August 9, 1996
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE FUND
DEVON FUND
Supplement to Prospectus dated December 29, 1995
The following amends and supplements the information in the
last paragraph of the section of the Prospectus entitled
Mortgage-Backed Securities under Investment Strategy.
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. Certain of these private-backed
securities are 100% collateralized at the time of issuance by
securities issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities. The Devon Fund currently may
invest in privately-issued CMOs and REMICs only if they are so
collateralized and rated at the time of purchase in the four
highest grades by a nationally-recognized rating agency (e.g.,
BBB or better by Standard & Poor's Ratings Group ("S&P") or Baa
or better by Moody's Investors Service, Inc. ("Moody's")).
The Delaware Fund may invest its assets in CMOs and REMICs
issued by private entities whether or not the securities are 100%
collateralized at the time of issuance by securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities (securities that are not so collateralized are
called "non-agency mortgage-backed securities"). Non-agency
mortgage-backed securities may comprise up to 20% of the Delaware
Fund's asset, but all of these securities must (i) be rated at
the time of purchase in the four top rating categories by a
nationally-recognized statistical rating organization and (ii)
represent interests in whole-loan mortgages, multi-family
mortgages, commercial mortgages or other mortgage collateral
supported by a first mortgage lien on real estate. Non-agency
mortgage-backed securities are subject to the interest rate and
prepayment risks to which other CMOs and REMICs issued by private
issuers are subject. Non-agency mortgage-backed securities may
also be subject to a greater risk of loss of interest and
principal because they are not collateralized by securities
issued or guaranteed by the U.S. Government. In addition, timely
information concerning the loans underlying these securities may
not be as readily available and the market for these securities
may be less liquid than the market for other CMOs and REMICs.
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The following replaces the information in the section of the
Prospectus entitled Asset-Backed Securities under Investment
Strategy.
Delaware Fund and Devon Fund may invest in securities which
are backed by assets such as receivables on home equity and
credit loans, receivables regarding automobile, mobile home and
recreational vehicle loans, wholesale dealer floor plans and
leases or other loans or financial receivables currently
available or which may be developed in the future. All such
securities must be rated in one of the four highest rating
categories by a reputable rating agency (e.g., BBB or better by
S&P or Baa or better 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 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 or the concentration of collateral in a particular
geographic area. Therefore, the yield may be difficult to
predict and actual yield to maturity may be more or less than the
anticipated yield to maturity. Due to the shorter maturity of
the collateral backing such securities, there tends to be less of
a risk of substantial prepayment than with mortgage-backed
securities but the risk of such a prepayment does exist. 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, and other risks which may be peculiar to
particular classes of collateral. For example, 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.
