<PAGE>
The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, tax-free funds, money market funds, global and
international funds and closed-end equity funds give investors the ability to
create a portfolio that fits their personal financial goals. For more
information, contact your financial adviser or call Delaware Group at 800-523-
4640, in Philadelphia call 215-988-1333.
Investment Manager
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
National Distributor
Delaware Distributors, L.P.
1818 Market Street [Photo of George Washington
Philadelphia, PA 19103 crossing the Delaware
River appears here]
Shareholder Servicing,
Dividend Disbursing
and Transfer Agent
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
Legal Counsel
Stradley, Ronon, Stevens & Young
One Commerce Square
Philadelphia, PA 19103
Independent Auditors
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
Custodian
Chemical Bank
450 West 33rd Street
New York, NY 10001
P-002/P-063/P-039/P-069[--] RRD895
Printed in the U.S.A.
Delaware
Fund
Devon
Fund
- --------
A Class
B Class
PROSPECTUS
AUGUST 29, 1995
DELAWARE
GROUP
<PAGE>
DELAWARE FUND PROSPECTUS
DEVON FUND (FORMERLY DIVIDEND GROWTH FUND) August 29, 1995
A CLASS SHARES/B CLASS SHARES
----------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance: Nationwide 800-523-4640,
Philadelphia 215-988-1333
Information on Existing Accounts: (SHAREHOLDERS ONLY) Nationwide 800-523-1918,
Philadelphia 215-988-1241
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500,
Philadelphia 215-988-1050
Delaware Group Delaware Fund, Inc. (the "Fund") is a professionally-managed
mutual fund of the series type. This Prospectus describes the shares of the
Common Stock series, which is known as and does business as the Delaware Fund
series ("Delaware Fund"), and the Devon Fund series ("Devon Fund")
(collectively, the "Series"). Delaware Fund's objective is to seek a balance of
capital appreciation, income and preservation of capital. Devon Fund's objective
is to seek current income and capital appreciation.
Delaware Fund offers the Delaware Fund A Class ("Class A Shares") and the
Delaware Fund B Class ("Class B Shares") and Devon Fund offers the Devon Fund A
Class ("Class A Shares") and the Devon Fund B Class ("Class B Shares") (such
classes, individually, a "Class" and collectively, the "Classes"). Devon Fund A
Class was formerly known as Dividend Growth Fund A Class and Devon Fund B Class
was formerly known as Dividend Growth Fund B Class.
Class A Shares may be purchased at the public offering price, which is equal
to the next determined net asset value per share, plus a front-end sales charge,
and Class B Shares may be purchased at a price equal to the next determined net
asset value per share. The Class A Shares of each Series are subject to a
maximum front-end sales charge of 5.75% and annual 12b-1 Plan expenses. The
Class B Shares of each Series are subject to a contingent deferred sales charge
("CDSC") which may be imposed on redemptions made within six years of purchase
and 12b-1 Plan expenses which are higher than those to which Class A Shares are
subject and are assessed against the Class B Shares for no longer than
approximately eight years after purchase. See Summary of Expenses, and Automatic
Conversion of Class B Shares under Buying Shares. These alternatives permit an
investor to choose the method of purchasing shares that is most beneficial given
the amount of the purchase, the length of time the investor expects to hold the
shares and other circumstances. See Buying Shares.
The minimum initial investment with respect to the Class A Shares is $250 and
with respect to the Class B Shares is $1,000. Subsequent investments must be at
least $25 with respect to the Class A Shares and $100 with respect to the Class
B Shares. Class B Shares are also subject to a maximum purchase limitation of
$250,000. The Fund will therefore reject any order for purchase of more than
$250,000 for Class B Shares. See Buying Shares.
This Prospectus relates only to the Classes and sets forth information that
you should read and consider before you invest. Please retain it for future
reference. Part B of the Fund's registration statement, dated August 29, 1995 as
it may be amended from time to time, contains additional information about the
Fund and has been filed with the Securities and Exchange Commission. Part B is
incorporated by reference into this Prospectus and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or by calling the
above numbers. Each Series' financial statements appear in its respective Annual
Report, which will accompany any response to requests for Part B.
Delaware Fund also offers the Delaware Fund Institutional Class and Devon Fund
also offers the Devon Fund Institutional Class. Those classes are available only
to certain enumerated institutions, have no front-end or contingent deferred
sales charge and are not subject to annual 12b-1 Plan expenses. A prospectus for
the Delaware Fund Institutional Class and the Devon Fund Institutional Class can
be obtained by writing to Delaware Distributors, L.P. at the above address or by
calling the above number.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Cover Page........................................ 1
Synopsis.......................................... 2
Summary of Expenses............................... 4
Financial Highlights.............................. 6
Investment Objectives and Policies
Investment Strategy............................. 10
Suitability..................................... 14
The Delaware Difference--Plans and Services....... 15
Retirement Planning............................... 16
Buying Shares..................................... 17
Redemption and Exchange........................... 24
Dividends and Distributions....................... 29
Taxes............................................. 29
Calculation of Offering Price and
Net Asset Value Per Share....................... 31
Management of the Fund............................ 31
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUND ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANKORANYCREDIT UNION,
ARENOT OBLIGATIONSOFANYBANKORANYCREDITUNION, AND INVOLVE INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUND ARE NOT
BANKORCREDIT UNION DEPOSITS.
- --------------------------------------------------------------------------------
1
<PAGE>
SYNOPSIS
Capitalization
The Fund offers the Delaware Fund series, consisting of the Delaware Fund A
Class, the Delaware Fund B Class and the Delaware Fund Institutional Class, and
the Devon Fund series, consisting of the Devon Fund A Class, the Devon Fund B
Class and the Devon Fund Institutional Class. The Fund has a present authorized
capitalization of five hundred million shares of capital stock with a $1.00 par
value per share. One hundred million shares of that stock have been allocated to
the Delaware Fund A Class, fifty million shares have been allocated to the
Delaware Fund B Class, fifty million shares have been allocated to the Delaware
Fund Institutional Class, fifty million shares have been allocated to the Devon
Fund A Class, fifty million shares have been allocated to the Devon Fund B Class
and twenty-five million shares have been allocated to the Devon Fund
Institutional Class. See Shares under Management of the Fund.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") is the investment manager
for the Fund. The Manager or its affiliate, Delaware International Advisers
Ltd., also manages the other funds in the Delaware Group. Delaware Distributors,
L.P. (the "Distributor") is the national distributor for the Fund and for all of
the other mutual funds in the Delaware Group. Delaware Service Company, Inc.
(the "Transfer Agent") is the shareholder servicing, dividend disbursing and
transfer agent for the Fund and for all of the other mutual funds in the
Delaware Group. See Management of the Fund.
Sales Charge
The price of each of the Class A Shares includes a maximum front-end sales
charge of 5.75% of the offering price, which, based on the net asset value of
the Class A Shares as of the end of the Fund's most recent fiscal year, is
equivalent to 6.10% of the amount invested for the Delaware Fund A Class and
6.09% for the Devon Fund A Class, reduced on certain transactions of at least
$100,000 but under $1,000,000. For purchases of $1,000,000 or more, the front-
end sales charge is eliminated. Such shares are also subject to annual 12b-1
Plan expenses.
The price of each of the Class B Shares is equal to the net asset value per
share. Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the third or
fourth year following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; and (iv) 1% if shares are redeemed during the sixth
year following purchase. Class B Shares are also subject to annual 12b-1 Plan
expenses for no longer than approximately eight years after purchase. See Buying
Shares and Automatic Conversion of Class B Shares thereunder; and Distribution
(12b-1) and Service under Management of the Fund.
Minimum Investment
The minimum initial investment for the Class A Shares is $250 and for the
Class B Shares is $1,000 (see Part B or contact your investment dealer for each
Retirement Plan minimum), and subsequent investments must be at least $25 for
the Class A Shares and $100 for the Class B Shares. Class B Shares are also
subject to a maximum purchase limitation of $250,000. See Buying Shares.
Investment Objectives
The objective of the Delaware Fund is to seek a balance of capital
appreciation, income and preservation of capital. The objective of the Devon
Fund is to seek current income and capital appreciation. See Investment
Objectives and Policies.
2
Devon Fund Retail Pros Page 2
<PAGE>
Special Considerations
The Devon Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. While the Devon Fund does not
engage in options and futures for speculative purposes, there are risks which
result from use of these instruments by the Series, and the investor should
review the descriptions of such in this Prospectus. See Futures Contracts and
Options under Investment Objectives and Policies.
Open-End Investment Company
The Fund, which was organized as a Maryland corporation on March 4, 1983 and
previously organized as a Delaware corporation in 1937, is an open-end
management investment company and each Series' portfolio of assets is
diversified for purposes of the Investment Company Act of 1940 (the "1940 Act").
See Shares under Management of the Fund.
Investment Management Fees
The Manager furnishes investment management services to the Fund, subject to
the supervision and direction of the Board of Directors. Under the Investment
Management Agreements, the annual compensation paid to the Manager is equal to:
for Delaware Fund, .60% on the first $100 million of average daily net assets,
.525% on the next $150 million, .50% on the next $250 million and .475% on the
average daily net assets in excess of $500 million, less the Series'
proportionate share of all directors' fees paid to the unaffiliated directors of
the Fund; and, for Devon Fund, .60% on the first $500 million of average daily
net assets and .50% on the average daily net assets in excess of $500 million.
See Management of the Fund.
Redemption and Exchange
The Class A Shares of the Fund are redeemed or exchanged at the net asset
value calculated after receipt of the redemption or exchange request. Neither
the Fund nor the Distributor assesses a charge for redemptions or exchanges of
Class A Shares, except for certain redemptions of shares purchased at net asset
value which may be subject to a contingent deferred sales charge if such
purchases triggered the payment of a dealer's commission. The Class B Shares are
redeemed or exchanged at the net asset value calculated after receipt of the
redemption or exchange request, less, in the case of redemptions, any applicable
CDSC. Neither the Fund nor the Distributor assesses any additional charges for
redemptions or exchanges of the Class B Shares. See Redemption and Exchange.
3
Devon Fund Retail Pros Page 3
<PAGE>
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses applicable
to the Class A and Class B Shares follows:
<TABLE>
<CAPTION> Delaware Fund
Class A Class B
Shareholder Transaction Expenses Shares Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................ 5.75% None
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price)...... None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption proceeds, whichever is lower)........ None* 4.00%*
Redemption Fees..................................... None** None**
Delaware Fund
Annual Operating Expenses Class A Class B
(as a percentage of average daily net assets) Shares Shares
- ---------------------------------------------------------------------------------
Management Fees..................................... 0.52% 0.52%
12b-1 Expenses (including service fees)............. 0.16%***/+ 1.00%***
Other Operating Expenses............................ 0.29% 0.29%++
---- ----
Total Operating Expenses.......................... 0.97% 1.81%
==== ====
</TABLE>
<TABLE>
<CAPTION> Devon Fund
Class A Class B
Shareholder Transaction Expenses Shares Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)............... 5.75% None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)............... None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption proceeds, whichever is lower)....... None* 4.00%*
Redemption Fees..................................... None** None**
Devon Fund
Annual Operating Expenses Class A Class B
(as a percentage of average daily net assets) Shares Shares
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fees (after voluntary waivers)........ 0.00%**** 0.00%****
12b-1 Expenses (including service fees).......... 0.30%*** 1.00%***
Other Operating Expenses (after voluntary
waivers)........................................ 0.95%**** 0.95%****/++
---- ----
Total Operating Expenses..................... 1.25% 1.95%
==== ====
</TABLE>
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in any of the Classes will bear
directly or indirectly. *With respect to the Class A Shares, purchases of $1
million or more may be made at net asset value; however, if in connection with
any such purchase, certain dealer commissions are paid to financial advisers
through whom such purchases are effected, a contingent deferred sales charge of
1% will be imposed in the event of certain redemptions within 12 months of
purchase ("Limited CDSC"). The Class B Shares are subject to a CDSC of: (i) 4%
if shares are redeemed within two years of purchase; (ii) 3% if shares are
redeemed during the third or fourth year following purchase; (iii) 2% if shares
are redeemed during the fifth year following purchase; (iv) 1% if shares are
redeemed during the sixth year following purchase; and (v) 0% thereafter. See
Contingent Deferred Sales Charge for Certain Purchases of Class A Shares Made at
Net Asset Value under Redemption and Exchange, and Deferred Sales Charge
Alternative-Class B Shares under Buying Shares. **CoreStates Bank, N.A.
currently charges $7.50 per redemption for redemptions payable by wire. ***Class
A Shares and Class B Shares of each Series are subject to separate 12b-1 Plans.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by rules of the National Association of
Securities Dealers, Inc. (the "NASD"). +As the portion of Fund assets
attributable to the Delaware Fund A Class of shares acquired after June 1, 1992
increases, this figure may increase or decrease somewhat pursuant to the current
12b-1 fee calculation approved by the Board of Directors. See Distribution (12b-
1) and Service. ++"Other Operating Expenses" for Delaware Fund B Class are
estimates derived from actual expenses incurred by Delaware Fund A Class for its
fiscal year ended October 31, 1994. "Other Operating Expenses" for the Devon
Fund B Class are derived from actual expenses incurred by Devon Fund A Class
during the fiscal year ended October 31, 1994, after giving effect to the
voluntary expense waiver. ****The Manager had elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Devon Fund and to
reimburse the Series to the extent necessary to ensure that the "Total Operating
Expenses" of this Series did not exceed .95% (exclusive of taxes, interest,
brokerage commissions, extraordinary expenses and 12b-1 expenses) during the
commencement of the public offering of the Series through December 31, 1994.
This waiver has been extended through December 31, 1995. If the voluntary
expense waivers were not in effect, it is estimated that the "Total Operating
Expenses," as a percentage of average daily net assets, would be 3.26% and 3.96%
for the Devon Fund A Class and Devon Fund B Class, respectively, reflecting
Management Fees of 0.50%. See Delaware Fund Institutional Class and Devon Fund
Institutional Class for expense information about those classes.
4
<PAGE>
The following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period. As noted in the tables
above, the Fund charges no redemption fees with respect to the Class A Shares
and, if shares are redeemed within six years after purchase, the Fund charges a
CDSC with respect to the Class B Shares.
<TABLE>
<CAPTION>
Delaware Fund Devon Fund
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $67/1/ $87 $108 $ 170 Class A Shares $70/1/ $95 $122 $ 200
Class B Shares $ 58 $87 $118 $191/2/ Class B Shares $ 60 $91 $125 $209/2/
</TABLE>
An investor would pay the following expenses on the same $1,000 investment,
assuming no redemption at the end of the period:
<TABLE>
<CAPTION>
Delaware Fund Devon Fund
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $ 67 $87 $108 $ 170 Class A Shares $ 70 $95 $122 $ 200
Class B Shares $ 18 $57 $ 98 $191/2/ Class B Shares $ 20 $61 $105 $209/2/
</TABLE>
/1/Under certain circumstances, a Limited CDSC, which has not been reflected in
this calculation, may be imposed in the event of certain redemptions within 12
months of purchase. See Contingent Deferred Sales Charge for Certain Purchases
of Class A Shares Made at Net Asset Value under Redemption and Exchange.
/2/At the end of no more than approximately eight years after purchase, Class B
Shares of a Series will be automatically converted into Class A Shares of that
Series. The example above assumes conversion of Class B Shares at the end of
year eight. However, the conversion may occur as late as three months after the
eighth anniversary of purchase, during which time the higher 12b-1 Plan fees
payable by Class B Shares will continue to be assessed. See Automatic Conversion
of Class B Shares under Buying Shares for a description of the automatic
conversion feature. Years nine and ten reflect expenses of the Class A Shares.
The conversion will constitute a tax-free exchange for federal income tax
purposes. See Taxes.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
5
Devon Fund Retail Pros Page 5
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights from the years ended October 31, 1985 through
October 31, 1994 for Delaware Fund A Class, September 6, 1994 through October
31, 1994 for Delaware Fund B Class and Devon Fund B Class and December 29, 1993
through October 31, 1994 for Devon Fund A Class are derived from the financial
statements of Delaware Group Delaware Fund, Inc.--Delaware Fund and Delaware
Group Delaware Fund, Inc.--Devon Fund and have been audited by Ernst & Young
LLP, independent auditors. The data should be read in conjunction with the
financial statements, related notes, and the reports of Ernst & Young LLP
covering such financial information and highlights, all of which are
incorporated by reference into Part B. Further information about the Series'
performance is contained in their Annual Reports to shareholders. A copy of each
Series' Annual Report (including the report of Ernst & Young LLP) may be
obtained from the Fund upon request at no charge.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Delaware Fund A Class
-------------------------------------------------------------------------------------------------------------------
Year Ended
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 10/31/88 10/31/87 10/31/86 10/31/85
/1/ /1/ /1/
Net Asset Value,
Beginning of
Period....... $19.430 $18.720 $18.810 $16.190 $17.480 $15.250 $16.850 $23.200 $20.860 $19.070
Income From
Investment
Operations
- -----------
Net Investment
Income...... 0.615 0.631 0.660 0.757 0.856 0.796 0.551 0.331 0.554 0.717
Net Gains (Losses) on
Securities
(both realized and
unrealized).. (0.285) 1.509 1.490 3.033 (1.366) 2.384 2.259 (1.971) 4.486 2.883
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total From
Investment
Operations... 0.330 2.140 2.150 3.790 (0.510) 3.180 2.810 (1.640) 5.040 3.600
------ ----- ----- ----- ------ ----- ----- ----- ----- -----
Less Distributions
- ------------------
Dividends (from
net investment
income)...... (0.600) (0.660) (0.700) (0.880) (0.780) (0.950) (0.320) (0.400) (0.700) (0.800)
Distributions
(from capital
gains)...... (1.160) (0.770) (1.540) (0.290) none none (4.090) (4.310) (2.000) (1.010)
Returns of
Capital..... none none none none none none none none none none
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
Distributions. (1.760) (1.430) (2.240) (1.170) (0.780) (0.950) (4.410) (4.710) (2.700) (1.810)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value,
End of
Period...... $18.000 $19.430 $18.720 $18.810 $16.190 $17.480 $15.250 $16.850 $23.200 $20.860
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------------
Total
Return/2/... 1.80% 11.91% 12.37% 24.32% (3.17%) 21.66% 22.03% (9.14%) 26.85% 20.47%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -------------------------
Net Assets,
End of Period
(000's
omitted)... $456,074 $507,528 $487,343 $453,449 $349,873 $361,625 $328,650 $320,854 $405,856 $341,269
Ratio of
Expenses to
Average Daily
Net Assets... .97% .89% .79% .71% .75% .76% .77% .73% .69% .75%
Ratio of
Net Investment
Income to
Average Daily
Net Assets... 3.31% 3.27% 3.64% 4.29% 4.99% 4.73% 4.01% 1.64% 2.53% 3.71%
Portfolio
Turnover Rate. 142% 160% 144% 212% 147% 129% 180% 205% 104% 132%
- --------------
</TABLE>
/1/Reflects 12b-1 distribution expenses beginning June 1, 1992.
/2/Does not reflect any maximum sales charges that are or were in effect nor the
1% Limited CDSC that would apply in the event of certain redemptions within 12
months of purchase. See Contingent Deferred Sales Charge for Certain Purchases
of Class A Shares Made at Net Asset Value.
6
Devon Fund Retail Pros Page 6
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Delaware Fund
B Class
---------------
Period
9/6/94(1)
through
10/31/94
<S> <C>
Net Asset Value, Beginning of Period............................. $18.340
Income From Investment Operations
Net Investment Income............................................ 0.070
Net Gains (Losses) on Securities (both realized and unrealized).. (0.280)
-------
Total From Investment Operations............................... (0.210)
-------
Less Distributions
Dividends (from net investment income)........................... (0.150)
Distributions (from capital gains)............................... none
Returns of Capital............................................... none
-------
Total Distributions............................................ (0.150)
-------
Net Asset Value, End of Period................................... $17.980
=======
- ---------------------------------------------------------------------------------
Total Return..................................................... (1.14%)(1/2)
- ---------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted)........................ $ 568
Ratio of Expenses to Average Daily Net Assets.................... 1.81%(1)
Ratio of Net Investment Income to Average Daily Net Assets....... 2.47%(1)
Portfolio Turnover Rate.......................................... 142%
</TABLE>
- ---------------------------
1Date of initial public offering; ratios have been annualized but total return
has not been annualized.
2Does not include any contingent deferred sales charge which varies from 1%--4%
depending upon the holding period for Delaware Fund B Class.
7
Devon Fund Retail Pros Page 7
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Devon Fund
A Class
-------------
Period
12/29/93(1)
through
10/31/94
<S> <C>
Net Asset Value, Beginning of Period............................. $10.000
Income From Investment Operations
Net Investment Income............................................ 0.136
Net Gains (Losses) on Securities (both realized and unrealized).. 0.784
-------
Total From Investment Operations............................... 0.920
-------
Less Distributions
Dividends (from net investment income)........................... (0.090)
Distributions (from capital gains)............................... none
Returns of Capital............................................... none
-------
Total Distributions............................................ (0.090)
-------
Net Asset Value, End of Period................................... $ 10.830
==========
- ----------------------------------------------------------------------------------
Total Return..................................................... 11.09%(1/2)
- ----------------------------------------------------------------------------------
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted)........................ $ 4,600
Ratio of Expenses to Average Daily Net Assets.................... 1.25%(1/3)
Ratio of Net Investment Income to Average Daily Net Assets....... 1.96%(1/4)
Portfolio Turnover Rate.......................................... 180%
</TABLE>
- ------------------------
1Date of initial sale of Devon Fund A Class; this class was formerly known as
Dividend Growth Fund A Class. Ratios and total return have been annualized.
2Total return does not include maximum sales charge of 5.75% nor the 1% Limited
CDSC that would apply in the event of certain redemptions within 12 months of
purchase. See Contingent Deferred Sales Charge for Certain Purchases of Class A
Shares Made at Net Asset Value. Total return reflects the expense limitation
referenced in Notes 3 and 4.
3Ratio of expenses to average daily net assets prior to expense limitation was
3.26% for the period ended October 31, 1994.
4Ratio of net investment loss to average daily net assets prior to expense
limitation was (0.05%) for the period ended October 31, 1994.
8
Devon Fund Retail Pros Page 8
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Devon Fund
B Class
----------
Period
9/6/94/1/
through
10/31/94
<S> <C>
Net Asset Value, Beginning of Period.............................. $10.900
Income From Investment Operations
- ---------------------------------
Net Investment Income............................................. 0.027
Net Gains (Losses) on Securities (both realized and unrealized)... (0.077)
-------
Total From Investment Operations................................ (0.050)
-------
Less Distributions
- ------------------
Dividends (from net investment income)............................ (0.030)
Distributions (from capital gains)................................ none
Returns of Capital................................................ none
-------
Total Distributions............................................. (0.030)
-------
Net Asset Value, End of Period.................................... $ 10.820
========
- ----------------------------------------------------------------------------------
Total Return...................................................... (0.46%)/1//2/
- ------------
- ----------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)......................... $ 115
Ratio of Expenses to Average Daily Net Assets..................... 1.95%/1//3/
Ratio of Net Investment Income to Average Daily Net Assets........ 1.26%/1//4/
Portfolio Turnover Rate........................................... 180%
- -----------------------------
</TABLE>
/1/Date of initial sale of Devon Fund B Class; this class was formerly known as
Dividend Growth Fund B Class. Ratios have been annualized but total return
has not been annualized.
/2/Total return does not include any contingent deferred sales charge which
varies from 1%-4% depending upon the holding period for Devon Fund B Class.
Total return reflects the expense limitation referenced in Notes 3 and 4.
/3/Ratio of expenses to average daily net assets prior to expense limitation was
3.96% for the period ended October 31, 1994.
/4/Ratio of net investment loss to average daily net assets prior to expense
limitation was (0.75%) for the period ended October 31, 1994.
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INVESTMENT OBJECTIVES
AND POLICIES
The objective of the Delaware Fund is to seek a balance of capital
appreciation, income and preservation of capital.
The objective of the Devon Fund is to seek current income and capital
appreciation.
Although each Series will constantly strive to attain its objective, there can
be no assurance that it will be obtained. The objective of each Series cannot be
changed without shareholder approval.
INVESTMENT STRATEGY
Delaware Fund--As a "balanced" fund, the Delaware Fund will generally invest
at least 25% of its assets in fixed income securities, including U.S. Government
securities and corporate bonds. The remainder of the Series will be allocated to
equity securities principally, including convertible securities, and also to
cash and cash equivalents. A portion of the Series' investment in certain
convertible securities may be deemed fixed income in nature for purposes of this
25% fixed income allocation. The Series may also invest in foreign securities.
The Series uses a dividend-oriented valuation strategy to select individual
securities in which it will invest. In seeking capital appreciation, the Series
invests primarily in common stocks of established companies believed to have a
potential for long-term capital growth. In seeking current income and
preservation of capital, in addition to capital appreciation, the Series invests
in various types of fixed income securities, including U.S. Government and
government agency securities and corporate bonds. The Series generally invests
in bonds that are rated in the top four grades by a nationally-recognized rating
agency (e.g., Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P")) at the time of purchase, or, if unrated, are determined to
be equivalent to the top four grades in the judgment of the Manager. The fourth
grade is considered medium grade and may have some speculative characteristics.
Typically, the maturity of the bonds will range between five and 30 years. The
Series may invest not more than 5% of its assets in convertible debentures rated
below investment grade.
The Series will analyze existing and expected economic and market conditions
and seek to identify those market sectors or individual securities that are
expected to benefit from those conditions. Its appraisal of these economic
conditions will determine the types of securities it will hold and the degree
of investment emphasis placed upon capital appreciation and income.
Devon Fund--The Devon Fund will seek to achieve its objective by investing
primarily in income-producing common stocks, with a focus on common stocks that
the Manager believes have the potential for above average dividend increases
over time. Under normal circumstances, the Series will generally invest at least
65% of its total assets in dividend paying common stocks.
In selecting stocks for the Series, the Manager will focus primarily on
dividend paying common stocks issued by companies with market capitalizations in
excess of $100 million, but is not precluded from purchasing shares of companies
with market capitalizations of less than $100 million. In seeking stocks with
potential for above average dividend increases, the Manager will consider such
factors as the historical growth rate of a dividend, the frequency of prior
dividend increases, the issuing company's potential to generate cash flows, and
the price/earnings multiple of the stock relative to the market. The Manager
will generally avoid stocks that it believes are overvalued and may select
stocks with current dividend yields that are lower than the current yield of the
S&P 500 Stock Index in exchange for anticipated dividend growth.
While management believes that the Series' objective may best be attained by
investing in common stocks, the Series may also invest in other securities
including, but not limited to, convertible and preferred securities, rights and
warrants to purchase common stock, and various types of fixed income securities,
such as U.S. Government and government agency securities, corporate debt
securities, and bank obligations, and may also engage in futures transactions.
The Series may invest in foreign securities.
Mortgage-Backed Securities--Each Series may invest in mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or government sponsored corporations. Each Series also may
invest in securities issued by certain private, non-government corporations,
such as financial institutions, if the securities are fully collateralized at
the time of issuance by securities or certificates issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Two principal types of
mortgage-backed securities are collateralized mortgage obligations (CMOs) and
real estate mortgage investment conduits (REMICs).
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CMOs are debt securities issued by U.S. Government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
REMICs, which were authorized under the Tax-Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
CMOs and REMICs issued by private entities are not government securities and
are not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. The Series will invest in such
private-backed securities only if they are 100% collateralized at the time of
issuance by securities issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities. The Series currently invest in privately-issued
CMOs and REMICs only if they are rated at the time of purchase in the four
highest grades by a nationally-recognized rating agency.
Asset-Backed Securities--Each Series may also invest in securities which are
backed by assets such as receivables on home equity and credit loans, and
receivables regarding automobile, mobile home and recreational vehicle loans,
wholesale dealer floor plans and leases. All such securities must be rated in
the highest rating category by a reputable credit rating agency (e.g., AAA by
S&P's or Aaa by Moody's). Such receivables are securitized in either a pass-
through or a pay-through structure. Pass-through securities provide investors
with an income stream consisting of both principal and interest payments in
respect of the receivables in the underlying pool. Pay-through asset-backed
securities are debt obligations issued usually by a special purpose entity,
which are collateralized by the various receivables and in which the payments on
the underlying receivables provide the funds to pay the debt service on the debt
obligations issued. The Series may invest in these and other types of asset-
backed securities that may be developed in the future. It is each Series'
current policy to limit asset-backed investments to those represented by
interests in credit card receivables, wholesale dealer floor plans, home equity
loans and automobile loans.
Due to the shorter maturity of the collateral backing such securities, there
is less of a risk of substantial prepayment than with mortgage-backed
securities. Such asset-backed securities do, however, involve certain risks not
associated with mortgage-backed securities, including the risk that security
interests cannot be adequately or in many cases, ever, established. In addition,
with respect to credit card receivables, a number of state and federal consumer
credit laws give debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing such receivables due
to the large number of vehicles involved in a typical issuance and technical
requirements under state laws. Therefore, recoveries on repossessed collateral
may not always be available to support payments on the securities. For further
discussion concerning the risk of investing in such asset-backed securities, see
Part B.
Real Estate Investment Trusts--Each Series may invest in shares or convertible
bonds issued by real estate investment trusts ("REITS"). REITS invest primarily
in income producing real estate as well as real estate related loans or
interests. A REIT is not taxed on income distributed to shareholders if it
complies with several requirements relating to its organization, ownership,
assets and income, and a requirement that it distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year. Each Series anticipates investing only in REITS that invest the majority
of their assets directly in real property and derive their income primarily from
rents, which are known as "equity REITS." Equity REITS can also realize capital
gains by selling properties that have appreciated in value.
Restricted and Illiquid Securities--Each Series may purchase privately placed
securities the resale of which is restricted under applicable securities laws.
Most of the privately placed securities acquired by the Series will be eligible
for resale by the Series without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many privately
placed and legally restricted securities to be freely traded among certain
institutional buyers. Each Series may invest not more than 10% of its assets in
illiquid securities. While maintaining oversight, the Board of Directors of the
Fund has delegated to the Manager the day-to-day function of determining whether
individual Rule 144A Securities are liquid for purposes of each Series' 10%
limitation on investments in illiquid securities. The Devon Fund currently
intends to limit its investments in restricted securities, excluding Rule 144A
Securities, to not more than 5% of its assets.
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Convertible Securities--Each Series may invest in convertible securities,
including corporate debentures, bonds, notes and preferred stocks that may be
converted into or exchanged for common stock. These securities are generally
convertible either at a stated price or a stated rate (that is, for a specific
number of shares of common stock or other security). As with other fixed income
securities, the price of a convertible security to some extent varies inversely
with interest rates. While providing a fixed income stream, a convertible
security also affords the investor an opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible. Each Series may invest not more than 5% of its assets
in convertible debentures that are rated below investment grade or are unrated
but are determined by the Manager to be of comparable quality. For a discussion
concerning the risks of investing in such securities, see Part B.
Foreign Securities and ADRs--Each Series may invest up to 5% of its assets in
foreign securities. Each Series may also invest without limitation in sponsored
and unsponsored American Depository Receipts ("ADRs") that are actively traded
in the United States. ADRs are receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. "Sponsored" ADRs are issued jointly by the issuer of the underlying
security and a depository, and "unsponsored" ADRs are issued without the
participation of the issuer of the deposited security. Holders of unsponsored
ADRs generally bear all the costs of such facilities and the depository of an
unsponsored ADR facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored ADR.
Foreign markets may be more volatile than U.S. markets, and investments in
foreign securities involve sovereign risks in addition to the normal risks
associated with U.S. securities. These risks include political risks, foreign
taxes and exchange controls and currency fluctuations. For example, foreign
portfolio investments may fluctuate in value due to changes in currency rates
(i.e., the value of foreign investments would increase with a fall in the value
of the dollar) and control regulations apart from market fluctuations. Each
Series may also experience delays in foreign securities settlement.
Each Series will, from time to time, conduct foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date (i.e., a "forward foreign currency"
contract or "forward" contract). Investors should be aware that there are costs
and risks associated with such currency transactions.
The Fund's Custodian for its foreign securities is Morgan Guaranty Trust
Company of New York, located at 60 Wall Street, New York, NY 10260.
Futures Contracts--The Devon Fund may enter into futures contracts on stocks
and stock indices, and purchase or sell options on stock index futures and stock
indices. 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 Series' positions in cash, short-term debt securities and
other money market instruments, at times when the Series' 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 Series.
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument, or for the making
and acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a futures contract provides for a specified settlement date
on which the securities underlying the contract are delivered, or in the case of
securities index futures contracts, the difference between the price at which
the contract was entered into and the contract's closing value is settled
between the purchaser and seller in cash. Futures contracts differ from options
in that they are bilateral agreements, with both the purchaser and the seller
equally obligated to complete the transaction. In addition, futures contracts
call for settlement only on the expiration date, and cannot be "exercised" at
any other time during their term.
The purchase or sale of a futures contract also differs from the purchase or
sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin" as a good faith deposit. This amount is
generally maintained in a segregated account at the custodian bank. Subsequent
payments to and from the broker, referred to as "variation margin," are made on
a daily basis as the value of the index or instrument underlying the futures
contract fluctuates, making positions in the futures contract more or less
valuable, a process known as "marking to the market."
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The Series may also purchase and write options on the types of futures
contracts in which the Series 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 Series is exercised, the Series 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 Series 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 Series may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that the Series 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
Series from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options--The Devon Fund may write covered call options on individual issues as
well as write call options on stock indices. The Series 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 Series'
portfolio as well as the price movement of individual securities. The Series
does not currently intend to write or purchase stock index options.
While there is no limit on the amount of the Series' assets which may be
invested in covered call options, the Series will not invest more than 2% of its
net assets in put options. The Series will only use Exchange-traded options.
Call Options
Writing Covered Call Options--A covered call option obligates the Series to
sell one of its securities for an agreed price up to an agreed date. When the
Series 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 exercise price regardless of
market price changes during the call period. The advantage is that the Series
receives premium income for the limited purpose of offsetting the costs of
purchasing put options or offsetting any capital loss or decline in market value
of the security. However, if the Manager's forecast is wrong, the Series may not
fully participate in the market appreciation if the security's price rises.
Writing a Call Option on Stock Indices--Writing a call option on stock indices
is similar to the writing of a call option on an individual stock. Stock indices
used will include, but not be limited to, the S&P 500, the S&P 100 and the S&P
Over-The-Counter ("OTC") 250.
Put Options
Purchasing a Put Option--A put option gives the Devon Fund the right to sell
one of its securities for an agreed price up to an agreed date. The advantage is
that the Series can be protected should the market value of the security
decline. However, the Series must pay a premium for this right which would be
lost if the option is not exercised. The Series will, at all times during which
it holds a put option, own the security covered by such option.
Purchasing a Put Option on Stock Indices--Purchasing a protective put option
on stock indices is similar to the purchase of protective puts on an individual
stock. Indices used will include, but not be limited to, the S&P 500, the S&P
100 and the S&P OTC 250.
Closing Transactions--Closing transactions essentially let the Series offset a
put option or covered call option prior to its exercise or expiration. If the
Series 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 cash reserves or when in a
temporary defensive posture, each Series may enter into repurchase agreements
with banks or broker/dealers deemed to be creditworthy by the Manager, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Series) acquires
ownership of a debt
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security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one
week, but on occasion for longer periods. Not more than 10% of a Series' assets
may be invested in repurchase agreements of over seven-days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss to the Series, if any, would be the difference
between the repurchase price and the market value of the security. Each Series
will limit its investments in repurchase agreements to those which the Manager
under the guidelines of the Board of Directors determines to present minimal
credit risks and which are of high quality. In addition, each Series must have
collateral of at least 100% of the repurchase price, including the portion
representing such Series' yield under such agreements which is monitored on a
daily basis. Such collateral is held by the Custodian in book entry form. Such
agreements may be considered loans under the 1940 Act, but the Series consider
repurchase agreements contracts for the purchase and sale of securities, and
each seeks to perfect a security interest in the collateral securities so that
it has the right to keep and dispose of the underlying collateral in the event
of default.
The funds in the Delaware Group have obtained an exemption from the joint-
transaction prohibitions of Section 17(d) of the Investment Company Act to allow
the Delaware Group funds jointly to invest cash balances. Each Series of the
Fund may invest cash balances in a joint repurchase agreement in accordance with
the terms of the Order and subject generally to the conditions described above.
Portfolio Loan Transactions--Each Series may loan up to 25% of its assets to
qualified broker/dealers or institutional investors for their use relating to
short sales or other security transactions.
The major risk to which a Series would be exposed on a loan transaction is the
risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, each Series will only enter into loan arrangements
after a review of all pertinent facts by the Manager, subject to overall
supervision by the Board of Directors, including the creditworthiness of the
borrowing broker, dealer or institution and then only if the consideration to be
received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.
Other Investment Policies--Neither Series may concentrate investments in any
industry, which means that a Series may generally not invest more than 25% of
its assets in any one industry.
In pursuing its investment objective, each Series may hold securities for any
period of time. For temporary, defensive purposes, each Series may hold a
substantial portion of its assets in cash, cash equivalents or short-term
obligations, including repurchase agreements. Each Series may also enter into
repurchase agreements to invest excess cash balances.
While each Series is permitted under certain circumstances to borrow money,
neither Series normally does so. A Series will not purchase investment
securities while it has any borrowings outstanding.
Each Series may purchase securities on a when-issued or delayed delivery
basis. It is the current intention of each Series not to enter into when-issued
commitments exceeding in the aggregate 5% of the market value of the Series'
total assets less liabilities other than obligations created by these
commitments.
* * *
Part B provides more information on the Fund's investment restrictions and
policies, and includes Appendix A which describes security ratings.
SUITABILITY
Each Series may be suitable for the patient investor interested in long-term
capital appreciation. Delaware Fund may be more suitable for investors wishing
to expose a portion of their assets to fixed income securities, while Devon Fund
may be more suitable for investors seeking a greater emphasis on common stocks
and securities convertible into common stocks. Investors in each Series should
be willing to accept the risks associated with investments in equity securities.
Investors in Delaware Fund and, to a lesser extent, investors in Devon Fund
should be willing to accept the risks associated with investments in fixed
income securities. Net asset value may fluctuate in response to market
conditions and, as a result, neither Series is appropriate for a short-term
investor.
Ownership of Series shares reduces the bookkeeping and administrative
inconveniences connected with direct purchases of these securities.
An investor should not consider a purchase of Series shares as equivalent to a
complete investment program. The Delaware Group includes a family of funds,
generally available through registered investment dealers, which may be used in
concert to create a more complete investment program.
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THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
(Philadelphia 215-988-1333)
Fund Information; Literature;
Price, Yield and Performance Figures
Shareholder Service Center
800-523-1918
(Philadelphia 215-988-1241)
Information on Existing Regular Investment
Accounts and Retirement Plan Accounts;
Wire Investments; Wire Liquidations;
Telephone Liquidations; Telephone Exchanges
Delaphone
800-362-FUND (800-362-3863)
Shareholder Services
During business hours, you can call the Fund's Shareholder Service Center. The
representatives can answer any of your questions about your account, the Series,
the various service features and other funds in the Delaware Group.
Performance Information
During business hours, you can call the Investor Information Center to get
current performance information.
Delaphone Service
Delaphone is an account inquiry service for investors with Touch-Tone(R) phone
service. It enables you to get information on your account faster than the
mailed statements and confirmations seven days a week, 24 hours a day.
Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of distributions. See
Dividend Reinvestment Plan below. You should examine statements and
confirmations immediately and promptly report any discrepancy by calling the
Shareholder Service Center.
Duplicate Confirmations
If your investment dealer is noted on your investment application, we will
send your dealer a duplicate confirmation. This makes it easier for your
investment dealer to help you manage your investments.
Tax Information
Each year, the Fund will mail you information on the tax status of your
dividends and distributions.
Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your account. Also, you may be
permitted to invest your distributions in certain other funds in the Delaware
Group, subject to the exceptions noted below as well as the eligibility and
minimum purchase requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of a Series or other
Delaware Group funds may be effected without a front-end sales charge. Class B
Shares of a Series or other Delaware Group funds acquired through reinvestments
of distributions will not be subject to a contingent deferred sales charge if
those shares are later redeemed. See Automatic Conversion of Class B Shares
under Buying Shares for information concerning the automatic conversion of Class
B Shares acquired by reinvesting dividends.
Holders of Class A Shares of a Series may not reinvest their distributions in
the Class B Shares of any fund in the Delaware Group, including the Series.
Holders of Class B Shares of a Series may reinvest their distributions only in
the Class B Shares of the funds in the Delaware Group which offer that class of
shares (the "Class B Funds"). See Class B Funds under Buying Shares for a list
of the funds offering Class B Shares. For more information about reinvestments,
call the Shareholder Service Center.
Exchange Privilege
The Exchange Privilege permits shareholders to exchange all or part of their
shares into shares of the other funds in the Delaware Group, subject to the
exceptions noted below as well as the eligibility and minimum purchase
requirements set forth in each fund's prospectus. Shareholders of Class B Shares
of a Series are permitted to exchange all or part of their Class B Shares only
into the corresponding class of shares of the Class B Funds, subject to the
minimum purchase and other requirements set forth in each fund's prospectus.
Exchanges are not permitted between Class A Shares and Class B Shares of any of
the funds of the Delaware Group. See Redemption and Exchange.
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Except as noted below, permissible exchanges can be made without payment of a
front-end sales charge or the imposition of a contingent deferred sales charge
at the time of the exchange, as applicable. Persons exchanging into the Class A
Shares from a fund in the Delaware Group offered without a front-end sales
charge may be required to pay the applicable front-end sales charge. See
Investing by Exchange under How to Buy Shares and Redemption and Exchange.
See Redemption and Exchange for additional information on exchanges.
Wealth Builder Option
You may be permitted to elect to have amounts in your account automatically
invested in shares of other funds in the Delaware Group. Investments under this
feature are exchanges and are therefore subject to the same conditions and
limitations as other exchanges of Class A and Class B Shares. See Redemption and
Exchange.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature allows the
combining of Class A Shares and Class B Shares of a Series that are currently
owned with the dollar amount of new purchases of Class A Shares for a reduced
front-end sales charge. Under the Combined Purchases Privilege, this includes
certain shares owned in other funds in the Delaware Group. See Buying Shares.
Letter of Intention
With respect to Class A Shares, the Letter of Intention feature permits the
aggregation of purchases over a 13-month period to obtain a reduced front-end
sales charge. See Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits shareholders to reinvest proceeds
of Class A Shares redeemed, within one year from the redemption, without a
front-end sales charge. See Part B.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an unaudited
semi-annual report. These reports provide detailed information about the Fund's
investments and performance. The Fund's fiscal year ends on October 31.
RETIREMENT PLANNING
An investment in a Series may also be suitable for tax-deferred Retirement
Plans. Among the Retirement Plans noted below, Class B Shares are available for
investment only by Individual Retirement Accounts, Simplified Employee Pension
Plans, 457 Deferred Compensation Plans and 403(b)(7) Deferred Compensation
Plans.
Retirement Plans may be subject to plan establishment fees, annual maintenance
fees and/or other administrative or Trustee fees. Fees are based on the number
of participants in the Plan as well as the services selected. Additional
information about fees is included in Retirement Plan materials. The minimum
initial investment in the Classes (as available) for each Plan is $250;
subsequent investments must be at least $25.
Certain shareholder investment services available to non-retirement plan
shareholders may not be available to Retirement Plan shareholders. Certain
Retirement Plans may qualify to purchase the Delaware Fund Institutional Class
or the Devon Fund Institutional Class. For additional information on any of the
Plans and Delaware's retirement services, call the Shareholder Service Center or
see Part B.
Individual Retirement Account ("IRA")
Individuals, even if they participate in an employer-sponsored retirement
plan, may establish their own retirement program for investments in each of the
Classes. Contributions to an IRA may be tax-deductible and earnings are tax-
deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted, and in some cases eliminated, for individuals who
participate in certain employer-sponsored retirement plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn on a tax-deferred basis.
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Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a tax-
sheltered retirement program by making contributions on behalf of all eligible
employees. Each of the Classes is available for investment by a SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Offers employers with 25 or fewer eligible employees the ability to establish
a SEP/IRA that permits salary deferral contributions. An employer may also elect
to make additional contributions to this Plan. Class B Shares are not available
for purchase by such Plans.
403(b)(7) Deferred Compensation Plan
Permits employees of public school systems or certain types of non-profit
organizations to enter into a deferred compensation arrangement for the purchase
of shares of each of the Classes.
457 Deferred Compensation Plan
Permits employees of state and local governments and certain other entities to
enter into a deferred compensation arrangement for the purchase of shares of
each of the Classes.
Prototype Profit Sharing or Money Purchase Pension Plan
Offers self-employed individuals, partnerships and corporations a tax-
qualified plan which provides for the investment of contributions in Class A
Shares. Class B Shares are not available for purchase by such Plans.
Prototype 401(k) Defined Contribution Plan
Permits employers to establish a tax-qualified plan based on salary deferral
contributions. An employer may elect to make profit sharing contributions and/or
matching contributions into the Plan. Class B Shares are not available for
purchase by such Plans.
BUYING SHARES
Purchase Amounts
The minimum initial purchase with respect to the Class A Shares is $250 and
with respect to the Class B Shares is $1,000. Subsequent purchases must be $25
or more with respect to the Class A Shares and $100 or more with respect to the
Class B Shares. Retirement Plans have other minimums. Refer to Part B or call
the Shareholder Service Center for more information on these Plans. Class B
Shares are also subject to a maximum purchase limitation of $250,000.
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net asset
value per share, plus a sales charge which may be imposed, at the election of
the purchaser, at the time of the purchase with respect to Class A Shares
("front-end sales charge alternative") or on a contingent deferred basis with
respect to Class B Shares ("deferred sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge alternative
acquires Class A Shares. Although Class A Shares incur a sales charge when they
are purchased, generally they are not subject to any sales charge when they are
redeemed, but are subject to annual 12b-1 Plan expenses of up to a maximum of
.30% of average daily net assets of such shares. See Contingent Deferred Sales
Charge for Certain Purchases of Class A Shares Made at Net Asset Value and
Distribution (12b-1) and Service. Certain purchases of Class A Shares qualify
for reduced front-end sales charges. See Front-End Sales Charge Alternative-
Class A Shares, below.
Class B Shares. An investor who elects the deferred sales charge alternative
acquires Class B Shares. Class B Shares do not incur a front-end sales charge
when they are purchased, but they are subject to a sales charge if they are
redeemed within six years of purchase and are subject to annual 12b-1 Plan
expenses of up to a maximum of 1% (.25% of which are service fees to be paid by
the Series to the Distributor, dealers or others for providing personal service
and/or maintaining shareholder accounts) of average daily net assets of such
shares for no longer than approximately eight years after purchase. Class B
Shares permit all of the investor's dollars to work from the time the investment
is made. The higher 12b-1 Plan expenses paid by Class B Shares will cause such
shares to have a higher expense ratio and to pay lower dividends than those
related to the Class A Shares. At the end of no more than approximately eight
years after purchase, the Class B Shares are automatically converted into Class
A Shares. See Automatic Conversion of Class B Shares. Such conversion will
constitute a tax-free exchange for federal income tax purposes. See Taxes.
The alternative purchase arrangements permit investors in a Series to choose
the method of purchasing shares that is most beneficial given the amount of
their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur a front-end sales
charge by purchasing Class A Shares or to have the entire initial purchase price
invested in a Series with the investment thereafter being subject to a CDSC, if
shares are redeemed within six years of purchase, by purchasing Class B Shares.
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Devon Fund Retail Pros Page 17
<PAGE>
As an illustration, investors who qualify for significantly reduced front-end
sales charges on purchases of Class A Shares, as described below, might elect
the front-end sales charge alternative because similar sales charge reductions
are not available for purchases under the deferred sales charge alternative.
Moreover, shares acquired under the front-end sales charge alternative are
subject to annual 12b-1 Plan expenses of up to .30%, whereas shares acquired
under the deferred sales charge alternative are subject to higher annual 12b-1
Plan expenses of 1% for no more than approximately eight years after purchase.
See Automatic Conversion of Class B Shares. However, because front-end sales
charges are deducted at the time of purchase, such investors would not have all
their funds invested initially. Certain other investors might determine it to be
more advantageous to have all their funds invested initially, although they
would be subject to a CDSC for up to six years after purchase as well as annual
12b-1 Plan expenses of 1% until the shares are automatically converted into
Class A Shares. The 12b-1 Plan distribution expenses with respect to the Class B
Shares will be offset to the extent any return is realized on the additional
funds initially invested under the deferred sales charge alternative. However,
there can be no assurance as to the return, if any, that will be realized on
such additional funds.
For the distribution and related services provided to, and the expenses borne
on behalf of, a Series, the Distributor and others will be paid, in the case of
the Class A Shares, from the proceeds of the front-end sales charge and 12b-1
Plan fees and, in the case of the Class B Shares, from the proceeds of the 12b-1
Plan fees and, if applicable, the CDSC incurred upon redemption within six years
of purchase. Sales personnel may receive different compensation for selling
Class A or Class B Shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND
FUNCTION OF THE 12B-1 PLAN AND THE CDSC WITH RESPECT TO THE CLASS B SHARES ARE
THE SAME AS THOSE OF THE 12B-1 PLAN AND THE FRONT-END SALES CHARGE WITH RESPECT
TO THE CLASS A SHARES IN THAT THE FEES AND CHARGES PROVIDE FOR THE FINANCING OF
THE DISTRIBUTION OF THE RESPECTIVE CLASSES. See 12b-1 Distribution Plans-Class A
and Class B Shares.
Dividends paid by a Series with respect to the Class A and Class B Shares, to
the extent any dividends are paid, will be calculated in the same manner at the
same time, on the same day and will be in the same amount, except that the
additional amount of 12b-1 Plan expenses relating to the Class B Shares will be
borne exclusively by such shares. See Calculation of Offering Price and Net
Asset Value Per Share. The shareholders of the Class A and Class B Shares each
have an exchange privilege by which they may exchange their Class A Shares or
Class B Shares for the Class A Shares or Class B Shares, respectively, of
certain other Delaware Group funds. See Exchange Privilege under The Delaware
Difference and Redemption and Exchange.
The NASD has adopted amendments to its Rules of Fair Practice relating to
investment company sales charges. The Fund and the Distributor intend to operate
in compliance with these rules with respect to both Class A and Class B Shares.
Front-End Sales Charge Alternative-Class A Shares
The Class A Shares may be purchased at the offering price which reflects a
maximum front-end sales charge of 5.75%. See Calculation of Offering Price and
Net Asset Value Per Share. Lower sales charges apply for larger purchases. See
the table below. The Class A Shares represent a proportionate interest in a
respective Series' assets and are subject to annual 12b-1 Plan expenses. See
Distribution (12b-1) and Service under Management of the Fund.
Reduced Front-End Sales Charges
Purchases of $100,000 or more at the offering price carry a reduced front-end
sales charge as shown in the following table.
Delaware Fund A Class and Devon Fund A Class
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dealer's
Front-End Sales Charge as % of Concession***
Amount of Purchase Offering Amount as % of
Price Invested** Offering Price
- --------------------------------------------------------------------------------
Delaware Devon
Fund Fund
-------------------
<S> <C> <C> <C> <C>
Less than $100,000 5.75% 6.10% 6.09% 5.00%
$100,000 but under $250,000 4.75 4.99 4.99 4.00
$250,000 but under $500,000 3.50 3.63 3.63 3.00
$500,000 but under $1,000,000* 3.00 3.09 3.09 2.60
</TABLE>
*There is no front-end sales charge on purchases of $1 million or more but,
under certain limited circumstances, a 1% Limited CDSC may apply with respect
to Class A Shares.
- --------------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify for the
reduced front-end sales charge on the basis of previous purchases and current
purchases. The reduced front-end sales charge will be granted upon confirmation
of the shareholder's holdings by the Fund. Such reduced front-end sales charges
are not retroactive.
From time to time, upon written notice to all of its dealers, the Distributor
may hold special promotions for specified periods during which the Distributor
may reallow dealers up to the full front-end sales charge shown above. In
addition, certain dealers who enter into an agreement to provide extra training
and information on Delaware Group products and services and who increase sales
of Delaware Group funds may receive an additional concession of up to .15% of
the offering price. Dealers who receive 90% or more of the sales charge may be
deemed to be underwriters under the Securities Act of 1933.
**Based on the net asset value of the Class A Shares as of the end of the
Fund's most recent fiscal year.
***Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
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Devon Fund Retail Pros Page 18
<PAGE>
For initial purchases of Class A Shares of $1,000,000 or more made on or after
June 1, 1993, a dealer's commission may be paid by the Distributor to financial
advisers through whom such purchases are effected in accordance with the
following schedule:
<TABLE>
<CAPTION>
Dealer's Commission
-------------------
Amount of Purchase (as a percentage of amount purchased)
- ------------------
<S> <C>
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
</TABLE>
In determining a financial adviser's eligibility for the dealer's commission,
purchases of Class A Shares of other Delaware Group funds as to which a Limited
CDSC applies may be aggregated with those of the Class A Shares of a Series.
Financial advisers should contact the Distributor concerning the applicability
and calculation of the dealer's commission in the case of combined purchases.
Financial advisers also may be eligible for a dealer's commission in connection
with certain purchases made under a Letter of Intention or pursuant to an
investor's Right of Accumulation. The Distributor also should be consulted
concerning the availability of and program for these payments.
An exchange from other Delaware Group funds will not qualify for payment of
the dealer's commission, unless such exchange is from a Delaware Group fund with
assets as to which a dealer's commission or similar payment has not been
previously paid. The schedule and program for payment of the dealer's commission
are subject to change or termination at any time by the Distributor in its
discretion.
Redemptions of Class A Shares purchased at net asset value may result in the
imposition of a Limited CDSC if the dealer's commission described above was paid
in connection with the purchase of those shares. See Contingent Deferred Sales
Charge for Certain Purchases of Class A Shares Made at Net Asset Value under
Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings in the Class A Shares of a Series with your
holdings in the Class B Shares of that Series and, except as noted below, shares
of the other funds in the Delaware Group, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Except for shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with
ownership of variable insurance products, shares of other funds which do not
carry a front-end sales charge or CDSC may not be included unless they were
acquired through an exchange from one of the other Delaware Group funds which
carried a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with those
of your spouse, your children under 21 and any trust, fiduciary or retirement
account for the benefit of such family members.
It also permits you to use these combinations under a Letter of Intention.
This allows you to make purchases over a 13-month period and qualify the entire
purchase for a reduction in front-end sales charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain purchases made
pursuant to a Right of Accumulation or under a Letter of Intention, may trigger
the payment of a dealer's commission and the applicability of a Limited CDSC.
Investors should consult their financial advisers or the Transfer Agent about
the operation of these features. See Reduced Front-End Sales Charges under
Buying Shares.
Buying at Net Asset Value
Class A Shares of a Series may be purchased at net asset value under the
Delaware Group Dividend Reinvestment Plan and, under certain circumstances, the
12-Month Reinvestment Privilege and the Exchange Privilege. (See The Delaware
Difference and Redemption and Exchange for additional information.)
Purchases of Class A Shares may be made at net asset value by current and
former officers, directors and employees and members of their immediate families
of the Manager, any affiliate, any of the funds in the Delaware Group, certain
of their agents and registered representatives and employees of authorized
investment dealers and by employee benefit plans for such entities. Individual
purchases include retirement accounts and must be for accounts in the name of
the individual or a qualifying family member. Purchases of Class A Shares may be
made by clients of registered representatives of an authorized investment dealer
at net asset value within six months of a change of the registered
representative's employment, if the purchase is funded by proceeds from an
investment where a front-end sales charge has been assessed and the redemption
of the investment did not result in the imposition of a contingent deferred
sales charge or other redemption charge. Purchases of Class A Shares also may be
made at net asset value by bank employees that provide services in connection
with agreements between the bank and unaffiliated brokers or dealers concerning
sales of Class A Shares. Also, officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement
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Devon Fund Retail Pros Page 19
<PAGE>
with the Distributor providing specifically for the purchase of Class A Shares
in connection with special investment products, such as wrap accounts or similar
fee based programs.
Investments in Class A Shares made by plan level and/or participant retirement
accounts that are for the purpose of repaying a loan taken from such accounts
will be made at net asset value. Loan repayments made to a Delaware Group
account in connection with loans originated from accounts previously maintained
by another investment firm will also be invested at net asset value.
The Fund must be notified in advance that an investment qualifies for purchase
of Class A Shares at net asset value.
Group Investment Plans
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, Prototype Profit Sharing,
Pension and 401(k) Defined Contribution Plans) may also benefit from the reduced
front-end sales charges relating to the Class A Shares set forth in the table on
page 18, based on total plan assets. In addition, 403(b)(7) and 457 Retirement
Plan Accounts may also benefit from a reduced front-end sales charge on Class A
Shares based on the total amount invested by all participants in the plan by
satisfying the following criteria: (i) the employer for which the plan was
established has 250 or more eligible employees and the plan lists only one
broker of record, or (ii) the plan includes employer contributions and the plan
lists only one broker of record. If a company has more than one plan investing
in the Delaware Group of funds, then the total amount invested in all plans
would be used in determining the applicable front-end sales charge reduction.
Employees participating in such Group Investment Plans may also combine the
investments made in their plan account when determining the front-end sales
charge on purchases to non-retirement Delaware Group investment accounts.
For additional information on these Plans, including Plan forms, applications,
minimum investments and any applicable account maintenance fees, contact your
investment dealer or the Distributor.
For other Retirement Plans and special services, see Retirement Planning.
Deferred Sales Charge Alternative-Class B Shares
Class B Shares may be purchased at net asset value without the imposition of a
front-end sales charge. The Class B Shares are being sold without a front-end
sales charge so that a Series will invest the full amount of the investor's
purchase payment. The Distributor currently anticipates compensating dealers or
brokers for selling Class B Shares at the time of purchase from its own funds in
an amount equal to no more than 4% of the dollar amount purchased. As discussed
below, however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
shares are redeemed within six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for the distribution and related services provided to,
and the related expenses borne on behalf of, a Series for the benefit of the
Class B Shares in connection with the sale of the Class B Shares, including the
compensation paid to dealers or brokers for selling Class B Shares. Payments to
the Distributor and others under the 12b-1 Plan relating to the Class B Shares
may be, annually, in an amount equal to no more than 1%. The combination of the
CDSC and the proceeds of the 12b-1 Plan fees facilitates the ability of a Series
to sell the Class B Shares without a front-end sales charge being deducted at
the time of purchase.
Shareholders of the Class B Shares exercising the exchange privilege described
below will continue to be subject to the CDSC schedule of the Class B Shares
described in this Prospectus. Such schedule may be higher than the CDSC schedule
relating to the Class B Shares acquired as a result of the exchange. See
Redemption and Exchange.
Automatic Conversion of Class B Shares
Except for shares acquired through a reinvestment of dividends, Class B Shares
of a Series held for eight years after purchase are eligible for automatic
conversion into Class A Shares of that Series. The Fund will effect conversions
of Class B Shares into Class A Shares only four times in any calendar year, on
the last business day of the second full week of March, June, September and
December (each, a "Conversion Date"). If the eighth anniversary after a purchase
of Class B Shares falls on a Conversion Date, an investor's Class B Shares will
be converted on that date. If the eighth anniversary occurs between Conversion
Dates, an investor's Class B Shares will be converted on the next Conversion
Date after such anniversary. Consequently, if a shareholder's eighth anniversary
falls on the day after a Conversion Date, that shareholder will have to hold
Class B Shares for as long as an additional three months after the eighth
anniversary after purchase before the shares will automatically convert into
Class A Shares.
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Devon Fund Retail Pros Page 20
<PAGE>
Class B Shares of a fund acquired through reinvestment of dividends will
convert to the corresponding Class A Shares of that fund (or, in the case of
Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant Class)
pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes. See Taxes.
Contingent Deferred Sales Charge
Class B Shares redeemed within six years of purchase may be subject to a CDSC
at the rates set forth below, charged as a percentage of the dollar amount
subject thereto. The charge will be assessed on an amount equal to the lesser of
the net asset value at the time of purchase of the shares being redeemed or the
net asset value of the shares at the time of redemption. For purposes of this
formula, the "net asset value at the time of purchase" will be the net asset
value at purchase of the Class B Shares of the Series even if those shares are
later exchanged for Class B Shares of another Delaware Group fund and, in the
event of an exchange of the shares, the "net asset value of such shares at the
time of redemption" will be the net asset value of the shares into which the
shares have been exchanged. Accordingly, no CDSC will be imposed on increases in
net asset value above the initial purchase price. In addition, no CDSC will be
assessed on redemption of shares received upon reinvestment of dividends or
capital gains distributions.
The following table sets forth the rates of the CDSC for the Class B Shares of
a Series:
Contingent Deferred
Sales Charge
(as a Percentage of
Year After Dollar Amount
Purchase Made Subject to Charge)
------------- -------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares of a Series, the Class B Shares will continue
to be subject to annual 12b-1 Plan expenses of 1% of average daily net assets
representing those shares. See Automatic Conversion of Class B Shares above.
Investors are reminded that the Class A Shares into which the Class B Shares
will convert are subject to ongoing annual 12b-1 Plan expenses of up to a
maximum of .30% of average daily net assets representing such shares.
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in a manner that results in the lowest applicable rate being
charged. Therefore, with respect to the Class B Shares, it will be assumed that
the redemption is first for shares held over six years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares held
longest during the six-year period. The charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase. All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on the last day of
that month and each subsequent month.
The CDSC is waived on redemptions of Class B Shares in connection with the
following redemptions: (i) redemptions effected pursuant to the Fund's right to
liquidate a shareholder's account if the aggregate net asset value of the shares
held in the account is less than the then- effective minimum account size; (ii)
returns of excess contributions to an IRA or 403(b)(7) Deferred Compensation
Plan; (iii) required minimum distributions from an IRA, 403(b)(7) Deferred
Compensation Plan, or 457 Deferred Compensation Plan; and (iv) distributions
from an IRA, 403(b)(7) Deferred Compensation Plan or 457 Deferred Compensation
Plan due to death or disability.
12b-1 Distribution Plans-Class A and Class B Shares
Pursuant to the distribution plans adopted by the Fund pursuant to Rule 12b-1
under the 1940 Act, a Series is permitted to pay the Distributor annual
distribution fees payable monthly of .30% of the average daily net assets of the
Class A Shares and 1% of the average daily net assets of the Class B Shares in
order to compensate the Distributor for providing distribution and related
services and bearing certain expenses of each Class. The Class B Shares' 12b-1
Plan is designed to permit an investor to purchase Class B Shares through
dealers or brokers without the assessment of a front-end sales charge and at the
same time permit the Distributor to compensate dealers and brokers in connection
with the sale of the Class B Shares. In this regard, the purpose and function of
the 12b-1 Plan and the CDSC with respect to the Class B Shares are the same as
those of the front-end sales charge and 12b-1 Plan with respect to the Class A
Shares in that the fees and charges provide for the financing of the
distribution of the respective Classes. For more detailed discussion of the 12b-
1 Plans relating to the Class A and Class B Shares, see Distribution (12b-1) and
Service.
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Devon Fund Retail Pros Page 21
<PAGE>
Other Payments to Dealers-Class A and Class B Shares
In addition, from time to time at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of the Classes exceed certain
limits as set by the Distributor, may receive from the Distributor an additional
payment of up to .25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.
In connection with the promotion of Delaware Group fund shares, the
Distributor may, from time to time, pay to participate in dealer-sponsored
seminars and conferences, reimburse dealers for expenses incurred in connection
with preapproved seminars, conferences and advertising and may, from time to
time, pay or allow additional promotional incentives to dealers, which shall
include non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. In addition, as noted above, the Distributor may pay
dealers a commission in connection with net asset value purchases.
Class B Funds
The following funds currently offer Class B Shares:
DMC Tax-Free Income Trust--Pennsylvania, Delaware Group Delchester High-Yield
Bond Fund, Inc., Delaware Group Government Fund, Inc., Limited-Term Government
Fund of Delaware Group Limited-Term Government Funds, Inc., Delaware Group Cash
Reserve, Inc., Tax-Free USA Fund, Tax-Free Insured Fund and Tax-Free USA
Intermediate Fund of Delaware Group Tax-Free Fund, Inc., Delaware Group DelCap
Fund, Inc., Delaware Group Value Fund, Inc., Decatur Income Fund and Decatur
Total Return Fund of Delaware Group Decatur Fund, Inc., Delaware Group Trend
Fund, Inc., Global Assets Series, Global Bond Series and International Equity
Series of Delaware Group Global & International Funds, Inc. and each Series of
the Fund.
Delaware Fund Institutional Class and Devon Fund Institutional Class
In addition to offering the Delaware Fund A Class, the Delaware Fund B Class,
the Devon Fund A Class and the Devon Fund B Class, the Fund also offers the
Delaware Fund Institutional Class and the Devon Fund Institutional Class of
shares, which are described in a separate prospectus relating to those classes
of shares. Those classes may be purchased only by: (a) retirement plans
introduced by persons not associated with brokers or dealers that are primarily
engaged in the retail securities business and rollover individual retirement
accounts from such plans; (b) tax-exempt employee benefit plans of the Manager
or its affiliates and securities dealer firms with a selling agreement with the
Distributor; (c) institutional advisory accounts of the Manager or its
affiliates and those having client relationships with Delaware Investment
Advisers, a division of the Manager, or its affiliates and their corporate
sponsors, as well as subsidiaries and related employee benefit plans and
rollover individual retirement accounts from such institutional advisory
accounts; (d) banks, trust companies and similar financial institutions
investing for their own account or for the account of their trust customers for
whom such financial institution is exercising investment discretion in
purchasing shares of the class; and (e) registered investment advisers investing
on behalf of clients that consist solely of institutions and high net-worth
individuals having at least $1,000,000 entrusted to the adviser for investment
purposes, but only if the adviser is not affiliated or associated with a broker
or dealer and derives compensation for its services exclusively from its clients
for such advisory services. Such Delaware Fund Institutional Class and Devon
Fund Institutional Class shares generally are distributed directly by the
Distributor and do not have a front-end or contingent deferred sales charge or a
12b-1 fee. Sales or service compensation available in respect of such classes,
therefore, differs from that available in respect of the Class A Shares and the
Class B Shares of a Series. The 12b-1 Plan distribution expenses borne by the
Class A Shares and the Class B Shares, the front-end sales charge and the
Limited CDSC, if applicable, to which the Class A Shares are subject, and the
CDSC to which the Class B Shares are subject, may affect the performance of
these Classes. All three classes of shares of a Series have a proportionate
interest in the underlying portfolio of securities of that Series. Total
Operating Expenses incurred by the Delaware Fund Institutional Class as of
October 31, 1994 were 0.81%. Total Operating Expenses incurred by the Devon Fund
Institutional Class for the period December 29, 1993 (date of initial public
offering) through October 31, 1994 were 0.95%, annualized, after voluntary fee
waivers and expense reimbursement by the Manager. See Part B for performance
information about the Delaware Fund Institutional Class and the Devon Fund
Institutional Class. To obtain a prospectus which describes the Delaware Fund
Institutional Class and the Devon Fund Institutional Class, contact the
Distributor.
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Devon Fund Retail Pros Page 22
<PAGE>
Dividend Orders
Some shareholders want the dividends earned in one fund automatically invested
in another Delaware Group fund with a different investment objective. For more
information on the requirements of the other funds, see Dividend Reinvestment
Plan under The Delaware Difference or call the Shareholder Service Center.
HOW TO BUY SHARES
The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer.
Investing through Your Investment Dealer
You can make a purchase of shares of the Classes through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one, we
can refer you to one.
Investing by Mail
1. Initial Purchases--An Investment Application must be completed, signed and
sent with a check, payable to the specific Class selected, to 1818 Market
Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Class selected. Your check should be identified
with your name(s) and account number. An investment slip (similar to a deposit
slip) is provided at the bottom of transaction confirmations and dividend
statements that you will receive from the Fund, and should be used when you are
making additional purchases. You can expedite processing by including an
investment slip with your check when making additional purchases. Your
investment may be delayed if you send additional purchases by certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds by wire to
CoreStates Bank, N.A., ABA #031000011, account number 0114-2596 (include your
name(s) and your account number for the Class in which you are investing).
1. Initial Purchases--Before you invest, telephone the Fund's Shareholder
Service Center to get an account number. If you do not call first, it may delay
processing your investment. In addition, you must promptly send your Investment
Application to the designated Class, to 1818 Market Street, Philadelphia, PA
19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the Fund's
Shareholder Service Center by telephone of each wire you send.
If you want to wire investments to a Retirement Plan Account, call the
Shareholder Service Center for special wiring instructions.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group, you
may write and authorize an exchange of part or all of your investment into
shares of the Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information.
Exchanges will not be permitted between Class A Shares and Class B Shares of a
Series or between the Class A Shares and Class B Shares of any other funds in
the Delaware Group. Class B Shares of any of the Class B Funds may be exchanged
for Class B Shares of a Series. Class B Shares of a Series acquired by exchange
will continue to carry the contingent deferred sales charge and the automatic
conversion schedules of the fund from which the exchange is made. The holding
period of the Class B Shares of a Series will be added to that of the exchanged
shares for purposes of determining the time of the automatic conversion into
Class A Shares of that Series.
Permissible exchanges into each Class of a Series will be made without a
front-end sales charge imposed by the Fund or, at the time of the exchange, a
contingent deferred sales charge imposed by the fund from which the exchange is
being made, except for exchanges into Class A Shares from funds not subject to a
front-end sales charge (unless such shares were acquired in an exchange from a
fund subject to such a charge or such shares were acquired through the
reinvestment of dividends).
Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to use
the following services:
1. Direct Deposit
You may wish to have your employer or bank make regular investments directly
to your account for you (for example: payroll deduction, pay by phone, annuity
payments). The Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.
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2. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly investments
without writing or mailing checks. You may authorize the Fund to transfer a
designated amount monthly from your checking account to your Class account. Many
shareholders use this as an automatic savings plan for IRAs and other purposes.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
This option is not available to participants in the following plans: SAR/SEP,
SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457 Deferred
Compensation Plans.
* * *
Should investments by these two methods be reclaimed or returned for some
reason, the Fund has the right to liquidate your shares to reimburse the
government or transmitting bank. If there are insufficient funds in your Class
account, you are obligated to reimburse the Series.
Purchase Price and Effective Date
The offering price and net asset value of the Class A and Class B Shares are
determined as of the close of regular trading on the New York Stock Exchange
(ordinarily, 4 p.m., Eastern time) on days when such exchange is open.
The effective date of a purchase made through an investment dealer is the date
the order is received by the Fund. The effective date of a direct purchase is
the day your wire, electronic transfer or check is received, unless it is
received after the time the offering price or net asset value of shares is
determined, as noted above. Those received after such time will be effective the
next business day.
The Conditions of Your Purchase
The Fund reserves the right to reject any purchase or exchange. If a purchase
is cancelled because your check is returned unpaid, you are responsible for any
loss incurred. The Fund can redeem shares from your account(s) to reimburse
itself for any loss, and you may be restricted from making future purchases in
any of the funds in the Delaware Group. The Fund reserves the right to reject
purchase orders paid by third party checks or checks that are not drawn on a
domestic branch of a United States financial institution. If a check drawn on a
foreign financial institution is accepted, you may be subject to additional bank
charges for clearance and currency conversion.
The Fund also reserves the right, following shareholder notification, to
charge a service fee on non-retirement accounts of the Class A Shares and Class
B Shares that have remained below the minimum stated account balance for a
period of three or more consecutive months. Holders of such accounts may be
notified of their below minimum status and advised that they have until the end
of the current calendar quarter to raise their balance to the stated minimum. If
the account has not reached the minimum balance requirement by that time, the
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining low
balance accounts. No fees will be charged without proper notice and no
contingent deferred sales charge will apply to such assessments.
The Fund also reserves the right, upon 60 days' written notice, to redeem
accounts that remain under $250 as a result of redemptions. An investor making
the minimum initial investment will be subject to involuntary redemption without
the imposition of a CDSC or Limited CDSC if he or she redeems any portion of his
or her account.
REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways. The
exchange service is useful if your investment requirements change and you want
an easy way to invest in other equity funds, tax-advantaged funds, bond funds or
money market funds. This service is also useful if you are anticipating a major
expenditure and want to move a portion of your investment into a fund that has
the checkwriting feature. Exchanges are subject to the requirements of each fund
and all exchanges of shares from one fund or class to another pursuant to this
privilege constitute taxable events. See Taxes. You may want to call us for more
information or consult your financial adviser or investment dealer to discuss
which funds in the Delaware Group will best meet your changing objectives, and
the consequences of any exchange transaction.
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Your shares will be redeemed or exchanged based on the net asset value next
determined after we receive your request in good order subject, in the case of a
redemption, to any applicable CDSC or Limited CDSC. Redemption or exchange
requests received in good order after the time the offering price and net asset
value of shares are determined, as noted above, will be processed on the next
business day. See Purchase Price and Effective Date under Buying Shares. Except
as otherwise noted below, for a redemption request to be in "good order," you
must provide your Class account number, account registration, and the total
number of shares or dollar amount of the transaction. If a holder of Class B
Shares submits a redemption request for a specific dollar amount, the Fund will
redeem that number of shares necessary to deduct the applicable CDSC and tender
to the shareholder the requested amount to the extent enough shares are then
held in the shareholder account. With regard to exchanges, you must also provide
the name of the fund you want to receive the proceeds. Exchange instructions and
redemption requests must be signed by the record owner(s) exactly as the shares
are registered. You may request a redemption or an exchange by calling the Fund
at 800-523-1918 (in Philadelphia, 215-988-1241). The Fund reserves the right to
reject exchange requests at any time. The Fund may suspend or terminate, or
amend the terms of, the exchange privilege upon 60 days' written notice to
shareholders.
The Fund will honor written redemption requests of shareholders who recently
purchased shares by check, but will not mail the proceeds until it is reasonably
satisfied the purchase check has cleared, which may take up to 15 days from the
purchase date. The Fund will not honor telephone redemptions for Class shares
recently purchased by check unless it is reasonably satisfied that the purchase
check has cleared. You can avoid this potential delay if you purchase shares by
wiring Federal Funds. The Fund reserves the right to reject a written or
telephone redemption request or delay payment of redemption proceeds if there
has been a recent change to the shareholder's address of record.
Class A Shares may be exchanged for certain of the shares of the other funds
in the Delaware Group, including other Class A Shares, subject to the
eligibility and minimum purchase requirements set forth in each fund's
prospectus. All Delaware Group funds offer Class A Shares. Class A Shares may
not be exchanged for Class B Shares of the funds offering such shares. Class B
Shares of a Series may be exchanged only for the Class B Shares of any of the
Class B Funds. See Exchange Privilege under The Delaware Difference. In each
instance, permissible exchanges are subject to the minimum purchase and other
requirements set forth in each prospectus.
Permissible exchanges may be made at net asset value provided: (1) the
investment satisfies the eligibility and minimum purchase requirements set forth
in the prospectus of the fund being acquired; and (2) the shares of the fund
being acquired are in a state where that fund is registered.
There is no front-end sales charge or fee for exchanges made between shares of
funds which both carry a front-end sales charge. Any applicable front-end sales
charge will apply to exchanges from shares of funds not subject to a front-end
sales charge, except for transfers involving assets that were previously
invested in a fund with a front-end sales charge and/or transfers involving the
reinvestment of dividends.
Holders of the Class B Shares that exchange their shares ("outstanding Class B
Shares") for the Class B Shares of other Class B Funds ("new Class B Shares")
will not be subject to a CDSC that might otherwise be due upon redemption of the
outstanding Class B Shares. However, such shareholders will continue to be
subject to the CDSC and automatic conversion schedules of the outstanding Class
B Shares described in this Prospectus and any CDSC assessed upon redemption will
be charged by the Fund. A Series' CDSC schedule may be higher than the CDSC
schedule relating to the new Class B Shares acquired as a result of the
exchange. For purposes of computing the CDSC that may be payable upon a
disposition of the new Class B Shares, the holding period for the outstanding
Class B Shares is added to the holding period of the new Class B Shares. The
automatic conversion schedule of the outstanding Class B Shares may be longer
than that of the new Class B Shares. Consequently, an investment in new Class B
Shares by exchange may subject an investor to the higher 12b-1 fees applicable
to Class B Shares for a longer time than if the investment in new Class B Shares
was made directly.
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Different redemption and exchange methods are outlined below. Except for the
CDSC with respect to redemption of Class B Shares and the Limited CDSC with
respect to certain redemptions of Class A Shares purchased at net asset value,
there is no fee charged by the Fund or the Distributor for redeeming or
exchanging your shares, but such fees could be charged in the future. You may
also have your investment dealer arrange to have your shares redeemed or
exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders with respect to an account, including
selection of any of the features described below, shall continue in effect until
revoked or modified in writing and until such time as such written revocation or
modification has been received by the Fund or its agent.
All exchanges involve a purchase of shares of the fund into which the exchange
is made. As with any purchase, an investor should obtain and carefully read that
fund's prospectus before buying shares in an exchange. The prospectus contains
more complete information about the fund, including charges and expenses.
Written Redemption
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103 to
redeem some or all of your Class A or Class B Shares. The request must be signed
by all owners of the account or your investment dealer of record. For
redemptions of more than $50,000, or when the proceeds are not sent to the
shareholder(s) at the address of record, the Fund requires a signature by all
owners of the account and a signature guarantee for each owner. Each signature
guarantee must be supplied by an eligible guarantor institution. The Fund
reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Fund may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.
The redemption request is effective at the net asset value next determined
after it is received in good order. Class B Shares may be subject to a CDSC and
Class A Shares may be subject to a Limited CDSC with respect to certain shares
purchased at net asset value. Payment is normally mailed the next business day,
but no later than seven days, after receipt of your request. If your Class A
Shares are in certificate form, the certificate must accompany your request and
also be in good order. The Fund only issues certificates for Class A Shares if a
shareholder submits a specific request. The Fund does not issue certificates for
Class B Shares.
Written Exchange
You can also write to the Fund (at 1818 Market Street, Philadelphia, PA 19103)
to request an exchange of any or all of your Class A or Class B Shares into
another mutual fund in the Delaware Group, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange methods,
you must have the Transfer Agent hold your shares (without charge) for you. If
you choose to have your Class A Shares in certificate form, you can only redeem
or exchange by written request and you must return your certificates.
The Telephone Redemption service enabling you to have redemption proceeds
mailed to your address of record and the Telephone Exchange service, both of
which are described below, are automatically provided unless you notify the Fund
in writing that you do not wish to have such service available with respect to
your account. The Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Fund by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Fund nor the Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Series shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem shares.
You or your investment dealer of record can have redemption proceeds of $50,000
or less mailed to you at your record address. Checks will be payable to the
shareholder(s) of record. Payment is normally mailed the next business day, but
no later than seven days, after receipt of the request. This service is only
available to individual, joint and individual fiduciary-type accounts.
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Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your predesignated
bank account by wire or by check. You should authorize this service when you
open your account. If you change your predesignated bank account, the Fund
requires an Authorization Form with your signature guaranteed. For your
protection, your authorization must be on file. If you request a wire, your
funds will normally be sent the next business day. CoreStates Bank, N.A.'s fee
(currently $7.50) will be deducted from your redemption. If you ask for a check,
it will normally be mailed the next business day, but no later than seven days,
after receipt of your request to your predesignated bank account. Except for any
CDSC which may be applicable to the Class B Shares and the Limited CDSC which
may be applicable to purchases made at net asset value with respect to the Class
A Shares, there are no fees for this method, but the mail time may delay getting
funds into your bank account. Simply call the Fund's Shareholder Service Center
prior to the time the offering price and net asset value are determined, as
noted above.
If expedited payment by check or wire could adversely affect a Series, the
Fund may take up to seven days to pay.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to adjust
your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange Class A
or Class B Shares into any fund in the Delaware Group under the same
registration, subject to the same conditions and limitations as other exchanges
noted above. As with the written exchange service, telephone exchanges are
subject to the requirements of each fund, as described above. Telephone
exchanges may be subject to limitations as to amounts or frequency.
Systematic Withdrawal Plan for Class A Shares
1. Regular Plans
This plan provides holders of the Class A Shares with a consistent monthly (or
quarterly) payment. This is particularly useful to shareholders living on fixed
incomes, since it can provide them with a stable supplemental amount. With
accounts of at least $5,000, you may elect monthly withdrawals of $25 (quarterly
$75) or more. The Fund does not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check. In
the alternative, you may elect to have your payments transferred from your
Series account to your predesignated bank account through the Delaware Group's
MoneyLine service. Your funds will normally be credited to your bank account two
business days after the payment date. Except with respect to the Limited CDSC
which may be applicable to Class A Shares as noted below, there are no fees for
this method. You can initiate this service by completing an Authorization
Agreement. If the name and address on your bank account are not identical to the
name and address on your Series account, you must have your signature
guaranteed. Please call the Shareholder Service Center for additional
information.
2. Retirement Plans
For shareholders eligible under the applicable Retirement Plan to receive
benefits in periodic payments, the Fund's Systematic Withdrawal Plan provides
you with maximum flexibility. A number of formulas are available for calculating
your withdrawals depending upon whether the distributions are required or
optional. Withdrawals must be for $25 or more; however, no minimum account
balance is required. The MoneyLine service described above is not available with
respect to Retirement Plans.
* * *
Shareholders should not purchase Class A Shares while participating in a
Systematic Withdrawal Plan. Also, redemptions of Class A Shares pursuant to a
Systematic Withdrawal Plan may be subject to a Limited CDSC if the original
purchase was made within the 12 months prior to the withdrawal at net asset
value and a dealer's commission was paid on that purchase. See Contingent
Deferred Sales Charge for Certain Purchases of Class A Shares Made at Net Asset
Value. For more information on both of these plans, call the Shareholder Service
Center.
The Systematic Withdrawal Plan is not available with respect to the Class B
Shares.
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Wealth Builder Option
Shareholders may elect to invest in other mutual funds in the Delaware Group
through our Wealth Builder Option. Under this automatic exchange program,
shareholders can authorize regular monthly amounts (minimum of $100 per fund) to
be liquidated from their Class account and invested automatically into one or
more funds in the Delaware Group. Investments under this option are exchanges
and are therefore subject to the same conditions and limitations as other
exchanges of Class A and Class B Shares noted above.
Shareholders can also use the Wealth Builder Option to invest in the Fund
through regular liquidations of shares in their accounts in other funds in the
Delaware Group, subject to the same conditions and limitations as other
exchanges noted above. Shareholders can terminate their participation at any
time by written notice to the Fund. See Redemption and Exchange.
This option is not available to participants in the following plans: SAR/SEP,
SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457 Deferred
Compensation Plans.
Contingent Deferred Sales Charge for Certain Purchases of Class A Shares Made at
Net Asset Value
For purchases of Class A Shares, a Limited CDSC will be imposed by the Fund
upon certain redemptions of Class A Shares (or shares into which such Class A
Shares are exchanged) made within 12 months of purchase, if such purchases were
made at net asset value and triggered the payment by the Distributor of the
dealer's commission described above. See Buying Shares.
The Limited CDSC will be paid to the Distributor and will be equal to the
lesser of 1% of (1) the net asset value at the time of purchase of the Class A
Shares being redeemed or (2) the net asset value of such Class A Shares at the
time of redemption. For purposes of this formula, the "net asset value at the
time of purchase" will be the net asset value at purchase of the Class A Shares
even if those shares are later exchanged for shares of another Delaware Group
fund and, in the event of an exchange of Class A Shares, the "net asset value of
such shares at the time of redemption" will be the net asset value of the shares
into which the Class A Shares have been exchanged.
Redemptions of such Class A Shares held for more than 12 months will not be
subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Fund assesses the Limited CDSC if such 12-month period is not
satisfied irrespective of whether the redemption triggering its payment is of
the Class A Shares of a Series or the Class A Shares into which the Class A
Shares of that Series have been exchanged.
In determining whether a Limited CDSC is payable, it will be assumed that
shares not subject to the Limited CDSC are the first redeemed followed by other
shares held for the longest period of time. The Limited CDSC will not be imposed
upon shares representing reinvested dividends or capital gains distributions, or
upon amounts representing share appreciation. All investments made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of that month and each subsequent month.
The Limited CDSC will be waived in the following instances: (i) redemptions
effected pursuant to the Fund's right to liquidate a shareholder's account if
the aggregate net asset value of the shares held in the account is less than the
then-effective minimum account size; (ii) distributions to participants from a
retirement plan qualified under section 401(a) or 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"), or due to death of a participant in such
a plan; (iii) redemptions pursuant to the direction of a participant or
beneficiary of a retirement plan qualified under section 401(a) or 401(k) of the
Code with respect to that retirement plan; (iv) distributions from a section
403(b)(7) Plan or an IRA due to death, disability, or attainment of age 59 1/2;
(v) tax-free returns of excess contributions to an IRA; (vi) distributions by
other employee benefit plans to pay benefits; (vii) distributions described in
(ii), (iv), and (vi) above pursuant to a systematic withdrawal plan; and (viii)
redemptions by the classes of shareholders who are permitted to purchase shares
at net asset value, regardless of the size of the purchase (see Buying at Net
Asset Value).
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DIVIDENDS AND DISTRIBUTIONS
Each Series will normally make payments from net investment income on a
quarterly basis. During the fiscal year ended October 31, 1994, dividends
totaling $0.600 and $0.150 per share of the Delaware Fund A Class and the
Delaware Fund B Class, respectively, were paid from net investment income.
During the same period, dividends totaling $0.090 and $0.030 per share of the
Devon Fund A Class and the Devon Fund B Class, respectively, were paid from net
investment income. This amount included undistributed net investment income
earned by the Delaware Fund A Class during the previous fiscal year.
Payments from net realized securities profits of each Series, if any, will be
distributed annually in the quarter following the close of the fiscal year.
During the fiscal year ended October 31, 1994, distributions totaling $1.160 per
share of the Delaware Fund A Class were paid from realized securities profits.
The Devon Fund A Class commenced operations on December 29, 1993 and the Class B
Shares of each Series commenced operations on September 6, 1994.
Each of the Classes of a Series will share proportionately in the investment
income and expenses of that Series, except that: (i) the per share dividends and
distributions on the Class B Shares of a Series will be lower than the per share
dividends and distributions on the Class A Shares of that Series as a result of
the higher expenses under the 12b-1 Plan relating to the Class B Shares; and
(ii) the per share dividends and distributions on both the Class A Shares of a
Series and the Class B Shares of that Series will be lower than the per share
dividends and distributions on, respectively, the Delaware Fund Institutional
Class and Devon Fund Institutional Class as such classes will not incur any
expenses under the Rule 12b-1 Plans. See Distribution (12b-1) and Service under
Management of the Fund.
Both dividends and distributions, if any, are automatically reinvested in your
account at net asset value, unless you elect otherwise. Any check in payment of
dividends or other distributions which cannot be delivered by the Post Office
or which remains uncashed for a period of more than one year may be reinvested
in the shareholder's account at the then-current net asset value and the
dividend option may be changed from cash to reinvest. If you elect to take your
dividends and distributions in cash and such dividends and distributions are in
an amount of $25 or more, you may elect the Delaware Group's MoneyLine service
to enable such payments to be transferred from your Series account to your
predesignated bank account. Your funds will normally be credited to your bank
account two business days after the payment date. There are no fees for this
method. See Systematic Withdrawal Plan for Class A Shares under Redemption and
Exchange for information regarding authorization of this service. This service
is not available with respect to Retirement Plans. (See The Delaware Difference
for more information on reinvestment options.)
TAXES
Each Series has qualified, and intends to continue to qualify, as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code").
As such, a Series will not be subject to federal income tax, or to any excise
tax, to the extent its earnings are distributed as provided in the Code.
Each Series intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to you as ordinary income, whether
received in cash or in additional shares. For corporate investors, dividends
from net investment income will generally qualify in part for the corporate
dividends-received deduction. The portion of dividends paid by a Series that so
qualifies will be designated each year in a notice from the Fund to the Series'
shareholders. For the fiscal year ended October 31, 1994, 52% and 45% of,
respectively, the Delaware Fund's and the Devon Fund's dividends from net
investment income qualified for the corporate dividends-received deduction.
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Distributions paid by a Series from long-term capital gains, whether received
in cash or in additional shares, are taxable to those investors who are subject
to income taxes as long-term capital gains, regardless of the length of time an
investor has owned shares in the Series. The Series do not seek to realize any
particular amount of capital gains during a year; rather, realized gains are a
byproduct of a Series' management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Series are made
shortly before the record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution.
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November, or December to shareholders
of record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Series and received by the
shareholder on December 31 of the year declared.
The sale of shares of a Series is a taxable event and may result in a capital
gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
two mutual funds (or two series or portfolios of a mutual fund). Any loss
incurred on sale or exchange of a Series' shares which had been held for six
months or less will be treated as a long-term capital loss to the extent of
capital gain dividends received with respect to such shares. All or a portion of
the sales charge incurred in purchasing a Series' shares will be excluded from
the federal tax basis of any of such shares sold or exchanged within ninety (90)
days of their purchase (for purposes of determining gain or loss upon sale of
such shares) if the sale proceeds are reinvested in the Series or in another
fund in the Delaware Group of funds and a sales charge that would otherwise
apply to the reinvestment is reduced or eliminated. Any portion of such sales
charge excluded from the tax basis of the shares sold will be added to the tax
basis of the shares acquired in the reinvestment.
The automatic conversion of Class B Shares into Class A Shares at the end of
no longer than approximately eight years after purchase will be tax-free for
federal tax purposes. Shareholders should consult their own tax advisers
regarding specific questions as to federal, state, local or foreign taxes. See
Automatic Conversion of Class B Shares under Buying Shares.
In addition to federal taxes, shareholders may be subject to state and local
taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. Government securities may be exempt from
state personal income taxes. Shares of the Series are exempt from Pennsylvania
county personal property taxes.
Each year, the Fund will mail you information on the tax status of the Series'
dividends and distributions. Shareholders will also receive each year
information as to the portion of dividend income, if any, that is derived from
U.S. Government securities that are exempt from state income tax. Of course,
shareholders who are not subject to tax on their income would not be required to
pay tax on amounts distributed to them by the Series.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
The tax discussion set forth above is included for general information only.
Prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in a Series.
See Taxes in Part B for additional information on tax matters relating to each
Series and its shareholders.
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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
Class A Shares are purchased at the offering price and Class B Shares are
purchased at the net asset value ("NAV") per share. The offering price of the
Class A Shares consists of the NAV per share next computed after the order is
received, plus any applicable front-end sales charges. The offering price and
NAV are computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when such exchange is open.
The NAV per share is computed by adding the value of all securities and other
assets in the portfolio, deducting any liabilities (expenses and fees are
accrued daily) and dividing by the number of shares outstanding. Portfolio
securities for which market quotations are available are priced at market value.
Debt securities are priced at fair value by an independent pricing service using
methods approved by the Fund's Board of Directors. Short-term investments having
a maturity of less than 60 days are valued at amortized cost, which approximates
market value. All other securities are valued at their fair value as determined
in good faith and in a method approved by the Fund's Board of Directors.
Each of a Series' three classes will bear, pro-rata, all of the common
expenses of that Series. The net asset values of all outstanding shares of each
class of a Series will be computed on a pro-rata basis for each outstanding
share based on the proportionate participation in that Series represented by the
value of shares of that class. All income earned and expenses incurred by a
Series will be borne on a pro-rata basis by each outstanding share of a class,
based on each class' percentage in that Series represented by the value of
shares of such classes, except that the Delaware Fund Institutional Class and
the Devon Fund Institutional Class will not incur any distribution fees under
the 12b-1 Plans and the Class A and Class B Shares of each Series alone will
bear the 12b-1 Plan expenses payable under their respective Plans. Due to the
specific distribution expenses and other costs that will be allocable to each
class, the net asset value of and dividends paid to each class of a Series will
vary.
MANAGEMENT OF THE FUND
Directors
The business and affairs of the Fund are managed under the direction of its
Board of Directors. Part B contains additional information regarding the
directors and officers.
Investment Manager
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in the Delaware
Group since 1938. On October 31, 1994, the Manager and its affiliate, Delaware
International Advisers Ltd., were supervising in the aggregate more than $25
billion in assets in the various institutional (approximately $16,074,376,000)
and investment company (approximately $9,525,500,000) accounts.
The Manager is an indirect, wholly-owned subsidiary of Delaware Management
Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a wholly-
owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. As a result of the merger, DMH became a wholly-owned subsidiary and
the Manager became an indirect, wholly-owned subsidiary of Lincoln National and
both are now subject to the ultimate control of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management. In connection with the merger,
new Investment Management Agreements between the Fund on behalf of each Series
and the Manager was executed following shareholder approval.
31
Devon Fund Retail Pros Page 31
<PAGE>
The Manager manages each Series' portfolio and makes investment decisions
which are implemented by the Fund's Trading Department. The Manager also
administers the Fund's affairs and pays the salaries of all the directors,
officers and employees of the Fund who are affiliated with the Manager. For
these services, the Manager is paid an annual fee equal to: for the Delaware
Fund, .60% on the first $100 million of average daily net assets of the Fund,
.525% on the next $150 million, .50% on the next $250 million and .475% on the
average daily net assets in excess of $500 million, less the Series'
proportionate share of all directors' fees paid to the unaffiliated directors of
the Fund; and, for the Devon Fund, .60% on the first $500 million of average
daily net assets and .50% on the average daily net assets in excess of $500
million. Investment management fees paid by the Delaware Fund for the fiscal
year ended October 31, 1994 were 0.52% of average daily net assets. Investment
management fees earned by the Devon Fund from December 29, 1993 (date of initial
public offering) through October 31, 1994 were 0.50%, annualized, of average
daily net assets and no fees were paid by this Series as a result of the
voluntary waiver of fees by the Manager described under Summary of Expenses.
George H. Burwell and Gary A. Reed have primary responsibility for making day-
to-day investment decisions for the Delaware Fund and Mr. Burwell has such
responsibility for the Devon Fund. Mr. Burwell, who has been the Fund's Senior
Portfolio Manager for equities since 1992, holds a BA from the University of
Virginia. Prior to joining the Delaware Group in 1992, Mr. Burwell was a
portfolio manager for Midlantic Bank in Edison, New Jersey, where he managed an
equity mutual fund and three commingled funds. Mr. Burwell is a Chartered
Financial Analyst.
Mr. Reed has been the Delaware Fund's Senior Portfolio Manager for fixed
income since April 1995. He holds an AB in Economics from the University of
Chicago and an MA in Economics from Columbia University. He began his career in
1978 with the Equitable Life Assurance Company in New York City, where he
specialized in credit analysis. Prior to joining the Delaware Group in 1989, Mr.
Reed was Vice President and Manager of the fixed income department at Irving
Trust Company in New York.
In making investment decisions for the Fund, Mr. Burwell and Mr. Reed
regularly consult with Wayne A. Stork, Richard G. Unruh, Jr. and Paul E. Suckow.
Mr. Stork, Chairman of the Manager and the Fund's Board of Directors, is a
graduate of Brown University and attended New York University's Graduate School
of Business Administration. Mr. Stork joined the Delaware Group in 1962 and has
served in various executive capacities at different times within the Delaware
organization. A graduate of Brown University, Mr. Unruh received his MBA from
the University of Pennsylvania's Wharton School and joined the Delaware Group in
1982 after 19 years of investment management experience with Kidder, Peabody &
Co. Inc. Mr. Unruh was named an executive vice president of the Fund in 1994. He
is also a member of the Board of the Manager and was named an executive vice
president of the Manager in 1994. He is on the Board of Directors of Keystone
Insurance Company and AAA Mid-Atlantic and is a former president and current
member of the Advisory Council of the Bond Club of Philadelphia. Mr. Suckow is
Delaware's Chief Investment Officer for fixed income. A Chartered Financial
Analyst, he is a graduate of Bradley University with an MBA from Western
Illinois University. Mr. Suckow was a fixed income portfolio manager at the
Delaware Group from 1981 to 1985. He returned to the Delaware Group in 1993
after eight years with Oppenheimer Management Corporation.
Portfolio Trading Practices
The Series normally will not invest for short-term trading purposes. However,
each Series may sell securities without regard to the length of time they have
been held. The degree of portfolio activity will affect brokerage costs of the
Series and may affect taxes payable by the Series' shareholders to the extent of
any net realized capital gains. A turnover rate of 100% would occur, for
example, if all the investments in a Series' portfolio at the beginning of the
year were replaced by the end of the year. During the past two fiscal years,
Delaware Fund's portfolio turnover rates were 160% for 1993 and 142% for 1994.
For the period December 29, 1993 (date of initial public offering) through
October 31, 1994, Devon Fund's portfolio turnover rate was 180%, annualized.
32
Devon Fund Retail Pros Page 32
<PAGE>
The Fund uses its best efforts to obtain the best available price and most
favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the Manager in servicing any
of its accounts. Subject to best price and execution, the Fund may consider a
broker/dealer's sales of Series shares in placing portfolio orders and may place
orders with broker/dealers that have agreed to defray certain Series expenses
such as custodian fees.
Performance Information
From time to time, Delaware Fund and Devon Fund may quote total return
performance of their respective classes, in advertising and other types of
literature. Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period and (ii) in the case of Class B Shares,
the deduction of any applicable CDSC at the end of the relevant period. Each
presentation will include the average annual total return for one-, five- and
ten-year or life-of-Series periods, as relevant. The Series may also advertise
aggregate and average total return information concerning a Class over
additional periods of time. In addition, each Series may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC. In this case, such total return information would
be more favorable than total return information which includes deductions of the
maximum front-end sales charge or any applicable CDSC.
Because securities prices fluctuate, investment results of the Classes will
fluctuate over time and past performance should not be considered as a
representation of future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), serves as the national distributor for
the Series under separate Distribution Agreements dated April 3, 1995.
The Fund has adopted a separate distribution plan under Rule 12b-1 (the
"Plan") for each of the Classes which permits the Fund to pay the Distributor
from the assets of the respective Classes a monthly fee for its services and
expenses in distributing and promoting sales of shares. These expenses include,
among other things, preparing and distributing advertisements, sales literature,
and prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, holding special promotions for specified periods of time,
and paying distribution and maintenance fees to brokers, dealers and others. In
connection with the promotion of Class A and Class B Shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, and reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising. The Distributor may pay or
allow additional promotional incentives to dealers as part of preapproved sales
contests and/or to dealers who provide extra training and information concerning
a Class and increase sales of shares of a Class. In addition, the Fund may make
payments from the assets of the respective Class directly to others, such as
banks, who aid in the distribution of Class shares or provide services in
respect of a Class, pursuant to service agreements with the Fund.
The 12b-1 Plan expenses relating to the Class B Shares are also used to pay
the Distributor for advancing the commission costs to dealers with respect to
the initial sale of such shares.
The aggregate fees paid by the Fund on behalf of each Series from the assets
of the respective Class to the Distributor and others under the Plan may not
exceed .30% of a Class A Shares' average daily net assets in any year, and 1%
(.25% of which are service fees to be paid by the Series to the Distributor,
dealers and others, for providing personal service and/or maintaining
shareholder accounts) of a Class B Shares' average daily net assets in any year.
Each Series' Class A and Class B Shares will not incur any distribution expenses
beyond these limits, which may not be increased without shareholder approval.
The Distributor may, however, incur additional expenses and make additional
payments to dealers from its own resources to promote the distribution of shares
of the Classes.
33
Devon Fund Retail Pros Page 33
<PAGE>
Effective June 1, 1992, the Board of Directors has determined that the annual
fee payable from Delaware Fund A Class on a monthly basis, under its Plan, will
be equal to the sum of: (i) the amount obtained by multiplying .30% by the
average daily net assets represented by shares of that Class that are acquired
by shareholders on or after June 1, 1992; and (ii) the amount obtained by
multiplying .10% by the average daily net assets represented by shares of that
Class that were acquired before June 1, 1992. While this is the method for
calculating the Delaware Fund A Class' 12b-1 fee, the fee is a Class expense so
that all shareholders, regardless of when they purchase their shares, will bear
12b-1 expenses at the same per share rate. As Delaware Fund A Class shares are
sold on or after June 1, 1992, the initial rate of at least .10% will increase
over time. Thus, as the proportion of Delaware Fund A Class shares purchased on
or after June 1, 1992, to Class shares outstanding prior to June 1, 1992,
increases, the expenses attributable to payments under the Plan will also
increase (but will not exceed .30% of average daily net assets). While this
describes the current formula for calculating the fees which will be payable
under the Plan, the Plan permits the Fund, on behalf of the Delaware Fund
series, to pay a full .30% on all assets of the Delaware Fund A Class at any
time following Board approval. The Class will not incur any distribution
expenses beyond the .30% limit, which may not be increased without shareholder
approval.
On September 23, 1993, the Board of Directors set the fee for the Devon Fund A
Class at .30% of average daily net assets.
The Plans do not apply to the Delaware Fund Institutional Class or the Devon
Fund Institutional Class of shares. Those shares are not included in calculating
the Plans' fees, and the Plans are not used to assist in the distribution and
marketing of the Delaware Fund Institutional Class or the Devon Fund
Institutional Class.
While payments pursuant to the Plans may not exceed .30% annually with respect
to each Series' Class A Shares and 1% annually with respect to each Series'
Class B Shares, the Plans do not limit fees to amounts actually expended by the
Distributor. It is therefore possible that the Distributor may realize a profit
in any particular year. However, the Distributor currently expects that its
distribution expenses will likely equal or exceed payments to it under the
Plans. The monthly fees paid to the Distributor under the Plans are subject to
the review and approval of the Fund's unaffiliated directors who may reduce the
fees or terminate the Plans at any time.
The staff of the Securities and Exchange Commission ("SEC") has proposed
amendments to Rule 12b-1 and other related regulations that could impact Rule
12b-1 Distribution Plans. The Fund intends to amend the Plans, if necessary, to
comply with any new rules or regulations the SEC may adopt with respect to Rule
12b-1.
The Transfer Agent, Delaware Service Company, Inc., serves as the shareholder
servicing, dividend disbursing and transfer agent for the Delaware Fund under an
Agreement dated June 29, 1988 and for the Devon Fund under an Agreement dated
December 29, 1993. The unaffiliated directors review service fees paid to the
Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly-owned
subsidiaries of DMH.
Expenses
The Fund is responsible for all of its own expenses other than those borne by
the Manager under the Investment Management Agreements and those borne by the
Distributor under the Distribution Agreements. The ratio of expenses to average
daily net assets for the Delaware Fund A Class for the fiscal year ended October
31, 1994 was 0.97%, inclusive of 12b-1 fees. The ratio of operating expenses to
average daily net assets for the Devon Fund A Class from December 29, 1993 (date
of initial public offering) through October 31, 1994 was 1.25% (annualized),
inclusive of 12b-1 fees, after voluntary fee waivers and expense reimbursements
by the Manager. The Class B Shares of each Series commenced operations on
September 6, 1994. Based on expenses incurred by the Delaware Fund A Class
during its fiscal year ended October 31, 1994, the expenses of the Delaware Fund
B Class are expected to be 1.81%, inclusive of 12b-1 fees, for the fiscal year
ending October 31, 1995. Based on the expenses incurred by the Devon Fund A
Class during the period ended October 31, 1994, the expenses of the Devon Fund B
Class are expected to be 1.95%, inclusive of 12b-1 fees, after voluntary fee
waivers and expense reimbursements by the Manager through December 31, 1995.
34
Devon Fund Retail Pros Page 34
<PAGE>
Shares
The Fund is an open-end management investment company, commonly known as a
mutual fund, and each Series' portfolio of assets is diversified for purposes of
the 1940 Act. The Fund, which was organized as a Maryland corporation on March
4, 1983, was previously organized as a Delaware corporation in 1937.
The Fund currently offers two Series of shares-the Delaware Fund series and
the Devon Fund series. Series shares have a par value of $1.00, equal voting
rights, except as noted below, and are equal in all other respects. Each Series
will vote separately on any matter which affects only that Series. Shares of
each Series have a priority over shares of any other series of the Fund in the
assets and income of that Series. All Fund shares have noncumulative voting
rights which means that the holders of more than 50% of the Fund's shares voting
for the election of directors can elect 100% of the directors if they choose to
do so. Under Maryland law, the Fund is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act. Shareholders of 10% or more of the Fund's
shares may request that a special meeting be called to consider the removal of a
director.
The Delaware Fund and the Devon Fund also offer the Delaware Fund
Institutional Class and the Devon Fund Institutional Class of shares,
respectively, which represent proportionate interests in the assets of the
respective Series and have the same voting and other rights and preferences as
the other classes of that Series, except that shares of the Delaware Fund
Institutional Class and the Devon Fund Institutional Class are not subject to,
and may not vote on matters affecting, the Distribution Plans under Rule 12b-1
relating to the Classes. Similarly, the shareholders of the Class A Shares may
not vote on matters affecting a Series' Plan under Rule 12b-1 relating to the
Class B Shares, and the shareholders of the Class B Shares may not vote on
matters affecting a Series' Plan under Rule 12b-1 relating to the Class A
Shares. However, the Class B Shares may vote on a proposal to increase
materially the fees to be paid by the Fund under the Rule 12b-1 Plan relating to
the Class A Shares.
Prior to September 6, 1994, the Delaware Fund A Class was known as the
Delaware Fund class and the Delaware Fund Institutional Class was known as the
Delaware Fund (Institutional) class. Prior to the same date, the Dividend Growth
Fund A Class was known as the Dividend Growth Fund class and the Dividend Growth
Fund Institutional Class was known as the Dividend Growth Fund (Institutional)
class. Effective as of the close of business on August 28, 1995, the name
Dividend Growth Fund was changed to Devon Fund. At the same time, the names of
Dividend Growth Fund A Class, Dividend Growth Fund B Class and Dividend Growth
Fund Institutional Class were changed to, respectively, Devon Fund A Class,
Devon Fund B Class and Devon Fund Institutional Class.
35
Devon Fund Retail Pros Page 35
<PAGE>
For more information contact Delaware
Group at 800-828-5052.
Investment Manager
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
National Distributor [Photo of George Washington
crossing the Delaware River
Delaware Distributors, L.P. appears here]
1818 Market Street
Philadelphia, PA 19103
Shareholder Servicing,
Dividend Disbursing
and Transfer Agent
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
Legal Counsel
Stradley, Ronon, Stevens & Young
One Commerce Square
Philadelphia, PA 19103
Independent Auditors
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
Custodian
Chemical Bank
450 West 33rd Street
New York, NY 10001
P-042/P-040[-] RRD895
Printed in the U.S.A.
FPO
Delaware
Fund
-------------
Institutional
Devon
Fund
-------------
Institutional
PROSPECTUS
AUGUST 29, 1995
DELAWARE
GROUP
- --------
<PAGE>
DELAWARE FUND PROSPECTUS
INSTITUTIONAL August 29, 1995
DEVON FUND
(FORMERLY DIVIDEND GROWTH FUND)
INSTITUTIONAL
----------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For more information about the Delaware Fund Institutional Class and the
Devon Fund Institutional Class call Delaware Group at 800-828-5052.
Delaware Group Delaware Fund, Inc. (the "Fund") is a professionally-managed
mutual fund of the series type. This Prospectus describes the shares of the
Common Stock series, which is known as and does business as the Delaware Fund
series ("Delaware Fund"), and the Devon Fund series ("Devon Fund")
(collectively, the "Series"). Delaware Fund's objective is to seek a balance of
capital appreciation, income and preservation of capital. Devon Fund's objective
is to seek current income and capital appreciation.
Delaware Fund offers the Delaware Fund Institutional Class and Devon Fund offers
the Devon Fund Institutional Class (individually, a "Class" and collectively,
the "Classes"). Shares of the Classes are available for purchase only by certain
enumerated institutions and are offered at net asset value without the
imposition of a front-end or contingent deferred sales charge and without a 12b-
1 charge. See Buying Shares. Devon Fund Institutional Class was formerly known
as Dividend Growth Fund Institutional Class.
This Prospectus relates only to the Classes and sets forth information that you
should read and consider before you invest. Please retain it for future
reference. Part B of the Fund's registration statement, dated August 29, 1995,
as it may be amended from time to time, contains additional information about
the Fund and has been filed with the Securities and Exchange Commission. Part B
is incorporated by reference into this Prospectus and is available, without
charge, by writing to Delaware Distributors, L.P. at the above address or by
calling the above number. Each Series' financial statements appear in its
respective Annual Report, which will accompany any response to requests for Part
B.
Delaware Fund also offers the Delaware Fund A Class and the Delaware Fund B
Class, and Devon Fund also offers the Devon Fund A Class and the Devon Fund B
Class. Shares of Delaware Fund A Class and Devon Fund A Class carry a front-end
sales charge and are subject to ongoing distribution expenses. Shares of
Delaware Fund B Class and Devon Fund B Class are subject to ongoing distribution
expenses and a contingent deferred sales charge upon redemption. A prospectus
for these classes can be obtained by writing to Delaware Distributors, L.P. at
the above address or by calling the above number.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Cover Page................................. 1
Synopsis................................... 2
Summary of Expenses........................ 3
Financial Highlights....................... 4
Investment Objectives and Policies
Investment Strategy...................... 6
Suitability.............................. 10
Buying Shares............................... 11
Redemption and Exchange..................... 13
Dividends and Distributions................. 15
Taxes....................................... 15
Calculation of Net Asset Value Per Share.... 16
Management of the Fund...................... 17
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUND ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARENOT OBLIGATIONSOFANYBANK ORANY CREDITUNION, AND INVOLVE INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUND ARE NOT BANK OR
CREDIT UNION DEPOSITS.
1
<PAGE>
SYNOPSIS
Capitalization
The Fund offers the Delaware Fund series, consisting of the Delaware Fund
Institutional Class, the Delaware Fund A Class and the Delaware Fund B Class,
and the Devon Fund series, consisting of the Devon Fund Institutional Class, the
Devon Fund A Class and the Devon Fund B Class. The Fund has a present authorized
capitalization of five hundred million shares of capital stock with a $1.00 par
value per share. Fifty million shares of that stock have been allocated to the
Delaware Fund Institutional Class, one hundred million shares have been
allocated to the Delaware Fund A Class, fifty million shares have been allocated
to the Delaware Fund B Class, twenty-five million shares have been allocated to
the Devon Fund Institutional Class, fifty million shares have been allocated to
the Devon Fund A Class and fifty million shares have been allocated to the Devon
Fund B Class. See Shares under Management of the Fund.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") is the investment manager
for the Fund. The Manager or its affiliate, Delaware International Advisers
Ltd., also manages the other funds in the Delaware Group. Delaware Distributors,
L.P. (the "Distributor") is the national distributor for the Fund and for all of
the other mutual funds in the Delaware Group. Delaware Service Company, Inc.
(the "Transfer Agent") is the shareholder servicing, dividend disbursing and
transfer agent for the Fund and for all of the other mutual funds in the
Delaware Group. See Management of the Fund.
Purchase Price
Shares of each Class offered by this Prospectus are available at net asset
value, without a front-end or contingent deferred sales charge and are not
subject to distribution fees under a Rule 12b-1 distribution plan. See Buying
Shares.
Investment Objective
The objective of the Delaware Fund is to seek a balance of capital
appreciation, income and preservation of capital. The objective of the Devon
Fund is to seek current income and capital appreciation. See Investment
Objectives and Policies.
Special Considerations
The Devon Fund may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. While the Devon Fund does not
engage in options and futures for speculative purposes, there are risks which
result from use of these instruments by the Series, and the investor should
review the descriptions of such in this Prospectus. See Futures Contracts and
Options under Investment Objectives and Policies.
Open-End Investment Company
The Fund, which was organized as a Maryland corporation on March 4, 1983 and
previously organized as a Delaware corporation in 1937, is an open-end
management investment company and each Series' portfolio of assets is
diversified for purposes of the Investment Company Act of 1940 (the "1940 Act").
See Shares under Management of the Fund.
Investment Management Fees
The Manager furnishes investment management services to the Fund, subject to
the supervision and direction of the Board of Directors. Under the Investment
Management Agreements, the annual compensation paid to the Manager is equal to:
for Delaware Fund, .60% on the first $100 million of average daily net assets,
.525% on the next $150 million, .50% on the next $250 million and .475% on the
average daily net assets in excess of $500 million, less the Series'
proportionate share of all directors' fees paid to the unaffiliated directors of
the Fund; and, for Devon Fund, .60% on the first $500 million of average daily
net assets and .50% on the average daily net assets in excess of $500 million.
See Management of the Fund.
Redemption and Exchange
Shares of each Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
2
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
Delaware
Fund
Institutional
Shareholder Transaction Expenses Class
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................ None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................ None
Redemption Fees..................................... None*
Exchange Fees....................................... None**
Delaware
Fund
Annual Operating Expenses Institutional
(as a percentage of average daily net assets) Class
Management Fees..................................... 0.52%
12b-1 Fees.......................................... None
Other Operating Expenses............................ 0.29%
----
Total Operating Expenses........................... 0.81%
====
</TABLE>
<TABLE>
<CAPTION>
Devon
Fund
Institutional
Shareholder Transaction Expenses Class
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................ None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................ None
Redemption Fees..................................... None*
Exchange Fees....................................... None**
Devon
Fund
Annual Operating Expenses Institutional
(as a percentage of average daily net assets) Class
Management Fees (after voluntary waivers)........... 0.00%***
12b-1 Fees.......................................... None
Other Operating Expenses (after voluntary waivers).. 0.95%***
----
Total Operating Expenses........................... 0.95%***
====
</TABLE>
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in either Class will bear directly
or indirectly. *CoreStates Bank, N.A. currently charges $7.50 per redemption for
redemptions payable by wire. **Exchanges are subject to the requirements of
each fund and a front-end sales charge may apply. ***The Manager had elected
voluntarily to waive that portion, if any, of the annual management fees payable
by the Devon Fund and to reimburse the Series to the extent necessary to ensure
that the "Total Operating Expenses" of the Devon Fund Institutional Class did
not exceed .95% (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses) during the commencement of the public offering of the
Class through December 31, 1994. This waiver has been extended through December
31, 1995. If the voluntary expense waivers were not in effect, it is estimated
that the "Total Operating Expenses," as a percentage of average daily net
assets, would be 2.96% for the Devon Fund Institutional Class, reflecting
Management Fees of 0.50%. See Delaware Fund A Class, Delaware Fund B Class,
Devon Fund A Class and Devon Fund B Class for expense information about those
classes.
The following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period. As noted in the tables
above, the Fund charges no redemption fees.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
Delaware Fund $8 $26 $45 $100 Devon Fund $10 $30 $53 $117
Institutional Class Institutional Class
</TABLE>
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
Delaware/Devon (Inst.) Pros Page 3
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights from the years ended October 31, 1985 through
October 31, 1994 for the Delaware Fund Institutional Class and December 29, 1993
through October 31, 1994 for the Devon Fund Institutional Class are derived from
the financial statements of Delaware Group Delaware Fund, Inc.--Delaware Fund
and Delaware Group Delaware Fund, Inc.--Devon Fund and have been audited by
Ernst & Young LLP, independent auditors. The data should be read in conjunction
with the financial statements, related notes, and the reports of Ernst & Young
LLP covering such financial information and highlights, all of which are
incorporated by reference into Part B. Further information about the Series'
performance is contained in their Annual Reports to shareholders. A copy of each
Series' Annual Report (including the report of Ernst & Young LLP) may be
obtained from the Fund upon request at no charge.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Delaware Fund Institutional Class
------------------------------------------------------------------------------------------------------------
Period
11/9/92
Year /2/ Year
Ended to Ended
10/31/94 10/31/93 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 10/31/88 10/31/87 10/31/86 10/31/85
/2/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period................ $19.460 $18.820 $ 18.720 $ 18.810 $ 16.190 $ 17.480 $ 15.250 $ 16.850 $ 23.200 $ 20.860 $ 19.070
Income From Investment
- ----------------------
Operations
----------
Net Investment Income.. 0.653 0.632 0.631 0.660 0.757 0.856 0.796 0.551 0.331 0.554 0.717
Net Gains (Losses) on
Securities
(both realized and
unrealized)........... (0.293) 1.438 1.509 1.490 3.033 (1.366) 2.384 2.259 (1.971) 4.486 2.883
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations........... 0.360 2.070 2.140 2.150 3.790 (0.510) 3.180 2.810 (1.640) 5.040 3.600
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
- ------------------
Dividends (from net
investment income).... (0.630) (0.660) (0.660) (0.700) (0.880) (0.780) (0.950) (0.320) (0.400) (0.700) (0.800)
Distributions (from
capital gains)........ (1.160) (0.770) (0.770) (1.540) (0.290) none none (4.090) (4.310) (2.000) (1.010)
Returns of Capital..... none none none none none none none none none none none
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions... (1.790) (1.430) (1.430) (2.240) (1.170) (0.780) (0.950) (4.410) (4.710) (2.700) (1.810)
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................ $18.030 $19.460 $ 19.430 $ 18.720 $ 18.810 $ 16.190 $ 17.480 $ 15.250 $ 16.850 $ 23.200 $ 20.860
======= ======= ======== ======== ======== ======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return........... 1.96% 11.76% 11.91% 12.37% 24.32% (3.17%) 21.66% 22.03% (9.14%) 26.85% 20.47%
- ------------ /3/ /3/ /3/ /3/ /3/ /3/ /3/ /3/ /3/
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End
of Period
(000's omitted)...... $93,990 $72,052 $507,528 $487,343 $ 453,449 $349,873 $361,625 $328,650 $320,854 $405,856 $341,269
Ratio of Expenses to
Average Daily Net
Assets............... .81% .77% .89% .79% .71% .75% .76% .77% .73% .69% .75%
Ratio of Net
Investment Income to
Average Daily Net
Assets............... 3.47% 3.39% 3.27% 3.64% 4.29% 4.99% 4.73% 4.01% 1.64% 2.53% 3.71%
Portfolio Turnover
Rate................. 142% 160% 160% 144% 212% 147% 129% 180% 205% 104% 132%
</TABLE>
- -------------------
/1/ Data are derived from data of the Delaware Fund A Class (formerly known as
Delaware Fund class) which was subject to 12b-1 distribution expenses
effective June 1, 1992.
/2/ Data are derived from Delaware Fund Institutional Class shares (formerly
known as Delaware Fund (Institutional) class), which commenced operations on
November 9, 1992. Ratios and total return have been annualized.
/3/ Does not reflect any maximum sales charges that are or were in effect for
the Delaware Fund A Class.
4
Delaware/Devon (Inst.) Pros Page 4
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Devon Fund
Institutional
Class
-------------
Period
<S> <C>
12/29/93 /1/
to
10/31/94
Net Asset Value, Beginning of Period............................. $ 10.000
Income From Investment Operations
- ---------------------------------
Net Investment Income............................................ 0.201
Net Gains (Losses) on Securities (both realized and unrealized).. 0.749
-----
Total From Investment Operations............................... 0.950
-----
Less Distributions
Dividends (from net investment income)........................... (0.090)
Distributions (from capital gains)............................... none
Returns of Capital............................................... none
------
Total Distributions............................................ (0.090)
------
Net Asset Value, End of Period................................... $ 10.860
------
------
- -------------------------------------------------------------------------------
Total Return..................................................... 11.45%/1/2/
- ------------
- -------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)........................ $ 2,516
Ratio of Expenses to Average Daily Net Assets.................... 0.95%/1/3/
Ratio of Net Investment Income to Average Daily Net Assets....... 2.26%/1/4/
Portfolio Turnover Rate.......................................... 180%
</TABLE>
- -------------------
/1/Date of initial sale of Devon Fund Institutional Class; this class was
formerly known as Dividend Growth Fund Institutional Class. Ratios and total
return have been annualized.
/2/Total return reflects expense limitation referenced in Notes 3 and 4.
/3/Ratio of expenses to average daily net assets prior to expense limitation was
2.96% for the period ended October 31, 1994.
/4/Ratio of net investment income to average daily net assets prior to expense
limitation was 0.25% for the period ended October 31, 1994.
5
Delaware/Devon (Inst.) Pros Page 5
<PAGE>
INVESTMENT OBJECTIVES
AND POLICIES
The objective of the Delaware Fund is to seek a balance of capital
appreciation, income and preservation of capital.
The objective of the Devon Fund is to seek current income and capital
appreciation.
Although each Series will constantly strive to attain its objective, there can
be no assurance that it will be obtained. The objective of each Series cannot be
changed without shareholder approval.
INVESTMENT STRATEGY
Delaware Fund--As a "balanced" fund, the Delaware Fund will generally invest at
least 25% of its assets in fixed income securities, including U.S. Government
securities and corporate bonds. The remainder of the Series will be allocated to
equity securities principally, including convertible securities, and also to
cash and cash equivalents. A portion of the Series' investment in certain
convertible securities may be deemed fixed income in nature for purposes of this
25% fixed income allocation. The Series may also invest in foreign securities.
The Series uses a dividend-oriented valuation strategy to select individual
securities in which it will invest. In seeking capital appreciation, the Series
invests primarily in common stocks of established companies believed to have a
potential for long-term capital growth. In seeking current income and
preservation of capital, in addition to capital appreciation, the Series invests
in various types of fixed income securities, including U.S. Government and
government agency securities and corporate bonds. The Series generally invests
in bonds that are rated in the top four grades by a nationally-recognized rating
agency (e.g., Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P")) at the time of purchase, or, if unrated, are determined to
be equivalent to the top four grades in the judgment of the Manager. The fourth
grade is considered medium grade and may have some speculative characteristics.
Typically, the maturity of the bonds will range between five and 30 years. The
Series may invest not more than 5% of its assets in convertible debentures rated
below investment grade.
The Series will analyze existing and expected economic and market conditions
and seek to identify those market sectors or individual securities that are
expected to benefit from those conditions. Its appraisal of these economic
conditions will determine the types of securities it will hold and the degree of
investment emphasis placed upon capital appreciation and income.
Devon Fund--The Devon Fund will seek to achieve its objective by investing
primarily in income-producing common stocks, with a focus on common stocks that
the Manager believes have the potential for above average dividend increases
over time. Under normal circumstances, the Series will generally invest at least
65% of its total assets in dividend paying common stocks.
In selecting stocks for the Series, the Manager will focus primarily on
dividend paying common stocks issued by companies with market capitalizations in
excess of $100 million, but is not precluded from purchasing shares of companies
with market capitalizations of less than $100 million. In seeking stocks with
potential for above average dividend increases, the Manager will consider such
factors as the historical growth rate of a dividend, the frequency of prior
dividend increases, the issuing company's potential to generate cash flows, and
the price/earnings multiple of the stock relative to the market. The Manager
will generally avoid stocks that it believes are overvalued and may select
stocks with current dividend yields that are lower than the current yield of the
S&P 500 Stock Index in exchange for anticipated dividend growth.
While management believes that the Series' objective may best be attained by
investing in common stocks, the Series may also invest in other securities
including, but not limited to, convertible and preferred securities, rights and
warrants to purchase common stock, and various types of fixed income securities,
such as U.S. Government and government agency securities, corporate debt
securities, and bank obligations, and may also engage in futures transactions.
The Series may invest in foreign securities.
Mortgage-Backed Securities--Each Series may invest in mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or government sponsored corporations. Each Series also may
invest in securities issued by certain private, non-government corporations,
such as financial institutions, if the securities are fully collateralized at
the time of issuance by securities or certificates issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Two principal types of
mortgage-backed securities are collateralized mortgage obligations (CMOs) and
real estate mortgage investment conduits (REMICs).
CMOs are debt securities issued by U.S. Government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can
6
Delaware/Devon (Inst.) Pros Page 6
<PAGE>
result in a loss of premium, if any has been paid. Certain of these securities
may have variable or floating interest rates and others may be stripped
(securities which provide only the principal or interest feature of the
underlying security).
REMICs, which were authorized under the Tax-Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
CMOs and REMICs issued by private entities are not government securities and
are not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. The Series will invest in such
private-backed securities only if they are 100% collateralized at the time of
issuance by securities issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities. The Series currently invest in privately-issued
CMOs and REMICs only if they are rated at the time of purchase in the four
highest grades by a nationally-recognized rating agency.
Asset-Backed Securities--Each Series may also invest in securities which are
backed by assets such as receivables on home equity and credit loans, and
receivables regarding automobile, mobile home and recreational vehicle loans,
wholesale dealer floor plans and leases. All such securities must be rated in
the highest rating category by a reputable credit rating agency (e.g., AAA by
S&P's or Aaa by Moody's). Such receivables are securitized in either a pass-
through or a pay-through structure. Pass-through securities provide investors
with an income stream consisting of both principal and interest payments in
respect of the receivables in the underlying pool. Pay-through asset-backed
securities are debt obligations issued usually by a special purpose entity,
which are collateralized by the various receivables and in which the payments on
the underlying receivables provide the funds to pay the debt service on the debt
obligations issued. The Series may invest in these and other types of asset-
backed securities that may be developed in the future. It is each Series'
current policy to limit asset-backed investments to those represented by
interests in credit card receivables, wholesale dealer floor plans, home equity
loans and automobile loans.
Due to the shorter maturity of the collateral backing such securities, there
is less of a risk of substantial prepayment than with mortgage-backed
securities. Such asset-backed securities do, however, involve certain risks not
associated with mortgage-backed securities, including the risk that security
interests cannot be adequately or in many cases, ever, established. In addition,
with respect to credit card receivables, a number of state and federal consumer
credit laws give debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing such receivables due
to the large number of vehicles involved in a typical issuance and technical
requirements under state laws. Therefore, recoveries on repossessed collateral
may not always be available to support payments on the securities. For further
discussion concerning the risk of investing in such asset-backed securities, see
Part B.
Real Estate Investment Trusts--Each Series may invest in shares or convertible
bonds issued by real estate investment trusts ("REITS"). REITS invest primarily
in income producing real estate as well as real estate related loans or
interests. A REIT is not taxed on income distributed to shareholders if it
complies with several requirements relating to its organization, ownership,
assets and income, and a requirement that it distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year. Each Series anticipates investing only in REITS that invest the majority
of their assets directly in real property and derive their income primarily from
rents, which are known as "equity REITS." Equity REITS can also realize capital
gains by selling properties that have appreciated in value.
Restricted and Illiquid Securities--Each Series may purchase privately placed
securities the resale of which is restricted under applicable securities laws.
Most of the privately placed securities acquired by the Series will be eligible
for resale by the Series without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many privately
placed and legally restricted securities to be freely traded among certain
institutional buyers. Each Series may invest not more than 10% of its assets in
illiquid securities. While maintaining oversight, the Board of Directors of the
Fund has delegated to the Manager the day-to-day function of determining whether
individual Rule 144A Securities are liquid for purposes of each Series' 10%
limitation on investments in illiquid securities. The Devon Fund currently
intends to limit its investments in restricted securities, excluding Rule 144A
Securities, to not more than 5% of its assets.
7
Delaware/Devon (Inst.) Pros Page 7
<PAGE>
Convertible Securities--Each Series may invest in convertible securities,
including corporate debentures, bonds, notes and preferred stocks that may be
converted into or exchanged for common stock. These securities are generally
convertible either at a stated price or a stated rate (that is, for a specific
number of shares of common stock or other security). As with other fixed income
securities, the price of a convertible security to some extent varies inversely
with interest rates. While providing a fixed income stream, a convertible
security also affords the investor an opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible. Each Series may invest not more than 5% of its assets
in convertible debentures that are rated below investment grade or are unrated
but are determined by the Manager to be of comparable quality. For a discussion
concerning the risks of investing in such securities, see Part B.
Foreign Securities and ADRs--Each Series may invest up to 5% of its assets in
foreign securities. Each Series may also invest without limitation in sponsored
and unsponsored American Depository Receipts ("ADRs") that are actively traded
in the United States. ADRs are receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. "Sponsored" ADRs are issued jointly by the issuer of the underlying
security and a depository, and "unsponsored" ADRs are issued without the
participation of the issuer of the deposited security. Holders of unsponsored
ADRs generally bear all the costs of such facilities and the depository of an
unsponsored ADR facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through voting rights to the holders of such receipts in respect of the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored ADR.
Foreign markets may be more volatile than U.S. markets, and investments in
foreign securities involve sovereign risks in addition to the normal risks
associated with U.S. securities. These risks include political risks, foreign
taxes and exchange controls and currency fluctuations. For example, foreign
portfolio investments may fluctuate in value due to changes in currency rates
(i.e., the value of foreign investments would increase with a fall in the value
of the dollar) and control regulations apart from market fluctuations. Each
Series may also experience delays in foreign securities settlement.
Each Series will, from time to time, conduct foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date (i.e., a "forward foreign currency"
contract or "forward" contract). Investors should be aware that there are costs
and risks associated with such currency transactions.
The Fund's Custodian for its foreign securities is Morgan Guaranty Trust
Company of New York, located at 60 Wall Street, New York, NY 10260.
Futures Contracts--The Devon Fund may, to a limited extent, enter into futures
contracts on stocks and stock indices, and purchase or sell options on stock
index futures and stock indices. 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 Series' positions in cash,
short-term debt securities and other money market instruments, at times when the
Series' 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 Series.
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument, or for the making
and acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a futures contract provides for a specified settlement date
on which the securities underlying the contract are delivered, or in the case of
securities index futures contracts, the difference between the price at which
the contract was entered into and the contract's closing value is settled
between the purchaser and seller in cash. Futures contracts differ from options
in that they are bilateral agreements, with both the purchaser and the seller
equally obligated to complete the transaction. In addition, futures contracts
call for settlement only on the expiration date, and cannot be "exercised" at
any other time during their term.
The purchase or sale of a futures contract also differs from the purchase or
sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin" as a good faith deposit. This amount is
generally maintained in a segregated account at the custodian bank. Subsequent
payments to and from the broker, referred to as "variation margin," are made on
a daily basis as the value of the index or instrument underlying the futures
contract fluctuates, making positions in the futures contract more or less
valuable, a process known as "marking to the market."
8
Delaware/Devon (Inst.) Pros Page 8
<PAGE>
The Series may also purchase and write options on the types of futures
contracts in which the Series 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 Series is exercised, the Series 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 Series 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 Series may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that the Series 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
Series from closing out its positions relating to futures. See Part B for a
further discussion of this investment technique.
Options--The Devon Fund may write covered call options on individual issues as
well as write call options on stock indices. The Series 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 Series'
portfolio as well as the price movement of individual securities. The Series
does not currently intend to write or purchase stock index options.
While there is no limit on the amount of the Series' assets which may be
invested in covered call options, the Series will not invest more than 2% of its
net assets in put options. The Series will only use Exchange-traded options.
Call Options
Writing Covered Call Options--A covered call option obligates the Series to
sell one of its securities for an agreed price up to an agreed date. When the
Series 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 exercise price regardless of
market price changes during the call period. The advantage is that the Series
receives premium income for the limited purpose of offsetting the costs of
purchasing put options or offsetting any capital loss or decline in market value
of the security. However, if the Manager's forecast is wrong, the Series may not
fully participate in the market appreciation if the security's price rises.
Writing a Call Option on Stock Indices--Writing a call option on stock indices
is similar to the writing of a call option on an individual stock. Stock indices
used will include, but not be limited to, the S&P 500, the S&P 100 and the S&P
Over-The-Counter ("OTC") 250.
Put Options
Purchasing a Put Option--A put option gives the Series the right to sell one
of its securities for an agreed price up to an agreed date. The advantage is
that the Series can be protected should the market value of the security
decline. However, the Series must pay a premium for this right which would be
lost if the option is not exercised.
Purchasing a Put Option on Stock Indices--Purchasing a protective put option
on stock indices is similar to the purchase of protective puts on an individual
stock. Indices used will include, but not be limited to, the S&P 500, the S&P
100 and the S&P OTC 250.
Closing Transactions--Closing transactions essentially let the Series offset a
put option or covered call option prior to its exercise or expiration. If the
Series 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.
9
Delaware/Devon (Inst.) Pros Page 9
<PAGE>
Repurchase Agreements--In order to invest its cash reserves or when in a
temporary defensive posture, each Series may enter into repurchase agreements
with banks or broker/dealers deemed to be creditworthy by the Manager, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Series) acquires
ownership of a debt security and the seller agrees to repurchase the obligation
at a future time and set price, thereby determining the yield during the
purchaser's holding period. Generally, repurchase agreements are of short
duration, often less than one week, but on occasion for longer periods. Not more
than 10% of a Series' assets may be invested in repurchase agreements of over
seven-days' maturity or other illiquid assets. Should an issuer of a repurchase
agreement fail to repurchase the underlying security, the loss to the Series, if
any, would be the difference between the repurchase price and the market value
of the security. Each Series will limit its investments in repurchase agreements
to those which the Manager under the guidelines of the Board of Directors
determines to present minimal credit risks and which are of high quality. In
addition, each Series must have collateral of at least 100% of the repurchase
price, including the portion representing such Series' yield under such
agreements which is monitored on a daily basis. Such collateral is held by the
Custodian in book entry form. Such agreements may be considered loans under the
1940 Act, but the Series consider repurchase agreements contracts for the
purchase and sale of securities, and each seeks to perfect a security interest
in the collateral securities so that it has the right to keep and dispose of the
underlying collateral in the event of default.
The funds in the Delaware Group have obtained an exemption from the joint-
transaction prohibitions of Section 17(d) of the Investment Company Act to allow
the Delaware Group funds jointly to invest cash balances. Each Series of the
Fund may invest cash balances in a joint repurchase agreement in accordance with
the terms of the Order and subject generally to the conditions described above.
Portfolio Loan Transactions--Each Series may loan up to 25% of its assets to
qualified broker/dealers or institutional investors for their use relating to
short sales or other security transactions.
The major risk to which a Series would be exposed on a loan transaction is the
risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, each Series will only enter into loan arrangements
after a review of all pertinent facts by the Manager, subject to overall
supervision by the Board of Directors, including the creditworthiness of the
borrowing broker, dealer or institution and then only if the consideration to be
received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.
Other Investment Policies--Neither Series may concentrate investments in any
industry, which means that a Series may generally not invest more than 25% of
its assets in any one industry.
In pursuing its investment objective, each Series may hold securities for any
period of time. For temporary, defensive purposes, each Series may hold a
substantial portion of its assets in cash, cash equivalents or short-term
obligations, including repurchase agreements. Each Series may also enter into
repurchase agreements to invest excess cash balances.
While each Series is permitted under certain circumstances to borrow money,
neither Series normally does so. A Series will not purchase investment
securities while it has any borrowings outstanding.
Each Series may purchase securities on a when-issued or delayed delivery
basis. It is the current intention of each Series not to enter into when-issued
commitments exceeding in the aggregate 5% of the market value of the Series'
total assets less liabilities other than obligations created by these
commitments.
* * *
Part B provides more information on the Fund's investment restrictions and
policies, and includes Appendix A which describes security ratings.
SUITABILITY
Each Series may be suitable for the patient investor interested in long-term
capital appreciation. Delaware Fund may be more suitable for investors wishing
to expose a portion of their assets to fixed income securities, while Devon Fund
may be more suitable for investors seeking a greater emphasis on common stocks
and securities convertible into common stocks. Investors in each Series should
be willing to accept the risks associated with investments in equity securities.
Investors in Delaware Fund and, to a lesser extent, investors in Devon Fund
should be willing to accept the risks associated with investments in fixed
income securities. Net asset value may fluctuate in response to market
conditions and, as a result, neither Series is appropriate for a short-term
investor.
Ownership of Series shares reduces the bookkeeping and administrative
inconveniences connected with direct purchases of these securities.
An investor should not consider a purchase of Series shares as equivalent to a
complete investment program. The Delaware Group includes a family of funds,
generally available through registered investment dealers, which may be used in
concert to create a more complete investment program.
10
Delaware/Devon (Inst.) Pros Page 10
<PAGE>
BUYING SHARES
The Distributor serves as the national distributor for the Fund. Shares of the
Class may be purchased directly by contacting the Fund or its agent or through
authorized investment dealers. All purchases of shares of the Class are at net
asset value. There is no front-end or contingent deferred sales charge.
Investment instructions given on behalf of participants in an employer-
sponsored retirement plan are made in accordance with directions provided by the
employer. Employees considering purchasing shares of the Class as part of their
retirement program should contact their employer for details.
Shares of each Class are available for purchase only by: (a) retirement plans
introduced by persons not associated with brokers or dealers that are primarily
engaged in the retail securities business and rollover individual retirement
accounts from such plans; (b) tax-exempt employee benefit plans of the Manager,
or its affiliates and securities dealer firms with a selling agreement with the
Distributor; (c) institutional advisory accounts of the Manager, or its
affiliates and those having client relationships with Delaware Investment
Advisers, a division of the Manager, or its affiliates and their corporate
sponsors, as well as subsidiaries and related employee benefit plans and
rollover individual retirement accounts from such institutional advisory
accounts; (d) banks, trust companies and similar financial institutions
investing for their own account or for the account of their trust customers for
whom such financial institution is exercising investment discretion in
purchasing shares of the Class; and (e) registered investment advisers investing
on behalf of clients that consist solely of institutions and high net-worth
individuals having at least $1,000,000 entrusted to the adviser for investment
purposes, but only if the adviser is not affiliated or associated with a broker
or dealer and derives compensation for its services exclusively from its clients
for such advisory services.
Delaware Fund A Class, Delaware Fund B Class,
Devon Fund A Class and Devon Fund B Class
In addition to offering the Delaware Fund Institutional Class and the Devon
Fund Institutional Class of shares, the Fund also offers the Delaware Fund A
Class, the Delaware Fund B Class, the Devon Fund A Class and the Devon Fund B
Class which are described in a separate prospectus relating only to those
classes. Those classes may be purchased through authorized investment dealers or
directly by contacting the Fund or its agent. The Delaware Fund A Class and
Devon Fund A Class carry a front-end sales charge and have annual 12b-1 expenses
equal to a maximum of .30%. The maximum front-end sales charge as a percentage
of the offering price is 5.75% (which, based on the net asset value of such
shares as of the end of the Fund's most recent fiscal year, is equivalent to
6.10% of the amount invested with respect to the Delaware Fund A Class and 6.09%
of the amount invested with respect to the Devon Fund A Class) and is reduced on
certain transactions of $100,000 or more. The Delaware Fund B Class and the
Devon Fund B Class have no front-end sales charge, but are subject to annual
12b-1 expenses equal to a maximum of 1%. Shares of the Delaware Fund B Class and
Devon Fund B Class and certain shares of the Delaware Fund A Class and Devon
Fund A Class may be subject to a contingent deferred sales charge upon
redemption. The 12b-1 Plan distribution expenses borne by the Delaware Fund A
Class and the Devon Fund A Class and the Delaware Fund B Class and the Devon
Fund B Class, the front-end sales charge and the limited contingent deferred
sales charge, if applicable, to which the Delaware Fund A Class and the Devon
Fund A Class are subject and the contingent deferred sales charge to which the
Delaware Fund B Class and the Devon Fund B Class are subject may affect
performance of those classes. Sales or service compensation available in respect
of such classes, therefore, differs from that available in respect of the
Classes. All three classes of shares of a Series have a proportionate interest
in the underlying portfolio of securities of that Series. Total Operating
Expenses incurred by the Delaware Fund A Class as a percentage of average daily
net assets for the fiscal year ended October 31, 1994 were 0.97%. From December
29, 1993 (date of initial public offering) through October 31, 1994, Total
Operating Expenses incurred by the Devon Fund A Class were 1.25%, annualized,
after voluntary fee waivers and expense reimbursement by the Manager. Based on
expenses incurred by the Delaware Fund A Class during the fiscal year ended
October 31, 1994, the expenses of the Delaware Fund B Class are expected to be
1.81% for the fiscal year ending October 31, 1995, and, based on expenses
incurred by the Devon Fund A Class during the period ended October 31, 1994, the
expenses of the Devon Fund B Class are expected to be 1.95%, after voluntary fee
waivers and expense reimbursements by the Manager through December 31, 1995. See
Part B for performance information about such Class A Shares and Class B Shares.
To obtain a prospectus relating to the Delaware Fund A Class, the Delaware Fund
B Class, the Devon Fund A Class and the Devon Fund B Class, contact the
Distributor.
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<PAGE>
HOW TO BUY SHARES
The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase the shares of the Classes.
Investing Directly by Mail
1. Initial Purchases--An Investment Application must be completed, signed and
sent with a check payable to the specific Class selected to 1818 Market Street,
Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Class selected. Your check should be identified
with your name(s) and account number.
Investing Directly by Wire
You may purchase shares by requesting your bank to transmit funds by wire to
CoreStates Bank, N.A., ABA #031000011, account number 0114-2596 (include your
name(s) and your account number for the Class in which you are investing).
1. Initial Purchases--Before you invest, telephone the Fund's Client Services
Department at 800-828-5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application to the designated Class, to 1818 Market Street,
Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You must advise your Client
Services Representative by telephone at 800-828-5052 prior to sending your wire.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group and you
qualify to purchase shares of the Classes, you may write and authorize an
exchange of part or all of your investment into the Classes. Shares of the
Delaware Fund B Class and the Devon Fund B Class and the Class B Shares of the
other funds in the Delaware Group offering such a class of shares may not be
exchanged into the Classes. If you wish to open an account by exchange, call
your Client Services Representative at 800-828-5052 for more information.
Investing through Your Investment Dealer
You can make a purchase of Class shares through most investment dealers who,
as part of the service they provide, must transmit orders promptly. They may
charge for this service.
Purchase Price and Effective Date
The purchase price (net asset value) of each Class is determined as of the
close of regular trading on the New York Stock Exchange (ordinarily, 4 p.m.,
Eastern time) on days when such exchange is open.
The effective date of a purchase made through an investment dealer is the date
the order is received by the Fund. The effective date of a direct purchase is
the day your wire, electronic transfer or check is received, unless it is
received after the time the share price is determined, as noted above. Those
received after such time will be effective the next business day.
The Conditions of Your Purchase
The Fund reserves the right to reject any purchase or exchange. If a purchase
is cancelled because your check is returned unpaid, you are responsible for any
loss incurred. The Fund can redeem shares from your account(s) to reimburse
itself for any loss, and you may be restricted from making future purchases in
any of the funds in the Delaware Group. The Fund reserves the right to reject
purchase orders paid by third party checks or checks that are not drawn on a
domestic branch of a United States financial institution. If a check drawn on a
foreign financial institution is accepted, you may be subject to additional bank
charges for clearance and currency conversion.
The Fund also reserves the right, upon 60 days' written notice, to redeem
accounts that remain under $250 as a result of redemptions.
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<PAGE>
REDEMPTION AND EXCHANGE
Redemption and exchange requests made on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees should therefore contact their employer for
details.
Your shares will be redeemed or exchanged based on the net asset value next
determined after we receive your request in good order. Redemption and exchange
requests received in good order after the time the net asset value of shares is
determined, as noted above, will be processed on the next business day. See
Purchase Price and Effective Date under Buying Shares. Except as otherwise noted
below, for a redemption request to be in "good order," you must provide your
Class account number, account registration, and the total number of shares or
dollar amount of the transaction. With regard to exchanges, you must also
provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Fund at 800-828-5052.
The Fund will honor written redemption requests of shareholders who recently
purchased shares by check, but will not mail the proceeds until it is reasonably
satisfied the purchase check has cleared, which may take up to 15 days from the
purchase date. The Fund will not honor telephone redemptions for Class shares
recently purchased by check unless it is reasonably satisfied that the purchase
check has cleared. You can avoid this potential delay if you purchase shares by
wiring Federal Funds. The Fund reserves the right to reject a written or
telephone redemption request or delay payment of redemption proceeds if there
has been a recent change to the shareholder's address of record.
Shares of a Class may be exchanged into any other Delaware Group mutual fund
provided: (1) the investment satisfies the eligibility and other requirements
set forth in the prospectus of the fund being acquired, including the payment of
any applicable front-end sales charge; and (2) the shares of the fund being
acquired are in a state where that fund is registered. If exchanges are made
into other shares that are eligible for purchase only by those permitted to
purchase shares of the Classes, such exchange will be exchanged at net asset
value. Shares of the Classes may not be exchanged into the Class B Shares of the
funds in the Delaware Group. The Fund reserves the right to reject exchange
requests at any time. The Fund may suspend or terminate, or amend the terms of,
the exchange privilege upon 60 days' written notice to shareholders.
Different redemption and exchange methods are outlined below. There is no fee
charged by the Fund or the Distributor for redeeming or exchanging your shares.
You may also have your investment dealer arrange to have your shares redeemed or
exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders with respect to an account, including
selection of any of the features described below, shall continue in effect until
revoked or modified in writing and until such time as such written revocation or
modification has been received by the Fund or its agent.
All exchanges involve a purchase of shares of the fund into which the exchange
is made. As with any purchase, an investor should obtain and carefully read that
fund's prospectus before buying shares in an exchange. The prospectus contains
more complete information about the fund, including charges and expenses.
Written Redemption and Exchange
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103 to
redeem some or all of your Class shares or to request an exchange of any or all
your Class shares into another mutual fund in the Delaware Group, subject to the
same conditions and limitations as other exchanges noted above. The request must
be signed by all owners of the account or your investment dealer of record.
For redemptions of more than $50,000, or when the proceeds are not sent to the
shareholder(s) at the address of record, the Fund requires a signature by all
owners of the account and may require a signature guarantee. Each signature
guarantee must be supplied by an eligible guarantor institution. The Fund
reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Fund may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.
The redemption request is effective at the net asset value next determined
after it is received in good order. Payment is normally mailed the next business
day, but no later than seven days, after receipt of your request. The Fund does
not issue certificates for shares unless you submit a specific request. If your
shares are in certificate form, the certificate must accompany your request and
also be in good order.
Shareholders also may submit their written request for redemption or exchange
by facsimile transmission at the following number: 215-972-8864.
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<PAGE>
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange methods,
you must have the Transfer Agent hold your shares (without charge) for you. If
you choose to have your shares in certificate form, you can only redeem or
exchange by written request and you must return your certificates.
The Telephone Redemption service enabling redemption proceeds to be mailed to
the account address of record and the Telephone Exchange service, both of which
are described below, are automatically provided unless you notify the Fund in
writing that you do not wish to have such service available with respect to your
account. The Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Fund by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Fund nor the Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Class shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be provided
for all purchase, exchange and redemption transactions initiated by telephone.
By exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption-Check to Your Address of Record
You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day,
but no later than seven days, after receipt of the request.
Telephone Redemption-Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your predesignated
bank account by wire or by check. You should authorize this service when you
open your account. If you change your predesignated bank account, the Fund
requires a written authorization and may require that you have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption. If you ask for a check, it will normally be mailed the next business
day, but no later than seven days, after receipt of your request to your
predesignated bank account. There are no fees for this method, but the mail time
may delay getting funds into your bank account. Simply call your Client Services
Representative prior to the time the net asset value is determined, as noted
above.
Telephone Exchange
You or your investment dealer of record can exchange shares into any fund in
the Delaware Group under the same registration. As with the written exchange
service, telephone exchanges are subject to the same conditions and limitations
as other exchanges noted above. Telephone exchanges may be subject to
limitations as to amounts or frequency.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Series will normally make payments from net investment income on a
quarterly basis. During the fiscal year ended October 31, 1994, dividends
totaling $0.630 and $0.090 per share of the Delaware Fund Institutional Class
and the Devon Fund Institutional Class, respectively, were paid from net
investment income. This amount included undistributed net investment income
earned by the Delaware Fund during the previous fiscal year.
Payments from net realized securities profits of each Series, if any, will be
distributed annually in the quarter following the close of the fiscal year.
During the fiscal year ended October 31, 1994, distributions totaling $1.160 per
share of the Delaware Fund Institutional Class were paid from realized
securities profits. The Devon Fund Institutional Class commenced operations on
December 29, 1993.
Each class of a Series will share proportionately in the investment income and
expenses of that Series, except that the Classes will not incur any distribution
fees under the 12b-1 Plans which apply only to the Delaware Fund A Class, the
Delaware Fund B Class, the Devon Fund A Class and the Devon Fund B Class.
Both dividends and distributions, if any, are automatically reinvested in your
account at net asset value.
TAXES
Each Series has qualified, and intends to continue to qualify, as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code").
As such, a Series will not be subject to federal income tax, or to any excise
tax, to the extent its earnings are distributed as provided in the Code.
Each Series intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to you as ordinary income, even
though received in additional shares. For corporate investors, dividends from
net investment income will generally qualify in part for the corporate
dividends-received deduction. The portion of dividends paid by a Series that so
qualifies will be designated each year in a notice from the Fund to the Series'
shareholders. For the fiscal year ended October 31, 1994, 52% and 45% of,
respectively, the Delaware Fund's and the Devon Fund's dividends from net
investment income qualified for the corporate dividends-received deduction.
Distributions paid by a Series from long-term capital gains, received in
additional shares, are taxable to those investors who are subject to income
taxes as long-term capital gains, regardless of the length of time an investor
has owned shares in the Series. The Series do not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a byproduct of
a Series' management activities. Consequently, capital gains distributions may
be expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in a Series are made shortly before the
record date for a dividend or capital gains distribution, a portion of the
investment will be returned as a taxable distribution.
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<PAGE>
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November, or December to shareholders
of record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Series and received by the
shareholder on December 31 of the year declared.
The sale of shares of a Series is a taxable event and may result in a capital
gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
two mutual funds (or two series or portfolios of a mutual fund). Any loss
incurred on sale or exchange of a Series' shares which had been held for six
months or less will be treated as a long-term capital loss to the extent of
capital gain dividends received with respect to such shares.
In addition to federal taxes, shareholders may be subject to state and local
taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. Government securities may be exempt from
state personal income taxes. Shares of the Series are exempt from Pennsylvania
county personal property taxes.
Each year, the Fund will mail you information on the tax status of the Series'
dividends and distributions. Shareholders will also receive each year
information as to the portion of dividend income, if any, that is derived from
U.S. Government securities that are exempt from state income tax. Of course,
shareholders who are not subject to tax on their income would not be required to
pay tax on amounts distributed to them by the Series.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
The tax discussion set forth above is included for general information only.
Prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in a Series.
See Taxes in Part B for additional information on tax matters relating to each
Series and its shareholders.
CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of a Class is the net asset value ("NAV")
per share of the Class next computed after the order is received. The NAV is
computed as of the close of regular trading on the New York Stock Exchange
(ordinarily, 4 p.m., Eastern time) on days when such exchange is open.
The NAV per share is computed by adding the value of all securities and other
assets in the portfolio, deducting any liabilities (expenses and fees are
accrued daily) and dividing by the number of shares outstanding. Portfolio
securities for which market quotations are available are priced at market value.
Debt securities are priced at fair value by an independent pricing service using
methods approved by the Fund's Board of Directors. Short-term investments having
a maturity of less than 60 days are valued at amortized cost, which approximates
market value. All other securities are valued at their fair value as determined
in good faith and in a method approved by the Fund's Board of Directors.
Each of a Series' three classes will bear, pro-rata, all of the common
expenses of that Series. The net asset values of all outstanding shares of each
class of a Series will be computed on a pro-rata basis for each outstanding
share based on the proportionate participation in the Series represented by the
value of shares of that class. All income earned and expenses incurred by a
Series, will be borne on a pro-rata basis by each outstanding share of a class,
based on each class' percentage in the Series represented by the value of shares
of such classes, except that the Classes will not incur any of the expenses
under the Fund's 12b-1 Plans and the Delaware Fund A and B Classes and the Devon
Fund A and B Classes alone will bear the 12b-1 Plan fees payable under their
respective Plans. Due to the specific distribution expenses and other costs that
will be allocable to each class, the net asset value of and dividends paid to
each class of a Series will vary.
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<PAGE>
MANAGEMENT OF THE FUND
Directors
The business and affairs of the Fund are managed under the direction of its
Board of Directors. Part B contains additional information regarding the
directors and officers.
Investment Manager
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in the Delaware
Group since 1938. On October 31, 1994, the Manager and its affiliate, Delaware
International Advisers Ltd., were supervising in the aggregate more than $25
billion in assets in the various institutional (approximately $16,074,376,000)
and investment company (approximately $9,525,500,000) accounts.
The Manager is an indirect, wholly-owned subsidiary of Delaware Management
Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a wholly-
owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. As a result of the merger, DMH became a wholly-owned subsidiary and
the Manager became an indirect, wholly-owned subsidiary of Lincoln National and
both are now subject to the ultimate control of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management. In connection with the merger,
new Investment Management Agreements between the Fund on behalf of each Series
and the Manager were executed following shareholder approval.
The Manager manages each Series' portfolio and makes investment decisions
which are implemented by the Fund's Trading Department. The Manager also
administers the Fund's affairs and pays the salaries of all the directors,
officers and employees of the Fund who are affiliated with the Manager. For
these services, the Manager is paid an annual fee equal to: for the Delaware
Fund, .60% on the first $100 million of average daily net assets of the Fund,
.525% on the next $150 million, .50% on the next $250 million and .475% on the
average daily net assets in excess of $500 million, less the Series'
proportionate share of all directors' fees paid to the unaffiliated directors of
the Fund; and, for the Devon Fund, .60% on the first $500 million of average
daily net assets and .50% on the average daily net assets in excess of $500
million. Investment management fees paid by the Delaware Fund for the fiscal
year ended October 31, 1994 were 0.52% of average daily net assets. Investment
management fees earned by the Devon Fund for the period December 29, 1993 (date
of initial public offering) through October 31, 1994 were 0.50%, annualized, of
average daily net assets and no fees were paid by this Series as a result of the
voluntary waiver of fees by the Manager as described under Summary of Expenses.
George H. Burwell and Gary A. Reed have primary responsibility for making
day-to-day investment decisions for the Delaware Fund and Mr. Burwell has such
responsibility for the Devon Fund. Mr. Burwell, who has been the Fund's Senior
Portfolio Manager for equities since 1992, holds a BA from the University of
Virginia. Prior to joining the Delaware Group in 1992, Mr. Burwell was a
portfolio manager for Midlantic Bank in Edison, New Jersey, where he managed an
equity mutual fund and three commingled funds. Mr. Burwell is a Chartered
Financial Analyst.
Mr. Reed has been the Delaware Fund's Senior Portfolio Manager for fixed
income since April 1995. He holds an AB in Economics from the University of
Chicago and an MA in Economics from Columbia University. He began his career in
1978 with the Equitable Life Assurance Company in New York City, where he
specialized in credit analysis. Prior to joining the Delaware Group in 1989, Mr.
Reed was Vice President and Manager of the fixed income department at Irving
Trust Company in New York.
In making investment decisions for the Fund, Mr. Burwell and Mr. Reed
regularly consult with Wayne A. Stork, Richard G. Unruh, Jr. and Paul E. Suckow.
Mr. Stork, Chairman of the Manager and the Fund's Board of Directors, is a
graduate of Brown University and attended New York University's Graduate School
of Business Administration. Mr. Stork joined the Delaware Group in 1962 and has
served in various executive capacities at different times within the Delaware
organization. A graduate of Brown University, Mr. Unruh received his MBA from
the University of Pennsylvania's Wharton School and joined the Delaware Group in
1982 after 19 years of investment management experience with Kidder, Peabody &
Co. Inc. Mr. Unruh was named an executive vice president of the Fund in 1994. He
is also a member of the Board of the Manager and was named an executive vice
president of the Manager in 1994. He is on the Board of Directors of Keystone
Insurance Company and AAA Mid-Atlantic and is a former president and current
member of the Advisory Council of the Bond Club of Philadelphia. Mr. Suckow is
Delaware's Chief Investment Officer for fixed income. A Chartered Financial
Analyst, he is a graduate of Bradley University with an MBA from Western
Illinois University. Mr. Suckow was a fixed income portfolio manager at the
Delaware Group from 1981 to 1985. He returned to the Delaware Group in 1993
after eight years with Oppenheimer Management Corporation.
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<PAGE>
Portfolio Trading Practices
The Series normally will not invest for short-term trading purposes. However,
each Series may sell securities without regard to the length of time they have
been held. The degree of portfolio activity will affect brokerage costs of the
Series and may affect taxes payable by the Series' shareholders to the extent of
any net realized capital gains. A turnover rate of 100% would occur, for
example, if all the investments in a Series' portfolio at the beginning of the
year were replaced by the end of the year. During the past two fiscal years,
Delaware Fund's portfolio turnover rates were 160% for 1993 and 142% for 1994.
The portfolio turnover rate for Devon Fund for the period December 29, 1993
(date of initial public offering) through October 31, 1994 was 180%, annualized.
The Fund uses its best efforts to obtain the best available price and most
favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the Manager in servicing any
of its accounts. Subject to best price and execution, the Fund may consider a
broker/dealer's sales of Series shares in placing portfolio orders and may place
orders with broker/dealers that have agreed to defray certain Series expenses
such as custodian fees.
Performance Information
From time to time, Delaware Fund and Devon Fund may quote total return
performance for their respective Class, in advertising and other types of
literature. Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value. Each
presentation will include the average annual total return for one-, five- and
ten-year or life-of-Series periods, as relevant. The Series may also advertise
aggregate and average total return information concerning a Class over
additional periods of time.
Because securities prices fluctuate, investment results of a Class will
fluctuate over time and past performance should not be considered as a
representation of future results.
Statements and Confirmations
You will receive quarterly statements of your account as well as confirmations
of all investments and redemptions. You should examine statements and
confirmations immediately and promptly report any discrepancy by calling your
Client Services Representative.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an unaudited
semi-annual report. These reports provide detailed information about the Fund's
investments and performance. The Fund's fiscal year ends on October 31.
Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), serves as the national distributor for
the Series under separate Distribution Agreements dated April 3, 1995. The
Distributor bears all of the costs of promotion and distribution.
The Transfer Agent, Delaware Service Company, Inc., serves as the shareholder
servicing, dividend disbursing and transfer agent for the Delaware Fund under an
Agreement dated June 29, 1988 and for the Devon Fund under an Agreement dated
December 29, 1993. The directors annually review service fees paid to the
Transfer Agent. Certain recordkeeping and other shareholder services that
otherwise would be performed by the Transfer Agent may be performed by certain
other entities and the Transfer Agent may elect to enter into an agreement to
pay such other entities for those services. In addition, participant account
maintenance fees may be assessed for certain recordkeeping services provided as
part of retirement plan and administration service packages. These fees are
based on the number of participants in the plan and the various services
selected by the employer. Fees will be quoted upon request and are subject to
change.
The Distributor and the Transfer Agent are also indirect, wholly-owned
subsidiaries of DMH.
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<PAGE>
Expenses
The Fund is responsible for all of its own expenses other than those borne by
the Manager under the Investment Management Agreements and those borne by the
Distributor under the Distribution Agreements. For the fiscal year ended October
31, 1994, the ratio of operating expenses to average daily net assets for the
Delaware Fund Institutional Class was 0.81%. From December 29, 1993 (date of
initial public offering) through October 31, 1994, the ratio of operating
expenses to average daily net assets for the Devon Fund Institutional Class was
0.95%, annualized, after voluntary fee waivers and expense reimbursements by the
Manager.
Shares
The Fund is an open-end management investment company, commonly known as a
mutual fund, and each Series' portfolio of assets is diversified for purposes of
the 1940 Act. The Fund, incorporated in Maryland on March 4, 1983, was
previously organized as a Delaware corporation in 1937.
The Fund currently offers two Series of shares-the Delaware Fund series and
the Devon Fund series. Series shares have a par value of $1.00, equal voting
rights, except as noted below, and are equal in all other respects. Each Series
will vote separately on any matter which affects only that Series. Shares of
each Series have a priority over shares of any other series of the Fund in the
assets and income of that Series.
All Fund shares have noncumulative voting rights which means that the holders
of more than 50% of the Fund's shares voting for the election of directors can
elect 100% of the directors if they choose to do so. Under Maryland law, the
Fund is not required, and does not intend, to hold annual meetings of
shareholders unless, under certain circumstances, it is required to do so under
the 1940 Act. Shareholders of 10% or more of the Fund's shares may request that
a special meeting be called to consider the removal of a director.
The Delaware Fund and the Devon Fund also offer the Delaware Fund A Class and
the Delaware Fund B Class, and the Devon Fund A Class and the Devon Fund B
Class, respectively, which represent proportionate interests in the assets of
the respective Series and have the same voting and other rights and preferences
as the Delaware Fund Institutional Class and the Devon Fund Institutional Class,
respectively, except that shares of the Classes are not subject to, and may not
vote on matters affecting, the Distribution Plans under Rule 12b-1 relating to
the Delaware Fund A Class, the Delaware Fund B Class, the Devon Fund A Class and
the Devon Fund B Class.
Prior to September 6, 1994, the Delaware Fund Institutional Class was known as
the Delaware Fund (Institutional) class, the Dividend Growth Fund Institutional
Class was known as the Dividend Growth Fund (Institutional) class, the Delaware
Fund A Class was known as the Delaware Fund class and the Dividend Growth Fund A
Class was known as the Dividend Growth Fund class. Effective as of the close of
business on August 28, 1995, the name Dividend Growth Fund was changed to Devon
Fund. At the same time, the names of Dividend Growth Fund Institutional Class,
Dividend Growth Fund A Class and Dividend Growth Fund B Class were changed to,
respectively, Devon Fund Institutional Class, Devon Fund A Class and Devon Fund
B Class.
19
Delaware/Devon (Inst.) Pros Page 19
<PAGE>
The Delaware Group includes funds
with a wide range of investment objectives.
Stock funds, income funds, tax-free funds,
money market funds, global and international
funds and closed-end equity funds give
investors the ability to create a portfolio
that fits their personal financial goals.
For more information, shareholders
of the Fund Classes should contact
their financial adviser or call
Delaware Group at 800-523-4640,
in Philadelphia call 215-988-1333
and shareholders of the Institutional Classes
should contact Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Chemical Bank
450 West 33rd Street
New York, NY 10001
DELAWARE FUND
A CLASS
B CLASS
INSTITUTIONAL CLASS
DEVON FUND
(FORMERLY DIVIDEND GROWTH FUND)
A CLASS
B CLASS
INSTITUTIONAL CLASS
CLASSES OF DELAWARE GROUP
DELAWARE FUND, INC.
PART B
Statement of
Additional Information
AUGUST 29, 1995
DELAWARE
GROUP
<PAGE>
Delaware Group Delaware Fund, Inc.--Part B-Page 1
PART B-STATEMENT OF ADDITIONAL INFORMATION
AUGUST 29, 1995
DELAWARE GROUP
DELAWARE FUND, INC.
1818 Market Street
Philadelphia, PA 19103
For more information about the Delaware Fund
Institutional Class and the Devon Fund
Institutional Class: 800-828-5052
For Prospectus and Performance of the
Delaware Fund A Class, Delaware Fund B Class,
Devon Fund A Class and Devon Fund B Class:
Nationwide 800-523-4640
Philadelphia 215-988-1333
Information on Existing Accounts of the
Delaware Fund A Class, Delaware Fund B Class,
Devon Fund A Class and Devon Fund B Class:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Philadelphia 215-988-1241
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Philadelphia 215-988-1050
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
Cover Page 1
Investment Restrictions and Policies 2
Performance Information 8
Trading Practices and Brokerage 12
Purchasing Shares 13
Investment Plans 19
Determining Offering Price and Net Asset Value 21
Redemption and Repurchase 22
Dividends and Realized Securities Profits Distributions 25
Taxes 25
Investment Management Agreements 26
Officers and Directors 27
Exchange Privilege 30
General Information 32
Appendix A-Description of Ratings 34
Appendix B-IRA Information 35
Appendix C-Performance Overview 39
Appendix D-The Company Life Cycle 44
Financial Statements 45
</TABLE>
Delaware Group Delaware Fund, Inc. (the "Fund") is a professionally-managed
mutual fund of the series type presently offering two series of portfolios: the
Common Stock series, which is known as and does business as the Delaware Fund
series ("Delaware Fund") and the Devon Fund series ("Devon Fund") (collectively,
the "Series"). The Delaware Fund and the Devon Fund offer, respectively, the
Delaware Fund A Class and the Devon Fund A Class ("Class A Shares"), the
Delaware Fund B Class and the Devon Fund B Class ("Class B Shares") (Class A
Shares and Class B Shares together referred to as "Fund Classes"), and the
Delaware Fund Institutional Class and the Devon Fund Institutional Class
("Institutional Classes"). Effective as of the close of business on August 28,
1995, the name Dividend Growth Fund was changed to Devon Fund and the names of
Dividend Growth Fund A Class, Dividend Growth Fund B Class and Dividend Growth
Fund Institutional Class were changed to Devon Fund A Class, Devon Fund B Class
and Devon Fund Institutional Class, respectively.
Class B Shares and Institutional Class shares of a Series may be purchased at
a price equal to the next determined net asset value per share. Class A Shares
of a Series may be purchased at the public offering price, which is equal to the
next determined net asset value per share, plus a front-end sales charge. The
Class A Shares are subject to a maximum front-end sales charge of 5.75% and
annual 12b-1 Plan expenses. The Class B Shares are subject to a contingent
deferred sales charge ("CDSC") which may be imposed on redemptions made within
six years of purchase and 12b-1 Plan expenses which are higher than those to
which Class A Shares are subject and are assessed against the Class B Shares for
no longer than approximately eight years after purchase. See Automatic
Conversion of Class B Shares in the Fund Classes' Prospectus. All references to
"shares" in this Statement of Additional Information ("Part B" of the
registration statement) refer to all Classes of shares of the Fund, except where
noted.
This Part B supplements the information contained in the current Prospectuses
for the Fund Classes and the Institutional Classes dated August 29, 1995, as may
be amended from time to time. It should be read in conjunction with the
respective Class' Prospectus. Part B is not itself a prospectus but is, in its
entirety, incorporated by reference into each Class' Prospectus. A Prospectus
relating to the Fund Classes and a Prospectus relating to the Institutional
Classes may be obtained by writing or calling your investment dealer or by
contacting the Fund's national distributor, Delaware Distributors, L.P. (the
"Distributor"), 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
Delaware Group Delaware Fund, Inc. Part B--Page 2
INVESTMENT RESTRICTIONS AND POLICIES
Investment Restrictions--The Fund has adopted the following fundamental
restrictions which are applied to each Series except as noted. Fundamental
restrictions may not be amended without approval of a majority of the
outstanding voting securities of a Series, which is more than 50% of the
outstanding voting securities of a Series which proposes to change its
fundamental policy, or 67% of the voting securities of a Series which proposes
to change its fundamental policy present at a shareholder meeting if the holders
of more than 50% of such voting securities are present in person or represented
by proxy, whichever is less. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities.
1. Not to invest more than 5% of the value of its assets in securities of any
one company (except U.S. Government bonds) or purchase more than 10% of the
voting or nonvoting securities of any one company.
2. Not to acquire control of any company. (The Fund's Certificate of
Incorporation permits control of companies to protect investments already made,
but its policy is not to acquire control.)
3. Not to purchase or retain securities of a company which has an officer or
director who is an officer or director of the Fund, or an officer, director or
partner of its investment manager if, to the knowledge of the Fund, one or more
of such persons own beneficially more than 1/2 of 1% of the shares of the
company, and in the aggregate more than 5% thereof.
4. No long or short positions on shares of the Fund may be taken by its
officers, directors or any of its affiliated persons. Such persons may buy
shares of the Fund for investment purposes, however.
5. Not to purchase any security issued by any other investment company if
after such purchase it would: (a) own more than 3% of the voting stock of such
company, (b) own securities of such company having a value in excess of 5% of
the Fund's assets or (c) own securities of investment companies having an
aggregate value in excess of 10% of the Fund's assets.
6. Not to act as an underwriter of securities of other issuers, except that
the Fund may acquire restricted securities and securities which are not readily
marketable under circumstances where, if such securities are sold, the Fund may
be deemed an underwriter for purposes of the Securities Act of 1933.
7. Not to invest in securities of other investment companies except at
customary brokerage commission rates or in connection with mergers,
consolidations or offers of exchange.
8. Not to make any investment in real estate unless necessary for office
space or the protection of investments already made. (This restriction does not
preclude the FundOs purchase of securities issued by real estate investment
trusts.)
9. Not to sell short any security or property.
10. Not to deal in commodities, except that the Devon Fund may invest in
financial futures, including futures contracts on stocks and stock indices,
interest rates, and foreign currencies, and other types of financial futures
that may be developed in the future, and may purchase or sell options on such
futures, and enter into closing transactions with respect to those activities.
11. Not to borrow, except as a temporary measure for extraordinary or
emergency purposes and then not in excess of 10% of gross assets taken at cost
or market, whichever is lower, and not to pledge more than 15% of gross assets
taken at cost. Any borrowing will be done from a bank and to the extent that
such borrowing exceeds 5% of the value of the Fund's assets, asset coverage of
at least 300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter (not
including Sunday and holidays) or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce the amount of
its borrowings to an extent that the asset coverage of such borrowings shall be
at least 300%. The Fund shall not issue senior securities as defined in the
Investment Company Act of 1940, except for notes to banks.
12. Not to make loans. However, the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities, whether or not the
purchase was made upon the original issuance of the securities, and the entry
into "repurchase agreements" are not to be considered the making of a loan by
the Fund and the Fund may loan up to 25% of its assets to qualified
broker/dealers or institutional investors for their use relating to short sales
or other security transactions.
13. Not to invest more than 5% of the value of its total assets in securities
of companies less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.
Investment Policies--All investment policies of the Series are nonfundamental
and may be changed without shareholder approval, except those identified above
as fundamental restrictions.
Each Series has made a commitment that it will not invest in warrants valued
at the lower of cost or market exceeding 5% of such Series' net assets. Included
within that amount, but not to exceed 2% of each Series' net assets, may be
warrants not listed on the New York Stock Exchange or American Stock Exchange.
Neither Series currently invests its assets in real estate limited
partnerships or oil, gas and other mineral leases. Each Series currently intends
to limit its investments in real estate investment trusts to not more than 10%
of each such Series' net assets.
While each Series is permitted under certain circumstances to borrow money,
neither Series normally does so. Investment securities will not normally be
purchased by a Series while it has an outstanding borrowing. Neither Series may
concentrate investments
<PAGE>
Delaware Group Delaware Fund, Inc. Part B--Page 3
in any industry, which means that a Series generally may not invest more than
25% of its assets in any one industry.
Mortgage-Backed Securities--In addition to mortgage-backed securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities or
government sponsored corporations, each Series may also invest its assets in
securities issued by certain private, nongovernment corporations, such as
financial institutions, if the securities are fully collateralized at the time
of issuance by securities or certificates issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Two principal types of mortgage-
backed securities are collateralized mortgage obligations (CMOs) and real estate
mortgage investment conduits (REMICs).
CMOs are debt securities issued by U.S. Government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
CMOs and REMICs issued by private entities are not government securities and
are not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. The Series will invest in such
private-backed securities only if they are 100% collateralized at the time of
issuance by securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. The Series currently invest in privately-issued CMOs and
REMICs only if they are rated at the time of purchase in the four highest grades
by a nationally-recognized rating agency.
Asset-Backed Securities--Each Series may invest a portion of its assets in
asset-backed securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets. Such rate of payments may be affected by economic and various
other factors such as changes in interest rates. Therefore, the yield may be
difficult to predict and actual yield to maturity may be more or less than the
anticipated yield to maturity. The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets underlying such
securities, how well the entities issuing the securities are insulated from the
credit risk of the originator or affiliated entities, and the amount of credit
support provided to the securities.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection, and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments due on the underlying pool is
timely. Protection against losses resulting from ultimate default enhances the
likelihood of payments of the obligations on at least some of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Series will not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payments of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in such issue.
Portfolio Loan Transactions--Each Series may loan up to 25% of its assets to
qualified broker/dealers or institutional investors for their use relating to
short sales or other security transactions.
It is the understanding of Delaware Management Company, Inc. (the "Manager")
that the staff of the Securities and Exchange Commission permits portfolio
lending by registered investment companies if certain conditions are met. These
conditions are as follows: 1) each transaction must have 100% collateral in the
form of cash, short-term U.S. Government securities, or irrevocable letters of
credit payable by banks acceptable to the Series from the borrower; 2) this
collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Series; 3) the Series must be able to terminate the loan after notice, at any
time; 4) the Series must receive reasonable interest on any loan, and any
dividends, interest or other distributions on the lent securities, and any
increase in the market value of such securities; 5) the Series may pay
reasonable custodian fees in connection with the loan; and 6) the voting rights
on the lent securities may pass to
<PAGE>
Delaware Group Delaware Fund, Inc.--Part B--Page 4
the borrower; however, if the directors of the Fund know that a material event
will occur affecting an investment loan, they must either terminate the loan in
order to vote the proxy or enter into an alternative arrangement with the
borrower to enable the directors to vote the proxy.
The major risk to which a Series would be exposed on a loan transaction is the
risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, each Series will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Directors, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.
Restricted and Illiquid Securities--Most of the privately placed securities
acquired by the Series will be eligible for resale by the Series without
registration pursuant to Rule 144A ("Rule 144A Securities") under the Securities
Act of 1933. While maintaining oversight, the Board of Directors has delegated
to the Manager the day-to-day function of determining whether individual Rule
144A Securities are liquid for purposes of each Series' 10% limitation on
investments in illiquid securities. The Board has instructed the Manager to
consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).
Investing in Rule 144A Securities could have the effect of increasing the
level of a Series' illiquidity to the extent that qualified institutional buyers
become, for a period of time, uninterested in purchasing these securities. If
the Manager determines that a Rule 144A Security which was previously determined
to be liquid is no longer liquid and, as a result, a Series' holdings of
illiquid securities exceed the Series' 10% limit on investment in such
securities, the Manager will determine what action shall be taken to ensure that
the Series continues to adhere to such limitation.
Convertible Securities--Each Series may invest in convertible securities,
including corporate debentures, bonds, notes and preferred stocks that may be
converted into or exchanged for common stock. While providing a fixed income
stream (generally higher in yield than the income derivable from a common stock
but lower than that afforded by a non-convertible debt security), a convertible
security also affords the investor an opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible. As the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis and
so may not experience market declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of the value
of the underlying common stock. To obtain such a higher yield, a Series may be
required to pay for a convertible security an amount in excess of the value of
the underlying common stock. Common stock acquired by a Series upon conversion
of a convertible security will generally be held for so long as the Manager
anticipates such stock will provide the Series with opportunities which are
consistent with the Series' investment objectives and policies.
Each Series may invest not more than 5% of its assets in convertible
debentures that are rated below investment grade or are unrated but are
determined by the Manager to be of comparable quality. Investing in convertible
debentures that are rated below investment grade or unrated but of comparable
quality entails certain risks, including the risk of loss of principal, which
may be greater than the risks involved in investing in investment grade
convertible debentures. Under rating agency guidelines, lower rated securities
and comparable unrated securities will likely have some quality and protective
characteristics that are outweighed by large uncertainties or major risk
exposures to adverse conditions.
The Series may have difficulty disposing of such lower rated convertible
debentures because the trading market for such securities may be thinner than
the market for higher rated convertible debentures. To the extent a secondary
trading market for these securities does exist, it generally is not as liquid as
the secondary trading market for higher rated securities. The lack of a liquid
secondary market as well as adverse publicity with respect to these securities,
may have an adverse impact on market price and the Series' ability to dispose of
particular issues in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for each
Series to obtain accurate market quotations for purposes of pricing the Series'
portfolio and calculating its net asset value. The market behavior of
convertible securities in lower rating categories is often more volatile than
that of higher quality securities. Lower quality convertible securities are
judged by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") to have speculative elements or characteristics; their
future cannot be considered as well assured and earnings and asset protection
may be moderate or poor in comparison to investment grade securities.
In addition, such lower quality securities face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions, which could lead
to inadequate capacity to meet timely payments. The market values of securities
rated below investment grade tend to be more sensitive to company specific
developments and changes in economic conditions than higher rated securities.
Issuers of these securities are often highly leveraged, so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. In addition, such issuers may
not have more traditional methods of
4
<PAGE>
Delaware Group Delaware Fund, Inc.--Part B--Page 5
financing available to them, and may be unable to repay debt at maturity by
refinancing.
Foreign Securities--Each Series may invest in securities of foreign companies.
However, neither Series will invest more than 5% of the value of its total
assets, at the time of purchase, in foreign securities (other than securities of
Canadian issuers registered under the Securities Exchange Act of 1934 or
American Depository Receipts, on which there are no such limits).
There has been in the past, and there may be again in the future, an interest
equalization tax levied by the United States in connection with the purchase of
foreign securities such as those purchased by the Series. Payment of such
interest equalization tax, if imposed, would reduce a Series' rate of return on
its investment. Dividends paid by foreign issuers may be subject to withholding
and other foreign taxes which may decrease the net return on such investments as
compared to dividends paid to the Series by United States corporations.
Investors should recognize that investing in foreign corporations involves
certain considerations, including those set forth below, which are not typically
associated with investing in United States corporations. Foreign corporations
are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to United States
corporations. There may also be less supervision and regulation of foreign stock
exchanges, brokers and listed corporations than exist in the United States. The
Series may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange as between the currencies of different nations and
control regulations. Furthermore, there may be the possibility of expropriation
or confiscatory taxation, political, economic or social instability or
diplomatic developments which could affect assets of the Series held in foreign
countries.
Each Series will, from time to time, conduct foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date (i.e., a "forward foreign currency"
contract or "forward" contract). Investors should be aware that there are costs
and risks associated with such currency transactions. Each Series may enter into
forward contracts to "lock in" the price of a security it has agreed to purchase
or sell, in terms of U.S. dollars or other currencies in which the transaction
will be consummated. When the Manager believes that the currency of a particular
foreign country may suffer a decline against the U.S. dollar or against another
currency, the Series may enter into a forward contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, the amount of foreign
currency approximating the value of some or all of the Series' securities
denominated in such foreign currency. It is impossible to predict precisely the
market value of portfolio securities at the expiration of the forward contract.
Accordingly, it may be necessary for a Series to purchase or sell additional
foreign currency on the spot market (and bear the expense of such purchase or
sale) if the market value of the security is less than or greater than the
amount of foreign currency the Series is obligated to deliver.
The Series may incur gains or losses from currency transactions. No type of
foreign currency transaction will eliminate fluctuations in the prices of the
Series' foreign securities or will prevent loss if the prices of such securities
should decline.
Futures Contracts and Options on Futures Contracts--The Devon Fund may enter
into futures contracts on stocks and stock indices, purchase and sell options on
such futures, and enter into closing transactions with respect to those
activities. The Series currently intends to limit such investments to the extent
that not more than 5% of its assets are required as futures contract margin
deposits and premiums on options and only to the extent that obligations under
such contracts and transactions represent not more than 20% of the Series'
assets. A futures contract may be purchased and sold only on an exchange, known
as a "contract market," designated by the Commodity Futures Trading Commission
for the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction.
When the Series enters into a futures transaction, it must deliver to the
futures commission merchant selected by the Series an amount referred to as
"initial margin." This amount is maintained by the futures commission merchant
in an account at the Series' custodian bank. Thereafter, a "variation margin"
may be paid by the Series to, or drawn by the Series from, such account in
accordance with controls set for such accounts, depending upon changes in the
price of the underlying securities subject to the futures contract.
Although futures contracts by their terms generally call for the actual
delivery or acquisition of underlying securities or the cash value of the index,
in most cases the contractual obligation is fulfilled before the date of the
contract without having to make or take such delivery. The contractual
obligation is offset by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take, as the case may be, delivery of the securities
or cash value of the index underlying the contractual obligations. At the time
such transaction is effected, a final determination of variation margin is made
and any loss experienced by the Series must be paid to the contract market
clearing house while any profit due to the Series must be delivered to it.
Positions taken in futures markets are not normally held to maturity, but
instead liquidated through offsetting transactions which may result in a profit
or a loss. While the Series' futures contracts on securities will usually be
liquidated in this manner, the Series may instead make or take delivery of the
underlying securities whenever it appears economically advantageous to do so.
The clearing house associated with the market on which futures on the securities
are traded guarantees that, if still open, the sale or purchase will be
performed on settlement date.
5
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 6
The Series may enter into such futures contracts to protect against the
adverse affects of fluctuations in security prices or interest rates without
actually buying or selling the securities. For example, if interest rates are
expected to increase, the Series might enter into futures contracts for the sale
of debt securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities in the portfolio owned by the Series. If
interest rates did increase, the value of the debt securities in the portfolio
would decline, but the value of the futures contracts to the Series would
increase at approximately the same rate, thereby keeping the net asset value of
the Series from declining as much as it otherwise would have. Similarly, when it
is expected that interest rates may decline, futures contracts may be purchased
to hedge in anticipation of subsequent purchases of securities at higher prices.
Since the fluctuations in the value of futures contracts should be similar to
those of debt securities, the Series could take advantage of the anticipated
rise in value of debt securities without actually buying them until the market
had stabilized. At that time, the futures contracts could be liquidated and the
Series could then buy debt securities on the cash market.
With respect to options on futures contracts, when the Series is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates. The purchase of a call option on
a futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based, or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities.
The writing of a call option on a futures contract constitutes a partial
hedge against the declining price of the security which is deliverable upon
exercise of the futures contract. If the futures price at the expiration of the
option is below the exercise price, the Series will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Series' portfolio holdings. The writing of a put option on
a futures contract constitutes a partial hedge against the increasing price of
the security which is deliverable upon exercise of the futures contract. If the
futures price at the expiration of the option is higher than the exercise price,
the Series will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Series
intends to purchase.
Call and put options on stock index futures are similar to options on
securities except that, rather than the right to purchase or sell stock at a
specified price, options on a stock index future give the holder the right to
receive cash. Upon exercise of the option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise price of
the option and the closing price of the futures contract on the expiration date.
If a put or call option the Series has written is exercised, the Series will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, the
Series' losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The purchase of a
put option on a futures contract is similar in some respects to the purchase of
protective puts on portfolio securities. For example, the Series will purchase a
put option on a futures contract to hedge the Series' portfolio against the risk
of rising interest rates.
To the extent that interest rates move in an unexpected direction, the Series
may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if the Series is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities held in its portfolio and interest rates decrease
instead, the Series will lose part or all of the benefit of the increased value
of its securities which it has because it will have offsetting losses in its
futures position. In addition, in such situations, if the Series had
insufficient cash, it may be required to sell securities from its portfolio to
meet daily variation margin requirements. Such sales of securities may, but will
not necessarily, be at increased prices which reflect the rising market. The
Series may be required to sell securities at a time when it may be
disadvantageous to do so.
Further, with respect to options on futures contracts, the Series may seek to
close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
Options--The Devon Fund may write call options and purchase put options on a
covered basis only, and will not engage in option writing strategies for
speculative purposes.
A. Covered Call Writing--The Series may write covered call options from time
to time on such portion of its portfolio, without limit, as the Manager
determines is appropriate in seeking to obtain the Series' investment objective.
A call option gives the purchaser of such option the right to buy, and the
writer, in this case the Series, has the obligation to sell the underlying
security at the exercise price during the option period. The advantage to the
Series of writing covered calls is that the Series receives additional income,
in the form of a premium, which may offset any capital loss or decline in market
value of the security. However, if the security rises in value, the Series may
not fully participate in the market appreciation.
6
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 7
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
With respect to both options on actual portfolio securities owned by the
Series and options on stock indices, the Series may enter into closing purchase
transactions. A closing purchase transaction is one in which the Series, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
Closing purchase transactions will ordinarily be effected to realize a profit
on an outstanding call option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to enable the Series to
write another call option on the underlying security with either a different
exercise price or expiration date or both. The Series may realize a net gain or
loss from a closing purchase transaction depending upon whether the net amount
of the original premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Series will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Series will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security, and the
proceeds of the sale of the security plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
Devon Fund will write call options only on a covered basis, which means that
the Series will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Series would be required to continue to hold a security which it
might otherwise wish to sell, or deliver a security it would want to hold.
Options written by the Series will normally have expiration dates between one
and nine months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written.
B. Purchasing Put Options--Devon Fund may invest up to 2% of its total assets
in the purchase of put options. The Series will, at all times during which it
holds a put option, own the security covered by such option.
The Series intends to purchase put options in order to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option ("protective puts"). The ability to
purchase put options will allow the Series to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. If
the security does not drop in value, the Series will lose the value of the
premium paid. The Series may sell a put option which it has previously purchased
prior to the sale of the securities underlying such option. Such sales will
result in a net gain or loss depending on whether the amount received on the
sale is more or less than the premium and other transaction costs paid on the
put option which is sold.
The Series may sell a put option purchased on individual portfolio securities
or stock indices. Additionally, the Series may enter into closing sale
transactions. A closing sale transaction is one in which the Series, when it is
the holder of an outstanding option, liquidates its position by selling an
option of the same series as the option previously purchased.
Options on Stock Indices
A stock index assigns relative values to the common stocks included in the
index with the index fluctuating with changes in the market values of the
underlying common stock.
Options on stock indices are similar to options on stocks but have different
delivery requirements. Stock options provide the right to take or make delivery
of the underlying stock at a specified price. A stock index option gives the
holder the right to receive a cash "exercise settlement amount" equal to (i) the
amount by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (ii) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than (in the case of a call)
or less than (in the case of a put) the exercise price of the option. The amount
of cash received will be equal to such difference between the closing price of
the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Gain or loss to the Series on
transactions in stock index options will depend on price movements in the stock
market generally (or in a particular industry or segment of the market) rather
than price movements of individual securities.
As with stock options, the Devon Fund may offset its position in stock index
options prior to expiration by
7
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 8
entering into a closing transaction on an Exchange or it may let the option
expire unexercised.
A stock index fluctuates with changes in the market values of the stock so
included. Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on the following Exchanges among others: The Chicago Board Options
Exchange, New York Stock Exchange and American Stock Exchange.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the Series'
portfolio correlate with price movements of the stock index selected. Because
the value of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Series will realize a
gain or loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indices, in an industry or market segment, rather than movements
in the price of a particular stock. Since the Series' portfolio will not
duplicate the components of an index, the correlation will not be exact.
Consequently, the Series bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
Accordingly, successful use by the Series of options on stock indices will be
subject to the Manager's ability to predict correctly movements in the direction
of the stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
Positions in stock index options may be closed out only on an Exchange which
provides a secondary market. There can be no assurance that a liquid secondary
market will exist for any particular stock index option. Thus, it may not be
possible to close such an option. The inability to close options positions could
have an adverse impact on the Series' ability to effectively hedge its
securities. The Devon Fund will enter into an option position only if there
appears to be a liquid secondary market for such options.
The Series will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets.
When-Issued and Delayed Delivery Securities--Each Series may purchase
securities on a when-issued or delayed delivery basis. In such transactions,
instruments are purchased with payment and delivery taking place in the future
in order to secure what is considered to be an advantageous yield or price at
the time of the transaction. Delivery of and payment for these securities may
take as long as a month or more after the date of the purchase commitment. Each
Series will maintain with the Fund's custodian a separate account with a
segregated portfolio of securities in an amount at least equal to these
commitments. The payment obligation and the interest rates that will be received
are each fixed at the time a Series enters into the commitment and no interest
accrues to the Series until settlement. Thus, it is possible that the market
value at the time of settlement could be higher or lower than the purchase price
if the general level of interest rates has changed. It is a current policy of
each Series not to enter into when-issued commitments exceeding in the aggregate
5% of the market value of such Series' total assets less liabilities other than
the obligations created by these commitments.
PERFORMANCE INFORMATION
From time to time, the respective Series may state a Class' total return in
advertisements and other types of literature. Any statements of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life of fund, if applicable) periods. The
Series may also advertise aggregate and average total return information of a
Class over additional periods of time.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
P(1+T)(to the nth power) = ERV
Where: P = a hypothetical initial purchase order
of $1,000 from which the maximum
front-end sales charge with respect to
Class A Shares, if any, is deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period
after the deduction of the applicable
CDSC, if any, with respect to Class B
Shares.
Aggregate or cumulative total return is calculated in a similar manner, except
that the results are not annualized. Each calculation assumes the maximum front-
end sales charge, if any, is deducted from the initial $1,000 investment at the
time it is made with respect to the Class A Shares, and that all distributions
are reinvested at net asset value, and, with respect to the Class B Shares,
includes the CDSC that would be applicable upon complete redemption of such
shares. In addition, each Series may present total return information that does
not reflect the deduction of the maximum front-end sales charge or any
applicable CDSC.
The performance, as shown below, is the average annual total return quotations
for one-, three-, five-, ten-, and
8
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 9
fifteen-year periods ended October 31, 1994 and for the life of the fund for the
Delaware Fund A Class and the Delaware Fund Institutional Class, and for the
life of the Devon Fund A Class and the Devon Fund Institutional Class, computed
as described above. The average annual total return for the Class A Shares at
offer reflects the maximum front-end sales charges paid on the purchase of
shares. The average annual total return for the Class A Shares at net asset
value (NAV) does not reflect the payment of the maximum front-end sales charge.
The performance of the Class B Shares, as shown below, is the aggregate total
return quotation for the period September 6, 1994 (date of initial public
offering) through October 31, 1994. The aggregate total return for Class B
Shares including deferred sales charge reflects the deduction of the applicable
CDSC that would be paid if the shares were redeemed at October 31, 1994. The
aggregate total return for Class B Shares excluding deferred sales charge
assumes the shares were not redeemed at October 31, 1994 and therefore does not
reflect the deduction of a CDSC. On June 14, 1988, the Delaware Fund's
investment objective was changed from growth with income to a balance of capital
appreciation, income and preservation of capital. Securities prices fluctuated
during the periods covered and past results should not be considered as
representative of future performance. Pursuant to applicable regulation, total
return shown for the Delaware Fund Institutional Class for the periods prior to
the commencement of operations of such class is calculated by taking the
performance of the Delaware Fund A Class and adjusting it to reflect the
elimination of all sales charges. However, for those periods no adjustment has
been made to eliminate the impact of 12b-1 payments, and performance would have
been affected had such an adjustment been made.
<TABLE>
<CAPTION>
Average Annual Total Return
Delaware Delaware
Fund Fund Delaware
Class A Class A Fund
Shares/1/ Shares/1/ Institutional
(at Offer) (at NAV) Class/2/
<S> <C> <C> <C>
1 year ended 10/31/94 (4.08%) 1.80% 1.96%
3 years ended 10/31/94 6.45% 8.58% 8.69%
5 years ended 10/31/94 7.74% 9.03% 9.10%
10 years ended 10/31/94 11.59% 12.25% 12.29%
15 years ended 10/31/94 14.38% 14.83% 14.85%
Period 4/24/38/3/
through 10/31/94 10.89% 11.01% 11.02%
Aggregate Total Return
Delaware Fund Delaware Fund
Class B Shares Class B Shares
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)
Period 9/6/94/4/
through 10/31/94 (5.06%) (1.14%)
</TABLE>
/1/ Delaware Fund A Class began paying 12b-1 payments on June 1, 1992 and
performance prior to that date does not reflect such payments.
/2/ Date of initial public offering was November 9, 1992.
/3/ Date of initial public offering for Delaware Fund.
/4/ Date of initial public offering; total return for this short of a time
period may not be representative of longer-term results.
<TABLE>
<CAPTION>
Average Annual Total Return/1/
Devon Devon
Fund Fund Devon
Class A Class A Fund
Shares Shares Institutional
(at Offer) (at NAV) Class
<S> <C> <C> <C>
Period 12/29/93/2/
through 10/31/94 3.54% 11.09% 11.45%
Aggregate Total Return/1/
Devon Fund Devon Fund
Class B Shares Class B Shares
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)
Period 9/6/94/3/
through 10/31/94 (4.43%) (0.46%)
</TABLE>
/1/ Certain expenses of this Series have been waived and reimbursed by
the Manager. In the absence of such waiver and reimbursement, performance
would have been affected negatively.
/2/ Date of initial public offering. Amounts have been annualized.
/3/ Date of initial public offering; total return for this short of a time
period may not be representative of longer-term results.
From time to time, the respective Series may also quote each Class' actual
total return performance, dividend results and other performance information, in
advertising and other types of literature and may compare that information to,
or may separately illustrate similar information reported by, the Standard &
Poor's 500 Stock Index and the Dow Jones Industrial Average and other unmanaged
indices.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average are
industry-accepted unmanaged indices of generally-conservative securities used
for measuring general market performance. The total return performance reported
will reflect the reinvestment of all distributions on a quarterly basis and
market price fluctuations. The indices do not take into account any sales charge
or other fees.
Total return performance for each Class will be computed by adding all
reinvested income and realized securities profits distributions plus the change
in net asset value during a specific period and dividing by the offering price
at the beginning of the period. It will reflect the maximum sales charge, if
any, paid for the illustrated investment amount, but not any income taxes
payable by shareholders on the reinvested distributions included in the
calculation. Because securities prices fluctuate, past performance should not be
considered as a representation of the results which may be realized from an
investment in the Fund in the future.
The respective Series may also state total return performance of a Class in
the form of an average annual return. This average annual return figure will be
computed by taking the sum of annual returns, then dividing that figure by the
number of years in the overall period indicated. The computation will reflect
the impact of the maximum front-end or contingent deferred sales charge, if any,
paid on the illustrated investment amount against the first year's return. From
time to time, the Series may quote actual total return performance in
advertising and other types of literature compared to indices or averages of
alter-
9
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 10
native financial products available to prospective investors. For example, the
performance comparisons may include the average return of various bank
instruments, some of which may carry certain return guarantees offered by
leading banks and thrifts as monitored by Bank Rate Monitor, and those of
generally-accepted corporate bond and government security price indices of
various durations prepared by Lehman Brothers and Salomon Brothers, Inc. These
indices are not managed for any investment goal.
Statistical and performance information and various indices compiled and
maintained by organizations such as the following may also be used in preparing
exhibits comparing certain industry trends and competitive mutual fund
performance to comparable Series activity and performance and in illustrating
general financial planning principles. From time to time, certain mutual fund
performance ranking information, calculated and provided by these
organizations, may also be used in the promotion of sales in the Fund. Any
indices used are not managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services, Inc. and Morningstar, Inc.
are performance evaluation services that maintain statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds.
Ibbotson Associates, Inc. is a consulting firm that provides a variety of
historical data including total return, capital appreciation and income on the
stock market as well as other investment asset classes, and inflation. With
their permission, this information will be used primarily for comparative
purposes and to illustrate general financial planning principles.
Interactive Data Corporation is a statistical access service that maintains a
database of various international industry indicators, such as historical and
current price/earning information, individual equity and fixed income price
and return information.
Compustat Industrial Databases, a service of Standard & Poor's, may also be
used in preparing performance and historical stock and bond market exhibits.
This firm maintains fundamental databases that provide financial, statistical
and market information covering more than 7,000 industrial and non-industrial
companies.
Russell Indexes is an investment analysis service that provides both current
and historical stock performance information, focusing on the business
fundamentals of those firms issuing the security.
Salomon Brothers and Lehman Brothers are statistical research firms that
maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well
as unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations.
Comparative information on the Consumer Price Index and the CDA Balanced Fund
Index may also be included. The Consumer Price Index, as prepared by the U.S.
Bureau of Labor Statistics, is the most commonly used measure of inflation. It
indicates the cost fluctuations of a representative group of consumer goods. It
does not represent a return from an investment. The CDA Balanced Fund Index was
developed and is maintained by CDA Technologies, Inc. The Index is comprised of
64 separately-managed, balanced mutual funds. It reflects the reinvestment of
any dividend and capital gains distributions paid during a specified period.
The following table is an example, for purposes of illustration only, of
cumulative total return performance for the three months ended October 31,
1994, for one-, three-, five-, ten- and fifteen-year periods ended October 31,
1994 and for the life of the fund for the Delaware Fund A Class and Delaware
Fund Institutional Class, and for the life of the Delaware Fund B Class, and for
the three months ended October 31, 1994 and for the life of the Devon Fund A
Class and the Devon Fund Institutional Class and for the life of the Devon Fund
B Class. For these purposes, the calculations assume the reinvestment of any
capital gains distributions and income dividends paid during the indicated
periods. Comparative information on the Dow Jones Industrial Average and the
Standard & Poor's 500 Stock Index is also included.
The performance of each Class, as shown below, reflects maximum front-end or
contingent deferred sales charges, if any, paid on the purchase of shares, as
applicable, but not any income taxes payable by shareholders on the reinvested
distributions included in the calculations. On June 14, 1988, the Delaware
Fund's investment objective was changed from growth with income to a balance of
capital appreciation, income and preservation of capital. The net asset value of
the Fund fluctuates so shares, when redeemed, may be worth more or less than the
original investment and the Fund's results should not be considered as
representative of future performance. Pursuant to applicable regulation, total
return shown for the Delaware Fund Institutional Class for the periods prior to
the commencement of operations of such class is calculated by taking the
performance of the Delaware Fund A Class and adjusting it to reflect the
elimination of all sales charges. However, for those periods no adjustment has
been made to eliminate the impact of 12b-1 payments, and performance would have
been affected had such an adjustment been made.
10
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 11
<TABLE>
<CAPTION>
Cumulative Total Return
Delaware
Fund Delaware
Class A Fund Dow Standard &
Shares/1/ Institutional Jones Poor's
(at Offer) Class/2/ Industrial/3/ 500/3/
<S> <C> <C> <C> <C>
3 months ended 10/31/94 (4.92%) 0.95% 4.54% 3.83%
1 year ended 10/31/94 (4.08%) 1.96% 9.14% 3.86%
3 years ended 10/31/94 20.63% 28.41% 38.89% 31.21%
5 years ended 10/31/94 45.20% 54.57% 73.15% 61.97%
10 years ended 10/31/94 199.42% 218.62% 362.01% 297.14%
15 years ended 10/31/94 650.11% 698.13% 806.77% 735.05%
Period 4/25/38/4/ through 10/31/94 34,429.55% 36,662.58% N/A N/A
Delaware Delaware
Fund Fund
Class B Class B
Shares Shares
(Including (Excluding
Deferred Deferred Dow Standard &
Sales Sales Jones Poor's
Charge) Charge) Industrial/3/ 500/3/
Period 9/6/94/5/ through 10/31/94 (5.06%) (1.14%) 0.33% (0.25%)
</TABLE>
/1/Delaware Fund A Class began paying 12b-1 payments on June 1, 1992 and
performance prior to that date does not reflect such payments.
/2/Date of initial public offering was November 9, 1992.
/3/Source--Lipper Analytical Services, Inc.
/4/Date of initial public offering of Delaware Fund.
/5/Date of initial public offering; total return for this short of a time
period may not be representative of longer-term results.
<TABLE>
<CAPTION>
Devon Fund Devon
Class A Fund Dow Standard &
Shares/1/ Institutional Jones Poor's
(at Offer) Class/1/ Industrial/3/ 500/3/
<S> <C> <C> <C> <C>
3 months ended 10/31/94 (3.03%) 2.93% 4.54% 3.83%
Period 12/29/93/2/ through 10/31/94 2.97% 9.55% 5.41% 2.82%
<CAPTION>
Devon Fund Devon Fund
Class B Class B
Shares Shares
(Including (Excluding
Deferred Deferred Dow Standard &
Sales Sales Jones Poor's
Charge)/1/ Charge)/1/ Industrial/3/ 500/3/
<S> <C> <C> <C> <C>
Period 9/6/94/4/ through 10/31/94 (4.43%) (0.46%) 0.33% (0.25%)
</TABLE>
/1/Certain expenses of this Series have been waived and reimbursed by the
Manager. In the absence of such waiver and reimbursement, performance would
have been affected negatively.
/2/Date of initial public offering.
/3/Source--Lipper Analytical Services, Inc.
/4/Date of initial public offering; total return for this short of a time period
may not be representative of longer-term results.
For additional performance information, see Appendix C.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and the other mutual funds in the
Delaware Group, will provide general information about investment alternatives
and scenarios that will allow investors to assess their personal goals. This
information will include general material about investing as well as materials
reinforcing various industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's overriding investment
philosophy and how that philosophy impacts the Fund's, and other Delaware Group
funds', investment disciplines employed in seeking their objectives. The
Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager, including the number of such
clients serviced by the Manager.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund shares, your
investment is given yet another opportunity to grow. It's called the Power of
Compounding and the following chart illustrates just how powerful it can be.
COMPOUNDED RETURNS
Results of various assumed fixed rates of return on a $10,000 investment
compounded quarterly for 10 years:
8% Rate of Return 10% Rate of Return 12% Rate of Return
----------------- ------------------ ------------------
12-'85 $10,824 $11,038 $11,255
12-'86 $11,717 $12,184 $12,668
12-'87 $12,682 $13,449 $14,258
12-'88 $13,728 $14,845 $16,047
12-'89 $14,859 $16,386 $18,061
12-'90 $16,084 $18,087 $20,328
12-'91 $17,410 $19,965 $22,879
12-'92 $18,845 $22,038 $25,751
12-'93 $20,399 $24,326 $28,983
12-'94 $22,080 $26,851 $32,620
These figures are calculated assuming a fixed constant investment return and
assume no fluctuation in the value of principal. These figures do not reflect
payment of applicable taxes, are not intended to be a projection of investment
results and do not reflect the actual performance results of any of the Classes.
11
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 12
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers or dealers to execute transactions for the purchase
or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers execute transactions at best price and execution. Best
price and execution refers to many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. Some trades are made on a net basis where the Fund either buys
securities directly from the dealer or sells them to the dealer. In these
instances, there is no direct commission charged but there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission. When a commission is paid, the Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, the Fund pays a minimal share
transaction cost when the transaction presents no difficulty.
During the fiscal years ended October 31, 1992, 1993 and 1994, the aggregate
dollar amounts of brokerage commissions paid by the Delaware Fund were
$1,079,095, $1,216,817 and $1,026,737, respectively. For the period from
December 29, 1993 (date of initial public offering) through October 31, 1994,
the aggregate dollar amount of brokerage commissions paid by Devon Fund was
$25,927.
The Manager may allocate out of all commission business generated by all of
the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These services include
advice, either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities;
furnishing of analyses and reports concerning issuers, securities or industries;
providing information on economic factors and trends; assisting in determining
portfolio strategy; providing computer software and hardware used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
During the fiscal year ended October 31, 1994, portfolio transactions of the
Delaware Fund in the amount of $342,858,083, resulting in brokerage commissions
of $587,295, were directed to brokers for brokerage and research services
provided. During the period from December 29, 1993 (date of initial public
offering) through October 31, 1994, portfolio transactions of the Devon Fund in
the amount of $4,980,741, resulting in brokerage commissions of $9,901, were
directed to brokers for brokerage and research services.
As provided in the Securities Exchange Act of 1934 and the Fund's Investment
Management Agreements, higher commissions are permitted to be paid to
broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Fund believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Fund and to other funds in the Delaware
Group. Subject to best price and execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.
The Manager may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and the Fund's
Board of Directors that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution,
12
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 13
the Fund may place orders with broker/dealers that have agreed to defray certain
Fund expenses such as custodian fees, and may, at the request of the
Distributor, give consideration to sales of shares of the Fund as a factor in
the selection of brokers and dealers to execute Fund portfolio transactions.
Portfolio Turnover
Management frequently transfers investments between securities, or types of
securities, in carrying out its investment policy. As a result, the Fund may, at
times, buy and sell more investment securities and thereby incur greater
brokerage commissions than funds which do not frequently transfer investments.
The rate of portfolio turnover is not a limiting factor when management deems it
desirable to purchase or sell securities.
The degree of portfolio activity may affect taxes payable by the Fund's
shareholders to the extent of any net realized capital gains. A turnover rate of
100% would occur, for example, if all the investments in the Fund's portfolio at
the beginning of the year were replaced by the end of the year. The turnover
rate also may be affected by cash requirements from redemptions and repurchases
of Fund shares.
During the past two fiscal years, the Delaware Fund's portfolio turnover rates
were approximately 160% for 1993 and 142% for 1994. During the period from
December 29, 1993 (date of initial public offering) through October 31, 1994,
the Devon Fund's portfolio turnover rate was 180%, annualized.
Should it become necessary to sell investments for monies with which to redeem
shares, the Board of Directors, in its discretion, may deduct from the net asset
value the brokerage commissions and other costs incurred to determine the
redemption price. However, the Fund has never redeemed or repurchased shares at
other than net asset value.
PURCHASING SHARES
The Distributor serves as the national distributor for each Series' three
classes of shares and has agreed to use its best efforts to sell shares of the
Fund. See the Prospectuses for information on how to invest. Shares of the Fund
are offered on a continuous basis, and may be purchased through authorized
investment dealers or directly by contacting the Fund or its agent. The minimum
for initial investments with respect to the Class A Shares is $250 and with
respect to the Class B Shares is $1,000. The minimum initial investment with
respect to the Class A Shares will be waived for purchases by officers,
directors and employees of any Delaware Group fund, the Manager or any of the
Manager's affiliates if the purchases are made pursuant to a payroll deduction
program. For any subsequent investment, the investment minimum is $25 with
respect to the Class A Shares and $100 with respect to the Class B Shares. The
minimum subsequent investment with respect to the Class A Shares will be waived
for purchases by officers, directors and employees of any Delaware Group fund,
the Manager or any of the Manager's affiliates if the purchases are made
pursuant to a payroll deduction program. Class B Shares are also subject to a
maximum purchase limitation of $250,000. The Fund will therefore reject any
order for purchase of more than $250,000 of Class B Shares. (See Investment
Plans for minimums applicable to each of the Fund's master Retirement Plans.)
There are no minimum purchase requirements for the Institutional Classes, but
certain eligibility requirements must be satisfied. Selling dealers have the
responsibility of transmitting orders promptly. The Fund reserves the right to
reject any order for the purchase of its shares if in the opinion of management
such rejection is in the Fund's best interest.
Certificates representing shares purchased are not ordinarily issued unless a
shareholder submits a specific request. Certificates are not issued in the case
of the Class B Shares. However, purchases not involving the issuance of
certificates are confirmed to the investor and credited to the shareholder's
account on the books maintained by Delaware Service Company, Inc. (the "Transfer
Agent"). The investor will have the same rights of ownership with respect to
such shares as if certificates had been issued. An investor that is permitted to
obtain a certificate may receive a certificate representing shares purchased by
sending a letter to the Transfer Agent requesting the certificate. No charge is
made for any certificate issued. Investors who hold certificates representing
any of their shares may only redeem those shares by written request. The
investor's certificate(s) must accompany such request.
The NASD has adopted amendments to its Rules of Fair Practice relating to
investment company sales charges. The Fund and the Distributor intend to operate
in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a maximum
front-end sales charge of 5.75%; however, lower front-end sales charges apply
for larger purchases. See the following table. Class A Shares are also subject
to annual 12b-1 Plan expenses.
Class B Shares are purchased at net asset value and are subject to a CDSC of:
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares
are redeemed during the third or fourth year following purchase; (iii) 2% if
shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares are
also subject to 12b-1 Plan expenses which are higher than those to which Class A
Shares are subject and are assessed against the Class B Shares for no longer
than approximately eight years after purchase. See Automatic Conversion of Class
B Shares in the Fund Classes' Prospectus, and Determining Offering Price and Net
Asset Value and Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Institutional Class shares are purchased at the net asset value per share
without the imposition of a front-end or contingent deferred sales charge or
12b-1 Plan expenses. Institutional Class shares, Class A Shares and Class B
Shares represent a proportionate interest in a Series' assets and will receive a
proportionate interest in that Series' income, before application, as to the
Class A and Class B Shares, of any expenses under the Fund's 12b-1 Plans.
13
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 14
Alternative Purchase Arrangements
The alternative purchase arrangements of the Class A and Class B Shares permit
investors to choose the method of purchasing shares that is most beneficial
given the amount of their purchase, the length of time they expect to hold their
shares and other relevant circumstances. Investors should determine whether,
under their particular circumstances, it is more advantageous to purchase the
Class A Shares and incur a front-end sales charge and annual 12b-1 Plan expenses
of up to a maximum of .30% of the average daily net assets of the Class A Shares
or to purchase the Class B Shares and have the entire initial purchase price
invested in the Fund with the investment thereafter subject to a CDSC if shares
are redeemed within six years of purchase and annual 12b-1 Plan expenses of 1%
(.25% of which are service fees to be paid by the Fund to the Distributor,
dealers or others for providing personal service and/or maintaining shareholder
accounts) of the average daily net assets of the Class B Shares for no longer
than approximately eight years after purchase.
Class A Shares
Purchases of $100,000 or more of the Class A Shares at the offering price
currently carry reduced front-end sales charges as shown in the accompanying
table, and may include a series of purchases over a 13-month period under a
Letter of Intention signed by the purchaser. See Special Purchase Features--
Class A Shares for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
<TABLE>
<CAPTION>
Class A Shares
- ----------------------------------------------------------------------------------
Dealer's
Front-End Sales Charge as % of Concession***
Amount of Purchase Offering Amount as % of
Price Invested** Offering Price
---------------------------------------------------------------------------------
Delaware Devon
Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 5.75% 6.10% 6.09% 5.00%
$100,000 but under $250,000 4.75 4.99 4.99 4.00
$250,000 but under $500,000 3.50 3.63 3.63 3.00
$500,000 but under $1,000,000* 3.00 3.09 3.09 2.60
</TABLE>
*There is no front-end sales charge on purchases of $1 million or more
but, under certain limited circumstances, a 1% contingent deferred
sales charge may apply. The contingent deferred sales charge ("Limited
CDSC") that may be applicable to purchases of Class A Shares arises
only in the case of certain net asset value purchases which have triggered
the payment of a dealer's commission.
- -----------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify
for the reduced front-end sales charge on the basis of previous purchases and
current purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund. Such reduced front-end
sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may reallow dealers up to the full front-end sales charge shown
above. Dealers who receive 90% or more of the sales charge may be deemed to be
underwriters under the Securities Act of 1933.
**Based on the net asset value of the Class A Shares as of the end of
the Fund's most recent fiscal year.
***Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
Certain dealers who enter into an agreement to provide extra training and
information on Delaware Group products and services and to increase sales of
Delaware Group funds may receive an additional concession of up to .15% of the
offering price in connection with sales of Class A Shares. Such dealers must
meet certain requirements in terms of organization and distribution capabilities
and their ability to increase sales. The Distributor should be contacted for
further information on these requirements as well as the basis and circumstances
upon which the additional concession will be paid. Participating dealers may be
deemed to have additional responsibilities under the securities laws.
Dealer's Commission--Class A Shares
For initial purchases of Class A Shares of $1,000,000 or more made on or after
June 1, 1993, a dealer's commission may be paid by the Distributor to financial
advisers through whom such purchases are effected in accordance with the
following schedule:
Dealer's Commission
Amount of Purchase -------------------
------------------ (as a percentage of
amount purchased)
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
In determining a financial adviser's eligibility for the dealer's commission,
purchases of shares of other Delaware Group funds as to which a Limited CDSC
applies (see Redemption and Repurchase) may be aggregated with those of the
Class A Shares of a Series. Financial advisers should contact the Distributor
concerning the applicability and calculation of the dealer's commission in the
case of combined purchases. Financial advisers also may be eligible for a
dealer's commission in connection with certain purchases made under a Letter of
Intention or pursuant to an investor's Right of Accumulation. The Distributor
also should be consulted concerning the availability of and program for these
payments.
An exchange from other Delaware Group funds will not qualify for payment of
the dealer's commission, unless such exchange is from a Delaware Group fund with
assets as to which a dealer's commission or similar payment has not been
previously paid. The schedule and program for payment of the dealer's commission
are subject to change or termination at any time by the Distributor in its
discretion.
Class B Shares
Class B Shares are purchased without the imposition of a front-end sales
charge at the time of purchase. Class B Shares redeemed within six years of
purchase may be subject to a CDSC at the rates set forth below, charged as a
percentage of the dollar amount subject thereto. The charge will be assessed on
an amount equal to the lesser of the net asset value at the time of purchase of
the shares being redeemed or the net asset value of the shares at the time of
redemption. Accordingly, no CDSC will be imposed on increases in net asset value
above the initial
14
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 15
purchase price. In addition, no CDSC will be assessed on redemption of shares
received upon reinvestment of dividends or capital gains. See the Prospectus for
the Fund Classes under Buying Shares--Contingent Deferred Sales Charge for a
list of the instances in which the CDSC is waived.
The following table sets forth the rates of the CDSC for the Class B Shares of
each Series:
Contingent Deferred
Sales Charge
(as a Percentage of
Year After Dollar Amount
Purchase Made Subject to Charge)
------------- -------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares of a Series, the Class B Shares will continue
to be subject to annual 12b-1 Plan expenses of 1% of average daily net assets
representing such shares. At the end of no longer than approximately eight years
after purchase, the investor's Class B Shares of the Series will be
automatically converted into Class A Shares of that Series. See Automatic
Conversion of Class B Shares in the Fund Classes' Prospectus. Such conversion
will constitute a tax-free exchange for federal income tax purposes. See Taxes
in the Prospectus for the Fund Classes.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act"), the Fund has adopted a separate plan for each of the Class A Shares and
the Class B Shares of the Fund (the "Plans"). The Plan relating to Class A
Shares permits a Series to pay for certain distribution, promotional and related
expenses involved in the marketing of only Class A Shares. Similarly, the Plan
relating to Class B Shares permits a Series to pay for certain distribution,
promotional and related expenses involved in the marketing of only Class B
Shares. The Plans do not apply to the Institutional Classes of shares. Such
shares are not included in calculating the Plans' fees, and the Plans are not
used to assist in the distribution and marketing of the Institutional Classes
of shares. Shareholders of the Institutional Classes may not vote on matters
affecting the Plans.
The Plans permit a Series, pursuant to its Distribution Agreement, to pay out
of the assets of the respective Class A Shares and Class B Shares monthly fees
to the Distributor for its services and expenses in distributing and promoting
sales of shares of such classes. These expenses include, among other things,
preparing and distributing advertisements, sales literature and prospectuses and
reports used for sales purposes, compensating sales and marketing personnel, and
paying distribution and maintenance fees to securities brokers and dealers who
enter into agreements with the Distributor. The 12b-1 Plan expenses relating to
the Class B Shares are also used to pay the Distributor for advancing the
commission costs to dealers with respect to the initial sale of such shares.
In addition, each Series may make payments out of the assets of the respective
Class A Shares and Class B Shares directly to other unaffiliated parties, such
as banks, who either aid in the distribution of shares of the Fund Classes or
provide services to such classes.
The maximum aggregate fee payable by the Fund under the Plans, and each
Series' Distribution Agreement, is on an annual basis .30% of a Class A Shares'
average daily net assets for the year, and 1% (.25% of which are service fees to
be paid to the Distributor, dealers and others for providing personal service
and/or maintaining shareholder accounts) of a Class B Shares' average daily net
assets for the year. The Fund's Board of Directors may reduce these amounts at
any time.
Effective June 1, 1992, the Board of Directors has determined that the annual
fee, payable on a monthly basis for the Delaware Fund A Class, under its Plan,
will be equal to the sum of: (i) the amount obtained by multiplying .30% by the
average daily net assets represented by shares of the Delaware Fund A Class that
were acquired by shareholders on or after June 1, 1992; and (ii) the amount
obtained by multiplying .10% by the average daily net assets represented by
shares of the Delaware Fund A Class that were acquired before June 1, 1992.
While this is the method for calculating the 12b-1 fees to be paid by the
Delaware Fund A Class, the fee is a Class expense so that all shareholders of
that Class, regardless of when they purchased their shares, will bear 12b-1
expenses at the same per share rate. As Delaware Fund A Class shares are sold on
or after June 1, 1992, the initial rate of at least .10% will increase over
time. Thus, as the proportion of Delaware Fund A Class shares purchased on or
after June 1, 1992 to Delaware Fund A Class shares outstanding prior to June 1,
1992 increases, the expenses attributable to payments under the Plan will also
increase (but will not exceed .30% of average daily net assets). While this
describes the current formula for calculating the fees which will be payable
under the Plan, the Plan permits the Fund to pay a full .30% on all Delaware
Fund A Class assets at any time.
On September 23, 1993, the Board of Directors set the fee for the Devon Fund
at .30% of average daily net assets.
All of the distribution expenses incurred by the Distributor and others, such
as broker/dealers, in excess of the amount paid on behalf of the Class A and
Class B Shares would be borne by such persons without any reimbursement from
such classes. Subject to seeking best price and execution, the Series may, from
time to time, buy or sell portfolio securities from or to firms which receive
payments under the Plans.
From time to time, the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans, the Distribution Agreements and the form of services agreement
relating thereto have all been approved by the Board of Directors of the Fund,
including a majority of the directors who are not "interested persons" (as
15
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 16
defined in the 1940 Act) of the Fund and who have no direct or indirect
financial interest in the Plans or any related agreements, by vote cast in
person at a meeting duly called for the purpose of voting on the Plans and such
Agreements. Continuation of the Plans, the Distribution Agreements and the form
of services agreement must be approved annually by the Board of Directors in the
same manner as specified above.
Each year, the directors must determine whether continuation of the Plans is
in the best interest of shareholders of, respectively, the Class A Shares and
the Class B Shares and that there is a reasonable likelihood of the Plan
relating to a Fund Class providing a benefit to that Class. The Plans, the
Distribution Agreements and the services agreement with any broker/dealers or
others relating to a Fund Class may be terminated at any time without penalty by
a majority of those directors who are not "interested persons" or by a majority
vote of the outstanding voting securities of the relevant Fund Class. Any
amendment materially increasing the percentage payable under the Plans must
likewise be approved by a majority vote of the outstanding voting securities of
the relevant Fund Class, as well as by a majority vote of those directors who
are not "interested persons." Also, any other material amendment to the Plans
must be approved by a majority vote of the directors including a majority of the
noninterested directors of the Fund having no interest in the Plans. In
addition, in order for the Plans to remain effective, the selection and
nomination of directors who are not "interested persons" of the Fund must be
effected by the directors who themselves are not "interested persons" and who
have no direct or indirect financial interest in the Plans. Persons authorized
to make payments under the Plans must provide written reports at least quarterly
to the Board of Directors for their review.
For the fiscal year ended October 31, 1994, payments from the Delaware Fund A
Class pursuant to its Plan amounted to $775,445. This amount is broken down as
follows: $452--Advertising, $26,957--Annual/Semi-Annual Reports, $529,296--
Broker Trails, $58,310--Commission to Wholesalers, $19,793--Dealer Service
Expenses, $24,327--Promotional-Other, $30,452--Promotional-Broker Meetings,
$13,513--Prospectus Printing, $6,991--Telephone, $39,807--Wholesaler Expenses
and $25,547--Retained For Future Expenses. For the period December 29, 1993
(date of initial public offering) through October 31, 1994, payments from the
Devon Fund A Class pursuant to its Plan amounted to $8,293. This amount is
broken down as follows: $650--Annual/Semi-Annual Reports, $4,942--Broker
Trails, $2,301--Commission to Wholesalers, $226--Promotional-Other, $35--
Promotional-Broker Meetings and $139--Prospectus Printing. For the period
September 6, 1994 (date of initial public offering) through October 31, 1994,
payments from the Delaware Fund B Class and the Devon Fund B Class pursuant to
their respective Plans amounted to $462 and $81, respectively. These amounts are
broken down as follows: $168 and $20, respectively--Broker Sales Charges, $106
and $11, respectively--Broker Trails, $32 and $13, respectively--Commission to
Wholesalers, and $156 and $37, respectively--Interest on Broker Sales Charges.
Other Payments to Dealers--Class A and Class B Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to .25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.
In connection with the sale of Delaware Group fund shares, the Distributor
may, at its own expense, pay to participate in or reimburse dealers with whom it
has a selling agreement for expenses incurred in connection with seminars and
conferences sponsored by such dealers and may pay or allow additional
promotional incentives, which shall include non-cash concessions, such as
certain luxury merchandise or a trip to or attendance at a business or
investment seminar at a luxury resort, in the form of sales contests to dealers
who sell shares of the funds. Such seminars and conferences and the terms of
such sales contests must be preapproved by the Distributor. Payment may be up to
100% of the expenses incurred or awards made in connection with seminars,
conferences or contests relating to the promotion of fund shares. The
Distributor may also pay a portion of the expense of preapproved dealer
advertisements promoting the sale of Delaware Group fund shares.
Special Purchase Features--Class A Shares
Buying at Net Asset Value
The Class A Shares may be purchased without a front-end sales charge under the
Dividend Reinvestment Plan and, under certain circumstances, the 12-Month
Reinvestment Privilege and the Exchange Privilege.
Current and former officers, directors and employees of the Fund, any other
fund in the Delaware Group, the Manager or any of the Manager's affiliates that
may in the future be created, legal counsel to the funds and registered
representatives and employees of broker/dealers who have entered into Dealer's
Agreements with the Distributor may purchase Class A Shares and any such class
of shares of any of the funds in the Delaware Group, including any fund that may
be created, at the net asset value per share. Spouses, parents, brothers,
sisters and children (regardless of age) of such persons at their direction, and
any employee benefit plan established by any of the foregoing funds,
corporations, counsel or broker/dealers may also purchase shares at net asset
value. Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within six
months of a change of the registered representative's employment, if the
purchase is funded by proceeds from an investment where a front-end sales charge
has been assessed and the redemption of the investment did not
16
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 17
result in the imposition of a contingent deferred sales charge or other
redemption charges. Purchases of Class A Shares also may be made at net asset
value by bank employees that provide services in connection with agreements
between the bank and unaffiliated brokers or dealers concerning sales of Class A
Shares. Also, officers, directors and key employees of institutional clients of
the Manager or any of its affiliates may purchase Class A Shares at net asset
value. Moreover, purchases may be effected at net asset value for the benefit of
the clients of brokers, dealers and registered investment advisers affiliated
with a broker or dealer, if such broker, dealer or investment adviser has
entered into an agreement with the Distributor providing specifically for the
purchase of Class A Shares in connection with special investment products, such
as wrap accounts or similar fee based programs. Such purchasers are required to
sign a letter stating that the purchase is for investment only and that the
securities may not be resold except to the issuer. Such purchasers may also be
required to sign or deliver such other documents as the Fund may reasonably
require to establish eligibility for purchase at net asset value. The Fund must
be notified in advance that the trade qualifies for purchase at net asset value.
Investments in Class A Shares made by plan level and/or participant retirement
accounts that are for the purpose of repaying a loan taken from such accounts
will be made at net asset value. Loan repayments made to a Delaware Group
account in connection with loans originated from accounts previously maintained
by another investment firm will also be invested at net asset value.
Letter of Intention
The reduced front-end sales charges described above with respect to the Class
A Shares are also applicable to the aggregate amount of purchases made by any
such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or the Fund, which provides for
the holding in escrow by the Transfer Agent, of 5% of the total amount of the
Class A Shares intended to be purchased until such purchase is completed within
the 13-month period. A Letter of Intention may be dated to include shares
purchased up to 90 days prior to the date the Letter is signed. The 13-month
period begins on the date of the earliest purchase. If the intended investment
is not completed, except as noted below, the purchaser will be asked to pay an
amount equal to the difference between the front-end sales charge on the Class A
Shares purchased at the reduced rate and the front-end sales charge otherwise
applicable to the total shares purchased. If such payment is not made within 20
days following the expiration of the 13-month period, the Transfer Agent will
surrender an appropriate number of the escrowed shares for redemption in order
to realize the difference. Such purchasers may include the value (at offering
price at the level designated in their Letter of Intention) of all their shares
of the Fund and of any class of any of the other mutual funds in the Delaware
Group (except shares of any Delaware Group fund which do not carry a front-end
sales charge or contingent deferred sales charge, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
shares which do) previously purchased and still held as of the date of their
Letter of Intention toward the completion of such Letter. For purposes of
satisfying an investor's obligation under a Letter of Intention, Class B Shares
of a Series and the corresponding class of shares of other Delaware Group funds
which offer such shares may be aggregated with the Class A Shares of the Fund
and the corresponding class of shares of the other Delaware Group funds.
Employers offering a Delaware Group Retirement Plan may also complete a Letter
of Intention to obtain a reduced front-end sales charge on investments of the
Class A Shares made by the Plan. The aggregate investment level of the Letter of
Intention will be determined and accepted by the Transfer Agent at the point of
Plan establishment. The level and any reduction in front-end sales charge will
be based on actual Plan participation and the projected investments in Delaware
Group funds that are offered with a front-end sales charge or contingent
deferred sales charge for a 13-month period. The Transfer Agent reserves the
right to adjust the signed Letter of Intention based on this acceptance
criteria. The 13-month period will begin on the date this Letter of Intention is
accepted by the Transfer Agent. If actual investments exceed the anticipated
level and equal an amount that would qualify the Plan for further discounts, any
front-end sales charges will be automatically adjusted. In the event this Letter
of Intention is not fulfilled within the 13-month period, the Plan level will be
adjusted (without completing another Letter of Intention) and the employer will
be billed for the difference in front-end sales charges due, based on the Plan's
assets under management at that time. Employers may also include the value (at
offering price at the level designated in their Letter of Intention) of all
their shares intended for purchase that are offered with a front-end sales
charge or contingent deferred sales charge of any class. Class B Shares of a
Series and other Delaware Group funds which offer a corresponding class of
shares may also be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to the Class A Shares, purchasers may combine
the total amount of any combination of the Fund Classes of a Series as well as
any other class of any of the other Delaware Group funds (except shares of any
Delaware Group fund which do not carry a front-end sales charge or contingent
deferred sales charge, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from shares which do).
The privilege also extends to all purchases made at one time by an individual;
or an individual, his or her spouse and their children under the age 21; or a
trustee or other
17
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Delaware Group Delaware Fund, Inc.-Part B--Page 18
fiduciary of trust estates or fiduciary accounts for the benefit of such family
members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge with
respect to the Class A Shares, purchasers may also combine any subsequent
purchases of the Fund Classes of a Series as well as any other class of any of
the other Delaware Group funds which offer such classes (except shares of any
Delaware Group fund which do not carry a front-end sales charge or contingent
deferred sales charge, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from shares which do).
If, for example, any such purchaser has previously purchased and still holds
Class A Shares and/or shares of any other of the classes described in the
previous sentence with a value of $40,000 and subsequently purchases $60,000 at
offering price of additional shares of the Class A Shares, the charge applicable
to the $60,000 purchase would currently be 4.75%. For the purpose of this
calculation, the shares presently held shall be valued at the public offering
price that would have been in effect were the shares purchased simultaneously
with the current purchase. Investors should refer to the table of sales charges
for Class A Shares to determine the applicability of the Right of Accumulation
to their particular circumstances.
12-Month Reinvestment Privilege
Shareholders of the Class A Shares (and of the Institutional Classes holding
shares which were acquired through an exchange of one of the other mutual funds
in the Delaware Group offered with a front-end sales charge) who redeem such
shares of the Fund have one year from the date of redemption to reinvest all or
part of their redemption proceeds in Class A Shares of the Fund or in Class A
Shares of any of the other funds in the Delaware Group, subject to applicable
eligibility and minimum purchase requirements, in states where shares of such
other funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds in the
Delaware Group offered without a front-end sales charge will be required to pay
the applicable sales charge when purchasing Class A Shares. The reinvestment
privilege does not extend to redemption of Class B Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any amount
necessary to purchase a full share). The reinvestment will be made at the net
asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is proposed to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer Agent, which
also serves as the Fund's shareholder servicing agent, about the applicability
of the Limited CDSC (see Contingent Deferred Sales Charge for Certain Purchases
of Class A Shares Made at Net Asset Value under Redemption and Exchange in the
Fund Classes' Prospectus) in connection with the features described above.
Group Investment Plans
Group Investment Plans which are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares set forth in the table on page 14, based on
total plan assets. If a company has more than one plan investing in the Delaware
Group of funds, then the total amount invested in all plans would be used in
determining the applicable front-end sales charge reduction. Employees
participating in such Group Investment Plans may also combine the investments
made in their plan account when determining the applicable front-end sales
charge on purchases to non-retirement Delaware Group investment accounts. For
other Retirement Plans and special services, see Retirement Plans for the Fund
Classes under Investment Plans.
Institutional Classes
Each Series' Institutional Class is available for purchase only by: (a)
retirement plans introduced by persons not associated with brokers or dealers
that are primarily engaged in the retail securities business and rollover
individual retirement accounts from such plans; (b) tax-exempt employee benefit
plans of the Manager or its affiliates and securities dealer firms with a
selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment Advisers, a division of the Manager, or its affiliates and
their corporate sponsors, as well as subsidiaries and related employee benefit
plans and rollover individual retirement accounts from such institutional
advisory accounts; (d) banks, trust companies and similar financial institutions
investing for their own account or for the account of their trust customers for
whom such financial institution is exercising investment discretion in
purchasing shares of the Class; and (e) registered investment advisers investing
on behalf of clients that consist solely of institutions and high net-worth
individuals having at least $1,000,000 entrusted to the adviser for investment
purposes, but only if the adviser is not affiliated or associated with a broker
or dealer and derives compensation for its services exclusively from its clients
for such advisory services.
Shares of the Institutional Classes are available for purchase at net asset
value, without the imposition of a front-end or contingent deferred sales charge
and are not subject to Rule 12b-1 expenses.
18
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Delaware Group Delaware Fund, Inc.-Part B--Page 19
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from net
investment income and distributions from realized securities profits, if any,
will be automatically reinvested in additional shares of the respective Fund
Class in which an investor has an account (based on the net asset value in
effect on the reinvestment date) and will be credited to the shareholder's
account on that date. All dividends and distributions of the Institutional
Classes are reinvested in the account of the holders of such shares (based on
the net asset value of the Fund in effect on the reinvestment date). A
confirmation of each dividend payment from net investment income will be mailed
to shareholders quarterly. A confirmation of any distributions from realized
securities profits will be mailed to shareholders in the first quarter of the
fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and add
full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the Fund for
$25 or more with respect to the Class A Shares and $100 or more with respect to
the Class B Shares; no minimum applies to the Institutional Classes. Such
purchases are made for Class A Shares at the public offering price, and for
Class B Shares and Institutional Class shares at the net asset value, at the end
of the day of receipt. A reinvestment plan may be terminated at any time. This
plan does not assure a profit nor protect against depreciation in a declining
market.
Reinvestment of Dividends in Other
Delaware Group Funds
Subject to applicable eligibility and minimum purchase requirements and the
limitations set forth below, shareholders of the Class A Shares and Class B
Shares may automatically reinvest dividends and/or distributions from the Fund
in any of the other mutual funds in the Delaware Group, including the Fund, in
states where their shares may be sold. Such investments will be at net asset
value at the close of business on the reinvestment date without any front-end
sales charge or service fee. The shareholder must notify the Transfer Agent in
writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account will be treated like
all other initial purchases of a fund's shares. Consequently, an investor should
obtain and read carefully the prospectus for the fund in which the investment is
proposed to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses. See
also Dividend Reinvestment Plan in the Prospectus for the Fund Classes.
Subject to the following limitations, dividends and/or distributions from
other funds in the Delaware Group may be invested in shares of the Fund,
provided an account has been established. Dividends from the Class A Shares may
not be directed to the Class B Shares of another fund in the Delaware Group.
Dividends from the Class B Shares may only be directed to the Class B Shares of
another fund in the Delaware Group that offers such class of shares. See Class B
Funds in the Fund Classes' Prospectus for the funds in the Delaware Group that
are eligible for investment by holders of Series shares.
This option is not available to participants in the following plans: SAR/SEP,
SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457 Deferred
Compensation Plans.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors of the Class A Shares and the Class B
Shares may arrange for a Series to accept for investment, through an agent bank,
preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan--Shareholders of the Class A Shares and Class B
Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into the relevant
Class. This type of investment will be handled in either of the two ways noted
below. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans: SAR/SEP,
SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457 Deferred
Compensation Plans.
* * *
Investments under the Direct Deposit Purchase Plan and the Automatic Investing
Plan must be for $25 or more with respect to the Class A Shares and $100 or more
with respect to the Class B Shares. An investor wishing to take advantage of
either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to a Series from the federal government or its agencies on behalf of
a shareholder may be credited to the shareholder's account after such payments
should have been terminated by reason of death or otherwise. Any such
19
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 20
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Fund may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Series.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer, to make
investments directly to their Series accounts. A Series will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact the Fund for proper
instructions.
Retirement Plans for the Fund Classes
An investment in the Fund may be suitable for tax-deferred Retirement Plans.
Among the Retirement Plans noted below, Class B Shares are available for
investment only by Individual Retirement Accounts, Simplified Employee Pension
Plans, 457 Deferred Compensation Plans and 403(b)(7) Deferred Compensation
Plans. The CDSC may be waived on certain redemptions of Class B Shares. See the
Prospectus for the Fund Classes under Buying Shares--Contingent Deferred Sales
Charge for a list of the instances in which the CDSC is waived.
The minimum initial investment for each of the Retirement Plans described
below is $250; subsequent investments must be at least $25. Retirement Plans may
be subject to plan establishment fees, annual maintenance fees and/or other
administrative or Trustee fees. Fees are based on the number of participants in
the Plan as well as the services selected. Additional information about fees is
included in Retirement Plan materials. Annual maintenance fees may be shared by
Delaware Management Trust Company, the Transfer Agent, other affiliates of the
Manager and others that provide services to such Plans. Fees are subject to
change.
Certain shareholder investment services available to non-retirement plan
shareholders may not be available to Retirement Plan shareholders. Certain
Retirement Plans may qualify to purchase shares of the Institutional Classes.
See Institutional Classes above. For additional information on any of the Plans
and Delaware's retirement services, call the Shareholder Service Center
telephone number.
With respect to the annual maintenance fees per account referred to above,
"account" shall mean any account or group of accounts within a Plan type
identified by a common tax identification number between or among them.
Shareholders are responsible for notifying the Fund when more than one account
is maintained under a single tax identification number.
It is advisable for an investor considering any one of the Retirement Plans
described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these Plans, contact your investment dealer or the Distributor.
Taxable distributions from the Retirement Plans described below may be subject
to withholding.
Please contact your investment dealer or the Distributor for the special
application forms required for the Plans described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals, partnerships and
corporations which replace the former Keogh and corporate retirement plans.
These Plans contain profit sharing or money purchase pension plan provisions.
Contributions may be invested only in Class A Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an Individual
Retirement Account ("IRA") by making contributions which may be tax-deductible,
even if the individual is already participating in an employer-sponsored
retirement plan. Even if contributions are not deductible for tax purposes, as
indicated below, earnings will be tax-deferred. In addition, an individual may
make contributions on behalf of a spouse who has no compensation for the year or
elects to be treated as having no compensation for the year. Investments in each
of the Fund Classes are permissible.
The Tax Reform Act of 1986 (the "Act") restructured, and in some cases
eliminated, the tax deductibility of IRA contributions. Under the Act, the full
deduction for IRAs ($2,000 for each working spouse and $2,250 for one-income
couples) was retained for all taxpayers who are not covered by an employer-
sponsored retirement plan. Even if a taxpayer (or his or her spouse) is covered
by an employer-sponsored retirement plan, the full deduction is still available
if the taxpayer's adjusted gross income is below $25,000 ($40,000 for taxpayers
filing joint returns). A partial deduction is allowed for married couples with
incomes between $40,000 and $50,000, and for single individuals with incomes
between $25,000 and $35,000. The Act does not permit deductions for
contributions to IRAs by taxpayers whose adjusted gross income before IRA
deductions exceeds $50,000 ($35,000 for singles) and who are active participants
in an employer-sponsored retirement plan. Taxpayers who are not allowed
deductions on IRA contributions still can make nondeductible IRA contributions
of as much as $2,000 for each working spouse ($2,250 for one-income couples),
and defer taxes on interest or other
20
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 21
earnings from the IRAs. Special rules apply for determining the deductibility of
contributions made by married individuals filing separate returns.
A company or association may establish a Group IRA for employees or members
who want to purchase shares of the Fund. Purchases of $1 million or more of the
Class A Shares qualify for purchase at net asset value but may, under certain
circumstances, be subject to a Limited CDSC. See Purchasing Shares concerning
reduced front-end sales charges applicable to Class A Shares.
Investments generally must be held in the IRA until age 59 1/2 in order to
avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. See Class B Shares under Alternative Purchase Arrangements
concerning the applicability of a CDSC upon redemption.
See Appendix B for additional IRA information.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a tax-
sheltered retirement program by making contributions on behalf of all eligible
employees. Each of the Fund Classes is available for investment by a SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Employers with 25 or fewer eligible employees can establish this plan which
permits employer contributions and salary deferral contributions in Class A
Shares only.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Internal Revenue Code of 1986 (the "Code") permits
employers to establish qualified plans based on salary deferral contributions.
Plan documents are available to enable employers to establish a plan. An
employer may also elect to make profit sharing contributions and/or matching
contributions with investments in only Class A Shares or certain other funds in
the Delaware Group. Purchases under the Plan may be combined for purposes of
computing the reduced front-end sales charge applicable to Class A Shares as set
forth in the table on page 14.
Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain non-
profit organizations to use mutual fund shares held in a custodial account to
fund deferred compensation arrangements for their employees. A custodial account
agreement is available for those employers who wish to purchase either of the
Fund Classes in conjunction with such an arrangement. Applicable front-end sales
charges with respect to Class A Shares for such purchases are set forth in the
table on page 14.
Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their agencies
and certain other entities to establish a deferred compensation plan for their
employees who wish to participate. This enables employees to defer a portion of
their salaries and any federal (and possibly state) taxes thereon. Such plans
may invest in shares of either of the Fund Classes. Although investors may use
their own plan, there is available a Delaware Group 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Applicable front-end sales charges for
such purchases of Class A Shares are set forth in the table on page 14.
DETERMINING OFFERING
PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering price next
calculated by the Fund after receipt of the order by the Fund or its agent.
Orders for purchases of Class B Shares and the Institutional Classes are
effected at the net asset value per share next calculated after receipt of the
order by the Fund or its agent. Selling dealers have the responsibility of
transmitting orders promptly.
The offering price for the Class A Shares consists of the net asset value per
share plus any applicable sales charges. Offering price and net asset value are
computed as of the close of regular trading on the New York Stock Exchange
(ordinarily, 4 p.m., Eastern time) on days when such exchange is open. The New
York Stock Exchange is scheduled to be open Monday through Friday throughout the
year except for New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. When the New York Stock
Exchange is closed, pricing calculations will not be made and purchase and
redemption orders will not be processed.
An example showing how to calculate the net asset value per share and, in the
case of the Class A Shares, the offering price per share, is included in each
Series' financial statements which are incorporated by reference into this Part
B.
21
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Delaware Group Delaware Fund, Inc.-Part B--Page 22
Each Series' net asset value per share is computed by adding the value of all
securities and other assets in the portfolio, deducting any liabilities and
dividing by the number of shares outstanding. Expenses and fees are accrued
daily. In determining the Series' total net assets, portfolio securities listed
or traded on a national securities exchange, except for bonds, are valued at the
last sale price on the exchange upon which such securities are primarily traded.
Securities not traded on a particular day, over-the-counter securities and
government and agency securities are valued at the mean value between bid and
asked prices. Money market instruments having a maturity of less than 60 days
are valued at amortized cost. Debt securities (other than short-term
obligations) are valued on the basis of valuations provided by a pricing service
when such prices are believed to reflect the fair value of such securities. Use
of a pricing service has been approved by the Board of Directors. Prices
provided by a pricing service take into account appropriate factors such as
institutional trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, trading characteristics and other market data. If
no quotations are available, all other securities and assets are valued at fair
value as determined in good faith and in a method approved by the Board of
Directors.
Each Class of a Series will bear, pro-rata, all of the common expenses of that
Series. The net asset values of all outstanding shares of each Class of a Series
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Series represented by the value of shares of
that Class. All income earned and expenses incurred by a Series, will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Series represented by the value of shares of such Classes,
except that the Institutional Classes will not incur any of the expenses under
the Fund's 12b-1 Plans and shares of the Fund Classes alone will bear the 12b-1
Plan fees payable under their respective Plans. Due to the specific distribution
expenses and other costs that will be allocable to each Class, the net asset
value of and dividends paid to each Class of a Series will vary.
REDEMPTION AND
REPURCHASE
Any shareholder may require the Fund to redeem shares by sending a written
request, signed by the record owner or owners exactly as the shares are
registered, to the Fund, 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. The Fund does not issue
certificates for Class A Shares or Institutional Class shares unless a
shareholder specifically requests them. The Fund does not issue certificates for
Class B Shares. If stock certificates have been issued for shares being
redeemed, they must accompany the written request. For redemptions of $50,000 or
less paid to the shareholder at the address of record, the Fund requires a
request signed by all owners of the shares or the investment dealer of record,
but does not require signature guarantees. When the redemption is for more than
$50,000, or if payment is made to someone else or to another address, signatures
of all record owners are required and a signature guarantee may be required.
Each signature guarantee must be supplied by an eligible guarantor institution.
The Fund reserves the right to reject a signature guarantee supplied by an
eligible institution based on its creditworthiness. The Fund may request further
documentation from corporations, retirement plans, executors, administrators,
trustees or guardians.
In addition to redemption of Series shares by the Fund, the Distributor,
acting as agent for the Fund, offers to repurchase Series shares from
broker/dealers acting on behalf of shareholders. The redemption or repurchase
price, which may be more or less than the shareholder's cost, is the net asset
value per share next determined after receipt of the request in good order by
the Fund or its agent, less any applicable contingent deferred sales charge.
This is computed and effective at the time the offering price and net asset
value are determined. See Determining Offering Price and Net Asset Value. The
Fund and the Distributor end their business day at 5 p.m., Eastern time. This
offer is discretionary and may be completely withdrawn without further notice by
the Distributor.
Orders for the repurchase of Series shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (less any applicable contingent deferred
sales charge), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge for
Certain Purchases of Class A Shares Made at Net Asset Value under Redemption and
Exchange in the Prospectus for the Fund Classes. The Class B Shares are subject
to a CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following purchase;
(iii) 2% if shares are redeemed during the fifth year following purchase; and
(iv) 1% if shares are redeemed during the sixth year following purchase. See
Contingent Deferred Sales Charge under Buying Shares in the Prospectus for the
Fund Classes. Except for such contingent deferred sales charges and, with
respect to the expedited payment by wire described below, for which there is
currently a $7.50 bank wiring cost, neither the Fund nor the Distributor charges
a fee for redemptions or repurchases, but such fees could be charged at any time
in the future.
Payment for shares redeemed will ordinarily be mailed the next business day,
but in no case later than seven days, after receipt of a redemption request in
good order.
22
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 23
If a shareholder who recently purchased shares by check seeks to redeem all or
a portion of those shares in a written request, the Fund will honor the
redemption request but will not mail the proceeds until it is reasonably
satisfied of the collection of the investment check. This potential delay can be
avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund will automatically redeem from the shareholder's account the Series shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Series or to the Distributor.
In case of a suspension of the determination of the net asset value because
the New York Stock Exchange is closed for other than weekends or holidays, or
trading thereon is restricted or an emergency exists as a result of which
disposal by a Series of securities owned by it is not reasonably practical, or
it is not reasonably practical for the Fund fairly to value its assets, or in
the event that the Securities and Exchange Commission has provided for such
suspension for the protection of shareholders, a Series may postpone payment or
suspend the right of redemption or repurchase. In such case, the shareholder may
withdraw the request for redemption or leave it standing as a request for
redemption at the net asset value next determined after the suspension has been
terminated.
Payment for shares redeemed or repurchased may be made either in cash or kind,
or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, the Fund has
elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the
Fund is obligated to redeem Series shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Series during any 90-day period for
any one shareholder.
The value of a Series' investments is subject to changing market prices. Thus,
a shareholder reselling shares to a Series may sustain either a gain or loss,
depending upon the price paid and the price received for such shares.
Small Accounts
Due to the relatively higher costs of maintaining small accounts, the Fund
reserves the right to redeem Series shares in any of its accounts at the then-
current net asset value if the total investment in the Series has a value of
less than $250 as a result of redemptions. As a consequence, an investor who
makes only the minimum investment in a Class will be subject to involuntary
redemption if any portion of the investment is redeemed. Before the Fund redeems
such shares and sends the proceeds to the shareholder, the shareholder will be
notified in writing that the value of the shares in the account is less than
$250 and will be allowed 60 days from that date of notice to make an additional
investment to meet the required minimum of $250. Any redemption in an inactive
account established with a minimum investment may trigger mandatory redemption.
No contingent deferred sales charge will apply to the redemptions described in
this paragraph of the Class A and the Class B Shares.
* * *
The Fund has available certain redemption privileges, as described below. The
Fund reserves the right to suspend or terminate these expedited payment
procedures upon 60 days' written notice to shareholders.
Expedited Telephone Redemptions
Shareholders of the Fund Classes or their investment dealers of record wishing
to redeem any amount of shares of $50,000 or less for which certificates have
not been issued may call the Fund at 800-523-1918 (in Philadelphia, 215-988-
1241) or, in the case of shareholders of the Institutional Classes, their Client
Services Representative at 800-828-5052 prior to the time the offering price and
net asset value are determined, as noted above, and have the proceeds mailed to
them at the record address. Checks payable to the shareholder(s) of record will
normally be mailed the next business day, but no later than seven days, after
the receipt of the redemption request. This option is only available to
individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check by calling the Fund, as described
above. An authorization form must have been completed by the shareholder and
filed with the Fund before the request is received. Payment will be made by wire
or check to the bank account designated on the authorization form as follows:
1. Payment by Wire: Request that Federal Funds be wired to the bank account
designated on the authorization form. Redemption proceeds will normally be wired
on the next business day following receipt of the redemption request. There is a
$7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A. which will
be deducted from the withdrawal proceeds each time the shareholder requests a
redemption. If the proceeds are wired to the shareholder's account at a bank
which is not a member of the Federal Reserve System, there could be a delay in
the crediting of the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account designated
on the authorization form. Redemption proceeds will normally be mailed the next
business day, but no later than seven days, from the date of the telephone
request. This procedure will take longer than the Payment by Wire option (1
above) because of the extra time necessary for the mailing and clearing of the
check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and the
account number it will be necessary to send a written request to the Fund and a
signature guarantee may be required. Each signature guarantee must be supplied
by an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness.
23
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 24
To reduce the shareholder's risk of attempted fraudulent use of the telephone
redemption procedure, payment will be made only to the bank account designated
on the authorization form.
The Fund will not honor telephone redemptions for Series shares recently
purchased by check unless it is reasonably satisfied that the purchase check has
cleared.
If expedited payment under these procedures could adversely affect a Series,
the Fund may take up to seven days to pay the shareholder.
Neither the Fund nor the Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Series shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
Systematic Withdrawal Plan
Shareholders of the Class A Shares who own or purchase $5,000 or more of
shares at the offering price for which certificates have not been issued may
establish a Systematic Withdrawal Plan for monthly withdrawals of $25 or more,
or quarterly withdrawals of $75 or more, although the Fund does not recommend
any specific amount of withdrawal. This $5,000 minimum does not apply for a
Series' prototype Retirement Plans. Shares purchased with the initial investment
and through reinvestment of cash dividends and realized securities profits
distributions will be credited to the shareholder's account and sufficient full
and fractional shares will be redeemed at the net asset value calculated on the
third business day preceding the mailing date.
Checks are dated the 15th of the month (unless such date falls on a holiday or
a Sunday) and are normally mailed within two business days. Both ordinary income
dividends and realized securities profits distributions will be automatically
reinvested in additional shares of a Class at net asset value. This plan is not
recommended for all investors and should be started only after careful
consideration of its operation and effect upon the investor's savings and
investment program. To the extent that withdrawal payments from the plan exceed
any dividends and/or realized securities profits distributions paid on shares
held under the plan, the withdrawal payments will represent a return of capital,
and the share balance may in time be depleted, particularly in a declining
market.
The sale of shares for withdrawal payments constitutes a taxable event and a
shareholder may incur a capital gain or loss for federal income tax purposes.
This gain or loss may be long-term or short-term depending on the holding period
for the specific shares liquidated. Premature withdrawals from Retirement Plans
may have adverse tax consequences.
Withdrawals under this plan by the holders of Class A Shares or any similar
plan of any other investment company charging a front-end sales charge made
concurrently with the purchases of the Class A Shares of this or the shares of
any other investment company will ordinarily be disadvantageous to the
shareholder because of the payment of duplicative sales charges. Shareholders
should not purchase Class A Shares while participating in a Systematic
Withdrawal Plan and a periodic investment program in a fund managed by the
Manager must be terminated before a Systematic Withdrawal Plan can take effect,
except if the shareholder is a participant in one of our Retirement Plans or is
investing in Delaware Group funds which do not carry a sales charge. Also,
redemptions pursuant to a Systematic Withdrawal Plan may be subject to a Limited
CDSC if the purchase was made at net asset value and a dealer's commission has
been paid on that purchase.
An investor wishing to start a Systematic Withdrawal Plan must complete an
authorization form. If the recipient of Systematic Withdrawal Plan payments is
other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
The Systematic Withdrawal Plan is not available with respect to the Class B
Shares or the Institutional Classes.
Wealth Builder Option
Shareholders of the Fund Classes may elect to invest in one or more of the
other mutual funds in the Delaware Group through our Wealth Builder Option.
Under this automatic exchange program, shareholders can authorize regular
monthly investments (minimum of $100 per fund) to be liquidated from their
account and invested automatically into other mutual funds in the Delaware
Group, subject to the conditions and limitations set forth in the Fund Classes'
Prospectus. See Wealth Builder Option and Redemption and Exchange in the
Prospectus for the Fund Classes.
The investment will be made on the 20th day of each month (or, if the fund
selected is not open that day, the next business day) at the public offering
price or net asset value, as applicable, of the fund selected on the date of
investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure profits
or protect against losses in a declining market. The price of the fund into
which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or
24
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 25
more fund accounts and is treated as a purchase of shares of the fund into which
investments are made through the program. See Exchange Privilege for a brief
summary of the tax consequences of exchanges.
Shareholders can also use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Group, subject to the conditions and limitations described
in the Fund Classes' Prospectus. Shareholders can terminate their participation
at any time by written notice to the Fund.
This option is not available to participants in the following plans: SAR/SEP,
SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Classes.
DIVIDENDS AND REALIZED
SECURITIES PROFITS
DISTRIBUTIONS
The Fund will normally make payments from net investment income on a quarterly
basis. Any payments from net realized securities profits will be made during the
first quarter of the next fiscal year. During the fiscal year ended October 31,
1994, dividends totaling $0.60, $0.15, $0.63, $0.09, $0.03 and $0.09 per share
were paid from the net investment income of the Delaware Fund A Class, the
Delaware Fund B Class, the Delaware Fund Institutional Class, the Devon Fund A
Class, the Devon Fund B Class and the Devon Fund Institutional Class,
respectively. The amounts for Delaware Fund A Class and Delaware Fund
Institutional Class included undistributed net investment income earned by the
Series during the previous fiscal year. During the fiscal year ended October 31,
1994, distributions totaling $1.16 per share were paid from realized securities
profits of the Delaware Fund A Class and the Delaware Fund Institutional Class,
which included undistributed net investment income and realized securities
profits earned in fiscal year 1993.
Each Class of shares of a Series will share proportionately in the investment
income and expenses of that Series, except that the Class A Shares and the Class
B Shares alone will incur distribution fees under their respective 12b-1 Plans.
Dividends are automatically reinvested in additional shares at the net asset
value of the ex-dividend date unless, in the case of shareholders in the Fund
Classes, an election to receive dividends in cash has been made. Dividend
payments of $1.00 or less will be automatically reinvested, notwithstanding a
shareholder's election to receive dividends in cash. If such a shareholder's
dividends increase to greater than $1.00, the shareholder would have to file a
new election in order to begin receiving dividends in cash again. Any check in
payment of dividends or other distributions which cannot be delivered by the
Post Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. A Series may deduct
from a shareholder's account the costs of the Series' effort to locate a
shareholder if a shareholder's mail is returned by the Post Office or the Series
is otherwise unable to locate the shareholder or verify the shareholder's
mailing address. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for their location services.
TAXES
It is the policy of each Series to pay out substantially all net investment
income and net realized gains to relieve it of federal income tax liability on
that portion of its income paid to shareholders under the Internal Revenue Code.
The Series have met these requirements in previous years and intends to meet
them this year. Each Series of the Fund is treated as a separate tax entity, and
any capital gains and losses for each Series are calculated separately.
Distributions representing net investment income or short-term capital gains
are taxable as ordinary income to shareholders. The tax status of dividends and
distributions paid to shareholders will not be affected by whether they are paid
in cash or in additional shares. A portion of these distributions may be
eligible for the dividends-received deduction for corporations. For the fiscal
year ended October 31, 1994, 52% and 45% of dividends paid from net investment
income to the Delaware Fund and the Devon Fund, respectively, were eligible for
this deduction. The portion of dividends paid by a Series that so qualifies will
be designated each year in a notice to that Series' shareholders, and cannot
exceed the gross amount of dividends received by the Series from domestic (U.S.)
corporations that would have qualified for the dividends-received deduction in
the hands of a Series if that Series was a regular corporation. The availability
of the dividends-received deduction is subject to certain holding period and
debt financing restrictions imposed under the Code on the corporation claiming
the deduction. Advice as to the tax status of each year's dividends and
distributions, when paid, will be mailed annually.
Prior to purchasing shares of a Series, you should carefully consider the
impact of dividends or realized securities profits distributions which have been
declared but not paid. Any such dividends or realized securities profits paid
shortly after a purchase of shares by an investor will have the effect of
reducing the per share net asset value of such shares by the amount of the
dividends or realized securities profits distributions. All or a portion of such
dividends or realized securities profits distributions, although in effect a
return of capital, are subject to taxes which may be at ordinary income tax
rates. The purchase of shares just prior to the ex-dividend date has an adverse
effect for income tax purposes.
Net long-term gain from the sale of securities when realized and distributed
(actually or constructively) is
25
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 26
taxable as capital gain, and these gains are currently taxed at long-term
capital gain rates. If the net asset value of shares were reduced below a
shareholder's cost by distribution of gain realized on sale of securities, such
distribution would be a return of investment though taxable as stated above. The
portfolio securities of the Delaware Fund and the Devon Fund had a net
unrealized appreciation for tax purposes of $24,445,951 and $180,155,
respectively, as of October 31, 1994.
INVESTMENT MANAGEMENT
AGREEMENTS
The Manager, located at One Commerce Square, Philadelphia, PA 19103, furnishes
investment management services to the Fund, subject to the supervision and
direction of the Fund's Board of Directors.
The Manager and its predecessors have been managing the funds in the Delaware
Group since 1938. The aggregate assets of these funds on October 31, 1994 were
approximately $9,525,500,000. Investment advisory services are also provided to
institutional accounts with assets on October 31, 1994 of approximately
$16,074,376,000.
The Investment Management Agreement for each Series is dated April 3, 1995 and
was approved by shareholders on March 29, 1995.
The Agreements have an initial term of two years and may be renewed each year
only so long as such renewal and continuance are specifically approved at least
annually by the Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund, and only if the terms and the renewal thereof
have been approved by the vote of a majority of the directors of the Fund who
are not parties thereto or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. The Agreements
are terminable without penalty on 60 days' notice by the directors of the Fund
or by the Manager. The Agreements will terminate automatically in the event of
their assignment.
The annual compensation paid by each Series for investment management services
is equal to: for the Delaware Fund, .60% on the first $100 million of average
daily net assets of the Fund, .525% on the next $150 million, .50% on the next
$250 million and .475% on the average daily net assets in excess of $500
million, less the Series' proportionate share of all directors' fees paid to the
unaffiliated directors of the Fund; and, for the Devon Fund, .60% on the first
$500 million of average daily net assets and .50% on the average daily net
assets in excess of $500 million. On October 31, 1994, the total net assets of
the Delaware Fund were $550,631,790 and the total net assets of the Devon Fund
were $7,231,142. The Manager makes all investment decisions which are
implemented by the Fund. The Manager pays the salaries of all directors,
officers and employees who are affiliated with both the Manager and the Fund.
Investment management fees paid by the Delaware Fund during the past three
fiscal years were $2,394,902 for 1992, $2,785,383 for 1993 and $2,913,609 for
1994. Investment management fees earned by the Devon Fund during the period
December 29, 1993 (date of initial public offering) through October 31, 1994
were $29,901 and no fees were paid by this Series as a result of the waiver
described below.
Except for those expenses borne by the Manager under the Investment Management
Agreements and the Distributor under the Distribution Agreements, the Fund is
responsible for all of its own expenses. Among others, these include the Fund's
proportionate share of rent and certain other administrative expenses; the
investment management fees; transfer and dividend disbursing agent fees and
costs; custodian expenses; federal and state securities registration fees; proxy
costs; and the costs of preparing prospectuses and reports sent to shareholders.
The ratio of expenses to average daily net assets for the Delaware Fund A Class
for the fiscal year ended October 31, 1994 was 0.97%, which reflects the impact
of its 12b-1 Plan. The ratio of expenses to average daily net assets for the
Delaware Fund Institutional Class for the same period was 0.81%. The ratios of
expenses to average daily net assets for the period December 29, 1993 (date of
initial public offering) through October 31, 1994 for the Devon Fund A Class and
the Devon Fund Institutional Class, were, annualized, 1.25% and 0.95%,
respectively, after voluntary fee waivers and expense reimbursements by the
Manager. The expenses for the Devon Fund A Class reflect the impact of its 12b-1
Plan. Based on expenses incurred by the Delaware Fund A Class during its fiscal
year ended October 31, 1994, the expenses of the Delaware Fund B Class are
expected to be 1.81%, inclusive of 12b-1 fees, for the fiscal year ending
October 31, 1995. Based on the expenses incurred by the Devon Fund A Class
during the period ended October 31, 1994, the expenses of the Devon Fund B Class
are expected to be 1.95%, inclusive of 12b-1 fees, after the voluntary fee
waivers and expense reimbursements by the Manager through December 31, 1995.
In connection with the Devon Fund, the Manager had elected voluntarily to
waive that portion, if any, of the annual management fees payable by the Devon
Fund and to reimburse the Series to the extent necessary to ensure that the
Total Operating Expenses of the Series do not exceed .95% (exclusive of taxes,
interest, brokerage commissions, extraordinary expenses, and, in the case of
Devon Fund A Class, 12b-1 expenses), through December 31, 1994. Through December
31, 1994, the waiver and reimbursement noted in the previous sentence with
respect to the Devon Fund A Class was also applicable to the Devon Fund B
Class. This waiver and reimbursement applicable to each class of Devon Fund has
been extended through December 31, 1995.
By California regulation, the Manager is required to waive certain fees and
reimburse the Fund for certain expenses to the extent that the Fund's annual
operating expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, exceed specified percentages of average daily net
assets. At present, the
26
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 27
most restrictive limit is 2 1/2% of the first $30 million of average daily net
assets, 2% of the next $70 million of average daily net assets and 1 1/2% of any
additional average daily net assets. For the fiscal year ended October 31, 1994,
no such reimbursement was necessary or paid for the Delaware Fund or the Devon
Fund.
Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of the shares of each
Series under separate Distribution Agreements dated April 3, 1995. The
Distributor is an affiliate of the Manager and bears all of the costs of
promotion and distribution, except for payments by each Series on behalf of the
respective Class A Shares and Class B Shares under their respective 12b-1 Plans.
Prior to January 3, 1995, Delaware Distributors, Inc. ("DDI") served as the
national distributor of each Series' shares. On that date, Delaware
Distributors, L.P., a newly formed limited partnership, succeeded to the
business of DDI. All officers and employees of DDI became officers and employees
of Delaware Distributors, L.P. DDI is the corporate general partner of Delaware
Distributors, L.P. and both DDI and Delaware Distributors, L.P. are indirect,
wholly-owned subsidiaries of Delaware Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another affiliate of the
Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as the
Series' shareholder servicing, dividend disbursing and transfer agent of
Delaware Fund shares pursuant to a Shareholders Services Agreement dated June
29, 1988 and of Devon Fund shares pursuant to a Shareholders Services Agreement
dated December 29, 1993. The Transfer Agent is also an indirect, wholly-owned
subsidiary of Delaware Management Holdings, Inc.
OFFICERS AND DIRECTORS
The business and affairs of the Fund are managed under the direction of its
Board of Directors.
Certain officers and directors of the Fund hold identical positions in each of
the other funds in the Delaware Group. On November 30, 1994, the Fund's officers
and directors owned less than 1% of the Delaware Fund's shares outstanding and
approximately 17.49% of the Devon Fund's shares outstanding.
As of November 30, 1994, the Fund believes the following held of record 5% or
more of the outstanding shares of Delaware Fund B Class: Kurney B. Spaar and
Pauline Spaar Trust Kurney B. & Pauline Spaar Trust UTD 12/29/93, 838 Gravel
Pike, Palm, PA 18070--10,761 shares (29.72%); Paul C. Hilbert and Florence M.
Hilbert, 247 Old Mill Road, Macungie, PA 18062--3,493 shares (9.64%); Jeannette
M. Compas TTEE FBO Stephen A. Compas Trust DTD 8/23/89, 357 Westlake Terrace,
Palm Springs, CA 92264--2,768 shares (7.64%); and Woodrow W. Waltemyer and
Mary E. Waltemyer, 3201 E. Market Street, York, PA 17402--2,752 shares (7.60%).
As of November 30, 1994, the Fund believes the following held of record 5% or
more of the outstanding shares of Delaware Fund Institutional Class: PWH
Savings, 1410 North Westshore Blvd., P.O. Box 300004, Tampa, FL 33630--
3,317,899 shares (62.63%); and South Trust Bank of Alabama, Trust Thompson
Tractor, P.O. Box 2554, Birmingham, AL 35290--519,813 shares (9.81%).
As of November 30, 1994, the Fund believes the following held of record 5% or
more of the outstanding shares of Devon Fund A Class: ACO Trust Securities
Section 2-032, c/o Integra Trust Services, 300 Fourth Avenue, Pittsburgh, PA
15278--58,140 shares (13.11%); and Stephen H. Slack, One Commerce Square,
Philadelphia, PA 19103--50,085 shares (11.29%).
As of November 30, 1994, the Fund believes the following held beneficially 5%
or more of the outstanding shares of Devon Fund Institutional Class: Delaware
Management Company Employee Profit Sharing Trust, 1818 Market Street,
Philadelphia, PA 19103 for the benefit of Wayne A. Stork--50,436 shares
(30.65%); Delaware Management Company Employee Profit Sharing Trust, 1818 Market
Street, Philadelphia, PA 19103 for the benefit of Edward N. Antoian--20,174
shares (12.26%); and Delaware Management Company Employee Profit Sharing Trust,
1818 Market Street, Philadelphia, PA 19103 for the benefit of Edward A.
Trumpbour--10,276 shares (6.24%). Delaware Management Company Employee Profit
Sharing Trust was the record owner of 163,185 shares (99.19%) of the outstanding
shares of the Devon Fund Institutional Class. Those shares, which included the
persons named in this paragraph, were beneficially owned by others.
As of November 30, 1994, the Fund believes the following held of record 5% or
more of the outstanding shares of Devon Fund B Class: Thomas M. Macario, 13000
N. Corsair Dr., La Cholla Airpark, Tucson, AZ 85737--3,022 shares (16.19%);
Delaware Management Company, Inc., Attn. Joseph H. Hastings, 1818 Market Street,
Philadelphia, PA 19103--2,303 shares (12.34%); Charles Russo and Stephen J.
Russo Jr. Ttees SCJ Inc. PSP DTD 10/1/85, 3106 South Broad Street, Trenton, NJ
08610--2,021 shares (10.83%); Anthony J. Lee, 143 Lowell Ave., Trenton, NJ
08619--1,971 shares (10.65%); Ivan D. Kaufman, 1130 Acquilla Dr., Lancaster, PA
17601--1,874 shares (10.04%); Smith Barney, Inc., 388 Greenwich Street, New
York, NY 10013--1,852 shares (9.62%); and V. Catherine Russo, 18 Wedge Drive,
Trenton, NJ 08610--1,253 shares (6.71%).
DMH Corp., Delaware Management Company, Inc., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware Management
Trust Company, Delaware International Holdings Ltd., Founders Holdings, Inc.,
Delaware International Advisers Ltd. and Delaware Investment Counselors, Inc.
are direct
27
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 28
or indirect, wholly-owned subsidiaries of Delaware Management Holdings, Inc.
("DMH"). On April 3, 1995, a merger between DMH and a wholly-owned subsidiary of
Lincoln National Corporation ("Lincoln National") was completed. In connection
with the merger, new Investment Management Agreements between the Fund on behalf
of each Series and the Manager was executed following shareholder approval. As a
result of the merger, DMH became a wholly-owned subsidiary and the Manager
became an indirect, wholly-owned subsidiary of Lincoln National and both are now
subject to the ultimate control of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
Directors and principal officers of the Fund are noted below along with their
ages and their business experience for the past five years. Unless otherwise
noted, the address of each officer and director is One Commerce Square,
Philadelphia, PA 19103.
*Wayne A. Stork (58)
Chairman, Director and/or Trustee of the Fund, each of
the other 16 funds in the Delaware Group and
Delaware Investment Counselors, Inc.
Chairman, Chief Executive Officer, Chief Investment
Officer and Director of Delaware Management
Company, Inc.
Chairman, Chief Executive Officer and Director of
Delaware Management Holdings, Inc., DMH Corp.,
Delaware International Advisers Ltd., Delaware
International Holdings Ltd. and Founders Hold-
ings, Inc.
Director of Delaware Distributors, Inc. and Delaware
Service Company, Inc.
During the past five years, Mr. Stork has served in various
executive capacities at different times within the
Delaware organization.
Brian F. Wruble (52)
President and Chief Executive Officer of the Fund and
15 other funds in the Delaware Group (which
excludes Delaware Pooled Trust, Inc.).
Director of Delaware International Advisers Ltd. and
Delaware Investment Counselors, Inc.
President, Chief Operating Officer and Director of
Delaware Management Holdings, Inc., DMH
Corp. and Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of
Delaware Service Company, Inc.
Chairman and Director of Delaware Distributors, Inc.
Chairman of Delaware Distributors, L.P.
President of Founders Holdings, Inc.
President and Chief Operating Officer of Delaware
International Holdings Ltd.
From 1992 to 1995, Mr. Wruble was a director of the
Fund and a director and/or trustee of each of the
other funds in the Delaware Group. Before joining the
Delaware Group in 1992, Mr. Wruble was Chairman,
President and Chief Executive Officer of Equitable
Capital Management Corporation from July 1985
through April 1992 and was Executive Vice President
of Equitable Life Assurance Society of the United
States from September 1984 through April 1992 and
Chief Investment Officer from April 1991 through
April 1992. Mr. Wruble has previously held executive
positions with Smith Barney, Harris Upham, and
H.C. Wainwright & Co.
Winthrop S. Jessup (49)
Executive Vice President of the Fund, 15 other funds in
the Delaware Group (which excludes Delaware
Pooled Trust, Inc.) and Delaware Management
Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled
Trust, Inc.
President and Director of Delaware Investment
Counselors, Inc.
Executive Vice President and Director of DMH Corp.,
Delaware Management Company, Inc., Delaware
International Holdings Ltd. and Founders Hold-
ings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Management Trust Company,
Delaware Service Company, Inc. and Delaware
International Advisers Ltd.
During the past five years, Mr. Jessup has served in
various executive capacities at different times
within the Delaware organization.
- -------------------
*Director affiliated with the investment manager of the Fund and considered an
"interested person" as defined in the Investment Company Act of 1940.
28
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 29
Richard G. Unruh, Jr. (55)
Executive Vice President of the Fund and each of the
other 16 funds in the Delaware Group.
Executive Vice President and Director of Delaware Manage-
ment Company, Inc.
Senior Vice President of Delaware Management Hold-
ings, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in
various executive capacities at different times
within the Delaware organization.
Walter P. Babich (67)
Director and/or Trustee of the Fund and each of the other
16 funds in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin &
Leighton and from 1988 to 1991, he was a partner of
I&L Investors.
Anthony D. Knerr (56)
Director and/or Trustee of the Fund and each of the other
16 funds in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Consultant, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice
President/Finance and Treasurer of Columbia
University, New York. From 1987 to 1989, he was
also a lecturer in English at the University. In addition,
Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr
founded The Publishing Group, Inc. in 1988.
Ann R. Leven (54)
Director and/or Trustee of the Fund and each of the other
16 funds in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief
Fiscal Officer of the Smithsonian Institution,
Washington, DC, and from 1975 to 1994, she was
Adjunct Professor of Columbia Business School.
W. Thacher Longstreth (74)
Director and/or Trustee of the Fund and each of the other
16 funds in the Delaware Group.
1617 John F. Kennedy Boulevard, Philadelphia, PA 19103.
Vice Chairman, Packquisition Corp., a financial printing,
commercial printing and information processing firm.
Philadelphia City Councilman.
President, MLW, Associates.
Director, Tasty Baking Company.
Director, Healthcare Services Group.
Charles E. Peck (69)
Director and/or Trustee of the Fund and each of the other
16 funds in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief
Executive Officer of The Ryland Group, Inc.,
Columbia, MD.
David K. Downes (55)
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer of the Fund, each of the other
16 funds in the Delaware Group and Delaware
Management Company, Inc.
Chairman and Director of Delaware Management Trust
Company.
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer/Treasurer of Delaware Management
Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer and
Director of DMH Corp.
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer and Director of Delaware Service
Company, Inc.
Senior Vice President/Chief Administrative Officer and
Director of Delaware Distributors, Inc.
Senior Vice President/Chief Administrative Officer of
Delaware Distributors, L.P.
Chief Financial Officer and Director of Delaware
International Holdings Ltd.
Senior Vice President/Chief Financial Officer/Treasurer of
Delaware Investment Counselors, Inc.
Senior Vice President and Director of Founders Hold-
ings, Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes
was Chief Administrative Officer, Chief Financial
Officer and Treasurer of Equitable Capital Management
Corporation, New York, from December 1985
through August 1992, Executive Vice President from
December 1985 through March 1992, and Vice
Chairman from March 1992 through August 1992.
29
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 30
George M. Chamberlain, Jr. (48)
Senior Vice President and Secretary of the Fund, each of
the other 16 funds in the Delaware Group, Delaware
Management Holdings, Inc., Delaware Distributors,
L.P. and Delaware Investment Counselors, Inc.
Executive Vice President, Secretary and Director of
Delaware Management Trust Company.
Senior Vice President, Secretary and Director of DMH
Corp., Delaware Management Company, Inc.,
Delaware Distributors, Inc. and Delaware Service
Company, Inc.
Corporate Vice President, Secretary and Director of
Founders Holdings, Inc.
Secretary and Director of Delaware International
Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served
in various capacities at different times within the
Delaware organization.
George H. Burwell (33)
Vice President/Senior Portfolio Manager of each Series of
the Fund, of the seven other equity funds in
the Delaware Group and of Delaware Management
Company, Inc.
Before joining the Delaware Group in 1992, Mr. Burwell
was a portfolio manager for Midlantic Bank,
New Jersey. In addition, he was a security analyst for
Balis & Zorn, New York and for First Fidelity Bank,
New Jersey.
Gary A. Reed (40)
Vice President/Senior Portfolio Manager of the Delaware
Fund, of the nine other income (including tax-exempt)
funds in the Delaware Group and of Delaware
Management Company, Inc.
Vice President/Senior Portfolio Manager of Delaware
Investment Counselors, Inc.
During the past five years, Mr. Reed has served in such
capacities within the Delaware organization.
Joseph H. Hastings (45)
Vice President/Corporate Controller of the Fund, each of
the other 16 funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Investment Counselors,
Inc. and Founders Holdings, Inc.
Executive Vice President/Treasurer/Chief Financial Officer
of Delaware Management Trust Company.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings
was Chief Financial Officer for Prudential Residential
Services, L.P., New York, NY from 1989 to 1992.
Prior to that, Mr. Hastings served as Controller and
Treasurer for Fine Homes International, L.P.,
Stamford, CT from 1987 to 1989.
Michael P. Bishof (33)
Vice President/Treasurer of the Fund, each of the other
16 funds in the Delaware Group, Delaware
Management Company, Inc., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Founders Holdings, Inc. and Founders
CBO Corporation.
Prior to joining the Delaware Group in 1995, Mr. Bishof
was a Vice President for Bankers Trust, New York, NY
from 1994 to 1995, a Vice President for CS First Boston
Investment Management, New York, NY from 1993
to 1994 and an Assistant Vice President for Equitable
Capital Management Corporation, New York, NY
from 1987 to 1993.
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and for
shareholders of classes of other funds in the Delaware Group are set forth in
the relevant prospectuses for such classes. The following supplements that
information. The Fund reserves the right to reject exchange requests at any
time. The Fund may modify, terminate or suspend the exchange privilege upon 60
days' notice to shareholders.
All exchanges involve a purchase of shares of the fund into which the exchange
is made. As with any purchase, an investor should obtain and carefully read that
fund's prospectus before buying shares in an exchange. The prospectus contains
more complete information about the fund, including charges and expenses. A
shareholder requesting an exchange will be sent a current prospectus and an
authorization form for any of the other mutual funds in the Delaware Group.
Exchange instructions must be signed by the record owner(s) exactly as the
shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges between funds
in the Delaware Group on behalf of their clients by telephone or other expedited
means. This service may be discontinued or revised at any time by the Transfer
Agent. Such exchange requests may be rejected if it is determined that a
particular request or the total requests at any time could have an adverse
effect on any of the funds. Requests for expedited exchanges may be submitted
with a properly completed exchange authorization form, as described above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued or
their investment dealers of record may exchange shares by telephone for shares
in other mutual funds in the Delaware Group. This service is automatically
provided unless the Fund receives written notice from the shareholder to the
contrary.
Shareholders or their investment dealers of record may contact the Transfer
Agent at 800-523-1918 (in
30
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 31
Philadelphia, 215-988-1241) or, in the case of shareholders of the Institutional
Classes, their Client Services Representative at 800-828-5052, to effect an
exchange. The shareholder's current Series account number must be identified, as
well as the registration of the account, the share or dollar amount to be
exchanged and the fund into which the exchange is to be made. Requests received
on any day after the time the offering price and net asset value are determined
will be processed the following day. See Determining Offering Price and Net
Asset Value. Any new account established through the exchange will automatically
carry the same registration, shareholder information and dividend option as the
account from which the shares were exchanged. The exchange requirements of the
fund into which the exchange is being made, such as sales charges, eligibility
and investment minimums, must be met. (See the prospectus of the fund desired or
inquire by calling the Transfer Agent or, as relevant, your Client Services
Representative.) Certain funds are not available for Retirement Plans.
The telephone exchange privilege is intended as a convenience to shareholders
and is not intended to be a vehicle to speculate on short-term swings in the
securities market through frequent transactions in and out of the funds in the
Delaware Group. Telephone exchanges may be subject to limitations as to amounts
or frequency. The Transfer Agent and the Fund reserve the right to record
exchange instructions received by telephone and to reject exchange requests at
any time in the future.
As described in the Fund's Prospectuses, neither the Fund nor the Transfer
Agent is responsible for any shareholder loss incurred in acting upon written or
telephone instructions for redemption or exchange of Series shares which are
reasonably believed to be genuine.
Following is a summary of the investment objectives of the other Delaware
Group funds:
Trend Fund seeks long-term growth by investing in common stocks issued by
emerging growth companies exhibiting strong capital appreciation potential.
Value Fund seeks capital appreciation by investing primarily in common stocks
whose market values appear low relative to their underlying value or future
potential.
DelCap Fund seeks long-term capital growth by investing in common stocks and
securities convertible into common stocks of companies that have a demonstrated
history of growth and have the potential to support continued growth.
Decatur Income Fund seeks the highest possible current income by investing
primarily in common stocks that provide the potential for income and capital
appreciation without undue risk to principal. Decatur Total Return Fund seeks
long-term growth by investing primarily in securities that provide the potential
for income and capital appreciation without undue risk to principal.
Delchester Fund seeks as high a current income as possible by investing
principally in corporate bonds, and also in U.S. Government securities and
commercial paper.
U.S. Government Fund seeks high current income by investing primarily in long-
term debt obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing primarily
in a portfolio of short- and intermediate-term securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and instruments
secured by such securities. U.S. Government Money Fund seeks maximum current
income with preservation of principal and maintenance of liquidity by investing
only in short-term securities issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities, while maintaining a stable net
asset value.
Delaware Cash Reserve seeks the highest level of income consistent with the
preservation of capital and liquidity through investments in short-term money
market instruments, while maintaining a stable net asset value.
Tax-Free USA Fund seeks high current income exempt from federal income tax by
investing in municipal bonds of geographically-diverse issuers. Tax-Free Insured
Fund invests in these same types of securities but with an emphasis on municipal
bonds protected by insurance guaranteeing principal and interest are paid when
due. Tax-Free USA Intermediate Fund seeks a high level of current interest
income exempt from federal income tax, consistent with the preservation of
capital by investing primarily in municipal bonds.
Tax-Free Money Fund seeks high current income, exempt from federal income tax,
by investing in short-term municipal obligations, while maintaining a stable
net asset value.
Tax-Free Pennsylvania Fund seeks a high level of current interest income
exempt from federal and, to the extent possible, certain Pennsylvania state and
local taxes, consistent with the preservation of capital.
International Equity Fund seeks to achieve long-term growth without undue risk
to principal by investing primarily in international securities that provide the
potential for capital appreciation and income. Global Bond Fund seeks to achieve
current income consistent with the preservation of principal by investing
primarily in global fixed income securities that may also provide the potential
for capital appreciation. Global Assets Fund seeks to achieve long-term total
return by investing in global securities which will provide higher current
income than a portfolio comprised exclusively of equity securities, along with
the potential for capital growth.
Delaware Group Premium Fund offers nine series available exclusively as
funding vehicles for certain insurance company separate accounts. Equity/Income
Series seeks the highest possible total rate of return by selecting issues that
exhibit the potential for capital appreciation while providing higher than
average dividend income. High Yield Series seeks as high a current income as
possible by investing in rated and unrated corporate bonds, U.S. Government
securities and commercial paper. Capital Reserves Series seeks a high stable
level of current income while minimizing fluctuations in principal by
31
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 32
investing in a diversified portfolio of short- and intermediate-term securities.
Money Market Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. Growth Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Multiple Strategy Series seeks a balance of
capital appreciation, income and preservation of capital. It uses a dividend-
oriented valuation strategy to select securities issued by established companies
that are believed to demonstrate potential for income and capital growth.
International Equity Series seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers that
provide the potential for capital appreciation and income. Value Series seeks
capital appreciation by investing in small- to mid-cap common stocks whose
market values appear low relative to their underlying value or future earnings
and growth potential. Emphasis will also be placed on securities of companies
that may be temporarily out of favor or whose value is not yet recognized by the
market. Emerging Growth Series seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective.
For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus from the Distributor. Read it carefully
before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the information
contained in each Fund's prospectus(es).
GENERAL INFORMATION
The Manager is the investment manager of the Fund. The Manager or its
affiliate, Delaware International Advisers Ltd., also manages the other funds in
the Delaware Group. The Manager, through a separate division, also manages
private investment accounts. While investment decisions of the Fund are made
independently from those of the other funds and accounts, they may make
investment decisions at the same time.
Access persons and advisory persons of the Delaware Group of funds, as those
terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide services to
the Manager, Delaware International Advisers Ltd. or their affiliates, are
permitted to engage in personal securities transactions subject to the
exceptions set forth in Rule 17j-1 and the following general restrictions and
procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for the Fund and for the other
mutual funds in the Delaware Group. As previously described, prior to January 3,
1995, DDI served as the national distributor for the Fund. In its capacity as
such, DDI received net commissions, after reallowances to dealers, as follows:
<TABLE>
<CAPTION>
Delaware Fund
Class A Shares
Total Amount of Amounts
Fiscal Year Underwriting Reallowed Net Commission
Ended Commissions to Dealers to Distributor
----------- --------------- ---------- --------------
<S> <C> <C> <C>
10/31/94 $ 892,170 $ 772,047 $120,123
10/31/93 1,714,010 1,484,018 229,992
10/31/92 1,111,168 1,005,296 105,872
<CAPTION>
Devon Fund
Class A Shares
Total Amount of Amounts
Fiscal Year Underwriting Reallowed Net Commission
Ended Commissions to Dealers to Distributor
----------- --------------- ---------- --------------
<S> <C> <C> <C>
10/31/94* $ 90,136 $ 78,370 $ 11,766
</TABLE>
*Date of initial public offering was December 29, 1993.
During the fiscal year ended October 31, 1994, DDI, in its capacity as the
Fund's national distributor, received Limited CDSC payments in the amount of
$1,938 with respect to the Class A Shares of the Devon Fund.
Effective as of January 3, 1995, all such payments described above have been
paid to Delaware Distributors, L.P.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Group. The Transfer Agent is paid a fee by each
Series for providing these services consisting of an annual per account charge
of $5.50 plus transaction charges for particular services according to a
schedule. Compensation is fixed each year and approved by the Board of
Directors, including a majority of the disinterested directors.
The Manager and its affiliates own the name "Delaware Group." Under certain
circumstances, including the termination of the Fund's advisory relationship
with the Manager or its distribution relationship with the Distributor, the
Manager and its affiliates could cause the Fund to delete the words "Delaware
Group" from the Fund's name.
Chemical Bank, 450 West 33rd Street, New York, NY 10001, is custodian of the
Fund's securities and cash. As custodian for the Fund, Chemical Bank maintains a
separate account or accounts for the Fund; receives, holds and releases
portfolio securities on account of the Fund;
32
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 33
receives and disburses money on behalf of the Fund; and collects and receives
income and other payments and distributions on account of the Fund's portfolio
securities.
Morgan Guaranty Trust Company of New York, located at 60 Wall Street,
New York, NY 10260, provides similar services with respect to each Series'
investments in foreign securities.
The legality of the issuance of the shares offered hereby, pursuant to
registration under the Investment Company Act Rule 24f-2, has been passed upon
for the Fund by Messrs. Stradley, Ronon, Stevens & Young, Philadelphia,
Pennsylvania. In the opinion of counsel, shares of the Fund are exempt from
Pennsylvania personal property taxes and qualify as an authorized investment for
trustees in Pennsylvania if such an investment is otherwise appropriate.
Capitalization
The Fund has a present authorized capitalization of five hundred million
shares of capital stock with a $1 par value per share. The Fund currently offers
two series of shares, which offer three classes of shares, each representing a
proportionate interest in the assets of a Series, and each having the same
voting and other rights and preferences as the other class of that Series,
except that shares of the Institutional Classes may not vote on any matter
affecting the Fund Classes' Distribution Plans under Rule 12b-1. Similarly, the
shareholders of the Class A Shares may not vote on matters affecting a Series'
Plan under Rule 12b-1 relating to the Class B Shares, and the shareholders of
the Class B Shares may not vote on matters affecting a Series' Plan under Rule
12b-1 relating to the Class A Shares. However, the Class B Shares may vote on
any proposal to increase materially the fees to be paid by the respective Series
under the Rule 12b-1 Plan relating to the Class A Shares. General expenses of a
Series will be allocated on a pro-rata basis to the respective classes according
to asset size, except that expenses of the Rule 12b-1 Plans of the Class A and
Class B Shares will be allocated solely to those classes. While all shares have
equal voting rights on matters affecting the entire Fund, each Series would vote
separately on any matter which affects only that Series, such as any change in
its own investment objective and policy or action to dissolve the Series and as
otherwise prescribed by the 1940 Act. Shares of each Series have a priority in
that Series' assets, and in gains on and income from the portfolio of that
Series. The Board of Directors has allocated one hundred million shares to the
Delaware Fund A Class, fifty million shares to the Delaware Fund B Class, fifty
million shares to the Delaware Fund Institutional Class, fifty million shares to
the Devon Fund A Class, fifty million shares to the Devon Fund B Class and
twenty-five million shares to the Devon Fund Institutional Class.
Prior to November 9, 1992, the Fund offered only one series, now known as the
Delaware Fund series and one class of shares, the Delaware Fund A Class.
Beginning November 9, 1992, the Delaware Fund series began offering the Delaware
Fund Institutional Class. Beginning December 29, 1993, the Fund offered the
Devon Fund series which offered the Devon Fund A Class and the Devon Fund
Institutional Class. The Class B Shares for each Series were not offered prior
to September 6, 1994. Prior to September 6, 1994, the Delaware Fund A Class was
known as the Delaware Fund class and the Delaware Fund Institutional Class was
known as the Delaware Fund (Institutional) class, and, prior to the same date,
the Dividend Growth Fund A Class was known as the Dividend Growth Fund class and
the Dividend Growth Fund Institutional Class was known as the Dividend Growth
Fund (Institutional) class. Effective as of the close of business on August 28,
1995, the name Dividend Growth Fund was changed to Devon Fund and the names of
Dividend Growth Fund A Class, Dividend Growth Fund B Class and Dividend Growth
Fund Institutional Class were changed to Devon Fund A Class, Devon Fund B Class
and Devon Fund Institutional Class, respectively.
All shares have no preemptive rights, are fully transferable and, when issued,
are fully paid and nonassessable and, except as described above, have equal
voting rights.
Noncumulative Voting
These shares have noncumulative voting rights which means that the holders of
more than 50% of the shares of the Fund voting for the election of directors can
elect all the directors if they choose to do so, and, in such event, the holders
of the remaining shares will not be able to elect any directors.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission.
33
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 34
APPENDIX A--DESCRIPTION OF RATINGS
Commercial Paper
Excerpts from S&P's description of its two highest commercial paper ratings:
A-1--judged to be the highest investment grade category possessing the highest
relative strength; A-2--investment grade category possessing less relative
strength than the highest rating.
Excerpts from Moody's description of its two highest commercial paper ratings:
P-1--the highest grade possessing greatest relative strength; P-2--second
highest grade possessing less relative strength than the highest grade.
Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged to be the
best quality. They carry the smallest degree of investment risk; Aa--judged to
be of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
34
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 35
APPENDIX B--IRA INFORMATION
The Tax Reform Act of 1986 restructured, and in some cases eliminated, the tax
deductibility of IRA contributions. Under the Act, the full deduction for IRAs
($2,000 for each working spouse and $2,250 for one-income couples) was retained
for all taxpayers who are not covered by an employer-sponsored retirement plan.
Even if a taxpayer (or his or her spouse) is covered by an employer-sponsored
retirement plan, the full deduction is still available if the taxpayer's
adjusted gross income is below $25,000 ($40,000 for taxpayers filing joint
returns). A partial deduction is allowed for married couples with incomes
between $40,000 and $50,000, and for single individuals with incomes between
$25,000 and $35,000. The Act does not permit deductions for contributions to
IRAs by taxpayers whose adjusted gross income before IRA deductions exceeds
$50,000 ($35,000 for singles) and who are active participants in an employer-
sponsored retirement plan. Taxpayers who were not allowed deductions on IRA
contributions still can make nondeductible IRA contributions of as much as
$2,000 for each working spouse ($2,250 for one-income couples), and defer taxes
on interest or other earnings from the IRAs. Special rules apply for determining
the deductibility of contributions made by married individuals filing separate
returns.
As illustrated in the following tables, maintaining an Individual Retirement
Account remains a valuable opportunity.
For many, an IRA will continue to offer both an upfront tax break with its tax
deduction each year and the real benefit that comes with tax-deferred
compounding. For others, losing the tax deduction will impact their taxable
income status each year. Over the long term, however, being able to defer taxes
on earnings still provides an impressive investment opportunity--a way to have
money grow faster due to tax-deferred compounding.
35
<PAGE>
DELAWARE GROUP DELAWARE FUND, INC.-PART B--PAGE 36
Even if your IRA contribution is no longer deductible, the benefits of saving
on a tax-deferred basis can be substantial. The following tables illustrate the
benefits of tax-deferred versus taxable compounding. Each reflects a constant
10% rate of return, compounded annually, with the reinvestment of all proceeds.
The tables do not take into account any sales charges or fees. Of course,
earnings accumulated in your IRA will be subject to tax upon withdrawal. If you
choose a mutual fund with a fluctuating net asset value, like either Series,
your bottom line at retirement could be lower--it could also be much higher.
$2,000 Invested Annually Assuming a 10% Annualized Return
15% Tax Bracket Single -- $0 - $22,750
Joint -- $0 - $38,000
<TABLE>
<CAPTION>
How Much You
End of Cumulative How Much You Have With Full IRA
Year Investment Amount Have Without IRA Deduction
<S> <C> <C> <C>
1 $ 2,000 $ 1,844 $ 2,200
5 10,000 10,929 13,431
10 20,000 27,363 35,062
15 30,000 52,074 69,899
20 40,000 89,231 126,005
25 50,000 145,103 216,364
30 60,000 229,114 361,887
35 70,000 355,438 596,254
40 80,000 545,386 973,704
</TABLE>
[Without IRA--investment of $1,700 ($2,000 less 15%) earning 8.5% (10% less
15%)]
28% Tax Bracket Single -- $22,751 - $55,100
Joint -- $38,001 - $91,850
<TABLE>
<CAPTION>
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,544 $ 1,584 $ 2,200
5 10,000 8,913 9,670 13,431
10 20,000 21,531 25,245 35,062
15 30,000 39,394 50,328 69,899
20 40,000 64,683 90,724 126,005
25 50,000 100,485 155,782 216,364
30 60,000 151,171 260,559 361,887
35 70,000 222,927 429,303 596,254
40 80,000 324,512 701,067 973,704
</TABLE>
[Without IRA--investment of $1,440 ($2,000 less 28%) earning 7.2% (10% less
28%)]
[With IRA--No Deduction--investment of $1,440 ($2,000 less 28%) earning 10%]
31% Tax Bracket Single -- $55,101 - $115,000
Joint -- $91,851 - $140,000
<TABLE>
<CAPTION>
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,475 $ 1,518 $ 2,200
5 10,000 8,467 9,268 13,431
10 20,000 20,286 24,193 35,062
15 30,000 36,787 48,231 69,899
20 40,000 59,821 86,943 126,005
25 50,000 91,978 149,291 216,364
30 60,000 136,868 249,702 361,887
35 70,000 199,536 411,415 596,254
40 80,000 287,021 671,855 973,704
</TABLE>
[Without IRA--investment of $1,380 ($2,000 less 31%) earning 6.9% (10% less
31%)]
[With IRA--No Deduction--investment of $1,380 ($2,000 less 31%) earning 10%]
36
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 37
36% Tax Bracket* Single--$115,001--$250,000
Joint --$140,001--$250,000
<TABLE>
<CAPTION>
How Much You Have with Full IRA
End of Cumulative How Much You -------------------------------
Year Investment Amount Have Without IRA No Deduction Deduction
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,362 $ 1,408 $ 2,200
5 10,000 7,739 8,596 13,431
10 20,000 18,292 22,440 35,062
15 30,000 32,683 44,736 69,899
20 40,000 52,308 80,643 126,005
25 50,000 79,069 138,473 216,364
30 60,000 115,562 231,608 361,887
35 70,000 165,327 381,602 596,254
40 80,000 233,190 623,170 973,704
</TABLE>
[Without IRA--investment of $1,280 ($2,000 less 36%) earning 6.4% (10% less
36%)] [With IRA--No Deduction--investment of $1,280 ($2,000 less 36%) earning
10%].
39.6% Tax Bracket* Single--over $250,000
Joint --over $250,000
<TABLE>
<CAPTION>
How Much You Have with Full IRA
End of Cumulative How Much You -------------------------------
Year Investment Amount Have Without IRA No Deduction Deduction
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,281 $ 1,329 $ 2,200
5 10,000 7,227 8,112 13,431
10 20,000 16,916 21,178 35,062
15 30,000 29,907 42,219 69,899
20 40,000 47,324 76,107 126,005
25 50,000 70,677 130,684 216,364
30 60,000 101,986 218,580 361,887
35 70,000 143,965 360,137 596,254
40 80,000 200,249 588,117 973,704
</TABLE>
[Without IRA--investment of $1,208 ($2,000 less 39.6%) earning 6.04% (10% less
39.6%)] [With IRA--No Deduction--investment of $1,208 ($2,000 less 39.6%)
earning 10%]
<TABLE>
<CAPTION>
$2,000 SINGLE INVESTMENT AT A RETURN OF 10% COMPOUNDED QUARTERLY
TAXABLE-- TAXABLE-- TAXABLE-- TAXABLE-- TAXABLE-- TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
<S> <C> <C> <C> <C> <C> <C>
10 $ 3,642 $ 3,774 $ 3,964 $ 4,083 $ 4,638 $ 5,370
15 4,915 5,184 5,581 5,833 7,062 8,800
20 6,633 7,121 7,857 8,334 10,755 14,419
30 12,081 13,436 15,572 17,012 24,939 38,716
40 22,001 25,352 30,865 34,720 57,831 103,956
</TABLE>
<TABLE>
<CAPTION>
$2,000 INVESTED ANNUALLY AT A RETURN OF 10% COMPOUNDED QUARTERLY
TAXABLE-- TAXABLE-- TAXABLE-- TAXABLE-- TAXABLE-- TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
<S> <C> <C> <C> <C> <C> <C>
10 $28,226 $ 28,833 $ 29,702 $ 30,239 $ 32,699 $ 35,834
15 50,104 51,753 54,152 55,654 62,755 72,298
20 79,629 83,239 88,573 91,966 108,525 132,049
30 173,245 185,894 205,256 217,971 284,358 390,394
40 343,737 379,596 436,523 475,187 692,097 1,084,066
</TABLE>
*For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to certain
high-income taxpayers. It is computed by applying a 39.6% rate to taxable
income in excess of $250,000. The above tables do not reflect the personal
exemption phaseout nor the limitations of itemized deductions that may apply.
37
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 38
THE VALUE OF STARTING YOUR IRA EARLY
The following illustrates how much more you would have contributing $2,000
each January--the earliest opportunity--compared to contributing on April 15th
of the following year--the latest, for each tax year.
After 5 years $ 3,528 more
10 years $ 6,113
20 years $17,228
30 years $47,295
Compounded returns for the longest period of time is the key. The above
illustration assumes a 10% rate of return and the reinvestment of all proceeds.
And it pays to shop around. If you get just 2% more per year, it can make a
big difference when you retire. A constant 8% versus 10% return, both compounded
quarterly, illustrates the point. This chart is based on a yearly investment of
$2,000 on January 1. After 30 years the difference can mean as much as 50% more!
FIXED RATE COMPARISON CHART BASED ON YEARLY INVESTMENT $2,000 ON JANUARY 1
8% Return 10% Return
10 Years $ 31,726 $ 35,834
30 Years 256,465 390,394
The statistical exhibits above are for illustration purposes only and do not
reflect the actual performance for either Series of the Fund either in the past
or in the future.
38
<PAGE>
Delaware Group Delaware Fund, Inc.--Part B--Page 39
APPENDIX C
Delaware Fund Performance Overview
The following table illustrates the total return on one share invested in the
Delaware Fund A Class/1/ during the 10-year period ended October 31, 1994. The
results reflect the reinvestment of all dividends and realized securities
profits distributions at the net asset value reported at the time of
distribution. No adjustment has been made for any income taxes payable by
shareholders on income dividends or realized securities profits distributions
accepted in shares.
Delaware Fund A Class
<TABLE>
<CAPTION>
Cumula-
tive net
asset PERCENTAGE CHANGES DURING YEAR
value at ----------------------------------------------------------------
Maximum Net Asset Distributions year-end Delaware Fund
offering Value ---------------- with all -----------------------------------------------
Year price at ---------------- From From distribu- Maximum Offering Price Net Asset Value
ended begin- Begin- Invest- realized tions to Net Asset Value to Net Asset Value
Oct. ning of ning of End of ment securities rein- -----------------------------------------------------------------
31 year/2/ year year income profits vested Annual Cumulative/3/ Annual Cumulative/4/
----- ------- -------- ------- ------- -------- ------ ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $20.23 $19.07 $20.86 $ .80 $ 1.01 $22.97 13.5% 13.5% 20.5% 20.5%
1986 22.13 20.86 23.20 .70 2.00 29.14 19.6 44.0 26.9 52.8
1987 24.62 23.20 16.85 .40 4.31 26.48 -14.4 30.9 -9.1 38.8
1988 17.88 16.85 15.25 .32 4.09 32.31 15.0 59.7 22.0 69.4
1989 16.18 15.25 17.48 .95 -- 39.31 14.7 94.3 21.7 106.1
1990 18.55 17.48 16.19 .78 -- 38.06 -8.7 88.1 -3.2 99.6
1991 17.18 16.19 18.81 .88 0.29 47.32 17.2 133.9 24.3 148.1
1992 19.96 18.81 18.72 .70 1.54 53.18 5.9 162.8 12.4 178.8
1993 19.86 18.72 19.43 .66 0.77 59.51 5.5 194.1 11.9 212.1
1994 20.62 19.43 18.00 .60 1.16 60.58 -4.1 199.4 1.8 217.6
----- ------
Total Distributions $6.79 $15.17
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING YEAR--Continued
- ---------------------------------------------------------------------------------
Lipper
Year Standard & Dow Jones Consumer Balanced Average
ended Poor's 500/5/ Industrial/5/ Price Index/5/ Index/5/
Oct. ------------------------------------------------------------------------------------------------
31 Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative
- ------ ------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 19.3% 19.3% 19.4% 19.4% 3.2% 3.2% 20.11% 20.11%
1986 33.2 59.0 42.1 69.7 1.5 4.8 26.79 52.29
1987 6.4 69.1 9.5 85.9 4.5 9.5 1.13 54.01
1988 14.9 94.3 12.0 108.1 4.3 14.2 13.74 75.17
1989 26.3 145.5 28.3 167.1 4.5 19.3 17.04 105.02
1990 -7.5 127.0 -4.1 156.1 6.3 26.9 -5.22 94.32
1991 33.5 203.1 30.0 232.9 2.9 30.6 28.46 149.62
1992 9.9 233.2 8.4 260.8 3.2 34.7 8.61 171.11
1993 14.9 282.9 17.4 323.7 2.8 38.4 14.77 211.15
1994 3.8 297.6 9.1 362.4 2.6 42.1 -0.71 208.94
</TABLE>
- --------------------------
/1/The Delaware Fund A Class began paying 12b-1 payments on June 1, 1992 and
performance prior to that date does not reflect such payments.
/2/Reflects a maximum sales charge of 5.75% of total investment. There are
reduced sales charges for investments of $100,000 or more.
/3/Reflects an offering price of $20.23 on October 31, 1984.
/4/Reflects a net asset value of $19.07 on October 31, 1984.
/5/Source: Lipper Analytical Services, Inc.
This period was one of generally rising common stock prices but also covers
several years of declining prices. The results illustrated should not be
considered as representative of dividend income or capital gain or loss which
may be realized from an investment in the Fund today.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average are
industry-accepted unmanaged indices of generally-conservative securities used
for measuring general market performance. The performance illustrated for these
indices reflects the reinvestment of all distributions on a quarterly basis and
market price fluctuations. The indices do not take into account any sales
charges or other fees. In seeking a particular investment objective, the Fund's
portfolio primarily includes common stocks, which may differ from those in the
indices, and may also include investments in fixed income securities.
The Consumer Price Index, as prepared by the U.S. Bureau of Labor Statistics,
is the most commonly used measure of inflation. It indicates the cost
fluctuations of a representative group of consumer goods. It does not represent
a return from an investment.
Lipper Analytical Services, Inc. is a performance evaluation service that
maintains statistical performance databases, as reported by a diverse universe
of independently-managed mutual funds.
39
<PAGE>
DELAWARE GROUP DELAWARE FUND, INC.-PART B--PAGE 40
Delaware Fund Performance Overview
The following table illustrates the total return on one share invested in the
Delaware Fund B Class during the period September 6, 1994 (date of initial
public offering) through October 31, 1994. The results reflect the reinvestment
of all dividends and realized securities profits distributions at the net asset
value reported at the time of distribution. No adjustment has been made for any
income taxes payable by shareholders on income dividends or realized securities
profits distributions accepted in shares.
<TABLE>
<CAPTION>
Delaware Fund B Class
Cumula-
tive net
asset
value at
Maximum Net Asset Distributions year-end
offering Value -------------------------- with all
Period price at -------------------- From From distribu-
ended begin- Begin- invest- realized tions
Oct. ning of ning of End of ment securi- rein-
31 period period period income ties profits vested
------- ---------- -------- -------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
1994 $18.34 $18.34 $18.03 $15 -- $18.13
PERCENTAGE CHANGES DURING YEAR
- ----------------------------------------------------------------------------------------------------
Delaware Fund
- ------------------------------------------- Lipper
Returns Including Returns Excluding Standard & Dow Jones Consumer Balanced Average
CDSC\1\ CDSC\1\ Poor's 500\3\ Industrial\3\ Price Index\3\ Index\3\
- -----------------------------------------------------------------------------------------------------------------------------
Annual Cumulative\2\ Annual Cumulative\2\ Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative
- ------ ------------- ------ ------------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N/A -5.06% N/A -1.14% -1.52% -.25% -.81% -.14% 2.03% .34% -8.84% -1.53%
</TABLE>
- ------------------------
\1\Total return provided is on an aggregate basis. Total return for this short
of a time period may not be representative of longer-term results.
\2\Reflects a net asset value of $18.34 on September 2, 1994.
\3\Source: Lipper Analytical Services, Inc.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average are
industry-accepted unmanaged indices of generally-conservative securities used
for measuring general market performance. The performance illustrated for these
indices reflects the reinvestment of all distributions on a quarterly basis and
market price fluctuations. The indices do not take into account any sales
charges or other fees. In seeking a particular investment objective, the Fund's
portfolio primarily includes common stocks, which may differ from those in the
indices, and may also include investments in fixed income securities.
The Consumer Price Index, as prepared by the U.S. Bureau of Labor Statistics,
is the most commonly used measure of inflation. It indicates the cost
fluctuations of a representative group of consumer goods. It does not represent
a return from an investment.
Lipper Analytical Services, Inc. is a performance evaluation service that
maintains statistical performance databases, as reported by a diverse universe
of independently-managed mutual funds.
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 41
Delaware Fund Performance Overview
The following table illustrates the total return on one share invested in the
Delaware Fund Institutional Class/1/ during the 10-year period ended October 31,
1994. The results reflect the reinvestment of all dividends and realized
securities profits distributions at the net asset value reported at the time of
distribution. No adjustment has been made for any income taxes payable by
shareholders on income dividends or realized securities profits distributions
accepted in shares.
<TABLE>
<CAPTION>
Delaware Fund Institutional Class
Cumula- PERCENTAGE CHANGES DURING YEAR
tive net ----------------------------------------------------------------
asset Delaware Fund
Distributions value at ----------------
--------------- year-end Net Asset Value Standard & Lipper
Net Asset Value From with all to Poor's Dow Jones Consumer Balanced Average
Year --------------- From realized distribu- Net Asset Value 500/3/ Industrial/3/ Price Index/3/ Index/3/
ended Begin- Invest- securi- tions ----------------------------------------------------------------------------------
Oct. ning of End of ment ities rein- Cumula- Cumula- Cumula- Cumula- Cumula-
31 year year income profits vested Annual tive/2/ Annual tive Annual tive Annual tive Annual tive
- ---- ------ ------ ------ ------- -------- ------ ------- ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $19.07 $20.86 $ .80 $ 1.01 $22.97 20.5% 20.5% 19.3% 19.3% 19.4% 19.4% 3.2% 3.2% 20.11% 20.11%
1986 20.86 23.20 .70 2.00 29.14 26.9 52.8 33.2 59.0 42.1 69.7 1.5 4.8 26.79 52.29
1987 23.20 16.85 .40 4.31 26.48 -9.1 38.8 6.4 69.1 9.5 85.9 4.5 9.5 1.13 54.01
1988 16.85 15.25 .32 4.09 32.31 22.0 69.4 14.9 94.3 12.0 108.1 4.3 14.2 13.74 75.17
1989 15.25 17.48 .95 -- 39.31 21.7 106.1 26.3 145.5 28.3 167.1 4.5 19.3 17.04 105.02
1990 17.48 16.19 .78 -- 38.06 -3.2 99.6 -7.5 127.0 -4.1 156.1 6.3 26.9 -5.22 94.32
1991 16.19 18.81 .88 .29 47.32 24.3 148.1 33.5 203.1 30.0 232.9 2.9 30.6 28.46 149.62
1992 18.81 18.72 .70 1.54 53.18 12.4 178.8 9.9 233.2 8.4 260.8 3.2 34.7 8.61 171.11
1993 18.72 19.46 .66 .77 59.59 12.1 212.5 14.9 282.9 17.4 323.7 2.8 38.4 14.77 211.15
1994 19.46 18.03 .60 1.16 60.76 2.0 218.6 3.8 297.6 9.1 362.4 2.6 42.1 -0.71 208.94
----- ------
Total Distributions $6.79 $15.17
</TABLE>
- --------------------
/1/ Performance for Delaware Fund Institutional Class for periods prior to
November 9, 1992 (date of initial public offering) is calculated by taking
the performance of the Delaware Fund A Class and adjusting it to reflect the
elimination of all sales charges. However, for those periods, no adjustment
has been made to eliminate the impact of 12b-1 payments applicable to
Delaware Fund A Class beginning June 1, 1992, and performance would have
been affected had such an adjustment been made.
/2/ Reflects a net asset value of $19.07 on October 31, 1984.
/3/ Source: Lipper Analytical Services, Inc.
This period was one of generally rising common stock prices but also covers
several years of declining prices. The results illustrated should not be
considered as representative of dividend income or capital gain or loss which
may be realized from an investment in the Fund today.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average are
industry-accepted unmanaged indices of generally-conservative securities used
for measuring general market performance. The performance illustrated for these
indices reflects the reinvestment of all distributions on a quarterly basis and
market price fluctuations. The indices do not take into account any sales
charges or other fees. In seeking a particular investment objective, the Fund's
portfolio primarily includes common stocks, which may differ from those in the
indices, and may also include investments in fixed income securities.
The Consumer Price Index, as prepared by the U.S. Bureau of Labor Statistics,
is the most commonly used measure of inflation. It indicates the cost
fluctuations of a representative group of consumer goods. It does not represent
a return from an investment.
Lipper Analytical Services, Inc. is a performance evaluation service that
maintains statistical performance databases, as reported by a diverse universe
of independently-managed mutual funds.
41
<PAGE>
DELAWARE GROUP DELAWARE FUND, INC.--PART B--PAGE 42
Devon Fund Performance Overview
The following table illustrates the total return on one share invested in the
Devon Fund A Class during the period December 29, 1993 (date of initial public
offering) through October 31, 1994. The results reflect the reinvestment of all
dividends and realized securities profits distributions at the net asset value
reported at the time of distribution. No adjustment has been made for any
income taxes payable by shareholders on income dividends or realized securities
profits distributions accepted in shares.
Devon Fund A Class
<TABLE>
<CAPTION>
Cumulative net
Maximum offering Net Asset Value Distributions asset value at
price at --------------------- ----------------------------------- year-end with
Period ended beginning of Beginning End of From invest- From realized all distributions
Oct. 31 period of period period ment income securities profits reinvested
- ------------ ---------------- --------- ------ ------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
1994 $10.61 $10.00 $10.83 $0.09 -- $10.93
<CAPTION>
PERCENTAGE CHANGES DURING YEAR
- --------------------------------------------------------------------------------------------------------------
Devon Fund
- --------------------------------------------- Lipper
Maximum Offering Price Net Asset Value Standard & Dow Jones Consumer Growth & Income
to Net Asset Value to Net Asset Value Poor's 500/4/ Industrial/4/ Price Index/4/ Index/4/
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Cumulative/2/ Annual Cumulative/3/ Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative
- ------ ------------- ------ ------------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.0% 3.0% 9.3% 9.3% 3.3% 2.8% 6.5% 5.4% 3.6% 3.0% 2.0% 1.7%
</TABLE>
/1/ Reflects a maximum sales charge of 5.75%. There are reduced sales charges
for investment of $100,000 or more.
/2/ Reflects an offering price of $10.61 on December 28, 1993.
/3/ Reflects a net asset value of $10.00 on December 28, 1993.
/4/ Source: Lipper Analytical Services, Inc.
The following table illustrates the total return on one share invested in the
Devon Fund B Class during the period September 6, 1994 (date of initial public
offering) through October 31, 1994. The results reflect the reinvestment of all
dividends and realized securities profits distributions at the net asset value
reported at the time of distribution. No adjustment has been made for any
income taxes payable by shareholders on income dividends or realized securities
profits distributions accepted in shares.
Devon Fund B Class
<TABLE>
<CAPTION>
Cumulative net
Maximum offering Net Asset Value Distributions asset value at
price at --------------------- ----------------------------------- year-end with
Period ended beginning of Beginning End of From invest- From realized all distributions
Oct. 31 period of period period ment income securities profits reinvested
- ------------ ---------------- --------- ------ ------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
1994 $10.90 $10.90 $10.82 $.03 -- $9.95
<CAPTION>
PERCENTAGE CHANGES DURING YEAR
- --------------------------------------------------------------------------------------------------------------
Devon Fund
- ------------------------------------------ Lipper
Returns Including Returns Excluding Standard & Dow Jones Consumer Growth & Income
CDSC/1/ CDSC/1/ Poor's 500/3/ Industrial/3/ Price Index/3/ Index/3/
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Cumulative/2/ Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative
- ------ ------------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-4.4% -4.4% -0.5% -0.5% -1.5% 0.3% -0.8% -0.1% 2.0% .34% -7.8% -1.3%
</TABLE>
/1/ Total return provided is on an aggregate basis. Total return for this
short of a time period may not be representative of longer-term results.
/2/ Reflects a net asset value of $10.90 on September 2, 1994.
/3/ Source: Lipper Analytical Services, Inc.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average
are industry-accepted unmanaged indices of generally-conservative securities
used for measuring general market performance. The performance illustrated for
these indices reflects the reinvestment of all distributions on a quarterly
basis and market price fluctuations. The indices do not take into account any
sales charge or other fees. In seeking a particular investment objective, the
Fund's portfolio primarily includes common stocks, which may differ from those
in the indices, and may also include investments in fixed income securities.
The Consumer Price Index, as prepared by the U.S. Bureau of Labor Statistics,
is the most commonly used measure of inflation. It indicates the cost
fluctuations of a representative group of consumer goods. It does not represent
a return from an investment.
Lipper Analytical Services, Inc. is a performance evaluation service that
maintains statistical performance databases, as reported by a diverse universe
of independently-managed mutual funds.
42
<PAGE>
DELAWARE GROUP DELAWARE FUND, INC.--PART B--PAGE 43
Devon Fund Performance Overview
The following table illustrates the total return on one share invested in
the Devon Fund Institutional Class during the period December 29, 1993 (date of
initial public offering) through October 31, 1994. The results reflect the
reinvestment of all dividends and realized securities profits distributions at
the net asset value reported at the time of distribution. No adjustment has been
made for any income taxes payable by shareholders on income dividends or
realized securities profits distributions accepted in shares.
Devon Fund Institutional Class
<TABLE>
<CAPTION>
Cumula- PERCENTAGE CHANGES DURING YEAR
tive net ----------------------------------------------------------
asset Devon Fund
Net Asset Distributions value at ---------------- Lipper
Value ---------------- year-end Net Asset Value Consumer Growth &
------------- From with all to Standard & Dow Jones Price Income
Period Begin- From realized distri- Net Asset Value Poor's 500/2/ Industrial/2/ Index/2/ Index/2/
ended ning invest- securi- butions ---------------- ------------- ------------- ------------- -------------
Oct. of End of ment ties rein- Cumu- Cumu- Cumu- Cumu- Cumu-
31 period period income profits vested Annual lative/1/ Annual lative Annual lative Annual lative Annual lative
- ------ ------ ------ ------- -------- --------- ------ --------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $10.00 $10.86 $0.09 -- $10.96 9.6% 9.6% 3.3% 2.8% 6.5% 5.4% 3.6% 3.0% 2.0% 1.7%
</TABLE>
- -----------------------
/1/Reflects a net asset value of $10.00 on December 28, 1993.
/2/Source: Lipper Analytical Services, Inc.
The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average
are industry-accepted unmanaged indices of generally-conservative securities
used for measuring general market performance. The performance illustrated for
these indices reflects the reinvestment of all distributions on a quarterly
basis and market price fluctuations. The indices do not take into account any
sales charges or other fees. In seeking a particular investment objective, the
Fund's portfolio primarily includes common stocks, which may differ from those
in the indices, and may also include investments in fixed income securities.
The Consumer Price Index, as prepared by the U.S. Bureau of Labor
Statistics, is the most commonly used measure of inflation. It indicates the
cost fluctuations of a representative group of consumer goods. It does not
represent a return from an investment.
Lipper Analytical Services, Inc. is a performance evaluation service that
maintains statistical performance databases, as reported by a diverse universe
of independently-managed mutual funds.
43
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 44
APPENDIX D
The Company Life Cycle
Traditional business theory contends that a typical company progresses through
basically four stages of development, keyed closely to a firm's sales.
1. Emerging Growth--a period of experimentation
in which the company builds awareness of a new product or firm.
2. Accelerated Development--a period of rapid growth with potentially high
profitability and acceptance of the product.
3. Maturing Phase--a period of diminished real growth due to dependence on
replacement or sustained product demand.
4. Cyclical Stage--a period in which a company faces a potential saturation of
demand for its product. At this point, a firm either diversifies or becomes
obsolete.
[CHART GOES HERE]
Hypothetical Corporate Life Cycle Chart shows in a line illustration, the stages
that a typical company would go through, beginning with the emerging state where
sales growth continues at a steep pace to the mature phase where growth levels
off to the cyclical stage where sales show more definitive highs and lows.
The above chart illustrates the path traditionally followed by companies that
successfully survive the growth sequence.
44
<PAGE>
Delaware Group Delaware Fund, Inc.-Part B--Page 45
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for the Fund and, in its
capacity as such, audits the financial statements contained in the Series'
Annual Reports. The Delaware Group Delaware Fund, Inc.--Delaware Fund's and the
Delaware Group Delaware Fund, Inc.--Devon Fund's Statements of Net Assets,
Statements of Operations, Statements of Changes in Net Assets, and Notes to
Financial Statements, as well as the reports of Ernst & Young LLP, independent
auditors, for the fiscal year ended October 31, 1994, are included in the Fund's
Annual Reports to shareholders. The financial statements, the notes relating
thereto and the reports of Ernst & Young LLP, listed above are incorporated by
reference from the Annual Reports into this Part B.
45
