STATEMENT OF ADDITIONAL INFORMATION
JANUARY 15, 1999
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE BALANCED FUND
(formerly Delaware Fund)
DEVON FUND
1818 Market Street
Philadelphia, PA 19103
For more information about Delaware Balanced Fund Institutional Class
and Devon Fund Institutional Class:
800-510-4015
For Prospectus, Performance and Information on Existing Accounts of
Class A Shares, Class B Shares and Class C Shares:
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY) Nationwide 800-362-7500
Delaware Group Equity Funds I, Inc. ("Equity Funds I, Inc.") is a
professionally-managed mutual fund of the series type which currently
offers two series of shares: Delaware Balanced Fund series ("Delaware
Balanced Fund") and Devon Fund series ("Devon Fund") (individually, a
"Fund", and collectively, the "Funds").
Delaware Balanced Fund and Devon Fund offer, respectively, Delaware
Balanced Fund A Class and Devon Fund A Class ("Class A Shares"), Delaware
Balanced Fund B Class and Devon Fund B Class ("Class B Shares"), Delaware
Balanced Fund C Class and Devon Fund C Class ("Class C Shares") (Class A
Shares, Class B Shares and Class C Shares together referred to as the
"Fund Classes"), and Delaware Balanced Fund Institutional Class and Devon
Fund Institutional Class ("Institutional Classes"). All references to
"shares" in this Part B refer to all Classes of shares of Equity Funds I,
Inc., except where noted.
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectus
for the Fund Classes dated January 15, 1999 and the current Prospectus
for the Institutional Classes dated January 15, 1999, as they may be
amended from time to time. Part B should be read in conjunction with the
respective Class' Prospectus. Part B is not itself a prospectus but is, in
its entirety, incorporated by reference into each Class' Prospectus. A
prospectus relating to the Fund Classes and a prospectus relating to the
Institutional Classes may be obtained by writing or calling your
investment dealer or by contacting each Fund's national distributor,
Delaware Distributors, L.P. (the "Distributor"), at the above address or
by calling the above phone numbers. The Funds' financial statements, the
notes relating thereto, the financial highlights and the report of
independent auditors are incorporated by reference from the Annual Report
into this Part B. The Annual Report will accompany any request for Part B.
The Annual Report can be obtained, without charge, by calling
800-523-1918.
TABLE OF CONTENTS
Cover Page
Investment Restrictions and Policies
Performance Information
Trading Practices and Brokerage
Purchasing Shares
Investment Plans
Determining Offering Price and Net Asset Value
Redemption and Exchange
Dividends and Realized Securities Profits Distributions
Taxes
Investment Management Agreements
Officers and Directors
General Information
Appendix A--Description of Ratings
Appendix B--Investment Objectives of the Other Funds in the Delaware
Investments Family
Financial Statements
INVESTMENT RESTRICTIONS AND POLICIES
Investment Restrictions--Equity Funds I, Inc. has adopted the following
restrictions for each Fund, except as noted, which, along with its
respective investment objective, cannot be changed without approval of a
majority of the outstanding voting securities of a Fund, which is more
than 50% of the outstanding voting securities of that Fund which proposes
to change its fundamental policy, or 67% of the voting securities of that
Fund 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. (Equity Funds I, Inc.'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 Equity Funds I, Inc. or an
officer, director or partner of its investment manager if, to the
knowledge of Equity Funds I, Inc., one or more of such persons own
beneficially more than 1/2 of 1% of the shares of the company, and in the
aggregate more than 5% thereof.
4. No long or short positions on shares of Equity Funds I, Inc. may be
taken by its officers, directors or any of its affiliated persons. Such
persons may buy shares of Equity Funds I, Inc. 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 Equity Funds I, Inc.'s assets or (c) own securities of investment
companies having an aggregate value in excess of 10% of Equity Funds I,
Inc.'s assets.
6. Not to act as an underwriter of securities of other issuers, except
that Equity Funds I, Inc. may acquire restricted securities and securities
which are not readily marketable under circumstances where, if such
securities are sold, Equity Funds I, Inc. may be deemed an underwriter for
purposes of the Securities Act of 1933 (the "1933 Act").
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 Equity Funds I, Inc.'s 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 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 Equity Funds I,
Inc.'s assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, Equity Funds
I, Inc. 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%. Equity Funds I, Inc. shall not issue senior securities
as defined in the Investment Company Act of 1940 (the "1940 Act"), 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 Equity Funds I, Inc. and Equity Funds I, Inc. 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 Funds are nonfundamental and may be changed
without shareholder approval, except those identified above as fundamental
restrictions.
Each Fund has made a commitment that it will not invest in warrants valued
at the lower of cost or market exceeding 5% of such Fund's net assets.
Included within that amount, but not to exceed 2% of each Fund's net
assets, may be warrants not listed on the New York Stock Exchange or
American Stock Exchange.
Neither Fund currently invests its assets in real estate limited
partnerships or oil, gas and other mineral leases. Each Fund currently
intends to limit its investments in real estate investment trusts to not
more than 10% of each such Fund's net assets.
While each Fund is permitted under certain circumstances to borrow money,
neither Fund normally does so. Investment securities will not normally be
purchased by a Fund while it has an outstanding borrowing. Neither Fund
may concentrate investments in any industry, which means that a Fund
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 Fund may also invest its assets in securities issued by
certain private, nongovernment corporations, such as financial
institutions. Certain of these private-backed 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. Devon Fund 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. Delaware Balanced 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"). Each Fund currently invests 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 Fund 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 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. 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 Funds 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 Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors for their use relating to short sales or other
security transactions.
It is the understanding of Delaware Management Company (the "Manager")
that the staff of the Securities and Exchange Commission (the "SEC")
permits portfolio lending by registered investment companies if certain
conditions are met. These conditions are as follows: 1) each transaction
must have 100% collateral in the form of cash, short-term U.S. government
securities, or irrevocable letters of credit payable by banks acceptable
to a Fund from the borrower; 2) this collateral must be valued daily and
should the market value of the loaned securities increase, the borrower
must furnish additional collateral to the Fund; 3) the Fund must be able
to terminate the loan after notice, at any time; 4) the Fund must receive
reasonable interest on any loan, and any dividends, interest or other
distributions on the lent securities, and any increase in the market value
of such securities; 5) the Fund may pay reasonable custodian fees in
connection with the loan; and 6) the voting rights on the lent securities
may pass to the borrower; however, if the directors of Equity Funds I,
Inc. know that a material event will occur affecting an investment loan,
they must either terminate the loan in order to vote the proxy or enter
into an alternative arrangement with the borrower to enable the directors
to vote the proxy.
The major risk to which a Fund would be exposed on a portfolio loan
transaction is the risk that the borrower would go bankrupt at a time when
the value of the security goes up. Therefore, each Fund will only enter
into loan arrangements after a review of all pertinent facts by the
Manager, under the supervision of the Board of Directors, including the
creditworthiness of the borrowing broker, dealer or institution and then
only if the consideration to be received from such loans would justify the
risk. Creditworthiness will be monitored on an ongoing basis by the
Manager.
Restricted and Illiquid Securities
Most of the privately placed securities acquired by a Fund will be
eligible for resale by the Fund without registration pursuant to Rule 144A
("Rule 144A Securities") under the 1933 Act. 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 Fund's 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 Fund's 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
Fund's holdings of illiquid securities exceed the Fund's 10% limit on
investment in such securities, the Manager will determine what action
shall be taken to ensure that the Fund continues to adhere to such
limitation.
Convertible Securities
Each Fund 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 Fund 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 Fund upon conversion of a
convertible security will generally be held for so long as the Manager
anticipates such stock will provide a Fund with opportunities which are
consistent with a Fund's investment objectives and policies.
Each Fund 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.
A Fund 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 Fund's 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 a Fund to obtain accurate market
quotations for purposes of pricing the Fund's 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 Ratings Group
("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 financing available to
them, and may be unable to repay debt at maturity by refinancing.
Foreign Securities
Each Fund may invest in securities of foreign companies. However, neither
Fund 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 (the "1934
Act") or American Depositary 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 a Fund.
Payment of such interest equalization tax, if imposed, would reduce a
Fund's rate of return on its investment. Dividends paid by foreign issuers
may be subject to withholding and other foreign taxes which may decrease
the net return on such investments as compared to dividends paid to a Fund
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. A Fund 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 either Fund held in foreign countries.
Each Fund 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 Fund may enter into forward contracts to "lock in" the
price of a security it has agreed to purchase or sell, in terms of U.S.
dollars or other currencies in which the transaction will be consummated.
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, each Fund 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 a Fund's
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
Fund 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
Fund is obligated to deliver.
Each Fund may incur gains or losses from currency transactions. No type of
foreign currency transaction will eliminate fluctuations in the prices of
a Fund's foreign securities or will prevent loss if the prices of such
securities should decline.
Futures Contracts and Options on Futures Contracts
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 Fund 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 Fund's 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 Fund enters into a futures transaction, it must deliver to the
futures commission merchant selected by the Fund an amount referred to as
"initial margin." This amount is maintained by the futures commission
merchant in an account at the Fund's custodian bank. Thereafter, a
"variation margin" may be paid by the Fund to, or drawn by the Fund 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 Fund must be paid to the contract market clearing house
while any profit due to the Fund 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 Fund's futures contracts on securities will
usually be liquidated in this manner, the Fund 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.
The Fund 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 Fund 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 Fund. 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 Fund would increase at approximately the same
rate, thereby keeping the net asset value of the Fund 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 Fund 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 Fund could then buy debt securities on the cash market.
With respect to options on futures contracts, when the Fund 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 Fund will retain
the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against 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 Fund
will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund
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 Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the
value of its portfolio securities and changes in the value of its futures
positions, the Fund's 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 Fund will purchase a put option on a futures
contract to hedge the Fund's portfolio against the risk of rising interest
rates.
To the extent that interest rates move in an unexpected direction, the
Fund may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize a loss. For example, if the
Fund 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 Fund 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 Fund 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 Fund 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 Fund 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
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 Fund may write covered call options from time
to time on such portion of its portfolio, without limit, as the Manager
determines is appropriate in seeking to obtain the investment objective. A
call option gives the purchaser of such option the right to buy, and the
writer, in this case the Fund, has the obligation to sell the underlying
security at the exercise price during the option period. The advantage to
the Fund of writing covered calls is that the Fund receives additional
income, in the form of a premium, which may offset any capital loss or
decline in market value of the security. However, if the security rises in
value, the Fund may not fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was
sold requiring the writer to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time in which the
writer effects a closing purchase transaction. A closing purchase
transaction cannot be effected with respect to an option once the option
writer has received an exercise notice for such option.
With respect to both options on actual portfolio securities owned by the
Fund and options on stock indices, the Fund may enter into closing
purchase transactions. A closing purchase transaction is one in which the
Fund, when obligated as a writer of an option, terminates its obligation
by purchasing an option of the same series as the option previously
written.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security
from being called, to permit the sale of the underlying security or to
enable the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both. The
Fund may realize a net gain or loss from a closing purchase transaction
depending upon whether the net amount of the original premium received on
the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction
may be partially or entirely offset by the premium received from a sale of
a different call option on the same underlying security. Such a loss may
also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from
a closing purchase transaction could be offset in whole or in part by a
decline in the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short-term
capital gain in the amount of the premium on the option, less the
commission paid. Such a gain, however, may be offset by depreciation in
the market value of the underlying security during the option period. If a
call option is exercised, the Fund will realize a gain or loss from the
sale of the underlying security equal to the difference between the cost
of the underlying security, and the proceeds of the sale of the security
plus the amount of the premium on the option, less the commission paid.
The market value of a call option generally reflects the market price of
an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
Devon Fund will write call options only on a covered basis, which means
that the Fund 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 Fund would be required to continue to hold a security
which it might otherwise wish to sell, or deliver a security it would want
to hold. Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of a
call option may be below, equal to or above the current market value of
the underlying security at the time the option is written.
B. Purchasing Put Options--Devon Fund may invest up to 2% of its total
assets in the purchase of put options. The Fund will, at all times during
which it holds a put option, own the security covered by such option.
The Fund 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 Fund 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 Fund will lose
the value of the premium paid. The Fund may sell a put option which it has
previously purchased prior to the sale of the securities underlying such
option. Such sales will result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold.
The Fund may sell a put option purchased on individual portfolio
securities or stock indices. Additionally, the Fund may enter into closing
sale transactions. A closing sale transaction is one in which the Fund,
when it is the holder of an outstanding option, liquidates its position by
selling an option of the same series as the option previously purchased.
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 Fund on transactions in stock index options will depend on
price movements in the stock market generally (or in a particular industry
or segment of the market) rather than price movements of individual
securities.
As with stock options, Devon Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
Exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock so
included. Some stock index options are based on a broad market index such
as the Standard & Poor's 500 Stock Index ("S&P 500") or the New York Stock
Exchange Composite Index, or a narrower market index such as the Standard
& Poor's 100 Index ("S&P 100"). Indices are also based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and
Business Equipment Index. Options on stock indices are currently traded on
the following Exchanges among others: The Chicago Board Options Exchange,
New York Stock Exchange and American Stock Exchange.
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in
the Fund's portfolio correlate with price movements of the stock index
selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss from the purchase or writing
of options on an index depends upon movements in the level of stock prices
in the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of a
particular stock. Since the Fund's portfolio will not duplicate the
components of an index, the correlation will not be exact. Consequently,
the Fund bears the risk that the prices of the securities being hedged
will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or
other securities underlying the hedging instrument and the hedged
securities which would result in a loss on both such securities and the
hedging instrument. Accordingly, successful use by the Fund 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 Fund's ability to
effectively hedge its securities. Devon Fund will enter into an option
position only if there appears to be a liquid secondary market for such
options.
The Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the
option markets.
When-Issued and Delayed Delivery Securities
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and
delivery taking place in the future in order to secure what is considered
to be an advantageous yield or price at the time of the transaction.
Delivery of and payment for these securities may take as long as a month
or more after the date of the purchase commitment. A Fund will maintain
with its 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 Fund enters into the commitment and no interest accrues to the
Fund until settlement. Thus, it is possible that the market value at the
time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. It is a current policy of
each Fund not to enter into when-issued commitments exceeding in the
aggregate 5% of the market value of such Fund's total assets less
liabilities other than the obligations created by these commitments.
PERFORMANCE INFORMATION
From time to time, each Fund may state its Classes' total return and yield
in advertisements and other types of literature. Any statements of total
return or yield performance data for a Class will be accompanied by
information on the average annual compounded rate of return for that Class
over the most recent one-, five- and ten-year or life- of-fund periods, as
applicable. Each Fund may also advertise aggregate and average total
return information for its Classes over additional periods of time. Each
Fund may also advertise yield information for its Classes for various
periods of time.
The annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used
for the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of
$1,000 from which, in the case of
only Class A Shares, the maximum front-end
sales charge 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 and Class C Shares.
In presenting performance information for Class A Shares, the Limited
CDSC, applicable to only certain redemptions of those shares, will not be
deducted from any computations of total return. See the Prospectus for the
Fund Classes for a description of the Limited CDSC and the limited
instances in which it applies. All references to a CDSC in this
Performance Information section will apply to Class B Shares or Class C
Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the
maximum front-end sales charge, if any, is deducted from the initial
$1,000 investment at the time it is made with respect to Class A Shares,
and that all distributions are reinvested at net asset value, and, with
respect to Class B Shares and Class C Shares, reflects the deduction of
the CDSC that would be applicable upon complete redemption of such shares.
In addition, each Fund may present total return information that does not
reflect the deduction of the maximum front-end sales charge or any
applicable CDSC.
Each Fund may also state total return performance of its Classes in the
form of an average total return. This average annual return 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 sales charge or CDSC, if any,
paid on the illustrated investment amount against the first year's return.
The performance of Class B Shares and Class C Shares may also be computed
without taking into account any applicable CDSC. From time to time, each
Fund may quote actual total return performance in advertising and other
types of literature compared to indices or averages of alternative
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.
The performance of each Class of each Fund, as shown below, is the average
annual total return quotations through October 31, 1998. The average
annual total return for Class A Shares at offer reflects the maximum
front-end sales charge of 5.75% paid on the purchase of shares. The
average annual total return for Class A Shares at net asset value (NAV)
does not reflect the payment of any front-end sales charge. Pursuant to
applicable regulation, total return shown for Delaware Balanced Fund
Institutional Class for the periods prior to the commencement of
operations of such Class is calculated by taking the performance of
Delaware Balanced 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. The performance of Class B
and Class C Shares, as shown below, is the average annual total return
quotation through October 31, 1998. The average annual total return
including deferred sales charge reflects the deduction of the applicable
CDSC that would be paid if the shares were redeemed at October 31, 1998.
The average annual total return for excluding deferred sales charge
assumes the shares were not redeemed at October 31, 1998 and therefore
does not reflect the deduction of a CDSC.Securities prices fluctuated
during the periods covered and past results should not be considered as
representative of future performance.
On June 14, 1988, Delaware Balanced Fund's investment objective was
changed from growth with income to a balance of capital appreciation,
income and preservation of capital.
<TABLE>
<CAPTION>
Average Annual Total Return
Delaware Balanced Fund
Delaware
Delaware Delaware Balanced Fund
Balanced Fund Balanced Fund Delaware Class B Shares
Class A Class A Balanced Fund (Including
Shares(1)(2) Shares(1) Institutional Deferred Sales
(at Offer) (at NAV) Class Charge)(3)
<S> <C> <C> <C> <C>
1 year ended 8.20% 14.80% 15.03% 8.90%
10/31/98
3 years ended 15.29% 17.60% 17.82% 15.39%
10/31/98
5 years ended 12.65% 13.99% 14.20% --
10/31/98
10 years ended 12.82% 13.49% 13.61% --
10/31/98
15 years ended 12.46% 12.90% 12.98% --
10/31/98
Life of Fund (4) 11.30% 11.41% 11.43% 15.06%
<CAPTION>
Delaware Delaware Delaware
Balanced Fund Balanced Fund Balanced Fund
Class B Class C Class C
Shares Shares Shares
(Excluding (Including (Excluding
Deferred Deferred Deferred
Sales Charge) Sales Charge) Sales Charge)
<S> <C> <C> <C>
1 year ended 13.90% 12.85% 13.85%
10/31/98
3 years ended 16.67% -- --
10/31/98
5 years ended -- -- --
10/31/98
10 years ended -- -- --
10/31/98
15 years ended -- -- --
10/31/98
Life of Fund (4) 15.37% 16.06% 16.06%
</TABLE>
(1) Delaware Balanced Fund A Class began paying 12b-1 payments on June 1,
1992 and performance prior to that date does not reflect such payments.
(2) Prior to November 2, 1998, the maximum front-end sales charge was
4.75%. Effective November 2, 1998, the maximum front-end sales charge was
increased to 5.75% and the above performance numbers are calculated using
5.75% as the applicable sales charge.
(3) Effective November 2, 1998, the CDSC schedule for Class B Shares
increased as follows: (i) 5% if shares are redeemed within one year of
purchase (ii) 4% if shares are redeemed with two years of purchase; (iii)
3% if shares are redeemed during the third or fourth year following
purchase; (iv) 2% if shares are redeemed during the fifth year following
purchase; (v) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(4) Date of initial public offering of Delaware Balanced Fund A Class was
April 25, 1938; date of initial public offering of Delaware Balanced Fund
Institutional Class shares was November 9, 1992; date of initial public
offering of Delaware Balanced Fund Class B Shares was September 6, 1994;
date of initial public offering of Delaware Balanced Fund Class C Shares
was November 29, 1995.
<TABLE>
<CAPTION>
Average Annual Total Return
Devon Fund (1)
Devon Fund
Devon Fund Devon Fund Devon Fund Class B Shares
Class A Shares Class A Shares Institutional (Including Deferred
(at Offer)(2) (at NAV) Class Sales Charge)(3)
<S> <C> <C> <C> <C>
1 year ended 12.73% 19.60% 19.89% 13.76%
10/31/98
3 years ended 22.72% 25.18% 25.57% 23.69%
10/31/98
Life of Fund 20.47% 21.96% 22.32% 22.17%
<CAPTION>
Devon Fund Devon Fund Devon Fund
Class B Shares Class C Shares Class C Shares
(Excluding Deferred (Including Deferred (Excluding Deferred
Sales Charge) Sales Charge) Sales Charge)
<S> <C> <C> <C>
1 year ended 18.76% 17.71% 18.71%
10/31/98
3 years ended 24.34% -- --
10/31/98
Life of Fund 22.43% 23.49% 23.49%
</TABLE>
(1) Certain expenses of this Fund have been waived and reimbursed by the
Manager. In the absence of such waiver and reimbursement, performance
would have been affected negatively.
(2) Prior to November 2, 1998, the maximum front-end sales charge was
4.75%. Effective November 2, 1998, the maximum front-end sales charge was
increased to 5.75% and the above performance numbers are calculated using
5.75% as the applicable sales charge.
(3) Effective November 2, 1998, the CDSC schedule for Class B Shares
increased as follows: (i) 5% if shares are redeemed within one year of
purchase (ii) 4% if shares are redeemed with two years of purchase; (iii)
3% if shares are redeemed during the third or fourth year following
purchase; (iv) 2% if shares are redeemed during the fifth year following
purchase; (v) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(4) Date of initial public offering of Devon Fund A Class was December 29,
1993; date of initial public offering of Devon Fund Institutional Class
shares was December 29, 1993; date of initial public offering of Devon
Fund Class B Shares was September 6, 1994; date of initial public offering
of Devon Fund Class C Shares was November 29, 1995.
Total return performance for the Classes 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 also reflect, as
applicable, the maximum sales charge, or CDSC, paid with respect to the
illustrated investment amount, but not any income taxes payable by
shareholders on the reinvested distributions included in the calculation.
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.
From time to time, each Fund may also quote its Class' actual total return
performance, dividend results and other performance information in
advertising and other types of literature. This information may be
compared to that of other mutual funds with similar investment objectives
and to stock, bond and other relevant indices or to rankings prepared by
independent services or other financial or industry publications that
monitor the performance of mutual funds. For example, the performance of
the Fund (or Fund Class) may be compared to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. or to the S&P 500 Index or
the Dow Jones Industrial Average.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed
mutual funds. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare a Fund's performance to another fund in appropriate categories
over specific time periods also may be quoted in advertising and other
types of literature. The S&P 500 Stock Index and the Dow Jones Industrial
Average are industry-accepted unmanaged indices of generally-conservative
securities used for measuring general market performance. The Russell 2000
Index TR is a total return weighted index which is comprised of 2,000 of
the smallest stocks (on the basis of capitalization) in the Russell 3000
Index and is calculated on a monthly basis. The NASDAQ Composite Index is
a market capitalization price only index that tracks the performance of
domestic common stocks traded on the regular NASDAQ market as well as
National Market System traded foreign common stocks and American
Depository Receipts. The total return performance reported for these
indices will reflect the reinvestment of all distributions on a quarterly
basis and market price fluctuations. The indices do not take into account
any sales charge or other fees. A direct investment in an unmanaged index
is not possible.
In addition, the performance of multiple indices compiled and maintained
by statistical research firms, such as Salomon Brothers and Lehman
Brothers may be combined to create a blended performance result for
comparative performances. Generally, the indices selected will be
representative of the types of securities in which the Funds may invest
and the assumptions that were used in calculating the blended performance
will be described.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the Consumer Price Index), and
combinations of various capital markets. The performance of these capital
markets is based on the returns of different indices. A Fund may use the
performance of these capital markets in order to demonstrate general
risk-versus-reward investment scenarios. Performance comparisons may also
include the value of a hypothetical investment in any of these capital
markets. The risks associated with the security types in any capital
market may or may not correspond directly to those of the Fund. A Fund may
also compare performance to that of other compilations or indices that may
be developed and made available in the future.
Each Fund may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that
describe general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting, questionnaires designed
to help create a personal financial profile, worksheets used to project
savings needs based on assumed rates of inflation and hypothetical rates
of return and action plans offering investment alternatives), investment
management techniques, policies or investment suitability of the Fund
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer, automatic account rebalancing, the
advantages and disadvantages of investing in tax-deferred and taxable
investments), economic and political conditions, the relationship between
sectors of the economy and the economy as a whole, the effects of
inflation and historical performance of various asset classes, including
but not limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in
shareholder reports (including the investment composition of a Fund), as
well as the views as to current market, economic, trade and interest rate
trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to the Fund. In
addition, selected indices may be used to illustrate historic performance
of selected asset classes. A Fund may also include in advertisements,
sales literature, communications to shareholders or other materials,
charts, graphs or drawings which illustrate the potential risks and
rewards of investment in various investment vehicles, including but not
limited to, stocks, bonds, treasury bills and shares of the Fund. In
addition, advertisements, sales literature, communications to shareholders
or other materials may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund and/or other mutual
funds, shareholder profiles and hypothetical investor scenarios, timely
information on financial management, tax and retirement planning (such as
information on Roth IRAs and Education IRAs) and investment alternative to
certificates of deposit and other financial instruments. Such sales
literature, communications to shareholders or other materials may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
Materials may refer to the CUSIP numbers of the Funds and may illustrate
how to find the listings of the Funds in newspapers and periodicals.
Materials may also include discussions of other funds, products, and
services.
Each Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, each Fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. Measures of volatility and correlation may
be calculated using averages of historical data. A Fund may advertise its
current interest rate sensitivity, duration, weighted average maturity or
similar maturity characteristics. Advertisements and sales materials
relating to the Funds may include information regarding the background and
experience of its portfolio managers.
The following tables present examples, for purposes of illustration only,
of cumulative total return performance for each Class of each Fund through
October 31, 1998. For these purposes, the calculations assume the
reinvestment of any capital gains distributions and income dividends paid
during the indicated periods. The performance of each Class, as shown
below, does not reflect any income taxes payable by shareholders on the
reinvested distributions included in the calculations. The performance of
Class A Shares reflects the maximum front-end sales charge paid on the
purchase of shares but may also be shown without reflecting the impact of
any front-end sales charge. The performance of Class B Shares and Class C
Shares is calculated both with the applicable CDSC included and excluded.
On June 14, 1988, Delaware Balanced Fund's investment objective was
changed from growth with income to a balance of capital appreciation,
income and preservation of capital. The net asset values of each Fund
fluctuate so shares, when redeemed, may be worth more or less than the
original investment and each Fund's results should not be considered as
representative of future performance.
<TABLE>
<CAPTION>
Cumulative Total Return
Delaware Balanced Fund
Delaware
Delaware Delaware Balanced Fund
Balanced Fund Balanced Fund Delaware Class B Shares
Class A Class A Balanced Fund (Including
Shares(1)(2) Shares(1) Institutional Deferred Sales
(at Offer) (at NAV) Class Charge)(3)
<S> <C> <C> <C> <C>
3 months ended -4.92% 0.90% 0.94% -4.31%
10/31/98
6 months ended -5.85%(5) -0.10% -0.01% -5.44%
10/31/98
9 months ended 1.16% 7.35% 7.53% 1.72%
10/31/98
1 year ended 8.20% 14.80% 15.03% 8.90%
10/31/98
3 years ended 53.26% 62.63% 63.53% 55.82%
10/31/98
5 years ended 81.37% 92.48% 94.24% --
10/31/98
10 years ended 234.10% 254.48% 258.27% --
10/31/98
15 years ended 481.83% 517.26% 523.85% --
10/31/98
Life of Fund (4) 69,189.57% 69,195.54% 69,936.79% 79.11%
<CAPTION>
Delaware Delaware Delaware
Balanced Fund Balanced Fund Balanced Fund
Class B Class C Class C
Shares Shares Shares
(Excluding (Including (Excluding
Deferred Deferred Deferred
Sales Charge) Sales Charge) Sales Charge)
<S> <C> <C> <C>
3 months ended 0.69% -0.31% 0.69%
10/31/98
6 months ended -0.50% -1.49% -0.50%
10/31/98
9 months ended 6.72% 5.68% 6.68%
10/31/98
1 year ended 13.90% 12.85% 13.85%
10/31/98
3 years ended 58.82% -- --
10/31/98
5 years ended -- -- --
10/31/98
10 years ended -- -- --
10/31/98
15 years ended -- -- --
10/31/98
Life of Fund (4) 81.11% 54.57% 54.57%
</TABLE>
(1) Delaware Balanced Fund A Class began paying 12b-1 payments on June 1,
1992 and performance prior to that date does not reflect such payments.
(2) Prior to November 2, 1998, the maximum front-end sales charge was
4.75%. Effective November 2, 1998, the maximum front-end sales charge was
increased to 5.75% and the above performance numbers are calculated using
5.75% as the applicable sales charge.
(3) Effective November 2, 1998, the CDSC schedule for Class B Shares
increased as follows: (i) 5% if shares are redeemed within one year of
purchase (ii) 4% if shares are redeemed with two years of purchase; (iii)
3% if shares are redeemed during the third or fourth year following
purchase; (iv) 2% if shares are redeemed during the fifth year following
purchase; (v) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(4) Date of initial public offering of Delaware Balanced Fund A Class was
April 25, 1938; date of initial public offering of Delaware Balanced Fund
Institutional Class shares was November 9, 1992; date of initial public
offering of Delaware Balanced Fund Class B Shares was September 6, 1994;
date of initial public offering of Delaware Balanced Fund Class C Shares
was November 29, 1995.
(5) For the six months ended October 31, 1998, cumulative total return for
Delaware Balanced Fund A Class at net asset value was -0.10%.
<TABLE>
<CAPTION>
Cumulative Total Return
Devon Fund (1)
Devon Fund
Devon Fund Devon Fund Devon Fund Class B Shares
Class A Shares Class A Shares Institutional (Including Deferred
(at Offer)(2) (at NAV) Class Sales Charge)(3)
<S> <C> <C> <C> <C>
3 months ended -5.72% 0.05% 0.12% -5.10%
10/31/98
6 months ended -7.15%(5) -1.46% -1.33% -6.73%
10/31/98
9 months ended 2.60% 8.87% 9.11% 3.29%
10/31/98
1 year ended 12.73% 19.60% 19.89% 13.76%
10/31/98
3 years ended 84.82% 96.16% 97.99% 89.25%
10/31/98
Life of Fund (4) 146.54% 161.58% 165.35% 129.73%
<CAPTION>
Devon Fund Devon Fund Devon Fund
Class B Shares Class C Shares Class C Shares
(Excluding Deferred (Including Deferred (Excluding Deferred
Sales Charge) Sales Charge) Sales Charge)
<S> <C> <C> <C>
3 months ended -.10% -1.10% -.10%
10/31/98
6 months ended -1.82% -2.80% -1.82%
10/31/98
9 months ended 8.29% 7.30% 8.30%
10/31/98
1 year ended 18.76% 17.71% 18.71%
10/31/98
3 years ended 92.25% -- --
10/31/98
Life of Fund (4) 131.73% 85.30% 85.30%
</TABLE>
(1) Certain expenses of this Fund have been waived and reimbursed by the
Manager. In the absence of such waiver and reimbursement, performance
would have been affected negatively.
(2) Prior to November 2, 1998, the maximum front-end sales charge was
4.75%. Effective November 2, 1998, the maximum front-end sales charge was
increased to 5.75% and the above performance numbers are calculated using
5.75% as the applicable sales charge.
(3) Effective November 2, 1998, the CDSC schedule for Class B Shares
increased as follows: (i) 5% if shares are redeemed within one year of
purchase (ii) 4% if shares are redeemed with two years of purchase; (iii)
3% if shares are redeemed during the third or fourth year following
purchase; (iv) 2% if shares are redeemed during the fifth year following
purchase; (v) 1% if shares are redeemed during the sixth year following
purchase; and (v) 0% thereafter. The above figures have been calculated
using this new schedule.
(4) Date of initial public offering of Devon Fund A Class was December 29,
1993; date of initial public offering of Devon Fund Institutional Class
shares was December 29, 1993; date of initial public offering of Devon
Fund Class B Shares was September 6, 1994; date of initial public
Offering of Devon Fund Class C Shares was November 29, 1995.
(5) For the six months ended October 31, 1998, cumulative total return for
Devon Fund A Class at net asset value was .
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for each Fund and the other mutual funds in
the Delaware Investments family, will provide general information about
investment alternatives and scenarios that will allow investors to assess
their personal goals. This information will include general material about
investing as well as materials reinforcing various industry-accepted
principles of prudent and responsible 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 a Fund's, and other Delaware Investments 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.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and
logic says to invest when prices are low. However, even experts can't
always pick the highs and the lows. By using a strategy known as
dollar-cost averaging, you schedule your investments ahead of time. If you
invest a set amount on a regular basis, that money will always buy more
shares when the price is low and fewer when the price is high. You can
choose to invest at any regular interval--for example, monthly or
quarterly--as long as you stick to your regular schedule. Dollar-cost
averaging looks simple and it is, but there are important things to
remember.
Dollar-cost averaging works best over longer time periods, and it doesn't
guarantee a profit or protect against losses in declining markets. If you
need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why
dollar-cost averaging can make sense for long-term goals. Since the
potential success of a dollar-cost averaging program depends on continuous
investing, even through periods of fluctuating prices, you should consider
your dollar-cost averaging program a long-term commitment and invest an
amount you can afford and probably won't need to withdraw. You also should
consider your financial ability to continue to purchase shares during
periods of high fund share prices. Delaware Investments offers three
services -- Automatic Investing Program, Direct Deposit Program and the
Wealth Builder Option -- that can help to keep your regular investment
program on track. See Investing by Electronic Fund Transfer - Direct
Deposit Purchase Plan and Automatic Investing Plan under Investment Plans
and Wealth Builder Option under Investment Plans for a complete
description of these services, including restrictions or limitations.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will
be lower than the average price per share for the same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 10
Month 4 $100 $10.00 20
- -----------------------------------------------------------
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of any stock or bond fund in the Delaware
Investments family.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund shares,
your investment is given yet another opportunity to grow. It's called the
Power of Compounding. Each Fund may include illustrations showing the
power of compounding in advertisements and other types of literature.
TRADING PRACTICES AND BROKERAGE
Brokers or dealers are selected to execute transactions on behalf of each
Fund 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.
A number of trades are made on a net basis where a Fund either buys
securities directly from the dealer or sells them to the dealer. In these
instances, there is no direct commission charged but there is a spread
(the difference between the buy and sell price) which is the equivalent of
a commission. When a commission is paid, a Fund pays reasonably
competitive brokerage commission rates based upon the professional
knowledge of Equity Funds I, Inc.'s trading department as to rates paid
and charged for similar transactions throughout the securities industry.
In some instances, a Fund pays a minimal share transaction cost when the
transaction presents no difficulty.
During the fiscal years ended October 31, 1996, 1997 and 1998, the
aggregate dollar amounts of brokerage commissions paid by Delaware
Balanced Fund were $651,024, $718,048 and $817,901, respectively. For the
fiscal years ended October 31, 1996, 1997 and 1998, the aggregate dollar
amounts of brokerage commissions paid by Devon Fund were $36,082, $157,621
and $292,437, respectively.
The Manager may allocate out of all commission business generated by all
of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These
services include advice, either directly or through publications or
writings, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software and hardware used in security analyses; and
providing portfolio performance evaluation and technical market analyses.
Such services are used by the Manager in connection with its investment
decision-making process with respect to one or more funds and accounts
managed by it, and may not be used, or used exclusively, with respect to
the fund or account generating the brokerage.
During the fiscal year ended October 31, 1998, portfolio transactions of
Delaware Balanced Fund in the amount of $332,780,574, resulting in
brokerage commissions of $480,174, were directed to brokers for brokerage
and research services provided. During the same period, portfolio
transactions of Devon Fund in the amount of $113,131,739, resulting in
brokerage commissions of $171,728, were directed to brokers for brokerage
and research services provided.
As provided in the 1934 Act and each Fund's Investment Management
Agreement, higher commissions are permitted to be paid to broker/dealers
who provide brokerage and research services than to broker/dealers who do
not provide such services if such higher commissions are deemed reasonable
in relation to the value of the brokerage and research services provided.
Although transactions are directed to broker/dealers who provide such
brokerage and research services, the Funds believe that the commissions
paid to such broker/dealers are not, in general, higher than commissions
that would be paid to broker/dealers not providing such services and that
such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be
provided to the Manager which constitute in some part brokerage and
research services used by the Manager in connection with its investment
decision-making process and constitute in some part services used by the
Manager in connection with administrative or other functions not related
to its investment decision-making process. In such cases, the Manager will
make a good faith allocation of brokerage and research services and will
pay out of its own resources for services used by the Manager in
connection with administrative or other functions not related to its
investment decision-making process. In addition, so long as no fund is
disadvantaged, portfolio transactions which generate commissions or their
equivalent are allocated to broker/dealers who provide daily portfolio
pricing services to a Fund and to other funds in the Delaware Investments
family. Subject to best price and execution, commissions allocated to
brokers providing such pricing services may or may not be generated by the
funds receiving the pricing service.
The Manager may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will
result in best price and execution. Transactions involving commingled
orders are allocated in a manner deemed equitable to each account or fund.
When a combined order is executed in a series of transactions at different
prices, each account participating in the order may be allocated an
average price obtained from the executing broker. It is believed that the
ability of the accounts to participate in volume transactions will
generally be beneficial to the accounts and funds. Although it is
recognized that, in some cases, the joint execution of orders could
adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and Equity
Funds I, Inc.'s Board of Directors that the advantages of combined orders
outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price
and execution, a Fund may place orders with broker/dealers that have
agreed to defray certain expenses of the funds in the Delaware Investments
family of funds such as custodian fees, and may, at the request of the
Distributor, give consideration to sales of shares of such funds 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, a 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 a 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 a 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.
The portfolio turnover of each Fund is calculated by dividing the lesser
of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned
by the Fund during the particular fiscal year, exclusive of securities
whose maturities at the time of acquisition are one year or less.
During the past two fiscal years, Delaware Balanced Fund's portfolio
turnover rates were approximately 81% for 1997 and 86% for 1998. During
the past two fiscal years, Devon Fund's portfolio turnover rates were
approximately 64% for 1997 and 39% for 1998.
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, Equity Funds I, Inc. has never
redeemed or repurchased shares other than at net asset value.
PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's shares
and has agreed to use its best efforts to sell shares of each Fund. See
the Prospectuses for information on how to invest. Shares of each Fund are
offered on a continuous basis and may be purchased through authorized
investment dealers or directly by contacting Equity Funds I, Inc. or the
Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such Classes
generally must be at least $100. The initial and subsequent investment
minimums for Class A Shares will be waived for purchases by officers,
directors and employees of any Delaware Investments fund, the Manager or
any of the Manager's affiliates if the purchases are made pursuant to a
payroll deduction program. Shares purchased pursuant to the Uniform Gifts
to Minors Act or Uniform Transfers to Minors Act and shares purchased in
connection with an Automatic Investing Plan are subject to a minimum
initial purchase of $250 and a minimum subsequent purchase of $25.
Accounts opened under the Delaware Investments Asset Planner service are
subject to a minimum initial investment of $2,000 per Asset Planner
Strategy selected. There are no minimum purchase requirements for the
Institutional Classes, but certain eligibility requirements must be
satisfied.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an
amount that is less than $1,000,000. See Investment Plans for purchase
limitations applicable to retirement plans. Equity Funds I, Inc. will
reject any purchase order for more than $250,000 of Class B Shares and
$1,000,000 or more of Class C Shares. An investor may exceed these
limitations by making cumulative purchases over a period of time. In doing
so, an investor should keep in mind, however, that reduced front-end sales
charges apply to investments of $50,000 or more in Class A Shares, and
that Class A Shares are subject to lower annual 12b-1 Plan expenses than
Class B Shares and Class C Shares and generally are not subject to a CDSC.
Class B Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers are responsible for transmitting orders promptly. Equity
Funds I, Inc. reserves the right to reject any order for the purchase of
its shares of either Fund if in the opinion of management such rejection
is in such Fund's best interest. If a purchase is canceled because your
check is returned unpaid, you are responsible for any loss incurred. A
Fund can redeem shares from your account(s) to reimburse itself for any
loss, and you may be restricted from making future purchases in any of the
funds in the Delaware Investments family. Each Fund reserves the right to
reject purchase orders paid by third-party checks or checks that are not
drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be
subject to additional bank charges for clearance and currency conversion.
Each Fund also reserves the right, following shareholder notification, to
charge a service fee on non-retirement accounts that, as a result of
redemption, have remained below the minimum stated account balance for a
period of three or more consecutive months. Holders of such accounts may
be notified of their insufficient account balance and advised that they
have until the end of the current calendar quarter to raise their balance
to the stated minimum. If the account has not reached the minimum balance
requirement by that time, the Fund will charge a $9 fee for that quarter
and each subsequent calendar quarter until the account is brought up to
the minimum balance. The service fee will be deducted from the account
during the first week of each calendar quarter for the previous quarter,
and will be used to help defray the cost of maintaining low-balance
accounts. No fees will be charged without proper notice, and no CDSC will
apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial
purchase amount as a result of redemptions. An investor making the minimum
initial investment may be subject to involuntary redemption without the
imposition of a CDSC or Limited CDSC if he or she redeems any portion of
his or her account.
The NASD has adopted amendments to its Conduct Rules, as amended, relating
to investment company sales charges. Equity Funds I, Inc. and the
Distributor intend to operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 5.75%; however, lower front-end sales
charges apply for larger purchases. See the table in the Fund Classes'
Prospectus. Class A Shares are also subject to annual 12b-1 Plan expenses
for the life of the investment.
Class B Shares are purchased at net asset value and are subject to a CDSC
of: (i) 5% if shares are redeemed within one year of purchase; (ii) 4% if
shares are redeemed within two years of purchase; (iii) 3% if shares are
redeemed during the third or fourth year following purchase; (iv) 2% if
shares are redeemed during the fifth year following purchase; and (v) 1%
if shares are redeemed during the sixth year following purchase. Class B
Shares are also subject to annual 12b-1 Plan expenses which are higher
than those to which Class A Shares are subject and are assessed against
Class B Shares for approximately eight years after purchase. See Automatic
Conversion of Class B Shares, below.
Class C Shares are purchased at net asset value and are subject to a CDSC
of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per share
without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Plans Under Rule 12b-1 for the Fund Classes
under Purchasing Shares, and Determining Offering Price and Net Asset
Value in this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will
receive a proportionate interest in that Fund's income, before
application, as to Class A, Class B and Class C Shares, of any expenses
under that Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares or Institutional Class shares, a
shareholder submits a specific request. Certificates are not issued in the
case of Class B Shares or Class C Shares or in the case of any retirement
plan account including self-directed IRAs. However, purchases not
involving the issuance of certificates are confirmed to the investor and
credited to the shareholder's account on the books maintained by Delaware
Service Company, Inc. (the "Transfer Agent"). The investor will have the
same rights of ownership with respect to such shares as if certificates
had been issued. An investor that is permitted to obtain a certificate may
receive a certificate representing full share denominations purchased by
sending a letter signed by each owner of the account to the Transfer Agent
requesting the certificate. No charge is assessed by Equity Funds I, Inc.
for any certificate issued. A shareholder may be subject to fees for
replacement of a lost or stolen certificate, under certain conditions,
including the cost of obtaining a bond covering the lost or stolen
certificate. Please contact a Fund for further information. Investors who
hold certificates representing any of their shares may only redeem those
shares by written request. The investor's certificate(s) must accompany
such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A Shares, Class B Shares
and Class C Shares permit investors to choose the method of purchasing
shares that is most suitable for their needs given the amount of their
purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A
Shares and incur a front-end sales charge and annual 12b-1 Plan expenses
of up to a maximum of 0.30% of the average daily net assets of Class A
Shares, or to purchase either Class B or Class C Shares and have the
entire initial purchase amount invested in the Fund with the investment
thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class B
Shares are subject to a CDSC if the shares are redeemed within six years
of purchase, and Class C Shares are subject to a CDSC if the shares are
redeemed within 12 months of purchase. Class B and Class C Shares are each
subject to annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of
which are service fees to be paid to the Distributor, dealers or others
for providing personal service and/or maintaining shareholder accounts) of
average daily net assets of the respective Class. Class B Shares will
automatically convert to Class A Shares at the end of approximately eight
years after purchase and, thereafter, be subject to annual 12b-1 Plan
expenses of up to a maximum of 0.30% of average daily net assets of such
shares. Unlike Class B Shares, Class C Shares do not convert to another
Class.
The higher 12b-1 Plan expenses on Class B Shares and Class C Shares will
be offset to the extent a return is realized on the additional money
initially invested upon the purchase of such shares. However, there can be
no assurance as to the return, if any, that will be realized on such
additional money. In addition, the effect of any return earned on such
additional money will diminish over time. In comparing Class B Shares to
Class C Shares, investors should also consider the duration of the annual
12b-1 Plan expenses to which each of the classes is subject and the
desirability of an automatic conversion feature, which is available only
for Class B Shares.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in
the case of Class A Shares, from the proceeds of the front-end sales
charge and 12b-1 Plan fees and, in the case of Class B Shares and Class C
Shares, from the proceeds of the 12b-1 Plan fees and, if applicable, the
CDSC incurred upon redemption. Financial advisers may receive different
compensation for selling Class A Shares, Class B Shares and Class C
Shares. Investors should understand that the purpose and function of the
respective 12b-1 Plans and the CDSCs applicable to Class B Shares and
Class C Shares are the same as those of the 12b-1 Plan and the front-end
sales charge applicable to Class A Shares in that such fees and charges
are used to finance the distribution of the respective Classes. See Plans
Under Rule 12b-1 for the Fund Classes.
Dividends, if any, paid on Class A Shares, Class B Shares and Class C
Shares will be calculated in the same manner, at the same time and on the
same day and will be in the same amount, except that the additional amount
of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will
be borne exclusively by such shares. See Determining Offering Price and
Net Asset Value.
Class A Shares - Delaware Balanced Fund and Devon Fund
Purchases of $50,000 or more of Class A Shares at the offering price carry
reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectus, and may include a series of purchases over a 13- month period
under a Letter of Intention signed by the purchaser. See Special Purchase
Features - Class A Shares, below for more information on ways in which
investors can avail themselves of reduced front-end sales charges and
other purchase features.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which
the Distributor may reallow to dealers up to the full amount of the
front-end sales. In addition, certain dealers who enter into an agreement
to provide extra training and information on Delaware Investments products
and services and who increase sales of Delaware Investments funds may
receive an additional commission of up to 0.15% of the offering price in
connection with sales of Class A Shares. Such dealers must meet certain
requirements in terms of organization and distribution capabilities and
their ability to increase sales. The Distributor should be contacted for
further information on these requirements as well as the basis and
circumstances upon which the additional commission will be paid.
Participating dealers may be deemed to have additional responsibilities
under the securities laws. Dealers who receive 90% or more of the sales
charge may be deemed to be underwriters under the 1933 Act.
Dealer's Commission
As described in the Prospectus, for initial purchases of Class A Shares of
$1,000,000 or more, a dealer's commission may be paid by the Distributor
to financial advisers through whom such purchases are effected.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of
the first purchase. In determining a financial adviser's eligibility for
the dealer's commission, purchases of Class A Shares of other Delaware
Investments funds as to which a Limited CDSC applies (see Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased
at Net Asset Value under Redemption and Exchange) may be aggregated with
those of the Class A Shares of a Fund. Financial advisers also may be
eligible for a dealer's commission in connection with certain purchases
made under a Letter of Intention or pursuant to an investor's Right of
Accumulation. Financial advisers should contact the Distributor concerning
the applicability and calculation of the dealer's commission in the case
of combined purchases.
An exchange from other Delaware Investments funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or
similar payment has not been previously paid on the assets being
exchanged. The schedule and program for payment of the dealer's commission
are subject to change or termination at any time by the Distributor at its
discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above, and Class C Shares
redeemed within 12 months of purchase may be subject to a CDSC of 1%.
CDSCs are charged as a percentage of the dollar amount subject to the
CDSC. The charge will be assessed on an amount equal to the lesser of the
net asset value at the time of purchase of the shares being redeemed or
the net asset value of those shares at the time of redemption. No CDSC
will be imposed on increases in net asset value above the initial purchase
price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestment of dividends or capital gains distributions. For
purposes of this formula, the "net asset value at the time of purchase"
will be the net asset value at purchase of Class B Shares or Class C
Shares of a Fund, even if those shares are later exchanged for shares of
another Delaware Investments fund. In the event of an exchange of the
shares, the "net asset value of such shares at the time of redemption"
will be the net asset value of the shares that were acquired in the
exchange. See Waiver of Contingent Deferred Sales Charge--Class B Shares
and Class C Shares under Redemption and Exchange for the Fund Classes for
a list of the instances in which the CDSC is waived.
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to
the annual 12b-1 Plan expenses of up to 1% of average daily net assets of
those shares. At the end of approximately eight years after purchase, the
investor's Class B Shares will be automatically converted into Class A
Shares of the same Fund. See Automatic Conversion of Class B Shares under
Classes of Shares in the Fund Classes' Prospectus. Such conversion will
constitute a tax-free exchange for federal income tax purposes. See Taxes.
Investors are reminded that the Class A Shares into which Class B Shares
will convert are subject to ongoing annual 12b-1 Plan expenses of up to a
maximum of 0.30% of average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B Shares,
it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends
or distributions, and finally by shares held longest during the six-year
period. With respect to Class C Shares, it will be assumed that shares
held for more than 12 months are redeemed first followed by shares
acquired through the reinvestment of dividends or distributions, and
finally by shares held for 12 months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of
that month and each subsequent month.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently
compensates dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 5% of the
dollar amount purchased. In addition, from time to time, upon written
notice to all of its dealers, the Distributor may hold special promotions
for specified periods during which the Distributor may pay additional
compensation to dealers or brokers for selling Class B Shares at the time
of purchase. As discussed below, however, Class B Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within six years of purchase,
a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class B
Shares. These payments support the compensation paid to dealers or brokers
for selling Class B Shares. Payments to the Distributor and others under
the Class B 12b-1 Plan may be in an amount equal to no more than 1%
annually. The combination of the CDSC and the proceeds of the 12b-1 Plan
fees makes it possible for a Fund to sell Class B Shares without deducting
a front-end sales charge at the time of purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Part B, even after the exchange. Such CDSC schedule may
be higher than the CDSC schedule for Class B Shares acquired as a result
of the exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last
business day of the second full week of March, June, September and
December (each, a "Conversion Date"). If the eighth anniversary after a
purchase of Class B Shares falls on a Conversion Date, an investor's Class
B Shares will be converted on that date. If the eighth anniversary occurs
between Conversion Dates, an investor's Class B Shares will be converted
on the next Conversion Date after such anniversary. Consequently, if a
shareholder's eighth anniversary falls on the day after a Conversion Date,
that shareholder will have to hold Class B Shares for as long as three
additional months after the eighth anniversary of purchase before the
shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends will
convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through
dividend reinvestment.
All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently
compensates dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the
dollar amount purchased. As discussed below, Class C Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within 12 months of purchase,
a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class C
Shares. These payments support the compensation paid to dealers or brokers
for selling Class C Shares. Payments to the Distributor and others under
the Class C 12b-1 Plan may be in an amount equal to no more than 1%
annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares
as described in this Part B. See Redemption and Exchange.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, Equity Funds I, Inc. has
adopted a separate plan for each of Class A Shares, Class B Shares and
Class C Shares of each Fund (the "Plans"). Each Plan permits a Fund to pay
for certain distribution, promotional and related expenses involved in the
marketing of only the Class of shares to which the Plan applies. The Plans
do not apply to Institutional Classes of shares. Such shares are not
included in calculating the Plans' fees, and the Plans are not used to
assist in the distribution and marketing of shares of Institutional
Classes. Shareholders of Institutional Classes may not vote on matters
affecting the Plans.
The Plans permit a Fund, pursuant to its Distribution Agreement, to pay
out of the assets of Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in
distributing and promoting sales of shares of such classes. These expenses
include, among other things, preparing and distributing advertisements,
sales literature, and prospectuses and reports used for sales purposes,
compensating sales and marketing personnel, 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 shares of
the Classes, 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 the Class. In addition, each Fund may make payments from
the 12b-1 Plan fees of its respective Classes 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 Equity Funds I,
Inc. The Plan expenses relating to Class B Shares and Class C Shares are
also used to pay the Distributor for advancing the commission costs to
dealers with respect to the initial sale of such shares.
The maximum aggregate fee payable by a Fund under the Plans, and a Fund's
Distribution Agreement, is on an annual basis, up to 0.30% of average
daily net assets of Class A Shares, and up to 1% (0.25% of which are
service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of
each of the Class B Shares' and Class C Shares' average daily net assets
for the year. Equity Funds I, Inc.'s Board of Directors may reduce these
amounts at any time.
Effective June 1, 1992, Equity Funds I, Inc.'s Board of Directors has
determined that the annual fee, payable on a monthly basis, for Delaware
Balanced Fund A Class under its Plan will be equal to the sum of: (i) the
amount obtained by multiplying 0.30% by the average daily net assets
represented by shares of Delaware Balanced Fund A Class that were acquired
by shareholders on or after June 1, 1992; and (ii) the amount obtained by
multiplying 0.10% by the average daily net assets represented by shares of
Delaware Balanced 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
Delaware Balanced 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
Balanced Fund A Class shares are sold on or after June 1, 1992, the
initial rate of at least 0.10% will increase over time. Thus, as the
proportion of Delaware Balanced Fund A Class shares purchased on or after
June 1, 1992 to Delaware Balanced 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 0.30% 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 0.30% on all Delaware Balanced Fund A Class assets at any time.
On September 23, 1993, Equity Funds I, Inc.'s Board of Directors set the
fee for Devon Fund A Class at 0.30% of average daily net assets.
While payments pursuant to the Plans may not exceed 0.30% annually with
respect to Class A Shares, and 1% annually with respect to each of the
Class B Shares and Class C 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 Distributor may,
however, incur such additional expenses and make additional payments to
dealers from its own resources to promote the distribution of shares of
the Classes. The monthly fees paid to the Distributor under the Plans are
subject to the review and approval of Equity Funds I, Inc.'s unaffiliated
directors, who may reduce the fees or terminate the Plans at any time.
All of the distribution expenses incurred by the Distributor and others,
such as broker/dealers, in excess of the amount paid on behalf of Class A
Shares, Class B Shares and Class C Shares would be borne by such persons
without any reimbursement from such Fund Classes. Subject to seeking best
price and execution, a Fund may, from time to time, buy or sell portfolio
securities from or to firms which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreements, as amended, have all been
approved by the Board of Directors of Equity Funds I, Inc., including a
majority of the directors who are not "interested persons" (as defined in
the 1940 Act) of Equity Funds I, Inc. and who have no direct or indirect
financial interest in the Plans by vote cast in person at a meeting duly
called for the purpose of voting on the Plans and such Agreements.
Continuation of the Plans and the Distribution Agreements, as amended,
must be approved annually by the Board of Directors in the same manner as
specified above.
Each year, the directors must determine whether continuation of the Plans
is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of each Fund and that there is a
reasonable likelihood of the Plan relating to a Class providing a benefit
to that Class. The Plans and the Distribution Agreements, as amended, may
be terminated with respect to a Class at any time without penalty by a
majority of those directors who are not "interested persons" or by a
majority vote of the relevant Class' outstanding voting securities. Any
amendment materially increasing the percentage payable under the Plans
must likewise be approved by a majority vote of the relevant Class'
outstanding voting securities, as well as by a majority vote of those
directors who are not "interested persons." With respect to each Class A
Shares' Plan, any material increase in the maximum percentage payable
thereunder must also be approved by a majority of the outstanding voting
securities of the respective Fund's B Class. Also, any other material
amendment to the Plans must be approved by a majority vote of the
directors including a majority of the noninterested directors of Equity
Funds I, Inc. having no interest in the Plans. In addition, in order for
the Plans to remain effective, the selection and nomination of directors
who are not "interested persons" of Equity Funds I, Inc. must be effected
by the directors who themselves are not "interested persons" and who have
no direct or indirect financial interest in the Plans. Persons authorized
to make payments under the Plans must provide written reports at least
quarterly to the Board of Directors for their review.
For the fiscal year ended October 31, 1998, payments from Class A Shares,
Class B Shares and Class C Shares of Delaware Balanced Fund amounted to
$1,289,985, $232,857 and $115,680, respectively. Such amounts were used
for the following purposes:
Delaware Delaware Delaware
Balanced Fund Balanced Fund Balanced Fund
A Class B Class C Class
Advertising $4,327 --- ---
Annual/Semi-Annual Reports $14,350 --- ---
Broker Trails --- $59,391 $40,540
Broker Sales Charges $837,482 $96,808 $47,536
Dealer Service Expenses $16,846 --- ---
Interest on Broker Sales
Charges --- $66,144 $3,257
Commissions to Wholesalers $78,841 $9,641 $20,728
Promotional-Broker Meetings $39,881 $600 $471
Promotional-Other $119,800 --- ---
Prospectus Printing $61,779 --- ---
Telephone $7,313 $273 $340
Wholesaler Expenses $109,366 --- $2,808
Other --- --- ---
For the fiscal year ended October 31, 1998, payments from Class A Shares,
Class B Shares and Class C Shares of Devon Fund amounted to $235,598
$509,974 and $111,265, respectively. Such amounts were used for the
following purposes:
Devon Fund Devon Fund Devon Fund
A Class B Class C Class
Advertising $10,428 --- ---
Annual/Semi-Annual Reports $6,403 --- ---
Broker Trails $201,740 $126,941 $27,583
Broker Sales Charges --- $243,949 $74,303
Dealer Service Expenses --- --- ---
Interest on Broker Sales
Charges --- $149,468 $4,670
Commissions to Wholesalers $8,751 $24,359 $22,005
Promotional-Broker Meetings $393 $793 $428
Promotional-Other $12,380 --- ---
Prospectus Printing $9,181 --- ---
Telephone --- --- ---
Wholesaler Expenses --- $900 $346
Other --- --- ---
Other Payments to Dealers - Class A Shares, Class B Shares and Class C
Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits
as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% of the dollar amount of such sales. The Distributor
may also provide additional promotional incentives or payments to dealers
that sell shares of the Delaware Investments family of funds. In some
instances, these incentives or payments may be offered only to certain
dealers who maintain, have sold or may sell certain amounts of shares. The
Distributor may also pay a portion of the expense of preapproved dealer
advertisements promoting the sale of Delaware Investments fund shares.
Subject to pending amendments to the NASD's Conduct Rules, in connection
with the promotion of Delaware Investments fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars
and conferences, reimburse dealers for expenses incurred in connection
with preapproved seminars, conferences and advertising and may, from time
to time, pay or allow additional promotional incentives to dealers, which
shall include non-cash concessions, such as certain luxury merchandise or
a trip to or attendance at a business or investment seminar at a luxury
resort, as part of preapproved sales contests. Payment of non-cash
compensation to dealers is currently under review by the NASD and the
Securities and Exchange Commission. It is likely that the NASD's Conduct
Rules will be amended such that the ability of the Distributor to pay
non-cash compensation as described above will be restricted in some
fashion. The Distributor intends to comply with the NASD's Conduct Rules
as they may be amended.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value under the
Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment
Privilege.
Purchases of Class A Shares may be made at net asset value by current and
former officers, directors and employees (and members of their families)
of the Manager, any affiliate, any of the funds in the Delaware
Investments family, certain of their agents and registered representatives
and employees of authorized investment dealers and by employee benefit
plans for such entities. Individual purchases, including those in
retirement accounts, must be for accounts in the name of the individual or
a qualifying family member. Class A Shares may also be purchased at net
asset value by current and former officers, directors and employees (and
members of their families) of the Dougherty Financial Group LLC.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value
within 12 months after the registered representative changes employment,
if the purchase is funded by proceeds from an investment where a front-end
sales charge, contingent deferred sales charge or other sales charge has
been assessed. Purchases of Class A Shares may also be made at net asset
value by bank employees who provide services in connection with agreements
between the bank and unaffiliated brokers or dealers concerning sales of
shares of funds in the Delaware Investments family. Officers, directors
and key employees of institutional clients of the Manager or any of its
affiliates may purchase Class A Shares at net asset value. Moreover,
purchases may be effected at net asset value for the benefit of the
clients of brokers, dealers and registered investment advisers affiliated
with a broker or dealer, if such broker, dealer or investment adviser has
entered into an agreement with the Distributor providing specifically for
the purchase of Class A Shares in connection with special investment
products, such as wrap accounts or similar fee based programs. Investors
may be charged a fee when effecting transactions in Class A Shares through
a broker or agent that offers these special investment products.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional
Class of a Fund; any group retirement plan (excluding defined benefit
pension plans), or such plans of the same employer, for which plan
participant records are maintained on the Retirement Financial Services,
Inc. (formerly known as Delaware Investment & Retirement Services, Inc.)
proprietary record keeping system that (i) has in excess of $500,000 of
plan assets invested in Class A Shares of funds in the Delaware
Investments family and any stable value account available to investment
advisory clients of the Manager or its affiliates; or (ii) is sponsored by
an employer that has at any point after May 1, 1997 had more than 100
employees while such plan has held Class A Shares of a fund in the
Delaware Investments family and such employer has properly represented to,
and received written confirmation back from, Retirement Financial
Services, Inc. in writing that it has the requisite number of employees.
See Group Investment Plans for information regarding the applicability of
the Limited CDSC.
Purchases of Class A Shares at net asset value may also be made by bank
sponsored retirement plans that are no longer eligible to purchase
Institutional Class Shares or purchase interests in a collective trust as
a result of a change in distribution arrangements.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A
Shares of any of the funds in the Delaware Investments family at net asset
value.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from
such accounts will be made at net asset value. Loan repayments made to a
fund account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset
value.
Equity Funds I, Inc. must be notified in advance that the trade qualifies
for purchase at net asset value.
Allied Plans
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made
available under a joint venture agreement between the Distributor and
another institution through which mutual funds are marketed and which
allow investments in Class A Shares of designated Delaware Investments
funds ("eligible Delaware Investments fund shares"), as well as shares of
designated classes of non-Delaware Investments funds ("eligible
non-Delaware Investments fund shares"). Class B Shares and Class C Shares
are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware
Investments fund shares held by the Allied Plan may be combined with the
dollar amount of new purchases by that Allied Plan to obtain a reduced
front-end sales charge on additional purchases of eligible Delaware
Investments fund shares. See Combined Purchases Privilege, below.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments
fund shares or for eligible non-Delaware Investments fund shares at net
asset value without payment of a front-end sales charge. However,
exchanges of eligible fund shares, both Delaware Investments and
non-Delaware Investments, which were not subject to a front end sales
charge, will be subject to the applicable sales charge if exchanged for
eligible Delaware Investments fund shares to which a sales charge applies.
No sales charge will apply if the eligible fund shares were previously
acquired through the exchange of eligible shares on which a sales charge
was already paid or through the reinvestment of dividends. See Investing
by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
adviser's eligibility for a dealer's commission on net asset value
purchases of eligible Delaware Investments fund shares in connection with
Allied Plans, all participant holdings in the Allied Plan will be
aggregated. See Class A Shares - Delaware Balanced Fund and Devon Fund
The Limited CDSC is applicable to redemptions of net asset value purchases
from an Allied Plan on which a dealer's commission has been paid. Waivers
of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange,
apply to redemptions by participants in Allied Plans except in the case of
exchanges between eligible Delaware Investments and non-Delaware
Investments fund shares. When eligible Delaware Investments fund shares
are exchanged into eligible non-Delaware Investments fund shares, the
Limited CDSC will be imposed at the time of the exchange, unless the joint
venture agreement specifies that the amount of the Limited CDSC will be
paid by the financial adviser or selling dealer. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
Letter of Intention
The reduced front-end sales charges described above with respect to Class
A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention
provided by the Distributor and signed by the purchaser, and not legally
binding on the signer or Equity Funds I, Inc. which provides for the
holding in escrow by the Transfer Agent, of 5% of the total amount of
Class A Shares intended to be purchased until such purchase is completed
within the 13-month period. A Letter of Intention may be dated to include
shares purchased up to 90 days prior to the date the Letter is signed. The
13-month period begins on the date of the earliest purchase. If the
intended investment is not completed, except as noted below, the purchaser
will be asked to pay an amount equal to the difference between the
front-end sales charge on Class A Shares purchased at the reduced rate and
the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the
expiration of the 13-month period, the Transfer Agent will surrender an
appropriate number of the escrowed shares for redemption in order to
realize the difference. Such purchasers may include the value (at offering
price at the level designated in their Letter of Intention) of all their
shares of the Funds and of any class of any of the other mutual funds in
Delaware Investments (except shares of any Delaware Investments fund which
do not carry a front-end sales charge, CDSC or Limited CDSC other than
shares of Delaware Group Premium Fund, Inc. beneficially owned in
connection with the ownership of variable insurance products, unless they
were acquired through an exchange from a Delaware Investments fund which
carried a front-end sales charge, CDSC or Limited CDSC) previously
purchased and still held as of the date of their Letter of Intention
toward the completion of such Letter.
Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge
on investments of Class A Shares made by the plan. The aggregate
investment level of the Letter of Intention will be determined and
accepted by the Transfer Agent at the point of plan establishment. The
level and any reduction in front-end sales charge will be based on actual
plan participation and the projected investments in Delaware Investments
funds that are offered with a front-end sales charge, CDSC or Limited CDSC
for a 13-month period. The Transfer Agent reserves the right to adjust the
signed Letter of Intention based on this acceptance criteria. The 13-month
period will begin on the date this Letter of Intention is accepted by the
Transfer Agent. If actual investments exceed the anticipated level and
equal an amount that would qualify the plan for further discounts, any
front-end sales charges will be automatically adjusted. In the event this
Letter of Intention is not fulfilled within the 13-month period, the plan
level will be adjusted (without completing another Letter of Intention)
and the employer will be billed for the difference in front-end sales
charges due, based on the plan's assets under management at that time.
Employers may also include the value (at offering price at the level
designated in their Letter of Intention) of all their shares intended for
purchase that are offered with a front-end sales charge, CDSC or Limited
CDSC of any class. Class B Shares and Class C Shares of a Fund and other
Delaware Investments funds which offer corresponding classes of shares may
also be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may
combine the total amount of any combination of Class A Shares, Class B
Shares and/or Class C Shares of the Funds, as well as shares of any other
class of any of the other Delaware Investments funds (except shares of any
Delaware Investments fund which do not carry a front-end sales charge,
CDSC or Limited CDSC, other than shares of Delaware Group Premium Fund,
Inc. beneficially owned in connection with the ownership of variable
insurance products, unless they were acquired through an exchange from a
Delaware Investments fund which carried a front-end sales charge, CDSC or
Limited CDSC). In addition, assets held by investment advisory clients of
the Manager or its affiliates in a stable value account may be combined
with other Delaware Investments fund holdings.
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under
21; or a trustee or other fiduciary of trust estates or fiduciary accounts
for the benefit of such family members (including certain employee benefit
programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge with
respect to the Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund,
as well as shares of any other class of any of the other Delaware
Investments funds which offer such classes (except shares of any Delaware
Investments fund which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a Delaware
Investments fund which carried a front-end sales charge, CDSC or Limited
CDSC). If, for example, any such purchaser has previously purchased and
still holds Class A Shares and/or shares of any other of the classes
described in the previous sentence with a value of $40,000 and
subsequently purchases $10,000 at offering price of additional shares of
Class A Shares, the charge applicable to the $10,000 purchase would
currently be $475. For the purpose of this calculation, the shares
presently held shall be valued at the public offering price that would
have been in effect were the shares purchased simultaneously with the
current purchase. Investors should refer to the table of sales charges for
Class A Shares to determine the applicability of the Right of Accumulation
to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund (and of Institutional Classes holding
shares which were acquired through an exchange from one of the other
mutual funds in Delaware Investments offered with a front-end sales
charge) who redeem such shares have one year from the date of redemption
to reinvest all or part of their redemption proceeds in Class A Shares of
that Fund or in Class A Shares of any of the other funds in the Delaware
Investments family, subject to applicable eligibility and minimum purchase
requirements, in states where shares of such other funds may be sold, at
net asset value without the payment of a front-end sales charge. This
privilege does not extend to Class A Shares where the redemption of the
shares triggered the payment of a Limited CDSC. Persons investing
redemption proceeds from direct investments in mutual funds in the
Delaware Investments family offered without a front-end sales charge will
be required to pay the applicable sales charge when purchasing Class A
Shares. The reinvestment privilege does not extend to a redemption of
either Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made
at the net asset value next determined after receipt of remittance. A
redemption and reinvestment could have income tax consequences. It is
recommended that a tax adviser be consulted with respect to such
transactions. Any reinvestment directed to a fund in which the investor
does not then have an account will be treated like all other initial
purchases of a fund's shares. Consequently, an investor should obtain and
read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus
contains more complete information about the fund, including charges and
expenses.
Investors should consult their financial advisers or the Transfer Agent,
which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value
under Redemption and Exchange) in connection with the features described
above.
Group Investment Plans
Group Investment Plans which are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales
charges for investments in Class A Shares set forth in the table on page
00, based on total plan assets. If a company has more than one plan
investing in the Delaware Investments family of funds, then the total
amount invested in all plans would be used in determining the applicable
front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to the Fund in which the investment is being
made at the time of each such purchase. Employees participating in such
Group Investment Plans may also combine the investments made in their plan
account when determining the applicable front-end sales charge on
purchases to non-retirement Delaware Investments investment accounts if
they so notify the Fund in which they are investing in connection with
each purchase. See Retirement Plans for the Fund Classes under Investment
Plans for information about Retirement Plans.
The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from a fund in the Delaware Investments
family. See Contingent Deferred Sales Charge for Certain Redemptions of
Class A Shares Purchased at Net Asset Value under Redemption and Exchange.
Institutional Classes
The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt
employee benefit plans of the Manager or its affiliates and securities
dealer firms with a selling agreement with the Distributor; (c)
institutional advisory accounts of the Manager or its affiliates and those
having client relationships with Delaware Investment Advisers, an
affiliate of the Manager, or its other affiliates and their corporate
sponsors, as well as subsidiaries and related employee benefit plans and
rollover individual retirement accounts from such institutional advisory
accounts; (d) a bank, trust company and similar financial institution
investing for its own account or for the account of its trust customers
for whom such financial institution is exercising investment discretion in
purchasing shares of the Class, except where the investment is part of a
program that requires payment of the financial institution of a Rule 12b-1
Plan fee; and (e) registered investment advisers investing on behalf of
clients that consist solely of institutions and high net-worth individuals
having at least $1,000,000 entrusted to the adviser for investment
purposes, but only if the adviser is not affiliated or associated with a
broker or dealer and derives compensation for its services exclusively
from its clients for such advisory services.
Shares of Institutional Classes are available for purchase at net asset
value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from net
investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares 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 Institutional Classes are reinvested in the accounts of the holders of
such shares (based on the net asset value in effect on the reinvestment
date). A confirmation of each dividend payment from net investment income
will be mailed to shareholders quarterly. A confirmation of any
distributions from realized securities profits will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either
through their investment dealers or by sending a check or money order to
the specific Fund and Class in which shares are being purchased. Such
purchases, which must meet the minimum subsequent purchase requirements
set forth in the Prospectuses and this Part B, are made for Class A Shares
at the public offering price, and for Class B Shares, Class C Shares and
Institutional Classes at the net asset value, at the end of the day of
receipt. A reinvestment plan may be terminated at any time. This plan does
not assure a profit nor protect against depreciation in a declining
market.
Reinvestment of Dividends in Other Delaware Investments Family of Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A
Shares, Class B Shares and Class C Shares may automatically reinvest
dividends and/or distributions in any of the mutual funds in the Delaware
Investments, including the Funds, in states where their shares may be
sold. Such investments will be at net asset value at the close of business
on the reinvestment date without any front-end sales charge or service
fee. The shareholder must notify the Transfer Agent in writing and must
have established an account in the fund into which the dividends and/or
distributions are to be invested. Any reinvestment directed to a fund in
which the investor does not then have an account will be treated like all
other initial purchases of a fund's shares. Consequently, an investor
should obtain and read carefully the prospectus for the fund in which the
investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including
charges and expenses.
Subject to the following limitations, dividends and/or distributions from
other funds in Delaware Investments may be invested in shares of the
Funds, provided an account has been established. Dividends from Class A
Shares may not be directed to Class B Shares or Class C Shares. Dividends
from Class B Shares may only be directed to other Class B Shares and
dividends from Class C Shares may only be directed to other Class C
Shares.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same
Delaware Investments fund in which their investments are held: SAR/SEP,
SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457
Deferred Compensation Plans.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family, you may write and authorize an exchange of part or all
of your investment into shares of a Fund. If you wish to open an account
by exchange, call the Shareholder Service Center for more information. All
exchanges are subject to the eligibility and minimum purchase requirements
set forth in each fund's prospectus. See Redemption and Exchange for more
complete information concerning your exchange privileges.
Holders of Class A Shares of a Fund may exchange all or part of their
shares for certain of the shares of other funds in the Delaware
Investments family, including other Class A Shares, but may not exchange
their Class A Shares for Class B Shares or Class C Shares of the Fund or
of any other fund in the Delaware Investments family. Holders of Class B
Shares of a Fund are permitted to exchange all or part of their Class B
Shares only into Class B Shares of other Delaware Investments funds.
Similarly, holders of Class C Shares of a Fund are permitted to exchange
all or part of their Class C Shares only into Class C Shares of other
Delaware Investments funds. Class B Shares of a Fund and Class C Shares of
a Fund acquired by exchange will continue to carry the CDSC and, in the
case of Class B Shares, the automatic conversion schedule of the fund from
which the exchange is made. The holding period of Class B Shares of a Fund
acquired by exchange will be added to that of the shares that were
exchanged for purposes of determining the time of the automatic conversion
into Class A Shares of that Fund.
Permissible exchanges into Class A Shares of a Fund will be made without a
front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were
acquired through the reinvestment of dividends). Permissible exchanges
into Class B Shares or Class C Shares of a Fund will be made without the
imposition of a CDSC by the fund from which the exchange is being made at
the time of the exchange.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for either Fund to
accept for investment in Class A Shares, Class B Shares or Class C Shares,
through an agent bank, preauthorized government or private recurring
payments. This method of investment assures the timely credit to the
shareholder's account of payments such as social security, veterans'
pension or compensation benefits, federal salaries, Railroad Retirement
benefits, private payroll checks, dividends, and disability or pension
fund benefits. It also eliminates lost, stolen and delayed checks.
Automatic Investing Plan--Shareholders of Class A Shares, Class B Shares
and Class C Shares may make automatic investments by authorizing, in
advance, monthly payments directly from their checking account for deposit
into their Fund account. This type of investment will be handled in either
of the following ways. (1) If the shareholder's bank is a member of the
National Automated Clearing House Association ("NACHA"), the amount of the
investment will be electronically deducted from his or her account by
Electronic Fund Transfer ("EFT"). The shareholder's checking account will
reflect a debit each month at a specified date although no check is
required to initiate the transaction. (2) If the shareholder's bank is not
a member of NACHA, deductions will be made by preauthorized checks, known
as Depository Transfer Checks. Should the shareholder's bank become a
member of NACHA in the future, his or her investments would be handled
electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money
Purchase Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or
457 Deferred Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent
investments under such plans must be for $25 or more. An investor wishing
to take advantage of either service must complete an authorization form.
Either service can be discontinued by the shareholder at any time without
penalty by giving written notice.
Payments to a Fund from the federal government or its agencies on behalf
of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any
such payments are subject to reclamation by the federal government or its
agencies. Similarly, under certain circumstances, investments from private
sources may be subject to reclamation by the transmitting bank. In the
event of a reclamation, a Fund may liquidate sufficient shares from a
shareholder's account to reimburse the government or the private source.
In the event there are insufficient shares in the shareholder's account,
the shareholder is expected to reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer, to
make investments directly to their Fund accounts. Either Fund will accept
these investments, such as bank-by-phone, annuity payments and payroll
allotments, by mail directly from the third party. Investors should
contact their employers or financial institutions who in turn should
contact Equity Funds I, Inc. for proper instructions.
MoneyLine (SM) On Demand
You or your investment dealer may request purchases of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize a Fund to accept
such requests from you or your investment dealer, funds will be withdrawn
from (for share purchases) your predesignated bank account. Your request
will be processed the same day if you call prior to 4 p.m., Eastern time.
There is a $25 minimum and $50,000 maximum limit for MoneyLine (SM) On
Demand transactions.
It may take up to four business days for the transactions to be completed.
You can initiate this service by completing an Account Services form. If
your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Funds do not
charge a fee for this service; however, your bank may charge a fee.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other
mutual funds in the Delaware Investments family. Shareholders of the Fund
Classes may elect to invest in one or more of the other mutual funds in
Delaware Investments family through the Wealth Builder Option. If in
connection with the election of the Wealth Builder Option, you wish to
open a new account to receive the automatic investment, such new account
must meet the minimum initial purchase requirements described in the
prospectus of the fund that you select. All investments under this option
are exchanges and are therefore subject to the same conditions and
limitations as other exchanges noted above.
Under this automatic exchange program, shareholders can authorize regular
monthly investments (minimum of $100 per fund) to be liquidated from their
account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in
the Fund Classes' Prospectus. The investment will be made on the 20th day
of each month (or, if the fund selected is not open that day, the next
business day) at the public offering price or net asset value, as
applicable, of the fund selected on the date of investment. No investment
will be made for any month if the value of the shareholder's account is
less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the
fund into which investments are made could fluctuate. Since this program
involves continuous investment regardless of such fluctuating value,
investors selecting this option should consider their financial ability to
continue to participate in the program through periods of low fund share
prices. This program involves automatic exchanges between two or more fund
accounts and is treated as a purchase of shares of the fund into which
investments are made through the program. See Exchange Privilege for a
brief summary of the tax consequences of exchanges. Shareholders can
terminate their participation in Wealth Builder at any time by giving
written notice to the fund from which exchanges are made.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money
Purchase Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or
457 Deferred Compensation Plans. This option also is not available to
shareholders of the Institutional Classes.
Asset Planner
To invest in Delaware Investments funds using the Asset Planner asset
allocation service, you should complete an Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service
is only available to financial advisers or investment dealers who have
previously used this service. The Asset Planner service offers a choice of
four predesigned asset allocation strategies (each with a different
risk/reward profile) in predetermined percentages in Delaware Investments
funds. With the help of a financial adviser, you may also design a
customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and
their percentage allocation in the selected Strategy. Exchanges from
existing Delaware Investments accounts into the Asset Planner service may
be made at net asset value under the circumstances described under
Investing by Exchange. Also see Buying Class A Shares at Net Asset Value.
The minimum initial investment per Strategy is $2,000; subsequent
investments must be at least $100. Individual fund minimums do not apply
to investments made using the Asset Planner service. Class A, Class B and
Class C Shares are available through the Asset Planner service. Generally,
only shares within the same class may be used within the same Strategy.
However, Class A Shares of a Fund and of other funds in the Delaware
Investments family may be used in the same Strategy with consultant class
shares that are offered by certain other Delaware Investments funds.
An annual maintenance fee, currently $35 per Strategy, is due at the time
of initial investment and by September 30 of each subsequent year. The
fee, payable to Delaware Service Company, Inc. to defray extra costs
associated with administering the Asset Planner service, will be deducted
automatically from one of the funds within your Asset Planner account if
not paid by September 30. However, effective November 1, 1996, the annual
maintenance fee is waived until further notice. Investors who utilize the
Asset Planner for an IRA will continue to pay an annual IRA fee of $15 per
Social Security number. Investors will receive a customized quarterly
Strategy Report summarizing all Asset Planner investment performance and
account activity during the prior period. Confirmation statements will be
sent following all transactions other than those involving a reinvestment
of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two
years.
Retirement Plans for the Fund Classes
An investment in the Funds may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including the 401(k) Defined Contribution Plan, Individual Retirement
Account ("IRA") and the new Roth IRA and Education IRA.
Among the retirement plans that Delaware Investments offers, Class B
Shares are available only by Individual Retirement Accounts, SIMPLE IRAs,
Roth IRAs, Education IRAs, Simplified Employee Pension Plans, Salary
Reduction Simplified Employee Pension Plans, and 403(b)(7) and 457
Deferred Compensation Plans. The CDSC may be waived on certain redemptions
of Class B Shares and Class C Shares. See Waiver of Contingent Deferred
Sales Charge - Class B Shares and Class C Shares under Redemption and
Exchange in the Prospectus for the Fund Classes for a list of the
instances in which the CDSC is waived.
Purchases of Class B Shares are subject to a maximum purchase limitation
of $250,000 for retirement plans. Purchases of Class C Shares must be in
an amount that is less than $1,000,000 for such plans. The maximum
purchase limitations apply only to the initial purchase of shares by the
retirement plan.
Minimum investment limitations generally applicable to other investors do
not apply to retirement plans other than Individual Retirement Accounts,
for which there is a minimum initial purchase of $250 and a minimum
subsequent purchase of $25, regardless of which Class is selected.
Retirement plans may be subject to plan establishment fees, annual
maintenance fees and/or other administrative or trustee fees. Fees are
based upon the number of participants in the plan as well as the services
selected. Additional information about fees is included in retirement plan
materials. Fees are quoted upon request. Annual maintenance fees may be
shared by Delaware Management Trust Company, the Transfer Agent, other
affiliates of the Manager and others that provide services to such Plans.
Certain shareholder investment services available to non-retirement plan
shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Class
shares. See Institutional Classes, above. For additional information on
any of the plans and Delaware's retirement services, call the Shareholder
Service Center telephone number.
It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a
qualified retirement plan consultant. For further details, including
applications for any of these plans, contact your investment dealer or the
Distributor.
Taxable distributions from the retirement plans described below may be
subject to withholding.
Please contact your investment dealer or the Distributor for the special
application forms required for the Plans described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals, partnerships,
corporations and other eligible forms of organizations. These plans can be
maintained as Section 401(k), profit sharing or money purchase pension
plans. Contributions may be invested only in Class A Shares and Class C
Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual
is already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below,
earnings will be tax-deferred. In addition, an individual may make
contributions on behalf of a spouse who has no compensation for the year;
however, participation may be restricted based on certain income limits.
IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for investors.
Individuals have five types of tax-favored IRA accounts that can be
utilized depending on the individual's circumstances. A new Roth IRA and
Education IRA are available in addition to the existing deductible IRA and
non-deductible IRA.
Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income ("AGI") and whether the taxpayer is an active
participant in an employer sponsored retirement plan. Even if a taxpayer
is an active participant in an employer sponsored retirement plan, the
full $2,000 is still available if the taxpayer's AGI is below $30,000
($50,000 for taxpayers filing joint returns) for years beginning after
December 31, 1997. A partial deduction is allowed for married couples with
income between $50,000 and $60,000, and for single individuals with
incomes between $30,000 and $40,000. These income phase-out limits reach
$80,000-$100,000 in 2007 for joint filers and $50,000-$60,000 in 2005 for
single filers. No deductions are available for contributions to IRAs by
taxpayers whose AGI after IRA deductions exceeds the maximum income limit
established for each year and who are active participants in an employer
sponsored retirement plan.
Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as $2,000 for each
working spouse and defer taxes on interest or other earnings from the
IRAs.
Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI
is below $150,000. The maximum deductible IRA contribution for a married
individual who is not an active participant, but whose spouse is, is
phased out for combined AGI between $150,000 and $160,000.
Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or
another IRA may rollover the distribution tax-free to a Conduit IRA. The
rollover of the eligible distribution must be completed by the 60th day
after receipt of the distribution; however, if the rollover is in the form
of a direct trustee-to-trustee transfer without going through the
distributee's hand, the 60-day limit does not apply.
A distribution qualifies as an "eligible rollover distribution" if it is
made from a qualified retirement plan, a 403(b) plan or another IRA and
does not constitute one of the following:
(1) Substantially equal periodic payments over the employee's life or life
expectancy or the joint lives or life expectancies of the employee and
his/her designated beneficiary;
(2) Substantially equal installment payments for a period certain of 10 or
more years;
(3) A distribution, all of which represents a required minimum distribution
after attaining age 70 1/2;
(4) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the employee;
and
(5) A distribution of after-tax contributions which is not includable in
income.
Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA. As a
result of the Internal Revenue Service Restructuring and Reform Act of
1998 (the "1998 Act"), the $2,000 annual limit will not be reduced by any
contributions to a deductible or nondeductible IRA for the same year. The
maximum contribution that can be made to a Roth IRA is phased out for
single filers with AGI between $95,000 and $110,000, and for couples
filing jointly with AGI between $150,000 and $160,000. Qualified
distributions from a Roth IRA would be exempt from federal taxes.
Qualified distributions are distributions (1) made after the five-taxable
year period beginning with the first taxable year for which a contribution
was made to a Roth IRA and (2) that are (a) made on or after the date on
which the individual attains age 59 1/2, (b) made to a beneficiary on or
after the death of the individual, (c) attributed to the individual being
disabled, or (d) for a qualified special purpose (e.g., first time
homebuyer expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated
earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an existing
IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the
conversion is done prior to January 1, 1999, then the income from the
conversion can be included in income ratably over a four-year period
beginning with the year of conversion.
Education IRAs
For taxable years beginning after December 31, 1997, an Education IRA has
been created exclusively for the purpose of paying qualified higher
education expenses. Taxpayers can make non-deductible contributions up to
$500 per year per beneficiary. The $500 annual limit is in addition to the
$2,000 annual contribution limit applicable to IRAs and Roth IRAs.
Eligible contributions must be in cash and made prior to the date the
beneficiary reaches age 18. Similar to the Roth IRA, earnings would
accumulate tax-free. There is no requirement that the contributor be
related to the beneficiary, and there is no limit on the number of
beneficiaries for whom one contributor can establish Education IRAs. In
addition, multiple Education IRAs can be created for the same
beneficiaries, however, the contribution limit of all contributions for a
single beneficiary cannot exceed $500 annually.
This $500 annual contribution limit for Education IRAs is phased out
ratably for single contributors with modified AGI between $95,000 and
$110,000, and for couples filing jointly with modified AGI of between
$150,000 and $160,000. Individuals with modified AGI above the phase-out
range are not allowed to make contributions to an Education IRA
established on behalf of any other individual.
Distributions from an Education IRA are excludable from gross income to
the extent that the distribution does not exceed qualified higher education
expenses incurred by the beneficiary during the year the distribution is
made regardless of whether the beneficiary is enrolled at an eligible
educational institution on a full-time, half-time, or less than half-time
basis.
Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of such
a distribution will be includible in gross income of the beneficiary and
subject to an additional 10% penalty tax if the distribution is not for
qualified higher educations expenses. Tax-free (and penalty-free)
transfers and rollovers of account balances from one Education IRA
benefiting one beneficiary to another Education IRA benefiting a different
beneficiary (as well as redesignations of the named beneficiary) is
permitted, provided that the new beneficiary is a member of the family of
the old beneficiary and that the transfer or rollover is made before the
time the old beneficiary reaches age 30 and the new beneficiary reaches
age 18.
A company or association may establish a Group IRA or Group Roth IRA for
employees or members who want to purchase shares of the Fund.
Investments generally must be held in the IRA until age 59 1/2 in order to
avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in
which the participant reaches age 70 1/2. Individuals are entitled to
revoke the account, for any reason and without penalty, by mailing written
notice of revocation to Delaware Management Trust Company within seven days
after the receipt of the IRA Disclosure Statement or within seven days after
the establishment of the IRA, except, if the IRA is established more than
seven days after receipt of the IRA Disclosure Statement, the account may
not be revoked. Distributions from the account (except for the pro-rata
portion of any nondeductible contributions) are fully taxable as ordinary
income in the year received. Excess contributions removed after the tax
filing deadline, plus extensions, for the year in which the excess
contributions were made are subject to a 6% excise tax on the amount of
excess. Premature distributions (distributions made before age 59 1/2,
except for death, disability and certain other limited circumstances) will
be subject to a 10% excise tax on the amount prematurely distributed, in
addition to the income tax resulting from the distribution. For
information concerning the applicability of a CDSC upon redemption of
Class B Shares and Class C Shares, see Contingent Deferred Sales Charge -
Class B Shares and Class C Shares.
Effective January 1, 1997, the 10% premature distribution penalty will not
apply to distributions from an IRA that are used to pay medical expenses
in excess of 7.5% of adjusted gross income or to pay health insurance
premiums by an individual who has received unemployment compensation for
12 consecutive weeks. In addition, effective January 1, 1998, the new law
allows for premature distribution without a 10% penalty if (i) the amounts
are used to pay qualified higher education expenses (including graduate
level courses) of the taxpayer, the taxpayer's spouse or any child or
grandchild of the taxpayer or the taxpayer's spouse, or (ii) used to pay
acquisition costs of a principle residence for the purchase of a
first-time home by the taxpayer, taxpayer's spouse or any child or
grandchild of the taxpayer or the taxpayer's spouse. A qualified
first-time homebuyer is someone who has had no ownership interest in a
residence during the past two years. The aggregate amount of distribution
for first-time home purchases cannot exceed a lifetime cap of $10,000.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31, 1996,
existing plans may continue to be maintained by employers having 25 or
fewer employees. An employer may elect to make additional contributions to
such existing plans.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified plans
based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans. Plan
documents are available to enable employers to establish a plan. An
employer may also elect to make profit sharing contributions and/or
matching contributions with investments in only Class A Shares and Class C
Shares or certain other funds in the Delaware Investments family.
Purchases under the Plan may be combined for purposes of computing the
reduced front-end sales charge applicable to Class A Shares as set forth
in the table the Prospectus for the Fund Classes.
Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial
account to fund deferred compensation arrangements for their employees. A
custodial account agreement is available for those employers who wish to
purchase shares of any of the Classes in conjunction with such an
arrangement. Purchases under the Plan may be combined for purposes of
computing the reduced front-end sales charge applicable to Class A Shares
as set forth in the table the Prospectus for the Fund Classes.
Deferred Compensation Plan for State and Local Government Employees
("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation
plan for their employees who wish to participate. This enables employees
to defer a portion of their salaries and any federal (and possibly state)
taxes thereon. Such plans may invest in shares of the Fund. Although
investors may use their own plan, there is available a Delaware Investments
457 Deferred Compensation Plan. Interested investors should contact the
Distributor or their investment dealers to obtain further information.
Purchases under the Plan may be combined for purposes of computing the
reduced front-end sales charge applicable to Class A Shares as set forth
in the table in the Prospectus for the Fund Classes.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan but
is easier to administer than a typical 401(k) Plan. It requires employers
to make contributions on behalf of their employees and also has a salary
deferral feature that permits employees to defer a portion of their salary
into the plan on a pre-tax basis. A SIMPLE IRA is available only to plan
sponsors with 100 or fewer employees.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is available only
to plan sponsors 100 or fewer employees and, in exchange for mandatory
plan sponsor contributions, discrimination testing is no longer required.
Class B Shares are not available for purchase by such plans.
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering price
next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund or its agent. Orders for purchases of
Class B Shares, Class C Shares and the Institutional Classes are effected
at the net asset value per share next calculated after receipt of the
order by the Fund in which shares are being purchased or its agent. See
Distribution and Service under Investment Management Agreement. Selling
dealers have the responsibility of transmitting orders promptly.
The offering price for 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 the
Exchange is open. The New York Stock Exchange is scheduled to be open
Monday through Friday throughout the year except for days when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas. When the New York Stock Exchange is
closed, the Funds will generally be closed, pricing calculations will not
be made and purchase and redemption orders will not be processed.
An example showing how to calculate the net asset value per share and, in
the case of Class A Shares, the offering price per share, is included in
each Fund's financial statements which are incorporated by reference into
this Part B.
Each Fund's net asset value per share is computed by adding the value of
all 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 a Fund's 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. For valuation purposes,
foreign currencies and foreign securities denominated in foreign currency
values will be converted into U.S. dollars values at the mean between the
bid and offered quotations of such currencies against U.S. dollars based
on rates in effect that day. 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 Fund will bear, pro-rata, all of the common expenses of
that Fund. The net asset values of all outstanding shares of each Class of
a Fund will be computed on a pro-rata basis for each outstanding share
based on the proportionate participation in that Fund represented by the
value of shares of that Class. All income earned and expenses incurred by
a Fund, will be borne on a pro-rata basis by each outstanding share of
a Class, based on each Class' percentage in that Fund represented by the
value of shares of such Classes, except that Institutional Classes will
not incur any of the expenses under Equity Funds I, Inc.'s 12b-1 Plans and
Class A Shares, Class B Shares and Class C Shares alone will bear the
12b-1 Plan expenses payable under their respective Plans. Due to the
specific distribution expenses and other costs that will be allocable to
each Class, the net asset value of each Class of a Fund will vary.
REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways. The
exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, tax-advantaged funds,
bond funds or money market funds. This service is also useful if you are
anticipating a major expenditure and want to move a portion of your
investment into a fund that has the checkwriting feature. Exchanges are
subject to the requirements of each fund and all exchanges of shares
constitute taxable events. [See Taxes.] Further, in order for an exchange
to be processed, shares of the fund being acquired must be registered in
the state where the acquiring shareholder resides. You may want to consult
your financial adviser or investment dealer to discuss which funds in
Delaware Investments will best meet your changing objectives, and the
consequences of any exchange transaction. You may also call the Delaware
Investments directly for fund information.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good
order, subject, in the case of a redemption, to any applicable CDSC or
Limited CDSC. For example, redemption or exchange requests received in
good order after the time the offering price and net asset value of shares
are determined will be processed on the next business day. See Purchase
Price and Effective Date under How to Buy Shares. A shareholder submitting
a redemption request may indicate that he or she wishes to receive
redemption proceeds of a specific dollar amount. In the case of such a
request, and in the case of certain redemptions from retirement plan
accounts, a Fund will redeem the number of shares necessary to deduct the
applicable CDSC in the case of Class B Shares and Class C Shares, and, if
applicable, the Limited CDSC in the case of Class A Shares and tender to
the shareholder the requested amount, assuming the shareholder holds
enough shares in his or her account for the redemption to be processed in
this manner. Otherwise, the amount tendered to the shareholder upon
redemption will be reduced by the amount of the applicable CDSC or Limited
CDSC. Redemption proceeds will be distributed promptly, as described
below, but not later than seven days after receipt of a redemption
request.
Except as noted below, for a redemption request to be in "good order," you
must provide your account number, account registration, and the total
number of shares or dollar amount of the transaction. For exchange
requests, you must also provide the name of the fund in which you want to
invest the proceeds. Exchange instructions and redemption requests must be
signed by the record owner(s) exactly as the shares are registered. You
may request a redemption or an exchange by calling the Shareholder Service
Center at 800-523-1918. Each Fund may suspend, terminate, or amend the
terms of the exchange privilege upon 60 days' written notice to
shareholders.
In addition to redemption of Fund shares, the Distributor, acting as agent
of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may
be more or less than the shareholder's cost, is the net asset value per
share next determined after receipt of the request in good order by the
respective Fund, its agent, or certain authorized persons, subject to
applicable CDSC or Limited CDSC. This is computed and effective at the
time the offering price and net asset value are determined. See
Determining Offering Price and Net Asset Value. The Funds and the
Distributor end their business days at 5 p.m., Eastern time. This offer is
discretionary and may be completely withdrawn without further notice by
the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the
net asset value per share computed that day (subject to the applicable
CDSC or Limited CDSC), if the repurchase order was received by the
broker/dealer from the shareholder prior to the time the offering price
and net asset value are determined on such day. The selling dealer has the
responsibility of transmitting orders to the Distributor promptly. Such
repurchase is then settled as an ordinary transaction with the
broker/dealer (who may make a charge to the shareholder for this service)
delivering the shares repurchased.
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption
request in good order by the Fund or certain other authorized persons (see
Distribution and Service under Investment Management Agreements);
provided, however, that each commitment to mail or wire redemption
proceeds by a certain time, as described below, is modified by the
qualifications described in the next paragraph.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a
check was tendered as payment, but a Fund will not mail or wire the
proceeds until it is reasonably satisfied that the purchase check has
cleared, which may take up to 15 days from the purchase date. You can
avoid this potential delay if you purchase shares by wiring Federal Funds.
Each Fund reserves the right to reject a written or telephone redemption
request or delay payment of redemption proceeds if there has been a recent
change to the shareholder's address of record.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other
reason, the Fund involved will automatically redeem from the shareholder's
account the shares purchased by the check plus any dividends earned
thereon. Shareholders may be responsible for any losses to a Fund or to
the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a
result of which disposal by a Fund of securities owned by it is not
reasonably practical, or it is not reasonably practical for a Fund fairly
to value its assets, or in the event that the SEC has provided for such
suspension for the protection of shareholders, a Fund may postpone payment
or suspend the right of redemption or repurchase. In such case, the
shareholder may withdraw the request for redemption or leave it standing
as a request for redemption at the net asset value next determined after
the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash or
kind, or partly in cash and partly in kind. Any portfolio securities paid
or distributed in kind would be valued as described in Determining
Offering Price and Net Asset Value. Subsequent sale by an investor
receiving a distribution in kind could result in the payment of brokerage
commissions. However, Equity Funds I, Inc. has elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which each Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the net
asset value of such Fund during any 90-day period for any one shareholder.
The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain
or loss, depending upon the price paid and the price received for such
shares.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value, below. Class B Shares are subject to a CDSC of: (i) 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 C Shares are
subject to a CDSC of 1% if shares are redeemed within 12 months following
purchase. See Contingent Deferred Sales Charge - Class B Shares and Class
C Shares under Purchasing Shares. Except for the applicable CDSC or
Limited CDSC and, with respect to the expedited payment by wire described
below for which, in the case of the Fund Classes, there is currently a
$7.50 bank wiring cost, neither the Funds nor the Distributor charges a
fee for redemptions or repurchases, but such fees could be charged at any
time in the future.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments
(in each case, "New Shares") in a permitted exchange, will not be subject
to a CDSC that might otherwise be due upon redemption of the Original
Shares. However, such shareholders will continue to be subject to the CDSC
and, in the case of Class B Shares, the automatic conversion schedule of
the Original Shares as described in this Part B and any CDSC assessed upon
redemption will be charged by the fund from which the Original Shares were
exchanged. In an exchange of Class B Shares from a Fund, the Fund's CDSC
schedule may be higher than the CDSC schedule relating to the New Shares
acquired as a result of the exchange. For purposes of computing the CDSC
that may be payable upon a disposition of the New Shares, the period of
time that an investor held the Original Shares is added to the period of
time that an investor held the New Shares. With respect to Class B Shares,
the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to
Class B Shares of a Fund for a longer period of time than if the
investment in New Shares were made directly.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares. The request must be signed by all
owners of the account or your investment dealer of record. For redemptions
of more than $50,000, or when the proceeds are not sent to the
shareholder(s) at the address of record, the Funds require a signature by
all owners of the account and a signature guarantee for each owner. A
signature guarantee can be obtained from a commercial bank, a trust
company or a member of a Securities Transfer Association Medallion Program
("STAMP"). Each Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its creditworthiness. The
Funds may require further documentation from corporations, executors,
retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request. Certificates are not issued for Class B Shares or Class
C Shares.
Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another
mutual fund in Delaware Investments, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without
charge) for you. If you choose to have your Class A Shares in certificate
form, you may redeem or exchange only by written request and you must
return your certificates.
The Telephone Redemption - Check to Your Address of Record service and the
Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your
account in writing that you do not wish to have such services available
with respect to your account. Each Fund reserves the right to modify,
terminate or suspend these procedures upon 60 days' written notice to
shareholders. It may be difficult to reach the Funds by telephone during
periods when market or economic conditions lead to an unusually large
volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions
for redemption or exchange of Fund shares which are reasonably believed to
be genuine. With respect to such telephone transactions, each Fund will
follow reasonable procedures to confirm that instructions communicated by
telephone are genuine (including verification of a form of personal
identification) as, if it does not, such Fund or the Transfer Agent may be
liable for any losses due to unauthorized or fraudulent transactions.
Telephone instructions received by the Fund Classes are generally tape
recorded, and a written confirmation will be provided for all purchase,
exchange and redemption transactions initiated by telephone. By exchanging
shares by telephone, you are acknowledging prior receipt of a prospectus
for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption
proceeds of $50,000 or less mailed to you at your address of record.
Checks will be payable to the shareholder(s) of record. Payment is
normally mailed the next business day after receipt of the redemption
request. This service is only available to individual, joint and
individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If
you request a wire, your funds will normally be sent the next business
day. If the proceeds are wired to the shareholder's account at a bank
which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.
First Union National Bank's fee (currently $7.50) will be deducted from
Fund Class redemption proceeds. If you ask for a check, it will normally
be mailed the next business day after receipt of your redemption request
to your predesignated bank account. There are no separate fees for this
redemption method, but the mail time may delay getting funds into your
bank account. Simply call the Shareholder Service Center prior to the time
the offering price and net asset value are determined, as noted above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to adjust
your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange
your shares into other funds in Delaware Investments under the same
registration, subject to the same conditions and limitations as other
exchanges noted above. As with the written exchange service, telephone
exchanges are subject to the requirements of each fund, as described
above. Telephone exchanges may be subject to limitations as to amounts or
frequency.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on
short-term swings in the securities market through frequent transactions
in and out of the funds in the Delaware Investments family. Telephone
exchanges may be subject to limitations as to amounts or frequency. The
Transfer Agent and each Fund reserve the right to record exchange
instructions received by telephone and to reject exchange requests at any
time in the future.
MoneyLine (SM) On Demand
You or your investment dealer may request redemptions of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize a Fund to accept
such requests from you or your investment dealer, funds will be deposited
to (for share redemptions) your predesignated bank account. Your request
will be processed the same day if you call prior to 4 p.m., Eastern time.
There is a $25 minimum and $50,000 maximum limit for MoneyLine (SM) On
Demand transactions. See MoneyLine (SM) On Demand under Investment Plans.
Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic
and market conditions ("Timing Accounts"), the Funds will refuse any new
timing arrangements, as well as any new purchases (as opposed to
exchanges) in Delaware Investments funds from Timing Firms. A Fund
reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any person whose
transactions seem to follow a timing pattern who: (i) makes an exchange
request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1/4 of 1% of the Fund's net assets. Accounts under
common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market
indicators, will be aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Investments funds:
(1) Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware
Balanced Fund, (4) Limited-Term Government Fund, (5) USA Fund, (6)
Delaware Cash Reserve, (7) Delchester Fund and (8) Tax-Free Pennsylvania
Fund. No other Delaware Investments funds are available for timed
exchanges. Assets redeemed or exchanged out of Timing Accounts in Delaware
Investments funds not listed above may not be reinvested back into that
Timing Account. Each Fund reserves the right to apply these same
restrictions to the account(s) of any person whose transactions seem to
follow a time pattern (as described above).
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the
Manager's judgment, the Fund would be unable to invest effectively in
accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected. A shareholder's purchase exchanges may
be restricted or refused if a Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular,
a pattern of exchanges that coincide with a "market timing" strategy may
be disruptive to a Fund and therefore may be refused.
Except as noted above, only shareholders and their authorized brokers of
record will be permitted to make exchanges or redemptions.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who own
or purchase $5,000 or more of shares at the offering price, or net asset
value, as applicable, for which certificates have not been issued may
establish a Systematic Withdrawal Plan for monthly withdrawals of $25 or
more, or quarterly withdrawals of $75 or more, although the Funds do not
recommend any specific amount of withdrawal. This is particularly useful
to shareholders living on fixed incomes, since it can provide them with a
stable supplemental amount. This $5,000 minimum does not apply for a
Fund's prototype retirement plans. Shares purchased with the initial
investment and through reinvestment of cash dividends and realized
securities profits distributions will be credited to the shareholder's
account and sufficient full and fractional shares will be redeemed at the
net asset value calculated on the third business day preceding the mailing
date.
Checks are dated either the 1st or the 15th of the month, as selected by
the shareholder (unless such date falls on a holiday or a weekend), and
are normally mailed within two business days. Both ordinary income
dividends and realized securities profits distributions will be
automatically reinvested in additional shares of the Class at net asset
value. This plan is not recommended for all investors and should be
started only after careful consideration of its operation and effect upon
the investor's savings and investment program. To the extent that
withdrawal payments from the plan exceed any dividends and/or realized
securities profits distributions paid on shares held under the plan, the
withdrawal payments will represent a return of capital, and the share
balance may in time be depleted, particularly in a declining market.
Shareholders should not purchase additional shares while participating in
a Systematic Withdrawal Plan.
The sale of shares for withdrawal payments constitutes a taxable event and
a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on
the holding period for the specific shares liquidated. Premature
withdrawals from retirement plans may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of
Class A Shares through a periodic investment program in a fund managed by
the Manager must be terminated before a Systematic Withdrawal Plan with
respect to such shares can take effect, except if the shareholder is a
participant in one of our retirement plans or is investing in Delaware
Investments funds which do not carry a sales charge. Redemptions of Class
A Shares pursuant to a Systematic Withdrawal Plan may be subject to a
Limited CDSC if the purchase was made at net asset value and a dealer's
commission has been paid on that purchase. The applicable CDSC for Class B
Shares and Class C Shares redeemed via a Systematic Withdrawal Plan will
be waived if, on the date that the Plan is established, the annual amount
selected to be withdrawn is less than 12% of the account balance. If the
annual amount selected to be withdrawn exceeds 12% of the account balance
on the date that the Systematic Withdrawal Plan is established, all
redemptions under the Plan will be subject to the applicable CDSC. Whether
a waiver of the CDSC is available or not, the first shares to be redeemed
for each Systematic Withdrawal Plan payment will be those not subject to a
CDSC because they have either satisfied the required holding period or
were acquired through the reinvestment of distributions. The 12% annual
limit will be reset on the date that any Systematic Withdrawal Plan is
modified (for example, a change in the amount selected to be withdrawn or
the frequency or date of withdrawals), based on the balance in the account
on that date. See Waiver of Contingent Deferred Sales Charge - Class B
Shares and Class C Shares, below.
An investor wishing to start a Systematic Withdrawal Plan must complete an
authorization form. If the recipient of Systematic Withdrawal Plan
payments is other than the registered shareholder, the shareholder's
signature on this authorization must be guaranteed. Each signature
guarantee must be supplied by an eligible guarantor institution. The Funds
reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. This plan may be terminated by
the shareholder or the Transfer Agent at any time by giving written
notice.
Systematic Withdrawal Plan payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your
Fund account to your predesignated bank account through the MoneyLine (SM)
Direct Deposit Service. Your funds will normally be credited to your bank
account up to four business days after the payment date. There are no
separate fees for this redemption method. It may take up to four business
days for the transactions to be completed. You can initiate this service
by completing an Account Services form. If your name and address are not
identical to the name and address on your Fund account, you must have your
signature guaranteed. The Funds do not charge a fee for any this service;
however, your bank may charge a fee. This service is not available for
retirement plans.
The Systematic Withdrawal Plan is not available for Institutional Classes.
Shareholders should consult with their financial advisers to determine
whether a Systematic Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000 or more made on or after July 1, 1998, a
Limited CDSC will be imposed on certain redemptions of Class A Shares (or
shares into which such Class A Shares are exchanged) according to the
following schedule: (1) 1.00% if shares are redeemed during the first year
after the purchase; and (2) 0.50% if such shares are redeemed during the
second year after the purchase, if such purchases were made at net asset
value and triggered the payment by the Distributor of the dealer's
commission described above.
The Limited CDSC will be paid to the Distributor and will be assessed on
an amount equal to the lesser of : (1) the net asset value at the time of
purchase of the Class A Shares being redeemed or (2) the net asset value
of such Class A Shares at the time of redemption. For purposes of this
formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of the Class A Shares even if those shares are
later exchanged for shares of another Delaware Investments fund and, in
the event of an exchange of Class A Shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the
shares acquired in the exchange.
Redemptions of such Class A Shares held for more than two years will not
be subjected to the Limited CDSC and an exchange of such Class A Shares
into another Delaware Investments fund will not trigger the imposition of
the Limited CDSC at the time of such exchange. The period a shareholder
owns shares into which Class A Shares are exchanged will count towards
satisfying the two-year holding period. The Limited CDSC is assessed if
such two year period is not satisfied irrespective of whether the
redemption triggering its payment is of Class A Shares of a Fund or Class
A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed that
shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will
not be imposed upon shares representing reinvested dividends or capital
gains distributions, or upon amounts representing share appreciation. All
investments made during a calendar month, regardless of what day of the
month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that
result from a Fund's right to liquidate a shareholder's account if the
aggregate net asset value of the shares held in the account is less than
the then-effective minimum account size; (ii) distributions to
participants from a retirement plan qualified under section 401(a) or
401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), or
due to death of a participant in such a plan; (iii) redemptions pursuant
to the direction of a participant or beneficiary of a retirement plan
qualified under section 401(a) or 401(k) of the Code with respect to that
retirement plan; (iv) periodic distributions from an IRA, SIMPLE IRA, or
403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section
72(t) of the Internal Revenue Code; (v) returns of excess contributions to
an IRA; (vi) distributions by other employee benefit plans to pay
benefits; (vii) distributions described in (ii), (iv), and (vi) above
pursuant to a systematic withdrawal plan; and (viii) redemptions by the
classes of shareholders who are permitted to purchase shares at net asset
value, regardless of the size of the purchase (see Buying Class A Shares
at Net Asset Value under Purchasing Shares).
Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C
Shares
The CDSC is waived on certain redemptions of Class B Shares in connection
with the following redemptions: (i) redemptions that result from a Fund's
right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective
minimum account size; (ii) returns of excess contributions to
an IRA, SIMPLE IRA, SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan;
(iii) periodic distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA,
or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability
or attainment of age 59 1/2, and IRA distributions qualifying under
Section 72(t) of the Internal Revenue Code; and (iv) distributions from
an account if the redemption results from the death of all registered
owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners)
or a total and permanent disability (as defined in Section 72 of the Code)
of all registered owners occurring after the purchase of the shares
being redeemed.
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from a Fund's right to liquidate
a shareholder's account if the aggregate net asset value of the shares held
in the account is less than the then-effective minimum account size; (ii)
returns of excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457
Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan,
or 401(k) Defined Contribution plan; (iii) periodic distributions from
a 403(b)(7) or 457 Deferred Compensation Plan upon attainment of age 59 1/2,
Profit Sharing Plan, Money Purchase Plan, 401(k) Defined Contribution Plan
upon attainment of age 70 1/2, and IRA distributions qualifying under S
ection 72(t) of the Internal Revenue Code; (iv) distributions from
a 403(b)(7) or 457 Deferred Compensation Plan, Profit Sharing Plan,
or 401(k) Defined Contribution Plan, under hardship provisions of the plan;
(v) distributions from a 403(b)(7) or 457 Deferred Compensation Plan,
Profit Sharing Plan, Money Purchase Pension Plan or a 401(k) Defined
Contribution Plan upon attainment of normal retirement age under the plan
or upon separation from service; (vi) periodic distributions from an IRA
or SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions
from an account if the redemption results from the death of all registered
owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners)
or a total and permanent disability (as defined in Section 72 of the Code)
of all registered owners occurring after the purchase of the shares
being redeemed.
In addition, the CDSC will be waived on Class B Shares and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual
amount selected to be withdrawn under the Plan does not exceed 12% of
the value of the account on the date that the Systematic Withdrawal Plan
was established or modified.
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
Each 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.
Each Class of shares of each Fund will share proportionately in the
investment income and expenses of that Fund, except that Class A Shares,
Class B Shares and Class C 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.
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
choose the MoneyLine (SM) Direct Deposit Service and have such payments
transferred from your Fund account to your predesignated bank account. See
Systematic Withdrawal Plans above. Dividend payments of $1.00 or less will
be automatically reinvested, notwithstanding a shareholder's election to
receive dividends in cash. If such a shareholder's dividends increase to
greater than $1.00, the shareholder would have to file a new election in
order to begin receiving dividends in cash again. Any check in payment of
dividends or other distributions which cannot be delivered by the United
States Post Office or which remains uncashed for a period of more than one
year may be reinvested in the shareholder's account at the then-current
net asset value and the dividend option may be changed from cash to
reinvest. Each Fund may deduct from a shareholder's account the costs of
that Fund's effort to locate a shareholder if a shareholder's mail is
returned by the Post Office or such Fund is otherwise unable to locate the
shareholder or verify the shareholder's mailing address. These costs may
include a percentage of the account when a search company charges a
percentage fee in exchange for their location services.
TAXES
It is the policy of each Fund 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
Code. Each Fund has met these requirements in previous years and intends
to meet them this year. Each Fund is treated as a separate tax entity, and
any capital gains and losses for each Fund 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, 1998, 21.69% and
64.26% of dividends paid from net investment income of Delaware Balanced
Fund and Devon Fund, respectively, were eligible for this deduction. The
portion of dividends paid by a Fund that so qualifies will be designated
each year in a notice to that Fund's shareholders, and cannot exceed the
gross amount of dividends received by such Fund from domestic (U.S.)
corporations that would have qualified for the dividends-received
deduction in the hands of that Fund if such Fund was a regular
corporation. The availability of the dividends-received deduction is
subject to certain holding period and debt financing restrictions imposed
under the Code on the corporation claiming the deduction.
Distributions may also be subject to state and local taxes; shareholders
are advised to consult with their tax advisers in this regard.
Prior to purchasing shares, 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.
The automatic conversion of Class B Shares into Class A Shares at the end
of approximately eight years after purchase will be tax-free for federal
tax purposes. See Automatic Conversion of Class B Shares under Classes of
Shares.
Net long-term gain from the sale of securities when realized and
distributed (actually or constructively) is 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 Delaware Balanced Fund and Devon Fund had a net
unrealized appreciation for tax purposes of $138,663,857 and $26,142,791
respectively, as of October 31, 1998.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), as revised by the
1998 Act, a Fund is required to track its sales of portfolio securities
and to report its capital gain distributions to you according to the
following categories of holding periods:
"Mid-term capital gains" or "28 percent rate gain": securities sold by the
Fund after July 28, 1997 that were held more than one year but not more
than 18 months. These gains will be taxable to individual investors at a
maximum rate of 28%.
"1997 Act long-term capital gains" or "20 percent rate gain": securities
sold by the Fund between May 7, 1997 and July 28, 1997 that were held for
more than 12 months, and securities sold by the Fund after July 28, 1997
that were held for more than 18 months. As revised by the 1998 Act, this
rate applies to securities held for more than 12 months for tax years
beginning after December 31, 1997. These gains will be taxable to
individual investors at a maximum rate of 20% for investors in the 28% or
higher federal income tax brackets, and at a maximum rate of 10% for
investors in the 15% federal income tax bracket.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years which
are sold after December 31, 2000. For individuals who are subject to tax
at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets may
also make an election for shares held on January 1, 2001 to recognize gain
on their shares (any loss is disallowed) in order to qualify such shares
as qualified 5-year property as though purchased after December 31, 2000.
These gains will be taxable to individual investors at a maximum rate of
18% for investors in the 28% or higher federal income tax brackets, and at
a maximum rate of 8% for investors in the 15% federal income tax bracket
when sold after the 5 year holding period.
Shareholders will be notified annually by Equity Funds I, Inc. as to the
federal income tax status of dividends and distributions paid by a Fund.
Each Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As such, a
Fund will not be subject to federal income tax, or to any excise tax, to
the extent its earnings are distributed as provided in the Code and it
satisfies certain other requirements relating to the sources of its income
and diversification of its assets.
In order to qualify as a regulated investment company for federal income
tax purposes, the Funds must meet certain specific requirements,
including:
(i) A Fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of a Fund's total assets,
and, with respect to 50% of a Fund's total assets, no investment (other
than cash and cash items, U.S. government securities and securities of
other regulated investment companies) can exceed 5% of a Fund's total
assets;
(ii) A Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the
sale or disposition of stock and securities or foreign currencies, or
other income derived with respect to its business of investing in such
stock, securities, or currencies;
(iii) A Fund must distribute to its shareholders at least 90% of its net
investment income and net tax- exempt income for each of its fiscal years,
and
(iv) A Fund must realize less than 30% of its gross income for each fiscal
year from gains from the sale of securities and certain other assets
that have been held by a Fund for less than three months ("short-short
income"). The Taxpayer Relief Act of 1997 (the "1997 Act") repealed the
30% short-short income test for tax years of regulated investment
companies beginning after August 5, 1997; however, this rule may have
continuing effect in some states for purposes of classifying a Fund as
a regulated investment company.
The Code requires a Fund to distribute at least 98% of its taxable
ordinary income earned during the calendar year and 98% of its capital
gain net income earned during the 12 month period ending October 31 (in
addition to amounts from the prior year that were neither distributed nor
taxed to a Fund) to you by December 31 of each year in order to avoid
federal excise taxes. Each Fund intends as a matter of policy to declare
and pay sufficient dividends in December or January (which are treated by
you as received in December) but does not guarantee and can give no
assurances that its distributions will be sufficient to eliminate all such
taxes.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized
gains related to the offsetting positions in the straddle. Excess losses,
if any, can be recognized in the year of loss. Deferred losses will be
carried forward and recognized in the year that unrealized losses exceed
unrealized gains.
The 1997 Act has also added new provisions for dealing with transactions
that are generally called "Constructive Sale Transactions." Under these
rules, a Fund must recognize gain (but not loss) on any constructive sale
of an appreciated financial position in stock, a partnership interest or
certain debt instruments. A Fund will generally be treated as making a
constructive sale when it: 1) enters into a short sale on the same or
substantially identical property; 2) enters into an offsetting notional
principal contract; or 3) enters into a futures or forward contract to
deliver the same or substantially identical property. Other transactions
(including certain financial instruments called collars) will be treated
as constructive sales as provided in Treasury regulations to be published.
There are also certain exceptions that apply for transactions that are
closed before the end of the 30th day after the close of the taxable year.
Investment in Foreign Currencies and Foreign Securities--The Funds are
authorized to invest certain limited amounts in foreign securities. Such
investments, if made, will have the following additional tax consequences
to each Fund:
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income
(including dividends), or accrues expenses which are denominated in a
foreign currency, and the time a Fund actually collects such income or
pays such expenses generally are treated as ordinary income or loss.
Similarly, on the disposition of debt securities denominated in a foreign
currency and on the disposition of certain options, futures, forward
contracts, gain or loss attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or
contract and the date of its disposition are also treated as ordinary gain
or loss. These gains or losses, referred to under the Code as "Section
988" gains or losses, may increase or decrease the amount of a Fund's net
investment company taxable income, which, in turn, will affect the amount
of income to be distributed to you by a Fund.
If a Fund's Section 988 losses exceed a Fund's other net investment
company taxable income during a taxable year, a Fund generally will not be
able to make ordinary dividend distributions to you for that year, or
distributions made before the losses were realized will be recharacterized
as return of capital distributions of federal income tax purposes, rather
than as an ordinary dividend or capital gain distribution. If a
distribution is treated as a return of capital, your tax basis in your
Fund shares will be reduced by a like amount (to the extent of such
basis), and any excess of the distribution over your tax basis in your
Fund shares will be treated as capital gain to you.
The 1997 Act generally requires that foreign income be translated into
U.S. dollars at the average exchange rate for the tax year in which the
transactions are conducted. Certain exceptions apply to taxes paid more
than two years after the taxable year to which they relate. This new law
may require a Fund to track and record adjustments to foreign taxes paid
on foreign securities in which it invests. Under a Fund's current
reporting procedure, foreign security transactions are recorded generally
at the time of each transaction using the foreign currency spot rate
available for the date of each transaction. Under the new law, a Fund will
be required to record a fiscal year end (and at calendar year end for
excise tax purposes) an adjustment that reflects the difference between
the spot rates recorded for each transaction and the year-end average
exchange rate for all of a Fund's foreign securities transactions. There
is a possibility that the mutual fund industry will be given relief from
this new provision, in which case no year-end adjustments will be
required.
The Funds may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the total assets of
a Fund at the end of its fiscal year are invested in securities of foreign
corporations, a Fund may elect to pass-through to you your pro rata share
of foreign taxes paid by a Fund. If this election is made, you will be:
(i) required to include in your gross income your pro rata share of
foreign source income (including any foreign taxes paid by a Fund); and
(ii) entitled to either deduct your share of such foreign taxes in
computing your taxable income or to claim a credit for such taxes against
your U.S. income tax, subject to certain limitations under the Code. You
will be informed by a Fund at the end of each calendar year regarding the
availability of any such foreign tax credits and the amount of foreign
source income (including any foreign taxes paid by a Fund). If a Fund
elects to pass-through to you the foreign income taxes that it has paid,
you will be informed at the end of the calendar year of the amount of
foreign taxes paid and foreign source income that must be included on your
federal income tax return. If a Fund invests 50% or less of its total
assets in securities of foreign corporations, it will not be entitled to
pass-through to you your pro-rata shares of foreign taxes paid by a Fund.
In this case, these taxes will be taken as a deduction by a Fund, and the
income reported to you will be the net amount after these deductions. The
1997 Act also simplifies the procedures by which investors in funds that
invest in foreign securities can claim tax credits on their individual
income tax returns for the foreign taxes paid by a Fund. These provisions
will allow investors who pay foreign taxes of $300 or less on a single
return or $600 or less on a joint return during any year (all of which
must be reported on IRS Form 1099-DIV from a Fund to the investor) to
claim a tax credit against their U.S. federal income tax for the amount of
foreign taxes paid by a Fund. This process will allow you, if you qualify,
to bypass the burdensome and detailed reporting requirements on the
foreign tax credit schedule (Form 1116) and report your foreign taxes paid
directly on page 2 of Form 1040. You should note that this simplified
procedure will not be available until calendar year 1998.
Investment in Passive Foreign Investment Company Securities--The Funds may
invest in shares of foreign corporations which may be classified under the
Code as passive foreign investment companies ("PFICs"). In general, a
foreign corporation is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross
income is investment-type income. If a Fund receives an "excess
distribution" with respect to PFIC stock, that Fund itself may be subject
to U.S. federal income tax on a portion of the distribution, whether or
not the corresponding income is distributed by a Fund to you. In general,
under the PFIC rules, an excess distribution is treated as having been
realized ratably over the period during which a Fund held the PFIC shares.
A Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years, and an
interest factor will be added to the tax, as if the tax had been payable
in such prior taxable years. In this case, you would not be permitted to
claim a credit on your own tax return for the tax paid by a Fund. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
distribution might have been classified as capital gain. This may have the
effect of increasing Fund distributions to you that are treated as
ordinary dividends rather than long-term capital gain dividends.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless
of whether distributions are received from the PFIC during such period. If
this election were made, the special rules, discussed above, relating to
the taxation of excess distributions, would not apply. In addition, the
1997 Act provides for another election that would involve
marking-to-market a Fund's PFIC shares at the end of each taxable year
(and on certain other dates as prescribed in the Code), with the result
that unrealized gains would be treated as though they were realized. A
Fund would also be allowed an ordinary deduction for the excess, if any,
of the adjusted basis of its investment in the PFIC stock over its fair
market value at the end of the taxable year. This deduction would be
limited to the amount of any net mark-to-market gains previously included
with respect to that particular PFIC security. If a Fund were to make this
second PFIC election, tax at that Fund's level under the PFIC rules would
generally be eliminated.
The application of the PFIC rules may affect, among other things, the
amount of tax payable by a Fund (if any), the amounts distributable to you
by a Fund, the time at which these distributions must be made, and whether
these distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares of a
foreign corporation are acquired to ascertain that the foreign corporation
is a PFIC, and that there is always a possibility that a foreign
corporation will become a PFIC after a Fund acquires shares in that
corporation. While a Fund will generally seek to avoid investing in PFIC
shares to avoid the tax consequences detailed above, there are no
guarantees that it will do so and it reserves the right to make such
investments as a matter of its fundamental investment policy.
Most foreign exchange gains are classified as ordinary income which will
be taxable to you as such when distributed. Similarly, you should be aware
that any foreign exchange losses realized by a Fund, including any losses
realized on the sale of foreign debt securities, are generally treated as
ordinary losses for federal income tax purposes. This treatment could
increase or reduce a Fund's income available for distribution to you, and
may cause some or all of a Fund's previously distributed income to be
classified as a return of capital.
INVESTMENT MANAGEMENT AGREEMENTS
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to each Fund, subject to the
supervision and direction of Equity Funds I, Inc.'s Board of Directors.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On October 31, 1998, the Manager
and its affiliates within Delaware Investments, including Delaware
International Advisers Ltd., were managing in the aggregate more than $42
billion in assets in the various institutional or separately managed
(approximately $24,854,600,000) and investment company (approximately
$17,780,970,000) accounts.
Each Fund's Investment Management Agreement is dated April 3, 1995 and was
approved by shareholders on March 29, 1995. Each Agreement has an initial
term of two years and may be renewed each year only so long as such
renewal and continuance are specifically approved at least annually by the
Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund to which the Agreement relates, and only if the
terms of and the renewal thereof have been approved by the vote of a
majority of the directors of Equity Funds I, Inc. who are not parties
thereto or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. Each Agreement
is terminable without penalty on 60 days' notice by the directors of
Equity Funds I, Inc. or by the Manager. Each Agreement will terminate
automatically in the event of its assignment.
The annual compensation paid by each Fund for investment management
services is equal to: for Delaware Balanced Fund, 0.60% on the first $100
million of average daily net assets of the Fund, 0.525% on the next $150
million, 0.50% on the next $250 million and 0.475% on the average daily
net assets in excess of $500 million, less the Fund's proportionate share
of all directors' fees paid to the unaffiliated directors by Delaware
Balanced Fund; and, for Devon Fund, 0.60% on the first $500 million of
average daily net assets and 0.50% on the average daily net assets in
excess of $500 million.
On October 31, 1998, the total net assets of Delaware Balanced Fund were
$962,601,923 and the total net assets of Devon Fund were $234,055,513.
Under the general supervision of the Board of Directors, the Manager makes
all investment decisions which are implemented by each Fund. The Manager
pays the salaries of all directors, officers and employees who are
affiliated with both the Manager and Equity Funds I, Inc. The investment
management fees paid by Delaware Balanced Fund for the fiscal years ended
October 31, 1996, 1997 and 1998 were $3,164,486, $3,492,255 and
$4,178,981, respectively. Investment management fees incurred by Devon
Fund for the fiscal years ended October 31, 1996, 1997 and 1998 and were
$103,041, $310,229 $951,036, respectively.
Except for those expenses borne by the Manager under the Investment
Management Agreements and the Distributor under the Distribution
Agreements, each Fund is responsible for all of its own expenses. Among
others, these include the Funds' 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.
Beginning January 1, 1998, the Manager has elected voluntarily to waive
that portion, if any, of the annual management fees payable by Devon Fund
and to pay the Fund to the extent necessary to ensure that the Total
Operating Expenses of this Fund do not exceed 1.00% (exclusive of taxes,
interest, brokerage commissions, extraordinary expenses and 12b-1
expenses). This waiver and expense limitation will extend through December
31, 1998. From commencement of the Fund's operations through December 31,
1997, the Manager voluntarily waived that portion, if any, of the annual
management fees payable by the Fund and paid the Fund's expenses to the
extent necessary to ensure that Total Operating Expenses of the Fund
(excluding 12b-1 expenses) did not exceed 0.95%.
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 each Fund's
shares under separate Distribution Agreements dated April 3, 1995, as
amended on November 29, 1995. The Distributor is an affiliate of the
Manager and bears all of the costs of promotion and distribution, except
for payments by each Fund on behalf of Class A Shares, Class B Shares and
Class C Shares under their respective 12b-1 Plans. The Distributor is an
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 each Funds' shareholder servicing, dividend disbursing and transfer
agent of Delaware Balanced 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 also provides accounting services to the Funds pursuant to the terms
of a separate Fund Accounting Agreement. The Transfer Agent is also an
indirect, wholly owned subsidiary of Delaware Management Holdings, Inc.
The directors annually review fees paid to the Distributor and the
Transfer Agent.
Each Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such
brokers are authorized to designate other intermediaries to accept
purchase and redemption orders on the behalf of the Fund. For purposes of
pricing, the Fund will be deemed to have received a purchase or redemption
order when an authorized broker or, if applicable, a broker's authorized
designee, accepts the order. Investors may be charged a fee when effecting
transactions through a broker or agent.
OFFICERS AND DIRECTORS
The business and affairs of Equity Funds I, Inc. are managed under the
direction of its Board of Directors.
Certain officers and directors of Equity Funds I, Inc. hold identical
positions in each of the other funds in Delaware Investments. As of
November 30, 1998, Equity Funds I, Inc.'s officers and directors owned
less than 1% of the outstanding shares of Delaware Balanced Fund A Class,
Delaware Balanced Fund B Class, Delaware Balanced Fund C Class and
Delaware Balanced Fund Institutional Class. As of the same date, the
Fund's officers and directors held less than 1% of the outstanding shares
of Devon Fund A Class, Devon Fund B Class, Devon Fund C Class and Devon
Fund Institutional Class.
As of November 30, 1998, management believes the following accounts held
5% or more of the outstanding shares of Class A Shares, Class B Shares,
Class C Shares and the Institutional Class of each Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class Name and Address of Account Share Amount Percentage
Delaware Merrill Lynch, Pierce, Fenner & Smith, Inc. 72,131.080 9.19%
Balanced Fund For the Sole Benefit of its Customers
C Class Attention: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246
Delaware RS 401(K) Plan 4,737,859.210 35.91%
Balanced Fund Price Waterhouse LLP Savings Plan
Institutional Attn: Riggs Griffith
Class 3109 Martin Luther King Blvd.
Tampa, FL 33607
Bankers Trust as Trustee for 4,104,659.710 31.11%
Coopers & Lybrand Map Savings Plan
100 Plaza One
Mail Stop 3048
Jersey City, NJ 07311-3999
Federated Life Insurance Company 999,397.700 7.57%
Separate Sub-Account A
Attention: Tom Koch
P.O Box 328
Owatonna, MN 55060
</TABLE>
(1) Equity Funds I, Inc. believes that these shares are held of record for
the benefit of others.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class Name and Address of Account Share Amount Percentage
Delaware South Trust Bank of Alabama 727,582.580 5.51%
Balanced Fund Trust Thompson Tractor
Institutional Attention: Angela McNac
Class P.O. Box 830804
Birmingham, AL 35283
Devon Fund Merrill Lynch, Inc. 378,789.830 8.53%
B Class Mutual Fund Operations
Attention: Book Entry
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246
Devon Fund Merrill Lynch, Pierce, Fenner & Smith, Inc. 122,018.800 11.37%
C Class For the Sole Benefit of its Customers
Attention: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246
</TABLE>
(1) Equity Funds I, Inc. believes that these shares are held of record for
the benefit of others.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class Name and Address of Account Share Amount Percentage
Devon Fund RS DMC Employee Profit Sharing Plan 270,833,530 50.80%(2)
Instituitonal Delaware Management Company
Class Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3682
Charles Schwab & Co., Inc. 159,227.340 29.86%(1)
Spec. Custody Account for the exclusive
benefit of its customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
RS DMTC P/S Plan 72,139.080 13.53%(1)
Columbia Diagnostics Inc. P/S
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638
</TABLE>
(1) Equity Funds I, Inc. believes that these shares are held of record for
the benefit of others.
(2) Shares held of record by Delaware Management Company Employee Profit
Sharing Trust are held for the benefit of others.
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust),
Delaware Management Company, Inc., Delaware Investment Advisers (a series
of Delaware Management Business Trust), Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International Holdings Ltd., Founders
Holdings, Inc., Delaware International Advisers Ltd., Delaware Capital
Management, Inc. and Retirement Financial Services, Inc. are direct or
indirect, wholly owned subsidiaries of Delaware Management Holdings, Inc.
("DMH"). On April 3, 1995, a merger between DMH and a wholly owned
subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National.
Lincoln National, with headquarters in Fort Wayne, Indiana, is a
diversified organization with operations in many aspects of the financial
services industry, including insurance and investment management.
Directors and principal officers of Equity Funds I, Inc. are noted below
along with their ages and their business experience for the past five
years. Unless otherwise noted, the address of each officer and director is
One Commerce Square, Philadelphia, PA 19103.
*Jeffrey J. Nick (45)
Chairman, President, Chief Executive Officer and Director and/or Trustee
of Equity Funds I, Inc. and 33 other investment companies in the
Delaware Investments family, Delaware Management Company, Inc., Delaware
Management Business Trust, Delvoy, Inc., DMH Corp. and Founders
Holdings, Inc.
Chairman and Chief Executive Officer and Director/Trustee of Delaware
Distributors, Inc., Delaware International Holdings Ltd., Delaware
International Advisers Ltd.
Chairman and Chief Executive Officer of Delaware Management Company (a
series of Delaware Management Business Trust)
Chairman and Director/Trustee of Delaware Capital Management, Inc. and
Retirement Financial Services, Inc.
Chairman of Delaware Investment Advisers (a series of Delaware
Management Business Trust) and Delaware Distributors, L.P.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc. and Delaware Management Holdings, Inc.
Director of Delaware Service Company, Inc.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National UK
plc and from 1989 to 1992, he was Senior Vice President responsible for
corporate planning and development for Lincoln National Corporation.
*Wayne A. Stork (61)
Director and/or Trustee of Equity Funds I, Inc. and 33 other investment
companies in the Delaware Investments family and Delaware International
Advisers Ltd.
Chairman and Director of Delaware Management Holdings, Inc.
Prior to January 1, 1999, Mr. Stork was Director of Delaware Capital
Management, Inc.; Chairman, President and Chief Executive Officer and
Director/Trustee of DMH Corp., Delaware Distributors, Inc. and Founders
Holdings, Inc.; Chairman, President, Chief Executive Officer, Chief
Investment Officer and Director/Trustee of Delaware Management Company,
Inc. and Delaware Management Business Trust; Chairman, President, Chief
Executive Officer and Chief Investment Officer of Delaware Management
Company (a series of Delaware Management Business Trust); Chairman,
Chief Executive Officer and Chief Investment Officer of Delaware
Investment Advisers (a series of Delaware Management Business Trust);
Chairman and Chief Executive Officer of Delaware International Advisers
Ltd; Chairman, Chief Executive Officer and Director of Delaware
International Holdings Ltd.; Chief Executive Officer of Delaware
Management Holdings, Inc.; President and Chief Executive Officer of
Delvoy, Inc.; Chairman of Delaware Distributors, L.P.; Director of
Delaware Service Company, Inc. and Retirement Financial Services, Inc.
In addition, prior to January 1, 1999, Mr. Stork has served in various
executive capacities at different times within the Delaware
organization.
______________________
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
Richard G. Unruh, Jr. (58)
Executive Vice President/Chief Investment Officer, Equity of Equity
Funds I, Inc. and 33 other investment companies in the Delaware
Investments family, Delaware Management Holdings, Inc., Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Capital Management, Inc.
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware organization.
Paul E. Suckow (51)
Executive Vice President/Chief Investment Officer, Fixed Income of Equity
Funds I, Inc. and 33 other investment companies in the Delaware Investments
family, Delaware Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and Delaware
Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and Delaware
Management Business Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments in 1993, Mr. Suckow was Executive
Vice President and Director of Fixed Income for Oppenheimer Management
Corporation, New York, NY from 1985 to 1992. Prior to that, Mr. Suckow
was a fixed-income portfolio manager for Delaware Investments.
David K. Downes (58)
Executive Vice President, Chief Operating Officer, Chief Financial Officer
of Equity Funds I, Inc. and 33 other investment companies in the Delaware
Investments family, Delaware Management Holdings, Inc, Founders CBO
Corporation, Delaware Capital Management, Inc., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and Delaware
Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial Officer
and Director of Delaware Management Company, Inc., DMH Corp., Delaware
Distributors, Inc., Founders Holdings, Inc. and Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and Director
of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director
of Delaware International Holdings Ltd.
Chairman, Chief Executive Officer and Director of Delaware Management
Trust Company and Retirement Financial Services, Inc.
Director of Delaware International Advisers Ltd.
Vice President of Lincoln Funds Corporation
During the past five years, Mr. Downes has served in various executive
capacities at different times within the Delaware organization.
Walter P. Babich (70)
Director and/or Trustee of Equity Funds I, Inc. and 33 other investment
companies in the Delaware Investment family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from
1988 to 1991, he was a partner of I&L Investors.
John H. Durham (61)
Director and/or Trustee of Equity Funds I, Inc. and 18 other investment
companies in the Delaware Investments family
Partner, Complete Care Services
120 Gibraltar Road, Horsham, PA 19044
Mr. Durham served as Chairman of the Board of each fund in the Delaware
Investments family from 1986 to 1991; President of each fund from 1977
to 1990; and Chief Executive Officer of each fund from 1984 to 1990.
Prior to 1992, with respect to Delaware Management Holdings, Inc.,
Delaware Management Company, Delaware Distributors, Inc. and Delaware
Service Company, Inc., Mr. Durham served as a director and in various
executive capacities at different times.
Anthony D. Knerr (59)
Director and/or Trustee of Equity Funds I, Inc. and 33 other investment
companies in the Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to 1989, he was
also a lecturer in English at the University. In addition, Mr. Knerr
was Chairman of The Publishing Group, Inc., New York, from 1988 to 1990.
Mr. Knerr founded The Publishing Group, Inc. in 1988.
Ann R. Leven (57)
Director and/or Trustee of Equity Funds I, Inc. and 33 other investment
companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of the
Smithsonian Institution, Washington, DC, and from 1975 to 1992, she was
Adjunct Professor of Columbia Business School.
W. Thacher Longstreth (77)
Director and/or Trustee of Equity Funds I, Inc. and 33 other investment
companies in the Delaware Investments family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman
Thomas F. Madison (62)
Director and/or Trustee of Equity Funds I, Inc. and 33 other investment
companies in the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications
Holdings, Inc. since 1996.
From February to September 1994, Mr. Madison served as Vice
Chairman--Office of the CEO of The Minnesota Mutual Life Insurance
Company and from 1988 to 1993, he was President of U.S. WEST
Communications--Markets.
Charles E. Peck (72)
Director and/or Trustee of Equity Funds I, Inc. and 33 other investment
companies in the Delaware Investments family
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of
The Ryland Group, Inc., Columbia, MD.
George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of Equity Funds I,
Inc. and 33 other investment companies in the Delaware Investments family.
Senior Vice President and Secretary of Delaware Distributors, L.P.,
Delaware Management Company (a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware Management Business Trust)
And Delaware Management Holdings, Inc.
Senior Vice President, Secretary and Director/Trustee of DMH Corp.,
Delaware Management Company, Inc., Delaware Distributors, Inc., Delaware
Service Company, Inc., Founders Holdings, Inc., Retirement Financial
Services, Inc. , Delaware Capital Management, Inc., Delvoy, Inc. and
Delaware Management Business Trust
Executive Vice President, Secretary and Director of Delaware Management
Trust Company
Senior Vice President and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Secretary of Lincoln Funds Corporation
Attorney.
During the past five years, Mr. Chamberlain has served in various
executive capacities at different times within the Delaware organization.
Joseph H. Hastings (48)
Senior Vice President/Corporate Controller of Equity Funds I, Inc. and 33
other investment companies in the Delaware Investments family and
Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc.,
DMH Corp., Delaware Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Capital Management, Inc., Delaware International Holdings Ltd.,
Delvoy, Inc. and Delaware Management Business Trust
Chief Financial Officer/Treasurer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
Treasurer of Lincoln Funds Corporation
During the past five years, Mr. Hastings has served in various executive
capacities at different times within the Delaware organization.
Michael P. Bishof (36)
Senior Vice President/Treasurer of Equity Funds I, Inc. and 33 other
investment companies in the Delaware Investments family and Founders
Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of Delaware Management
Business Trust) and Delaware Service Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting of
Delaware Distributors, L.P. and Delaware Investment Advisers (a series
of Delaware Management Business Trust)
Senior Vice President and Manager of Investment Accounting of Delaware
International Holdings Ltd.
Senior Vice President and Assistant Treasurer of Founders CBO Corporation
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a Vice
President for CS First Boston Investment Management, New York, NY from
1993 to 1994 and an Assistant Vice President for Equitable Capital
Management Corporation, New York, NY from 1987 to 1993.
George H. Burwell (37)
Vice President/Senior Portfolio Manager of Equity Funds I, Inc., seven
other investment companies in the Delaware Investments family and
Delaware Management Company, Inc.
Before joining Delaware Investments 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 (44)
Vice President/Senior Portfolio Manager of Equity Funds I, Inc., nine
other investment companies in the Delaware Investments family,
Delaware Management Company, Inc. and Delaware Capital Management, Inc.
During the past five years, Mr. Reed has served in such capacities within
the Delaware organization.
The following is a compensation table listing for each director entitled
to receive compensation, the aggregate compensation received from the Fund
and the total compensation received from all investment companies in the
Delaware Investments family for which he or she serves as a director or
trustee for the fiscal year ended October 31, 1998 and an estimate of
annual benefits to be received upon retirement under the Delaware
Investments Retirement Plan for Directors/Trustees as of October 31, 1998.
Only the independent directors of the Fund receive compensation from the
Fund.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Total
Accrued Estimated Compensation
Aggregate as Part of Annual from
Compensation Equity Benefits Delaware
from Equity Funds I, Inc. Upon Investments
Name Funds I, Inc. Expenses Retirement(1) Companies(2)
<S> <C> <C> <C> <C>
John H. Durham (3) $1,582 None $31,000 $25,935
W. Thacher Longstreth $2,688 None $38,500 $60,384
Ann R. Leven $3,050 None $38,500 $66,545
Walter P. Babich $2,951 None $38,500 $65,384
Anthony D. Knerr $2,951 None $38,500 $65,384
Charles E. Peck $2,688 None $38,500 $60,384
Thomas F. Madison $2,798 None $38,500 $62,467
</TABLE>
(1) Under the terms of the Delaware Investments Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the time
of his or her retirement from the Board, has attained the age of 70 and
served on the Board for at least five continuous years, is entitled to
receive payments from each investment company in the Delaware Investments
family for which he or she serves as a director or trustee for a period
equal to the lesser of the number of years that such person served as a
director or trustee or the remainder of such person's life. The amount of
such payments will be equal, on an annual basis, to the amount of the
annual retainer that is paid to directors/trustees of each investment
company at the time of such person's retirement. If an eligible
director/trustee retired as of October 31, 1998 he or she would be
entitled to annual payments totaling the amount noted above, in the
aggregate, from all of the investment companies in the Delaware
Investments family for which he or she served as director or trustee,
based on the number of investment companies in the Delaware Investments
family as of that date.
(2) Each independent director/trustee (other than John H. Durham)
currently receives a total annual retainer fee of $38,500 for serving as a
director or trustee for all 34 investment companies in Delaware
Investments, plus $3,145 for each Board Meeting attended. John H. Durham
currently receives a total annual retainer fee of $31,000 for serving as a
director or trustee for 19 investment companies in Delaware Investments,
plus $1,757.50 for each Board Meeting attended. Ann R. Leven, Walter P.
Babich, Anthony D. Knerr and Thomas F. Madison serve on the Fund's audit
committee; Ms. Leven is the chairperson. Members of the audit committee
currently receive additional annual compensation of $5,000 from all
investment companies, in the aggregate, with the exception of the
chairperson, who receives $6,000.
(3) John H. Durham joined the Board of Directors of the Fund and 18 other
investment companies in Delaware Investments on April 16, 1998.
GENERAL INFORMATION
Equity Funds I, Inc. is an open-end management investment company. Each
Funds' portfolio of assets is diversified as defined by the 1940 Act.
Equity Funds I, Inc. was first organized as a Delaware corporation in 1937
and subsequently reorganized as a Maryland corporation on March 4, 1983.
The Manager is the investment manager of the Funds. The Manager also
provides investment management services to certain of the other funds in
the Delaware Investments family. An affiliate of the Manager also manages
private investment accounts. While investment decisions of the Funds are
made independently from those of the other funds and accounts, investment
decisions for such other funds and accounts may be made at the same time
as investment decisions for the Funds.
The Manager also manages the investment options for Delaware Medallion
[SM] III Variable Annuity. Medallion is issued by Allmerica Financial Life
Insurance and Annuity Company (First Allmerica Financial Life Insurance
Company in New York and Hawaii). Delaware Medallion offers various
investment series ranging from domestic equity funds, international equity
and bond funds and domestic fixed income funds. Each investment series
available through Medallion utilizes an investment strategy and discipline
the same as or similar to one of the Delaware Investments mutual funds
available outside the annuity. See Delaware Group Premium Fund, Inc. in
Appendix B.
Access persons and advisory persons of the Delaware Investments family 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 each Fund and for the
other mutual funds in the Delaware Investments family. The Distributor
received net commissions from each Fund on behalf of Class A Shares, after
reallowances to dealers, as follows:
Delaware Balanced Fund
Class A Shares
Total
Amount of Amounts Net
Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to Distributor
10/31/98 $697,061 $583,281 $113,780
10/31/97 558,308 464,226 94,082
10/31/96 393,463 329,065 4,398
Devon Fund
Class A Shares
Total
Amount of Amounts Net
Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to Distributor
10/31/98 $1,244,866 $1,035,968 $208,898
10/31/97 531,475 440,937 90,538
10/31/96 104,547 87,806 16,741
The Distributor received in the aggregate Limited CDSC payments with
respect to Class A Shares of each Fund as follows:
Limited CDSC Payments
Fiscal Year Delaware Balanced Devon Fund
Ended Fund A Class A Class
10/31/98 $832 $1,108
10/31/97 85,849 -0-
10/31/96 --- ---
The Distributor received in the aggregate CDSC payments with respect to
Class B Shares of each Fund as follows:
CDSC Payments
Fiscal Year Delaware Balanced Devon Fund
Ended Fund B Class B Class
10/31/98 $68,259 $81,772
10/31/97 32,664 10,367
10/31/96 13,943 512
The Distributor received CDSC payments with respect to Class C Shares of
each Fund as follows:
CDSC Payments
Fiscal Year Delaware Balanced Devon Fund
Ended Fund C Class C Class
10/31/98 $2,608 $3,673
10/31/97 2,595 669
10/31/96* 127 98
*Date of initial public offering was November 29, 1995.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for each Fund and for
the other mutual funds in the Delaware Investments family. The Transfer
Agent is paid a fee by each Fund for providing these services consisting
of an annual per account charge of $5.50 plus transaction charges for
particular services according to a schedule. Compensation is fixed each
year and approved by the Board of Directors, including a majority of the
disinterested directors. The Transfer Agent also provides accounting
services to each Fund. Those services include performing all functions
related to calculating each Fund's net asset value and providing all
financial reporting services, regulatory compliance testing and the
related accounting services. For its services, the Transfer Agent is paid
a fee based on total assets of all funds in the Delaware Investments
family for which it provides such accounting services. Such fee is equal
to 0.25% multiplied by the total amount of assets in the complex for which
the Transfer Agent furnishes accounting services, where such aggregate
complex assets are $10 billion or less, and 0.20% of assets if such
aggregate complex assets exceed $10 billion. The fees are charged to each
fund, including each Fund, on an aggregate pro-rata basis. The asset-based
fee payable to the Transfer Agent is subject to a minimum fee calculated
by determining the total number of investment portfolios and associated
classes.
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Equity Funds I, Inc.'s
advisory relationship with the Manager or its distribution relationship
with the Distributor, the Manager and its affiliates could cause Equity
Funds I, Inc. to delete the words "Delaware Group" from Equity Funds I,
Inc.'s name.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn, NY
11245 is custodian of each Fund's securities and cash. As custodian for a
Fund, Chase maintains a separate account or accounts for the Fund;
receives, holds and releases portfolio securities on account of the Fund;
receives and disburses money on behalf of the Fund; and collects and
receives income and other payments and distributions on account of the
Fund's portfolio securities.
Capitalization
Equity Funds I, Inc. has a present authorized capitalization of five
hundred million shares of capital stock with a $1 par value per share.
Each Fund currently offers four classes of shares. The Board of Directors
has allocated one hundred million shares to Delaware Balanced Fund A
Class, twenty-five million shares to Delaware Balanced Fund B Class,
twenty-five million shares to Delaware Balanced Fund C Class, fifty
million shares to Delaware Balanced Fund Institutional Class, fifty
million shares to Devon Fund A Class, twenty-five million shares to Devon
Fund B Class, twenty-five million to Devon Fund C Class, and twenty-five
million shares to Devon Fund Institutional Class.
Each Class of each Fund represents a proportionate interest in the assets
of that Fund, and each has the same voting and other rights and
preferences as the other classes except that shares of an Institutional
Class may not vote on any matter affecting the Fund Classes' Plans under
Rule 12b-1. Similarly, as a general matter, shareholders of Class A
Shares, Class B Shares and Class C Shares of each Fund may vote only on
matters affecting the 12b-1 Plan that relates to the class of shares they
hold. However, Class B Shares of each Fund may vote on any proposal to
increase materially the fees to be paid by a Fund under the Rule 12b-1
Plan relating to Class A Shares. General expenses of a Fund will be
allocated on a pro-rata basis to the classes according to asset size,
except that expenses of the Rule 12b-1 Plans of that Fund's Class A, Class
B and Class C Shares will be allocated solely to those classes. While
shares of Equity Funds I, Inc. have equal voting rights on matters
affecting both Funds, each Fund would vote separately on any matter which
it is directly affected by, such as any change in its own investment
objective and policy or action to dissolve the Fund and as otherwise
prescribed by the 1940 Act. Shares of each Fund have a priority in that
Fund's assets, and in gains on and income from the portfolio of that Fund.
Prior to November 9, 1992, Equity Funds I, Inc. offered only one series,
now known as Delaware Balanced Fund and one class of shares, Delaware
Balanced Fund A Class. Beginning November 9, 1992, Delaware Balanced Fund
began offering Delaware Balanced Fund Institutional Class. Beginning
December 29, 1993, Equity Funds I, Inc. offered Devon Fund which offered
Devon Fund A Class and Devon Fund Institutional Class. Class B Shares for
each Fund were not offered prior to September 6, 1994, and beginning as of
November 29, 1995, each Fund began offering Class C Shares.
Effective as of the close of business December 27, 1996, the name of
Delaware Group Delaware Balanced Fund, Inc. was changed to Delaware Group
Equity Funds I, Inc. Also effective as of the close of business December
27, 1996, the name of Common Stock series was changed to Delaware Balanced
Fund series.
Prior to September 6, 1994, Delaware Balanced Fund A Class was known as
Delaware Balanced Fund class and Delaware Balanced Fund Institutional
Class was known as Delaware Balanced Fund (Institutional) class, and,
prior to the same date, Dividend Growth Fund A Class was known as Dividend
Growth Fund class and the Dividend Growth Fund Institutional Class was
known as 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
Equity Funds I, Inc. shares have noncumulative voting rights which means
that the holders of more than 50% of the shares of Equity Funds I, Inc.
voting for the election of directors can elect all the directors if they
choose to do so, and, in such event, the holders of the remaining shares
will not be able to elect any directors.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
APPENDIX A--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.
APPENDIX B--INVESTMENT OBJECTIVES OF THE OTHER FUNDS IN THE DELAWARE
INVESTMENTS FAMILY
Following is a summary of the investment objectives of the other funds in
the Delaware Investments family:
Trend Fund seeks long-term growth by investing in common stocks issued by
emerging growth companies exhibiting strong capital appreciation
potential.
Small Cap Value Fund seeks capital appreciation by investing primarily in
common stocks whose market values appear low relative to their underlying
value or future potential.
DelCap Fund seeks long-term capital growth by investing in common stocks
and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
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. Blue Chip Fund seeks to achieve long-term capital
appreciation. Current income is a secondary objective. It seeks to achieve
these objectives by investing primarily in equity securities and any
securities that are convertible into equity securities. Social Awareness
Fund seeks to achieve long-term capital appreciation. It seeks to achieve
this objective by investing primarily in equity securities of medium- to
large-sized companies expected to grow over time that meet the Fund's
"Social Criteria" strategy.
Delchester Fund seeks as high a current income as possible by investing
principally in high yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors
of the fixed-income securities markets: high yield, higher risk
securities, investment grade fixed-income securities and foreign
government and other foreign fixed-income securities. High-Yield
Opportunities Fund seeks to provide investors with total return and, as a
secondary objective, high current income. Corporate Bond Fund seeks to
provide investors with total return by investing primarily in corporate
bonds. Extended Duration Bond Fund seeks to provide investors with total
return by investing primarily in corporate bonds
U.S. Government Fund seeks high current income by investing primarily in
long-term debt obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities
and instruments secured by such securities.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in
short-term money market instruments, while maintaining a stable net asset
value.
REIT Fund seeks to achieve maximum long-term total return with capital
appreciation as a secondary objective. It seeks to achieve its objectives
by investing in securities of companies primarily engaged in the real
estate industry.
Tax-Free 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 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 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. Tax-
Free New Jersey Fund seeks a high level of current interest income exempt
from federal income tax and New Jersey state and local taxes, consistent
with preservation of capital. Tax-Free Ohio Fund seeks a high level of
current interest income exempt from federal income tax and Ohio state and
local taxes, consistent with preservation of capital.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds").
Foundation Funds Income Portfolio seeks a combination of current income
and preservation of capital with capital appreciation by investing
primarily in a mix of fixed income and domestic equity securities,
including fixed income and domestic equity Underlying Funds. Foundation
Funds Balanced Portfolio seeks capital appreciation with current income as
a secondary objective by investing primarily in domestic equity and fixed
income securities, including domestic equity and fixed income Underlying
Funds. Foundation Funds Growth Portfolio seeks long-term capital growth by
investing primarily in equity securities, including equity Underlying
Funds, and, to a lesser extent, in fixed income securities, including
fixed-income Underlying Funds.
International Equity Fund seeks to achieve long-term growth without undue
risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond
Fund seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed-income securities that
may also provide the potential for capital appreciation. Global Equity
Fund seeks to achieve long-term total return by investing in global
securities that provide the potential for capital appreciation and income.
Emerging Markets Fund seeks long-term capital appreciation by investing
primarily in equity securities of issuers located or operating in emerging
countries.
U.S. Growth Fund seeks to maximize capital appreciation by investing in
companies of all sizes which have low dividend yields, strong balance
sheets and high expected earnings growth rates relative to their industry.
Overseas Equity Fund seeks to maximize total return (capital appreciation
and income), principally through investments in an internationally
diversified portfolio of equity securities. New Pacific Fund seeks
long-term capital appreciation by investing primarily in companies which
are domiciled in or have their principal business activities in the
Pacific Basin.
Delaware Group Premium Fund, Inc. offers 16 funds available exclusively as
funding vehicles for certain insurance company separate accounts. Decatur
Total Return Series seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. Delchester Series seeks as
high a current income as possible by investing in rated and unrated
corporate bonds, U.S. government securities and commercial paper. Capital
Reserves Series seeks a high stable level of current income while
minimizing fluctuations in principal by investing in a diversified
portfolio of short- and intermediate-term securities. Cash Reserve Series
seeks the highest level of income consistent with preservation of capital
and liquidity through investments in short-term money market instruments.
DelCap Series seeks long-term capital appreciation by investing its assets
in a diversified portfolio of securities exhibiting the potential for
significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a
dividend-oriented valuation strategy to select securities issued by
established companies that are believed to demonstrate potential for
income and capital growth. International Equity Series seeks long-term
growth without undue risk to principal by investing primarily in equity
securities of foreign issuers that provide the potential for capital
appreciation and income. Small Cap Value Series seeks capital appreciation
by investing primarily in small-cap common stocks whose market values
appear low relative to their underlying value or future earnings and
growth potential. Emphasis will also be placed on securities of companies
that may be temporarily out of favor or whose value is not yet recognized
by the market. Trend Series seeks long-term capital appreciation by
investing primarily in small- cap common stocks and convertible securities
of emerging and other growth-oriented companies. These securities will
have been judged to be responsive to changes in the market place and to
have fundamental characteristics to support growth. Income is not an
objective. Global Bond Series seeks to achieve current income consistent
with the preservation of principal by investing primarily in global
fixed-income securities that may also provide the potential for capital
appreciation. Strategic Income Series seeks high current income and total
return by using a multi-sector investment approach, investing primarily in
three sectors of the fixed-income securities markets: high-yield, higher
risk securities; investment grade fixed-income securities; and foreign
government and other foreign fixed-income securities. Devon Series seeks
current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks that the
investment manager believes have the potential for above-average dividend
increases over time. Emerging Markets Series seeks to achieve long-term
capital appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries. Convertible Securities
Series seeks a high level of total return on its assets through a
combination of capital appreciation and current income by investing
primarily in convertible securities. Social Awareness Series seeks to
achieve long-term capital appreciation by investing primarily in equity
securities of medium to large-sized companies expected to grow over time
that meet the Series' "Social Criteria" strategy. REIT Series seeks to
achieve maximum long-term total return, with capital appreciation as a
secondary objective, by investing in securities of companies primarily
engaged in the real estate industry.
Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by
investing in U.S. Treasury bills, notes, bonds, and other obligations
issued or unconditionally guaranteed by the full faith and credit of the
U.S. Treasury, and repurchase agreements fully secured by such
obligations.
Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Minnesota Insured Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal
income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide a
high level of current income exempt from federal income tax and the
Minnesota personal income tax, consistent with preservation of capital.
The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.
Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high
level of current income exempt from federal income tax, consistent with
the preservation of capital. The Fund will seek to select investments that
will enable its shares to be exempt from the Florida intangible personal
property tax. Delaware-Voyageur Tax-Free Florida Fund seeks to provide a
high level of current income exempt from federal income tax, consistent
with the preservation of capital. The Fund will seek to select investments
that will enable its shares to be exempt from the Florida intangible
personal property tax. Delaware-Voyageur Tax-Free Kansas Fund seeks to
provide a high level of current income exempt from federal income tax, the
Kansas personal income tax and the Kansas intangible personal property
tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free Missouri Insured Fund seeks to provide a high level of current
income exempt from federal income tax and the Missouri personal income
tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free New Mexico Fund seeks to provide a high level of current income
exempt from federal income tax and the New Mexico personal income tax,
consistent with the preservation of capital. Delaware-Voyageur Tax-Free
Oregon Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Oregon personal income tax, consistent
with the preservation of capital. Delaware-Voyageur Tax-Free Utah Fund
seeks to provide a high level of current income exempt from federal income
tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free Washington Insured Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital.
Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free California Fund seeks to provide a high level of current income
exempt from federal income tax and the California personal income tax,
consistent with the preservation of capital. Delaware-Voyageur Tax-Free
Iowa Fund seeks to provide a high level of current income exempt from
federal income tax and the Iowa personal income tax, consistent with the
preservation of capital. Delaware- Voyageur Tax-Free Idaho Fund seeks to
provide a high level of current income exempt from federal income tax and
the Idaho personal income tax, consistent with the preservation of
capital. Delaware-Voyageur Minnesota High Yield Municipal Bond Fund seeks
to provide a high level of current income exempt from federal income tax
and the Minnesota personal income tax primarily through investment in
medium and lower grade municipal obligations. National High Yield
Municipal Fund seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade
municipal obligations. Delaware-Voyageur Tax-Free New York Fund seeks to
provide a high level of current income exempt from federal income tax and
the personal income tax of the state of New York and the city of New York,
consistent with the preservation of capital. Delaware-Voyageur Tax-Free
Wisconsin Fund seeks to provide a high level of current income exempt from
federal income tax and the Wisconsin personal income tax, consistent with
the preservation of capital.
Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal
income tax, consistent with the preservation of capital.
Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities
believed to have the potential for high earnings growth. Although the
Fund, in seeking its objective, may receive current income from dividends
and interest, income is only an incidental consideration in the selection
of the Fund's investments. Growth Stock Fund has an objective of long-term
capital appreciation. The Fund seeks to achieve its objective from equity
securities diversified among individual companies and industries.
Tax-Efficient Equity Fund seeks to obtain for taxable investors a high
total return on an after-tax basis. The Fund will attempt to achieve this
objective by seeking to provide a high long-term after-tax total return
through managing its portfolio in a manner that will defer the realization
of accrued capital gains and minimize dividend income.
Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free North Dakota Fund seeks to provide a high level of current income
exempt from federal income tax and the North Dakota personal income tax,
consistent with the preservation of capital.
For more complete information about any of the funds in the Delaware
Investments family, including charges and expenses, you can obtain a
prospectus from the Distributor. Read it carefully before you invest or
forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Equity Funds I, Inc.
and, in its capacity as such, audits the annual financial statements of
each of the Funds. The Funds' Statements of Net Assets, Statements of
Assets and Liabilities, Statements of Operations, Statements of Changes
in Net Assets, Financial Highlights, and Notes to Financial Statements,
as well as the reports of Ernst & Young LLP, independent auditors,
for the fiscal year ended October 31, 1998, are included in the Funds'
Annual Reports to shareholders. The financial statements, the notes
relating thereto, the financial highlights and the reports
of Ernst & Young LLP listed above are incorporated by reference from
the Annual Reports into this Part B.
Delaware Investments includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific
tax-exempt funds, money market funds, global and international funds
and closed-end funds give investors the ability to create a portfolio
that fits their personal financial goals. For more information,
shareholders of the Fund Classes should contact their financial adviser
or call Delaware Investments at 800-523-1918 and shareholders of the
Institutional Classes should contact Delaware Investments at 800-510-4015.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE BALANCED FUND
A CLASS
B CLASS
C CLASS
INSTITUTIONAL CLASS
DEVON FUND
A CLASS
B CLASS
C CLASS
INSTITUTIONAL CLASS
CLASSES OF DELAWARE GROUP
EQUITY FUNDS I, INC.
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
PART B
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 15, 1999
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
[LOGO OMITTED: DELAWARE INVESTMENTS]
