Supplement Dated August 29, 1995
to the Current Statements of Additional Information
of the Following Delaware Group Funds
Delaware Group Delaware Fund, Inc.,
Delaware Group Trend Fund, Inc.,
Delaware Group Value Fund, Inc.,
Delaware Group Decatur Fund, Inc.,
Delaware Group DelCap Fund, Inc.,
Delaware Group Global & International Funds, Inc.,
Delaware Group Delchester High-Yield Bond Fund, Inc.,
Delaware Group Government Fund, Inc.,
Delaware Group Tax-Free Fund, Inc.,
Delaware Group Limited-Term Government Funds, Inc.,
Delaware Group Tax-Free Money Fund, Inc.,
Delaware Group Cash Reserve, Inc.,
DMC Tax-Free Income Trust - Pennsylvania
The exchange policy of the Fund as stated under
"Redemption and Exchange" is amended as follows 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"):
Right To Refuse Timing Accounts
Effective immediately, the Fund reserves the right to
refuse any new Timing Arrangements as well as any new
purchases (as opposed to exchanges) in Delaware Group funds
from Timing Firms.
Restrictions on Timed Exchanges
Effective 60 days from this notice, Timing Accounts
operating under existing Timing Agreements may only execute
exchanges between the following six Delaware Group funds: 1)
Decatur Income Fund, 2) Decatur Total Return Fund, 3)
Delaware Fund, 4) Limited-Term Government Fund, 5) Tax-Free
USA Fund and 6) Delaware Cash Reserve. No other Delaware
Group funds will be available for Timed Exchanges. Assets
redeemed or exchanged out of Timing Accounts in Delaware
Group funds not listed above may not be reinvested back into
that Timing Account.
In addition, 60 days hence, the Fund will terminate,
except as noted above, all exchanges privileges, including
telephone and written redemption privileges, previously made
available to Timing Firms. At such time, only shareholders
and their authorized brokers of record will be permitted to
make exchanges or redemptions.
----------------------------------------
DELCHESTER FUND
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A CLASS
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B CLASS
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INSTITUTIONAL CLASS
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CLASSES OF DELAWARE GROUP
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DELCHESTER HIGH-YIELD BOND FUND, INC.
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PART B
STATEMENT OF
ADDITIONAL INFORMATION
----------------------------------------
SEPTEMBER 29, 1994
DELAWARE
GROUP
--------
The Delaware Group includes 20 different funds with a wide
range of investment objectives. Stock funds, income funds,
tax-free funds, money market funds and closed-end equity
funds give investors the ability to create a portfolio that
fits their personal financial goals. For more information,
shareholders of the Fund Classes should contact their
financial adviser or call the Delaware Group at 800-523-4640,
in Philadelphia 215-988-1333 and shareholders of the
Institutional Class should contact the Delaware Group at
800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, Inc.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260
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PART B--STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 29, 1994
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DELAWARE GROUP
------------------------------------------------------------
DELCHESTER HIGH-YIELD BOND FUND, INC.
------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
------------------------------------------------------------
For more information about the
Delchester Fund Institutional Class:
800-828-5052
For Prospectus and Performance
of the Delchester Fund A Class and
the Delchester Fund B Class:
Nationwide 800-523-4640
Philadelphia 988-1333
Information on Existing Accounts
of the Delchester Fund A Class and
the Delchester Fund B Class:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Philadelphia 988-1241
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Philadelphia 988-1050
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TABLE OF CONTENTS
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Cover Page
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Investment Objective and Policies
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Performance Information
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Trading Practices and Brokerage
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Purchasing Shares
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Investment Plans
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Determining Offering Price and
Net Asset Value
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Redemption and Repurchase
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Dividends and Realized Securities
Profits Distributions
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Taxes
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Investment Management Agreement
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Officers and Directors
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Exchange Privilege
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General Information
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Appendix A -- IRA Information
------------------------------------------------------------
Financial Statements
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Delaware Group Delchester High-Yield Bond Fund, Inc.
(the "Fund") is a professionally-managed mutual fund. The
Fund offers three classes (individually, a "Class" and
collectively, the "Classes") of shares -- Delchester Fund A
Class (the "Class A Shares"), Delchester Fund B Class (the
"Class B Shares") (together, the "Fund Classes") and
Delchester Fund Institutional Class (the "Institutional
Class"). Class B Shares and Institutional Class shares may
be purchased at a price equal to the next determined net
asset value per share. Class A Shares may be purchased at
the public offering price, which is equal to the next
determined net asset value per share, plus a front-end sales
charge. The Class A Shares are subject to a maximum
front-end sales charge of 4.75% and annual 12b-1 Plan
expenses. The Class B Shares are subject to a contingent
deferred sales charge ("CDSC") which may be imposed on
redemptions made within six years of purchase and 12b-1 Plan
expenses which are higher than those to which Class A Shares
are subject and are assessed against the Class B Shares for
no longer than approximately eight years after purchase. See
Automatic Conversion of Class B Shares in the Fund Classes'
Prospectus. All references to "shares" in this Statement of
Additional Information ("Part B" of the registration
statement) refer to all Classes of shares of the Fund, except
where noted.
This Part B supplements the information contained in the
current Prospectuses for the Fund Classes and the
Institutional Class dated September 29, 1994, as may be
amended from time to time. It should be read in conjunction
with the respective class' Prospectus. Part B is not itself
a prospectus but is, in its entirety, incorporated by
reference into each class' Prospectus. A Prospectus relating
to the Fund Classes and a Prospectus relating to the
Institutional Class may be obtained by writing or calling
your investment dealer or by contacting the Fund's national
distributor, Delaware Distributors, Inc. (the "Distributor"),
1818 Market Street, Philadelphia, PA 19103.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to earn and pay shareholders as high a
current income as is consistent with providing reasonable
safety in the value of their investment. The Fund's
investment objective is a fundamental policy and cannot be
changed without shareholder approval.
In investing for income and safety of principal, the
emphasis in selection will be on securities having a liberal
and consistent yield and those tending to reduce the risk of
market fluctuations. The types of securities in which the
Fund invests are subject to price fluctuations particularly
due to changes in interest rates. Management will seek to
achieve the Fund's objective by investing at least 80% of the
Fund's assets at time of purchase in:
(1) Corporate Bonds. The Fund will invest in both
rated and unrated bonds. Unrated bonds may be more
speculative in nature than rated bonds; or
(2) Government Securities. Securities of, or
guaranteed by, the U.S. government, its agencies or
instrumentalities; or
(3) Commercial Paper. Commercial paper of companies
having, at the time of purchase, an issue of outstanding debt
securities rated as described above or commercial paper rated
A-1 or A-2 by Standard & Poor's Corporation ("Standard &
Poor's") or rated P-1 or P-2 by Moody's Investors Service,
Inc. ("Moody's").
Appendix A to the Prospectuses describes the ratings of
Standard & Poor's and Moody's and provides information
concerning the ratings of the securities in the Fund's
portfolio.
As a matter of practice, the Fund has consistently
invested more than 80% of its assets in such securities.
With respect to the remaining assets, if any, that the Fund
may invest in other securities, the Fund must invest in
income-producing securities, including common stocks and
preferred stocks some of which may have convertible features
or attached warrants. Additionally, from time to time for
temporary defensive purposes, the Fund may hold a substantial
portion of its assets in cash or short-term obligations for
an appreciable period of time when market conditions warrant
and the Fund is anticipating higher interest rates.
Currently, the Fund's assets are invested primarily in
unrated bonds and bonds rated BBB or lower by Standard &
Poor's or Baa or lower by Moody's
The Fund will not 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. It will not invest
more than 25% of its assets in any one particular industry.
The Fund may purchase privately-placed debt and other
securities whose resale is restricted under applicable
securities laws. Such restricted securities generally offer
a higher return than comparable registered securities but
involve some additional risk since they can be resold only in
privately-negotiated transactions or after registration under
applicable securities laws. The registration process may
involve delays which could result in the Fund obtaining a
less favorable price on a resale. The Fund will not purchase
illiquid assets, including restricted securities, if more
than 10% of its total assets would then consist of such
illiquid securities. While the Fund is permitted to do so,
it normally does not borrow money or invest in repurchase
agreements, except to invest cash balances.
A repurchase agreement is a short-term investment by
which the purchaser 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. 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. The
Fund will limit its investments in repurchase agreements to
those which Delaware Management Company, Inc. (the
"Manager"), under the guidelines of the Board of Directors,
determines to present minimal credit risks and which are of
high quality. In addition, the Fund must have collateral of
at least 100% of the repurchase price, including the portion
representing the Fund's yield under such agreements which is
monitored on a daily basis.
The funds in the Delaware Group have obtained an
exemption from the joint-transaction prohibitions of Section
17(d) of the Investment Company Act of 1940 to allow the
Delaware Group funds jointly to invest cash balances. The
Fund may invest cash balances in a joint repurchase agreement
in accordance with the terms of the Order and subject
generally to the conditions described above.
Investment securities will not normally be purchased
while the Fund has an outstanding borrowing.
Portfolio Loan Transactions
The Fund may loan up to 25% of its assets to qualified
broker/dealers or institutional investors for their use
relating to short sales or other security transactions.
It is the understanding of the Manager that the staff of
the Securities and Exchange Commission permits portfolio
lending by registered investment companies if certain
conditions are met. These conditions are as follows: 1) each
transaction must have 100% collateral in the form of cash,
short-term U.S. government securities, or irrevocable letters
of credit payable by banks acceptable to the Fund from the
borrower; 2) this collateral must be valued daily and should
the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund; 3)
the Fund must be able to terminate the loan after notice, at
any time; 4) the Fund must receive reasonable interest on any
loan, and any dividends, interest or other distributions on
the lent securities, and any increase in the market value of
such securities; 5) the Fund may pay reasonable custodian
fees in connection with the loan; 6) the voting rights on the
lent securities may pass to the borrower; however, if the
directors of the Fund know that a material event will occur
affecting an investment loan, they must either terminate the
loan in order to vote the proxy or enter into an alternative
arrangement with the borrower to enable the directors to vote
the proxy.
The major risk to which the Fund would be exposed on a
loan transaction is the risk that the borrower would go
bankrupt at a time when the value of the security goes up.
Therefore, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under
the supervision of the Board of Directors, including the
creditworthiness of the borrowing broker, dealer or
institution and then only if the consideration to be received
from such loans would justify the risk. Creditworthiness
will be monitored on an ongoing basis by the Manager.
Investment Restrictions
The Fund has the following investment restrictions which
may not be amended without approval of a majority of the
outstanding voting securities, which is the lesser of more
than 50% of the outstanding voting securities, or 67% of the
voting securities present at a shareholder meeting if 50% or
more of the voting securities are present in person or
represented by proxy. The percentage limitations contained
in the restrictions and policies set forth herein apply at
the time of purchase of securities.
1. The Fund will not 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. The Fund will not invest for the purpose of
acquiring control of any company.
3. The Fund will not purchase or retain securities of
a company which has an officer or director who is an officer
or director of the Fund, or an officer, director or partner
of its investment manager if, to the knowledge of the Fund,
one or more of such persons owns beneficially more than 1/2
of 1% of the shares of the company, and in the aggregate more
than 5% thereof.
4. The Fund will not invest in securities of other
investment companies.
5. The Fund will not make any investment in real
estate. This restriction does not preclude the Fund's
purchase of securities issued by real estate investment
trusts.
6. The Fund will not sell short any security or
property.
7. The Fund will not buy or sell commodities or
commodity contracts.
8. The Fund will not borrow money in excess of 10% of
the value of its assets and then only as a temporary measure
for extraordinary or emergency purposes. Any borrowing will
be done from a bank and to the extent that such borrowing
exceeds 5% of the value of the Fund's assets, asset coverage
of at least 300% is required. In the event that such asset
coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sunday and
holidays) or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations,
reduce the amount of its borrowings to an extent that the
asset coverage of such borrowings shall be at least 300%.
The Fund shall not issue senior securities as defined in the
Investment Company Act of 1940, except for notes to banks.
9. The Fund will not make loans. However, (i) the
purchase of a portion of an issue of publicly distributed
bonds, debentures or other securities, or of other securities
authorized to be purchased by the Fund's investment policies,
whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase
agreements" are not to be considered the making of a loan by
the Fund; and (ii) the Fund may loan up to 25% of its assets
to qualified broker/dealers or institutional investors for
their use relating to short sales and other security
transactions.
10. The Fund will not invest in the securities of
companies which have a record of less than three years'
continuous operation, including any predecessor company or
companies, if such purchase at the time thereof would cause
more than 5% of the total Fund assets to be invested in the
securities of such company or companies.
11. The Fund will not act as an underwriter of
securities of other issuers, except that the Fund may acquire
restricted or not readily marketable securities under
circumstances where, if such securities are sold, the Fund
might be deemed to be an underwriter for purposes of the
Securities Act of 1933.
12. No long or short positions on shares of the Fund
may be taken by its officers, directors or any of its
affiliated persons. Such persons may buy shares of the Fund
for investment purposes, however, as described under
Purchasing Shares.
13. The Fund will not invest more than 25% of its
assets in any one particular industry.
Although not a fundamental investment restriction, the
Fund currently does not invest its assets in real estate
limited partnerships or oil, gas and other mineral leases.
PERFORMANCE INFORMATION
From time to time, the Fund may state each class' total
return in advertisements and other types of literature. Any
statements of total return performance data for a Class will
be accompanied by information on the average annual
compounded rate of return for that Class over, as relevant,
the most recent one-, five- and ten-year (or life-of-fund, if
applicable) periods. The Fund may also advertise aggregate
and average total return information of each Class over
additional periods of time.
The average annual total rate of return for each Class
is based on a hypothetical $1,000 investment that includes
capital appreciation and depreciation during the stated
periods. The following formula will be used for the actual
computations:
P(1 + T)/n/ = ERV
Where: P = a hypothetical initial purchase order of
$1,000 from which the maximum front-end
sales charge with respect to Class A
Shares, if any, is deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period
after the deduction of the applicable
CDSC, if any, with respect to Class B
Shares.
Aggregate total return is calculated in a similar
manner, except that the results are not annualized. Each
calculation assumes the maximum front-end sales charge, if
any, is deducted from the initial $1,000 investment at the
time it is made with respect to the Class A Shares, and that
all distributions are reinvested at net asset value, and,
with respect to the Class B Shares, includes the CDSC that
would be applicable upon complete redemption of such shares.
In addition, the Fund may present total return information
that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
The performance of the Class A Shares and the
Institutional Class, as shown below, is the average annual
total return quotations for the one-, five- and ten-year
periods ended July 31, 1994, computed as described above.
The average annual total return for the Class A Shares at
offer reflects the maximum front-end sales charges paid on
the purchase of shares. The average annual total return for
the Class A Shares at net asset value (NAV) does not reflect
the payment of the maximum front-end sales charge.
Securities prices fluctuated during the periods covered and
past results should not be considered as representative of
future performance. Pursuant to applicable regulation, total
return shown for the Institutional Class for the periods
prior to the commencement of operations of such Class is
calculated by taking the performance of the Class A Shares
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 may have been affected had such an adjustment
been made. The performance of the Class B Shares, as shown
below, is the aggregate total return quotation for the period
May 2, 1994 (date of initial public offering) through July
31, 1994. The aggregate total return for Class B Shares
including deferred sales charge reflects the deduction of the
applicable CDSC that would be paid if the shares were
redeemed at July 31, 1994. The aggregate total return for
the Class B Shares excluding deferred sales charge assumes
the shares were not redeemed at July 31, 1994 and therefore
does not reflect the deduction of a CDSC.
Average Annual Total Return
Class A Class A
Shares Shares Institutional
(at Offer) (at NAV) Class*
1 year
ended
7/31/94 (3.19%) 1.60% 1.82%
5 years
ended
7/31/94 8.63% 9.69% 9.97%
10 years
ended
7/31/94 11.66% 12.21% 12.40%
Aggregate Total Return
Class B Shares Class B Shares
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)
Period
5/2/94**
through
7/31/94 (5.56%)*** (1.62%)***
* Date of initial public offering of the Institutional
Class was June 1, 1992.
** Date of initial public offering.
*** Total return for this short of a time period may not be
representative of longer-term results.
As stated in the Fund's Prospectuses, the Fund may also
quote each class' current yield in advertisements and
investor communications.
The yield computation is determined by dividing the net
investment income per share earned during the period by the
maximum offering price per share on the last day of the
period and annualizing the resulting figure, according to the
following formula:
a -- b
------
YIELD = 2[( cd + 1)/6/ -- 1]
Where: a = dividends and interest earned during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to
receive dividends;
d = the maximum offering price per share on the
last day of the period.
The above formula will be used in calculating quotations
of yield of each Class, based on specified 30-day periods
identified in advertising by the Fund. The yield of the
Class A Shares as of July 31, 1994 using this formula was
10.37% and for the Institutional Class was 11.15%. The yield
of the Class B Shares as of July 31, 1994 was 10.08%. Yield
calculations assume the maximum front-end sales charge, if
any. Actual yield on Class A Shares may be affected by
variations in sales charges on investments.
Past performance, such as is reflected in quoted yields,
should not be considered as a representation of the results
which may be realized from an investment in any class of the
Fund in the future.
Investors should note that the income earned and
dividends paid by the Fund will vary with the fluctuation of
interest rates and performance of the portfolio. The net
asset value of the Fund may change. Unlike money market
funds, the Fund invests in longer-term securities that
fluctuate in value and do so in a manner inversely correlated
with changing interest rates. The Fund's net asset value
will tend to rise when interest rates fall. Conversely, the
Fund's net asset value will tend to fall as interest rates
rise. Normally, fluctuations in interest rates have a
greater effect on the prices of longer-term bonds. The value
of the securities held in the Fund will vary from day to day
and investors should consider the volatility of the Fund's
net asset value as well as its yield before making a decision
to invest.
The average weighted portfolio maturity at July 31, 1994
was 8 years for each Class of the Fund.
Statistical and performance information and various
indices compiled and maintained by organizations such as the
following may also be used in preparing exhibits comparing
certain industry trends and competitive mutual fund
performance to comparable Fund activity and performance and
in illustrating general financial planning principles. From
time to time, certain mutual fund performance ranking
information, calculated and provided by these organizations,
may also be used in the promotion of sales in the Fund. Any
indices used are not managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services,
Inc. and Morningstar, Inc. are performance
evaluation services that maintain statistical
performance databases, as reported by a diverse
universe of independently-managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that
provides a variety of historical data including
total return, capital appreciation and income on
the stock market as well as other investment asset
classes, and inflation. With their permission,
this information will be used primarily for
comparative purposes and to illustrate general
financial planning principles.
Interactive Data Corporation is a statistical
access service that maintains a database of various
international industry indicators, such as
historical and current price/earning information,
individual equity and fixed income price and return
information.
Compustat Industrial Databases, a service of
Standard & Poor's, may also be used in preparing
performance and historical stock and bond market
exhibits. This firm maintains fundamental
databases that provide financial, statistical and
market information covering more than 7,000
industrial and non-industrial companies.
Salomon Brothers and Lehman Brothers are
statistical research firms that maintain databases
of international market, bond market, corporate and
government-issued securities of various maturities.
This information, as well as unmanaged indices
compiled and maintained by these firms, will be
used in preparing comparative illustrations.
Current interest rate and yield information on
government debt obligations of various durations, as reported
weekly by the Federal Reserve (Bulletin H.15), may also be
used. In addition, current rate information on municipal
debt obligations of various durations, as reported daily by
the Bond Buyer, may also be used. The Bond Buyer is
published daily and is an industry-accepted source for
current municipal bond market information.
From time to time, the Fund may quote actual total
return performance for each Class 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. Comparative information
on the Consumer Price Index may also be included. The
Consumer Price Index, as prepared by the U.S. Bureau of Labor
Statistics, is the most commonly used measure of inflation.
It indicates the cost fluctuations of a representative group
of consumer goods. It does not represent a return from an
investment.
The total return performance for each Class of the Fund
will reflect the appreciation or depreciation of principal,
reinvestment of income and any capital gains distributions
paid during any indicated period and the impact of the
maximum front-end sales charge or contingent deferred sales
charge, if any, paid on the illustrated investment amount,
annualized. The results will not reflect any income taxes,
if applicable, payable by shareholders on the reinvested
distributions included in the calculations. The net asset
value of the Fund fluctuates so shares, when redeemed, may be
worth more or less than the original investment, and the
Fund's results should not be considered as representative of
future performance.
The following table is an example, for purposes of
illustration only, of cumulative total return performance for
the Class A Shares and the Institutional Class for the one-,
three-, five- and ten-year periods ended July 31, 1994, and
for the Class B Shares for the period May 2, 1994 (date of
initial public offering) through July 31, 1994.
Cumulative Total Return
Class A Consumer
Shares Institutional Price
(at Offer) Class* Index****
1 year ended 7/31/94 (3.19%) 1.82% 2.77%
3 years ended 7/31/94 37.33% 45.11% 8.96%
5 years ended 7/31/94 51.29% 60.81% 19.29%
10 years ended 7/31/94 201.31% 222.16% 42.62%
Class B Shares Class B Shares
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge) Sales Charge) Index****
Period
5/2/94**
through
7/31/94 (5.56%)*** (1.62%)*** 0.68%
* Date of initial public offering of the Institutional
Class was June 1, 1992. Pursuant to applicable
regulation, total return shown for the Institutional
Class for the periods prior to the commencement of
operations of such Class is calculated by taking the
performance of the Class A Shares 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
may have been affected had such an adjustment been made.
** Date of initial public offering of the Class B Shares.
*** Total return for this short of a time period may not be
representative of longer-term results.
**** Source--Department of Labor
Because every investor's goals and risk threshold are
different, the Distributor, as distributor for the Fund and
other mutual funds in the Delaware Group, will provide
general information about investment alternatives and
scenarios that will allow investors to assess their personal
goals. This information will include general material about
investing as well as materials reinforcing various
industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing
these issues is to compare an individual's goals and the
length of time the individual has to attain these goals to
his or her risk threshold. In addition, the Distributor will
provide information that discusses the Manager's overriding
investment philosophy and how that philosophy impacts the
Fund's, and other Delaware Group funds', investment
disciplines employed in meeting their objectives. The
Distributor may also from time to time cite general or
specific information about the institutional clients of the
Manager, including the number of such clients serviced by the
Manager.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for
additional Fund shares, your investment is given yet another
opportunity to grow. It's called the Power of Compounding
and the following chart illustrates just how powerful it can
be.
COMPOUNDED RETURNS
Results of various assumed fixed rates of return on a
$10,000 investment compounded monthly for 10 years:
9% Rate 11% Rate 13% Rate
of Return of Return of Return
Dec. '85 $10,938 $11,157 $11,380
Dec. '86 11,964 12,448 12,951
Dec. '87 13,086 13,889 14,739
Dec. '88 14,314 15,496 16,773
Dec. '89 15,657 17,289 19,089
Dec. '90 17,126 19,289 21,723
Dec. '91 18,732 21,522 24,722
Dec. '92 20,489 24,012 28,134
Dec. '93 22,411 26,791 32,017
Dec. '94 24,514 29,891 36,437
These figures are calculated assuming a fixed constant
investment return and assume no fluctuation in the value of
principal. These figures do not reflect payment of
applicable taxes, are not intended to be a projection of
investment results and do not reflect the actual performance
results of any of the Classes. TRADING PRACTICES AND
BROKERAGE
The Fund selects banks, brokers or dealers to execute
transactions for the purchase or sale of portfolio securities
on the basis of its judgment of their professional capability
to provide the service. The primary consideration is to have
banks, brokers or dealers execute transactions at best price
and execution. Best price and execution refers to many
factors, including the price paid or received for a security,
the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the
order and other factors affecting the overall benefit
obtained by the account on the transaction. The Fund pays
reasonably competitive brokerage commission rates based upon
the professional knowledge of its trading department as to
rates paid and charged for similar transactions throughout
the securities industry. In some instances, the Fund pays a
minimal share transaction cost when the transaction presents
no difficulty. In most instances, trades are made on a net
basis where the Fund either buys the 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.
During the fiscal years ended July 31, 1992, 1993 and
1994, no brokerage commissions were paid by the Fund.
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 July 31, 1994, there were
no portfolio transactions of the Fund resulting in brokerage
commissions directed to brokers for brokerage and research
services.
As provided in the Securities Exchange Act of 1934 and
the 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 Fund
believes that the commissions paid to such broker/dealers are
not, in general, higher than commissions that would be paid
to broker/dealers not providing such services and that such
commissions are reasonable in relation to the value of the
brokerage and research services provided. In some instances,
services may be provided to the Manager which constitute in
some part brokerage and research services used by the Manager
in connection with its investment decision-making process and
constitute in some part services used by the Manager in
connection with administrative or other functions not related
to its investment decision-making process. In such cases,
the Manager will make a good faith allocation of brokerage
and research services and will pay out of its own resources
for services used by the Manager in connection with
administrative or other functions not related to its
investment decision-making process. In addition, so long as
no fund is disadvantaged, portfolio transactions which
generate commissions or their equivalent are allocated to
broker/dealers who provide daily portfolio pricing services
to the Fund and to other funds in the Delaware Group.
Subject to best price and execution, commissions allocated to
brokers providing such pricing services may or may not be
generated by the funds receiving the pricing service.
The Manager may place a combined order for two or more
accounts or funds engaged in the purchase or sale of the same
security if, in its judgment, joint execution is in the best
interest of each participant and will result in best price
and execution. Transactions involving commingled orders are
allocated in a manner deemed equitable to each account or
fund. When a combined order is executed in a series of
transactions at different prices, each account participating
in the order may be allocated an average price obtained from
the executing broker. It is believed that the ability of the
accounts to participate in volume transactions will generally
be beneficial to the accounts and funds. Although it is
recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security
that a particular account or fund may obtain, it is the
opinion of the Manager and the Fund's Board of Directors that
the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the
"NASD"), and subject to seeking best price and execution, the
Fund may place orders with broker/dealers that have agreed to
defray certain Fund expenses such as custodian fees, and may,
at the request of the Distributor, give consideration to
sales of its shares as a factor in the selection of brokers
and dealers to execute Fund portfolio transactions.
Portfolio Turnover
The rate of portfolio turnover will not be a limiting
factor when portfolio changes are deemed appropriate. The
Fund anticipates that its annual rate of portfolio turnover
will not generally exceed 150%, although it is possible that
in any particular year market conditions or other factors
might result in portfolio activity at a greater rate than
anticipated.
The degree of portfolio activity may affect taxes
payable by the Fund's shareholders. A turnover rate of 100%
would occur, for example, if all the investments in the
Fund's portfolio at the beginning of the year were replaced
by the end of the year. In investing for liberal current
income, the Fund may hold securities for any period of time.
To the extent the Fund realizes gains on securities held for
less than six months, such gains are taxable to the
shareholder or to the Fund at ordinary income tax rates. The
turnover rate also may be affected by cash requirements from
redemptions and repurchases of Fund shares.
During the past two fiscal years, the Fund's portfolio
turnover rates were approximately 72% for 1993 and 92% for
1994.
PURCHASING SHARES
The Distributor serves as the national distributor for
the Fund's three classes of shares -- the Class A Shares, the
Class B Shares and the Institutional Class, and has agreed to
use its best efforts to sell shares of the Fund. See the
Prospectuses for additional information on how to invest.
Shares of the Fund are offered on a continuous basis, and may
be purchased through authorized investment dealers or
directly by contacting the Fund or its agent. The minimum
for initial investments of Class A Shares is $250 and for any
subsequent investment is $25. The minimum for initial
investments of Class B Shares is $1,000 and for any
subsequent investment is $100. Class B Shares are also
subject to a maximum purchase limitation of $250,000. The
Fund will therefore reject any order for purchase of more
than $250,000 of Class B Shares. (See Investment Plans for
minimums applicable to each of the Fund's master Retirement
Plans.) There are no minimum purchase requirements for the
Institutional Class, but certain eligibility requirements
must be satisfied. Selling dealers have the responsibility
of transmitting orders promptly. The Fund reserves the right
to reject any order for the purchase of its shares if in the
opinion of management such rejection is in the Fund's best
interest.
Certificates representing shares purchased are not
ordinarily issued unless a shareholder submits a specific
request. Certificates are not issued in the case of the
Class B Shares. However, purchases not involving the
issuance of certificates are confirmed to the investor and
credited to the shareholder's account on the books maintained
by Delaware Service Company, Inc. (the "Transfer Agent").
The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued.
An investor that is permitted to obtain a certificate may
receive a certificate representing shares purchased by
sending a letter to the Transfer Agent requesting the
certificate. No charge is made for any certificate issued.
Investors who hold certificates representing any of their
shares may only redeem those shares by written request. The
investor's certificate(s) must accompany such request.
The NASD has adopted amendments to its Rules of Fair
Practice relating to investment company sales charges. The
Fund and the Distributor intend to operate in compliance with
these rules.
Class A Shares are purchased at the offering price which
reflects a maximum front-end sales charge of 4.75%; however,
lower front-end sales charges apply for larger purchases.
See the following table. Class A Shares are also subject to
annual 12b-1 Plan expenses.
Class B Shares are purchased at net asset value and are
subject to a CDSC of (i) 4% if shares are redeemed within two
years of purchase; (ii) 3% if shares are redeemed during the
third and fourth year following purchase; (iii) 2% if shares
are redeemed during the fifth year following purchase; and
(iv) 1% if shares are redeemed during the sixth year
following purchase. Class B Shares are also subject to 12b-1
Plan expenses which are higher than those to which Class A
Shares are subject and are assessed against the Class B
Shares for no longer than approximately eight years after
purchase. See Automatic Conversion of Class B Shares in the
Fund Classes' Prospectus, and Determining Offering Price and
Net Asset Value and Plans Under Rule 12b-1 for the Fund
Classes in this Part B.
Institutional Class shares are purchased at the net
asset value per share without the imposition of a front-end
or contingent deferred sales charge or 12b-1 Plan expenses.
Institutional Class shares, Class A Shares and Class B Shares
represent a proportionate interest in the Fund's assets and
will receive a proportionate interest in the Fund's income,
before application, as to the Class A and Class B Shares, of
any expenses under the Fund's 12b-1 Plans.
Alternative Purchase Arrangements
The alternative purchase arrangements of the Class A and
Class B Shares permit investors to choose the method of
purchasing shares that is most beneficial given the amount of
their purchase, the length of time they expect to hold their
shares and other relevant circumstances. Investors should
determine whether, under their particular circumstances, it
is more advantageous to purchase the Class A Shares and incur
a front-end sales charge and annual 12b-1 Plan expenses of up
to a maximum of .30% of the average daily net assets of the
Class A Shares or to purchase the Class B Shares and have the
entire initial purchase price invested in the Fund with the
investment thereafter subject to a CDSC if shares are
redeemed within six years of purchase and annual 12b-1 Plan
expenses of 1% (.25% of which are service fees to be paid by
the Fund to the Distributor, dealers or others for providing
personal service and/or maintaining shareholder accounts) of
the average daily net assets of the Class B Shares for no
longer than approximately eight years after purchase.
Class A Shares
Purchases of $100,000 or more of the Class A Shares at
the offering price carry reduced front-end sales charges as
shown in the accompanying table, and may include a series of
purchases over a 13-month period under a Letter of Intention
signed by a purchaser. See Special Purchase Features --
Class A Shares for more information on ways in which
investors can avail themselves of reduced front-end sales
charges and other purchase features.
Class A Shares
------------------------------------------------------------
Dealer's
Front-End Sales Charge Concession**
as % of as % of
Offering Amount Offering
Amount of Purchase Price Invested Price
-------------------------------------------------------------
Less than $100,000 4.75% 4.95% 4.00%
$100,000 but
under $250,000 3.75 3.90 3.00
$250,000 but
under $500,000 2.50 2.56 2.00
$500,000 but
under $1,000,000* 2.00 2.04 1.60
* There is no front-end sales charge on purchases of $1
million or more but, under certain limited
circumstances, a 1% contingent deferred sales charge may
apply. The contingent deferred sales charge ("Limited
CDSC") that may be applicable to purchases of Class A
Shares arises only in the case of certain net asset
value purchases which have triggered the payment of a
dealer's commission.
------------------------------------------------------------
The Fund must be notified when a sale takes place which
would qualify for the reduced front-end sales charge on
the basis of previous purchases and current purchases.
The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund.
Such reduced front-end sales charges are not
retroactive.
From time to time, upon written notice to all of its
dealers, the Distributor may hold special promotions for
specified periods during which the Distributor may
reallow dealers up to the full front-end sales charge
shown above. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the
Securities Act of 1933.
** Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.
------------------------------------------------------------
Certain dealers who enter into an agreement to provide
extra training and information on Delaware Group products and
services and to increase sales of Delaware Group funds may
receive an additional concession of up to .15% of the
offering price in connection with sales of Class A Shares.
Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability
to increase sales. The Distributor should be contacted for
further information on these requirements as well as the
basis and circumstances upon which the additional concession
will be paid. Participating dealers may be deemed to have
additional responsibilities under the securities laws.
Dealer's Commission -- Class A Shares
For initial purchases of Class A Shares of $1,000,000 or
more made on or after June 1, 1993, a dealer's commission may
be paid by the Distributor to financial advisers through whom
such purchases are effected in accordance with the following
schedule:
Dealer's Commission
-------------------
(as a percentage
Amount of Purchase of amount purchased)
------------------
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other
Delaware Group funds as to which a Limited CDSC applies (see
Redemption and Repurchase) may be aggregated with those of
the Class A Shares of the Fund. Financial advisers should
contact the Distributor concerning the applicability and
calculation of the dealer's commission in the case of
combined purchases. Financial advisers also may be eligible
for a dealer's commission in connection with certain
purchases made under a Letter of Intention or pursuant to an
investor's Right of Accumulation. The Distributor also
should be consulted concerning the availability of and
program for these payments.
An exchange from other Delaware Group funds will not
qualify for payment of the dealer's commission, unless such
exchange is from a Delaware Group fund with assets as to
which a dealer's commission or similar payment has not been
previously paid. The schedule and program for payment of the
dealer's commission are subject to change or termination at
any time by the Distributor in its discretion.
Class B Shares
Class B Shares are purchased without the imposition of a
front-end sales charge at the time of purchase. Class B
Shares redeemed within six years of purchase may be subject
to a CDSC at the rates set forth below, charged as a
percentage of the dollar amount subject thereto. The charge
will be assessed on an amount equal to the lesser of the net
asset value at the time of purchase of the shares being
redeemed or the net asset value of the shares at the time of
redemption. Accordingly, no CDSC will be imposed on
increases in net asset value above the initial purchase
price. In addition, no CDSC will be assessed on redemption
of shares received upon reinvestment of dividends or capital
gains. See the Prospectus for the Fund Classes under Buying
Shares -- Contingent Deferred Sales Charge for a list of the
instances in which the CDSC is waived.
The following table sets forth the rates of the CDSC for
the Class B Shares of the Fund:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ --------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until
converted automatically into Class A Shares of the Fund, the
Class B Shares will continue to be subject to annual 12b-1
Plan expenses of 1% of average daily net assets representing
such shares. At the end of no longer than approximately
eight years after purchase, the investor's Class B Shares
will be automatically converted into Class A Shares of the
Fund. See Automatic Conversion of Class B Shares in the Fund
Classes' Prospectus. Such conversion will constitute a
tax-free exchange for federal income tax purposes. See Taxes
in the Prospectus for the Fund Classes.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Fund has adopted a separate plan for each of the
Class A Shares and the Class B Shares of the Fund (the
"Plans"). The Plan relating to the Class A Shares permits
the Fund to pay for certain distribution, promotional and
related expenses involved in the marketing of only the Class
A Shares. Similarly, the Plan relating to the Class B Shares
permits the Fund to pay for certain distribution, promotional
and related expenses involved in the marketing of only the
Class B Shares. The Plans do not apply to the Institutional
Class 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 Institutional Class shares.
Shareholders of the Institutional Class may not vote on
matters affecting the Plans.
The Plans permit the Fund, pursuant to an Amended and
Restated Distribution Agreement, to pay out of the assets of
the Class A Shares and Class B Shares monthly fees to the
Distributor for its services and expenses in distributing and
promoting sales of shares of such classes. These expenses
include, among other things, preparing and distributing
advertisements, sales literature and prospectuses and reports
used for sales purposes, compensating sales and marketing
personnel, and paying distribution and maintenance fees to
securities brokers and dealers who enter into agreements with
the Distributor. The 12b-1 Plan expenses relating to the
Class B Shares are also used to pay the Distributor for
advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition, the Fund may make payments out of the
assets of the Class A Shares and the Class B Shares directly
to other unaffiliated parties, such as banks, who either aid
in the distribution of shares of the Fund Classes or provide
services to such classes.
The maximum aggregate fee payable by the Fund under the
Plans, and the agreements relating to distribution, is on an
annual basis (i) .30% of the Class A Shares' average daily
net assets for the year; and (ii) 1% (.25% of which are
service fees to be paid to the Distributor, dealers and
others for providing personal service and/or maintaining
shareholder accounts) of the Class B Shares' average daily
net assets for the year. The Fund's Board of Directors may
reduce these amounts at any time. The Distributor has agreed
to waive these distribution fees to the extent such fee for
any day exceeds the net investment income realized by the
Class A and Class B Shares for such day.
Although the maximum fee payable under the 12b-1 Plan
relating to the Class A Shares is .30% of average daily net
assets of such class, the Board of Directors has determined
that the annual fee, payable on a monthly basis, under the
Plan relating to the Class A Shares, will be equal to the sum
of: (i) the amount obtained by multiplying .10% by the
average daily net assets represented by the Class A Shares
which were originally purchased in the Delchester I class
(which was converted into the Class A Shares (then known as
the Delchester II class) on June 1, 1992, pursuant to a Plan
of Recapitalization approved by shareholders of the
Delchester I class), and (ii) the amount obtained by
multiplying .30% by the average daily net assets represented
by all other Class A Shares. While this is the method to be
used to calculate the 12b-1 fees to be paid by the Class A
Shares, the fee is a Class expense so that all shareholders
regardless of whether they originally purchased or received
shares in the Delchester I class or the Delchester Fund class
(formerly the Delchester II class) or the Class A Shares will
bear 12b-1 expenses at the same rate. While this describes
the current formula for calculating the fees which will be
payable under the Class A Shares' Plan beginning June 1,
1992, the Plan permits a full .30% on all assets to be paid
at any time following appropriate Board approval.
All of the distribution expenses incurred by the
Distributor and others, such as broker/dealers, in excess of
the amount paid by the Class A and Class B Shares will be
borne by such persons without any reimbursement from such
classes. Subject to seeking best price and execution, the
Fund may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plans.
From time to time, the Distributor may pay additional
amounts from its own resources to dealers for aid in
distribution or for aid in providing administrative services
to shareholders.
The Plans, the Amended and Restated Distribution
Agreement and the form of dealer's and services agreements
relating thereto have all been approved by the Board of
Directors of the Fund, including a majority of the directors
who are not "interested persons" (as defined in the
Investment Company Act of 1940) of the Fund and who have no
direct or indirect financial interest in the Plans or any
related agreements, by vote cast in person at a meeting duly
called for the purpose of voting on the Plans and such
Agreements. Continuation of the Plans, the Amended and
Restated Distribution Agreement and the form of dealer's and
services agreements must be approved annually by the Board of
Directors in the same manner as specified above.
Each year, the directors must determine whether
continuation of the Plans is in the best interest of the
shareholders of, respectively, the Class A Shares and the
Class B Shares and that there is a reasonable likelihood of
the Plan relating to a Fund Class providing a benefit to that
Class. The Plans, the Amended and Restated Distribution
Agreement and the dealer's and services agreements with any
broker/dealers or others relating to a Class may be
terminated at any time without penalty by a majority of those
directors who are not "interested persons" or by a majority
vote of the outstanding voting securities of the relevant
Fund Class. Any amendment materially increasing the maximum
percentage payable under the Plans must likewise be approved
by a majority vote of the relevant Fund Class' outstanding
voting securities, as well as by a majority vote of those
directors who are not "interested persons." Also, any other
material amendment to the Plans must be approved by a
majority vote of the directors including a majority of the
noninterested directors of the Fund having no interest in the
Plans. In addition, in order for the Plans to remain
effective, the selection and nomination of directors who are
not "interested persons" of the Fund must be effected by the
directors who themselves are not "interested persons" and who
have no direct or indirect financial interest in the Plans.
Persons authorized to make payments under the Plans must
provide written reports at least quarterly to the Board of
Directors for their review.
For the fiscal year ended July 31, 1994, payments from
the Class A Shares to the Distributor pursuant to its Plan
amounted to $2,194,914. For the period May 2, 1994 (date of
initial public offering) through July 31, 1994, payments from
the Class B Shares to the Distributor pursuant to its Plan
amounted to $17,942.
Other Payments to Dealers -- Class A and Class B Shares
From time to time, at the discretion of the Distributor,
all registered broker/dealers whose aggregate sales of Fund
Classes exceed certain limits as set by the Distributor, may
receive from the Distributor an additional payment of up to
.25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to
dealers that sell shares of the Delaware Group of funds. In
some instances, these incentives or payments may be offered
only to certain dealers who maintain, have sold or may sell
certain amounts of shares.
In connection with the sale of Delaware Group fund
shares, the Distributor may, at its own expense, pay to
participate in or reimburse dealers with whom it has a
selling agreement for expenses incurred in connection with
seminars and conferences sponsored by such dealers and may
pay or allow additional promotional incentives, which may
include non-cash concessions, in the form of sales contests
to dealers who sell shares of the funds. Such seminars and
conferences and the terms of such sales contests must be
preapproved by the Distributor. Payment may be up to 100% of
the expenses incurred or awards made in connection with
seminars, conferences or contests relating to the promotion
of fund shares. The Distributor may also pay a portion of
the expense of preapproved dealer advertisements promoting
the sale of Delaware Group fund shares.
Special Purchase Features -- Class A Shares
Buying at Net Asset Value
The Class A Shares may be purchased without a front-end
sales charge under the Dividend Reinvestment Plan and, under
certain circumstances, the 12-Month Reinvestment Privilege
and the Exchange Privilege.
Officers, directors and employees (including former
officers and directors and former employees who had been
employed for at least ten years) of the Fund, any other fund
in the Delaware Group, the Manager, any affiliate, any fund
or affiliate that may in the future be created, legal counsel
to the funds and registered representatives and employees of
broker/dealers who have entered into Dealer's Agreements with
the Distributor may purchase Class A Shares and any such
class of shares of any of the funds in the Delaware Group,
including any fund that may be created, at the net asset
value per share. Spouses, parents, brothers, sisters and
children (regardless of age) of such persons at their
direction, and any employee benefit plan established by any
of the foregoing funds, corporations, counsel or
broker/dealers may also purchase shares at net asset value.
In addition, purchases of Class A Shares may be made at net
asset value by persons establishing rollover IRA accounts
with assets distributed from accounts advised by the Manager
or its affiliates. Purchases of Class A Shares may also be
made by clients of registered representatives of an
authorized investment dealer at net asset value within six
months of a change of the registered representative's
employment, if the purchase is funded by proceeds from an
investment where a front-end sales charge has been assessed
and the redemption of the investment did not result in the
imposition of a contingent deferred sales charge or other
redemption charges. Moreover, purchases may be effected at
net asset value for the benefit of the clients of brokers,
dealers and registered investment advisers affiliated with a
broker or dealer, if such broker, dealer or investment
adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in
connection with special investment products, such as wrap
accounts or similar fee based programs. Such purchasers are
required to sign a letter stating that the purchase is for
investment only and that the securities may not be resold
except to the issuer. Such purchasers may also be required
to sign or deliver such other documents as the Fund may
reasonably require to establish eligibility for purchase at
net asset value. The Fund must be notified in advance that
the trade qualifies for purchase at net asset value.
Investments in Class A Shares made by plan level and/or
participant retirement accounts that are for the purpose of
repaying a loan taken from such accounts will be made at net
asset value. Loan repayments made to a Delaware Group
account in connection with loans originated from accounts
previously maintained by another investment firm will also be
invested at net asset value.
Letter of Intention
The reduced front-end sales charges described above with
respect to the Class A Shares are also applicable to the
aggregate amount of purchases made by any such purchaser
previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and
signed by the purchaser, and not legally binding on the
signer or the Fund, which provides for the holding in escrow
by the Transfer Agent, of 5% of the total amount of the Class
A Shares intended to be purchased until such purchase is
completed within the 13-month period. A Letter of Intention
may be dated to include shares purchased up to 90 days prior
to the date the Letter is signed. The 13-month period begins
on the date of the earliest purchase. If the intended
investment is not completed, except as noted below, the
purchaser will be asked to pay an amount equal to the
difference between the front-end sales charge on the Class A
Shares purchased at the reduced rate and the front-end sales
charge otherwise applicable to the total shares purchased.
If such payment is not made within 20 days following the
expiration of the 13-month period, the Transfer Agent will
surrender an appropriate number of the escrowed shares for
redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the
level designated in their Letter of Intention) of all their
shares of the Fund and of any class of any of the other
mutual funds in the Delaware Group (except shares of any
Delaware Group fund which do not carry a front-end sales
charge or contingent deferred sales charge, other than shares
of Delaware Group Premium Fund, Inc. beneficially owned in
connection with the ownership of variable insurance products,
unless they were acquired through an exchange from shares
which do) previously purchased and still held as of the date
of their Letter of Intention toward the completion of such
Letter. For purposes of satisfying an investor's obligation
under a Letter of Intention, Class B Shares of the Fund and
the corresponding class of shares of other Delaware Group
funds which offer such shares may be aggregated with the
Class A Shares of the Fund and the corresponding class of
shares of the other Delaware Group funds.
Employers offering a Delaware Group Retirement Plan may
also complete a Letter of Intention to obtain a reduced
front-end sales charge on investments of the Class A Shares
made by the Plan. The aggregate investment level of the
Letter of Intention will be determined and accepted by the
Transfer Agent at the point of Plan establishment. The level
and any reduction in front-end sales charge will be based on
actual Plan participation and the projected investments in
Delaware Group funds that are offered with a front-end sales
charge or contingent deferred sales charge for a 13-month
period. The Transfer Agent reserves the right to adjust the
signed Letter of Intention based on this acceptance criteria.
The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual
investments exceed the anticipated level and equal an amount
that would qualify the Plan for further discounts, any
front-end sales charges will be automatically adjusted. In
the event this Letter of Intention is not fulfilled within
the 13-month period, the Plan level will be adjusted (without
completing another Letter of Intention) and the employer will
be billed for the difference in front-end sales charges due,
based on the Plan's assets under management at that time.
Employers may also include the value (at offering price at
the level designated in their Letter of Intention) of all
their shares intended for purchase that are offered with a
front-end sales charge or contingent deferred sales charge of
any class. Class B Shares of the Fund and other Delaware
Group funds which offer a corresponding class of shares may
also be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end
sales charge previously set forth with respect to the Class A
Shares, purchasers may combine the total amount of any
combination of the Fund Classes of the Fund as well as any
other class of any of the other Delaware Group funds (except
shares of any Delaware Group fund which do not carry a
front-end sales charge or contingent deferred sales charge,
other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired
through an exchange from shares which do).
The privilege also extends to all purchases made at one
time by an individual; or an individual, his or her spouse
and their children under the age 21; or a trustee or other
fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee
benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end
sales charge with respect to the Class A Shares, purchasers
may also combine any subsequent purchases of the Fund Classes
of the Fund as well as any other class of any of the other
Delaware Group funds which offer such classes (except shares
of any Delaware Group fund which do not carry a front-end
sales charge or contingent deferred sales charge, other than
shares of Delaware Group Premium Fund, Inc. beneficially
owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from
shares which do). If, for example, any such purchaser has
previously purchased and still holds Class A Shares and/or
shares of any other of the classes described in the previous
sentence with a value of $40,000 and subsequently purchases
$60,000 at offering price of additional shares of the Class A
Shares, the charge applicable to the $60,000 purchase would
be 3.75%. For the purpose of this calculation, the shares
presently held shall be valued at the public offering price
that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should
refer to the table of sales charges for Class A Shares to
determine the applicability of the Right of Accumulation to
their particular circumstances.
12-Month Reinvestment Privilege
Shareholders of the Class A Shares (and of the
Institutional Class holding shares which were acquired
through an exchange of one of the other mutual funds in the
Delaware Group offered with a front-end sales charge) who
redeem such shares of the Fund have one year from the date of
redemption to reinvest all or part of their redemption
proceeds in Class A Shares of the Fund or in Class A Shares
of any of the other funds in the Delaware Group, subject to
applicable eligibility and minimum purchase requirements, in
states where their shares may be sold, at net asset value
without the payment of a front-end sales charge. This
privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited
CDSC. Persons investing redemption proceeds from direct
investments in mutual funds in the Delaware Group offered
without a front-end sales charge will be required to pay the
applicable sales charge when purchasing Class A Shares. The
reinvestment privilege does not extend to redemption of Class
B Shares.
Any such reinvestment cannot exceed the redemption
proceeds (plus any amount necessary to purchase a full
share). The reinvestment will be made at the net asset value
next determined after receipt of remittance. A redemption
and reinvestment could have income tax consequences. It is
recommended that a tax adviser be consulted with respect to
such transactions. Any reinvestment directed to a fund in
which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares.
Consequently, an investor should obtain and read carefully
the prospectus for the fund in which the investment is
proposed to be made before investing or sending money. The
prospectus contains more complete information about the fund,
including charges and expenses.
Investors should consult their financial advisers or the
Transfer Agent, which also serves as the Fund's shareholder
servicing agent, about the applicability of the Limited CDSC
(see Contingent Deferred Sales Charge for Certain Purchases
of Class A Shares Made at Net Asset Value under Redemption
and Exchange in the Fund Classes' Prospectus) in connection
with the features described above.
Group Investment Plans
Group Investment Plans which are not eligible to
purchase shares of the Institutional Class (e.g., SEP/IRA,
SAR/SEP, Prototype Profit Sharing, Pension and 401(k) Defined
Contribution Plans with fewer than 1,000 eligible employees)
may also benefit from the reduced front-end sales charges for
investments in Class A Shares set forth in the table on page
_____, based on total plan assets. If a company has more
than one plan investing in the Delaware Group of funds, then
the total amount invested in all plans would be used in
determining the applicable front-end sales charge reduction.
Employees participating in such Group Investment Plans may
also combine the investments made in their plan account when
determining the applicable front-end sales charge on
purchases to non-retirement Delaware Group investment
accounts. For other Retirement Plans and special services,
see Retirement Plans for the Fund Classes under Investment
Plans.
Delchester Fund Institutional Class
The Institutional Class is available for purchase only
by: (a) defined contribution retirement plans with 1,000 or
more eligible employees; (b) tax-exempt employee benefit
plans of the Manager or its affiliates and securities dealer
firms with a selling agreement with the Distributor; (c)
institutional advisory accounts of the Manager or its
affiliates and those having client relationships with
Delaware Investment Advisers, a division of the Manager, or
its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans; and (d)
registered investment advisers investing on behalf of clients
that consist solely of institutions and high net-worth
individuals having at least $1,000,000 entrusted to the
adviser for investment purposes, but only if the adviser is
not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its
clients for such advisory services.
Shares of the Institutional Class 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 the Institutional Class are
reinvested in the account of the holders of such shares
(based on the net asset value of the Fund in effect on the
reinvestment date). A confirmation of each distribution 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 Fund for $25 or
more with respect to the Class A Shares and $100 or more with
respect to the Class B Shares; no minimum applies to the
Institutional Class. Such purchases are made, for the Class
A Shares at the public offering price, and for the Class B
Shares and Institutional Class at the net asset value, at the
end of the day of receipt. A reinvestment plan may be
terminated at any time. This plan does not assure a profit
nor protect against depreciation in a declining market.
Reinvestment of Dividends in Other Delaware Group Funds
Subject to applicable eligibility and minimum purchase
requirements and the limitations set forth below,
shareholders of the Class A Shares and Class B Shares may
automatically reinvest dividends and/or distributions from
the Fund in any of the other mutual funds in the Delaware
Group, including the Fund, in states where their shares may
be sold. Such investments will be at net asset value at the
close of business on the reinvestment date without any
front-end sales charge or service fee. The shareholder must
notify the Transfer Agent in writing and must have
established an account in the fund into which the dividends
and/or distributions are to be invested. Any reinvestment
directed to a fund in which the investor does not then have
an account will be treated like all other initial purchases
of a fund's shares. Consequently, an investor should obtain
and read carefully the prospectus for the fund in which the
investment is proposed to be made before investing or sending
money. The prospectus contains more complete information
about the fund, including charges and expenses. See also
Dividend Reinvestment Plan in the Prospectus for the Fund
Classes.
Subject to the following limitations, dividends and/or
distributions from other funds in the Delaware Group may be
invested in shares of the Fund, provided an account has been
established. Dividends from the Class A Shares may not be
directed to the Class B Shares of another fund in the
Delaware Group. Dividends from the Class B Shares may only
be directed to the Class B Shares of another fund in the
Delaware Group that offers such class of shares. See Class B
Funds in the Fund Classes' Prospectus for the funds in the
Delaware Group that are eligible for investment by holders of
Fund shares.
This option is not available to participants in the
following plans: SAR/SEP, SEP/IRA, Profit Sharing and Money
Purchase Pension Plans, 401(k) Defined Contribution Plans,
403(b)(7) Deferred Compensation Plans or 457 Deferred
Compensation Plans.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors of the Class A
Shares and Class B Shares may arrange for the Fund to accept
for investment, through an agent bank, preauthorized
government or private recurring payments. This method of
investment assures the timely credit to the shareholder's
account of payments such as social security, veterans'
pension or compensation benefits, federal salaries, Railroad
Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates
lost, stolen and delayed checks.
Automatic Investing Plan -- Shareholders of the Class A
Shares and Class B Shares may make automatic investments by
authorizing, in advance, monthly payments directly from their
checking account for deposit into the Class. This type of
investment will be handled in either of the two ways noted
below. (1) If the shareholder's bank is a member of the
National Automated Clearing House Association ("NACHA"), the
amount of the investment will be electronically deducted from
his or her account by Electronic Fund Transfer ("EFT"). The
shareholder's checking account will reflect a debit each
month at a specified date although no check is required to
initiate the transaction. (2) If the shareholder's bank is
not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks
("DTC"). Should the shareholder's bank become a member of
NACHA in the future, his or her investments would be handled
electronically through EFT.
This option is not available to participants in the
following plans: SAR/SEP, SEP/IRA, Profit Sharing and Money
Purchase Pension Plans, 401(k) Defined Contribution Plans,
403(b)(7) Deferred Compensation Plans or 457 Deferred
Compensation Plans.
* * *
Investments under the Direct Deposit Purchase Plan and
the Automatic Investing Plan must be for $25 or more with
respect to the Class A Shares and $100 or more with respect
to the Class B Shares. An investor wishing to take advantage
of either service must complete an authorization form.
Either service can be discontinued by the shareholder at any
time without penalty by giving written notice.
Payments to the 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, the Fund may liquidate sufficient shares from a
shareholder's account to reimburse the government or the
private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to
reimburse the 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. The 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 the Fund for proper instructions.
Retirement Plans for the Fund Classes
An investment in the Fund may be suitable for
tax-deferred Retirement Plans. Among the Retirement Plans
noted below, Class B Shares are available for investment only
by Individual Retirement Accounts, Simplified Employee
Pension Plans, 457 Deferred Compensation Plans and 403(b)(7)
Deferred Compensation Plans. The CDSC may be waived on
certain redemptions of Class B Shares. See the Prospectus
for the Fund Classes under Buying Shares -- Contingent
Deferred Sales Charge for a list of the instances in which
the CDSC is waived.
The minimum initial investment for each of the
Retirement Plans described below is $250; subsequent
investments must be at least $25. Many of the Retirement
Plans described below are subject to one-time fees, as well
as annual maintenance fees. Prototype Profit Sharing and
Money Purchase Pension Plans are each subject to a one-time
fee of $200 per plan, or $300 for paired plans. No such fee
is charged for owner-only plans if the Delaware Group does
not provide a Summary Plan Description. In addition, these
plans are subject to an annual maintenance fee of $30 per
participant account. Each of the other Retirement Plans
described below (other than 401(k) Defined Contribution
Plans) is subject to an annual maintenance fee of $15 for
each participant's account, even in years when no
contributions are made, regardless of the number of funds
selected. Annual maintenance fees for 401(k) Defined
Contribution Plans are based on the number of participants in
the Plan and the services selected by the employer. 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. Fees are subject to change.
Certain shareholder investment services available to
non-retirement plan shareholders may not be available to
Retirement Plan shareholders. Certain Retirement Plans may
qualify to purchase shares of the Institutional Class. See
Delchester Fund Institutional Class above. For additional
information on any of the Plans and Delaware's retirement
services, call the Shareholder Service Center telephone
number.
With respect to the annual maintenance fees per account
referred to above, "account" shall mean any account or group
of accounts within a Plan type identified by a common tax
identification number between or among them. Shareholders
are responsible for notifying the Fund when more than one
account is maintained under a single tax identification
number.
It is advisable for an investor considering any one of
the Retirement Plans described below to consult with an
attorney, accountant or a qualified retirement plan
consultant. For further details, including applications for
any of these Plans, contact your investment dealer or the
Distributor.
Taxable distributions from the Retirement Plans
described below may be subject to withholding.
Please contact your investment dealer or the Distributor
for the special application forms required for the Plans
described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed
individuals, partnerships and corporations which replace the
former Keogh and corporate retirement plans. These Plans
contain profit sharing or money purchase pension plan
provisions. Contributions may be invested only in Class A
Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to
establish an Individual Retirement Account ("IRA") by making
contributions which may be tax-deductible, even if the
individual is already participating in an employer-sponsored
retirement plan. Even if contributions are not deductible
for tax purposes, as indicated below, earnings will be
tax-deferred. In addition, an individual may make
contributions on behalf of a spouse who is not employed.
Investments in each of the Fund Classes are permissible.
The Tax Reform Act of 1986 (the "Act") restructured, and
in some cases eliminated, the tax deductibility of IRA
contributions. Under the Act, the full deduction for IRAs
($2,000 for each working spouse and $2,250 for one-income
couples) was retained for all taxpayers who are not covered
by an employer-sponsored retirement plan. Even if a taxpayer
(or his or her spouse) is covered by an employer-sponsored
retirement plan, the full deduction is still available if the
taxpayer's adjusted gross income is below $25,000 ($40,000
for taxpayers filing joint returns). A partial deduction is
allowed for married couples with incomes between $40,000 and
$50,000, and for single individuals with incomes between
$25,000 and $35,000. The Act does not permit deductions for
contributions to IRAs by taxpayers whose adjusted gross
income before IRA deductions exceeds $50,000 ($35,000 for
singles) and who are active participants in an
employer-sponsored retirement plan. Taxpayers who were not
allowed deductions on IRA contributions still can make
nondeductible IRA contributions of as much as $2,000 for each
working spouse ($2,250 for one-income couples), and defer
taxes on interest or other earnings from the IRAs.
A company or association may establish a Group IRA for
employees or members who want to purchase shares of the Fund.
Purchases of $1 million or more of the Class A Shares qualify
for purchase at net asset value but may, under certain
circumstances, be subject to a Limited CDSC. See Purchasing
Shares concerning reduced front-end sales charges applicable
to Class A Shares.
Investments generally must be held in the IRA until age
59 1/2 in order to avoid premature distribution penalties,
but distributions generally must commence no later than April
1 of the calendar year following the year in which the
participant reaches age 70 1/2. Individuals are entitled to
revoke the account, for any reason and without penalty, by
mailing written notice of revocation to Delaware Management
Trust Company within seven days after the receipt of the IRA
Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established
more than seven days after receipt of the IRA Disclosure
Statement, the account may not be revoked. Distributions
from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary
income in the year received. Excess contributions removed
after the tax filing deadline, plus extensions, for the year
in which the excess contributions were made are subject to a
6% excise tax on the amount of excess. Premature
distributions (distributions made before age 59 1/2, except
for death, disability and certain other limited
circumstances) will be subject to a 10% excise tax on the
amount prematurely distributed, in addition to the income tax
resulting from the distribution. See Class B Shares under
Alternative Purchase Arrangements concerning the
applicability of a CDSC upon redemption.
See Appendix A for additional IRA information.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established on a group basis by an
employer who wishes to sponsor a tax-sheltered retirement
program by making IRA contributions on behalf of all eligible
employees. Each of the Fund Classes is available for
investment by a SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Employers with 25 or fewer eligible employees can
establish this plan which permits employer contributions and
salary deferral contributions in Class A Shares only.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Internal Revenue Code of 1986 (the
"Code") permits employers to establish qualified plans based
on salary deferral contributions. Plan documents are
available to enable employers to establish a plan. An
employer may also elect to make profit sharing contributions
and/or matching contributions with investments in only Class
A Shares or certain other funds in the Delaware Group.
Purchases under the Plan may be combined for purposes of
computing the reduced front-end sales charge applicable to
Class A Shares as set forth in the table on page _____.
Deferred Compensation Plan for Public Schools and Non-Profit
Organizations ("403(b)(7)")
Section 403(b)(7) of the Code permits public school
systems and certain non-profit organizations to use mutual
fund shares held in a custodial account to fund deferred
compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish
to purchase either of the Fund Classes in conjunction with
such an arrangement. Applicable front-end sales charges with
respect to Class A Shares for such purchases are set forth in
the table on page _____.
Deferred Compensation Plan for State and Local Government
Employees ("457")
Section 457 of the Code permits state and local
governments, their agencies and certain other entities to
establish a deferred compensation plan for their employees
who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly
state) taxes thereon. Such plans may invest in shares of
either of the Fund Classes. Although investors may use their
own plan, there is available a Delaware Group 457 Deferred
Compensation Plan. Interested investors should contact the
Distributor or their investment dealers to obtain further
information. Applicable front-end sales charges for such
purchases of Class A Shares are set forth in the table on
page _____.
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at
the offering price next calculated by the Fund after receipt
of the order by the Fund or its agent. Orders for purchases
of Class B Shares and the Institutional Class are effected at
the net asset value next calculated after receipt of the
order by the Fund or its agent. Selling dealers have the
responsibility of transmitting orders promptly.
The offering price for the Class A Shares consists of
the net asset value per share plus any applicable sales
charges. Offering price and net asset value are computed as
of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when such
exchange is open. The New York Stock Exchange is scheduled
to be open Monday through Friday throughout the year except
for New Year's Day, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the
Fund 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 offering
price per share of the Class A Shares is included in the
Fund's financial statements which are incorporated by
reference into this Part B.
The Fund's net asset value per share is computed by
adding the value of all 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 the 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. Securities not traded on a particular day,
over-the-counter securities and government and agency
securities are valued at the mean value between bid and asked
prices. Money market instruments having a maturity of less
than 60 days are valued at amortized cost. Debt securities
(other than short-term obligations) are valued on the basis
of valuations provided by a pricing service when such prices
are believed to reflect the fair value of such securities.
Use of a pricing service has been approved by the Board of
Directors. Prices provided by a pricing service take into
account appropriate factors such as institutional trading in
similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other
market data. If no quotations are available, all other
securities and assets are valued at fair value as determined
in good faith and in a method approved by the Board of
Directors.
Each Class will bear, pro-rata, all of the common
expenses of the Fund. The net asset values of all
outstanding shares of each Class of the Fund will be computed
on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the
value of shares of that Class. All income earned and
expenses incurred by the Fund will be borne on a pro-rata
basis by each outstanding share of a Class, based on each
Class' percentage in the Fund represented by the value of
shares of such Classes, except that the Institutional Class
will not incur any of the expenses under the Fund's 12b-1
Plans and shares of the Fund Classes alone will bear the
12b-1 Plan fees payable under their respective Plans. Due to
the specific distribution expenses and other costs that will
be allocable to each Class, the dividends paid to each Class
of the Fund may vary. However, the net asset value per share
of each Class is expected to be equivalent.
REDEMPTION AND REPURCHASE
Any shareholder may require the Fund to redeem shares by
sending a written request, signed by the record owner or
owners exactly as the shares are registered, to the Fund,
1818 Market Street, Philadelphia, PA 19103. In addition,
certain expedited redemption methods described below are
available when stock certificates have not been issued. The
Fund does not issue certificates for Class A Shares or
Institutional Class shares, unless a shareholder specifically
requests them. The Fund does not issue certificates for
Class B Shares. If stock certificates have been issued for
shares being redeemed, they must accompany the written
request. For redemptions of $50,000 or less paid to the
shareholder at the address of record, the Fund requires a
request signed by all owners of the shares or the investment
dealer of record, but does not require signature guarantees.
When the redemption is for more than $50,000, or if payment
is made to someone else or to another address, signatures of
all record owners are required and a signature guarantee may
be required. Each signature guarantee must be supplied by an
eligible guarantor institution. The Fund reserves the right
to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Fund may
request further documentation from corporations, retirement
plans, executors, administrators, trustees or guardians.
In addition to redemption of shares by the Fund, the
Distributor, acting as agent of the Fund, offers to
repurchase Fund shares from broker/dealers acting on behalf
of shareholders. The redemption or repurchase price, which
may be more or less than the shareholder's cost, is the net
asset value next determined after receipt of the request in
good order by the Fund or its agent, less any applicable
contingent deferred sales charge. This is computed and
effective at the time the offering price and net asset value
are determined. See Determining Offering Price and Net Asset
Value. The Fund and the Distributor end their business day
at 5 p.m., Eastern time. This offer is discretionary and may
be completely withdrawn without further notice by the
Distributor.
Orders for the repurchase of 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 (less any applicable contingent
deferred sales charge), if the repurchase order was received
by the broker/dealer from the shareholder prior to the time
the offering price and net asset value are determined on such
day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such
repurchase is then settled as an ordinary transaction with
the broker/dealer (who may make a charge to the shareholder
for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net
asset value may result in the imposition of a Limited CDSC.
See Contingent Deferred Sales Charge for Certain Purchases of
Class A Shares Made at Net Asset Value under Redemption and
Exchange in the Prospectus for the Fund Classes. The Class B
Shares are subject to a CDSC of (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed
during the third and fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following
purchase; and (iv) 1% if shares are redeemed during the sixth
year following purchase. See Contingent Deferred Sales
Charge under Buying Shares in the Prospectus for the Fund
Classes. Except for such contingent deferred sales charges
and, with respect to the expedited payment by wire described
below, for which there is currently a $7.50 bank wiring cost,
neither the Fund nor the Distributor charges a fee for
redemptions or repurchases, but such fees could be charged at
any time in the future.
Payment for shares redeemed will ordinarily be mailed
the next business day, but in no case later than seven days,
after receipt of a redemption request in good order.
If a shareholder who recently purchased shares by check
seeks to redeem all or a portion of those shares in a written
request, the Fund will honor the redemption request but will
not mail the proceeds until it is reasonably satisfied of the
collection of the investment check. This potential delay can
be avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a
check which is subsequently returned unpaid for insufficient
funds or for any other reason, the Fund will automatically
redeem from the shareholder's account the shares purchased by
the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to the 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 the Fund of securities owned by it is not
reasonably practical, or it is not reasonably practical for
the Fund fairly to value its assets, or in the event that the
Securities and Exchange Commission has provided for such
suspension for the protection of shareholders, the 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, the Fund has elected to be governed by
Rule 18f-1 under the Investment Company Act of 1940 pursuant
to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset
value of the Fund during any 90-day period for any one
shareholder.
The value of the Fund's investments is subject to
changing market prices. Thus, a shareholder reselling shares
to the Fund may sustain either a gain or loss, depending upon
the price paid and the price received for such shares.
Small Accounts
Due to the relatively higher costs of maintaining small
accounts, the Fund reserves the right to redeem shares in any
of its accounts at the then-current net asset value if the
total investment in the Fund has a value of less than $250 as
a result of redemptions. As a consequence, an investor who
makes only the minimum investment in a Class will be subject
to involuntary redemption if any portion of the investment is
redeemed. Before the Fund redeems such shares and sends the
proceeds to the shareholder, the shareholder will be notified
in writing that the value of the shares in the account is
less than $250 and will be allowed 60 days from that date of
notice to make an additional investment to meet the required
minimum of $250. Any redemption in an inactive account
established with a minimum investment may trigger mandatory
redemption. No contingent deferred sales charge will apply
to the redemptions described in this paragraph of the Class A
and the Class B Shares.
Expedited Telephone Redemptions
The Fund has available certain redemption privileges, as
described below. The Fund reserves the right to suspend or
terminate the expedited payment procedures upon 60 days'
written notice to shareholders.
Shareholders of the Fund Classes or their investment
dealers of record wishing to redeem any amount of shares of
$50,000 or less for which certificates have not been issued
may call the Fund at 800-523-1918 (in Philadelphia, 988-1241)
or, in the case of shareholders of the Institutional Class,
their Client Services Representative at 800-828-5052 prior to
the time the offering price and net asset value are
determined, as noted above, and have the proceeds mailed to
them at the address of record. Checks payable to the
shareholder(s) of record will normally be mailed the next
business day, but no more than seven days, after receipt of
the redemption request. This option is only available to
individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can
be transferred to your predesignated bank account by wire or
by check by calling the Fund, as described above. An
authorization form must have been completed by the
shareholder and filed with the Fund before the request is
received. Payment will be made by wire or check to the bank
account designated on the authorization form as follows:
1. Payment by Wire: Request that Federal Funds be
wired to the bank account designated on the authorization
form. Redemption proceeds will normally be wired on the next
business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by
CoreStates Bank, N.A. which will be deducted from the
withdrawal proceeds each time the shareholder requests a
redemption. If the proceeds are wired to the shareholder's
account at a bank which is not a member of the Federal
Reserve System, there could be a delay in the crediting of
the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the
bank account designated on the authorization form.
Redemption proceeds will normally be mailed the next business
day, but no more than seven days, from the date of the
telephone request. This procedure will take longer than the
Payment by Wire option (1 above) because of the extra time
necessary for the mailing and clearing of the check after the
bank receives it.
Redemption Requirements: In order to change the name of
the bank and the account number it will be necessary to send
a written request to the Fund and a signature guarantee may
be required. Each signature guarantee must be supplied by an
eligible guarantor institution. The Fund reserves the right
to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness.
To reduce the shareholder's risk of attempted fraudulent
use of the telephone redemption procedure, payment will be
made only to the bank account designated on the authorization
form.
The Fund will not honor telephone redemptions for shares
recently purchased by check unless it is reasonably satisfied
that the purchase check has cleared.
If expedited payment under these procedures could
adversely affect the Fund, the Fund may take up to seven days
to pay the shareholder.
Neither the Fund nor the Transfer Agent is responsible
for any shareholder loss incurred in acting upon written or
telephone instructions for redemption or exchange of Fund
shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions
communicated by telephone are genuine (including verification
of a form of personal identification) as, if it does not, the
Fund or the Transfer Agent may be liable for any losses due
to unauthorized or fraudulent transactions. Telephone
instructions received by shareholders of the Fund Classes are
generally tape recorded. A written confirmation will be
provided for all purchase, exchange and redemption
transactions initiated by telephone.
Systematic Withdrawal Plan
Shareholders of the Class A Shares who own or purchase
$5,000 or more of shares at the offering price for which
certificates have not been issued may establish a Systematic
Withdrawal Plan for monthly withdrawals of $25 or more, or
quarterly withdrawals of $75 or more, although the Fund does
not recommend any specific amount of withdrawal. This $5,000
minimum does not apply for the 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 the 20th of the month (unless such date
falls on a holiday or a Sunday) and mailed on or about the
19th of every month. Both ordinary income dividends and
realized securities profits distributions will be
automatically reinvested in additional shares of the Class at
net asset value. This plan is not recommended for all
investors and should be started only after careful
consideration of its operation and effect upon the investor's
savings and investment program. To the extent that
withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held
under the plan, the withdrawal payments will represent a
return of capital and the share balance may, in time, be
depleted, particularly in a declining market.
The sale of shares for withdrawal payments constitutes a
taxable event and a shareholder may incur a capital gain or
loss for federal income tax purposes. This gain or loss may
be long-term or short-term depending on the holding period
for the specific shares liquidated. Premature withdrawals
from Retirement Plans may have adverse tax consequences.
Withdrawals under this plan by the holders of Class A
Shares or any similar plan of any other investment company
charging a front-end sales charge made concurrently with the
purchases of the Class A Shares of this or the shares of any
other investment company will ordinarily be disadvantageous
to the shareholder because of the payment of duplicative
sales charges. Shareholders should not purchase Class A
Shares while participating in a Systematic Withdrawal Plan
and a periodic investment program in a fund managed by the
Manager must be terminated before a Systematic Withdrawal
Plan can take effect, except if the shareholder is a
participant in one of our Retirement Plans or is investing in
Delaware Group funds which do not carry a sales charge.
Also, redemptions pursuant to a Systematic Withdrawal Plan
may be subject to a Limited CDSC if the purchase was made at
net asset value and a dealer's commission has been paid on
that purchase.
An investor wishing to start a Systematic Withdrawal
Plan must complete an authorization form. If the recipient
of Systematic Withdrawal Plan payments is other than the
registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee
must be supplied by an eligible guarantor institution. The
Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the
shareholder or the Transfer Agent at any time by giving
written notice.
The Systematic Withdrawal Plan is not available with
respect to the Class B Shares or the Institutional Class.
Wealth Builder Option
Shareholders of the Fund Classes may elect to invest in
one or more of the other mutual funds in the Delaware Group
through our Wealth Builder Option. Under this automatic
exchange program, shareholders can authorize regular monthly
investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual
funds in the Delaware Group, subject to the conditions and
limitations set forth in the Fund Classes' Prospectus. See
Wealth Builder Option and Redemption and Exchange in the
Prospectus for the Fund Classes.
The investment will be made on the 20th day of each
month (or, if the fund selected is not open that day, the
next business day) at the public offering price or net asset
value, as applicable, of the fund selected on the date of
investment. No investment will be made for any month if the
value of the shareholder's account is less than the amount
specified for investment.
Periodic investment through the Wealth Builder Option
does not insure profits or protect against losses in a
declining market. The price of the fund into which
investments are made could fluctuate. Since this program
involves continuous investment regardless of such fluctuating
value, investors selecting this option should consider their
financial ability to continue to participate in the program
through periods of low fund share prices. This program
involves automatic exchanges between two or more fund
accounts and is treated as a purchase of shares of the fund
into which investments are made through the program. See
Exchange Privilege for a brief summary of the tax
consequences of exchanges.
Shareholders can also use the Wealth Builder Option to
invest in the Fund Classes through regular liquidations of
shares in their accounts in other mutual funds in the
Delaware Group, subject to the conditions and limitations
described in the Fund Classes' Prospectus. Shareholders can
terminate their participation at any time by written notice
to the Fund.
This option is not available to participants in the
following plans: SAR/SEP, SEP/IRA, Profit Sharing and Money
Purchase Pension Plans, 401(k) Defined Contribution Plans,
403(b)(7) Deferred Compensation Plans or 457 Deferred
Compensation Plans. This option also is not available to
shareholders of the Institutional Class.
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
The Fund declares a dividend to shareholders of each
Class of Fund shares from net investment income on a daily
basis. Dividends are declared each day the Fund is open and
paid monthly on the first business day following the end of
each month. Payment by check of cash dividends will
ordinarily be mailed within three business days after the
payable date. Net investment income earned on days when the
Fund is not open will be declared as a dividend on the next
business day. Purchases of Fund shares by wire begin earning
dividends when converted into Federal Funds and available for
investment, normally the next business day after receipt.
However, if the Fund is given prior notice of Federal Funds
wire and an acceptable written guarantee of timely receipt
from an investor satisfying the Fund's credit policies, the
purchase will start earning dividends on the date the wire is
received. Investors desiring to guarantee wire payments must
have an acceptable financial condition and credit history in
the sole discretion of the Fund. The Fund reserves the right
to terminate this option at any time. Purchases by check
earn dividends upon conversion to Federal Funds, normally one
business day after receipt.
Each Class of shares of the Fund will share
proportionately in the investment income and expenses of the
Fund, except that the Class A Shares and the Class B Shares
alone will incur distribution fees under their respective
12b-1 Plans.
Dividends are automatically reinvested in additional
shares of the same Class of the Fund at net asset value,
unless an election to receive dividends in cash has been
made. Dividend payments of $1.00 or less will be
automatically reinvested, notwithstanding a shareholder's
election to receive dividends in cash. If such a
shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to
begin receiving dividends in cash again. If a shareholder
redeems an entire account, all dividends accrued to the time
of the withdrawal will be paid by separate check at the end
of that particular monthly dividend period, consistent with
the payment and mailing schedule described above. Any check
in payment of dividends or other distributions which cannot
be delivered by the Post Office or which remains uncashed for
a period of more than one year may be reinvested in the
shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest.
The Fund may deduct from a shareholder's account the costs of
the Fund's effort to locate a shareholder if a shareholder's
mail is returned by the Post Office or the 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.
Any distributions from net realized securities profits
will be made twice a year. The first payment would be made
during the first quarter of the next fiscal year. The second
payment would be made near the end of the calendar year to
comply with certain requirements of the Internal Revenue
Code. Such distributions will be reinvested in shares at the
net asset value in effect on the first business day after
month end, unless the shareholder elects to receive it in
cash. The Fund will mail a quarterly statement showing the
dividends paid and all the transactions made during the
period.
During the fiscal year ended July 31, 1994, dividends
totaling $0.746 and $0.761 per share of the Class A Shares
and the Institutional Class, respectively, were paid from net
investment income. During the period from inception on May
2, 1994 through July 31, 1994, dividends totaling $0.120 per
share of the Class B Shares were paid from net investment
income.
TAXES
It is the Fund's policy to pay out substantially all net
investment income and net realized gains to relieve the Fund
of federal income tax liability on that portion of its income
paid to shareholders under Subchapter M of the Internal
Revenue Code. The Fund has met these requirements in
previous years and intends to meet them this year. The Fund
also intends to meet the calendar year distribution
requirements imposed by the Internal Revenue Code to avoid
the imposition of a 4% excise tax.
The Fund has no fixed policy with regard to
distributions of realized securities profits when such
realized securities profits may be offset by capital losses
carried forward. Presently, however, the Fund intends to
offset realized securities profits to the extent of the
capital losses carried forward. The Fund had an accumulated
capital loss carryforward of approximately $152,636,000 at
July 31, 1994 which for federal income tax purposes may be
carried forward and applied against future capital gains.
The capital loss carryforward expires as follows:
1998--$59,747,000, 1999--$89,261,000 and 2002--$3,628,000.
Distributions of net investment income and short-term
realized securities profits are taxable as ordinary income to
shareholders. Since the major portion of the Fund's
investment income is derived from interest rather than
dividends, no portion of such distributions will be eligible
for the dividends-received deduction available to
corporations. Distributions of long-term capital gains, if
any, are taxable as long-term capital gains, for federal
income tax purposes, regardless of the length of time an
investor has held such shares, and these gains are currently
taxed at long-term capital gain rates. 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. These distributions are not eligible for the
dividends-received exclusion. Advice as to the tax status of
each year's dividends and distributions, when paid, will be
mailed annually. Shares of the Fund are exempt from
Pennsylvania county personal property taxes.
Net long-term gain from the sale of securities when
realized and distributed (actually or constructively) is
taxable as capital gain. 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 Fund's portfolio securities had an unrealized net
depreciation for tax purposes of $23,490,802 as of July 31,
1994.
INVESTMENT MANAGEMENT AGREEMENT
The Manager, located at One Commerce Square,
Philadelphia, PA 19103, furnishes investment management
services to the Fund, subject to the supervision and
direction of the Fund's Board of Directors.
The Manager and its predecessors have been managing the
funds in the Delaware Group since 1938. The aggregate assets
of these funds on July 31, 1994 were approximately
$9,578,226,000. Investment advisory services are also
provided to institutional accounts with assets on July 31,
1994 of approximately $16,728,470,000.
The Investment Management Agreement for the Fund, dated
June 29, 1988, was approved by shareholders on June 14, 1988
and renewed for a period of an additional year by the Board
of Directors at a meeting held on February 17, 1994.
The Agreement may be renewed each year only so long as
such renewal and continuance are specifically approved at
least annually by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund,
and only if the terms and the renewal thereof have been
approved by the vote of a majority of the directors of the
Fund who are not parties thereto or interested persons of any
such party, cast in person at a meeting called for the
purpose of voting on such approval. The Agreement is
terminable without penalty on 60 days' notice by the
directors of the Fund or by the Manager. The Agreement will
terminate automatically in the event of its assignment.
The annual compensation paid by the Fund for investment
management services is equal to .60% on the first $500
million of the Fund's average daily net assets, .575% of the
next $250 million and .55% of the average daily net assets in
excess of $750 million, less all directors' fees paid to the
unaffiliated directors of the Fund. On July 31, 1994, the
total net assets of the Fund were $1,076,467,121. The
Manager makes all investment decisions which are implemented
by the Fund. The Manager pays the salaries of all directors,
officers and employees who are affiliated with both the
Manager and the Fund. Investment management fees paid by the
Fund during the past three fiscal years were $4,099,623 for
1992, $4,969,999 for 1993 and $6,090,393 for 1994.
Except for those expenses borne by the Manager under the
Investment Management Agreement and the Distributor under the
Amended and Restated Distribution Agreement; the Fund is
responsible for all of its own expenses. Among others, these
include the Fund's proportionate share of rent and certain
other administrative expenses; the investment management
fees; transfer and dividend disbursing agent fees and costs;
custodian expenses; federal and state securities registration
fees; proxy costs; and the costs of preparing prospectuses
and reports sent to shareholders. The ratio of expenses to
average daily net assets for the Class A Shares for the
fiscal year ended July 31, 1994 was 1.05%, which reflects the
impact of its 12b-1 Plan. The ratio of expenses to average
daily net assets for the Institutional Class was 0.83% for
the fiscal year ended July 31, 1994. The ratio of expenses
to average daily net assets of the Class B Shares is expected
to be 1.83%, based on the expenses of the Class A Shares
during the last fiscal year.
By California regulation, the Manager is required to
waive certain fees and reimburse the Fund for certain
expenses to the extent that the Fund's annual operating
expenses, exclusive of taxes, interest, brokerage commissions
and extraordinary expenses, exceed 2 1/2% of its first $30
million of average daily net assets, 2% of the next $70
million of average daily net assets and 1 1/2% of any
additional average daily net assets. For the fiscal year
ended July 31, 1994, no such reimbursement was necessary or
paid.
Distribution and Service
The Distributor, located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of
Fund shares under an Amended and Restated Distribution
Agreement dated as of May 2, 1994. The Distributor is an
affiliate of the Manager and bears all of the costs of
promotion and distribution, except for payments by the Fund
on behalf of the Class A Shares and Class B Shares under
their respective 12b-1 Plans. The Transfer Agent, another
affiliate of the Manager located at 1818 Market Street,
Philadelphia, PA 19103, serves as the shareholder servicing,
dividend disbursing and transfer agent for the Fund pursuant
to a Shareholders Services Agreement dated June 29, 1988.
The Distributor, the Manager and the Transfer Agent are
all indirect, wholly-owned subsidiaries of Delaware
Management Holdings, Inc.
OFFICERS AND DIRECTORS
The business and affairs of the Fund are managed under
the direction of its Board of Directors. Certain officers
and directors of the Fund hold identical positions in each of
the other funds in the Delaware Group. On August 31, 1994,
the Fund's officers and directors owned approximately 1% of
the Fund's shares outstanding.
As of August 31, 1994, the Fund believes Merrill Lynch,
Pierce, Fenner & Smith Inc., Mutual Fund Operations, 4800
Deer Lake Drive East, 3rd Fl., Jacksonville FL 32246 held of
record 250,285 shares (5.24%) of the outstanding shares of
the Class B Shares.
As of August 31, 1994, the Fund believes the following
held of record 5% or more of the outstanding shares of the
Institutional Class: General Refractories Co., c/o Bankers
Trust Company, P.O. Box 1742, Church Street Station, New
York, NY 10008 - 2,182,935 shares (26.83%), shares of which
included General Refractories Co. Pension Hourly Plan -
1,522,275 shares (18.71%) and General Refractories Co.
Pension Salaried Plan - 660,660 shares (8.12%); RGP Holding
Inc., 3411 Silverside Road, 103 Springer Bldg., Wilmington,
DE 19810 - 1,097,824 shares (13.49%); Nationwide Life
Insurance Company, P.O. Box 182029, Columbus OH 43218 -
1,083,296 shares (13.31%), shares of which included
Nationwide Life Insurance Company Variable Account Pensions
Co. 67 - 1,019,527 shares (12.53%); Delaware Management
Company Employee Profit Sharing Trust, 1818 Market Street,
Philadelphia, PA 19103 - 799,170 shares (9.82%); Charles
Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA
94104 - 727,416 shares (8.94%); Lehigh University, c/o State
Street Bank, P.O. Box 351, Boston, MA 02101 - 702,569 shares
(8.63%); Ogden Financial Services, Inc., 3411 Silverside Road
103 Springer Bldg., Wilmington, DE 19810 - 632,864 shares
(7.78%); and Janney Montgomery Scott & Company Inc., 1801
Market Street, Philadelphia, PA 19103 - 435,756 shares
(5.35%). Shares of Delaware Management Company Employee
Profit Sharing Trust are known to be beneficially owned by
others. Based on information supplied to the Fund, the Fund
believes that all of the shares held of record by Janney
Montgomery Scott & Company Inc. were beneficially owned by
others.
DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International Holdings
Ltd., Founders Holdings, Inc., Delaware International
Advisers Ltd. and Delaware Investment Counselors, Inc. are
direct or indirect, wholly-owned subsidiaries of Delaware
Management Holdings, Inc. ("DMH"). By reason of its
percentage ownership of DMH common stock and through a Voting
Trust Agreement with certain other DMH shareholders, Legend
Capital Group, L.P. ("Legend") controls DMH and its direct
and indirect, wholly-owned subsidiaries. As General Partners
of Legend, Leonard M. Harlan and John K. Castle have the
ability to direct the voting of more than a majority of the
shares of DMH and thereby control DMH and its direct and
indirect, wholly-owned subsidiaries.
For the fiscal year ended July 31, 1994, directors and
certain officers of the Fund were paid an aggregate
remuneration of $86,813.
Directors and principal officers of the Fund and their
business experience for the past five years follow. Unless
otherwise noted, the address of each officer and director is
One Commerce Square, Philadelphia, PA 19103.
*Wayne A. Stork
Chairman, Director and/or Trustee of the Fund and each
of the other Funds in the Delaware Group.
Chairman, Chief Executive Officer, Chief Investment
Officer and Director of Delaware Management
Company, Inc.
Chairman, Chief Executive Officer and Director of
Delaware Management Holdings, Inc., DMH Corp.,
Delaware International Advisers Ltd., Delaware
International Holdings Ltd. and Founders Holdings,
Inc.
Chairman and Director of Delaware Management Trust
Company.
Director of Delaware Distributors, Inc., Delaware
Service Company, Inc. and Delaware Investment
Counselors, Inc.
During the past five years, Mr. Stork has served in
various executive capacities at different times
within the Delaware organization.
-----------------------
* Director affiliated with the investment manager of the
Fund and considered an "interested person" as defined in
the Investment Company Act of 1940.
*Brian F. Wruble
President, Chief Executive Officer, Director and/or
Trustee of the Fund and each of the other Funds in
the Delaware Group (other than Delaware Pooled
Trust, Inc.).
Director of Delaware Pooled Trust, Inc., Delaware
International Advisers Ltd. and Delaware Investment
Counselors, Inc.
President, Chief Operating Officer and Director of
Delaware Management Holdings, Inc., DMH Corp.,
Delaware Management Company, Inc. and Delaware
International Holdings Ltd.
Chairman, Chief Executive Officer and Director of
Delaware Service Company, Inc.
Chairman and Director of Delaware Distributors, Inc.
President of Founders Holdings, Inc.
Before joining the Delaware Group in 1992, Mr. Wruble
was Chairman, President and Chief Executive Officer
of Equitable Capital Management Corporation and
Executive Vice President and Chief Investment
Officer of Equitable Life Assurance Society of the
United States. Mr. Wruble has previously held
executive positions with Smith Barney, Harris Upham
and H.C. Wainwright & Co.
Winthrop S. Jessup
Executive Vice President of the Fund and each of the
other Funds in the Delaware Group (other than
Delaware Pooled Trust, Inc.).
President and Chief Executive Officer of Delaware Pooled
Trust, Inc.
President and Director of Delaware Investment
Counselors, Inc.
Executive Vice President and Director of Delaware
Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Management Trust
Company, Delaware International Holdings Ltd. and
Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors,
Inc.
Director of Delaware Service Company, Inc. and Delaware
International Advisers Ltd.
During the past five years, Mr. Jessup has served in
various executive capacities at different times
within the Delaware organization.
-----------------------
* Director affiliated with the investment manager of the
Fund and considered an "interested person" as defined in
the Investment Company Act of 1940.
Richard G. Unruh, Jr.
Executive Vice President of the Fund and each of the
other Funds in the Delaware Group.
Executive Vice President and Director of Delaware
Management Company, Inc.
Senior Vice President of Delaware Management Holdings,
Inc.
During the past five years, Mr. Unruh has served in
various executive capacities at different times
within the Delaware organization.
Walter P. Babich
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin &
Leighton and from 1988 to 1991, he was a partner of
I&L Investors.
*John K. Castle
Director and/or Trustee of the Fund, each of the other
Funds in the Delaware Group and Delaware Management
Holdings, Inc.
150 East 58th Street, New York, NY 10155.
General Partner, Legend Capital Group, L.P.
Chairman, Castle Harlan, Inc., a private merchant bank
in New York City.
Chairman, Castle Harlan GP, Inc.
President and Chief Executive Officer, Branford Castle,
Inc., an investment holding company.
Chairman, Castle Connolly Medical Ltd.
Director, Sealed Air Corp.
Director, UNC, Inc.
Director, Quantum Restaurant Group, Inc.
Director, INDSPEC Chemical Corporation.
Trustee, New York Medical College.
Immediately prior to forming Branford Castle, Inc. in
1986, Mr. Castle was President and Chief Executive
Officer and a director of Donaldson, Lufkin &
Jenrette, which he joined in 1965. Mr. Castle also
served as Chairman of the Board of the New York
Medical College for 11 years and has served as a
director of the Equitable Life Assurance Society of
the United States and as a member of the
Corporation of the Massachusetts Institute of
Technology.
-----------------------
* Director affiliated with the investment manager of the
Fund and considered an "interested person" as defined in
the Investment Company Act of 1940.
John J. Connolly, Ed.D.
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
150 East 58th Street, New York, NY 10155.
President and Chief Executive Officer, Castle Connolly
Medical Ltd.
President, Chief Executive Officer and Director,
Health-Excel Management, Inc.
Chairman, Bedford Partners, Ltd.
From 1981 to 1992, Dr. Connolly was President and Chief
Executive Officer of New York Medical College, New
York.
John H. Durham
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
Consultant.
120 Gibraltar Road, Horsham, PA 19044.
Mr. Durham served as Chairman of the Board of each Fund
in the Delaware Group from 1986 to 1991; President
of each Fund in the Delaware Group from 1977 to
1990; and Chief Executive Officer of each Fund in
the Delaware Group from 1984 to 1990. Prior to
1992, with respect to Delaware Management Holdings,
Inc., Delaware Management Company, Inc., Delaware
Distributors, Inc. and Delaware Service Company,
Inc., Mr. Durham served as a director and in
various executive capacities at different times.
*Leonard M. Harlan
Director and/or Trustee of the Fund, each of the other
Funds in the Delaware Group and Delaware Management
Holdings, Inc.
150 East 58th Street, New York, NY 10155.
General Partner, Legend Capital Group, L.P.
President, Castle Harlan, Inc., a private merchant bank
in New York City.
President, Castle Harlan GP, Inc.
Chairman and Chief Executive Officer, The Harlan
Company, Inc.
Director, Long John Silver's Restaurants, Inc.
Director, The Ryland Group, Inc.
Director, Smarte Carte Corporation.
Director, MAG Aerospace Industries, Inc.
Trustee, North Country School/CTT.
Trustee, New York City Citizens Budget Commission.
Member, Visiting Committee of the Harvard Business
School.
-----------------------
* Director affiliated with the investment manager of the
Fund and considered an "interested person" as defined in
the Investment Company Act of 1940.
Anthony D. Knerr
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Consultant, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice
President/Finance and Treasurer of Columbia
University, New York. From 1987 to 1989, he was
also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing
Group, Inc., New York, from 1988 to 1990 and
President from 1990 to 1991. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Deputy Treasurer, National Gallery of Art.
Adjunct Professor, Columbia Business School.
From 1984 to 1990, Ms. Leven was Treasurer and Chief
Fiscal Officer of the Smithsonian Institution,
Washington, DC.
W. Thacher Longstreth
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
1617 John F. Kennedy Boulevard, Philadelphia, PA 19103.
Vice Chairman, Packquisition Corp., a financial
printing, commercial printing and information
processing firm.
Philadelphia City Councilman.
Charles E. Peck
Director and/or Trustee of the Fund and each of the
other Funds in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Retired.
From 1981 to 1990, Mr. Peck was Chairman and Chief
Executive Officer of The Ryland Group, Inc.,
Columbia, MD.
David K. Downes
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer of the Fund, each of the
other Funds in the Delaware Group and Delaware
Management Company, Inc.
President/Chief Executive Officer and Director of
Delaware Management Trust Company.
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer/Treasurer of Delaware
Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer
and Director of DMH Corp.
Senior Vice President/Chief Administrative Officer and
Director of Delaware Distributors, Inc.
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer and Director of Delaware Service
Company, Inc.
Chief Financial Officer and Director of Delaware
International Holdings Ltd.
Chief Financial Officer/Chief Operating Officer of
Delaware Investment Counselors, Inc.
Senior Vice President and Director of Founders Holdings,
Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes
was Chief Administrative Officer, Chief
Financial Officer and Treasurer of Equitable
Capital Management Corporation, New York, from
December 1985 through August 1992, Executive Vice
President from December 1985 through March 1992,
and Vice Chairman from March 1992 through August
1992.
George M. Chamberlain, Jr.
Senior Vice President and Secretary of the Fund, each
of the other Funds in the Delaware Group and
Delaware Management Holdings, Inc.
Corporate Vice President, Secretary and Director of
Founders Holdings, Inc.
Senior Vice President, Secretary and Director of DMH
Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc.
and Delaware Management Trust Company.
Secretary and Director of Delaware International
Holdings Ltd.
Secretary of Delaware Investment Counselors, Inc.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served
in various capacities at different times within the
Delaware organization.
Gerald T. Nichols
Vice President/Senior Portfolio Manager of the Fund, of
the tax-exempt and other income funds in the
Delaware Group and of Delaware Management Company,
Inc.
Before joining the Delaware Group in 1989, Mr. Nichols
was an Investment Officer with OCWEN Financial
Group, West Palm Beach, FL.
Paul A. Matlack
Vice President/Senior Portfolio Manager of the Fund, of
the tax-exempt and other income funds in the
Delaware Group and of Delaware Management Company,
Inc.
Before joining the Delaware Group in 1989, Mr. Matlack
was a credit specialist with Mellon Bank,
Philadelphia, PA and he subsequently served as a
loan officer in the Corporate Lending Division at
Mellon Bank and in the Special Industries Group at
Provident National Bank, Philadelphia, PA.
James R. Raith, Jr.
Vice President/Senior Portfolio Manager of the Fund, of
the tax-exempt and other income funds in the
Delaware Group and Delaware Management Company,
Inc.
Joseph H. Hastings
Vice President/Corporate Controller of the Fund, each of
the other Funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors,
Inc., Delaware Service Company, Inc. and Founders
Holdings, Inc.
Vice President/Corporate Controller/Treasurer of
Delaware Management Trust Company.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings
was Chief Financial Officer for Prudential
Residential Services, L.P., New York, NY. Prior to
that, Mr. Hastings served as Controller and
Treasurer for Fine Homes International, L.P.,
Stamford, CT.
Eugene J. Cichanowsky
Vice President/Corporate Tax of the Fund, each of the
other Funds in the Delaware Group (other than
Delaware Pooled Trust, Inc.), Delaware Management
Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders Holdings,
Inc. and Delaware Management Trust Company.
Vice President of Delaware Pooled Trust, Inc.
1818 Market Street, Philadelphia, PA 19103.
During the past five years, Mr. Cichanowsky has served
in various capacities at different times within the
Delaware organization.
Joseph A. Finelli
Vice President/Treasurer of the Fund, each of the other
Funds in the Delaware Group and Delaware Service
Company, Inc.
Vice President/Treasurer/Chief Financial Officer of
Founders Holdings, Inc.
Vice President/Chief Financial Officer of Delaware
Distributors, Inc.
Vice President/Assistant Treasurer of Delaware
Management Company, Inc.
Vice President of Delaware International Holdings, Ltd.
1818 Market Street, Philadelphia, PA 19103.
During the past five years, Mr. Finelli has served in
various capacities at different times within the
Delaware organization.
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of
the Classes and for shareholders of classes of other funds in
the Delaware Group are set forth in the relevant prospectuses
for such classes. The following supplements that
information. The Fund reserves the right to reject exchange
requests at any time. The Fund may modify, terminate or
suspend the exchange privilege upon 60 days' notice to
shareholders.
All exchanges involve a purchase of shares of the fund
into which the exchange is made. As with any purchase, an
investor should obtain and carefully read that fund's
prospectus before buying shares in an exchange. The
prospectus contains more complete information about the fund,
including charges and expenses. A shareholder requesting an
exchange will be sent a current prospectus and an
authorization form for any of the other mutual funds in the
Delaware Group. Exchange instructions must be signed by the
record owner(s) exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of
one fund and the purchase of another. The sale may involve
either a capital gain or loss to the shareholder for federal
income tax purposes.
In addition, investment advisers and dealers may make
exchanges between funds in the Delaware Group on behalf of
their clients by telephone or other expedited means. This
service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it
is determined that a particular request or the total requests
at any time could have an adverse effect on any of the funds.
Requests for expedited exchanges may be submitted with a
properly completed exchange authorization form, as described
above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have
not been issued or their investment dealers of record may
exchange shares by telephone for shares in other mutual funds
in the Delaware Group. This service is automatically
provided unless the Fund receives written notice from the
shareholder to the contrary.
Shareholders or their investment dealers of record may
contact the Transfer Agent at 800-523-1918 (in Philadelphia,
988-1241) or, in the case of shareholders of the
Institutional Class, their Client Services Representative at
800-828-5052, to effect an exchange. The shareholder's
current Fund account number must be identified, as well as
the registration of the account, the share or dollar amount
to be exchanged and the fund into which the exchange is to be
made. Requests received on any day after the time the
offering price and net asset value are determined will be
processed the following day. See Determining Offering Price
and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration,
shareholder information and dividend option as the account
from which the shares were exchanged. The exchange
requirements of the fund into which the exchange is being
made, such as sales charges, eligibility and investment
minimums, must be met. (See the prospectus of the fund
desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds
are not available for Retirement Plans.
The telephone exchange privilege is intended as a
convenience to shareholders and is not intended to be a
vehicle to speculate on short-term swings in the securities
market through frequent transactions in and out of the funds
in the Delaware Group. Telephone exchanges may be subject to
limitations as to amounts or frequency. The Transfer Agent
and the Fund reserve the right to record exchange
instructions received by telephone and to reject exchange
requests at any time in the future.
As described in the Fund's prospectuses, neither the
Fund nor the Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone
instructions for redemption or exchange of Fund shares which
are reasonably believed to be genuine.
Following is a summary of the investment objectives of
the other Delaware Group funds:
Delaware Fund seeks long-term growth by a balance of
capital appreciation, income and preservation of capital. It
uses a dividend-oriented valuation strategy to select
securities issued by established companies that are believed
to demonstrate potential for income and capital growth.
Dividend Growth 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.
Trend Fund seeks long-term growth by investing in common
stock issued by emerging growth companies exhibiting strong
capital appreciation potential.
Value Fund seeks capital appreciation by investing
primarily in common stocks whose market values appear low
relative to their underlying value or future potential.
DelCap Fund seeks long-term capital growth by investing
in common stocks and securities convertible into common
stocks of companies that have a demonstrated history of
growth and have the potential to support continued growth.
Decatur Income Fund seeks the highest possible current
income by investing primarily in common stocks that provide
the potential for income and capital appreciation without
undue risk to principal. Decatur Total Return Fund seeks
long-term growth by investing primarily in securities that
provide the potential for income and capital appreciation
without undue risk to principal.
U.S. Government Fund seeks high current income by
investing in long-term U.S. government debt obligations.
Treasury Reserves Intermediate 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 and instrumentalities. U.S.
Government Money Fund seeks maximum current income with
preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed
as to principal and interest by the U.S. government, its
agencies or instrumentalities, and repurchase agreements
collateralized by such securities, while maintaining a stable
net asset value.
Delaware Cash Reserve seeks the highest level of income
consistent with the preservation of capital and liquidity
through investments in short-term money market instruments,
while maintaining a stable net asset value.
Tax-Free USA Fund seeks high current income exempt from
federal income tax by investing in municipal bonds of
geographically-diverse issuers. Tax-Free Insured Fund
invests in these same types of securities but with an
emphasis on municipal bonds protected by insurance
guaranteeing principal and interest are paid when due.
Tax-Free USA Intermediate Fund seeks a high level of current
interest income exempt from federal income tax, consistent
with the preservation of capital by investing primarily in
municipal bonds.
Tax-Free Money Fund seeks high current income, exempt
from federal income tax, by investing in short-term municipal
obligations, while maintaining a stable net asset value.
Tax-Free Pennsylvania Fund seeks a high level of current
interest income exempt from federal and, to the extent
possible, certain Pennsylvania state and local taxes,
consistent with the preservation of capital.
International Equity Fund seeks to achieve long-term
growth without undue risk to principal by investing primarily
in international securities that provide the potential for
capital appreciation and income. Global Income Fund seeks to
achieve current income consistent with the preservation of
principal by investing primarily in global fixed income
securities that may also provide the potential for capital
appreciation. Global Total Return Fund seeks to achieve
long-term total return by investing in global securities
which will provide higher current income than a portfolio
comprised exclusively of equity securities, along with the
potential for capital growth.
Delaware Group Premium Fund offers nine series available
exclusively as funding vehicles for certain insurance company
separate accounts. Equity/Income Series seeks the highest
possible total rate of return by selecting issues that
exhibit the potential for capital appreciation while
providing higher than average dividend income. High Yield
Series seeks as high a current income as possible by
investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves
Series seeks a high stable level of current income while
minimizing fluctuations in principal by investing in a
diversified portfolio of short- and intermediate-term
securities. Money Market Series seeks the highest level of
income consistent with preservation of capital and liquidity
through investments in short-term money market instruments.
Growth Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities
exhibiting the potential for significant growth. Multiple
Strategy Series seeks a balance of capital appreciation,
income and preservation of capital. It uses a
dividend-oriented valuation strategy to select securities
issued by established companies that are believed to
demonstrate potential for income and capital growth.
International Equity Series seeks long-term growth without
undue risk to principal by investing primarily in equity
securities of foreign issuers that provide the potential for
capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks
whose market value appears low relative to their underlying
value or future earnings and growth potential. Emphasis will
also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized
by the market. Emerging Growth Series seeks long-term
capital appreciation by investing primarily in small-cap
common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have
been judged to be responsive to changes in the market place
and to have fundamental characteristics to support growth.
Income is not an objective.
For more complete information about any of these funds,
including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or
forward funds.
Each of the summaries above is qualified in its entirety
by the information contained in each Fund's prospectus(es).
GENERAL INFORMATION
The Manager is the investment manager of the Fund. The
Manager or its affiliate, Delaware International Advisers
Ltd., manages the other funds in the Delaware Group. The
Manager, through a separate division, also manages private
investment accounts. While investment decisions of the Fund
are made independently from those of the other funds and
accounts, they may make investment decisions at the same
time.
The Distributor acts as national distributor for the
Fund and for the other mutual funds in the Delaware Group.
The Distributor received net commissions from the Fund, after
reallowances to dealers, as follows:
Class A Shares
Amounts Net
Fiscal Reallowed Commission
Year Ending to Dealers to Distributor
----------- ---------- --------------
July 31, 1994 $7,218,669 $1,406,701
July 31, 1993 6,454,824 1,315,679
July 31, 1992 5,436,803 906,355
During the period from inception on May 2, 1994 through
July 31, 1994, the Distributor received CDSC payments in the
amount of $1,555 with respect to the Class B Shares.
The Transfer Agent, an affiliate of the Manager, acts as
shareholder servicing, dividend disbursing and transfer agent
for the Fund and for the other mutual funds in the Delaware
Group. The Transfer Agent is paid a fee by the Fund for
providing these services consisting of an annual per account
charge of $11.00 plus transaction charges for particular
services according to a schedule. Compensation is fixed each
year and approved by the Board of Directors, including a
majority of the disinterested directors.
The Manager and its affiliates own the name "Delaware
Group." Under certain circumstances, including the
termination of the Fund's advisory relationship with the
Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause the
Fund to delete the words "Delaware Group" from the Fund's
name.
Morgan Guaranty Trust Company of New York ("Morgan"), 60
Wall Street, New York, NY 10260, is custodian of the Fund's
securities and cash. As custodian for the Fund, Morgan
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.
The legality of the issuance of the shares offered
hereby, pursuant to registration under the Investment Company
Act Rule 24f-2, has been passed upon for the Fund by Messrs.
Stradley, Ronon, Stevens & Young, Philadelphia, Pennsylvania.
Shares of the Fund are exempt from Pennsylvania personal
property taxes and qualify as an authorized investment for
trustees in Pennsylvania if such an investment is otherwise
appropriate.
Capitalization
The Fund has a present authorized capitalization of five
hundred million shares of capital stock with a $1 par value
per share. The Fund offers three classes of shares, each
representing a proportionate interest in the assets of the
Fund, and each having the same voting and other rights and
preferences as the other classes, except that shares of the
Institutional Class may not vote on matters affecting the
Fund's Distribution Plans under Rule 12b-1. Similarly, the
shareholders of the Class A Shares may not vote on matters
affecting the Fund's Plan under Rule 12b-1 relating to the
Class B Shares, and the shareholders of the Class B Shares
may not vote on matters affecting the Fund's Plan under Rule
12b-1 relating to the Class A Shares. General expenses of
the 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 the Class A and Class B Shares will be
allocated solely to those classes. The Board of Directors
has allocated four hundred million shares to the Class A
Shares, fifty million shares to the Class B Shares and fifty
million shares to the Institutional Class.
Shares have no preemptive rights, are fully transferable
and, when issued, are fully paid and nonassessable.
Until May 31, 1992, the Fund offered shares of two
retail classes, Delchester I class and Delchester II class
(now, the Class A Shares). Delchester I class shares were
offered with a higher sales charge than that applicable to
the Delchester II class, but without the imposition of a Rule
12b-1 fee. Effective June 1, 1992, following shareholder
approval of a Plan of Recapitalization on May 8, 1992,
shareholders of the Delchester I class had their shares
converted into shares of the Delchester II class and became
subject to that class' Rule 12b-1 charges. Effective at the
same time, following approval by shareholders, the name of
the Delchester II class was changed to the Delchester Fund
class. Effective May 2, 1994, the Delchester Fund class is
known as the Delchester Fund A Class and the Delchester Fund
(Institutional) class is known as the Delchester Fund
Institutional Class.
Noncumulative Voting
These shares have noncumulative voting rights which
means that the holders of more than 50% of the shares of the
Fund voting for the election of directors can elect all the
directors if they choose to do so, and, in such event, the
holders of the remaining shares will not be able to elect any
directors.
This Part B does not include all of the information
contained in the Registration Statement which is on file with
the Securities and Exchange Commission.
APPENDIX A--IRA INFORMATION
The Tax Reform Act of 1986 restructured, and in some
cases eliminated, the tax deductibility of IRA contributions.
Under the Act, the full deduction for IRAs ($2,000 for each
working spouse and $2,250 for one-income couples) was
retained for all taxpayers who are not covered by an
employer-sponsored retirement plan. Even if a taxpayer (or
his or her spouse) is covered by an employer-sponsored
retirement plan, the full deduction is still available if the
taxpayer's adjusted gross income is below $25,000 ($40,000
for taxpayers filing joint returns). A partial deduction is
allowed for married couples with incomes between $40,000 and
$50,000, and for single individuals with incomes between
$25,000 and $35,000. The Act does not permit deductions for
contributions to IRAs by taxpayers whose adjusted gross
income before IRA deductions exceeds $50,000 ($35,000 for
singles) and who are active participants in an
employer-sponsored retirement plan. Taxpayers who were not
allowed deductions on IRA contributions still can make
nondeductible IRA contributions of as much as $2,000 for each
working spouse ($2,250 for one-income couples), and defer
taxes on interest or other earnings from the IRAs.
As illustrated in the following tables, maintaining an
Individual Retirement Account remains a valuable opportunity.
For many, an IRA will continue to offer both an up-front
tax break with its tax deduction each year and the real
benefit that comes with tax-deferred compounding. For
others, losing the tax deduction will impact their taxable
income status each year. Over the long term, however, being
able to defer taxes on earnings still provides an impressive
investment opportunity--a way to have money grow faster due
to tax-deferred compounding.
Even if your IRA contribution is no longer deductible,
the benefits of saving on a tax-deferred basis can be
substantial. The following tables illustrate the benefits of
tax-deferred versus taxable compounding. Each reflects a
constant 10% rate of return, compounded annually, with the
reinvestment of all proceeds. The tables do not take into
account any sales charges or fees. Of course, earnings
accumulated in your IRA will be subject to tax upon
withdrawal. If you choose a mutual fund with a fluctuating
net asset value, like the Fund, your bottom line at
retirement could be lower--it could also be much higher.
$2,000 Invested Annually Assuming a 10% Annualized Return
15% Tax Bracket Single -- $0 - $22,750
--------------- Joint -- $0 - $38,000
How Much
Cumulative How Much You Have
End of Investment You Have With Full
Year Amount Without IRA IRA Deduction
1 $ 2,000 $ 1,844 $ 2,200
5 10,000 10,929 13,431
10 20,000 27,363 35,062
15 30,000 52,074 69,899
20 40,000 89,231 126,005
25 50,000 145,103 216,364
30 60,000 229,114 361,887
35 70,000 355,438 596,254
40 80,000 545,386 973,704
[Without IRA--investment of $1,700 ($2,000 less 15%) earning
8.5% (10% less 15%)]
28% Tax Bracket Single -- $22,751 - $55,100
--------------- Joint -- $38,001 - $91,850
How Much How Much You Have
Cumulative You Have With Full IRA
End of Investment Without No
Year Amount IRA Deduction Deduction
1 $ 2,000 $ 1,544 $ 1,584 $ 2,200
5 10,000 8,913 9,670 13,431
10 20,000 21,531 25,245 35,062
15 30,000 39,394 50,328 69,899
20 40,000 64,683 90,724 126,005
25 50,000 100,485 155,782 216,364
30 60,000 151,171 260,559 361,887
35 70,000 222,927 429,303 596,254
40 80,000 324,512 701,067 973,704
[Without IRA--investment of $1,440 ($2,000 less 28%) earning
7.2% (10% less 28%)]
[With IRA--No Deduction--investment of $1,440 ($2,000 less
28%) earning 10%]
31% Tax Bracket Single -- $55,101 - $115,000
--------------- Joint -- $91,851 - $140,000
How Much How Much You Have
Cumulative You Have With Full IRA
End of Investment Without No
Year Amount IRA Deduction Deduction
1 $ 2,000 $ 1,475 $ 1,518 $ 2,200
5 10,000 8,467 9,268 13,431
10 20,000 20,286 24,193 35,062
15 30,000 36,787 48,231 69,899
20 40,000 59,821 86,943 126,005
25 50,000 91,978 149,291 216,364
30 60,000 136,868 249,702 361,887
35 70,000 199,536 411,415 596,254
40 80,000 287,021 671,855 973,704
[Without IRA--investment of $1,380 ($2,000 less 31%) earning
6.9% (10% less 31%)]
[With IRA--No Deduction--investment of $1,380 ($2,000 less
31%) earning 10%]
36% Tax Bracket* Single -- $115,001 - $250,000
--------------- Joint -- $140,001 - $250,000
How Much How Much You Have
Cumulative You Have With Full IRA
End of Investment Without No
Year Amount IRA Deduction Deduction
1 $ 2,000 $ 1,362 $ 1,408 $ 2,200
5 10,000 7,739 8,596 13,431
10 20,000 18,292 22,440 35,062
15 30,000 32,683 44,736 69,899
20 40,000 52,308 80,643 126,005
25 50,000 79,069 138,473 216,364
30 60,000 115,562 231,608 361,887
35 70,000 165,327 381,602 596,254
40 80,000 233,190 623,170 973,704
[Without IRA--investment of $1,280 ($2,000 less 36%) earning
6.4% (10% less 36%)]
[With IRA--No Deduction--investment of $1,280 ($2,000 less
36%) earning 10%]
39.6% Tax Bracket* Single -- over $250,000
----------------- Joint -- over $250,000
How Much How Much You Have
Cumulative You Have With Full IRA
End of Investment Without No
Year Amount IRA Deduction Deduction
1 $ 2,000 $ 1,281 $ 1,329 $ 2,200
5 10,000 7,227 8,112 13,431
10 20,000 16,916 21,178 35,062
15 30,000 29,907 42,219 69,899
20 40,000 47,324 76,107 126,005
25 50,000 70,677 130,684 216,364
30 60,000 101,986 218,580 361,887
35 70,000 143,965 360,137 596,254
40 80,000 200,249 588,117 973,704
[Without IRA--investment of $1,208 ($2,000 less 39.6%)
earning 6.04% (10% less 39.6%)]
[With IRA--No Deduction--investment of $1,208 ($2,000 less
39.6%) earning 10%]
-----------------------
* For tax years beginning after 1992, a 36% tax rate
applies to all taxable income in excess of the maximum
dollar amounts subject to the 31% tax rate. In
addition, a 10% surtax (not applicable to capital gains)
applies to certain high-income taxpayers. It is
computed by applying a 39.6% rate to taxable income in
excess of $250,000. The above tables do not reflect the
personal exemption phaseout nor the limitations of
itemized deductions that may apply.
$2,000 SINGLE INVESTMENT AT A RETURN OF 10%
COMPOUNDED MONTHLY
TAXABLE-- TAXABLE-- TAXABLE--
YEARS 39.6%* 36%* 31%
------------------------------------------------------------
10 $ 3,653 $ 3,787 $ 3,980
15 4,938 5,210 5,614
20 6,673 7,169 7,918
30 12,190 13,572 15,756
40 22,267 25,696 31,351
TAXABLE-- TAXABLE-- TAX
YEARS 28% 15% DEFERRED
------------------------------------------------------------
10 $ 4,100 $ 4,665 $ 5,414
15 5,870 7,125 8,908
20 8,405 10,882 14,656
30 17,231 25,385 39,675
40 35,323 59,214 107,401
$2,000 INVESTED ANNUALLY AT A RETURN OF 10%
COMPOUNDED MONTHLY
TAXABLE-- TAXABLE-- TAXABLE--
YEARS 39.6%* 36%* 31%
------------------------------------------------------------
10 $ 28,276 $ 28,891 $ 29,773
15 50,241 51,913 54,348
20 79,928 83,590 89,014
30 174,276 187,150 206,891
40 347,756 383,214 441,441
TAXABLE-- TAXABLE-- TAX
YEARS 28% 15% DEFERRED
------------------------------------------------------------
10 $ 30,317 $ 32,819 $ 36,018
15 55,875 63,110 72,877
20 92,468 109,373 133,521
30 219,878 287,948 397,466
40 481,071 704,501 1,111,974
-----------------------
* For tax years beginning after 1992, a 36% tax rate
applies to all taxable income in excess of the maximum
dollar amounts subject to the 31% tax rate. In
addition, a 10% surtax (not applicable to capital gains)
applies to certain high-income taxpayers. It is
computed by applying a 39.6% rate to taxable income in
excess of $250,000. The above tables do not reflect the
personal exemption phaseout nor the limitations of
itemized deductions that may apply.
THE VALUE OF STARTING YOUR IRA EARLY
The following illustrates how much more you would have
contributing $2,000 each January--the earliest
opportunity--compared to contributing on April 15th of the
following year--the latest, for each tax year.
After 5 years $3,528 more
10 years $6,113
20 years $17,228
30 years $47,295
Compounded returns for the longest period of time is the
key. The above illustration assumes a 10% rate of return and
the reinvestment of all proceeds.
And it pays to shop around. If you get just 2% more per
year, it can make a big difference when you retire. A
constant 8% versus 10% return, compounded monthly,
illustrates the point. This chart is based on a yearly
investment of $2,000 on January 1. After 30 years the
difference can mean as much as 50% more!
8% Return 10 % Return
8 Years $ 31,828 $ 36,018
10 Years 259,288 397,466
The statistical exhibits above are for illustration
purposes only and do not reflect the actual performance for
the Fund either in the past or in the future.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities,
including the Statement of Investments, Statement of
Operations, Statement of Changes in Net Assets and Notes to
Financial Statements, as well as the report of Ernst & Young
LLP, independent auditors, for the fiscal year ended July 31,
1994 are included in the Fund's Annual Report to
shareholders. The financial statements, the notes relating
thereto and the report of Ernst & Young LLP listed above are
incorporated by reference from the Annual Report into this
Part B.
