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STATEMENT OF ADDITIONAL INFORMATION
December 29, 2000
DELAWARE GROUP EQUITY FUNDS I
Delaware Balanced Fund
Delaware Devon Fund
One Commerce Square
Philadelphia, PA 19103
For more information about Delaware Balanced
Fund Institutional Class and Delaware 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 ("Equity Funds I") 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
Delaware Devon Fund series ("Delaware Devon Fund") (individually, a "Fund", and
collectively, the "Funds"). Each Fund also offers Class A, B, C and
Institutional Class Shares. All references to "shares" in this Part B refer to
all Classes of shares of Equity Funds I, 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 December 29, 2000 and the current Prospectus for the
Institutional Classes dated December 29, 2000, 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.
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TABLE OF CONTENTS Page Page
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Cover Page 1 Dividends and Realized Securities Profits Distributions 60
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Investment Restrictions and Policies 3 Taxes 61
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Performance Information 18 Investment Management Agreement 65
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Trading Practices and Brokerage 29 Officers and Trustees 68
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Purchasing Shares 31 General Information 79
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Investment Plans 44 Financial Statements 84
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Determining Offering Price and Net Asset Value Appendix A--Investment Objectives of the Funds in the
52 Delaware Investments Family 85
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Redemption and Exchange 53
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INVESTMENT RESTRICTIONS AND POLICIES
Investment Restrictions
Fundamental Investment Restrictions - Each Fund has adopted the
following restrictions which cannot be changed without approval by the holders
of a "majority" of a Fund's outstanding shares, which is a vote by the holders
of the lesser of a) 67% or more of the voting securities present in person or by
proxy at a meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or b) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities. Each Fund shall not:
1. Make investments that will result in the concentration (as that term
may be defined in the Investment Company Act of 1940 (the "1940 Act"), any rule
or order thereunder, or U.S. Securities and Exchange Commission ("SEC") staff
interpretation thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this restriction does not
limit the Fund from investing in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or in tax-exempt securities or
certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933 (the "1933 Act").
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
Non-Fundamental Investment Restrictions - In addition to the
fundamental policies and investment restrictions described above, and the
various general investment policies described in the Prospectuses, each Fund
will be subject to the following investment restrictions, which are considered
non-fundamental and may be changed by the Board of Trustees without shareholder
approval.
1. A Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, a Fund may not operate as a "fund of funds" which
invests primarily in the shares of other investment companies as permitted by
Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
2. The Fund may not invest more than 15% of its net assets in
securities which it cannot sell or dispose of in the ordinary course of business
within seven days at approximately the value at which the Fund has valued the
investment.
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The following are additional non-fundamental investment restrictions
for the Funds.
Each Fund shall not:
1. Invest more than 5% of the value of its assets in securities of any
one company (except U.S. government bonds) or purchase more than 10% of the
voting or nonvoting securities of any one company.
2. Acquire control of any company. (Equity Funds I's Certificate of
Incorporation permits control of companies to protect investments already made,
but its policy is not to acquire control.)
3. Purchase or retain securities of a company which has an officer or
trustee who is an officer or trustee of Equity Funds I or an officer, trustee or
partner of its investment manager if, to the knowledge of Equity Funds I, 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 may be taken
by its officers, trustees or any of its affiliated persons. Such persons may buy
shares of Equity Funds I for investment purposes, however.
5. Purchase any security issued by any other investment company if
after such purchase it would: (a) own more than 3% of the voting stock of such
company, (b) own securities of such company having a value in excess of 5% of
Equity Funds I's assets or (c) own securities of investment companies having an
aggregate value in excess of 10% of Equity Funds I's assets.
6. Act as an underwriter of securities of other issuers, except that
Equity Funds I may acquire restricted securities and securities which are not
readily marketable under circumstances where, if such securities are sold,
Equity Funds I may be deemed an underwriter for purposes of the 1933 Act.
7. Invest in securities of other investment companies except at
customary brokerage commission rates or in connection with mergers,
consolidations or offers of exchange.
8. Make any investment in real estate unless necessary for office space
or the protection of investments already made. (This restriction does not
preclude Equity Funds I's purchase of securities issued by real estate
investment trusts.)
9. Sell short any security or property.
10. Deal in commodities, except that Delaware 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
and that Delaware Balanced Fund may invest in financial futures, including
futures contracts on stocks and stock indices, interest rates, 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. 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'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 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 shall not issue senior
securities as defined in the 1940 Act, except for notes to banks.
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12. Make loans. However, the purchase of a portion of an issue of
publicly distributed bonds, debentures or other securities, whether or not the
purchase was made upon the original issuance of the securities, and the entry
into "repurchase agreements" are not to be considered the making of a loan by
Equity Funds I and Equity Funds I 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. 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.
In addition to the fixed-income securities in which Delaware Balanced
Fund invests as described in the Prospectuses, the Fund may also invest in
split-rated bonds and in high-yield, high risk bonds (commonly known as "junk
bonds"). A split bond rating occurs when separate rating agencies, such as
Standard and Poor's ("S&P") and Moody's Investors Service, Inc. ("Moody's") give
different ratings to the same issue or issuer. The split-rated and high-yield,
high risk bonds in which the Fund may invest are rated, or in the case of
split-rated bonds, may have one or more ratings lower than BBB by S&P, Baa by
Moody's and/or rated similarly by another recognized rating agency (or, if
unrated, the Manager determines to be of comparable quality). The Fund
anticipates investing in such split-rated or high-yield, high risk bonds in
limited situations, such as when the Manager believes that they are likely to be
upgraded due to a future corporate event. Investing in high-yield, high risk
bonds involves certain risks as discussed below. The Fund limits its purchases
of high-yield, high risk bonds to no more than 5% of net assets.
The Risks of Investing in High-Yield, High Risk Fixed-Income
Securities--High-yield, high risk fixed-income securities are considered to be
of poor standing and predominantly speculative and entails certain risks,
including the risk of loss of principal, which may be greater than the risks
involved with investing in investment grade securities. Such securities are
sometimes issued by companies whose earnings at the time of issuance are less
than the projected debt service on the high-yield securities.
The medium- and low-grade bonds in which the Fund may invest may be
issued as a consequence of corporate restructurings, such as leveraged buy-outs,
mergers, acquisitions, debt recapitalizations or similar events. Also, these
bonds are often issued by smaller, less creditworthy companies or by highly
leveraged (indebted) firms, which are generally less able than more financially
stable firms to make scheduled payments of interest and principal. The risks
posed by bonds issued under such circumstances are substantial.
The economy and interest rates may affect these high-yield, high risk
securities differently than other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
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adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any security
and in the ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these investments
than on the values of higher-related securities. Such changes in value will not
affect cash income derived from these securities, unless the issuers fail to pay
interest or dividends when due. Such changes will, however, affect the Fund's
net asset value per share.
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. Delaware 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
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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.
Equity Securities
Equity securities represent ownership interests in a company and
consist of common stocks, preferred stocks, warrants to acquire common stock and
securities convertible into common stock. Investments in equity securities in
general are subject to market risks that may cause their prices to fluctuate
over time. The value of convertible equity securities is also affected by
prevailing interest rates, the credit quality of the issuer and any call
provisions. Fluctuations in the value of equity securities in which a Fund
invests will cause the net asset value of the Fund to fluctuate.
Warrants
Each Fund may purchase warrants and similar rights, which are
privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The purchase of warrants involves the risk
that a Fund could lose the purchase value of a warrant if the right to subscribe
to additional shares is not exercised prior to the warrant's expiration. Also,
the purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security.
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 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 a Fund; 3) a Fund must be able to terminate the
loan after notice, at any time; 4) a 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) a 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 trustees
of Equity Funds I 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 trustees 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 Trustees, including the creditworthiness of the
borrowing broker, dealer or institution and then only if the consideration to be
received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.
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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 Trustees 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
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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.
Repurchase Agreements
In order to invest its short-term cash reserves or when in a temporary
defensive posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by the Board of Trustees. A repurchase agreement is a short-term
investment in which the purchaser (i.e., a Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one
week, but on occasion for longer periods. Not more than 10% of a Fund's assets
may be invested in repurchase agreements of over seven-days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss to the Fund, if any, would be the difference
between the repurchase price and the market value of the security. Each Fund
will limit its investments in repurchase agreements to those which the Manager
under the guidelines of the Board of Trustees determines to present minimal
credit risks and which are of high quality. In addition, each Fund must have
collateral of at least 102% of the repurchase price, including the portion
representing such Fund's yield under such agreements which is monitored on a
daily basis. Such collateral is held by the Custodian in book entry form. Such
agreements may be considered loans under the 1940 Act, but the Funds consider
repurchase agreements contracts for the purchase and sale of securities, and
each seeks to perfect a security interest in the collateral securities so that
it has the right to keep and dispose of the underlying collateral in the event
of default.
The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow certain Delaware Investments funds jointly to invest cash balances. Each
Fund of Equity Funds I may invest cash balances in a joint repurchase agreement
in accordance with the terms of the Order and subject generally to the
conditions described above.
Real Estate Investment Trusts
Each Fund may invest in shares or convertible bonds issued by real
estate investment trusts ("REITS"). REITS invest primarily in income producing
real estate as well as real estate related loans or interests. A REIT is not
taxed on income distributed to shareholders if it complies with several
requirements relating to its organization, ownership, assets and income, and a
requirement that it distribute to its shareholders at least 95% of its taxable
income (other than net capital gains) for each taxable year. Each Fund
anticipates investing only in REITS that invest the majority of their assets
directly in real property and derive their income primarily from rents, which
are known as "equity REITS." Equity REITS can also realize capital gains by
selling properties that have appreciated in value.
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
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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 and 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.
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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
Each 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. A 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 a 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
or 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.
Each 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 a 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
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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 a Fund has written is exercised, a 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, a 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
Each Fund may write call options and purchase put options on a covered
basis only. Delaware Balanced Fund may also purchase call options and write put
options on a covered basis only. The options in which Delaware Balanced Fund
invests may be exchanged listed or traded over-the-counter. Certain
over-the-counter options may be illiquid. Thus, it may not be possible to close
options positions and this may have an adverse impact on Delaware Balanced
Fund's ability to effectively hedge its securities. Delaware Balanced Fund will
only enter into such options to the extent consistent with its limitation on
investments in illiquid securities. Neither Fund will engage in option writing
strategies for speculative purposes.
A. Covered Call Writing--Each Fund may write covered call options from
time to time on such portion of its portfolio, without limit, as the Manager
determines is appropriate in seeking to obtain the investment objective. A call
option gives the purchaser of such option the right to buy, and the writer, in
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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.
Each 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--Each Fund may invest up to 2% of its total
assets in the purchase of put options. A Fund will, at all times during which it
holds a put option, own the security covered by such option.
Each 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
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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.
C. Purchasing Call Options--Delaware Balanced Fund may purchase call
options to the extent that premiums paid by the Fund do not aggregate more than
2% of its total net assets. When the Fund purchases a call option, in return for
a premium paid by the Fund to the writer of the option, the Fund obtains the
right to buy the security underlying the option at a specific exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that the Funds may
alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with portfolio transactions.
The Fund may, following the purchase of a call option, liquidate its
position by effecting a closing sale transaction. This is accomplished by
selling an option of the same series as the option previously purchased. The
Fund will realize a profit from a closing sale transaction if the price received
on the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.
Although the Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an Exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
Exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the result that the Fund would have to
exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Fund may expire without any value
to the Fund.
D. Writing Put Options--Delaware Balanced Fund may write put options on
a secured or covered basis. A put option written by the Fund obligates it to buy
the security underlying the option at the exercise price during the option
period and the purchaser of the option has the right to sell the security to the
Fund. During the option period, the Fund, as writer of the put option, may be
assigned an exercise notice by the broker/dealer through whom the option was
sold requiring the Fund to make payment of the exercise price against delivery
of the underlying security. The obligation terminates upon expiration of the put
option or at such earlier time at which the writer effects a closing purchase
transaction. The Fund will maintain in a segregated account cash or U.S.
government securities in an amount not less than the exercise price of the
option at all times during the option period. The amount of cash, U.S.
government securities or other assets held in the segregated account will be
adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by the Fund. Consistent with the
limited purposes for which the Fund intends to engage in the writing of put
options, such put options will generally be written in circumstances where the
Manager wishes to purchase the underlying security for the Fund at a price lower
than the current market price of the security. In such event, the Fund would
write a put option at an exercise price which, reduced by the premium received
on the option, reflects the lower price it is willing to pay.
Following the writing of a put option, the Fund may wish to terminate
the obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
<PAGE>
Options on Stock Indices
Each Fund may engage in transactions in 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, each 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
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positions could have an adverse impact on the Fund's ability to effectively
hedge its securities. Delaware Devon Fund will enter into an option position
only if there appears to be a liquid secondary market for such options.
A Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets.
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. Each Fund will designate cash or securities in
amounts sufficient to cover its obligations, and will value the designated
assets daily. The payment obligation and the interest rates that will be
received are each fixed at the time 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.
Interest Rate and Index Swaps
Delaware Balanced Fund may invest in interest rate and index swaps to
the extent consistent with their respective investment objectives and
strategies. The Fund will only invest in swaps in which all the reference rates
are related to or derived from instruments or markets in which the Fund is
otherwise eligible to invest, and subject to the investment limitations on the
instruments to which the purchased reference rate relates.
Swaps are agreements to exchange payment streams over a period of time
with another party, called a counterparty. Each payment stream is based on a
specified rate, which could be a fixed or variable interest rate, the rate of
return on an index, or some other reference rate. The payment streams are
calculated with reference to a hypothetical principal amount, called the
notional principal or the notional amount. For example, in an interest rate swap
one party may agree to pay a fixed interest rate to a counterparty and to
receive in return variable interest rate payments from the counterparty. The
amount that each party pays is calculated by multiplying the fixed and variable
rates, respectively, by the notional amount. The payment streams may thus be
thought of as interest payments on the notional amount. The notional amount does
not actually change hands at any point in the swap transaction; it is used only
to calculate the value of the payment streams.
When two counterparties each wish to swap interest rate payments, they
typically each enter into a separate interest rate swap contract with a
broker/dealer intermediary, who is the counterparty in both transactions, rather
than entering into a swap contract with each other directly. The broker/dealer
intermediary enters into numerous transactions of this sort, and attempts to
mange its portfolio of swaps so as to match and offset its payment receipts and
obligations.
The typical minimum notional amount is $5 million. Variable interest
rates are usually set by reference to the London Inter-Bank Offered Rate
(LIBOR). The typical maximum term of an interest rate swap agreement ranges from
one to twelve years. Index swaps tend to be shorter term, often for one year.
The Manager presently intends to purchase swaps with maturities of six to twelve
months, and in no event greater than two years.
The Fund may also engage in index swaps, also called total return
swaps. In an index swap, the Fund may enter into a contract with a counterparty
in which the counterparty will make payments to the Fund based on the positive
returns of an index, such as a corporate bond index, in return for the Fund
paying to the counterparty a fixed or variable interest rate, as well as paying
to the counterparty any negative returns on the index. In a sense, the Fund is
purchasing exposure to an index in the amount of the notional principal in
return for making interest rate payments on the notional principal. As with
interest rate swaps, the notional principal does not actually change hands at
any point in the transaction. The counterparty, typically an investment bank,
manages its obligations to make total return payments by maintaining an
inventory of the fixed income securities that are included in the index.
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Swap transactions provide several benefits to the Fund. Interest rate
swaps may be used as a duration management tool. Duration is a measure of a
bond's interest-rate sensitivity, expressed in terms of years because it is
related to the length of time remaining on the life of a bond. In general, the
longer a bond's duration, the more sensitive the bond's price will be to changes
in interest rates. The average duration of the Fund is the weighted average of
the durations of the Fund's fixed income securities.
If the Fund wished to shorten the duration of certain of its assets,
longer term assets could be sold and shorter term assets acquired, but these
transactions have potential tax and return differential consequences. By using
an interest rate swap, the Fund could agree to make semi-annual fixed rate
payments and receive semi-annual floating rate LIBOR payments adjusted every six
months. The duration of the floating rate payments received by the fund will now
be six months. In effect, the Fund has reduced the duration of the notional
amount invested from a longer term to six months over the life of the swap
agreement.
The Fund may also use swaps to gain exposure to specific markets. For
example, suppose bond dealers have particularly low inventories of corporate
bonds, making it difficult for a fixed income fund to increase its exposure to
the corporate bond segment of the market. It is generally not possible to
purchase exchange-traded options on a corporate bond index. The Fund could
replicate exposure to the corporate bond market, however, by engaging in an
index swap in which the Fund gains exposure to a corporate bond index in return
for paying a LIBOR-based floating interest rate.
Other uses of swaps could help permit the Fund to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against an increase in the price of securities the Fund anticipates purchasing
at a later date. Interest rate swaps may also be considered as a substitute for
interest rate futures in many cases where the hedging horizon is longer than the
maturity of the typical futures contract, and may be considered to provide more
liquidity than similar forward contracts, particularly long-term forward
contracts.
The primary risk of swap transactions is the creditworthiness of the
counterparty, since the integrity of the transaction depends on the willingness
and ability of the counterparty to maintain the agreed upon payment stream. This
risk is often referred to as counterparty risk. If there is a default by a
counterparty in a swap transaction, the Fund's potential loss is the net amount
of payments the Fund is contractually entitled to receive for one payment period
(if any - the Fund could be in a net payment position), not the entire notional
amount, which does not change hands in a swap transaction. Swaps do not involve
the delivery of securities or other underlying assets or principal as collateral
for the transaction. The Fund will have contractual remedies pursuant to the
swap agreement but, as with any contractual remedy, there is no guarantee that
the Fund would be successful in pursuing them -- the counterparty may be
judgement proof due to insolvency, for example. The Fund thus assume the risk
that they will be delayed or prevented from obtaining payments owed to them. The
standard industry swap agreements do, however, permit the Fund to terminate a
swap agreement (and thus avoid making additional payments) in the event that a
counterparty fails to make a timely payment to the Fund.
In response to this counterparty risk, several securities firms have
established separately capitalized subsidiaries that have a higher credit
rating, permitting them to enter into swap transactions as a dealer. The Fund
will not be permitted to enter into any swap transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the actual
counterparty, combined with any credit enhancements, is rated at least A by S&P
or Moody's or is determined to be of equivalent credit quality by the Manager.
In addition, the Manager will closely monitor the ongoing creditworthiness of
swap counterparties in order to minimize the risk of swaps.
In addition to counterparty risk, the use of swaps also involves risks
similar to those associated with ordinary portfolio security transactions. If
the portfolio manager is incorrect in his or her forecast of market values or
interest rates, the investment performance of the Fund which has entered into a
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swap transaction could be less favorable than it would have been if this
investment technique were not used. It is important to note, however, that there
is no upper limit on the amount the Fund might theoretically be required to pay
in a swap transaction.
In order to ensure that the Fund will only engage in swap transactions
to the extent consistent with its investment objectives and strategies, the Fund
will only engage in a swap transaction if all of the reference rates used in the
swap are related to or derived from securities, instruments or markets that are
otherwise eligible investments for the Fund. Similarly, the extent to which the
Fund may invest in a swap, as measured by the notional amount, will be subject
to the same limitations as the eligible investments to which the purchased
reference rate relates.
The Fund will, consistent with industry practice, segregate and
mark-to-market daily cash or other liquid assets having an aggregate market
value at least equal to the net amount of the excess, if any, of the Fund's
payment obligations over its entitled payments with respect to each swap
contract. To the extent that the Fund is obligated by a swap to pay a fixed or
variable interest rate, the Fund may segregate securities that are expected to
generate income sufficient to meet the Fund's net payment obligations. For
example, if the Fund holds interest rate swaps and is required to make payments
based on variable interest rates, it will have to make increased payments if
interest rates rise, which will not be necessarily be offset by the fixed-rate
payments it is entitled to receive under the swap agreement.
There is not a well developed secondary market for interest rate or
index swaps. Most interest rate swaps are nonetheless relatively liquid because
they can be sold back to the counterparty/dealer relatively quickly at a
determinable price. Most index swaps, on the other hand, are considered to be
illiquid because the counterparty/dealer will typically not unwind an index swap
prior to its termination (and, not surprisingly, index swaps tend to have much
shorter terms). The Fund will therefore treat all swaps as subject to their
limitation on illiquid investments. For purposes of calculating these percentage
limitations, the Fund will refer to the notional amount of the swap.
Swaps will be priced using fair value pricing. The income provided by a
swap should be qualifying income for purposes of Subchapter M of the Internal
Revenue Code. Swaps should not otherwise result in any significant
diversification or valuation issues under Subchapter M.
Concentration
In applying a Fund's fundamental policy concerning concentration that
is described above, it is a matter of non-fundamental policy that: (i) utility
companies will be divided according to their services, for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry; (ii) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (iii)
asset-backed securities will be classified according to the underlying assets
securing such securities.
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 average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
17
<PAGE>
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.
18
<PAGE>
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, 2000. 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, 2000. 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, 2000. The average annual total return
for excluding deferred sales charge assumes the shares were not redeemed at
October 31, 2000 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.
19
<PAGE>
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
Balanced Fund Delaware Delaware Delaware
Class B Balanced Fund Balanced Fund Balanced Fund
Delaware Delaware Shares Class B Class C Class C
Balanced Fund Balanced Fund Delaware (Including Shares Shares Shares
Class A Class A Balanced Fund Deferred (Excluding (Including (Excluding
Shares(1)(2) Shares(1) Institutional Sales Deferred Deferred Deferred
(at Offer) (at NAV) Class Charge)(3) Sales Charge) Sales Charge) Sales Charge)
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended -6.46% -0.75% -0.55% -5.83% -1.52% -2.38% -1.52%
10/31/00
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
3 years ended
10/31/00 2.55% 4.60% 4.83% 3.03% 3.79% 3.78% 3.78%
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
5 years ended
10/31/00 8.85% 10.15% 10.37% 9.03% 9.29% N/A N/A
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
10 years ended
10/31/00 10.95% 11.61% 11.78% N/A N/A N/A N/A
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
15 years ended
10/31/00 10.84% 11.28% 11.39% N/A N/A N/A N/A
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
Life of Fund(4) 10.92% 11.02% 11.05% 9.80% 9.80% 8.84% 8.84%
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
</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.
20
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
Delaware Devon Fund (1)
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
Delaware
Devon Fund Delaware Delaware Delaware
Class B Devon Fund Devon Fund Devon Fund
Delaware Delaware Shares Class B Class C Class C
Devon Fund Devon Fund Delaware (Including Shares Shares Shares
Class A Class A Devon Fund Deferred (Excluding (Including (Excluding
Shares Shares Institutional Sales Deferred Deferred Deferred
(at Offer)(2) (at NAV) Class Charge)(3) Sales Charge) Sales Charge) Sales Charge)
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended -12.46% -7.14% -6.86% -12.42% -7.81% -8.69% -7.77%
10/31/00
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
3 years ended
10/31/00 1.39% 3.42% 3.71% 1.72% 2.68% 2.68% 2.68%
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
5 years ended
10/31/00 11.32% 12.65% 13.00% 11.62% 11.87% N/A N/A
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
Life of Fund(4) 12.79% 13.77% 14.11% 12.92% 12.92% 11.24% 11.24%
------------------- -------------- -------------- --------------- -------------- -------------- -------------- ---------------
</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. See Investment Management
Agreement for the expense limitations that were in effect for the Fund.
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 Devon Fund A Class was
December 29, 1993; date of initial public offering of Delaware Devon
Fund Institutional Class shares was December 29, 1993; date of initial
public offering of Delaware Devon Fund Class B Shares was September 6,
1994; date of initial public offering of Delaware 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 Composite Price Stock Index or the Dow Jones Industrial Average.
21
<PAGE>
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
22
<PAGE>
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, 2000. 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.
23
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Delaware Balanced Fund
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
Delaware
Balanced Delaware Delaware Delaware
Fund Balanced Balanced Balanced
Delaware Delaware Class B Fund Fund Fund
Balanced Balanced Delaware Shares Class B Class C Class C
Fund Fund Balanced (Including Shares Shares Shares
Class A Class A Fund Deferred (Excluding (Including (Excluding
Shares(1)(2) Shares(1) Institutional Sales Deferred Deferred Deferred
(at Offer) (at NAV) Class Charge)(3) Sales Charge) Sales Charge) Sales Charge)
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended -4.92% 0.89% 0.88% -4.35% 0.65% -0.35% 0.65%
10/31/00
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
6 months ended
10/31/00 -1.63% 4.35% 4.46% -1.04% 3.96% 2.97% 3.97%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
9 months ended
10/31/00 -1.34% 4.67% 4.83% -0.92% 4.08% 3.08% 4.08%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
1 year ended
10/31/00 -6.46% -0.75% -0.55% -5.83% -1.52% -2.38% -1.52%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
3 years ended
10/31/00 7.86% 14.44% 15.20% 9.38% 11.82% 11.77% 11.77%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
5 years ended
10/31/00 52.78% 62.13% 63.77% 54.05% 55.92% N/A N/A
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
10 years ended
10/31/00 182.66% 199.95% 204.56% N/A N/A N/A N/A
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
15 years ended
10/31/00 368.47% 396.98% 404.61% N/A N/A N/A N/A
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
Life of Fund(4) 64,984.42% 68,977.80% 70,038.11% 77.80% 77.80% 51.75% 51.75%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
</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.
24
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Delaware Devon Fund (1)
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
Delaware
Devon Fund Delaware Delaware Delaware
Class B Devon Fund Devon Fund Devon Fund
Delaware Delaware Shares Class B Class C Class C
Devon Fund Devon Fund Delaware (Including Shares Shares Shares
Class A Class A Devon Fund Deferred (Excluding (Including (Excluding
Shares Shares Institutional Sales Deferred Deferred Deferred
(at Offer)(2) (at NAV) Class Charge)(3) Sales Charge) Sales Charge) Sales Charge)
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended -5.56% 0.22% 0.27% -5.00% 0.00% -1.00% 0.00%
10/31/00
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
6 months ended
10/31/00 -9.43% -3.93% -3.76% -9.08% -4.30% -5.20% -4.25%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
9 months ended
10/31/00 -4.53% 1.27% 1.49% -4.33% 0.67% -0.27% 0.73%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
1 year ended
10/31/00 -12.46% -7.14% -6.86% -12.42% -7.81% -8.69% -7.77%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
3 years ended
10/31/00 4.24% 10.60% 11.56% 5.25% 8.25% 8.26% 8.26%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
5 years ended
10/31/00 70.91% 81.39% 84.22% 73.24% 75.24% N/A N/A
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
Life of Fund(4) 127.84% 141.73% 146.74% 111.23% 111.23% 68.99% 68.99%
------------------- --------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
</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. See Investment Management
Agreement for the expense limitations that were in effect for the Fund.
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 Devon Fund A Class was
December 29, 1993; date of initial public offering of Delaware Devon
Fund Institutional Class shares was December 29, 1993; date of initial
public offering of Delaware Devon Fund Class B Shares was September 6,
1994; date of initial public offering of Delaware Devon Fund Class C
Shares was November 29, 1995.
25
<PAGE>
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 low 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.
26
<PAGE>
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)
27
<PAGE>
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
execution. Best 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 the
Manager'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, 1998, 1999 and 2000, the
aggregate dollar amounts of brokerage commissions paid by Delaware Balanced Fund
were $817,901, $1,488,777 and $1,051,576, respectively. For the fiscal years
ended October 31, 1998, 1999 and 2000, the aggregate dollar amounts of brokerage
commissions paid by Delaware Devon Fund were $292,437, $875,370 and $842,308,
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, 2000, portfolio transactions
of Delaware Balanced Fund in the amount of $490,395,459, resulting in brokerage
commissions of $721,303, were directed to brokers for brokerage and research
services provided. During the same period, portfolio transactions of Delaware
Devon Fund in the amount of $184,839,967, resulting in brokerage commissions of
$274,734, 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
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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
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 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's Board of Trustees that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.
Consistent with NASD Conduct Rules, and subject to seeking best
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 87% for 1999 and 165% for 2000. During the
past two fiscal years, Delaware Devon Fund's portfolio turnover rates were
approximately 82% for 1999 and 123% for 2000.
Should it become necessary to sell investments for monies with which to
redeem shares, the Board of Trustees, 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 has never redeemed or repurchased
shares other than at net asset value.
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PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's
shares and has agreed to use its best efforts to sell shares of each Fund. See
the Prospectuses for information on how to invest. Shares of each Fund are
offered on a continuous basis and may be purchased through authorized investment
dealers or directly by contacting Equity Funds I 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, trustees 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 will reject any purchase order
for more than $250,000 of Class B Shares and $1,000,000 or more of Class C
Shares. An investor may exceed these limitations by making cumulative purchases
over a period of time. In doing so, an investor should keep in mind, however,
that reduced front-end sales charges apply to investments of $50,000 or more in
Class A Shares, and that Class A Shares are subject to lower annual 12b-1 Plan
expenses than Class B Shares and Class C Shares and generally are not subject to
a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Equity Funds I 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.
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The NASD has adopted amendments to its Conduct Rules, as amended,
relating to investment company sales charges. Equity Funds I 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 during the second year after 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 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 -- Class A, Class B and Class C Shares
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
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convert to Class A Shares at the end of approximately eight years after purchase
and, thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum of
0.30% of average daily net assets of such shares. Unlike Class B Shares, Class C
Shares do not convert to another Class.
The higher 12b-1 Plan expenses on Class B Shares and Class C Shares
will be offset to the extent a return is realized on the additional money
initially invested upon the purchase of such shares. However, there can be no
assurance as to the return, if any, that will be realized on such additional
money. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also consider the duration of the annual 12b-1 Plan expenses to
which each of the classes is subject and the desirability of an automatic
conversion feature, which is available only for Class B Shares.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in the
case of Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A Shares, Class B Shares and Class C Shares. Investors should understand
that the purpose and function of the respective 12b-1 Plans and the CDSCs
applicable to Class B Shares and Class C Shares are the same as those of the
12b-1 Plan and the front-end sales charge applicable to Class A Shares in that
such fees and charges are used to finance the distribution of the respective
Classes. See Plans Under Rule 12b-1 for the Fund Classes.
Dividends, if any, paid on Class A Shares, Class B Shares and Class C
Shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except that the additional amount of 12b-1
Plan expenses relating to Class B Shares and Class C Shares will be borne
exclusively by such shares. See Determining Offering Price and Net Asset Value.
Class A Shares
Purchases of $50,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectus, and may include a series of purchases over a 13-month period under a
Letter of Intention signed by the purchaser. See Special Purchase Features -
Class A Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
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
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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 below. 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.
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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 18th day (or next
business day) 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, the Delaware Cash Reserve Fund 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 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.
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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. 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's
Board of Trustees may reduce these amounts at any time.
Effective June 1, 1992, Equity Funds I's Board of Trustees 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's Board of Trustees set the fee
for Delaware 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's
unaffiliated trustees, 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
execution, a Fund may, from time to time, buy or sell portfolio securities from
or to firms which receive payments under the Plans.
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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 Trustees of Equity Funds I, including a majority of the
trustees who are not "interested persons" (as defined in the 1940 Act) of Equity
Funds I 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 Trustees in
the same manner as specified above.
Each year, the trustees 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 trustees
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 trustees 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 trustees including a
majority of the noninterested trustees of Equity Funds I having no interest in
the Plans. In addition, in order for the Plans to remain effective, the
selection and nomination of trustees who are not "interested persons" of Equity
Funds I must be effected by the trustees 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 Trustees for their review.
36
<PAGE>
For the fiscal year ended October 31, 2000, payments from the Class A
Shares, Class B Shares and Class C Shares of Delaware Balanced Fund pursuant to
their respective 12b-1 Plans amounted to $1,186,188, $551,564 and $138,904,
respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Delaware Balanced Fund Delaware Balanced Fund Delaware Balanced Fund
A Class B Class C Class
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising $191 --- ---
------------------------------------------------------------------------------------------------------------------------
Annual/Semi-Annual Reports $4,205 --- ---
------------------------------------------------------------------------------------------------------------------------
Broker Trails $811,496 $139,770 $75,534
------------------------------------------------------------------------------------------------------------------------
Broker Sales Charges --- $128,625 $58,155
------------------------------------------------------------------------------------------------------------------------
Dealer Service Expenses --- $000 ---
------------------------------------------------------------------------------------------------------------------------
Interest on Broker Sales Charges --- $261,808 $157
------------------------------------------------------------------------------------------------------------------------
Commissions to Wholesalers $61,118 $21,361 $5,058
------------------------------------------------------------------------------------------------------------------------
Promotional-Broker Meetings $8,055 --- ---
------------------------------------------------------------------------------------------------------------------------
Promotional-Other $77,672 --- ---
------------------------------------------------------------------------------------------------------------------------
Prospectus Printing $31,864 --- ---
------------------------------------------------------------------------------------------------------------------------
Telephone --- --- ---
------------------------------------------------------------------------------------------------------------------------
Wholesaler Expenses $191,864 --- ---
------------------------------------------------------------------------------------------------------------------------
Other --- --- ---
------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal year ended October 31, 2000, payments from the Class A
Shares, Class B Shares and Class C Shares of Delaware Devon Fund pursuant to
their respective 12b-1 Plans amounted to $296,367, $966,752 and $213,775,
respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Delaware Devon Fund Delaware Devon Fund Delaware Devon Fund
A Class B Class C Class
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising $000 --- ---
------------------------------------------------------------------------------------------------------------------------
Annual/Semi-Annual Reports $10,056 $1,048 ---
------------------------------------------------------------------------------------------------------------------------
Broker Trails $246,169 $245,622 $127,341
------------------------------------------------------------------------------------------------------------------------
Broker Sales Charges --- $170,606 $86,033
------------------------------------------------------------------------------------------------------------------------
Dealer Service Expenses --- --- ---
------------------------------------------------------------------------------------------------------------------------
Interest on Broker Sales Charges --- $512,698 $401
------------------------------------------------------------------------------------------------------------------------
Commissions to Wholesalers $35,274 $33,361 ---
------------------------------------------------------------------------------------------------------------------------
Promotional-Broker Meetings --- --- ---
------------------------------------------------------------------------------------------------------------------------
Promotional-Other --- $1,819 ---
------------------------------------------------------------------------------------------------------------------------
Prospectus Printing $4,868 $706 ---
------------------------------------------------------------------------------------------------------------------------
Telephone --- --- ---
------------------------------------------------------------------------------------------------------------------------
Wholesaler Expenses --- $892 ---
------------------------------------------------------------------------------------------------------------------------
Other --- --- ---
------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
Other Payments to Dealers - Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Investments family of funds. In some instances, these
incentives or payments may be offered only to certain dealers who maintain, have
sold or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Investments fund shares.
38
<PAGE>
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased without a front-end sales
charge under the Dividend Reinvestment Plan and, under certain circumstances,
the Exchange Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, trustees/directors and employees of Equity
Funds I, any other fund in the Delaware Investments family, the Manager, or any
of the Manager's current affiliates and those that may in the future be created,
legal counsel to the funds and registered representatives and employees of
broker/dealers who have entered into Dealer's Agreements with the Distributor
may purchase Class A Shares and any such class of shares of any of the funds in
the Delaware Investments family, including any fund that may be created, at the
net asset value per share. Family members (regardless of age) of such persons at
their direction, and any employee benefit plan established by any of the
foregoing funds, corporations, counsel or broker/dealers may also purchase Class
A Shares at net asset value.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 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, trustees and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Such purchasers are required to sign a letter stating that the
purchase is for investment only and that the securities may not be resold except
to the issuer. Such purchasers may also be required to sign or deliver such
other documents as Equity Funds I may reasonably require to establish
eligibility for purchase at net asset value. 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. ("RFS") 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 RFS in writing that it has the requisite number of employees and
has received written confirmation back from RFS. 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.
Purchases of Class A Shares at net asset value may also be made by any
group retirement plan (excluding defined benefit pension plans) that purchases
39
<PAGE>
shares through a retirement plan alliance program that requires shares to be
available at net asset value, provided RFS either is the sponsor of the alliance
program or has a product participation agreement with the sponsor of the
alliance program.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Investments 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 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 under Investment Plans.
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
under Purchasing Shares.
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 by
any such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or Equity Funds I 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
40
<PAGE>
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. Those purchasers may include the value (at
offering price at the level designated in their Letter of Intention) of all
Classes of shares of a Fund and of the other mutual funds in Delaware
Investments previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter, except as described below.
Those purchasers cannot include shares that did not carry a front-end sales
charge, CDSC or Limited CDSC, unless the purchaser acquired those shares through
an exchange from a Delaware Investments fund that did carry a front-end sales
charge, CDSC or Limited CDSC.
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
When you determine the availability of the reduced front-end sales
charges on Class A Shares, you can include, subject to the exceptions described
below, the total amount of any Class of shares you own of a Fund and all other
Delaware Investments mutual funds. In addition, if you are an investment
advisory client of the Manager's affiliates you may include assets held in a
stable value account in the total amount. However, you cannot include mutual
fund shares that do not carry a front-end sales charge, CDSC or Limited CDSC,
unless you acquired those shares through an exchange from a Delaware Investments
mutual fund that did carry a front-end sales charge, CDSC or Limited CDSC.
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
When you determine the availability of the reduced front-end sales
charges on Class A Shares, you can include, subject to the exceptions described
below, the total amount of any Class of shares you own of a Fund and all other
Delaware Investments mutual funds. However, you cannot include mutual fund
shares that do not carry a front-end sales charge, CDSC or Limited CDSC, unless
you acquired those shares through an exchange from a Delaware Investments mutual
fund that did carry a front-end sales charge, CDSC or Limited CDSC. If, for
example, any such purchaser has previously purchased and still holds Class A
Shares and/or shares of any other of the classes described in the previous
sentence with a value of $40,000 and subsequently purchases $10,000 at offering
price of additional shares of Class A Shares, the charge applicable to the
$10,000 purchase would currently be 4.75%. For the purpose of this calculation,
the shares presently held shall be valued at the public offering price that
would have been in effect were the shares purchased simultaneously with the
41
<PAGE>
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 and Class B Shares of a Fund (and of the
Institutional Class holding shares which were acquired through an exchange from
one of the other mutual funds in the Delaware Investments family 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 the same
Class of the Fund or in the same Class of any of the other funds in the Delaware
Investments family. In the case of Class A Shares, the reinvestment will not be
assessed a front-end sales charge and in the case of Class B Shares, the amount
of the CDSC previously charged on the redemption will be reimbursed by the
Distributor. The reinvestment will be subject to applicable eligibility and
minimum purchase requirements and must be in states where shares of such other
funds may be sold. This reinvestment 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 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. In the case of
Class B Shares, the time that the previous investment was held will be included
in determining any applicable CDSC due upon redemptions as well as the automatic
conversion into Class A Shares.
A redemption and reinvestment of Class B Shares could have income tax
consequences. Shareholders will receive from the Distributor the amount of the
CDSC paid at the time of redemption as part of the reinvested shares, which may
be treated as a capital gain to the shareholder for tax purposes. 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 the 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 each Fund's shareholder servicing agent, about the
applicability of the Class A Limited CDSC 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 in the Prospectus,
based on total plan assets. If a company has more than one plan investing in the
Delaware Investments family of funds, then the total amount invested in all
plans would be used in determining the applicable front-end sales charge
reduction upon each purchase, both initial and subsequent, upon notification to
the Fund in which the investment is being made at the time of each such
purchase. Employees participating in such Group Investment Plans may also
combine the investments made in their plan account when determining the
applicable front-end sales charge on purchases to non-retirement Delaware
Investments investment accounts if they so notify the Fund in which they are
investing in connection with each purchase. See Retirement Plans for the Fund
Classes under Investment Plans for information about Retirement Plans.
The Limited CDSC is generally applicable to any redemptions of net
asset value purchases made on behalf of a 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. Notwithstanding the
42
<PAGE>
foregoing, the Limited CDSC for Class A Shares on which a dealer's commission
has been paid will be waived in connection with redemptions by certain group
defined contribution retirement plans that purchase shares through a retirement
plan alliance program which requires that shares will be available at net asset
value, provided that RFS either is the sponsor of the alliance program or has a
product participation agreement with the sponsor of the alliance program that
specifies that the Limited CDSC will be waived.
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, if any, 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
43
<PAGE>
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 and Institutional Class 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 and
Institutional Class Shares, but may not exchange their 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 or quarterly 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
44
<PAGE>
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 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.
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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 Redemption and Exchange for a brief summary of the tax consequences
of exchanges. Shareholders can terminate their participation in Wealth Builder
at any time by giving written notice to the fund from which exchanges are made.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Classes.
Asset Planner
To invest in Delaware Investments funds using the Asset Planner asset
allocation service, you should complete an Asset Planner Account Registration
Form, which is available only from a financial adviser or investment dealer.
Effective September 1, 1997, the Asset Planner Service is only available to
financial advisers or investment dealers who have previously used this service.
The Asset Planner service offers a choice of four predesigned asset allocation
strategies (each with a different risk/reward profile) in predetermined
percentages in Delaware Investments funds. With the help of a financial adviser,
you may also design a customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange. Also see
Buying Class A Shares at Net Asset Value. The minimum initial investment per
Strategy is $2,000; subsequent investments must be at least $100. Individual
fund minimums do not apply to investments made using the Asset Planner service.
Class A, Class B and Class C Shares are available through the Asset Planner
service. Generally, only shares within the same class may be used within the
same Strategy. However, Class A Shares of a Fund and of other funds in the
Delaware Investments family may be used in the same Strategy with consultant
class shares that are offered by certain other Delaware Investments funds.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.
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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 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
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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 $32,000 ($52,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $52,000 and $62,000, and for
single individuals with incomes between $32,000 and $42,000. 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.
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Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA. As a
result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Act"), the $2,000 annual limit will not be reduced by any contributions to
a deductible or nondeductible IRA for the same year. The maximum contribution
that can be made to a Roth IRA is phased out for single filers with AGI between
$95,000 and $110,000, and for couples filing jointly with AGI between $150,000
and $160,000. Qualified distributions from a Roth IRA would be exempt from
federal taxes. Qualified distributions are distributions (1) made after the
five-taxable year period beginning with the first taxable year for which a
contribution was made to a Roth IRA and (2) that are (a) made on or after the
date on which the individual attains age 59 1/2, (b) made to a beneficiary on or
after the death of the individual, (c) attributed to the individual being
disabled, or (d) for a qualified special purpose (e.g., first time homebuyer
expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the conversion
is done prior to January 1, 1999, then the income from the conversion can be
included in income ratably over a four-year period beginning with the year of
conversion.
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.
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
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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 includable in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
education 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.
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.
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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 or certain other authorized
persons. Orders for purchases of Class B Shares, Class C Shares and
Institutional Class Shares are effected at the net asset value per share next
calculated after receipt of the order by Equity Funds I, its agent or certain
other authorized persons. See Distribution and Service under Investment
Management Agreement. Selling dealers are responsible for transmitting orders
promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable sales charges. Offering price and net asset value
are computed as of the close of regular trading on the New York Stock Exchange
(ordinarily, 4 p.m., Eastern time) on days when the Exchange is open. The New
York Stock Exchange is scheduled to be open Monday through Friday throughout the
year except for days on which the following holidays are observed: New Year's
Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the New York
Stock Exchange is closed, the Funds will generally be closed, pricing
calculations will not be made and purchase and redemption orders will not be
processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in 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 of the 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
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has been approved by the Board of Trustees. 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. For all other securities, we use
methods approved by the Board of Trustees that are designed to price securities
at their fair market value.
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'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. 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. An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve a capital gain or loss to the
shareholder for federal tax purposes. 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 the Prospectuses. 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
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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 Agreement); 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 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.
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Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value, below.
Class B Shares are subject to a CDSC of: (i) 5% if shares are redeemed within
the first year of purchase; (ii) 4% if shares are redeemed during the second
year following purchase; (iii) 3% if shares are redeemed during the third or
fourth year following purchase; (iv) 2% if shares are redeemed during the fifth
year following purchase; and (v) 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, a bank wire
fee may be deducted, 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 One Commerce Square, 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 or Institutional Class 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 and Institutional Class
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 One Commerce Square, 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 or Institutional Class Shares in
certificate form, you may redeem or exchange only by written request and you
must return your certificates.
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The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes are generally tape recorded, and a written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. If the
proceeds are wired to the shareholder's account at a bank which is not a member
of the Federal Reserve System, there could be a delay in the crediting of the
funds to the shareholder's bank account. A bank wire fee may 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
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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.
Timing Accounts
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.
Redemptions of Timing Accounts -- Redemption requests made from Timing
Accounts will be made only by check. Redemption proceeds from these accounts
will not be wired to shareholder bank accounts. Such checks will be sent no
later than seven days after receipt of a redemption request in good order.
Restrictions on Timed Exchanges -- Timing Accounts operating under
existing timing agreements may only execute exchanges between the following
eight Delaware Investments funds: (1) Delaware Decatur Equity Income Fund, (2)
Delaware Growth and Income Fund, (3) Delaware Balanced Fund, (4) Delaware
Limited-Term Government Fund, (5) Delaware Tax-Free USA Fund, (6) Delaware Cash
Reserve Fund, (7) Delaware Delchester Fund and (8) Delaware 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
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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 Limited CDSC for Class A Shares and CDSC for Class B and C Shares
redeemed via a Systematic Withdrawal Plan will be waived if the annual amount
withdrawn in each year is less than or equal to 12% of the account balance on
the date that the Plan is established. If the annual amount withdrawn in any
year exceeds 12% of the account balance on the date that the Systematic
Withdrawal Plan is established, all redemptions under the Plan will be subjected
to the applicable contingent deferred sales charge, including an assessment for
previously redeemed amounts under the Plan. Whether a waiver of the contingent
deferred sales charge is available or not, the first shares to be redeemed for
each Systematic Withdrawal Plan payment will be those not subject to a
contingent deferred sales charge because they have either satisfied the required
holding period or were acquired through the reinvestment of distributions. See
Waiver of Contingent Deferred Sales Charges, 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. Each Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
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 the 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
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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.
Waivers of Contingent Deferred Sales Charges
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; (viii) distributions form an account if the redemption results
from a death of a registered owner, or a registered joint owner, 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 disability (as defined in Section 72
of the Code) of all registered owners occurring after the purchase of the shares
being redeemed; (ix) redemptions by certain group defined contribution
retirement plans that purchase shares through a retirement plan alliance program
which requires that shares will be available at net asset value, provided that
RFS either is the sponsor of the alliance program or has a product participation
agreement with the sponsor of the alliance program that specifies that the
Limited CDSC will be waived; and (x) 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 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
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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 a registered owner, or a registered joint owner, of the account (in the
case of accounts established under the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts or trust accounts, the waiver applies upon the death of
all beneficial owners) or a total and permanent disability (as defined in
Section 72 of the Code) of all registered owners occurring after the purchase of
the shares being redeemed.
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from a Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Internal
Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred Compensation
Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or a 401(k)
Defined Contribution Plan upon attainment of normal retirement age under the
plan or upon separation from service; (vi) periodic distributions from an IRA or
SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of a registered owner, or a
registered joint owner, 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 applicable Limited CDSC for Class A Shares and CDSC for Class B and
C Shares redeemed via a Systematic Withdrawal Plan will be waived if the annual
amount withdrawn in each year is less than 12% of the account balance on the
date that the Plan is established.
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
Delaware Balanced Fund will normally make payments from net investment
income on a quarterly basis. Delaware Devon Fund will normally make payments
from net investment income on an annual 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
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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, 2000, 26% of dividends paid from net investment
income of Delaware Balanced Fund were eligible for this deduction. None of
Delaware Devon Fund's dividends from net investment income qualified for the
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 Purchasing 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 Delaware Devon Fund had a net unrealized appreciation for tax
purposes of $40,396,485 and $5,916,342 respectively, as of October 31, 2000.
Under the Taxpayer Relief Act of 1997, as revised by the Internal
Revenue Service Restructuring and Reform Act of 1998 (the "1998 Act") and the
Omnibus Consolidated and Emergency Supplemental Appropriations Act, a Fund is
required to track its sales of portfolio securities and to report its capital
gain distributions to you according to the following categories of holding
periods:
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"Long-term capital gains": gains on securities sold after December 31,
1997 and held for more than 12 months as capital assets in the hands of the
holders are taxed at the 20% rate when distributed to shareholders (10% for
individual investors in the 15% bracket).
"Short-term capital gains": gains on securities sold by a Fund that do
not meet the long-term holding period are considered short-term capital gains
and are taxed as ordinary income.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
five-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 five-year gains are net gains on securities which are
purchased after December 31, 2000 and are held for more than five years.
Taxpayers subject to tax at a higher rate brackets may also make an election for
shares held on January 1, 2001 to recognize gain on their shares in order to
qualify such shares as qualified five-year property. These gains will be taxable
to individual investors at a maximum rate of 18% for investors in the 28% or
higher federal income tax brackets, and at a maximum rate of 8% for investors in
the 15% federal income tax bracket when sold after the five-year holding period.
Any loss incurred on the redemption or exchange of shares held for six
months or less will be disallowed to the extent of any exempt-interest dividends
distributed to you with respect to your Fund shares and any remaining loss will
be treated as a long-term capital loss to the extent of any long-term capital
gains distributed to you by the Fund on those shares.
All or a portion of any loss that you realize upon the redemption of
your Fund shares will be disallowed to the extent that you buy other shares in
the Fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
If you redeem some or all of your shares in a Fund, and then reinvest
the sales proceeds in such Fund or in another Delaware Investments fund within
90 days of buying the original shares, the sales charge that would otherwise
apply to your reinvestment may be reduced or eliminated. The IRS will require
you to report gain or loss on the redemption of your original shares in a Fund.
In doing so, all or a portion of the sales charge that you paid for your
original shares in a Fund will be excluded from your tax basis in the shares
sold (for the purpose of determining gain or loss upon the sale of such shares).
The portion of the sales charge excluded will equal the amount that the sales
charge is reduced on your reinvestment. Any portion of the sales charge excluded
from your tax basis in the shares sold will be added to the tax basis of the
shares you acquire from your reinvestment.
Shareholders will be notified annually by Equity Funds I 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;
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<PAGE>
(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
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<PAGE>
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 the new law, a Fund is required to record at fiscal
year end (and at calendar year end for excise tax purposes) an adjustment that
reflects the difference between the spot rates recorded for each transaction and
the year-end average exchange rate for all of a Fund's foreign securities
transactions. There is a possibility that the mutual fund industry will be given
relief from this new provision, in which case no year-end adjustments will be
required.
The Funds may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the total assets of a
Fund at the end of its fiscal year are invested in securities of foreign
corporations, a Fund may elect to pass-through to you your pro rata share of
foreign taxes paid by a Fund. If this election is made, you will be: (i)
required to include in your gross income your pro rata share of foreign source
income (including any foreign taxes paid by a Fund); and (ii) entitled to either
deduct your share of such foreign taxes in computing your taxable income or to
claim a credit for such taxes against your U.S. income tax, subject to certain
limitations under the Code. You will be informed by a Fund at the end of each
calendar year regarding the availability of any such foreign tax credits and the
amount of foreign source income (including any foreign taxes paid by a Fund). If
a Fund elects to pass-through to you the foreign income taxes that it has paid,
you will be informed at the end of the calendar year of the amount of foreign
taxes paid and foreign source income that must be included on your federal
income tax return. If a Fund invests 50% or less of its total assets in
securities of foreign corporations, it will not be entitled to pass-through to
you your pro-rata shares of foreign taxes paid by a Fund. In this case, these
taxes will be taken as a deduction by a Fund, and the income reported to you
will be the net amount after these deductions. The 1997 Act also simplified the
procedures by which investors in funds that invest in foreign securities can
claim tax credits on their individual income tax returns for the foreign taxes
paid by a Fund. These provisions will allow investors who pay foreign taxes of
$300 or less on a single return or $600 or less on a joint return during any
year (all of which must be reported on IRS Form 1099-DIV from a Fund to the
investor) to claim a tax credit against their U.S. federal income tax for the
amount of foreign taxes paid by a Fund. This process will allow you, if you
qualify, to bypass the burdensome and detailed reporting requirements on the
foreign tax credit schedule (Form 1116) and report your foreign taxes paid
directly on page 2 of Form 1040.
Investment in Passive Foreign Investment Company securities--The Funds
may invest in shares of foreign corporations which may be classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. If a Fund receives an "excess distribution"
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<PAGE>
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 AGREEMENT
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's Board of Trustees.
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<PAGE>
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On October 31, 2000, the Manager and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $43 billion in assets in
the various institutional or separately managed (approximately $24,391,600,000)
and investment company (approximately $19,123,190,000) accounts.
The Investment Management Agreement for the Funds is dated December 28,
1999 and was approved by the initial shareholder on that date. The 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 Trustees 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 trustees of Equity
Funds I who are not parties thereto or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Agreement is terminable without penalty on 60 days' notice by the trustees
of Equity Funds I or by the Manager. The Agreement will terminate automatically
in the event of its assignment.
The Investment Management Agreement provides that each Fund shall pay
the Manager an annual management fee as a percentage of average daily net assets
equal to:
--------------------------------------------------
0.65% on first $500 million
--------------------------------------------------
--------------------------------------------------
0.60% on next $500 million
--------------------------------------------------
--------------------------------------------------
0.55% on next $1,500 million
--------------------------------------------------
--------------------------------------------------
0.50% on assets in excess of $2,500 million
--------------------------------------------------
On October 31, 2000, the total net assets of Delaware Balanced Fund
were $522,772,137 and the total net assets of Delaware Devon Fund were
$167,151,979. Under the general supervision of the Board of Trustees, the
Manager makes all investment decisions which are implemented by each Fund. The
Manager pays the salaries of all trustees, officers and employees who are
affiliated with both the Manager and Equity Funds I. The investment management
fees paid by Delaware Balanced Fund for the fiscal years ended October 31, 1998,
1999 and 2000 were $4,178,981, $5,368,105 and $3,911,319, respectively.
Investment management fees incurred by Delaware Devon Fund for the fiscal years
ended October 31, 1998, 1999 and 2000 were $951,036, $2,124,651 and $1,445,429,
respectively.
Except for those expenses borne by the Manager under the Investment
Management Agreement 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.
From January 1, 1999 through June 30, 1999, the Manager elected
voluntarily to waive that portion, if any, of the annual management fees payable
by Delaware 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). From commencement of the Fund's operations through
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<PAGE>
December 31, 1998, 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 (exclusive
of taxes, interest, brokerage commissions, extraordinary expenses and 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 One Commerce Square,
Philadelphia, PA 19103, serves as the national distributor of each Fund's shares
under separate Distribution Agreements dated December 28, 1999. 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 One Commerce Square, Philadelphia, PA 19103, serves as
each Funds' shareholder servicing, dividend disbursing and transfer agent
pursuant to a Shareholders Services Agreement dated December 28, 1999. 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 trustees 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.
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<PAGE>
OFFICERS AND TRUSTEES
The business and affairs of Equity Funds I are managed under the
direction of its Board of Trustees.
Certain officers and trustees of Equity Funds I hold identical
positions in each of the other funds in Delaware Investments. As of November 30,
2000, Equity Funds I's officers and trustees 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 trustees owned less than 1%
of the outstanding shares of Delaware Devon Fund A Class, Delaware Devon Fund B
Class, Delaware Devon Fund C Class and Delaware Devon Fund Institutional Class.
As of November 30, 2000, management believes the following accounts
held of record 5% or more of the outstanding shares of Class A Shares, Class B
Shares, Class C Shares and the Institutional Class of each Fund. Management does
not have knowledge of beneficial owners.
<TABLE>
<CAPTION>
------------------------------- ---------------------------------------------------- ------------------- -------------------
Class Name and Address of Account Share Amount Percentage
----- --------------------------- ------------ ----------
------------------------------- ---------------------------------------------------- ------------------- -------------------
<S> <C> <C> <C>
Delaware Balanced Merrill Lynch, Pierce, Fenner & Smith, Inc., 41,998.230 7.18%
Fund For the Sole Benefit of its Customers
C Class SEC #97HY8
Attention: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
------------------------------- ---------------------------------------------------- ------------------- -------------------
Delaware Balanced Norwest Bank Colorado NA Cust 209,181.170 14.77%
Fund County of Milwaukee
Institutional Class Deferred Compensation Plan
Great West Life Recordkeeper
8515 E. Orchard Rd.
Englewood, CO 80111-5037
------------------------------- ---------------------------------------------------- ------------------- -------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
------------------------------- ---------------------------------------------------- ------------------- -------------------
Class Name and Address of Account Share Amount Percentage
----- --------------------------- ------------ ----------
------------------------------- ---------------------------------------------------- ------------------- -------------------
<S> <C> <C> <C>
RS DMTC 457 Deferred Comp Plan 190,104.410 13.42%
PGW 457 Plan
Attn: William Ambrose
800 West Montgomery Avenue
Philadelphia, PA 19122
------------------------------- ---------------------------------------------------- ------------------- -------------------
RS Non Trust 401(k) Plan 148,832.320 10.51%
National Elevator Industries 401(k) Plan
Attn: Robert O. Betts
19 Campus Blvd.
Newtown Square, PA 19073
------------------------------- ---------------------------------------------------- ------------------- -------------------
RS 401(k) Plan 136,651.100 9.65%
Waterfield Group 401(k) Plan
Attn: Rebecca Teagarden
7500 West Jefferson
Fort Wayne, IN 46804
------------------------------- ---------------------------------------------------- ------------------- -------------------
RS DMTC 401(k) Plan 113,561.790 8.02%
Long John Silvers Inc 401(k) Plan
Attn: Jeannie Metcalf
PO Box 11988
Lexington, KY 40579
------------------------------- ---------------------------------------------------- ------------------- -------------------
RS DMC Employee Profit Sharing Plan 112,193.120 7.92%
Delaware Management Company
Employee Profit Sharing Trust
Attn: Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3638
------------------------------- ---------------------------------------------------- ------------------- -------------------
RS DMTC Money Purchase Pension Plan 97,781.100 6.90%
Clayton Foundation Retirement Plan
Attn: Jarred Sloan
One Riverway
Suite 1440
Houston, TX 77056
------------------------------- ---------------------------------------------------- ------------------- -------------------
Delaware Devon Fund Merrill Lynch, Inc.
B Class Mutual Fund Operations
Attention: Book Entry
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246
------------------------------- ---------------------------------------------------- ------------------- -------------------
Delaware Devon Fund Merrill Lynch Inc. 230,391.500 6.19%
B Class Mutual Fund Operations SEC# 97FA0
Attention: Book Entry
4800 Deer Lake Drive east, 2nd Floor
Jacksonville, FL 32246-6486
------------------------------- ---------------------------------------------------- ------------------- -------------------
Delaware Devon Fund Merrill Lynch, Pierce, Fenner & Smith, Inc. 78,821.430 10.39%
C Class For the Sole Benefit of its Customers
SEC# 97H05
Attention: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246
------------------------------- ---------------------------------------------------- ------------------- -------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
------------------------------- ---------------------------------------------------- ------------------- -------------------
Class Name and Address of Account Share Amount Percentage
----- --------------------------- ------------ ----------
------------------------------- ---------------------------------------------------- ------------------- -------------------
<S> <C> <C> <C>
Delaware Devon Fund RS 401(k) Plan 241,843.960 31.83%
Institutional Class Waterfield Group 401(k) Plan
Attn: Rebecca Teagarden
7500 West Jefferson
Fort Wayne, IN 46804
------------------------------- ---------------------------------------------------- ------------------- -------------------
RS DMTC 401(k) Plan 167,326.980 22.02%
Strick Corporation
Attn: Maureen Arnoldy
225 Lincoln Highway
Fairless Hills, PA 19030
------------------------------- ---------------------------------------------------- ------------------- -------------------
RS DMC Employee Profit Sharing Plan 166,202.540 21.88%
Delaware Management Company
Employee Profit Sharing Trust
Attn: Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3638
------------------------------- ---------------------------------------------------- ------------------- -------------------
RS DMTC 401(k) Plan 93,811.680 12.35%
Royal Appliance 401(k) Plan
Attn: Michele King
7005 Cochran Road
Glenwillow, OH 44139
------------------------------- ---------------------------------------------------- ------------------- -------------------
</TABLE>
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<PAGE>
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., Delaware General
Management, Inc. and Retirement Financial Services, Inc. are direct or indirect,
wholly owned subsidiaries of Delaware Management Holdings, Inc. ("DMH"). DMH and
the Manager are indirect, wholly owned subsidiaries, and subject to the ultimate
control, of Lincoln National Corporation. Lincoln National Corporation, with
headquarters in Philadelphia, Pennsylvania, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
Trustees and principal officers of Equity Funds I 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 trustee is One Commerce Square,
Philadelphia, PA 19103.
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
*/**Wayne A. Stork (63) Chairman, Trustee/Director of Equity Funds I and each of the other 32
investment companies in the Delaware Investments family.**
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.
Prior to January 1, 2000, Mr. Stork was Chairman and Director of Delaware
Management Holdings, Inc. and a Director of Delaware International Advisers
Ltd.
In addition, during the five years prior to January 1, 2000, Mr. Stork has
served in various executive capacities at different times within Delaware
Investments.
------------------------------------------- ----------------------------------------------------------------------------------
--------------
*Trustee affiliated with Equity Funds I's investment manager and considered an "interested person" as defined in the 1940 Act.
**Mr. Stork is retiring from Delaware Investments on January 8, 2001.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
*David K. Downes (60) President, Chief Executive Officer, Chief Financial Office and
Trustee/Director of Equity Funds I and each of the other 32 investment
companies in the Delaware Investments family.
President and Director of Delaware Management Company, Inc.
President of Delaware Management Company (a series of Delaware Management
Business Trust)
President, Chief Executive Officer and Director of Delaware Capital
Management, Inc.
Chairman, President, Chief Executive Officer and Director of Delaware
Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware International Holdings Ltd.
President, Chief Operating Officer, and Director of Delaware General
Management, Inc.
Chairman and Director of Delaware Management Trust Company and Retirement
Financial Services, Inc.
Executive Vice President, Chief Operating Officer, Chief Financial Officer
of Delaware Management Holdings, Inc., Founders CBO Corporation, Delaware
Distributors, L.P. and Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President, Chief Financial Officer, Chief Operating Officer
and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial Officer
and Director of DMH Corp., Delaware Distributors, Inc., Founders Holdings,
Inc. and Delvoy, Inc.
Executive Vice President, Chief Operating Officer, Chief Financial Officer
and Director of Vantage Global Advisors, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various executive
capacities at different times within Delaware Investments.
------------------------------------------- -------------------------------------------------------------------------------
--------------------------
*Trustee affiliated with Equity Funds I's investment manager and considered an "interested person" as defined in the 1940 Act.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Walter P. Babich (72) Trustee/Director of Equity Funds I and each of the other 32 investment
companies in the Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from 1988
to 1991, he was a partner of I&L Investors.
------------------------------------------- -------------------------------------------------------------------------------
John H. Durham (63) Trustee/Director of Equity Funds I and each of the other 32 investment
companies in the Delaware Investments family
Private Investor.
P.O. Box 819, Gwynedd Valley, PA 19437
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. He was also a Partner of Complete Care Services from 1995 to 1999.
------------------------------------------- -------------------------------------------------------------------------------
Anthony D. Knerr (61) Trustee/Director of Equity Funds I and each of the other 32 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.
------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Ann R. Leven (59) Trustee/Director of Equity Funds I and each of the other 32 investment
companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Retired Treasurer, National Gallery of Art
From 1994 to 1999, Ms. Leven was the Treasurer of the National Gallery of
Art and from 1990 to 1994, Ms. Leven was Deputy Treasurer of the National
Gallery of Art. In addition, 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.
------------------------------------------- -------------------------------------------------------------------------------
Thomas F. Madison (64) Trustee/Director of Equity Funds I and each of the other 32 investment
companies in the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
From 1996 to 1999, Mr. Madison was Chairman of the Board of Communications
Holdings, Inc. 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 (74) Trustee/Director of Equity Funds I and each of the other 32 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.
------------------------------------------- -------------------------------------------------------------------------------
Janet L. Yeomans (52) Trustee/Director of Equity Funds I and each of the other 32 investment
companies in the Delaware Investments family.
Building 220-13W-37, St. Paul, MN 55144
Vice President and Treasurer, 3M Corporation.
From 1987-1994, Ms. Yeomans was Director of Benefit Funds and Financial Markets
for the 3M Corporation; Manager of Benefit Fund Investments for the 3M
Corporation, 1985-1987; Manager of Pension Funds for the 3M Corporation,
1983-1985; Consultant--Investment Technology Group of Chase Econometrics,
1982-1983; Consultant for Data Resources, 1980-1982; Programmer for the Federal
Reserve Bank of Chicago, 1970-1974.
------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
** Mr. Peck is retiring from the Board of Trustees of Equity Funds I and each of
the other 32 investment companies in the Delaware Investments family on
December 31, 2000.
73
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------------------------------------------
Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
William E. Dodge (51) Executive Vice President and Chief Investment Officer, Equity of Equity Funds
I and each of the other 32 investment companies in the Delaware Investments
family and Delaware Management Company (a series of Delaware Management
Business Trust)
Executive Vice President of Delaware Management Business Trust and Delaware
Capital Management, Inc.
Executive Vice President, Equity and Director of Vantage Global Advisors, Inc.
President and Chief Investment Officer, Equity of Delaware Investment Advisers
(a series of Delaware Management Business Trust)
Prior to joining Delaware Investments in 1999, Mr. Dodge was President, Director
of Marketing and Senior Portfolio Manager for Marvin & Palmer Associates.
------------------------------------------- -------------------------------------------------------------------------------
Jude T. Driscoll (37) Executive Vice President/Head of Fixed Income of Equity Funds I, each of the
other 32 investment companies in the Delaware Investments family, Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Investment Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 2000, Mr. Driscoll was Senior Vice
President, Director of Fixed Income Process at Conseco Capital Management from
June 1998 to August 2000. Prior to that, he was Managing Director for
NationsBanc Capital Markets from 1996 to 1998, Vice President of Goldman Sachs
from 1991-1995 and Assistant Vice President of Conseco Capital Management from
1989 to 1990.
------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------------------------------------------
Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Richard J. Flannery (43) Executive Vice President/General Counsel and Chief Administrative Officer of
Delaware Management Company (a series of Delaware Management Business Trust);
Executive Vice President/General Counsel and Chief Administrative Officer of
Delaware Management Holdings, Inc.; Executive Vice President/General Counsel
and Chief Administrative Officer of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Executive Vice President/General Counsel
and Chief Administrative Officer of Founders CBO Corporation; Executive Vice
President/General Counsel, Director and Chief Administrative Officer of
Delaware International Holdings Ltd.; Executive Vice President/General
Counsel, Chief Administrative Officer and Director of Founders Holdings,
Inc.; Executive Vice President/General Counsel, Chief Administrative Officer
and Director of Delvoy, Inc.; Executive Vice President/General Counsel, Chief
Administrative Officer and Director of DMH Corp.; Executive Vice
President/General Counsel, Chief Administrative Officer and Director of
Delaware Management Company, Inc.; Executive Vice President/General Counsel,
Chief Administrative Officer and Trustee of Delaware Management Business
Trust; Executive Vice President/General Counsel, Chief Administrative Officer
and Director of Delaware Service Company, Inc.; Executive Vice
President/General Counsel, Chief Administrative Officer and Director of
Delaware Capital Management, Inc.; Executive Vice President/General Counsel,
Chief Administrative Officer and Director of Retirement Financial Services,
Inc.; Executive Vice President/General Counsel, Chief Administrative Officer
and Director of Delaware Distributors, Inc.; Executive Vice President/General
Counsel of Delaware Distributors, L.P.; Executive Vice President/General
Counsel, Chief Administrative Officer and Director of Delaware Management
Trust Company; Executive Vice President/General Counsel, Chief Administrative
Officer and Director of Delaware General Management, Inc.;
Director of Delaware International Advisers Ltd.;
Chief Administrative Officer and Director of HYPPCO Finance Company Ltd.;
Executive Vice President/General Counsel and Chief Administrative Officer of
each fund in the Delaware Investments family
Executive Vice President/General Counsel, Chief Administrative Officer and
Director of Vantage Global Advisors, Inc.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverson,
PA; Director and Member of Executive Committee; Membership Officer of
Stonewall Links, Inc. since 1991, Bulltown Rd., Elverson, PA
------------------------------------------- -------------------------------------------------------------------------------
Richelle S. Maestro (42) Senior Vice President/Deputy General Counsel and Secretary of Equity Funds I
and each of the other 32 investment companies in the Delaware Investments
family, Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Management Holdings, Inc., DMH Corp., Delvoy, Inc., Delaware
Management Company, Inc., Delaware Management Business Trust, Delaware
Investment Advisers (a series of Delaware Management Business Trust),
Delaware Service Company, Inc., Delaware Capital Management, Inc., Retirement
Financial Services, Inc., Delaware Distributors, Inc., Delaware Distributors,
L.P., Delaware Management Trust Company, Delaware General Management, Inc.,
Delaware International Holdings Ltd., Founders Holdings, Inc.
Secretary of Founders CBO Corporation
Secretary of Lincoln National Investments Companies, Inc.
During the past five years, Ms. Maestro has served in various executive
capacities at different times within Delaware Investments.
------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------------------------------------------
Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Joseph H. Hastings (50) Senior Vice President/Corporate Controller of Equity Funds I and each of the
other 32 investment companies in the Delaware Investments family and Delaware
Investment Advisers (a series of Delaware Management Business Trust).
Senior Vice President/Corporate Controller of Vantage Global Advisors, 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., Founders Holdings, Inc., Delaware General
Management, Inc. and Delaware Management Business Trust
Chief Financial Officer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
During the past five years, Mr. Hastings has served in various executive
capacities at different times within Delaware Investments.
------------------------------------------- -------------------------------------------------------------------------------
Michael P. Bishof (38) Senior Vice President and Treasurer of Equity Funds I and each of the other
32 investment companies in the Delaware Investments family.
Senior Vice President/Investment Accounting of Delaware Service Company, Inc.
and Delaware Capital Management, Inc., Delaware Distributors, L.P., Delaware
Management Company (a series of Delaware Management Business Trust) and
Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Vantage Global Advisors, Inc.
Senior Vice President and Treasurer/ Investment Accounting of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Senior Vice President/Manager of Investment Accounting of Delaware
International Holdings, Inc.
Senior Vice President and Assistant Treasurer of Founders CBO Corporation
Prior to 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.
------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------------------------------------------
Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
John B. Jares (34) Vice President/Senior Portfolio Manager of Equity Funds I and each of the
other 32 investment companies in the Delaware Investments family, Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Investment Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in March 2000, Mr. Jares served as a
portfolio manager for Berger Funds. Prior to joining Berger, Mr. Jares was a
senior equity analyst at Founders Asset Management.
------------------------------------------- -------------------------------------------------------------------------------
Paul Grillo (41) Vice President/Portfolio Manager of Equity Funds I and each of the other 32
investment companies in the Delaware Investments family, Delaware Management
Company (a series of Delaware Management Business Trust) and Delaware
Investment Advisers (a series of Delaware Management Business Trust).
During the past five years, Mr. Grillo has served in various executive capacities
at different times within Delaware Investments.
------------------------------------------- -------------------------------------------------------------------------------
Stephen R. Cianci (31) Vice President/Portfolio Manager of Equity Funds I and each of the other 32
investment companies in the Delaware Investments family, Delaware Management
Company (a series of Delaware Management Business Trust) and Delaware
Investment Advisers (a series of Delaware Management Business Trust)
During the past five years, Mr. Cianci has served in various capacities at
different times within the Delaware Investments.
------------------------------------------- -------------------------------------------------------------------------------
Frank X. Morris (39) Vice President/Senior Portfolio Manager of Equity Funds I and each of the
other 32 investment companies in the Delaware Investments family, Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Investment Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 1997, Mr. Morris served as Vice
President and Director of Equity Research at PNC Asset Management.
------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from Equity Funds I
and the total compensation received from all investment companies in the
Delaware Investments family for which he or she serves as a trustee or director
for the fiscal year ended October 31, 2000 and an estimate of annual benefits to
be received upon retirement under the Delaware Investments Retirement Plan for
Trustees/Directors as of October 31, 2000. Only the independent trustees of
Equity Funds I receive compensation from the Funds.
<TABLE>
<CAPTION>
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
Pension or
Retirement Benefits Total Compensation from
Aggregate Accrued Estimated Annual the Investment
Compensation from as Part of Benefits Companies in Delaware
Name Equity Funds I Fund Expenses Upon Retirement(1) Investments(2)
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
<S> <C> <C> <C> <C>
Walter P. Babich $3,232 none $50,000 $76,476
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
John H. Durham $2,730 none $50,000 $61,090
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
Anthony D. Knerr $2,982 none $50,000 $71.227
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
Ann R. Leven $2,645 none $50,000 $61,524
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
Thomas F. Madison $2,948 none $50,000 $70,144
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
Charles E. Peck $2,979 none $50,000 $71,143
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
Janet L. Yeomans $2,699 none $50,000 $65,143
--------------------------- ---------------------- ---------------------- ------------------------ ---------------------------
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Trustees/Directors, each disinterested trustee/director 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 trustee or
director for a period equal to the lesser of the number of years that
such person served as a trustee or director 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
trustees/directors of each investment company at the time of such
person's retirement. If an eligible trustee/director retired as of
October 31, 2000, 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 trustee/director receives a total annual retainer fee
of $50,000 for serving as a trustee/director for all 33 investment
companies in Delaware Investments, plus $3,145 for each Board Meeting
attended. Members of the audit committee receive additional
compensation of $5,000 plus $1,000 for each meeting in excess of five
in any calendar year from all investment companies, in the aggregate,
with the exception of the chairperson, who receives $8,000 plus $1,000
for each meeting in excess of five in any calendar year. Members of the
nominating committee receive additional compensation of $1,000 from all
investment companies, in the aggregate, for each committee meeting. In
addition, the chairperson of the nominating committee receives an
annual retainer of $500. The Coordinating Trustee/Director of the
Delaware Investments funds receives an additional retainer of $8,000
from all investment companies.
GENERAL INFORMATION
Equity Funds I was originally organized as a Delaware corporation in
1937 and subsequently reorganized as a Maryland corporation on March 4, 1983 and
as a Delaware business trust on December 28, 1999. It is an open-end management
investment company. Each Funds' portfolio of assets is diversified as defined by
the 1940 Act.
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.
78
<PAGE>
Delaware or Delaware International Advisers Ltd. also manages the
investment options for Delaware-Lincoln ChoicePlus and Delaware Medallion (SM)
III Variable Annuities. ChoicePlus is issued and distributed by Lincoln National
Life Insurance Company. ChoicePlus offers a variety of different investment
styles managed by leading money managers. 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 ChoicePlus and Medallion utilizes an investment strategy and discipline
the same as or similar to one of the Delaware Investments mutual funds available
outside the annuity, although actual performance will differ due to such factors
as different expense levels, asset size and its timing of purchases and
redemptions. See Delaware Group Premium Fund in Appendix A.
The Delaware Investments Family of Funds, the Manager and the
Distributor, in compliance with SEC Rule 17j-1 under the 1940 Act, have adopted
Codes of Ethics which govern personal securities transactions. Under the Codes
of Ethics, persons subject to the Codes are permitted to engage in personal
securities transactions, including securities that may be purchased or held by
the Portfolios, subject to the requirements set forth in Rule 17j-1 and certain
other procedures set forth in the applicable Code of Ethics. The Codes of Ethics
for the Delaware Investments Family of Funds, the Manager and the Distributor
are on public file with, and are available from, the SEC.
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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Delaware Balanced Fund
Class A Shares
-----------------------------------------------------------------------------------
Total
Fiscal Amount of Amounts Net
Year Underwriting Reallowed Commission
Ended Commissions to Dealers to Distributor
----- ----------- ---------- --------------
<S> <C> <C> <C>
------------------ ----------------------- -------------------- -------------------
10/31/00 $314,203 $276,671 $37,532
------------------ ----------------------- -------------------- -------------------
10/31/99 1,052,557 905,390 147,167
------------------ ----------------------- -------------------- -------------------
10/31/98 697,061 583,281 113,780
------------------ ----------------------- -------------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Delaware Devon Fund
Class A Shares
-----------------------------------------------------------------------------------
Total
Fiscal Amount of Amounts Net
Year Underwriting Reallowed Commission
Ended Commissions to Dealers to Distributor
----- ----------- ---------- --------------
<S> <C> <C> <C>
------------------ ----------------------- -------------------- -------------------
10/31/00 $244,289 $213,825 $30,464
------------------ ----------------------- -------------------- -------------------
------------------ ----------------------- -------------------- -------------------
10/31/99 1,546,356 1,332,483 213,873
------------------ ----------------------- -------------------- -------------------
------------------ ----------------------- -------------------- -------------------
10/31/98 1,244,866 1,035,968 208,898
------------------ ----------------------- -------------------- -------------------
</TABLE>
79
<PAGE>
The Distributor received in the aggregate Limited CDSC payments with
respect to Class A Shares of each Fund as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Limited CDSC Payments
--------------------------------------------------------------------------------
Delaware Balanced Fund Delaware Devon Fund
Fiscal Year Ended A Class A Class
----------------- ------- --------
----------------------- ------------------------------ -------------------------
<S> <C> <C>
----------------------- ------------------------------ -------------------------
10/31/00 $137 $235
----------------------- ------------------------------ -------------------------
----------------------- ------------------------------ -------------------------
10/31/99 --0-- --0--
----------------------- ------------------------------ -------------------------
----------------------- ------------------------------ -------------------------
10/31/98 832 1,108
----------------------- ------------------------------ -------------------------
</TABLE>
The Distributor received in the aggregate CDSC payments with respect to
Class B Shares of each Fund as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
CDSC Payments
--------------------------------------------------------------------------------
Delaware Balanced Fund Delaware Devon Fund
Fiscal Year Ended B Class B Class
----------------- ------- --------
----------------------- ------------------------------ -------------------------
<S> <C> <C>
----------------------- ------------------------------ -------------------------
10/31/00 $386,776 $808,879
----------------------- ------------------------------ -------------------------
----------------------- ------------------------------ -------------------------
10/31/99 141,686 403,070
----------------------- ------------------------------ -------------------------
----------------------- ------------------------------ -------------------------
10/31/98 68,259 81,772
----------------------- ------------------------------ -------------------------
</TABLE>
The Distributor received in the aggregate CDSC payments with respect to
Class C Shares of each Fund as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
CDSC Payments
--------------------------------------------------------------------------------
Delaware Balanced Fund Delaware Devon Fund
Fiscal Year Ended C Class C Class
----------------- ------- --------
----------------------- ------------------------------ -------------------------
<S> <C> <C>
----------------------- ------------------------------ -------------------------
10/31/00 $11,724 $21,028
----------------------- ------------------------------ -------------------------
----------------------- ------------------------------ -------------------------
10/31/99 11,276 15,863
----------------------- ------------------------------ -------------------------
----------------------- ------------------------------ -------------------------
10/31/98 2,608 3,673
----------------------- ------------------------------ -------------------------
</TABLE>
80
<PAGE>
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 Trustees, including a majority of the disinterested trustees. 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's advisory
relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Equity Funds I to delete
the words "Delaware Group" from Equity Funds I's name.
81
<PAGE>
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 has a present unlimited authorized number of shares of
beneficial interest with no par value allocated to each Class.
Each Fund currently offers four classes of shares. 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 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 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 offered
Delaware Devon Fund which offered Delaware Devon Fund A Class and Delaware 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 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 Fund series.
Prior to September 6, 1994, Delaware Balanced Fund A Class was known as
Delaware Fund class and Delaware Balanced Fund Institutional Class was known as
Delaware 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.
Effective as of the close of business December 29, 1998, the name of
Delaware Fund and its Classes, changed to Delaware Balanced Fund.
Effective as of August 16, 1999, the name of Devon Fund and its Classes
changed to Delaware Devon Fund.
Effective as of December 28, 1999, the name of Delaware Group Equity
Funds I, Inc. changed to Delaware Group Equity Funds I.
Shares do not have preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.
82
<PAGE>
Noncumulative Voting
Equity Funds I shares have noncumulative voting rights which means that
the holders of more than 50% of the shares of Equity Funds I voting for the
election of trustees can elect all the trustees if they choose to do so, and, in
such event, the holders of the remaining shares will not be able to elect any
trustees.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Equity Funds I
and, in its capacity as such, audits the financial statements contained in each
Fund's Annual Report. Each Fund's Statement of Net Assets, Statement of
Operations, Statement of Changes in Net Assets, Financial Highlights, and Notes
to Financial Statements, as well as the report of Ernst & Young LLP, independent
auditors, for the fiscal year ended October 31, 2000, are included in the Fund's
Annual Report to shareholders. The financial statements and financial
highlights, the notes relating thereto and the reports of Ernst & Young LLP
listed above are incorporated by reference from the Annual Reports into this
Part B.
83
<PAGE>
APPENDIX A--INVESTMENT OBJECTIVES OF THE FUNDS IN THE DELAWARE
INVESTMENTS FAMILY
Delaware Balanced Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. As a balanced fund, the fund
invests at least 25% of its assets in fixed-income securities and the remaining
in equity securities. Delaware Devon Fund seeks current income and capital
appreciation by investing primarily in income-producing common stocks, with a
focus on common stocks the manager believes have the potential for above average
dividend increases over time.
Delaware Trend Fund seeks capital appreciation by investing in common
stocks issued by emerging growth companies exhibiting strong capital
appreciation potential. Delaware Technology and Innovation Fund seeks to provide
long-term capital growth by investing primarily in stocks the investment adviser
believes will benefit from technological advances and improvements.
Delaware 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.
Delaware Growth Opportunities 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.
Delaware Decatur Equity 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. Delaware Growth
and Income Fund seeks long-term growth by investing primarily in securities that
provide the potential for income and capital appreciation without undue risk to
principal. Delaware 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. Delaware 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.
Delaware 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. Delaware 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. Delaware High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Delaware Corporate Bond Fund seeks to provide investors with total return by
investing primarily in corporate bonds. Delaware Extended Duration Bond Fund
seeks to provide investors with total return by investing primarily in corporate
bonds
Delaware American Government Bond 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.
Delaware 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 Fund 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.
84
<PAGE>
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.
Delaware 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.
Delaware Tax-Free USA Fund seeks high current income exempt from federal
income tax by investing in municipal bonds of geographically-diverse issuers.
Delaware 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. Delaware 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.
Delaware 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.
Delaware 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.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Delaware 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 Delaware 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 Delaware
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.
Delaware 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.
Delaware 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.
Delaware Global Equity Fund seeks to achieve long-term total return by investing
in global securities that provide the potential for capital appreciation and
income. Delaware Emerging Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries.
Delaware 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. Delaware Overseas Equity Fund seeks to maximize total return (capital
appreciation and income), principally through investments in an internationally
diversified portfolio of equity securities. Delaware 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 offers various funds available exclusively
as funding vehicles for certain insurance company separate accounts. Balanced
Series seeks a balance of capital appreciation, income and preservation of
capital. As a "balanced" fund, the Series invests at least 25% of its assets in
fixed-income securities and the remainder primarily in equity securities.
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 is a money market
fund which seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. Convertible Securities Series--seeks a high level of total return
on its assets through a combination of capital appreciation and current income.
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The Series intends to pursue its investment objective by investing primarily in
convertible securities. Devon Series seeks current income and capital
appreciation. The Series will seek to achieve its objective 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. The Series seeks to achieve its objective by investing primarily
in equity securities of issuers located or operating in emerging countries.
Global Bond Series seeks current income consistent with preservation of
principal by investing primarily in fixed-income securities that may also
provide the potential for capital appreciation. The Series will invest in
fixed-income securities of issuers from at least three different countries, one
of which may be the United States. Growth and Income Series seeks the highest
possible total rate of return by selecting issues that exhibit the potential for
capital appreciation while providing higher than average dividend income. Growth
Opportunities Series seeks long-term capital appreciation by investing its
assets in a diversified portfolio of securities exhibiting the potential for
significant growth. High Yield Series seeks total return and, as a secondary
objective, high current income. It seeks to achieve its objective by investing
primarily in high-yield corporate bonds. These are commonly known as junk bonds.
An investment in this Series may involve greater risks than an investment in a
portfolio comprised primarily of investment grade bonds. International Equity
Series seeks long-term growth without undue risk to principal by investing
primarily in equity securities of foreign issuers providing the potential for
capital appreciation and income. REIT Series seeks to achieve maximum long-term
total return. Capital appreciation is a secondary objective. It seeks to achieve
its objectives by investing in securities of companies primarily engaged in the
real estate industry. Select Growth Series seeks long-term capital appreciation.
The Series attempts to achieve its investment objective by investing primarily
in equity securities of companies of all sizes which the manager believes have
the potential for high earnings growth. Small Cap Value Series seeks capital
appreciation by investing primarily in small cap common stocks whose market
value appears low relative to their underlying value or future earnings and
growth potential. Social Awareness Series seeks to achieve long-term capital
appreciation. The Series seeks to achieve its objective by investing primarily
in equity securities of medium- to large-sized companies expected to grow over
time that meet the Series' "Social Criteria" strategy. Strategic Income Series
seeks high current income and total return. The Series seeks to achieve its
objective 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. Technology and Innovation Series seeks to
provide long-term capital growth. The Series invest primarily in stocks that the
manager believes will benefit from technological advances and improvements.
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. U.S. Growth Series seeks to maximize capital
appreciation. The Series seeks to achieve its objective by investing primarily
in stocks of companies of all sizes. We look for stocks with low dividend
yields, strong balance sheets and high expected earnings growth rates as
compared to other companies in the same industry.
Delaware U.S. 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 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 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 Tax-Free Minnesota Intermediate Fund seeks to provide a high
level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
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Delaware 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 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 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 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 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 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 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 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 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 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 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
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. Delaware 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 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 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 Montana Municipal Bond Fund seeks as high a level of current
income exempt from federal income tax and from the Montana personal income tax,
as is consistent with preservation of capital.
Delaware 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.
Delaware Select 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. Delaware 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. Delaware 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 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 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.
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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 the funds' prospectus(es).
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