availability of the dividends-received
deduction is subject to certain holding period and debt financing restrictions
imposed under the Code on the corporation claiming the deduction. 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.
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<PAGE>
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 $44 billion in assets in
the various institutional or separately managed (approximately $25,968,120,000)
and investment company (approximately $18,438,870,000) 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 15, 1998 and
was approved by shareholders on September 15, 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.
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<PAGE>
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 that Fund do not exceed 1.25% (exclusive of taxes,
interest, brokerage commissions, extraordinary expenses and applicable 12b-1
expenses) from the period February 1, 1999 through July 31, 1999. Previously,
the Manager had 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 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 January 31,
1999.
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.
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<PAGE>
The Sub-Adviser, 630 Fifth Avenue, New York, New York, 10111, is an
indirect, wholly-owned subsidiary of Lincoln National and an affiliate of the
Manager. Founded in 1979, it provides investment advice to pension plans,
endowments, insurance and commingled products and has assets under management,
as of November 30, 1998, in excess of $8.8 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
$3,887,227,117, broken down as follows:
Decatur Equity Income Fund $2,405,487,296
Growth and Income Fund $1,386,289,595
Blue Chip Fund $15,114,270
Social Awareness Fund $78,092,129
Diversified Value Fund $2,243,827
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<PAGE>
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 $11,709,268 $11,709,268 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 $7,389,923 $7,389,923 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 $65,355 $12,163 $53,192
2/24/97(1)-11/30/97 $18,283 $-0- $18,283
Social Awareness Fund
12/1/97-11/30/98 $345,435 $315,561 $29,874
2/24/97(1)-11/30/97 $ 53,306 $ 13,785 $39,521
Diversified Value Fund
9/15/98(1)-11/30/98 $ 2,794 $ 693 $ 2,101
</TABLE>
(1) Commencement of operations.
For the fiscal year ended November 30, 1998, the Sub-Advisor received fees of
$16,882 with respect to Blue Chip Fund and $96,165 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.
-87-
<PAGE>
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 15, 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.
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<PAGE>
OFFICERS AND DIRECTORS
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors.
Certain officers and directors of Equity Funds II, Inc. hold identical
positions in each of the other funds in the Delaware 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 of record 5% or more of the outstanding shares of a Class. Management does
not have knowledge of beneficial owners.
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Decatur Equity Merrill Lynch, Pierce, Fenner & Smith 1,079,560.180 11.49%
Income Fund B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246
Decatur Equity Merrill Lynch, Pierce, Fenner & Smith 354,278.680 28.00%
Income Fund C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246
Decatur Equity Income Fund The Northern Trust Co. 3,998,626.250 30.10%
Institutional Class Cust. J Paul Getty Trust
401 Wilshire Blvd. Suite 1000
Santa Monica, CA 90401
RS 401(k) Plan 3,788,771.320 28.52%
Price Waterhouse Coopers LLP
Savings Plan
Attn: Riggs Griffith
P.O. Box 30004
Tampa, FL 33630-3004
RS 401(k) Plan 1,958,222.400 14.74%
Day & Zimmerman Start
Attn: Sandy Geist
1818 Market Street
Philadelphia, PA 19103-3638
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Decatur Equity Income Fund Grace S&W Linton Nelson 1,383,207.360 10.41%
Institutional Class Foundation Incorporated 7/5/84
c/o Fred C. Aldridge Jr.
940 W. Valley Rd. Suite 1601
Wayne, PA 19087-1853
Growth and Income Fund Merrill Lynch, Pierce, Fenner & Smith 1,328,758.320 10.13%
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246
Growth and Income Fund Merrill Lynch, Pierce, Fenner & Smith 492,935.250 16.80%
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246
Growth and Income Fund Federated Life Insurance Company 2,042,581.320 30.56%
Institutional Class Separate Account A
Attn: Tom Koch
P.O. Box 328
Owatonna, MN 55060-0328
First Trust NA 1,912,387.060 28.61%
Trust Northern States Power
Employee Retirement Savings Plan
Mutual Funds A/C 21736111
P.O. Box 64482
St. Paul, MN 55164-0482
Lincoln National Life Insurance Co. 1,790,039.890 26.78%
Attn: Karen Gerke
1300 S. Clinton Street
Fort Wayne, IN 46802-3518
Blue Chip Fund James Roy Fitzpatrick and 95,128.080 13.21%
A Class Janice C. Fitzpatrick Jt Wros
6295 Whitmar Pl. Apt. S
Memphis, TN 38120-4212
Blue Chip Fund Merrill Lynch, Pierce, Fenner & Smith 40,274.150 6.99%
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
</TABLE>
-90-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Blue Chip Fund Merrill Lynch, Pierce, Fenner & Smith 14,427.860 11.96%
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
Blue Chip Fund RS DMTC 401(k) Plan 75,202.450 78.50%
Institutional Class Aero Corporation 401(k) Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3682
RS DMC Employee Profit Sharing Plan 19,588.770 20.44%
Delaware Fund Employee Profit
Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3682
Social Awareness Fund Reliance Trust Company 293,852.360 8.43%
A Class Cust. FBO Sisters of Mercy NC
P.O. Box 48449
Atlanta, GA 30362-1449
Social Awareness Fund Merrill Lynch, Pierce, Fenner & Smith 57,621.200 7.34%
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
Advest Inc. 55,140.190 7.02%
320-12643-18
90 State House Square
Hartford, CT 06103-3702
Social Awareness Fund RS DMC Employee Profit Sharing Plan 33,102.300 97.89%
Institutional Class Delaware Management Co.
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3682
</TABLE>
-91-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Diversified Value Fund Delaware Management Business Trust DIA 1.010 100%
A Class Attn: Joseph H. Hastings
1818 Market Street 16th Floor
Philadelphia, PA 19103-3691
Diversified Value Fund Lincoln National Life Insurance Co. 237,387.230 100%
Institutional Class 1300 S. Clinton Street
Fort Wayne, IN 46802-3518
</TABLE>
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<PAGE>
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.
*Jeffrey J. Nick (45)
Chairman of the Board, President, Chief Executive Officer and Director
and/or Trustee of the Registrant and each of the other
investment companies in the Delaware Investments family,
Delaware Management Business Trust, Delvoy, Inc., DMH Corp.
and Founders Holdings, Inc.
Chairman of the Board, Chief Executive Officer and Director of Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware International Holdings Ltd., Delaware International
Advisers Ltd.
Chairman of the Board and Chief Executive Officer of Delaware
Management Company (a series of Delaware Management Business
Trust)
Chairman of the Board and Director of Delaware Capital Management,
Inc.; Chairman of Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware Distributors,
L.P.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc.
President and Chief Executive Officer of Delaware Management Holdings,
Inc.; Director of Delaware Service Company, Inc. and
Retirement Financial Services, Inc.
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.
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<PAGE>
*Wayne A. Stork (61)
Director and/or Trustee of Equity Funds II, Inc. and each of the other
investment companies in the Delaware Investments family.
Chairman and Director of Delaware Management Holdings, Inc.
Prior to January 1, 1999, Mr. Stork was 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.
In addition, prior to January 1, 1999, Mr. Stork has served in
various executive capacities at different times within the
Delaware organization.
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.
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<PAGE>
Paul E. Suckow (51)
ExecutiveVice 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.
- ----------------------
* Director affiliated with Equity Fund II, Inc.'s investment manager and
considered an "interested person" as defined in the 1940 Act.
-95-
<PAGE>
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 (61)
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 (61)
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.
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<PAGE>
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 (73)
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), Delaware Management
Holdings, Inc., DMH Corp., Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Service Company, Inc.,
Retirement Financial Services, Inc., Delaware Capital
Management, Inc., Delvoy, Inc. and Delaware Management
Business Trust
Senior Vice President, Secretary and Director of Founders Holdings,
Inc.
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.
-97-
<PAGE>
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 (53)
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.
-98-
<PAGE>
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
Name Equity Funds II, Inc. Expenses Retirement(1) Investments(2)
- ---- --------------------- --------- ------------- --------------
<S> <C> <C> <C>
W. Thacher Longstreth $8,860 None $38,500 $60,423
Ann R. Leven $10,138 None $38,500 $66,585
Walter P. Babich $9,925 None $38,500 $65,424
Anthony D. Knerr $9,925 None $38,500 $65,424
Charles E. Peck $8,860 None $38,500 $60,423
Thomas F. Madison $9,393 None $38,500 $62,924
John H. Durham (3) $5,975 None $31,000 $30,394
</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.
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<PAGE>
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.
-100-
<PAGE>
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 $2,260,967 $1,880,809 $380,158
11/30/97 2,632,798 2,164,821 467,977
11/30/96 2,178,120 1,814,559 363,561
-101-
<PAGE>
Growth and Income Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP
----- ---------- ---------- -------
11/30/98 $2,881,036 $2,398,246 $482,790
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 $118,681 $98,864 $19,817
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 $759,935 $634,359 $125,576
11/30/97* 258,024 224,473 33,551
*Commenced operations on February 24, 1997.
Diversified Value Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to DDLP
----- ---------- ---------- -------
11/30/98* $0 $0 $0
*Commenced operations on September 15, 1998.
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<PAGE>
The Distributor received Limited CDSC payments with respect to Class A
Shares of each Fund as follows:
Limited CDSC Payments
<TABLE>
<CAPTION>
Decatur Growth
Fiscal Equity Income and Income Blue Chip Social Awareness Diversified
Year Ended Fund A Class Fund A Class Fund A Class* Fund A Class* Value Fund A Class**
- ---------- ------------ ------------ ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
11/30/98 $0 $1,095 $0 $260 $0
11/30/97 -0- 2,399 -0- -0- N/A
11/30/96 3,249 -0- N/A N/A N/A
</TABLE>
*Commenced operations on February 24, 1997.
**Commenced operations on September 15, 1998.
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<PAGE>
The Distributor received CDSC payments with respect to Class B Shares
of each Fund as follows:
CDSC Payments
<TABLE>
<CAPTION>
Decatur Growth
Fiscal Equity Income and Income Blue Chip Social Awareness Diversified Value
Year Ended Fund B Class Fund B Class Fund B Class* Fund B Class* Fund B Class**
- ---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
11/30/98 $321,946 $311,926 $5,052 $31,703 $0
11/30/97 150,241 171,099 757 2,387 N/A
11/30/96 60,751 45,044 N/A N/A N/A
</TABLE>
*Commenced operations on February 24, 1997.
**Commenced operations on September 15, 1998.
The Distributor received CDSC payments with respect to Class C Shares
of each Fund as follows:
CDSC Payments
<TABLE>
<CAPTION>
Decatur Growth
Fiscal Equtiy Income and Income Blue Chip Social Awareness Diversified Value
Year Ended Fund C Class Fund C Class Fund C Class* Fund C Class* Fund C Class**
- ---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
11/30/98 $4,581 $12,445 $161 $1,382 $0
11/30/97 3,768 5,019 -0- 10 N/A
11/30/96 1,439 1,584 N/A N/A N/A
</TABLE>
*Commenced operations on February 24, 1997.
**Commenced operations on September 15, 1998.
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.
-104-
<PAGE>
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.
-105-
<PAGE>
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 Equtiy Income Fund began offering
its Class B Shares, and beginning November 29, 1995, Decatur Equtiy 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.
Effective as of the close of business on January 28, 1999, the name of
Decatur Income Fund and its Classes changed to Decatur Equity Income Fund and
the name of Decatur Total Return Fund and its Classes changed to Growth and
Income 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.
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<PAGE>
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
EURO
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. The Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address these matters on the computer systems that the service providers use.
However, there can be no assurances that these steps will be sufficient to avoid
any adverse impact on the business of the Fund.
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.
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<PAGE>
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.
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<PAGE>
Tax-Free Money Fund seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while maintaining
a stable net asset value.
Tax-Free New Jersey Fund seeks a high level of current interest income
exempt from federal income tax and New Jersey state and local taxes, consistent
with preservation of capital. Tax-Free Ohio Fund seeks a high level of current
interest income exempt from federal income tax and Ohio state and local taxes,
consistent with preservation of capital. Tax-Free Pennsylvania Fund seeks a high
level of current interest income exempt from federal income tax and Pennsylvania
state and local taxes, consistent with the preservation of capital.
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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).
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<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware Group
Equity Funds II, Inc. and, in its capacity as such, audits the annual financial
statements of the Funds. Each Fund's Statement of Net Assets, Statement of
Operations, Statements 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.
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<PAGE>
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 shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. 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 this Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, 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 Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Registrant's Investment Company Act file number: 811-750
<PAGE>
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
<PAGE>
- --------------------------------------------------
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
[GRAPHIC OMITTED]
<PAGE>
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)
incorporated into this filing by reference
to Post-Effective Amendment No. 111 filed
November 25, 1998.
(7) Executed Articles of Amendment (January 12,
1999) attached as Exhibit.
(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.
<PAGE>
PART C - Other Information
(Continued)
(iii) Articles Fifth of Articles
Supplementary (March 24, 1997)
incorporated by reference to Exhibit
24(b)(1)(c) incorporated into this
filing by reference to Post-Effective
Amendment No. 108 filed August 22,
1997.
(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
Equity Income Fund (formerly named 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 Growth
and Income Fund (formerly named 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) Executed Sub-Advisory Agreement (February
__, 1997) between Delaware Management
Company, Inc. and Vantage Global Advisors,
Inc. on behalf of Blue Chip Fund attached as
Exhibit.
(6) Executed Sub-Advisory Agreement (February__,
1997) between Delaware Management Company,
Inc. and Vantage Global Advisors, Inc. on
behalf of Social Awareness Fund (formerly
Quantum Fund) attached as Exhibit.
(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.
<PAGE>
PART C - Other Information
(Continued)
(e) (1) Distribution Agreements.
(i) Forms of Distribution Agreements
(April 1995) between Delaware
Distributors, L.P. and the Registrant
on behalf of Decatur Equity Income
Fund (formerly named Decatur Income
Fund) and Growth and Income Fund
(formerly named 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 Equity
Income Fund (formerly named Decatur
Income Fund) and Growth and Income
Fund (formerly named 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.
<PAGE>
PART C - Other Information
(Continued)
(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 between The Chase
Manhattan Bank and the Registrant attached as
Exhibit.
(2) 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.
(3) 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.
(4) Form of Letter to The Chase Manhattan Bank (1998)
to add Decatur Equity Income Fund (formerly named
Decatur Income Fund) and Growth and Income Fund
(formerly named Decatur Total Return Fund) to the
Custodian Agreement attached as Exhibit.
(5) 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) Executed Amendment No. 12 to Delaware
Group of Funds Fund Accounting
Agreement attached as Exhibit.
<PAGE>
PART C - Other Information
(Continued)
(ii) Executed Amendment No. 13 to Delaware
Group of Funds Fund Accounting
Agreement attached as Exhibit.
(i) Legal Opinion. Attached as Exhibit.
(j) Consent of Auditors. Attached as Exhibit.
(k) Inapplicable.
(l) Inapplicable.
(m) Plans under Rule 12b-1.
(1) Form of Plan under Rule 12b-1 for Class A
(November 1995) for Decatur Equity Income Fund
(formerly named Decatur Income Fund) and Growth
and Income Fund (formerly named 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 Equity Income Fund
(formerly named Decatur Income Fund) and Growth
and Income Fund (formerly named Decatur Total
Return Fund) 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.
<PAGE>
PART C - Other Information
(Continued)
(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. Attached as Exhibit.
(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
<PAGE>
PART C - Other Information
(Continued)
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.
<PAGE>
PART C - Other Information
(Continued)
The following persons serving as officers of the Manager have held
the following positions during the past two years:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Jeffrey J. Nick(1) Chairman of the Board, President, Chief Executive Officer and Director and/or
Trustee of the Registrant and each of the other investment companies in the
Delaware Investments family, Delaware Management Business Trust, Delvoy,
Inc., DMH Corp. and Founders Holdings, Inc.; Chairman of the Board, Chief
Executive Officer and Director of Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware International Holdings Ltd., Delaware
International Advisers Ltd.; Chairman of the Board and Chief Executive Officer of
Delaware Management Company (a series of Delaware Management Business
Trust); Chairman of the Board and Director of Delaware Capital Management,
Inc.; Chairman of Delaware Investment Advisers (a series of Delaware
Management Business Trust) and Delaware Distributors, L.P.; President, Chief
Executive Officer and Director of Lincoln National Investment Companies, Inc.;
President and Chief Executive Officer of Delaware Management Holdings, Inc.;
Director of Delaware Service Company, Inc. and Retirement Financial Services,
Inc.
Wayne A. Stork Director of the Registrant and each of the other investment companies in the
Delaware Investments family; Chairman of the Board and Director of Delaware
Management Holdings, Inc.
Richard G. Unruh, Jr. Executive Vice President/Chief Investment Officer, Equity of Delaware
Management Company, Inc., the Registrant, each of the other investment
companies 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
Trustee of Delaware Management Business Trust; Chief Executive Officer, Chief
Investment Officer, Equity 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.
</TABLE>
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
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
investment companies 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 DMH Corp, Delaware Distributors, Inc., Founders Holdings, Inc.,
Delaware Capital Management, Inc. and Delvoy, Inc.; Executive Vice President,
Chief Financial 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
Investment Advisers (a series of Delaware Management Business Trust) and
Delaware Distributors, L.P.; Chairman, 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 and Director of Retirement Financial
Services, Inc. and Delaware Management Trust Company; President and Director
of Delaware Management Company, Inc. and Delaware Management Company (a
series of Delaware Management Business Trust); and Director of Delaware
International Advisers Ltd.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton
Place, Newtown Square, PA
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
George M. Senior Vice President, Secretary and Director/Trustee of Delaware Management
Chamberlain, Jr. 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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
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.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Joel A. Ettinger(2) 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. Mara(3) 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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
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. Conery(4) 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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
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. Beck(5) 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. Howell(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
Andrew M. McCullagh, Jr.(7) 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 Dokas(8) 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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
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. Bassett(9) 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. Heffern(10) 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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
1 MANAGING DIRECTOR, Lincoln National UK plc prior to 1996.
2 TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
3 CORPORATE CONTROLLER, IIS prior to July 1997.
4 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
5 SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997.
6 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.
7 SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset
Management LLC prior to May 1997.
8 DIRECTOR OF TRUST INVESTMENTS, Bell Atlantic Corporation prior to
February 1997.
9 VICE PRESIDENT, Morgan Stanley Asset Management prior to March 1997.
10 SENIOR VICE PRESIDENT, EQUITY RESEARCH, NatWest Securities Corporation
prior to March 1997.
<PAGE>
PART C - Other Information
(Continued)
(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.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Vantage Global Advisors, Inc. and its Principal
Business Address Affiliates and Other Positions and Offices Held
- ------------------ --------------------------------------------------------------------------
<S> <C>
T. Scott Wittman President, Chief Investment Officer and Director of Vantage Global Advisors,
Inc.
Senior Vice President of Delaware Distributors, L.P.
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
</TABLE>
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Vantage Global Advisors, Inc. and its Principal
Business Address Affiliates and Other Positions and Offices Held
- ------------------ --------------------------------------------------------------------------
<S> <C>
**Jeffrey J. Nick Director of Vantage Global Advisors, Inc.
Chairman of the Board, President, Chief Executive Officer and Director and/or
Trustee of the Registrant and 33 other investment companies in the Delaware
Investments family, Delaware Management Company, Inc., Delaware Management
Business Trust, Delvoy, Inc., DMH Corp. and Founders Holdings, Inc.; Chairman of
the Board, Chief Executive Officer and Director of Delaware Distributors, Inc.,
Delaware International Holdings Ltd., Delaware International Advisers Ltd.;
Chairman of the Board and Chief Executive Officer of Delaware Management Company
(a series of Delaware Management Business Trust); Chairman of the Board and
Director of Delaware Capital Management, Inc. and Retirement Financial Services,
Inc.; Chairman of Delaware Investment Advisers (a series of Delaware Management
Business Trust) and Delaware Distributors, L.P.; President, Chief Executive
Officer and Director of Lincoln National Investment Companies, Inc. and Delaware
Management Holdings, Inc.; Director of Delaware Service Company, Inc.
**Bruce D. Barton(1) Director of Vantage Global Advisors, Inc.
President and Chief Executive Officer of Delaware Distributors, L.P. since 1996,
1818 Market Street, Philadelphia, PA;
</TABLE>
(1) SENIOR VICE PRESIDENT AND DIRECTOR, Lincoln National Investment Companies
February 1996 to October 1996; VICE PRESIDENT, Lincoln National Corporation
May 1992 to October 1996.
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Item 27. Principal Underwriters.
<S> <C>
(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:
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
Delaware Distributors, Inc. General Partner None
Delaware Investment
Advisers Limited Partner None
Delaware Capital
Management, Inc. Limited Partner None
Jeffrey J. Nick Chairman Chairman, President, Chief
Executive Officer and
Director/Trustee
Wayne A. Stork None Director
Bruce D. Barton President and Chief Executive None
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
George M. Chamberlain, Jr. Senior Vice President/Secretary Senior Vice President/
Secretary/General Counsel
Joseph H. Hastings Senior Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Terrence P. Cunningham Senior Vice President/Financial None
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/Wholesaler None
Daniel J. Brooks Senior Vice President/Wholesaler None
Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager
Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager
T. Scott Wittman Senior Vice President None
Michael P. Bishof Senior Vice President and Treasurer/ Senior Vice
Manager, Investment Accounting President/Treasurer
Eric E. Miller Vice President/Assistant Secretary/ Vice President/Assistant
Deputy General Counsel Secretary/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/Strategic Marketing None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Diane M. Anderson Vice President/Plan Record Keeping None
and Administration
Anthony J. Scalia Vice President/Defined Contribution None
Sales, SW Territory
Courtney S. West Vice President/Defined Contribution None
Sales, NE Territory
Denise F. Guerriere Vice President/Client Services None
Gordon E. Searles Vice President/Client Services None
Lori M. Burgess Vice President/Client Services None
Julia R. Vander Els Vice President/Participant Services None
Jerome J. Alrutz Vice President/Retail Sales None
Scott Metzger Vice President/Business Development Vice President/Business
Development
Larry Carr Vice President/Sales Manager None
Stephen C. Hall Vice President/Institutional Sales None
Gregory J. McMillan Vice President/ National Accounts None
Holly W. Reimel Senior Vice President/Manager, None
National Accounts
Christopher H. Price Vice President/Manager, None
Insurance
Stephen J. DeAngelis Senior Vice President, National None
Director/Manager Account Services
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Andrew W. Whitaker Vice President/Financial Institutions None
Jesse Emery Vice President/Marketing None
Communications
Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales
Dinah J. Huntoon Vice President/Product None
Manager Equity
Soohee Lee Vice President/Fixed Income None
Product Management
Michael J. Woods Vice President/UIT Product None
Management
Ellen M. Krott Vice President/Marketing None
Dale L. Kurtz Vice President/Marketing Support None
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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
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
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia, Commonwealth of Pennsylvania on this
25th day of January, 1999.
DELAWARE GROUP EQUITY FUNDS II, INC.
By /s/Jeffrey J. Nick
---------------------
Jeffrey J. Nick
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------------- -------------------------------- ----------------
<S> <C> <C>
/s/Jeffrey J. Nick President/Chief Executive Officer/
- -------------------------------------------- Chairman of the Board and Director January 25, 1999
Executive Vice President/Chief Operating
Officer/Chief Financial Officer (Principal
Financial Officer and Principal Accounting
/s/David K. Downes Officer) January 25, 1999
- --------------------------------------------
David K. Downes
/s/Wayne A. Stork Director January 25, 1999
- --------------------------------------------
Wayne A. Stork
/s/Walter P. Babich * Director January 25, 1999
- ------------------------------------------------
Walter P. Babich
/s/John H. Durham * Director January 25, 1999
- ------------------------------------------------
John H. Durham
/s/Anthony D. Knerr * Director January 25, 1999
- ------------------------------------------------
Anthony D. Knerr
/s/Ann R. Leven * Director January 25, 1999
- ------------------------------------------------
Ann R. Leven
/s/W. Thacher Longstreth * Director January 25, 1999
- ------------------------------------------------
W. Thacher Longstreth
/s/Thomas F. Madison * Director January 25, 1999
- ------------------------------------------------
Thomas F. Madison
/s/Charles E. Peck * Director January 25, 1999
- ------------------------------------------------
Charles E. Peck
*By /s/Jeffrey J. Nick
--------------------
Jeffrey J. Nick
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.23A7 Executed Articles of Amendment (1999)
EX-99.H3I Executed Amendment No. 12 (1998) to Delaware Group of Funds Fund
Accounting Agreement
EX-99.H3II Executed Amendment No. 13 (1998) to Delaware Group of Funds Fund
Accounting Agreement
EX-99.I Legal Opinion
EX-99.J Consent of Auditors
EX-99.N Financial Data Schedules
<PAGE>
EX-99.23A7
Exhibit 23(a)(7)
DELAWARE GROUP EQUITY FUNDS II, INC.
ARTICLES OF AMENDMENT
To Whom It May Concern:
ARTICLES OF INCORPORATION
DELAWARE GROUP EQUITY FUNDS II, INC., a Maryland corporation
having its principal office in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended.
SECOND: The Articles of Incorporation of the Corporation, as
amended and supplemented, are further amended by changing the name of the
Decatur Income Fund series of shares to the Decatur Equity Income Fund series of
shares and by changing the name of each of the series' classes as follows: by
changing Decatur Income Fund A Class of shares of the series to the Decatur
Equity Income Fund A Class of shares; by changing the name of the Decatur Income
Fund B Class of shares of the series to the Decatur Equity Income Fund B Class
of shares; by changing the name of the Decatur Income Fund C Class of shares of
the series to the Decatur Equity Income Fund C Class of shares; and by changing
the name of the Decatur Income Fund Institutional Class of shares of the series
to the Decatur Equity Income Fund Institutional Class of shares; and by deleting
the old names of the series and such classes from the Articles of Incorporation,
as amended and supplemented to date, and inserting in lieu thereof, the new
names of such series and classes as changed hereby.
THIRD: The Articles of Incorporation of the Corporation, as
amended and supplemented, are further amended by changing the name of the
Decatur Total Return Fund series of shares to the Growth and Income Fund series
of shares and by changing the name of each of the series' classes as follows: by
changing Decatur Total Return Fund A Class of shares of the series to the Growth
and Income Fund A Class of shares; by changing the name of the Decatur Total
Return Fund B Class of shares of the series to the Growth and Income Fund B
Class of shares; by changing the name of the Decatur Total Return Fund C Class
of shares of the series to the Growth and Income Fund C Class of shares; and by
changing the name of the Decatur Total Return Fund Institutional Class of shares
of the series to the Growth and Income Fund Institutional Class of shares; and
by deleting the old names of the series and such classes from the Articles of
Incorporation, as amended and supplemented to date, and inserting in lieu
thereof, the new names of such series and classes as changed hereby.
FORTH: The amendments to the Articles of Incorporation of the
Corporation as set forth above have been duly approved by a majority of the
entire Board of Directors of the Corporation as required by law and are limited
to changes permitted by Section 2-605(a)(4) of the Maryland General Corporation
Law to be made without action by the stockholders of the Corporation.
FIFTH: The amendments to the Articles of Incorporation of the
Corporation as set forth above do not change the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the shares that are the
subject of the name changes.
SIXTH: These Articles of Amendment shall become effective at
the close of business on January 28, 1999.
IN WITNESS WHEREOF, DELAWARE GROUP EQUITY FUNDS II, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf by
its Senior Vice President and attested by its Assistant Secretary on this 12th
day of January, 1999.
DELAWARE GROUP EQUITY FUNDS II, INC.
By: /s/George M. Chamberlain, Jr.
----------------------------------
George M. Chamberlain, Jr.
Senior Vice President & Secretary
Attest:
/s/Michael T. Pellegrino
- ----------------------------
Michael T. Pellegrino
Assistant Secretary
<PAGE>
THE UNDERSIGNED, Senior Vice President of DELAWARE GROUP
EQUITY FUNDS II, INC., who executed on behalf of said Corporation the foregoing
Articles of Amendment, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the foregoing
Articles of Amendment to be the corporate act of said Corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
/s/George M. Chamberlain, Jr.
---------------------------------
George M. Chamberlain, Jr.
Senior Vice President & Secretary
<PAGE>
EX-99.H3I
Exhibit 23(h)(3)(i)
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.
<PAGE>
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)
<PAGE>
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)
<PAGE>
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)
<PAGE>
Dated as of September 14, 1998
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
--------------------------------------------------------------
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: /s/ Wayne A. Stork
--------------------------------------------------------------
Wayne A. Stork
Chairman
<PAGE>
EX-99.H3II
Exhibit 23(h)(3)(ii)
AMENDMENT NO. 13
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)
Mid-Cap Value Fund (New)
Small Cap Contrarian 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.
<PAGE>
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)
New Europe Fund (New)
Latin America 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 Mid-Cap Growth Equity Portfolio
(formerly 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)
<PAGE>
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)
<PAGE>
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) (liquidated November 18, 1998)
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)
<PAGE>
Dated as of December 18, 1998
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
--------------------------------------------------------------
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
<PAGE>
EX99.I
Exhibit 23(I)
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: Bruce G. Leto
--------------------------------
Bruce G. Leto
<PAGE>
EX-99.J
Exhibit 23(j)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 112 to the Registration Statement (Form N-1A) (No.
2-13017) of Delaware Group Equity Funds II, Inc. of our reports dated January 8,
1999, included in the 1998 Annual Reports to shareholders.
/s/Ernst & Young LLP
- --------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
January 25, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Decatur Income Fund
Delaware Group Equity Funds II, Inc. - Decatur Total Return Fund
We have audited the accompanying statements of net assets of Delaware Group
Equity Funds II, Inc. - Decatur Income Fund and Delaware Group Equity Funds II,
Inc. - Decatur Total Return Fund (the "Funds") as of November 30, 1998, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of November 30, 1998, by correspondence with the Funds'
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds II, Inc. - Decatur Income Fund and Delaware Group
Equity Funds II, Inc. - Decatur Total Return Fund at November 30, 1998, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and their financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
- --------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
January 8, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Blue Chip Fund
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds II, Inc. - Blue Chip Fund (the "Fund") as of November 30, 1998, and
the related statement of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of November 30, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds II, Inc. - Blue Chip Fund at November 30, 1998, the
results of its operations for the year then ended, and the changes in its net
assets and its financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
- --------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
January 8, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Social Awareness Fund
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds II, Inc. - Social Awareness Fund (the "Fund") as of November 30,
1998, and the related statement of operations for the year then ended, and the
statements of changes in net assets and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of November 30, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds II, Inc. - Social Awareness Fund at November 30,
1998, the results of its operations for the year then ended, and the changes in
its net assets and its financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
- --------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
January 8, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Diversified Value Fund
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds II, Inc. - Diversified Value Fund (the "Fund") as of November 30,
1998, and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period September 15, 1998
(commencement of operations) to November 30, 1998. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of November 30, 1998, by correspondence with the Fund's custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds II, Inc. - Diversified Value Fund at November 30,
1998, and the results of its operations, the changes in its net assets, and its
financial highlights for the period September 15, 1998 (commencement of
operations) to November 30, 1998, in conformity with generally accepted
accounting principles.
/s/Ernst & Young LLP
- --------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
January 8, 1999
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<SERIES>
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<PERIOD-END> NOV-30-1998
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<SERIES>
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<PERIOD-END> NOV-30-1998
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<SERIES>
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<PERIOD-END> NOV-30-1998
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<SERIES>
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<PERIOD-END> NOV-30-1998
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<OVERDISTRIBUTION-GAINS> 0
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<DISTRIBUTIONS-OF-INCOME> 916,994
<DISTRIBUTIONS-OF-GAINS> 15,012,718
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<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 023
<NAME> GROWTH AND INCOME FUND C CLASS
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<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
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<NAME> GROWTH AND INCOME FUND INSTITUTIONAL CLASS
<S> <C>
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<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 031
<NAME> BLUE CHIP FUND A CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 032
<NAME> BLUE CHIP FUND B CLASS
<S> <C>
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<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 033
<NAME> BLUE CHIP FUND C CLASS
<S> <C>
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<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 034
<NAME> BLUE CHIP FUND INSTITUTIONAL CLASS
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 041
<NAME> SOCIAL AWARENESS FUND A CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 042
<NAME> SOCIAL AWARENESS FUND B CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 043
<NAME> SOCIAL AWARENESS FUND C CLASS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 044
<NAME> SOCIAL AWARENESS FUND INSTITUTIONAL CLASS
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 051
<NAME> DIVERSIFIED VALUE FUND A CLASS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 052
<NAME> DIVERSIFIED VALUE FUND B CLASS
<S> <C>
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<PERIOD-END> NOV-30-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 053
<NAME> DIVERSIFIED VALUE FUND C CLASS
<S> <C>
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<PERIOD-END> NOV-30-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000027574
<NAME> DELAWARE GROUP EQUITY FUNDS II, INC.
<SERIES>
<NUMBER> 054
<NAME> DIVERSIFIED VALUE FUND INSTITUTIONAL CLASS
<S> <C>
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</TABLE>
