<PAGE>
DELAWARE(SM)
INVESTMENTS
------------
Philadelphia o London
Delaware Diversified Value Fund
Class A * Class B * Class C
Prospectus
January 31, 2000
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>
Table of contents
Fund profile page
Delaware 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 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
Other investment policies and
risk considerations page
Certain management considerations page
Financial highlights page
Glossary page
2
<PAGE>
Profile: Delaware Diversified Value Fund
What are the Fund's goals?
Delaware 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 improving
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 securities in the Fund's
portfolio. 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
pages 9 and 23.
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.
3
<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.
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------------ ---------- ----------
CLASS A B C
- ------------------------------------------------------ ------------ ---------- ----------
<S> <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.
<TABLE>
<CAPTION>
- ------------------------------------------------------ ----------- ---------- -----------
<S> <C> <C> <C>
Management fees 0.65% 0.65% 0.65%
- ------------------------------------------------------ ----------- ---------- ----------
Distribution and service (12b-1) fees(4) 0.30% 1.00% 1.00%
- ------------------------------------------------------ ----------- ---------- ----------
Other expenses 0.59% 0.59% 0.59%
- ------------------------------------------------------ ----------- ---------- ----------
Total operating expenses(5) 1.54% 2.24% 2.24%
- ------------------------------------------------------ ----------- ---------- ----------
</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.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<PAGE>
<TABLE>
<CAPTION>
- -------------- --------------- ------------ ------------------ ---------- --------------------
CLASS(7) A B B (if C C (if
redeemed) redeemed)
- -------------- --------------- ------------ ------------------ ---------- --------------------
<S> <C> <C> <C> <C> <C>
1 year $723 $227 $727 $227 $327
- -------------- --------------- ------------ ------------------ ---------- --------------------
3 years $1,033 $700 $1,000 $700 $700
- -------------- --------------- ------------ ------------------ ---------- --------------------
5 years $1,366 $1,200 $1,400 $1,200 $1,200
- -------------- --------------- ------------ ------------------ ---------- --------------------
10 years $2,304 $2,399 $2,399 $2,575 $2,575
- -------------- --------------- ------------ ------------------ ---------- --------------------
</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 redemptions made
within two years of purchase. Additional Class A purchase options that involve a
contingent deferred sales charge may be permitted from time to time and will be
disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first year after you buy them, you
will pay a contingent deferred sales charge of 5%, 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, 2000.
5
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(5) The investment manager has agreed to waive fees and pay expenses through
July 31, 2000 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. The following table shows the Fund's expenses
including the investment manager's and distributor's voluntary expense caps.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Fund operating expenses including voluntary expense caps in effect until July 31, 2000
------------------------------------------------ ------------------- -------------------- -------------------
CLASS A B C
------------------------------------------------ ------------------- -------------------- -------------------
<S> <C> <C> <C>
Management fees 0.16% 0.16% 0.16%
------------------------------------------------ ------------------- -------------------- -------------------
Distribution and service (12b-1) fees 0.00% 0.00% 0.00%
------------------------------------------------ ------------------- -------------------- -------------------
Other expenses 0.59% 0.59% 0.59%
------------------------------------------------ ------------------- -------------------- -------------------
Total operating expenses 0.75% 0.75% 0.75%
------------------------------------------------ ------------------- -------------------- -------------------
</TABLE>
(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 we show. In
addition, this example does not reflect the voluntary expense cap described in
footnotes (4) and (5).
(7) The Class B example reflects the conversion of Class B shares to Class A
shares at the end of the eighth year. Information for the ninth and tenth years
reflects expenses of the Class A shares.
6
<PAGE>
How we manage the Fund
Delaware Diversified Value Fund's investment objective--to achieve capital
appreciation with current income as a secondary objective--is non-fundamental.
This means that the Board of Trustees may change the Fund's objective without
obtaining shareholder approval. If the objective were changed, we would notify
shareholders before the change in the objective became effective. Although the
Fund will constantly strive to attain its objective, there can be no assurance
that it will be attained. 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.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
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 (improving 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 portfolio. We rely more
heavily on the initial quantitative ranking in our final selection.
The investment objective of Delaware 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 improving 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."
7
<PAGE>
The Fund may enter into futures contracts on stocks, stock indices and foreign
currencies, and purchase or sell options on such futures contracts. These
activities will not be entered into for speculative purposes, but rather for
hedging purposes and to facilitate the ability to quickly deploy into the stock
market the Fund's positions in cash, short-term debt securities and other money
market instruments, at times when the Fund's assets are not fully invested in
equity securities. Such positions will generally be eliminated when it becomes
possible to invest in securities that are appropriate for the Fund. See "Futures
Contracts and Options" under "Other Investment Policies and Risk
Considerations."
The Fund may hold cash or invest in short-term debt securities and other money
market instruments when, in the manager's opinion, such holdings are prudent
given then prevailing market conditions. The Fund may also invest in such
instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund or to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's 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."
8
<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 Delaware Diversified Value Fund. Please see the
Statement of Additional Information for further discussion of these risks and
other risks not discussed here.
<TABLE>
<CAPTION>
- --------------------------------------------------- ------------------------------------------------------------------------
Risks How we strive to manage them
Delaware Diversified Value Fund
- --------------------------------------------------- ------------------------------------------------------------------------
<S> <C> <C> <C>
Market risk is the risk that all or a majority of We maintain a long-term investment approach and focus on stocks we
the securities in a certain market -- like the believe can appreciate over an extended time frame regardless of
stock or bond market -- will decline in value interim market fluctuations. We do not try to predict overall stock
because of factors such as economic conditions, market movements and generally do not trade for short-term purposes.
future expectations or investor confidence.
We may hold a substantial portion of Delaware Diversified Value Fund's
assets in cash or securities that are considered equivalent to cash 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.
performance of that industry or for the
individual company issuing the stock or bond.
- --------------------------------------------------- ------------------------------------------------------------------------
Liquidity risk is the possibility that secuities We limit exposure to illiquid securities.
cannot be readily sold within seven days at
approximately the price that a fund has valued them.
- --------------------------------------------------- ------------------------------------------------------------------------
</TABLE>
9
<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 Fund, manages the Fund's business affairs and provides daily
administrative services. For these services, the manager was paid 0.16%, which
includes a reduction due to expense limitations.
Portfolio managers
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 consults with
William E. Dodge.
William E. Dodge, Executive Vice President/Chief Investment Officer, received
his undergraduate degree and his MBA from the University of Massachusetts. He
began his investment career in 1976 as a Portfolio Manager for AIC Incorporated,
and subsequently held investment positions with ABS Capital Management, National
Bank of Washington, and E.I. du Pont de Nemours Pension Fund. Mr. Dodge later
became Chairman of the Investment Policy Committee, Chief Investment Strategist
and Co-Chairman of the Stock Selection Committee at Dean Witter Reynolds. Prior
to joining Delaware Investments in 1999, Mr. Dodge was President, Director of
Marketing, and Senior Portfolio Manager for Marvin & Palmer Associates. He is a
CFA Charterholder, a member of the Association for Investment Management and
Research, and former President of the Financial Analysts of Wilmington.
10
<PAGE>
Who's who?
This shows the various organizations involved with managing, administering,
and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio 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
Financial advisers
</TABLE>
Shareholders
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees 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 Trustees must be independent of the fund's
investment manager and distributor. These independent fund Trustees, 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 most funds 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 NASD
Regulation, 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.
11
<PAGE>
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. 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.
12
<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 except in the limited circumstances described in the table below.
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% 6.10% 5.00%
- ---------------------------------------------------------------------------------------------------------
$50,000 but 4.75% 4.99% 4.00%
Under $100,000
- ---------------------------------------------------------------------------------------------------------
$100,000 but 3.75% 3.90% 3.00%
Under $250,000
- ---------------------------------------------------------------------------------------------------------
$250,000 but 2.50% 2.56% 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 will 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, unless a specific waiver of the charge
applies.
13
<PAGE>
<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>
$1 million up to none none 1.00%
$5 million
- --------------------------- ------------------- --------------------- -------------------------------
Next $20 million none none 0.50%
up to $25 million
- --------------------------- ------------------- --------------------- -------------------------------
Amount over $25 million none none 0.25%
- --------------------------- ------------------- --------------------- -------------------------------
</TABLE>
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.
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 of 1% 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 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>
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 Intent and Rights
agree to invest a certain amount of Accumulation do not apply to the
in Delaware Investments purchase of Class B and C shares, you can
Funds (except money market funds combine your purchase of Class A shares
with no sales charge) over a with your purchase of Class B and C
13-month period to qualify for shares to fulfill your Letter of Intent
reduced front-end sales charges. or qualify for Rights of Accumulation.
- ---------------------------- --------------------------------------- --------------- -------------------------------------------
Rights of Accumulation You can combine your holdings or X
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 redeem For Class For Class B, your Not
redeemed shares shares, you can reinvest the A, you will account will be available.
proceeds with no additional sales not have to credited with the
charge. pay an contingent deferred
additional sales charge you
front-end previously paid on
sales the amount you are
charge. reinvesting. Your
schedule for
contingent deferred
sales charges and
conversion to
Class A will not
start over again;
it will pick up
from the point
at which you
redeemed your shares.
- ---------------------------- --------------------------------------- --------------- -------------------------------------------
SIMPLE IRA, SEP IRA, These investment plans may X There is no reduction in sales charges
SARSEP, Prototype qualify for reduced sales charges for Class B or Class C shares for group
Profit Sharing, by combining the purchases of all purchases by retirement plans.
Pension, 401(k), members of the group. Members of
SIMPLE 401(k), these groups may also qualify to
403(b)(7), and 457 purchase shares without a
Retirement Plans front-end sales charge and a
waiver of any contingent deferred
sales charges.
- ---------------------------- --------------------------------------- --------------- -------------------------------------------
</TABLE>
16
<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 800.523.1918.
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service. For more information about how to sign up for this service, call our
Shareholder Service Center at 800.523.1918.
17
<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 receive your order before the close of regular
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 regular
trading, you will pay the next business day's price. A business day is any day
that the New York Stock Exchange is open for business. We reserve the right to
reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of regular
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 Trustees. 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 Trustees.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Fund may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in the Fund can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
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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 more than
$50,000, 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, a bank wire fee may 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. For more information about how to sign
up for this service, call our Shareholder Service Center at 800.523.1918.
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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
before the close of regular trading on the New York Stock Exchange (normally
4:00 p.m. Eastern Time), 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 minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs and Roth IRAs, Uniform Gift to Minors Act
accounts or accounts with automatic investing plans and $500 for Education IRAs)
for three or more consecutive months, you will have until the end of the current
calendar quarter to raise the balance to the minimum. If your account is not at
the minimum by the required time, you will be charged a $9 fee for that quarter
and each quarter after that until your account reaches the minimum balance. If
your account does not reach the minimum balance, the Fund may redeem your
account after 60 days' written notice to you.
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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 or quarterly
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 the same class of 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. Borrowing money could result in the Fund being
unable to meet its investment objectives.
Convertible, debt and non-traditional equity securities
The Fund may invest in convertible and debt securities of issuers in any
industry. A convertible security is a security which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible and debt securities
are typically senior to common stocks in a corporation's capital structure,
although convertible securities are usually subordinated to similar
nonconvertible securities. Convertible and debt securities typically provide a
fixed-income stream and the opportunity, through its conversion feature, to
participate in the capital appreciation resulting from a market price advance in
the convertible security's underlying common stock. Just as with debt
securities, convertible securities tend to increase in market value when
interest rates decline and tend to decrease in value when interest rates rise.
However, the price of a convertible security is also influenced by the market
value of the security's underlying common stock and tends to increase as the
market value of the underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines.
The Fund may invest in convertible preferred stocks that offer enhanced yield
features, such as Preferred Equity Redemption Cumulative Stock ("PERCS"), which
provide an investor with the opportunity to earn higher dividend income than is
available on a company's common stock. A PERCS is a preferred stock which
generally features a mandatory conversion date, as well as a capital
appreciation limit which is usually expressed in terms of a stated price. Upon
the conversion date, most PERCS convert into common stock of the issuer (PERCS
are generally not convertible into cash at maturity). Under a typical
arrangement, if after a predetermined number of years the issuer's common stock
is trading at a price below that set by the capital appreciation limit, each
PERCS would convert to one share of common stock. If, however, the issuer's
common stock is trading at a price above that set by the capital appreciation
limit, the holder of the PERCS would receive less than one full share of common
stock. The amount of that fractional share of common stock received by the PERCS
holder is determined by dividing the price set by the capital appreciation limit
of the PERCS by the market price of the issuer's common stock. PERCS can be
called at any time prior to maturity, and hence do not provide call protection.
However, if called early, the issuer may pay a call premium over the market
price to the investor. This call premium declines at a preset rate daily, up to
the maturity date of the PERCS.
The Fund may also invest in other enhanced convertible securities. These include
but are not limited to ACES (Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred Redeemable Increased
Dividend Equity Securities), SAILS (Stock Appreciation Income Linked
Securities), TECONS (Term Convertible Notes), QICS (Quarterly Income Cumulative
Securities) and DECS (Dividend Enhanced Convertible Securities). ACES, PEPS,
PRIDES, SAILS, TECONS, QICS and DECS all have the following features: they are
company-issued convertible preferred stock; unlike PERCS, they do not have
capital appreciation limits; they seek to provide the investor with high current
income, with some prospect of future capital appreciation; they are typically
issued with three to four-year maturities; they typically have some built-in
call protection for the first two to three years; investors have the right to
convert them into shares of common stock at a preset conversion ratio or hold
them until maturity; and upon maturity, they will automatically convert to
either cash or a specified number of shares of common stock.
Depositary receipts
The Fund may make foreign investments through the purchase and sale of sponsored
or unsponsored American, European and Global Depositary Receipts ("Depositary
Receipts"). Depositary Receipts are receipts typically issued by a U.S. or
foreign bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. "Sponsored" Depositary Receipts are issued
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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.
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, U.S. government securities or other assets in an
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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 Trustees. 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. The Fund will only enter
into repurchase agreements in which the collateral is comprised of U.S.
government securities. 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 Trustees 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 Trustees 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 Trustees, 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).
28
<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 designate cash or securities in amounts sufficient to
cover its obligations, and will value the designated assets daily. 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.
29
<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 has taken steps to obtain satisfactory assurances that
its major service providers have taken 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. The portfolio managers and
investment professionals of the Fund consider Year 2000 compliance (including,
but not limited to, any or all of the following: impact on business, cost of
compliance plan review and contingency planning, and vendor compliance) in the
securities selection and investment process. However, there can be no guarantees
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
Investments by fund of funds
The 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 the Fund
and Foundation Funds as a result of these transactions.
30
<PAGE>
Financial highlights
Financial highlights are not provided for Class B and C shares because these
classes have not commenced operations. As of November 30, 1999, 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.
31
<PAGE>
Glossary
How to use this glossary
The glossary includes definitions of investment terms used throughout the
Prospectus. If you would like to know the meaning of an investment term that is
not explained in the text please check 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 typically
is inversely related to current interest rates. Generally, 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.
Depreciation
A decline in an investment's value.
32
<PAGE>
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 invest 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).
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.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
NASD Regulation, Inc. (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,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, 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.
33
<PAGE>
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay dividends at a fixed rate
and are sometimes convertible into common stock.
Price-to-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 Composite Stock Price Index
The Standard & Poor's 500 Composite Stock Price 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.
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.
34
<PAGE>
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.
35
<PAGE>
Delaware 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 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.delawareinvestments.com
- ---------------------------
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
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 Service
800.362.FUND (800.362.3863)
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.
Registrant's Investment Company Act file number: 811-750
- ---------------------------------------------------------- ------------
Fund Symbols CUSIP
- ---------------------------------------------------------- ------------
Delaware Diversified Value Fund A Class 24610C881
- ---------------------------------------------------------- ------------
DELAWARE
INVESTMENTS
---------------------
Philadelphia * London
P-002 [--]PP 1/00
36
<PAGE>
DELAWARE(sm)
INVESTMENTS
---------------------
Philadelphia * London
Delaware Diversified Value Fund
Institutional Class
Prospectus
January 31, 2000
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>
Table of contents
Fund profile page
Delaware 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 managers
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 page
Financial highlights page
Glossary page
2
<PAGE>
Profile: Delaware Diversified Value Fund
What are the Fund's goals?
Delaware 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 securities in the Fund's
portfolio. 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
companies or industries. For a more complete discussion of risk, please turn
to pages 8 and 16.
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.
3
<PAGE>
How has Delaware Diversified Value Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how returns for the Fund's Institutional Class shares have varied
over the past calendar year, as well as the average annual returns of these
shares for one-year and lifetime periods. 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.
[bar chart]
Year-by-year total return (Institutional Class)
- ----------------
1999
- ----------------
- ----------------
10.30%
- ----------------
During the periods illustrated in this bar chart, the Institutional Class'
highest return was 12.03% for the quarter ended June 30, 1999 and its lowest
return was -9.12% for the quarter ended September 30, 1999.
How has Delaware Diversified Value Fund performed? (continued)
Average annual returns for periods ending 12/31/99
---------------------------------------------------------------------------
Institutional Class S&P 500 Composite Stock Price
Inception 9/15/98 Index
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1 year 10.30% 21.03%
---------------------------------------------------------------------------
Lifetime 20.78% 35.94%
---------------------------------------------------------------------------
The Fund's returns above are compared to the performance of the S&P 500
Composite Stock Price 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 the securities.
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 none 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.
------------------------------------------------------------------
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
---------------------------
5 years $ 681
---------------------------
10 years $1,500
---------------------------
(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, 2000 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. The following table shows
the Fund's expenses including the investment managers's voluntary expense
caps.
-----------------------------------------------------------------------
Fund operating expenses including voluntary expense caps in effect
until July 31, 2000
----------------------------------------------------------------------
Management fees 0.16%
----------------------------------------------------------------------
Distribution and service (12b-1) fees none
----------------------------------------------------------------------
Other expenses 0.59%
----------------------------------------------------------------------
Total operating expenses 0.75%
----------------------------------------------------------------------
5
<PAGE>
(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).
How we manage the Fund
Delaware Diversified Value Fund's investment objective--to achieve capital
appreciation with current income as a secondary objective-is non-fundamental.
This means that the Board of Trustees may change the Fund's objective without
obtaining shareholder approval. If the objective were changed, we would notify
shareholders before the change in the objective became effective. Although the
Fund will constantly strive to attain its objective, there can be no assurance
that it will be attained. 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.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
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 (improving 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 portfolio. We rely more
heavily on the initial quantitative ranking in our final selection.
The investment objective of Delaware 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 improving 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."
6
<PAGE>
Up to 20% of the Fund's total assets may be invested directly or indirectly in
foreign securities, including investments in American, European and Global
Depositary Receipts. See "Foreign Investment Information under Other Investment
Policies and Risk Considerations."
The Fund may enter into futures contracts on stocks, stock indices and foreign
currencies, and purchase or sell options on such futures contracts. These
activities will not be entered into for speculative purposes, but rather for
hedging purposes and to facilitate the ability to quickly deploy into the stock
market the Fund's positions in cash, short-term debt securities and other money
market instruments, at times when the Fund's assets are not fully invested in
equity securities. Such positions will generally be eliminated when it becomes
possible to invest in securities that are appropriate for the Fund. See "Futures
Contracts and Options under Other Investment Policies and Risk Considerations."
The Fund may hold cash or invest in short-term debt securities and other money
market instruments when, in the manager's opinion, such holdings are prudent
given then prevailing market conditions. The Fund may also invest in such
instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund or to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's) 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."
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 Delaware Diversified Value Fund. Please see the
Statement of Additional Information for further discussion of these risks and
other risks not discussed here.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- -------------------------------------------------- -----------------------------------------------------------------------
Delaware Diversified Value Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market risk is the risk that all or a majority of We maintain a long-term investment approach and focus on stocks we
the securities in a certain market -- like the believe can appreciate over an extended time frame regardless of
stock or bond market -- will decline in value interim market fluctuations. We do not try to predict overall stock
because of factors such as economic conditions, market movements and generally do not trade for short-term purposes.
future expectations or investor confidence.
We may hold a substantial portion of Delaware Diversified Value Fund's
assets in cash or securities that are considered equivalent to
cash 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.
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 within seven days at
approximately the price that a 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 Fund, manages the Fund's business affairs and provides daily
administrative services. For these services, the manager was paid 0.16%, which
includes a reduction due to expense limitations.
Portfolio managers
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 consults with
William E. Dodge.
William E. Dodge, Executive Vice President/Chief Investment Officer, received
his undergraduate degree and his MBA from the University of Massachusetts. He
began his investment career in 1976 as a Portfolio Manager for AIC Incorporated,
and subsequently held investment positions with ABS Capital Management, National
Bank of Washington, and E.I. du Pont de Nemours Pension Fund. Mr. Dodge later
became Chairman of the Investment Policy Committee, Chief Investment Strategist
and Co-Chairman of the Stock Selection Committee at Dean Witter Reynolds. Prior
to joining Delaware Investments in 1999, Mr. Dodge was President, Director of
Marketing, and Senior Portfolio Manager for Marvin & Palmer Associates. He is a
CFA Charterholder, a member of the Association for Investment Management and
Research, and former President of the Financial Analysts of Wilmington.
9
<PAGE>
Who's who?
This shows the various organizations involved with managing, administering, and
servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
Board of Trustees
<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 9 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 Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees 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 Trustees must be independent of the fund's
investment manager and distributor. These independent fund Trustees, 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 most funds 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 NASD
Regulation, 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 trustees. 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
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;
and
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.
11
<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.
12
<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 regular
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 regular
trading, you will pay the next business day's price. A business day is any day
that the New York Stock Exchange is open for business. We reserve the right to
reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of regular
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 Trustees. 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 Trustees.
13
<PAGE>
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 more than
$50,000, 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.
<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
before the close of regular trading on the New York Stock Exchange (normally
4:00 p.m. Eastern Time), 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.
You may have to pay taxes on the proceeds from your sale of 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
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.
15
<PAGE>
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. Borrowing money could result in the Fund being
unable to meet its investment objectives.
Convertible, debt and non-traditional equity securities
The Fund may invest in convertible and debt securities of issuers in any
industry. A convertible security is a security which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible and debt securities
are typically senior to common stocks in a corporation's capital structure,
although convertible securities are usually subordinated to similar
nonconvertible securities. Convertible and debt securities typically provide a
fixed-income stream and the opportunity, through its conversion feature, to
participate in the capital appreciation resulting from a market price advance in
the convertible security's underlying common stock. Just as with debt
securities, convertible securities tend to increase in market value when
interest rates decline and tend to decrease in value when interest rates rise.
However, the price of a convertible security is also influenced by the market
value of the security's underlying common stock and tends to increase as the
market value of the underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines.
The Fund may invest in convertible preferred stocks that offer enhanced yield
features, such as Preferred Equity Redemption Cumulative Stock ("PERCS"), which
provide an investor with the opportunity to earn higher dividend income than is
available on a company's common stock. A PERCS is a preferred stock which
generally features a mandatory conversion date, as well as a capital
appreciation limit which is usually expressed in terms of a stated price. Upon
the conversion date, most PERCS convert into common stock of the issuer (PERCS
are generally not convertible into cash at maturity). Under a typical
arrangement, if after a predetermined number of years the issuer's common stock
is trading at a price below that set by the capital appreciation limit, each
PERCS would convert to one share of common stock. If, however, the issuer's
common stock is trading at a price above that set by the capital appreciation
limit, the holder of the PERCS would receive less than one full share of common
stock. The amount of that fractional share of common stock received by the PERCS
holder is determined by dividing the price set by the capital appreciation limit
of the PERCS by the market price of the issuer's common stock. PERCS can be
called at any time prior to maturity, and hence do not provide call protection.
However, if called early, the issuer may pay a call premium over the market
price to the investor. This call premium declines at a preset rate daily, up to
the maturity date of the PERCS.
The Fund may also invest in other enhanced convertible securities. These include
but are not limited to ACES (Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred Redeemable Increased
Dividend Equity Securities), SAILS (Stock Appreciation Income Linked
Securities), TECONS (Term Convertible Notes), QICS (Quarterly Income Cumulative
Securities) and DECS (Dividend Enhanced Convertible Securities). ACES, PEPS,
PRIDES, SAILS, TECONS, QICS and DECS all have the following features: they are
company-issued convertible preferred stock; unlike PERCS, they do not have
capital appreciation limits; they seek to provide the investor with high current
income, with some prospect of future capital appreciation; they are typically
issued with three to four-year maturities; they typically have some built-in
call protection for the first two to three years; investors have the right to
convert them into shares of common stock at a preset conversion ratio or hold
them until maturity; and upon maturity, they will automatically convert to
either cash or a specified number of shares of common stock.
Depositary receipts
The Fund may make foreign investments through the purchase and sale of sponsored
or unsponsored American, European and Global Depositary Receipts ("Depositary
Receipts"). Depositary Receipts are receipts typically issued by a U.S. or
foreign bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. "Sponsored" Depositary Receipts are issued
jointly by the issuer of the underlying security and a depository, whereas
16
<PAGE>
"unsponsored" Depositary Receipts are issued without participation of the issuer
of the deposited security. Holders of unsponsored Depositary Receipts generally
bear all the costs of such facilities and the depository of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts with respect to the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored Depositary Receipt. Investments in Depositary Receipts involve risks
similar to those accompanying direct investments in foreign securities.
Foreign securities
The Fund may invest up to 20% of its total assets in foreign securities (which
include American, European and Global Depositary Receipts). Foreign markets may
be more volatile than U.S. markets. Such investments involve sovereign risk in
addition to the normal risks associated with securities of U.S. issuers. These
risks include political risks, foreign taxes and exchange controls and currency
fluctuations. For example, foreign portfolio investments may fluctuate in value
due to changes in currency rates (i.e., other things being equal, the value of
foreign investments would increase with a fall in the value of the dollar, and
decrease with a rise in the value of the dollar) and control regulations apart
from market fluctuations. The Fund may also experience delays in foreign
securities settlement.
Futures contracts
A futures contract is a bilateral agreement providing for the purchase and sale
of a specified type and amount of a financial instrument, or for the making and
acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a futures contract provides for a specified settlement date
on which the securities, foreign currency or other financial instrument
underlying the contract are delivered, or in the case of securities index
futures contracts, the difference between the price at which the contract was
entered into and the contract's closing value is settled between the purchaser
and seller in cash. Futures contracts differ from options in that they are
bilateral agreements, with both the purchaser and the seller equally obligated
to complete the transaction. In addition, futures contracts call for settlement
only on the expiration date, and cannot be "exercised" at any other time during
their term.
The purchase or sale of a futures contract also differs from the purchase or
sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin" as a good faith deposit. This amount is
generally maintained in a segregated account at the custodian bank. Subsequent
payments to and from the broker, referred to as "variation margin," are made on
a daily basis as the value of the index or instrument underlying the futures
contract fluctuates, making positions in the futures contracts more or less
valuable, a process known as "marking to the market."
Purchases or sales of stock index futures contracts are used for hedging
purposes to attempt to protect the Fund's current or intended investments from
broad fluctuations in stock prices. For example, the Fund may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When the Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures contracts
will be closed out.
The Fund may purchase and sell foreign currency futures contracts for hedging
purposes to attempt to protect its current or intended investments denominated
in foreign currencies from fluctuations in currency exchange rates. Such
fluctuations could reduce the dollar value of portfolio securities denominated
in foreign currencies, or increase the cost of foreign-denominated securities to
be acquired, even if the value of such securities in the currencies in which
they are denominated remains constant. The Fund may sell futures contracts on a
foreign currency, for example, when it holds securities denominated in such
currency and it anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, the resulting adverse effect on
the value of foreign-denominated securities may be offset, in whole or in part,
by gains on the futures contracts. However, if the value of the foreign currency
increases relative to the dollar, the Fund's loss on the foreign currency
futures contract may or may not be offset by an increase in the value of the
securities because a decline in the price of the security stated in terms of the
foreign currency may be greater than the increase in value as a result of the
change in exchange rates.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
17
<PAGE>
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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<PAGE>
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.
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, U.S. government securities or other assets in an
19
<PAGE>
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 Trustees. 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. The Fund will only enter
into repurchase agreements in which the collateral is comprised of U.S.
government securities. 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 Trustees 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 Trustees 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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<PAGE>
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 Trustees, 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).
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<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 designate cash or securities in amounts sufficient to
cover its obligations, and will value the designated assets daily. 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.
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<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 has taken steps to obtain satisfactory assurances that
its major service providers have taken 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. The portfolio managers and
investment professionals of the Fund consider Year 2000 compliance (including,
but not limited to, any or all of the following: impact on business, cost of
compliance plan review and contingency planning, and vendor compliance) in the
securities selection and investment process. However, there can be no guarantees
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
Investments by fund of funds
The 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 the Fund
and Foundation Funds as a result of these transactions.
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<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
Delaware Diversified Value Fund
Period
9/15/98(1)
Year Ended Through
11/30/99 11/30/98
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $9.540 $8.500
Income from investment operations:
Net investment income (3) 0.129 0.026
Net realized and unrealized gain on investments 1.108 1.014
------- ------
Total from investment operations 1.237 1.040
------- ------
Less dividends and distributions:
Dividends from net investment income (0.037) none
Distributions from net realized gain on investments (0.050) none
------- ------
Total dividends and distributions (0.087) none
------- ------
Net asset value, end of period $10.690 $9.540
======= ======
Total Return (2) 13.05% 12.24%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,143 $2,244
Ratio of expenses to average net assets 0.75% 0.75%
Ratio of expenses to average net assets prior to expense limitation 1.24% 1.24%
and expenses paid indirectly
Ratio of net investment income to average daily net assets 1.25% 1.41%
Ratio of net investment income to average daily net assets prior to
expense limitation and expenses paid indirectly 0.92%
0.76%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 111% 74%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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 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. Total return reflects expense limitations.
(3) The average shares outstanding method has been applied for per share
information.
24
<PAGE>
How to read the financial highlights
Net investment income
Net investment income includes dividend and interest income earned from a fund's
securities after its 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."
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 rate that an investor would have earned or lost on an
investment in a 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 a fund's portfolio,
less any liabilities, that are attributable to that class of a fund.
Ratio of expenses to average 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 net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
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.
25
<PAGE>
Glossary
How to use this glossary
The glossary includes definitions of investment terms used throughout the
Prospectus. If you would like to know the meaning of an investment term that is
not explained in the text please check 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. Generally, 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.
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.
26
<PAGE>
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 invest 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).
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.
NASD Regulation, Inc. (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,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, 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 pay dividends at a fixed rate
and are sometimes convertible into common stock.
Price-to-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.
27
<PAGE>
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 Composite Stock Price Index
The Standard & Poor's 500 Composite Stock Price Index; an unmanaged index of
500 widely held common stocks that is often used to represent performance of the
U.S. stock market.
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.
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.
28
<PAGE>
Delaware 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 800.510.4015. 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.delawareinvstments.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(R) service.
Registrant's Investment Company Act file number: 811-750
- --------------------------------------------------------------------------------
Fund Symbols CUSIP
- --------------------------------------------------------------------------------
Delaware Diversified Value Fund Institutional Class 24610C857
- --------------------------------------------------------------------------------
DELAWARE(sm)
INVESTMENTS
---------------------
Philadelphia * London
P-___ [--] PP 1/00
29
