<PAGE> 1
SUPPLEMENT DATED APRIL 15, 1995
TO THE CURRENT PROSPECTUSES
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 DELCHESTER HIGH-YIELD
BOND FUND, INC., DELAWARE GROUP GOVERNMENT FUND, INC., DELAWARE GROUP
TAX-FREE FUND, INC., DELAWARE GROUP TREASURY RESERVES, INC., DELAWARE
GROUP TAX-FREE MONEY, INC., DELAWARE GROUP CASH RESERVE, INC.
On March 29, 1995, shareholders of each of the above referenced Funds
or, as relevant, the series thereof, approved a new Investment Management
Agreement with Delaware Management Company, Inc. ("DMC"), an indirect
wholly-owned subsidiary of Delaware Management Holdings, Inc. ("DMH"). The
approval of new Investment Management Agreements was subject to the completion
of the merger (the "Merger") between DMH and a wholly-owned subsidiary of
Lincoln National Corporation ("Lincoln National") which occurred on April 3,
1995. Accordingly, the previous Investment Management Agreements terminated and
the new Investment Management Agreements became effective on that date.
As a result of the Merger, DMC and its two affiliates, Delaware
Service Company, Inc., the Funds' shareholder servicing, dividend disbursing
and transfer agent and Delaware Distributors, L.P., the Funds' national
distributor became indirect wholly-owned subsidiaries of Lincoln National.
Lincoln National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services
industry, including insurance and investment management.
Under the new Investment Management Agreements, DMC will be paid at
the same annual fee rates and on the same terms as it was under the previous
Investment Management Agreements. In addition, the investment approach and
operation of each Fund and, as relevant, each series of a Fund, will remain
substantially unchanged.
PS-OTH-4/95
<PAGE> 2
NOVEMBER 9, 1994
DELAWARE GROUP OF FUNDS
U.S. GOVERNMENT FUND
INSTITUTIONAL CLASS
(SEPTEMBER 29, 1994)
DELCHESTER FUND
INSTITUTIONAL CLASS
(SEPTEMBER 29, 1994)
TREASURY RESERVES
INTERMEDIATE FUND
INSTITUTIONAL CLASS
(MAY 2, 1994)
TREND FUND
INSTITUTIONAL CLASS
(SEPTEMBER 6, 1994)
DELCAP FUND
INSTITUTIONAL CLASS
(SEPTEMBER 6, 1994)
DELAWARE FUND
INSTITUTIONAL CLASS
DIVIDEND GROWTH FUND
INSTITUTIONAL CLASS
(SEPTEMBER 6, 1994)
DECATUR INCOME FUND
INSTITUTIONAL CLASS
(SEPTEMBER 6, 1994)
DECATUR TOTAL RETURN FUND
INSTITUTIONAL CLASS
(SEPTEMBER 6, 1994)
VALUE FUND
INSTITUTIONAL CLASS
(SEPTEMBER 6, 1994)
INTERNATIONAL EQUITY FUND
INSTITUTIONAL CLASS
(SEPTEMBER 6, 1994)
SUPPLEMENT TO PROSEPECTUSES AS NOTED ABOVE
The following supplements the information appearing on the front cover
of the Prospectus:
Shares of this Fund are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. Shares are not
deposits, obligations of, guaranteed or endorsed by any bank and involve
investment risks including possible loss of principal.
(over)
<PAGE> 3
Shares of the Fund are not NCUSIF insured, are not guaranteed by the credit
union, and involve investment risk, including the possible loss of principal.
Shares of the Fund are not credit union deposits.
The following replaces the catgories of eligible purchasers of
Institutional Class Shares in the section Buying Shares:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt
employee benefit plans of Delaware Management Company, Inc. or its affiliates
and securities dealer firms with a selling agreement with Delaware Distributors,
Inc., (c) institutional advisory accounts of Delaware Management Company, Inc.
or its affiliates and those having client relationships with Delaware
Investment Advisers, a division of Delaware Management Company, Inc., or its
affiliates and their corporate sponsors, as well as subsidiaries and related
employee benefit plans and rollover individual retirement accounts from such
institutional advisory accounts; (d) banks, trust companies and similar
financial institutions investing for their own account or for the account of
their trust customers for whom such financial institution is exercising
investment discretion in purchasing shares of the class; and (e) registered
investment advisers investing on behalf of clients that consist solely of
institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is
not affiliated or associated with a broker or dealer and derives compensation
for its services exclusively from its clients for such advisory services.
PS-NAV2-11/94-U
<PAGE> 4
DELAWARE GROUP
DELCHESTER HIGH-YIELD
BOND FUND, INC.
PROSPECTUS SUPPLEMENT
FOR RESIDENTS OF ARIZONA
This Fund invests primarily in high-yield fixed income securities which involve
a greater risk than certain other types of fixed income securities. Purchasers
should carefully assess the risks associated with an investment in this Fund.
PS-24-AZ
<PAGE> 5
DELAWARE GROUP
DELCHESTER HIGH-YIELD
BOND FUND, INC.
PROSPECTUS SUPPLEMENT
FOR RESIDENTS OF WASHINGTON STATE
This Fund invests primarily in lower rated bonds, commonly known as
"junk bonds". Investments of this type are subject to a greater risk of loss
of principal and interest. Purchasers should carefully assess the risks
associated with an investment in this Fund.
PS-24W
<PAGE> 6
- --------------------------------------------------------------------------------
PROSPECTUS
SEPTEMBER 29, 1994
- --------------------------------------------------------------------------------
DELCHESTER FUND
- --------------------------------------------------------------------------------
INSTITUTIONAL
- --------------------------------------------------------------------------------
1818 MARKET STREET
PHILADEPHIA, PA 19103
- --------------------------------------------------------------------------------
FOR MORE INFORMATION ABOUT THE DELCHESTER FUND INSTITUTIONAL CLASS CALL THE
DELAWARE GROUP AT 800-828-5052.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
- --------------------------------------------------------------------------------
COVER PAGE 1
- --------------------------------------------------------------------------------
SYNOPSIS 2
- --------------------------------------------------------------------------------
SUMMARY OF EXPENSES 3
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT STRATEGY 5
SUITABILITY 5
- --------------------------------------------------------------------------------
RISK FACTORS
YOUTH AND VOLATILITY OF THE HIGH-YIELD MARKET 6
REDEMPTIONS 6
LIQUIDITY AND VALUATION 6
LEGISLATIVE AND REGULATORY ACTION AND
PROPOSALS 6
ZERO COUPON BONDS AND PAY-IN-KIND BONDS 7
- --------------------------------------------------------------------------------
BUYING SHARES 7
- --------------------------------------------------------------------------------
REDEMPTION AND EXCHANGE 8
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS 10
- --------------------------------------------------------------------------------
TAXES 11
- --------------------------------------------------------------------------------
CALCULATION OF NET ASSET VALUE PER SHARE 12
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND 12
- --------------------------------------------------------------------------------
APPENDIX A--RATINGS 15
- --------------------------------------------------------------------------------
</TABLE>
This Prospectus describes the Delchester Fund Institutional Class (the
"Class") of shares of Delaware Group Delchester High-Yield Bond Fund, Inc.
(the "Fund"). The Fund's objective is to seek as high a current income as is
consistent with providing reasonable safety.
THIS FUND INVESTS UP TO 100% OF ITS ASSETS IN LOWER RATED FIXED INCOME
SECURITIES, COMMONLY KNOWN AS "JUNK BONDS," WHICH INVOLVE GREATER RISKS,
INCLUDING DEFAULT RISKS, THAN HIGHER RATED FIXED INCOME SECURITIES. PURCHASERS
SHOULD CAREFULLY ASSESS THESE RISKS BEFORE INVESTING IN THIS FUND. SEE
INVESTMENT OBJECTIVE AND POLICIES, RISK FACTORS, AND APPENDIX A--RATINGS.
- --------------------------------------------------------------------------------
Shares of this Class are available for purchase only by certain
enumerated institutions and are offered at net asset value without the
imposition of a front-end or contingent deferred sales charge and without a
12b-1 charge. See Buying Shares.
This Prospectus relates only to the Class and sets forth information
that you should read and consider before you invest. Please retain it for
future reference. Part B of the Fund's registration statement, dated September
29, 1994, as it may be amended from time to time, contains additional
information about the Fund and has been filed with the Securities and Exchange
Commission. Part B is incorporated by reference into this Prospectus and is
available, without charge, by writing to Delaware Distributors, Inc. at the
above address or by calling the above number. The Fund's financial statements
appear in its Annual Report, which will accompany any response to requests for
Part B.
The Fund also offers the Delchester Fund A Class and the Delchester
Fund B Class. Shares of Delchester Fund A Class carry a front-end sales charge
and are subject to ongoing distribution expenses. Shares of Delchester Fund B
Class are subject to ongoing distribution expenses and a contingent deferred
sales charge upon redemption.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE> 7
SYNOPSIS
CAPITALIZATION
The Fund offers the Delchester Fund Institutional Class, the Delchester
Fund A Class and the Delchester Fund B Class. The Fund has a present authorized
capitalization of five hundred million shares of capital stock, with a $1.00
par value per share. Fifty million shares of that stock have been allocated to
the Delchester Fund Institutional Class, four hundred million shares have been
allocated to the Delchester Fund A Class and fifty million shares have been
allocated to the Delchester Fund B Class. See Shares under Management of the
Fund.
INVESTMENT MANAGER, DISTRIBUTOR AND SERVICE AGENT
Delaware Management Company, Inc. (the "Manager") is the investment
manager for the Fund. The Manager or its affiliate, Delaware International
Advisers Ltd., manages the other funds in the Delaware Group. Delaware
Distributors, Inc. (the "Distributor") is the national distributor for the Fund
and for all of the other mutual funds in the Delaware Group. Delaware Service
Company, Inc. (the "Transfer Agent") is the shareholder servicing, dividend
disbursing and transfer agent for the Fund and for all of the other mutual
funds in the Delaware Group. See Management of the Fund.
PURCHASE PRICE
Shares of the Class offered by this Prospectus are available at net
asset value, without a front-end or contingent deferred sales charge and are
not subject to distribution fees under a Rule 12b-1 distribution plan. See
Buying Shares.
INVESTMENT OBJECTIVE AND RISK FACTORS
The objective of the Fund is high current income by investing
principally in corporate bonds, and also in U.S. government securities and
commercial paper. See Investment Objective and Policies. This Fund invests
primarily in high-yield securities (junk bonds) and greater risks may be
involved with an investment in the Fund than an investment in a mutual fund
comprised primarily of investment grade bonds. See Risk Factors.
OPEN-END INVESTMENT COMPANY
The Fund, which was organized as a Maryland corporation in 1983, is a
diversified, open-end management investment company. The Fund was previously
organized as a Delaware corporation in 1970. See Shares under Management of the
Fund.
INVESTMENT MANAGEMENT FEES
The Manager furnishes investment management services to the Fund,
subject to the supervision and direction of the Board of Directors. Under the
Investment Management Agreement, the annual compensation paid to the Manager is
equal to .60% on the first $500 million of average daily net assets, .575% on
the next $250 million and .55% on the average daily net assets in excess of
$750 million, less a proportionate share of all directors' fees paid to the
unaffiliated directors by the Fund. See Management of the Fund.
REDEMPTION AND EXCHANGE
Shares of the Fund are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
2
<PAGE> 8
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . . . . None*
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . None**
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- -----------------------------------------------------------------------------
<S> <C>
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 0.58%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Operating Expenses . . . . . . . . . . . . . . . . . . . . . 0.25%
-----
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . 0.83%
=====
</TABLE>
The purpose of this table is to assist the investor in understanding
the various costs and expenses that an investor in the Class will bear directly
or indirectly. *CoreStates Bank, N.A. currently charges $7.50 per redemption
for redemptions payable by wire. **Exchanges are subject to the requirements
of each fund and a front-end sales charge may apply. See Delchester Fund A
Class and Delchester Fund B Class for expense information about those classes.
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods assuming (1) a 5% annual
rate of return and (2) redemption at the end of each time period. As noted in
the table above, the Fund charges no redemption fees.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$8 $26 $46 $103
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
3
<PAGE> 9
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Delaware Group Delchester High-Yield Bond Fund and have been audited by Ernst &
Young LLP, independent auditors. The data should be read in conjunction with
the financial statements, related notes, and the report of Ernst & Young LLP
covering such financial information and highlights, all of which are
incorporated by reference into Part B. Further information about the Fund's
performance is contained in its Annual Report to shareholders. A copy of the
Fund's Annual Report (including the report of Ernst & Young LLP) may be
obtained from the Fund upon request at no charge.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
7/31/94 7/31/93 7/31/92(1)/(2) 7/31/91(1) 7/31/90(1) 7/31/89(1) 7/31/88(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . . . $7.070 $6.900 $6.260 $6.300 $7.480 $7.750 $7.940
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income . . . . . 0.758 0.787 0.798 0.822 0.900 0.934 0.946
Net Gains or Losses on
Securities (both realized
and unrealized). . . . . . . (0.617) 0.165 0.640 (0.040) (1.180) (0.270) (0.188)
------ ----- ----- ------ ------ ------ ------
Total From Investment
Operations . . . . . . . . 0.141 0.952 1.438 0.782 (0.280) 0.664 0.758
----- ----- ----- ----- ------ ----- -----
LESS DISTRIBUTIONS
- ------------------
Dividends (from net
investment income) . . . . . (0.761) (0.782) (0.798) (0.822) (0.900) (0.934) (0.948)
Distributions (from capital
gains) . . . . . . . . . . . -- -- -- -- -- -- --
Returns of Capital. . . . . . . -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total Distributions . . . . . (0.761) (0.782) (0.798) (0.822) (0.900) (0.934) (0.948)
------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period . . . . . . . . . . . $6.450 $7.070 $6.900 $6.260 $6.300 $7.480 $7.750
====== ====== ====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . 1.82% 14.67% 24.28% 14.85% (3.58%) 9.10% 10.37%
- ------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period
(000 omitted) . . . . . . . . $71,122 $35,909 $18,746 $113,414 $96,161 $84,800 $37,639
Ratio of Expenses to Average
Daily Net Assets . . . . . . 0.83% 0.86% 0.86% 0.90% 0.85% 0.85% 0.87%
Ratio of Net Investment
Income to Average Daily
Net Assets . . . . . . . . . 10.70% 11.35% 12.17% 14.45% 13.47% 12.30% 12.18%
Portfolio Turnover Rate . . . . 92% 72% 101% 38% 72% 66% 139%
- -----------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
- --------------------------------------------------------------------------------------
7/31/87(1) 7/31/86(1) 7/31/85(1)
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . . . $8.070 $7.610 $7.140
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income . . . . . 0.973 0.976 1.031
Net Gains or Losses on
Securities (both realized
and unrealized). . . . . . . (0.129) 0.514 0.592
------ ----- -----
Total From Investment
Operations . . . . . . . . 0.844 1.490 1.623
----- ----- -----
LESS DISTRIBUTIONS
- ------------------
Dividends (from net
investment income) . . . . . (0.974) (1.030) (1.153)
Distributions (from capital
gains) . . . . . . . . . . . -- -- --
Returns of Capital. . . . . . . -- -- --
------ ------ ------
Total Distributions . . . . . (0.974) (1.030) (1.153)
------ ------ ------
Net Asset Value, End of
Period . . . . . . . . . . . $7.940 $8.070 $7.610
====== ====== ======
- --------------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . 10.84% 20.73% 24.34%
- ------------
- --------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period
(000 omitted) . . . . . . . . -- -- --
Ratio of Expenses to Average
Daily Net Assets . . . . . . 0.93% 0.84% 0.96%
Ratio of Net Investment
Income to Average Daily
Net Assets . . . . . . . . . 11.59% 12.67% 13.75%
Portfolio Turnover Rate . . . . 149% 137% 104%
- -----------------------
</TABLE>
(1) The financial highlights for the period prior to June 1, 1992 (the date
Delchester Fund Institutional Class was first offered for public sale)
are derived from data of the Delchester I class, which like the
Delchester Fund Institutional Class, was not subject to Rule 12b-1
distribution expenses. Shares of Delchester I class were converted into
shares of Delchester II class (now referred to as Delchester Fund A
Class) on June 1, 1992, pursuant to a Plan of Recapitalization approved
by shareholders of Delchester I class. Prior to May 2, 1994, Delchester
Fund A Class was known as Delchester Fund class and Delchester Fund
Institutional Class was known as Delchester Fund (Institutional) class.
(2) The data for Delchester I class and Delchester Fund Institutional Class
have been combined for 1992. For the ten months ended May 31, 1992, the
Delchester I class' operating expenses and net investment income per
share were $0.047 and $0.666, respectively. For the two months ended
July 31, 1992, the Delchester Fund Institutional Class' operating
expenses and net investment income per share were $0.009 and $0.132,
respectively. All net investment income was distributed to
shareholders.
4
<PAGE> 10
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT STRATEGY
The objective of the Fund is to seek as high a current income as is
consistent with providing reasonable safety. The strategy is to invest primarily
in those securities having a liberal and consistent yield and those tending to
reduce the risk of market fluctuations. The Fund will invest at least 80% of its
assets at the 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 rated A-1 or A-2 by
Standard & Poor's Corporation ("S&P") or rated P-1 or P-2 by Moody's Investors
Service, Inc. ("Moody's").
The Fund has consistently invested more than 80% of its assets in these
securities. The Fund must invest the remaining assets, if any, in
income-producing securities, including common stocks and preferred stocks, some
of which may have convertible features or attached warrants. Currently, the
Fund's assets are invested primarily in unrated corporate bonds and bonds rated
BBB or lower by S&P or Baa or lower by Moody's.
The market values of fixed income securities generally fall when
interest rates rise and, conversely, rise when interest rates fall. Lower-rated
and unrated fixed income securities tend to reflect short-term corporate and
market developments to a greater extent than higher-rated fixed income
securities, which react primarily to fluctuations in the general level of
interest rates. These lower-rated or unrated securities generally have higher
yields, but, as a result of factors such as reduced creditworthiness of issuers,
increased risk of default and a more limited and less liquid secondary market,
are subject to greater volatility and risk of loss of income and principal than
are higher-rated securities. The Manager will attempt to reduce such risk
through portfolio diversification, credit analysis, and attention to trends in
the economy, industries and financial markets.
The Fund may purchase privately-placed debt and other securities the
resale of which is restricted under applicable securities laws. The Fund will
not purchase illiquid assets, including restricted securities, if more than 10%
of its assets would consist of such illiquid securities.
For temporary defensive purposes, the Fund may hold a substantial
portion of its assets in cash or short-term obligations. While the Fund is
permitted, it normally does not borrow money or invest in repurchase agreements,
except to invest cash balances.
Although the Fund will constantly strive to attain its objective, there
can be no assurance that it will be attained. The objective of the Fund may not
be changed without shareholder approval. Part B sets forth other investment
restrictions.
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.
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, subject to overall
supervision by the Board of Directors, including the creditworthiness of the
borrowing broker, dealer or institution and then only if the consideration to be
received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.
SUITABILITY
The Fund may be suitable for the investor interested in high current
income flow. The types of securities in which the Fund invests are subject to
price fluctuations particularly due to changes in interest rates. The investor
should consider asset value fluctuation, as well as yield, in making an
investment decision. Also, while investments in unrated, lower-rated and
restricted securities have the potential for higher yields, they are more
speculative and increase the portfolio's credit risk. Changes in the market
value of portfolio securities will not affect interest income from such
securities, but will be reflected in the Fund's net asset value. The investor
should be willing to accept the risks, including the risk of net asset value
fluctuations, associated with investing in these securities.
The Fund's objective of high current income also may be suited for
longer-term investments, such as tax-deferred retirement plans, where the
income stream can be left to compound on a tax-deferred basis.
Net asset value may fluctuate in response to the condition of individual
companies and general market and economic conditions and, as a result, the Fund
is not appropriate for a short-term investor.
5
<PAGE> 11
RISK FACTORS
The Fund's assets may be invested primarily in bonds rated BBB or lower
by S&P or Baa or lower by Moody's and in unrated corporate bonds. See Appendix
A to this Prospectus for more rating information. Investing in these so-called
"junk" or "high-yield" bonds entails certain risks, including the risk of loss
of principal, which may be greater than the risks involved in investment grade
bonds, and which should be considered by investors contemplating an investment
in the Fund. Such bonds are sometimes issued by companies whose earnings at the
time of issuance are less than the projected debt service on the junk bonds. In
addition to the considerations discussed elsewhere in this Prospectus, those
risks include the following:
YOUTH AND VOLATILITY OF THE HIGH-YIELD MARKET
Although the market for high-yield bonds has been in existence for many
years, including periods of economic downturns, the high-yield market grew
rapidly during the long economic expansion which took place in the United States
during the 1980s. During that economic expansion, the use of high-yield debt
securities to fund highly leveraged corporate acquisitions and restructurings
increased dramatically. As a result, the high-yield market grew substantially
during that economic expansion. Although experts disagree on the impact
recessionary periods have had and will have on the high-yield market, some
analysts believe a protracted economic downturn would severely disrupt the
market for high-yield bonds, would adversely affect the value of outstanding
bonds and would adversely affect the ability of high-yield issuers to repay
principal and interest. Those analysts cite volatility experienced in the
high-yield market in the past as evidence for their position. It is likely that
protracted periods of economic uncertainty would result in increased volatility
in the market prices of high-yield bonds, an increase in the number of
high-yield bond defaults and corresponding volatility in the Fund's net asset
value. At times in the past, uncertainty and volatility in the high-yield market
resulted in volatility in the Fund's net asset value.
REDEMPTIONS
If, as a result of volatility in the high-yield market or other factors,
the Fund experiences substantial net redemptions of the Fund's shares for a
sustained period of time (i.e., more shares of the Fund are redeemed than are
purchased), the Fund may be required to sell securities without regard to the
investment merits of the securities to be sold. If the Fund sells a substantial
number of securities to generate proceeds for redemptions, the asset base of the
Fund will decrease and the Fund's expense ratio may increase.
LIQUIDITY AND VALUATION
The secondary market for high-yield securities is currently dominated by
institutional investors, including mutual funds, and certain financial
institutions. There is generally no established retail secondary market for
high-yield securities. As a result, the secondary market for high-yield
securities is more limited and less liquid than other secondary securities
markets. The high-yield secondary market is particularly susceptible to
liquidity problems when the institutions which dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the savings and
loan crisis. A less liquid secondary market may have an adverse effect on the
Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. In addition, a less liquid
secondary market makes it more difficult for the Fund to obtain precise
valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. The secondary market for
high-yield securities is also generally considered to be more likely to be
disrupted by adverse publicity and investor perceptions than the more
established secondary securities markets. The Fund's privately placed high-yield
securities are particularly susceptible to the liquidity and valuation risks
outlined above.
LEGISLATIVE AND REGULATORY ACTION AND PROPOSALS
There are a variety of legislative actions which have been taken or
which are considered from time to time by the United States Congress which could
adversely affect the market for high-yield bonds. For example, Congressional
legislation limited the deductibility of interest paid on certain high-yield
bonds used to finance corporate acquisitions. Also, Congressional legislation
has, with some exceptions, generally prohibited federally-insured savings and
loan institutions from investing in high-yield securities. Regulatory actions
have also affected the high-yield market. For example, many insurance companies
have restricted or eliminated their purchases of high-yield bonds as a result
of, among other factors, actions taken by the National Association of Insurance
Commissioners. If similar legislative and regulatory actions are taken in the
future, they could result in further tightening of the secondary market for
high-yield issues, could reduce the number of new high-yield securities being
issued and could make it more difficult for the Fund to attain its investment
objective.
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<PAGE> 12
ZERO COUPON BONDS AND PAY-IN-KIND BONDS
Although the Fund does not generally purchase a substantial amount of
zero coupon bonds or pay-in-kind (PIK) bonds, from time to time, the Fund may
acquire zero coupon bonds and, to a lesser extent, PIK bonds. Zero coupon bonds
and PIK bonds are generally considered to be more interest-sensitive than income
bearing bonds, to be more speculative than interest-bearing bonds, and to have
certain tax consequences which could, under certain circumstances, be adverse to
the Fund. For example, the Fund accrues, and is required to distribute to
shareholders, income on its zero coupon bonds. However, the Fund may not receive
the cash associated with this income until the bonds are sold or mature. If the
Fund did not have sufficient cash to make the required distribution of accrued
income, the Fund could be required to sell other securities in its portfolio or
to borrow to generate the cash required.
BUYING SHARES
The Distributor serves as the national distributor for the Fund. Shares
of the Class may be purchased directly by contacting the Fund or its agent or
through authorized investment dealers. All purchases are at net asset value.
There is no sales charge.
INVESTMENT INSTRUCTIONS GIVEN ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH PROVISIONS
CONTAINED IN THE PLAN DOCUMENT AND ARE DIRECTED BY THE EMPLOYER. EMPLOYEES
CONSIDERING PURCHASING SHARES OF THE CLASS AS PART OF THEIR RETIREMENT PROGRAM
SHOULD CONTACT THEIR EMPLOYER FOR DETAILS.
Shares of the Class are 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 invest-ment 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.
DELCHESTER FUND A CLASS AND DELCHESTER FUND B CLASS
In addition to offering the Delchester Fund Institutional Class, the
Fund also offers the Delchester Fund A Class and the Delchester Fund B Class,
which are described in a separate prospectus relating only to those classes.
Shares of the Delchester Fund A Class and the Delchester Fund B Class may be
purchased through authorized investment dealers or directly by contacting the
Fund or its agent. The Delchester Fund A Class carries a front-end sales charge
and has annual 12b-1 expenses equal to a maximum of .30%. The maximum front-end
sales charge as a percentage of the offering price is 4.75% (4.95% as a
percentage of the amount invested) and is reduced on certain transactions of
$100,000 or more. The Delchester Fund B Class has no front-end sales charge and
is subject to annual 12b-1 expenses equal to a maximum of 1%. Shares of the
Delchester Fund B Class and certain shares of the Delchester Fund A Class may be
subject to a contingent deferred sales charge upon redemption. Sales or service
compensation available in respect of such classes, therefore, differs from that
available in respect of the Delchester Fund Institutional Class. All three
classes of shares have a proportionate interest in the underlying portfolio of
securities of the Fund. Total Operating Expenses incurred by the Delchester Fund
A Class as a percentage of average daily net assets for the fiscal year ended
July 31, 1994 were 1.05%. Such expenses expected to be incurred by the
Delchester Fund B Class are 1.83% based on the expenses of the Delchester Fund A
Class during the fiscal year ended July 31, 1994. To obtain a prospectus
relating to the Delchester Fund A Class and Delchester Fund B Class, contact the
Distributor.
HOW TO BUY SHARES
The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase the Class.
INVESTING DIRECTLY BY MAIL
1. Initial Purchases--An Investment Application must be completed, signed and
sent with a check payable to Delchester Fund Institutional Class, to 1818
Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by
mailing a check payable to Delchester Fund Institutional Class. Your check
should be identified with your name(s) and account number.
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<PAGE> 13
INVESTING DIRECTLY BY WIRE
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 0114-2596 (include
your name(s) and your account number for the class in which you are investing).
1. Initial Purchases--Before you invest, telephone the Fund's Client Services
Department at 800-828-5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application to Delchester Fund Institutional Class, 1818 Market
Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You must advise your Client
Services Representative by telephone at 800-828-5052 prior to sending your
wire.
INVESTING BY EXCHANGE
If you have an investment in another mutual fund in the Delaware Group
and you qualify to purchase shares of the Class, you may write and authorize an
exchange of part or all of your investment into the Class. Shares of the
Delchester Fund B Class and the Class B Shares of the other funds in the
Delaware Group offering such a class of shares may not be exchanged into the
Class. If you wish to open an account by exchange, call your Client Services
Representative at 800-828-5052 for more information.
INVESTING THROUGH YOUR INVESTMENT DEALER
You can make a purchase of Class shares through most investment dealers
who, as part of the service they provide, must transmit orders promptly. They
may charge for this service.
PURCHASE PRICE AND EFFECTIVE DATE
The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when such exchange is open.
The effective date of a purchase made through an investment dealer is
the date the order is received by the Fund. The effective date of a direct
purchase is the day your wire, electronic transfer or check is received unless
it is received after the time the share price is determined, as noted above.
Those received after such time will be effective the next business day.
THE CONDITIONS OF YOUR PURCHASE
The Fund reserves the right to reject any purchase or exchange. If a
purchase is cancelled because your check is returned unpaid, you are responsible
for any loss incurred. The Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the funds in the Delaware Group. The Fund reserves the
right, upon 60 days' written notice, to redeem accounts that remain under $250
as a result of redemptions.
REDEMPTION AND EXCHANGE
REDEMPTION AND EXCHANGE REQUESTS MADE ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH PROVISIONS
CONTAINED IN THE PLAN DOCUMENT AND ARE DIRECTED BY THE EMPLOYER. EMPLOYEES
SHOULD THEREFORE CONTACT THEIR EMPLOYER FOR DETAILS.
Your shares will be redeemed or exchanged based on the net asset value
next determined after we receive your request in good order. Redemption and
exchange requests received in good order after the time the net asset value of
shares is deter-mined, as noted above, will be processed the next business day.
See Purchase Price and Effective Date under Buying Shares. Except as otherwise
noted below, for a redemption request to be in "good order," you must provide
your Class account number, account registration, and the total number of shares
or dollar amount of the transaction. With regard to exchanges, you must also
provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Fund at 800-828-5052.
The Fund will not honor written redemption requests of shareholders who
recently purchased Class shares by check until it is reasonably satisfied the
purchase check has cleared, which may take up to 15 days from the purchase date.
The Fund will not honor telephone redemptions for Class shares recently
purchased by check unless it is reasonably satisfied that the purchase check has
cleared. You can avoid this potential delay if you purchase shares by wiring
Federal Funds. The Fund reserves the right to reject a written or telephone
redemption request or delay payment of redemption proceeds if there has been a
recent change to the shareholder's address of record.
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<PAGE> 14
Shares of the Class may be exchanged into any other Delaware Group
mutual fund provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of the
fund being acquired are in a state where that fund is registered. If exchanges
are made into other shares that are eligible for purchase only by those
permitted to purchase shares of the Class, such exchange will be exchanged at
net asset value. Shares of the Class may not be exchanged into the Class B
Shares of the funds in the Delaware Group. The Fund reserves the right to reject
exchange requests at any time. The Fund may suspend or terminate, or amend the
terms of, the exchange privilege upon 60 days' written notice to shareholders.
Different redemption and exchange methods are outlined below. There is
no fee charged by the Fund or the Distributor for redeeming or exchanging your
shares. You may also have your investment dealer arrange to have your shares
redeemed or exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders with respect to an account,
including selection of any of the features described below, shall continue in
effect until revoked or modified in writing and until such time as such written
revocation or modification has been received by the Fund or its agent.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
WRITTEN REDEMPTION AND EXCHANGE
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your Class shares or to request an exchange of any or
all of your Class shares into another mutual fund in the Delaware Group, subject
to the same conditions and limitations as other exchanges noted above. The
request must be signed by all owners of the account or your investment dealer of
record.
For redemptions of more than $50,000, or when the proceeds are not sent
to the shareholder(s) at the address of record, the Fund requires a signature by
all owners of the account and may require a signature guarantee. Each signature
guarantee must be supplied by an eligible guarantor institution. The Fund
reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Fund may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.
The redemption request is effective at the net asset value next
determined after it is received in good order. Payment is normally mailed the
next business day, but no later than seven days, after receipt of your request.
The Fund does not issue certificates for shares unless you submit a specific
request. If your shares are in certificate form, the certificate must accompany
your request and also be in good order.
Shareholders also may submit their written requests for redemption or
exchange by facsimile transmission at the following number: 215-972-8864.
TELEPHONE REDEMPTION AND EXCHANGE
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your shares in certificate form, you can only redeem
or exchange by written request and you must return your certificates.
The Telephone Redemption service enabling redemption proceeds to be
mailed to the account address of record and the Telephone Exchange service, both
of which are described below, are automatically provided unless the Fund
receives written notice from the shareholder to the contrary. The Fund reserves
the right to modify, terminate or suspend these procedures upon 60 days' written
notice to shareholders. It may be difficult to reach the Fund by telephone
during periods when market or economic conditions lead to an unusually large
volume of telephone requests.
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<PAGE> 15
Neither the Fund nor the Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Class shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be provided
for all purchase, exchange and redemption transactions initiated by telephone.
By exchanging shares by telephone, the shareholder is acknowledging prior
receipt of a prospectus for the fund into which shares are being exchanged.
TELEPHONE REDEMPTION--CHECK TO YOUR ADDRESS OF RECORD
You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day,
but no more than seven days, after receipt of the request.
TELEPHONE REDEMPTION--PROCEEDS TO YOUR BANK
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, the Fund requires a written authorization and may require that you have
your signature guaranteed. For your protection, your authorization must be on
file. If you request a wire, your funds will normally be sent the next business
day. CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption. If you ask for a check, it will normally be mailed the next business
day, but no later than seven days, after receipt of your request to your
predesignated bank account. There are no fees for this method, but the mail time
may delay getting funds into your bank account. Simply call your Client Services
Representative prior to the time the net asset value is determined, as noted
above.
TELEPHONE EXCHANGE
You or your investment dealer of record can exchange shares into any
fund in the Delaware Group under the same registration. As with the written
exchange service, telephone exchanges are subject to the same conditions and
limitations as other exchanges noted above. Telephone exchanges may be subject
to limitations as to amounts or frequency.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares a dividend to all shareholders of record at the time
the net asset value per share is determined. See Purchase Price and Effective
Date under Buying Shares. Thus, when redeeming shares, dividends continue to be
credited up to and including the date of redemption.
Purchases of Class 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. Purchases by check earn dividends upon
conversion to Federal Funds, normally one business day after receipt.
Each class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the Class will not incur
distribution fees under the Rule 12b-1 Plans which apply to the Delchester Fund
A Class and the Delchester Fund B Class.
The Fund's dividends are declared daily and paid monthly on the first
business day following the end of the month. Dividends and distributions, if
any, will be automatically reinvested in a shareholder's account at net asset
value. Distributions from net realized securities profits, if any, will be
distributed twice a year. The first payment normally 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. During the fiscal year ended July 31, 1994, dividends totaling
$0.761 per share of the Class were paid from net investment income.
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<PAGE> 16
TAXES
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code
(the "Code"). As such, the Fund will not be subject to federal income tax, or to
any excise tax, to the extent its earnings are distributed as provided in the
Code.
The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to investors who are subject to
income tax as ordinary income, even though received in additional shares. No
portion of the Fund's distributions will be eligible for the dividends-received
deduction for corporations.
Distributions paid by the Fund from long-term capital gains, received in
additional shares, are taxable to those investors who are subject to income
taxes as long-term capital gains, regardless of the length of time an investor
has owned shares in the Fund. The Fund does not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a byproduct of
Fund management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in the Fund are made shortly before the
record date for a dividend or capital gains distribution, a portion of the
investment will be returned as a taxable distribution.
Dividends which are declared in October, November or December but which,
for operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by the Fund and received by
the shareholder on December 31 of the calendar year in which they are declared.
The sale of shares of the Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
two mutual funds (or two portfolios or series of a mutual fund). Any loss
incurred on sale or exchange of the Fund's shares which had been held for six
months or less will be treated as a long-term capital loss to the extent of
capital gain dividends received with respect to such shares.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. government securities may be exempt from
state personal income taxes. Shares of the Fund are exempt from Pennsylvania
county personal property taxes.
Each year, the Fund will mail you information on the tax status of the
Fund's dividends and distributions. Shareholders will also receive each year
information as to the portion of dividend income that is derived from U.S.
government securities that are exempt from state income tax. Of course,
shareholders who are not subject to tax on their income would not be required to
pay tax on amounts distributed to them by the Fund.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
The tax discussion set forth above is included for general information
only. Prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in the Fund.
See Taxes in Part B for additional information on tax matters relating
to the Fund and its shareholders.
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<PAGE> 17
CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of the Class is the net asset value
("NAV") per share next determined after the order is received. The NAV is
computed as of the close of regular trading on the New York Stock Exchange
(ordinarily, 4 p.m., Eastern time) on days when such exchange is open.
The NAV is computed by adding the value of all securities and other
assets in the portfolio, deducting any liabilities (expenses and fees are
accrued daily) and dividing by the number of shares outstanding. Debt securities
are priced at fair value by an independent pricing service using methods
approved by the Fund's Board of Directors. Short-term investments having a
maturity of less than 60 days are valued at amortized cost, which approximates
market value. All other securities are valued at their fair value as determined
in good faith and in a method approved by the Fund's Board of Directors.
Each of the Fund's three classes 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 Class will not incur any of the expenses under
the Fund's 12b-1 Plans and Delchester Fund A and B Classes alone will bear the
12b-1 Plan fees payable under their respective Plans. Due to the specific
distribution expenses and other costs that will be allocable to each class, the
dividends paid to each class of the Fund may vary. However, the NAV per share of
each class is expected to be equivalent.
MANAGEMENT OF THE FUND
DIRECTORS
The business and affairs of the Fund are managed under the direction of
its Board of Directors. Part B contains additional information regarding the
directors and officers.
INVESTMENT MANAGER
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1994, the Manager and its affiliate,
Delaware International Advisers Ltd., were supervising in the aggregate more
than $26 billion in assets in the various institutional (approximately
$16,728,470,000) and investment company (approximately $9,578,226,000) accounts.
The Manager is an indirect, wholly-owned subsidiary 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 the
Manager. 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 common stock and thereby control the Manager.
The Manager manages the Fund's portfolio and makes investment decisions
which are implemented by the Fund's Trading Department. The Manager also pays
the salaries of all the directors, officers and employees of the Fund who are
affiliated with the Manager. For these services, the Manager is paid an annual
fee of .60% on the first $500 million of average daily net assets of the Fund,
.575% on the next $250 million and .55% on the average daily net assets in
excess of $750 million, less all directors' fees paid to unaffiliated directors
by the Fund. Investment management fees paid by the Fund for the fiscal year
ended July 31, 1994 were 0.58% of average daily net assets.
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<PAGE> 18
Paul A. Matlack, Gerald T. Nichols and James R. Raith, Jr. have primary
responsibility for making day-to-day investment decisions for the Fund. Mr.
Matlack and Mr. Nichols have been members of the Fund's management team since
1990, and were named co-managers of the Fund in January 1993. Mr. Raith was
named co-manager in January 1994. A Chartered Financial Analyst, Mr. Matlack is
a graduate of the University of Pennsylvania with an MBA in Finance from George
Washington University. He began his career at Mellon Bank as a credit
specialist, and later served as a corporate loan officer for Mellon Bank and
then Provident National Bank.
Mr. Nichols is a graduate of the University of Kansas, where he received
a BS in Business Administration and an MS in Finance. Prior to joining the
Delaware Group, he was a high-yield credit analyst at Waddell & Reed, Inc. and
subsequently the investment officer for a private merchant banking firm. He is a
Chartered Financial Analyst.
Mr. Raith is a 1973 graduate of Holy Cross University and received his
MBA in Finance from Tulane University in 1975. Before joining the Delaware Group
in 1987, he held portfolio management positions in both fixed income and equity
management including managing life insurance reserves at ICH Corporation and
managing high-yield pension assets for Firestone Tire and Rubber. Prior to being
named co-manager of the Fund, Mr. Raith managed separate accounts for the
Delaware Group's institutional clients using the same strategy employed in
managing the Fund.
In making investment decisions for the Fund, Mr. Matlack, Mr. Nichols
and Mr. Raith regularly consult with Paul E. Suckow. Mr. Suckow is the Manager's
Chief Investment Officer for Fixed Income. A Chartered Financial Analyst, he is
a graduate of Bradley University with an MBA from Western Illinois University.
Mr. Suckow was a fixed income portfolio manager at the Delaware Group from 1981
to 1985. He returned to the Delaware Group in 1993 after eight years with
Oppenheimer Management Corporation.
PORTFOLIO TRADING PRACTICES
The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. Given the
Fund's investment objective, its annual portfolio turnover rate is not expected
to exceed 150%. 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. During the past two fiscal years, the Fund's portfolio
turnover rates were 72% for 1993 and 92% for 1994.
The Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the Manager in servicing any
of its accounts. Subject to best price and execution, the Fund may consider a
broker/dealer's sales of its shares in placing portfolio orders and may place
orders with broker/dealers that have agreed to defray certain Fund expenses such
as custodian fees.
PERFORMANCE INFORMATION
From time to time, the Fund may quote yield or total return performance
of the Class in advertising and other types of literature. The current yield for
the Class will be calculated by dividing the annualized net investment income
earned by the Class during a recent 30-day period by the net asset value per
share on the last day of the period. The yield formula provides for semi-annual
compounding which assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period. Total return
will be based on a hypothetical $1,000 investment, reflecting the reinvestment
of all distributions. Each presentation will include the average annual total
return for one-, five- and ten-year periods. The Fund may also advertise
aggregate and average total return information concerning the Class over
additional periods of time.
Yield and net asset value fluctuate and are not guaranteed. Past
performance is not an indication of future results.
STATEMENTS AND CONFIRMATIONS
You will receive quarterly statements of your account as well as
confirmations of all investments and redemptions. You should examine statements
and confirmations immediately and promptly report any discrepancy by calling
your Client Services Representative.
FINANCIAL INFORMATION ABOUT THE FUND
Each fiscal year, you will receive an annual report containing financial
statements audited by Ernst & Young LLP (the Fund's independent auditors), and
an unaudited semi-annual report. These reports provide detailed information
about the Fund's investments and performance. The Fund's fiscal year ends on
July 31.
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<PAGE> 19
DISTRIBUTION AND SERVICE
The Distributor, Delaware Distributors, Inc., serves as the national
distributor for the Fund under an Amended and Restated Distribution Agreement
dated as of May 2, 1994. It bears all of the costs of promotion and
distribution.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund under
an Agreement dated June 29, 1988. The unaffiliated directors review service fees
paid to the Transfer Agent. Certain recordkeeping and other shareholder services
that otherwise would be performed by the Transfer Agent may be performed by
certain other entities and the Transfer Agent may elect to enter into an
agreement to pay such other entities for their services. In addition,
participant account maintenance fees may be assessed for certain recordkeeping
provided as part of retirement plan and administration service packages. These
fees are based on the number of participants in the plan and the various
services selected by the employer. Fees will be quoted upon request and are
subject to change.
The Distributor and the Transfer Agent are also indirect, wholly-owned
subsidiaries of DMH.
EXPENSES
The Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Amended and Restated Distribution Agreement. The
ratio of operating expenses to average daily net assets for the Class was 0.83%
for the fiscal year ended July 31, 1994.
SHARES
The Fund is a diversified, open-end management investment company.
Commonly known as a mutual fund, the Fund was organized as a Maryland
corporation on March 4, 1983. The Fund was previously organized as a Delaware
corporation in 1970.
The Fund's shares have a par value of $1.00, equal voting rights, except
as noted below, and are equal in all other respects. All Fund shares have
noncumulative voting rights which means that the holders of more than 50% of the
Fund's shares voting for the election of directors can elect 100% of the
directors if they choose to do so. Under Maryland law, the Fund is not required,
and does not intend, to hold annual meetings of shareholders unless, under
certain circumstances, it is required to do so under the Investment Company Act
of 1940. Shareholders of 10% or more of the Fund's shares may request that a
special meeting be called to consider the removal of a director.
The Fund also offers the Delchester Fund A Class and the Delchester Fund
B Class of shares which represent proportionate interests in the assets of the
Fund and have the same voting and other rights and preferences as the Class,
except that shares of the Class are not subject to, and may not vote on matters
affecting, the Distribution Plans under Rule 12b-1 relating to the Delchester
Fund A Class and the Delchester Fund B Class.
Until May 31, 1992, the Fund offered shares of two retail classes of
shares, Delchester II class (now the Delchester Fund A Class) and the Delchester
I class. Shares of Delchester I class were offered with a sales charge, 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 the latter 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. Prior to May 2,
1994, the Class was known as Delchester Fund (Institutional) class and
Delchester Fund A Class was known as the Delchester Fund class. The Delchester
Fund B Class was not offered prior to May 2, 1994.
14
<PAGE> 20
APPENDIX A--RATINGS
The Fund's assets are invested primarily in bonds rated BBB or lower by
S&P or Baa or lower by Moody's and in unrated corporate bonds. These credit
ratings evaluate only the safety of principal and interest and do not consider
the market value risk associated with high-yield securities. The table set forth
below shows the percentage of the Fund's securities included in each of the
specified rating categories and shows the percentage of the Fund's assets held
in United States government securities. Certain securities may not be rated
because the rating agencies were either not asked to provide ratings (e.g., many
issuers of privately placed bonds do not seek ratings) or because the rating
agencies declined to provide a rating for some reason, such as insufficient
data. The table below shows the percentage of the Fund's securities which are
not rated. The information contained in the table was prepared based on a dollar
weighted average of the Fund's portfolio composition based on month end data for
the Fund's fiscal year ended July 31, 1994. The paragraphs following the table
contain excerpts from Moody's and S&P's rating descriptions.
<TABLE>
<CAPTION>
Rating Moody's Average Weighted
and/or Percentage of
S&P Portfolio
-------------- ----------------
<S> <C>
United States
Treasury Obligations 5.69%
Aaa/AAA 0.00%
Aa/AA 0.00%
A/A 1.34%
Baa/BBB 0.00%
Ba/BB 8.79%
B/B 66.82%
Caa/CCC 6.05%
Not Rated/Other 11.31%
</TABLE>
General Rating Information
BONDS
Excerpts from Moody's description of its bond ratings: Aaa--judged to
be the best quality. They carry the smallest degree of investment risk;
Aa--judged to be of high quality by all standards; A--possess favorable
attributes and are considered "upper medium" grade obligations; Baa--considered
as medium grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time; Ba--judged to
have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
COMMERCIAL PAPER
Excerpts from Moody's description of its two highest commercial paper
ratings: P-1--the highest grade possessing greatest relative strength;
P-2--second highest grade possessing less relative strength than the highest
grade.
Excerpts from S&P's description of its two highest commercial paper
ratings: A-1--judged to be the highest investment grade category possessing the
highest relative strength; A-2--investment grade category possessing less
relative strength than the highest rating.
15
<PAGE> 21
SHARES OF THIS FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES ARE NOT
DEPOSITS, OBLIGATIONS OF, GUARANTEED OR ENDORSED BY ANY BANK.
- --------------------------------------------------------------------------------
For more information contact the Delaware Group at 800-828-5052.
<TABLE>
<S> <C>
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
[PHOTO OF GEORGE WASHINGTON CROSSING THE DELAWARE RIVER]
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
P-044/9-94/RRD
Printed in the U.S.A.
DELCHESTER
FUND
- -------------
INSTITUTIONAL
PROSPECTUS
SEPTEMBER 29, 1994
DELAWARE
GROUP
</TABLE>
