<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-37707
File No. 811-2071
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. _______
Post-Effective Amendment No. 62 X
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 62 X
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DELAWARE GROUP INCOME FUNDS
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(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-1255
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Eric E. Miller, Esquire, 1818 Market Street, Philadelphia, PA 19103
- - -------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: September 29, 1999
------------------
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
__X__ on September 29, 1999 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate:
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 62 to Registration File No. 2-37707 includes
the following:
1. Facing Page
2. Contents Page
3. Part A - Prospectuses
4. Part B - Statement of Additional Information
5. Part C - Other Information
6. Signatures
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
Class A o Class B o Class C
Prospectus
September 29, 1999
Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profiles page
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Funds
Choosing a share class
How to reduce your sales charge
How to buy shares Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
2
<PAGE>
Profile: Delaware Delchester Fund
What are the Fund's goals?
Delaware Delchester Fund seeks as high a level of current income as is
consistent with providing reasonable safety. Although the Fund will strive to
achieve its goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in corporate bonds, primarily those rated BB or lower by
Standard & Poor's Ratings Group or similarly rated by another nationally
recognized statistical rating organization (NRSRO). These are commonly known as
high-yield bonds or junk bonds and involve greater risks than investment grade
bonds. We may also invest in unrated bonds if we judge them to be of comparable
quality. We will select bonds primarily based on the income potential they offer
and on our evaluation of the bond issuers' ability to make interest payments and
repay principal. We may also invest in investment grade corporate debt, U.S.
government securities and high quality commercial paper, though these are not
expected to be a significant component of our strategy order normal
circumstances.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The value of your investment in the Fund
will increase and decrease according to changes in the value of the securities
in the Fund's portfolio. This Fund will be affected primarily by declines in
bond prices, which can be caused by an adverse change in interest rates, adverse
economic conditions or poor performance from specific industries or bond
issuers. High-yield bonds are rated below investment grade and are subject to
higher credit risk--the risk that the issuer will be unable to make payments on
interest and principal, particularly under adverse economic conditions. For a
more complete discussion of risk, please turn to page 10.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors looking a fixed-income investment that offers potential for very
high current income.
o Investors with long-term financial goals.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
3
<PAGE>
How has Delaware Delchester Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the average annual returns of all shares
for the one- five- and ten- year or lifetime periods, if applicable. The Fund's
past performance does not necessarily indicate how it will perform in the
future.
[bar chart]
Year-by-year total return (Class A)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
0.75% -12.20% 43.45% 17.19% 16.50% -4.47% 13.99% 12.33% 13.91% -1.81%
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of June 30, 1999, the Fund's Class A shares had a year-to-date return of
0.13%. During the ten years illustrated in this bar chart, Class A's highest
quarterly return was 18.33% for the quarter ended March 31, 1991 and its lowest
quarterly return was -8.25% for the quarter ended September 30, 1990.
The maximum Class A sales charge of 4.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above or in the bar
chart. If this fee were included, the returns would be less than those shown.
The average annual returns shown in the table on page 3 do include the sales
charge.
How has Delaware Delchester Fund performed? (continued)
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
CLASS A B C Salomon Smith Barney Cash Pay
High-Yield Index
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- - -----------------------------------------------------------------------------------------------------------------------------------
(Inception 8/20/70) (Inception 5/2/94) (Inception 11/29/95)
- - -----------------------------------------------------------------------------------------------------------------------------------
1 year -6.48% -6.11% -3.43% 4.43%
- - -----------------------------------------------------------------------------------------------------------------------------------
5 years 5.43% N/A N/A 9.13%
- - ----------------------------------------------------------------------------------------------------------------------------------
10 years or lifetime** 8.47% 6.21% 7.28% N/A
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns compared to the
performance of the Salomon Smith Barney Cash Pay High-Yield Index. You should
remember that unlike the Fund, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be -2.54% and 6.51% for the one-year and lifetime periods,
respectively. Returns for Class C would be -2.54% and 7.28% for the one-year and
lifetime periods, respectively.
** Lifetime returns are shown if the Fund or Class existed for less than 10
years. Salomon Smith Barney Cash Pay High-Yield Index returns are for 10 years.
Index returns for Class B and Class C lifetimes were 10.53% and 9.68%,
respectively. Maximum sales charges are included in the Fund returns above.
4
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
CLASS A B C
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 4.75% none none
- - -------------------------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none(1) 4%(2) 1%(3)
- - -------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none none none
- - -------------------------------------------------------------------------------------------------
Redemption fees none none none
- - -------------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Class A Class B Class C
<S> <C> <C> <C>
- - ------------------------------------------------------------------------------------------
Management fees 0.61%(4) 0.61% 0.61%
- - ------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25%(5) 1.00% 1.00%
- - ------------------------------------------------------------------------------------------
Other expenses 0.27% 0.27% 0.27%
- - ------------------------------------------------------------------------------------------
Total operating expenses 1.13% 1.88% 1.88%
- - ------------------------------------------------------------------------------------------
</TABLE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
(if redeemed) (if redeemed)
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------
1 year $585 $191 $591 $191 $291
- - --------------------------------------------------------------------------------------
3 years $817 $591 $891 $591 $591
- - --------------------------------------------------------------------------------------
5 years $1,068 $1,016 $1,216 $1,016 $1,016
- - --------------------------------------------------------------------------------------
10 years $1,784 $2,005 $2,005 $2,201 $2,201
- - --------------------------------------------------------------------------------------
</TABLE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is paid a
commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be disclosed
in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 4%, which declines to 3%
during the third and fourth years, 2% during the fifth year, 1% during the sixth
year, and 0% thereafter.
5
<PAGE>
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The management fee has been restated to reflect a new management fee which
became effective on April 1, 1999.
(5) The Board of Trustees adopted a formula for calculating 12b-1 plan expenses
for Delaware Delchester Fund's Class A shares that went into effect on June 1,
1992. Under this formula, 12b-1 plan expenses will not be more than 0.30% nor
less than 0.10%.
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the Fund's
total operating expenses remain unchanged in each of the periods we show.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
6
<PAGE>
Profile: Delaware High-Yield Opportunities Fund
What are the Fund's goals?
Delaware High-Yield Opportunities Fund seeks total return and, as a secondary
objective, high current income. Although the Fund will strive to achieve its
goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in corporate bonds rated BB or lower by S&P or similarly
rated by another NRSO. These are commonly known as high-yield bonds or junk
bonds and involve greater risks than investment grade bonds. The Fund will also
invest in unrated bonds we judge to be of comparable quality. Unrated bonds may
be more speculative in nature than rated bonds. The Fund may also invest in U.S.
and foreign government securities and corporate bonds of foreign issuers. In
selecting bonds for the portfolio, we evaluate the income provided by the bond
and the bond's appreciation potential as well as the issuer's ability to make
income and principal payments.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The value of your investment in the Fund
will increase and decrease according to changes in the value of the securities
in the Fund's portfolio. This Fund will be affected primarily by declines in
bond prices, which can be caused by adverse changes in interest rates, adverse
economic conditions or poor performance from specific industries or bond
issuers. High-yield bonds are rated below investment grade and are subject to
greater risk that the issuer will be unable to make payments on interest and
principal. Bonds of foreign issuers are also subject to certain risks such as
political and economic instability, currency fluctuations and less stringent
regulatory standards. For a more complete discussion of risk, please turn to
page 10.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking a fixed-income investment that offers a combination of
total return with high current income.
o Investors who want a total return-oriented income investment as a
diversification tool for long-term, equity-oriented portfolios.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
7
<PAGE>
How has Delaware High-Yield Opportunities Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show returns for the Fund's Class A shares for the past two
calendar years, as well as the average annual returns of all shares for one year
and since inception. The Fund's past performance does not necessarily indicate
how it will perform in the future. The returns reflect expense limitations. The
returns would be lower without the expense limitations.
[bar chart]
Total return (Class A)
- - ----------------------------
1997 1998
- - ----------------------------
17.31% 2.85%
- - ----------------------------
As of June 30, 1999, the Fund's Class A shares had a year-to-date return of
1.84%. During the periods illustrated in this bar chart, Class A's highest
quarterly return was 6.14% for the quarter ended June 30, 1997 and its lowest
quarterly return was -3.98% for the quarter ended September 30, 1998.
The maximum Class A sales charge of 4.75%, which is normally assessed when you
purchase shares, is not reflected in the total returns above or in the bar
chart. If this fee were included, the returns would be less than those shown.
The average annual returns shown in the table below do include the sales charge.
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
CLASS A Salomon Smith Barney Cash Pay
High-Yield Index
<S> <C> <C>
- - ------------------------------------------------------------------------------------
(Inception 12/30/96)
- - ------------------------------------------------------------------------------------
1 year -1.97% 4.43%
- - ------------------------------------------------------------------------------------
Lifetime 7.19% 8.70%
- - ------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns compared to the
performance of the Salomon Smith Barney Cash Pay High-Yield Index. You should
remember that unlike the Fund, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
8
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
CLASS A B C
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 4.75% none none
- - -------------------------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
As a percentage of original purchase price or
Redemption price, whichever is lower none(1) 4%(2) 1%(3)
- - -------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none none none
- - -------------------------------------------------------------------------------------------------
Redemption fees none none none
- - -------------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Class A Class B Class C
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------
Management fees 0.65% 0.65% 0.65%
- - -------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
- - -------------------------------------------------------------------------------------------------
Other expenses 0.94% 0.94% 0.94%
- - -------------------------------------------------------------------------------------------------
Total annual fund operating expenses 1.89% 2.59% 2.59%
- - -------------------------------------------------------------------------------------------------
Fee waivers and payments(4) (0.59%) (0.59%) (0.59%)
- - -------------------------------------------------------------------------------------------------
Net expenses 1.30% 2.00% 2.00%
- - -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(5) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Without Fee Limitation
- - -------------------------------------------------------------------------------------------------
Class(6) A B B C C
if redeemed if redeemed
<S> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------
1 year $658 $262 $662 $262 $362
- - -------------------------------------------------------------------------------------------------
3 years $1,041 $805 $1,105 $805 $805
- - -------------------------------------------------------------------------------------------------
5 years $1,448 $1,375 $1,575 $1,375 $1,375
- - -------------------------------------------------------------------------------------------------
10 years $2,581 $2,754 $2,754 $2,925 $2,925
- - -------------------------------------------------------------------------------------------------
With Fee Limitation(4)
- - -------------------------------------------------------------------------------------------------
Class(6) A B B C C
if redeemed if redeemed
- - -------------------------------------------------------------------------------------------------
1 year $601 $203 $603 $203 $303
- - -------------------------------------------------------------------------------------------------
3 years $868 $627 $927 $627 $627
- - -------------------------------------------------------------------------------------------------
5 years $1,154 $1,078 $1,278 $1,078 $1,078
- - -------------------------------------------------------------------------------------------------
10 years $1,968 $2,115 $2,115 $2,327 $2,327
- - -------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is paid a
commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be disclosed
in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 4%, which declines to 3%
during the third and fourth years, 2% during the fifth year, 1% during the sixth
year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The investment manager has contracted to waive fees and pay expenses from
October 1, 1999 through September 30, 2000 in order to prevent total operating
expenses (excluding any 12b-1 plan expenses, taxes, interest, brokerage fees and
extraordinary expenses) from exceeding 1.00% of average daily net assets.
(5) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the Fund's
total operating expenses remain unchanged in each of the periods we show.
(6) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
10
<PAGE>
How we manage the Funds
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Funds'
investment goals.
For both Delaware Delchester Fund and Delaware High-Yield Opportunities Fund, we
invest primarily in fixed-income securities that we believe will have a liberal
and consistent yield and will tend to reduce the risk of market fluctuations. We
expect to invest the majority of the Funds' assets primarily in high-yield bonds
or junk bonds, which involve greater risks than investment grade bonds. The
Funds may also invest in unrated bonds that we consider to have comparable
credit characteristics. Unrated bonds may be more speculative in nature than
rated bonds;
Before selecting high-yield corporate bonds, we carefully evaluate each
individual bond including its income potential and the size of the bond
issuance. The size of the issuance helps us evaluate how easily we may be able
to buy and sell the bond.
We also do a thorough credit analysis of the issuer to determine whether that
company has the financial ability to meet the bond's payments.
We maintain a well-diversified portfolio of high-yield bonds that represents
many different sectors and industries. Through diversification we can help to
reduce the impact that any individual bond might have on the portfolio should
the issuer have difficulty making payments.
How we manage the Funds (continued)
Delaware Delchester Fund
Our primary goal for Delaware Delchester Fund is to provide high current income.
For this reason, the income potential of a bond is a key selection criteria.
It is our policy to invest at least 80% of our assets in corporate bonds, U.S.
government securities or commercial paper of companies rated A-1 or A-2 by S&P
or P-1 or P-2 by Moody's Investors Service, Inc. (which are two NRSROs). We are
required to invest primarily in corporate bonds rated BBB or below; however we
particularly emphasize those rated BB or B. We generally focus more on bonds
rated B in times of economic growth and more on bonds rated BB when the economy
appears to be slowing.
Delaware High-Yield Opportunities Fund
Delaware High-Yield Opportunities Fund strives to provide total return, with
income as a secondary objective. Before purchasing a bond, we evaluate both the
income level of a bond and its potential for price appreciation. At least 65% of
the Fund's assets will be invested in corporate bonds rated at the time of
purchase as BB or lower by S&P or similarly rated by another NRSO or, if
unrated, that we judge to be of comparable quality. Delaware High-Yield
Opportunities Fund also may invest in bonds of foreign issuers in pursuit of its
objective.
Delaware Delchester Fund's investment objective - to seek as high a level of
current income as is consistent with providing reasonable safety and Delaware
High-Yield Opportunities Fund's investment objective - to seek total return and,
as a secondary objective, high current income - are non-fundamental objectives.
This means that the Board of Trustees may change a Fund's objective without
obtaining shareholder approval. If an objective were changed, we would notify
shareholders before the change in the objective became effective.
11
<PAGE>
The securities we typically invest in
Fixed-income securities generally offer the potential for greater income
payments than stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
High-yield corporate bonds: Debt obligations issued by Delaware Delchester Fund Delaware High-Yield Opportunities Fund
a corporation and rated lower than investment grade by may invest without limit may invest without limit in high-yield
an NRSRO such as S&P or Moody's or, if unrated, that we in high-yield corporate corporate bonds. The Fund will invest
believe are of comparable quality. These securities are bonds. Emphasis is at least 65% of its assets in corporate
considered to be of poor standing and predominately typically on those rated bonds which, at the time of purchase,
speculative. BB or B by an NRSRO. are rated or lower by S&P or Caa by
Moody's.
- - ------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations Both Funds may invest without limit in U.S. government securities.
including bills, notes, bonds and other debt securities However, they will typically be a small percentage of the portfolio
issued by the U.S. Treasury or securities of U.S. because they generally do not offer as high a level of current income
government agencies or instrumentalities which are as high-yield corporate bonds.
backed by the full faith and credit of the United
States.
- - ------------------------------------------------------------------------------------------------------------------------------------
Foreign government or corporate securities: Securities Delaware Delchester Fund Delaware High-Yield Opportunities Fund
issued by foreign governments or supranational entities may not invest in may invest up to 15% of its total
or foreign corporations. securities of foreign assets in securities of issuers
issuers. domiciled in foreign countries
A supranational entity is an entity established or including both established countries
financially supported by the national governments of and those with emerging markets.
one or more countries. The International Bank for
Reconstruction and Development (more commonly known as
the World Bank) is one example of a Supranational
entity.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment-in-kind bonds, though
securities are debt obligations which do not entitle we do not expect this to be a significant component of our strategy.
the holder to any periodic payments of interest prior The market prices of these bonds are generally more volatile than the
to maturity or a specified date when the securities market prices of securities that pay interest periodically and are
begin paying current interest. Therefore, they are likely to react to changes in interest rates to a greater degree than
issued and traded at a price lower than their face interest-paying bonds having similar maturities and credit quality.
amounts or par value. Payment-in-kind bonds pay They may have certain tax consequences which, under certain
interest or dividends in the form of additional bonds conditions, could be adverse to the Funds.
or preferred stock.
- - ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer and Typically, we use repurchase agreements as a short-term investment for
seller of securities in which the seller agrees to buy each Fund's cash position. In order to enter into these repurchase
the securities back within a specified time at the same agreements, a Fund must have collateral of at least 102% of the
the buyer paid for them, plus an amount equal to an repurchase price. No more than 10% of either Fund's assets may be
agreed upon interest rate. Repurchase agreements are invested in repurchase agreement of over seven days' maturity.
often viewed as equivalent to cash.
- - ------------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest in privately placed securities that are eligible for
whose resale is restricted under securities law. resale only among certain institutional buyers without registration,
including Rule 144A Securities.
- - ------------------------------------------------------------------------------------------------------------------------------------
Restricted securities that Restricted securities that are
are illiquid may determined to be illiquid may not
determined to be exceed exceed Delaware High-Yield
not Delaware Delchester Opportunities Fund's 15% limit on
Fund's 10% limit on illiquid securities, which is described
illiquid which securities, below.
is described below.
- - ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 10% of We may invest up to 15% of net assets
ready market, and cannot be easily sold within seven net assets in illiquid in illiquid securities, including
days at approximately the price that a Fund has valued securities, including repurchase agreements with maturities
them. repurchase agreements with of over seven days.
maturities of over seven
days.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Delaware Delchester Fund and Delaware High-Yield Opportunities Fund may also
invest in other income-producing securities including common stocks and
preferred stocks, some of which may have convertible features or attached
warrants. Please see the Statement of Additional Information for additional
descriptions on these securities as well as those listed in the table above.
Lending securities
Each Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
Borrowing from banks
Each Fund is permitted to borrow money but normally does not do so. As a
temporary measure for extraordinary purposes or to meet redemption requests, a
Fund may borrow up to one-third of the value of its assets.
Purchasing securities on a when-issued or delayed delivery basis
Delaware Delchester Fund and Delaware High-Yield Opportunities Fund may buy or
sell securities on a when-issued or delayed delivery basis; that is, paying for
securities before delivery or taking delivery up to 45 days later.
Portfolio turnover
We anticipate that each Fund's annual portfolio turnover will exceed 100%. A
turnover rate of 100% would occur if a Fund sold and replaced securities valued
at 100% of its net assets within one year. High turnover can result in increased
transaction costs and tax liability for the Funds.
14
<PAGE>
How we manage the Funds (continued)
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in a Fund you should
carefully evaluate the risks. An investment in Delaware Delchester Fund or
Delaware High-Yield Opportunities Fund typically provides the best results when
held for a number of years. The following are the chief risks you assume when
investing in these funds. Please see the Statement of Additional Information for
further discussion of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield
Delaware Delchester Fund Opportunities Fund
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus on bonds that we
securities in a certain market--like the stock or bond believe will continue to pay interest regardless of interim market
market--will decline in value because of factors such fluctuations. We do not try to predict overall bond market or interest
as economic conditions, future expectations or investor rate movements and do not trade for short-term purposes.
confidence.
We may hold a substantial part of each Fund's assets in cash or cash
equivalents as a temporary defensive strategy.
- - ------------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the value We limit the amount of each Fund's assets invested in any one industry
of securities in a particular industry or the value of and in any individual security. We also follow a rigorous selection
an individual stock or bond will decline because of process before choosing securities for the portfolio.
changing expectations for the performance of that
industry or for the individual company issuing the
stock or bond.
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities will Each Fund is subject to interest rate risk. We cannot eliminate that
decrease in value if interest rates rise. The risk is risk, but we do strive to manage it by monitoring economic conditions.
greater for bonds with longer maturities than for those
with shorter maturities.
- - ------------------------------------------------------------------------------------------------------------------------------------
Credit risk is the risk that there is the possibility Our careful, credit-oriented bond selection and our commitment to hold
that a bond's issuer will be unable to make timely a diversified selection of high-yield bonds are designed to manage
payments of interest and principal. this risk.
Investing in so-called "junk" or "high-yield" bonds For Delaware High-Yield Opportunities Fund: We generally do not
entails the risk of principal loss, which may be purchase corporate bonds which, at the time of purchase, are
greater than the risk involved in investment grade rated lower than CCC by S&P or Caa by Moody's. If a corporate bond
bonds. High-yield bonds are sometimes issued by held by the Fund drops below these levels or goes into default, the
companies whose earnings at the time of issuance are Fund will begin to sell the security in an orderly manner, striving to
less than the projected debt service on the junk bonds. minimize any adverse affect on the Fund.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield
Delaware Delchester Fund Opportunities Fund
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Recession risk Although the market for high-yield It is likely that protracted periods of economic uncertainty would
bonds existed through periods of economic downturns, cause increased volatility in the market prices of high-yield bonds,
the high-yield market grew rapidly during the long an increase in the number of high-yield bond defaults and
economic expansion which took place in the United corresponding volatility in each Fund's net asset value. In the past,
States during the 1980s. During that economic uncertainty and volatility in the high-yield market have resulted in
expansion, the use of high-yield debt securities to volatility in a Fund's net asset value.
finance highly leveraged corporate acquisitions and
restructurings increased dramatically. As a result, In striving to manage this risk, we allocate assets across a wide
the high-yield market grew substantially. Some range of industry sectors. We may emphasize industries that have been
analysts believe a protracted economic downturn would less susceptible to economic cycles in the past, particularly if we
severely disrupt the market for high-yield bonds, believe that the economy may be entering into a period of slower
adversely affect the value of outstanding bonds and growth.
adversely affect the ability of high-yield issuers to
repay principal and interest.
- - ------------------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign securities may be The Fund does not invest We may invest only 15% of the portfolio
adversely affected by political instability, in changes foreign securities. in securities of foreign issuers. We
in currency exchange rates, foreign economic conditions carefully evaluate the reward and risk
or inadequate regulatory and accounting standards. associated with each foreign security
that we consider.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield
Delaware Delchester Fund Opportunities Fund
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that securities A less liquid secondary market may have an adverse effect on Fund's
cannot be readily sold within seven days at ability to dispose of particular issues, when necessary, to meet a
approximately the price that a Fund values them. Fund's liquidity needs or in response to a specific economic event,
such as the deterioration in the creditworthiness of the issuer. In
There is generally no established retail secondary striving to manage this risk, we evaluate the size of a bond issuance
market for high-yield securities. As a result, the as a way to anticipate its likely liquidity level.
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, such as mutual funds and certain
financial institutions, which dominate it temporarily
stop buying bonds for regulatory, financial or other
reasons.
Adverse publicity and investor perceptions may also
disrupt the secondary market for high-yield securities.
We may invest only 10% of We may invest only 15% of net assets in
net assets in illiquid illiquid securities.
securities.
- - ------------------------------------------------------------------------------------------------------------------------------------
Valuation risk A less liquid secondary market as Each Fund's privately placed high-yield securities are particularly
described above can make it more difficult to obtain susceptible to the liquidity and valuation risks. We will strive to
precise valuations of the high-yield securities in its manage this risk by carefully evaluating individual bonds and by
portfolio. During periods of reduced liquidity, limiting the amount of the portfolio that can be allocated to
judgment plays a greater role in valuing high-yield privately placed high-yield securities.
securities.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield
Delaware Delchester Fund Opportunities Fund
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Redemption risk If investors redeem more shares of a Volatility in the high-yield market could increase redemption risk. We
Fund than are purchased for an extended period of time, strive to maintain a cash balance sufficient to meet any redemptions.
a Fund may be required to sell securities without We may also borrow money, if necessary, to meet redemptions.
regard to the investment merits of such actions. This
could decrease the Fund's asset base, potentially
resulting in a higher expense ratio.
- - ------------------------------------------------------------------------------------------------------------------------------------
Legislative and regulatory risk The United States We monitor the status of regulatory and legislative proposals to
Congress has from time to time taken or considered evaluate any possible effects they might have on each Fund's
legislative actions that could adversely affect the portfolios.
high-yield bond market. For example, 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. Similar actions in the future could reduce
liquidity for high-yield issues, reduce the number of
new high-yield securities being issued and could make
it more difficult for a Fund to attain its investment
objective.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust, which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Delaware
High-Yield
Delaware Opportunities
Delchester Fund Fund
<S> <C> <C>
------------------------------------------------------------------------------------------------------------
As a percentage of average daily net assets 0.58% 0.02%*
------------------------------------------------------------------------------------------------------------
</TABLE>
*Reflects the waiver of fees by the manager.
Portfolio managers
Paul A. Matlack and Gerald T. Nichols have primary responsibility for making
day-to-day investment decisions for each Fund. Mr. Matlack and Mr. Nichols have
been members of Delaware Delchester Fund's management team since 1990, and were
named co-managers of the Fund in January 1993. Mr. Matlack and Mr. Nichols have
been members of Delaware High-Yield Opportunities Fund management team since the
Fund's inception.
Paul A. Matlack, Vice President/Senior Portfolio Manager for the Funds, is a CFA
charterholder and 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.
Gerald T. Nichols, Vice President/Senior Portfolio Manager for the Funds, is a
graduate of the University of Kansas, where he received a BS in Business
Administration and an MS in Finance. Prior to joining Delaware Investments, 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 CFA
charterholder.
19
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
Board of Trustees
<S> <C> <C> <C>
Investment Manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page ___ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
</TABLE>
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager and distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASD) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
20
<PAGE>
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 4.75% that you pay when
you buy the shares. The offering price for Class A shares includes the
front-end sales charge.
o If you invest $100,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information for
details.
o Class A shares are also subject to an annual 12b-1 fee no greater than 0.30%
of average daily net assets, which is lower than the 12b-1 fee for Class B
and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge, except in the limited circumstances described in the table below.
Class A sales charges
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Sales charge Sales charge
as % of as % Dealer's commission as %
Amount of purchase offering price of amount invested of offering price
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware Delaware High-Yield
Delchester Opportunities
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Less than $100,000 4.75% 5.05% 5.08% 4.00%
- - ------------------------------------------------------------------------------------------------------------------------------------
$100,000 but under $250,000 3.75% 3.97% 3.91% 3.00%
- - ------------------------------------------------------------------------------------------------------------------------------------
$250,000 but under $500,000 2.50% 2.53% 2.54% 2.00%
- - ------------------------------------------------------------------------------------------------------------------------------------
$500,000 but under $1,000,000 2.00% 2.04% 2.04% 1.60%
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year after your
purchase and 0.50% if you redeem them within the second year.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Sales charge Sales charge
as % of as % Dealer's commission as %
Amount of purchase offering price of amount invested of offering price
<S> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
$1 million up to $5 million none none 1.00%
- - ------------------------------------------------------------------------------------------------------------------------------------
Next $20 million
Up to $25 million none none 0.50%
- - ------------------------------------------------------------------------------------------------------------------------------------
Amount over $25 million none none 0.25%
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent deferred
sales charge if you redeem your shares within six years after you buy them.
o If you redeem Class B shares during the first two years after you buy them,
the shares will be subject to a contingent deferred sales charge of 4%. The
contingent deferred sales charge is 3% during the third and fourth years, 2%
during the fifth year, 1% during the sixth year, and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1% of average daily net assets,
of which 0.25% are service fees paid to the distributor, dealers or others
for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and any
dividends paid on these shares are lower than dividends on Class A shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%.
Conversion may occur as late as three months after the eighth anniversary of
purchase, during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
22
<PAGE>
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent deferred
sales charge of 1% if you redeem your shares within 12 months after you buy
them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o Class C shares are subject to an annual 12b-1 fee which may not be greater
than 1% of average daily net assets, of which 0.25% are service fees paid to
the distributor, dealers or others for providing services and maintaining
shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and pay
lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any one
time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Funds has adopted a separate 12b-1 plan that allows it
to pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of a Fund's assets on an ongoing basis, over time these
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges.
23
<PAGE>
About your account (continued)
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Letter of Intent Through a Letter of Intent you X Although the Letter of Intent and Rights
agree to invest a certain amount of Accumulation do not apply to the
in Delaware Investment Funds purchase of Class B and C shares, you
(except money market funds with no can combine your purchase of Class A
sales charge) over a 13-month shares with your purchase of B and C
period to qualify for reduced shares to fulfill your Letter of Intent
front-end sales charges. or qualify for Rights of Accumulation.
- - --------------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings or X
purchases of all funds in the Delaware
Investments family (except money market
funds with no sales charge) as well as the
holdings and purchases of your spouse and
children under 21 to qualify for reduced
front-end sales charges.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Reinvestment of redeemed Up to 12 months after you redeem For Class Not
shares shares, you can reinvest the A, you will For Class available.
proceeds with no additional sales not have to B, your
charge. pay an account
additional will be
front-end credited
sales with the
charge. contingent
deferred
sales
charge you
previously
paid on the
amount
you are
reinvesting.
Your
schedule
for
contingent
deferred
sales
charges
and
conversion
to Class A
will not
start over
again; it
will pick up
from the
point at
which you
redeemed
your
shares.
- - ------------------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP/IRA, These investment plans may qualify X There is no reduction in sales
SAR/SEP, Prototype Profit for reduced sales charges by charges for Class B or Class C
Sharing, Pension, 401(k), combining the purchases of all shares by group purchases for
SIMPLE 401(k), 403(b)(7), members of the group. Members of retirement plans.
and 457 Retirement Plans these groups may also qualify to
purchase shares without a front-end sales
charge and a waiver of any contingent
deferred sales charges.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service or through our web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800.523.1918.
26
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an initial
investment of $1,000 and make additional investments at any time for as little
as $100. If you are buying shares in an IRA or Roth IRA, under the Uniform Gifts
to Minors Act or the Uniform Transfers to Minors Act; or through an Automatic
Investing Plan, the minimum purchase is $250, and you can make additional
investments of only $25. The minimum for an Education IRA is $500. The minimums
vary for retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on a Fund's net asset
value. If we receive your order after the close of trading, you will pay the
next business day's price. A business day is any day that the New York Stock
Exchange is open for business. We reserve the right to reject any purchase
order.
We determine each Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in a Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the Board of Trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the Board of
Trustees.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Funds may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in these Funds can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
27
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of more than
$50,000, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
28
<PAGE>
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time), you will receive the net asset value as determined on the
business day we receive your request. We will deduct any applicable contingent
deferred sales charges. You may also have to pay taxes on the proceeds from your
sale of shares. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original shares
not the exchange price. The redemption price for purposes of this formula will
be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $500 for Education IRAs) for three or
more consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at the
minimum by the required time, you will be charged a $9 fee for that quarter and
each quarter after that until your account reaches the minimum balance. If your
account does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
29
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for the same class of shares
in other funds, your new shares will be subject to the same contingent deferred
sales charge as the shares you originally purchased. The holding period for the
CDSC will also remain the same, with the amount of time you held your original
shares being credited toward the holding period of your new shares. You don't
pay sales charges on shares that you acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange.
30
<PAGE>
About your account (continued)
Special services (continued)
MoneyLine(SM) On Demand Service
Through our MoneyLine(SM) On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine Direct Deposit Service you can have $25 or more in
dividends and distributions deposited directly to your bank account. Delaware
Investments does not charge a fee for this service; however, your bank may
assess one. This service is not available for retirement plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly or
quarterly payment from your account made to you or someone you designate. If the
value of your account is $5,000 or more, you can make withdrawals of at least
$25 monthly, or $75 quarterly. You may also have your withdrawals deposited
directly to your bank account through our MoneyLine Direct Deposit Service.
Dividends, distributions and taxes
Dividends, if any, are declared daily and paid monthly. Capital gains, if any,
are paid twice a year. We automatically reinvest all dividends and any capital
gains, unless you tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from these Funds is the same whether you
reinvest your dividends or receive them in cash. Distributions from a Fund's
long-term capital gains are taxable as capital gains, while distributions from
short-term capital gains and net investment income are generally taxable as
ordinary income. Any capital gains may be taxable at different rates depending
on the length of time a Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
Distributions declared in October, November or December but paid in January are
taxable as if they were paid in December.
31
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The Year
2000 Problem may also adversely affect the issuers of securities in which the
Funds invest. The portfolio managers and investment professionals of the Funds
consider Year 2000 compliance in the securities selection and investment
process. However, there can be no guarantees that, even with their due diligence
efforts, they will be able to predict the effect of Year 2000 on any company or
the performance of its securities.
Investments by Fund of Funds
Each Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, a Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, a Fund may be required to sell securities or invest cash at times
when it would not otherwise do so. These transactions could also have tax
consequences if sales of securities result in gains, and could also increase
transactions costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on the
Funds and Foundation Funds as a result of these transactions.
32
<PAGE>
Financial highlights
The Financial highlights tables are intended to help you understand each Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose reports, along with a Fund's financial statements, is included in the
Funds' annual reports, which are available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
Delaware Delchester Fund A Class
Year Ended 7/31
- - --------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $6.650 $6.570 $6.140 $6.280 $6.450
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
- - --------------------------------------------------------------------------------------------------------
Net investment income 0.597 0.608 0.598 0.628 0.668
- - --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (1.102) 0.070 0.430 (0.141) (0.167)
- - --------------------------------------------------------------------------------------------------------
Total from investment operations (0.505) 0.678 1.028 0.487 0.501
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Less dividends:
- - --------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.605) (0.598) (0.598) (0.627) (0.671)
- - --------------------------------------------------------------------------------------------------------
Total dividends (0.605) (0.598) (0.598) (0.627) (0.671)
- - --------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.540 $6.650 $6.570 $6.140 $6.280
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Total return(2) (7.65%) 10.73% 17.53% 8.10% 8.46%
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - --------------------------------------------------------------------------------------------------------
Net assets, end of period (000 $813,787 $1,060,136 $1,030,328 $973,939 $1,020,763
omitted)
- - --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.10% 1.06% 1.04% 1.02% 1.09% 1.85%
- - --------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets 10.12% 9.16% 9.48% 10.11% 10.77% 9.37%
- - --------------------------------------------------------------------------------------------------------
Portfolio turnover 85% 117% 154% 108% 92% 85%
- - --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Delaware Delchester Fund B Class
Year Ended 7/31
- - -----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $6.650 $6.570 $6.140 $6.280 $6.450
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
- - -----------------------------------------------------------------------------------------------------
Net investment income 0.557 0.556 0.550 0.581 0.624
- - -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (1.103) 0.072 0.430 (0.141) (0.170)
- - -----------------------------------------------------------------------------------------------------
Total from investment operations (0.546) 0.628 0.980 0.440 0.454
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
Less dividends:
- - -----------------------------------------------------------------------------------------------------
Dividends from net investment income (0.564) (0.548) (0.550) (0.580) (0.624)
- - -----------------------------------------------------------------------------------------------------
Total dividends (0.564) (0.548) (0.550) (0.580) (0.624)
- - -----------------------------------------------------------------------------------------------------
Net asset value, end of period $5.540 $6.650 $6.570 $6.140 $6.280
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
Total return(2) (8.34%) 9.91% 16.66% 7.30% 7.64%
- - -----------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - -----------------------------------------------------------------------------------------------------
Net assets, end of period (000
omitted) $8 $349,960 $376,463 $273,499 $176,266 $111,860
- - -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.85% 1.81% 1.79% 1.77% 1.82%
- - -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets 9.37% 8.41% 8.73% 9.36% 10.14%
- - -----------------------------------------------------------------------------------------------------
Portfolio turnover 85% 117% 154% 108% 92%
- - -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------
Period
Delaware Delchester Fund C 11/29/95(1)
Class through
Year Ended 7/31 7/31/96
- - -----------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Net asset value, beginning of period $6.650 $6.570 $6.140 $6.210
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Income (loss) from investment
operations:
- - -----------------------------------------------------------------------------------
Net investment income 0.566 0.555 0.550 0.385
- - -----------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (1.111) 0.073 0.430 (0.069)
- - -----------------------------------------------------------------------------------
Total from investment operations (0.545) 0.628 0.980 0.316
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Less dividends:
- - -----------------------------------------------------------------------------------
Dividends from net investment income (0.565) (0.548) (0.550) (0.386)
- - -----------------------------------------------------------------------------------
Total dividends (0.565) (0.548) (0.550) (0.386)
- - -----------------------------------------------------------------------------------
Net asset value, end of period $5.540 $6.650 $6.570 $6.140
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Total return(2) (8.34%) 9.91% 16.66% 5.20%
- - -----------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------
Ratios and supplemental data:
- - -----------------------------------------------------------------------------------
Net assets, end of period (000
omitted) $62,613 $50,945 $19,094 $4,953
- - -----------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.85% 1.81% 1.79% 1.77%
- - -----------------------------------------------------------------------------------
Ratio of net investment income
to average net assets 9.37% 8.41% 8.73% 9.36%
- - -----------------------------------------------------------------------------------
Portfolio turnover 85% 117% 154% 108%
- - -----------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations; ratios have been annualized but total return has
not been annualized.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions of net asset
value and does not reflect the impact of a sales charge.
33
<PAGE>
Financial highlights (continued)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
Delaware High-Yield Opportunities
Fund A Class
- - --------------------------------------------------------------------------------------------------------------------
Year Ended 7/31 Period
12/30/96(1)
through
7/31/97
- - --------------------------------------------------------------------------------------------------------------------
1999 1998
<S> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.920 $5.920 $5.500
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- - --------------------------------------------------------------------------------------------------------------------
Net investment income 0.434 0.523(2) 0.290(2)
- - --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.691) 0.336 0.299
- - --------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.257) 0.859 0.589
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- - --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.438) (0.605) (0.169)
- - --------------------------------------------------------------------------------------------------------------------
Distributions from realized gain on investments (0.105) (0.254) --
- - --------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.543) (0.859) (0.169)
- - --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.120 $5.920 $5.920
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Total return(3) (4.26%) 15.66% 10.81%
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $12,558 $9,670 $5,990
- - --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.27% 1.14% 0.75%
- - --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation
and fees paid indirectly 1.89% 1.44% 1.57%
- - --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 8.02% 8.88% 8.53%
- - --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense
limitation and fees paid indirectly 7.39% 8.58% 7.70%
- - --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 382% 317% 270%
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield Delaware High-Yield
Opportunities Fund B Opportunities Fund C
Class Class
- - --------------------------------------------------------------------------------------------------------------------------------
Year Period Year Period
Ended 2/17/98(1) Ended 2/17/98(1)
7/31 through 7/31 through
1999 7/31/98 1999 7/31/98
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.920 $5.870 $5.920 $5.870
- - --------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- - --------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.401 0.161(2) 0.403 0.161(2)
- - --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.694) 0.044 (0.696) 0.044
- - --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.293) 0.205 (0.293) 0.205
- - --------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- - --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.402) (0.155) (0.402) (0.155)
- - --------------------------------------------------------------------------------------------------------------------------------
Distributions from realized gain on investments (0.105) -- (0.105) --
- - --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.507) (0.155) (0.507) (0.155)
- - --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.120 $5.920 $5.120 $5.920
- - --------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------------
Total return(3) (4.91%) 3.54% (4.91%) 3.54%
- - --------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,296 $1,603 $1,913 $547
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.97% 1.84% 1.97% 1.84%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation 2.59% 2.14% 2.59% 2.14%
and fees paid indirectly
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 7.32% 8.18% 7.32% 8.18%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense
limitation and fees paid indirectly 6.69% 7.88% 6.69% 7.88%
- - --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 382% 317% 382% 317%
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short a time period
may not be representative of longer term results.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes fee waivers by the Manager, reinvestment of
distributions at net asset value and does not reflect the impact of a sales
charge.
34
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's investments; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
35
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See Bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
36
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
NASD Regulation, Inc. (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, Inc. (Fitch).
37
<PAGE>
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay dividends at a fixed rate
and is sometimes convertible into common stock.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
financial advisers for advice and service provided.
Salomon Smith Barney Cash Pay High-Yield Index
The Salomon Smith Barney Cash Pay High-Yield Index includes a mix of
non-investment grade corporate bonds that pay cash interest, it excludes both
corporate bonds that pay deferred-interest and bankrupt bonds.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
38
<PAGE>
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Treasury bills
Securities issued by the U.S. Treasury with maturities of one year or less.
Treasury bonds
Securities issued by the U.S. Treasury with maturities of 10 years or longer.
Treasury notes
Securities issued by the U.S. Treasury with maturities of one to 10 years.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
39
<PAGE>
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. You can find more detailed information about the Funds in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in these Funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Funds, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- - ---------------------------
E-mail
[email protected]
Shareholder Services Representative
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
o For fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions and
telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a day,
use this Touch-Tone(R) service.
Investment Company Act file number: 811-2071
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
A Class 245908207 DETWX
- - ------------------------------------------------------------------------------------------------------------------------------------
B Class 245908405 DHYBX
- - ------------------------------------------------------------------------------------------------------------------------------------
C Class 245908504 DELCX
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
- - ------------------------------------------------------------------------------------------------------------------------------------
A Class 245908876 DHOAX
- - ------------------------------------------------------------------------------------------------------------------------------------
B Class 245908868 DHOBX
- - ------------------------------------------------------------------------------------------------------------------------------------
C Class 245908850 DHOCX
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 9/99
40
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
Institutional Class
Prospectus
September 29, 1999
Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profiles page
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Funds
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial highlights page
2
<PAGE>
Profile: Delaware Delchester Fund
What are the Fund's goals?
Delaware Delchester Fund seeks as high a level of current income as is
consistent with providing reasonable safety. Although the Fund will strive to
achieve its goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in corporate bonds, primarily those rated BB or lower by
Standard & Poor's Ratings Group or similarly rated by another nationally
recognized statistical rating organization (NRSRO). These are commonly known as
high-yield bonds or junk bonds and involve greater risks than investment grade
bonds. We may also invest in unrated bonds if we judge them to be of comparable
quality. We will select bonds primarily based on the income potential they offer
and on our evaluation of the bond issuers' ability to make interest payments and
repay principal. We may alsoinvest in investment grade corporate debt, U.S.
government securities and high quality commercial paper, though these are not
expected to be a significant component of our strategy under normal
circumstances.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The value of your investment in the Fund
will increase and decrease according to changes in the value of the securities
in the Fund's portfolio. This Fund will be affected primarily by declines in
bond prices, which can be caused by an adverse change in interest rates, adverse
economic conditions or poor performance from specific industries or bond
issuers. High-yield bonds are rated below investment grade and are subject to
higher credit risk--the risk that the issuer will be unable to make payments on
interest and principal, particularly under adverse economic conditions. For a
more complete discussion of risk, please turn to page 9.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors looking a fixed-income investment that offers potential for very
high current income.
o Investors with long-term financial goals.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may
fluctuate, sometimes significantly, over the short term.
3
<PAGE>
How has Delaware Delchester Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Institutional Class shares have
varied over the past ten calendar years, as well as the average annual returns
for one, five, and ten years. Delaware Delchester Fund's Institutional Class
commenced operations on June 1, 1992. Return information for the Institutional
Class for the periods prior to the time the Institutional Class commenced
operations is calculated by taking the performance of the Fund's Class A shares
and eliminating all sales and asset based charges that apply to Class A shares.
The Fund's past performance is not necessarily an indication of how it will
perform in the future.
[bar chart]
Year-by-year total return (Institutional Class)
- - -------- -------- -------- ------- ------ ------- ------- ------- ------- ------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- - -------- -------- -------- ------- ------ ------- ------- ------- ------- ------
1.05 -11.93 43.88 17.46 16.74 -4.35 14.27 12.61 14.19 -1.56
- - -------- -------- -------- ------- ------ ------- ------- ------- ------- ------
As of June 30, 1999, the Fund's Institutional Class shares had a year-to-date
return of 0.25%. During the ten years illustrated in this bar chart, the
Institutional Class' highest quarterly return was 18.41%% for the quarter ended
March 30, 1991 and its lowest quarterly return was -8.17% for the quarter ended
September 30, 1990.
How has Delaware Delchester Fund performed? (continued)
Average annual returns for periods ending 12/31/98
-------------------------------------------------------------------
Institutional Class Salomon Smith Barney
(Inception 6/1/92) Cash Pay High-Yield
Index
----------- ---------------------- --------------------------------
1 year -1.56% 4.43%
----------- ---------------------- --------------------------------
5 years 6.71% 9.13%
----------- ---------------------- --------------------------------
10 years 9.28% N/A
----------- ---------------------- --------------------------------
The table above shows the Fund's average annual returns compared to the
performance of the Salomon Smith Barney Cash Pay High-Yield Index. You should
remember that unlike the Fund, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
4
<PAGE>
What are the Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
- - ------------------------------------------------------------- ------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price none
- - ------------------------------------------------------------- ------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
- - ------------------------------------------------------------- ------------
Maximum sales charge (load) imposed on
Reinvested dividends none
- - ------------------------------------------------------------- ------------
Redemption fees none
- - ------------------------------------------------------------- ------------
Exchange fees(1) none
- - ------------------------------------------------------------- ------------
Annual fund operating expenses are deducted from the Fund's assets.
- - ------------------------------------------------------------ ------------
Management fees 0.61%(2)
- - ------------------------------------------------------------ ------------
Distribution and service (12b-1) fees none
- - ------------------------------------------------------------ ------------
Other expenses 0.27%
- - ------------------------------------------------------------ ------------
Total operating expenses 0.88%
- - ------------------------------------------------------------ ------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(3) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
- - ----------------- -----------
1 year $90
- - ----------------- -----------
3 years $281
- - ----------------- -----------
5 years $488
- - ----------------- -----------
10 years $1,084
- - ----------------- -----------
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(2) The management fee has been restated to reflect a new management fee which
became effective on April 1, 1999.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
5
<PAGE>
What are the Fund's goals?
Delaware High-Yield Opportunities Fund seeks total return and, as a secondary
objective, high current income. Although the Fund will strive to achieve its
goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in corporate bonds rated BB or lower by S&P or similarly
rated by another NRSO. These are commonly known as high-yield bonds or junk
bonds and involve greater risks than investment grade bonds. The Fund will also
invest in unrated bonds we judge to be of comparable quality. Unrated bonds may
be more speculative in nature than rated bonds. The Fund may also invest in U.S.
and foreign government securities and corporate bonds of foreign issuers. In
selecting bonds for the portfolio, we evaluate the income provided by the bond
and the bond's appreciation potential as well as the issuer's ability to make
income and principal payments.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The value of your investment in the Fund
will increase and decrease according to changes in the value of the securities
in the Fund's portfolio. This Fund will be affected primarily by declines in
bond prices, which can be caused by adverse changes in interest rates, adverse
economic conditions or poor performance from specific industries or bond
issuers. High-yield bonds are rated below investment grade and are subject to
greater risk that the issuer will be unable to make payments on interest and
principal. Bonds of foreign issuers are also subject to certain risks such as
political and economic instability, currency fluctuations and less stringent
regulatory standards. For a more complete discussion of risk, please turn to
page 9.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking a fixed-income investment that offers a combination of
total return with high current income.
o Investors who want a total return-oriented income investment as a
diversification tool for long-term, equity -oriented portfolios.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may
fluctuate, sometimes significantly, over the short term.
6
<PAGE>
How has Delaware High-Yield Opportunities Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns have varied over the past two calendar years,
as well as the average annual returns for one year and since inception. The
Fund's past performance does not necessarily indicate how it will perform in the
future. The returns reflect voluntary expense caps. The returns would be lower
without the voluntary caps.
Year-by-year total return (Institutional Class)
- - --------------- ------------
1997 1998
- - --------------- ------------
17.31% 3.12%
- - --------------- ------------
As of June 30, 1999, the Fund's Institutional Class shares had a year-to-date
return of 2.00%. During the period illustrated in this bar chart, the
Institutional Class' highest quarterly return was 6.14% for the quarter ended
June 30, 1997 and its lowest quarterly return was -3.90% for the quarter ended
September 30, 1998.
Average annual returns for periods ending 12/31/98
----------- ------------------------ -------------------------------
Institutional Class Salomon Smith Barney
(Inception 12/30/96) Cash Pay High-Yield Index
----------- ------------------------ -------------------------------
1 year 3.12% 4.43%
----------- ------------------------ -------------------------------
Lifetime 9.91% 8.70%
----------- ------------------------ -------------------------------
The table above shows the Fund's average annual returns compared to the
performance of the Salomon Smith Barney Cash Pay High-Yield Index. You should
remember that unlike the Fund, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
7
<PAGE>
What are the Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
- - ------------------------------------------------------------ -----------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price none
- - ------------------------------------------------------------ -----------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
- - ------------------------------------------------------------ -----------
Maximum sales charge (load) imposed on
Reinvested dividends none
- - ------------------------------------------------------------ -----------
Redemption fees none
- - ------------------------------------------------------------ -----------
Exchange fees(1) none
- - ------------------------------------------------------------ -----------
Annual fund operating expenses are deducted from the Fund's assets.
- - ------------------------------------------------------------ -----------
Management fees 0.65%
- - ------------------------------------------------------------ -----------
Distribution and service (12b-1) fees none
- - ------------------------------------------------------------ -----------
Other expenses 0.94%
- - ------------------------------------------------------------ -----------
Total annual fund operating expenses 1.59%
- - ------------------------------------------------------------ -----------
Fee waivers and payments(2) (0.59%)
- - ------------------------------------------------------------ -----------
Net expenses 1.00%
- - ------------------------------------------------------------ -----------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(3) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
- - -----------------------------
Without Expense Limitation
- - ----------------- -----------
1 year $162
- - ----------------- -----------
3 years $502
- - ----------------- -----------
5 years $866
- - ----------------- -----------
10 years $1,889
- - ----------------- -----------
- - -----------------------------
With Expense Limitation(2)
- - ----------------- -----------
1 year $102
- - ----------------- -----------
3 years $318
- - ----------------- -----------
5 years $552
- - ----------------- -----------
10 years $1,225
- - ----------------- -----------
8
<PAGE>
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(2) The investment manager has contracted to waive fees and pay expenses from
October 1, 1999 through September 30, 2000 in order to prevent total
operating expenses (excluding any 12b-1 plan expenses, taxes, interest,
brokerage fees and extraordinary expenses) from exceeding 1.00% of average
daily net assets.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
9
<PAGE>
How we manage the Funds
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Funds'
investment goals.
For both Delaware Delchester Fund and Delaware High-Yield Opportunities Fund, we
invest primarily in fixed-income securities that we believe will have a liberal
and consistent yield and will tend to reduce the risk of market fluctuations. We
expect to invest the majority of the Funds' assets primarily in high-yield bonds
or junk bonds, which involve greater risks than investment grade bonds. The
Funds may also invest in unrated bonds that we consider to have comparable
credit characteristics. Unrated bonds may be more speculative in nature than
rated bonds;
Before selecting high-yield corporate bonds, we carefully evaluate each
individual bond including its income potential and the size of the bond
issuance. The size of the issuance helps us evaluate how easily we may be able
to buy and sell the bond.
We also do a thorough credit analysis of the issuer to determine whether that
company has the financial ability to meet the bond's payments.
We maintain a well-diversified portfolio of high-yield bonds that represents
many different sectors and industries. Through diversification we can help to
reduce the impact that any individual bond might have on the portfolio should
the issuer have difficulty making payments.
Delaware Delchester Fund
Our primary goal for Delaware Delchester Fund is to provide high current income.
For this reason, the income potential of a bond is a key selection criteria.
It is our policy to invest at least 80% of our assets in corporate bonds, U.S.
government securities or commericial paper of companies rated A-1 or A-2 by S&P
or P-1 or P-2 by Moody's Investors Services, Inc. (which are two NRSROs). We are
required to invest primarily in corporate bonds rated BBB or below; however we
particularly emphasize those rated BB or B. We generally focus more on bonds
rated B in times of economic growth and more on bonds rated BB when the economy
appears to be slowing.
Delaware High-Yield Opportunities Fund
Delaware High-Yield Opportunities Fund strives to provide total return, with
income as a secondary objective. Before purchasing a bond, we evaluate both the
income level of a bond and its potential for price appreciation. At least 65% of
the Fund's assets will be invested in corporate bonds rated at the time of
purchase as BB or lower by S&P or similarly rated by another NRSO or, if
unrated, that we judge to be of comparable quality. Delaware High-Yield
Opportunities Fund also may invest in bonds of foreign issuers in pursuit of its
objective.
Delaware Delchester Fund's investment objective - to seek as high a current
income as is consistent with providing reasonable safety and Delaware High-Yield
Opportunities Fund's investment objective - to seek total return and, as a
secondary objective, high current income - are non-fundamental objectives. This
means that the Board of Trustees may change a Fund's objective without obtaining
shareholder approval. If an objective were changed, we would notify shareholders
before the change in the objective became effective.
10
<PAGE>
The securities we typically invest in
Fixed-income securities generally offer the potential for greater income
payments than stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- - --------------------------------------------------------- --------------------------------------------------------------------------
Securities How we use them
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
<S> <C> <C>
High-yield corporate bonds: Debt obligations issued by Delaware Delchester Fund may Delaware High-Yield Opportunities Fund
a corporation and rated lower than investment grade by invest without limit in may invest without limit in high-yield
an NRSRO such as S&P or Moody's or, if unrated, that we high-yield corporate bonds. corporate bonds. The Fund will invest
at believe are of comparable quality. These securities Emphasis is typically on those least 65% of its assets in corporate
are considered to be of poor standing and predominately rated BB or B by an NRSRO. bonds which, at the time of purchase,
speculative. are rated BB or lower by S&P or Caa by
Moody's.
- - --------------------------------------------------------- --------------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations Both Funds may invest without limit in U.S. government securities.
including bills, notes, bonds and other debt securities However, they will typically be a small percentage of the portfolio
issued by the U.S. Treasury or securities of U.S. because they generally do not offer as high a level of current income as
government agencies or instrumentalities which are high-yield corporate bonds.
backed by the full faith and credit of the United
States.
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
Foreign government or corporate securities: Securities Delaware Delchester Fund may Delaware High-Yield Opportunities Fund
issued by foreign governments or supranational entities not invest in securities of may invest up to 15% of its total assets
or foreign corporations. foreign issuers. in securities of issuers domiciled in
foreign countries including both
A supranational entity is an entity established or established countries and those with
financially supported by the national governments of emerging markets.
one or more countries. The International Bank for
Reconstruction and Development (more commonly known as
the World Bank) is one example of a Supranational
entity.
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------- --------------------------------------------------------------------------
Securities How we use them
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
<S> <C> <C>
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment-in-kind bonds, though we do
securities are debt obligations which do not entitle not expect this to be a significant component of our strategy. The market
the holder to any periodic payments of interest prior prices of these bonds are generally more volatile than the market prices
to maturity or a specified date when the securities of securities that pay interest periodically and are likely to react to
begin paying current interest. Therefore, they are changes in interest rates to a greater degree than interest-paying bonds
issued and traded at a price lower than their face having similar maturities and credit quality. They may have certain tax
amounts or par value. Payment-in-kind bonds pay consequences which, under certain conditions, could be adverse to the
interest or dividends in the form of additional bonds Funds.
or preferred stock.
- - --------------------------------------------------------- --------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer and Typically, we use repurchase agreements as a short-term investment for
seller of securities in which the seller agrees to buy each Fund's cash position. In order to enter into these repurchase
the securities back within a specified time at the same agreements, a Fund must have collateral of at least 102% of the repurchase
price the buyer paid for them, plus an amount equal to price. No more than 10% of either Fund's assets may be invested in
an agreed upon interest rate. Repurchase agreements are repurchase agreements of over seven days' maturity.
often viewed as equivalent to cash.
- - --------------------------------------------------------- --------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest in privately placed securities that are eligible for resale
whose resale is restricted under securities law. only among certain institutional buyers without registration, including
Rule 144A Securities.
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
Restricted securities that are Restricted securities that are
determined to be illiquid may determined to be illiquid may not
exceed not exceed Delaware Delaware High-Yield Opportunities Fund's
Delchester Fund's 10% limit on 15% limit on illiquid securities, which
illiquid securities, which is is described below.
described below.
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------- --------------------------------------------------------------------------
Securities How we use them
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
<S> <C> <C>
Illiquid securities: Securities that do not have a We may invest up to 10% of net We may invest up to 15% of net assets in
ready market, and cannot be easily sold within seven assets in illiquid securities, illiquid securities, including
days at approximately the price that a Fund has valued including repurchase agreements repurchase agreements with maturities of
them. with maturities of over seven over seven days.
days.
- - --------------------------------------------------------- --------------------------------- ----------------------------------------
</TABLE>
Delaware Delchester Fund and Delaware High-Yield Opportunities Fund may also
invest in other income-producing securities including common stocks and
preferred stocks, some of which may have convertible features or attached
warrants. Please see the Statement of Additional Information for additional
descriptions on these securities as well as those listed in the table above.
Lending securities
Each Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
Borrowing from banks
Each Fund is permitted to borrow money but normally does not do so. As a
temporary measure for extraordinary purposes or to meet redemption requests, a
Fund may borrow up to one-third of the value of its assets.
Purchasing securities on a when-issued or delayed delivery basis
Delaware Delchester Fund and Delaware High-Yield Opportunities Fund may buy or
sell securities on a when-issued or delayed delivery basis; that is, paying for
securities before delivery or taking delivery up to 45 days later.
Portfolio turnover
We anticipate that each Fund's annual portfolio turnover will exceed 100%. A
turnover rate of 100% would occur if a Fund sold and replaced securities valued
at 100% of its net assets within one year. High turnover can result in increased
transaction costs and tax liability for the Funds.
13
<PAGE>
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in a Fund you should
carefully evaluate the risks. An investment in Delaware Delchester Fund or
Delaware High-Yield Opportunities Fund typically provides the best results when
held for a number of years. The following are the chief risks you assume when
investing in these Funds. Please see the Statement of Additional Information for
further discussion of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------ -----------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
<S> <C>
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus on bonds that we
securities in a certain market--like the stock or bond believe will continue to pay interest regardless of interim market
market--will decline in value because of factors such as fluctuations. We do not try to predict overall bond market or interest
economic conditions, future expectations or investor rate movements and do not trade for short-term purposes.
confidence.
We may hold a substantial part of each Fund's assets in cash or cash
equivalents as a temporary defensive strategy.
- - ------------------------------------------------------------ -----------------------------------------------------------------------
Industry and security risk is the risk that the value of We limit the amount of each Fund's assets invested in any one industry
securities in a particular industry or the value of an and in any individual security. We also follow a rigorous selection
individual stock or bond will decline because of changing process before choosing securities for the portfolio.
expectations for the performance of that industry or for
the individual company issuing the stock or bond.
- - ------------------------------------------------------------ -----------------------------------------------------------------------
Interest rate risk is the risk that securities will Each Fund is subject to interest rate risk. We cannot eliminate that
decrease in value if interest rates rise. The risk is risk, but we do strive to manage it by monitoring economic conditions.
greater for bonds with longer maturities than for those
with shorter maturities.
- - ------------------------------------------------------------ -----------------------------------------------------------------------
Credit risk is the risk that there is the possibility that Our careful, credit-oriented bond selection and our commitment to hold
a bond's issuer will be unable to make timely payments of a diversified selection of high-yield bonds are designed to manage
interest and principal. this risk.
Investing in so-called "junk" or "high-yield" bonds For Delaware High-Yield Opportunities Fund: We generally do not
entails the risk of principal loss, which may be greater purchase corporate bonds which, at the time of purchase, are rated
than the risk involved in investment grade bonds. lower than CCC by S&P or Caa by Moody's. If a corporate bond held by
High-yield bonds are sometimes issued by companies whose the Fund drops below these levels or goes into default, the Fund will
earnings at the time of issuance are less than the begin to sell the security in an orderly manner, striving to minimize
projected debt service on the junk bonds. any adverse affect on the Fund.
- - ------------------------------------------------------------ ------------------------------- ---------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------ -----------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
<S> <C>
Recession risk Although the market for high-yield bonds It is likely that protracted periods of economic uncertainty would
existed through periods of economic downturns, the cause increased volatility in the market prices of high-yield bonds,
high-yield market grew rapidly during the long economic an increase in the number of high-yield bond defaults and
expansion which took place in the United States during the corresponding volatility in each Fund's net asset value. In the past,
1980s. During that economic expansion, the use of uncertainty and volatility in the high-yield market have resulted in
high-yield debt securities to finance highly leveraged volatility in a Fund's net asset value.
corporate acquisitions and restructurings increased
dramatically. As a result, the high-yield market grew In striving to manage this risk, we allocate assets across a wide
substantially. Some analysts believe a protracted economic range of industry sectors. We may emphasize industries that have been
downturn would severely disrupt the market for high-yield less susceptible to economic cycles in the past, particularly if we
bonds, adversely affect the value of outstanding bonds and believe that the economy may be entering into a period of slower
adversely affect the ability of high-yield issuers to growth.
repay principal and interest.
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
Foreign risk is the risk that foreign securities may be The Fund does not invest in We may invest only 15% of the
adversely affected by political instability, changes in foreign securities. portfolio in securities of foreign
currency exchange rates, foreign economic conditions or issuers. We carefully evaluate the
inadequate regulatory and accounting standards. reward and risk associated with each
foreign security that we consider.
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
Liquidity risk is the possibility that securities cannot A less liquid secondary market may have an adverse effect on a Fund's
be readily sold, if at all, at approximately the price ability to dispose of particular issues, when necessary, to meet a
that a Fund values them. Fund's liquidity needs or in response to a specific economic event,
such as the deterioration in the creditworthiness of the issuer. In
There is generally no established retail secondary market striving to manage this risk, we evaluate the size of a bond issuance
for high-yield securities. As a result, the secondary as a way to anticipate its likely liquidity level.
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, such as mutual
funds and certain financial institutions, which dominate
it temporarily stop buying bonds for regulatory, financial
or other reasons.
Adverse publicity and investor perceptions may also disrupt We may invest only 10% of We may invest only 15% of net
the secondary market for high-yield securities. net assets in illiquid assets in illiquid securities.
securities.
- - ------------------------------------------------------------ -----------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------ -----------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
<S> <C>
Valuation risk A less liquid secondary market as described Each Fund's privately placed high-yield securities are particularly
above can make it more difficult to obtain precise susceptible to the liquidity and valuation risks. We will strive to
valuations of the high-yield securities in its portfolio. manage this risk by carefully evaluating individual bonds and by
During periods of reduced liquidity, judgment plays a limiting the amount of the portfolio that can be allocated to
greater role in valuing high-yield securities. privately placed high-yield securities.
- - ------------------------------------------------------------ -----------------------------------------------------------------------
Redemption risk If investors redeem more shares of a Fund Volatility in the high-yield market could increase redemption risk.
than are purchased for an extended period of time, a Fund We strive to maintain a cash balance sufficient to meet any
may be required to sell securities without regard to the redemptions. We may also borrow money, if necessary, to meet
investment merits of such actions. This could decrease, redemptions.
the Fund's asset base, potentially resulting in a higher
expense ratio.
- - ------------------------------------------------------------ -----------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------ -----------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
- - ------------------------------------------------------------ -------------------------------- --------------------------------------
<S> <C>
Legislative and regulatory risk The United States We monitor the status of regulatory and legislative proposals to
Congress has from time to time taken or considered evaluate any possible effects they might have on each Fund's
legislative actions that could adversely affect the portfolios.
high-yield bond market. For example, 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. Similar
actions in the future could reduce liquidity for high-yield
issues, reduce the number of new high-yield securities
being issued and could make it more difficult for a Fund to
attain its investment objective.
- - ------------------------------------------------------------ -----------------------------------------------------------------------
</TABLE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust, which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
--------------------------------------------- ----------------- ---------------
Delaware Delaware
Delchester Fund High-Yield
Opportunities
Fund
--------------------------------------------- ----------------- ---------------
As a percentage of average daily net assets 0.58% 0.02%*
--------------------------------------------- ----------------- ---------------
*Reflects the waiver of fees by the manager.
Portfolio managers
Paul A. Matlack and Gerald T. Nichols have primary responsibility for making
day-to-day investment decisions for each Fund. Mr. Matlack and Mr. Nichols have
been members of Delaware Delchester Fund's management team since 1990, and were
named co-managers of the Fund in January 1993. Mr. Matlack and Mr. Nichols have
been members of Delaware High-Yield Opportunities Fund management team since the
Fund's inception.
Paul A. Matlack, Vice President/Senior Portfolio Manager for the Funds, is a CFA
charterholder and 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.
Gerald T. Nichols, Vice President/Senior Portfolio Manager for the Funds, is a
graduate of the University of Kansas, where he received a BS in Business
Administration and an MS in Finance. Prior to joining Delaware Investments, he
17
<PAGE>
was a high-yield credit analyst at Waddell & Reed, Inc. and subsequently the
investment officer for a private merchant banking firm. He is a CFA
charterholder.
18
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Shareholders
</TABLE>
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager or
sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASD) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a
19
<PAGE>
shareholder vote, and funds seeking to change fundamental investment objectives
or policies must also seek shareholder approval.
20
<PAGE>
About your account
- - ------------------
Investing in the Funds
Institutional Class shares are available for purchase only by the following:
o 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;
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor;
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate
of the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts;
o a bank, trust company and similar financial institution investing for its
own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee; and
o 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.
21
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800-510-4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
22
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on a Fund's net asset
value. If we receive your order after the close of trading, you will pay the
next business day's price. A business day is any day that the New York Stock
Exchange is open for business. We reserve the right to reject any purchase
order.
We determine each Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in each Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the Board of Trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at fair market value using a method approved by the Board of
Trustees.
23
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
24
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time), you will receive the net asset value as determined on the
business day we receive your request. You may have to pay taxes on the proceeds
from your sale of shares. We will send you a check, normally the next business
day, but no later than seven days after we receive your request to sell your
shares. If you purchased your shares by check, we will wait until your check has
cleared, which can take up to 15 days, before we send your redemption proceeds.
Account minimums
If you redeem shares and your account balance falls below $250, a Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
For each Fund, dividends, if any, are declared daily and paid monthly. Capital
gains, if any, are paid twice a year. We automatically reinvest all dividends
and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from these Funds is the same whether you
reinvest your dividends or receive them in cash. Distributions from a Fund's
long-term capital gains are taxable as capital gains, while distributions from
short-term capital gains and net investment income are generally taxable as
ordinary income. Any capital gains may be taxable at different rates depending
on the length of time the Fund held the assets. In addition, you may be subject
to state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
Distributions declared in October, November or December but paid in January are
taxable as if they were paid in December.
25
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The Year
2000 Problem may also adversely affect the issuers of securities in which the
Funds invest. The portfolio managers and investment professionals of the Funds
consider Year 2000 compliance in the securities selection and investment
process. However, there can be no guarantees that, even with their due diligence
efforts, they will be able to predict the effect of Year 2000 on any company or
the performance of its securities.
Investments by Fund of Funds
Each Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, a Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, a Fund may be required to sell securities or invest cash at times
when it would not otherwise do so. These transactions could also have tax
consequences if sales of securities result in gains, and could also increase
transactions costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on the
Funds and Foundation Funds as a result of these transactions.
26
<PAGE>
Financial highlights
The Financial highlights table is intended to help you understand each Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose reports, along with a Fund's financial statements, is included in the
Funds' annual reports, which are available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------- -----------------------------------------------------------------
Delaware Delchester Fund Institutional Class
Year Ended 7/31
1999 1998 1997 1996 1995
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $6.650 $6.570 $6.140 $ 6.280 $6.450
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Income (loss) from investment operations:
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Net investment income 0.613 0.620 0.614 0.644 0.685
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Net realized and unrealized gain (loss) gain on investments (1.104) 0.075 0.429 (0.142) (0.169)
------- ------ ------ ------- ------
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Total from investments operations (0.491) 0.695 1.043 0.502 0.516
------- ------ ------ ------- ------
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Less dividends:
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Dividends from net investment income (0.619) (0.615) (0.613) (0.642) (0.686)
------- ------ ------ ------- ------
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Total dividends (0.619) (0.615) (0.613) (0.642) (0.686)
------- ------ ------ ------- ------
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Net asset value, end of period $ 5.540 $6.650 $6.570 $ 6.140 $6.280
------- ====== ====== ======= ======
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Total return(1) (7.42%) 11.00% 17.82% 8.37% 8.72%
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Ratios and supplemental data:
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of period (000 omitted) $38,687 $53,673 $44,065 $59,513 $61,742
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Ratio of expenses to average net assets 0.85% 0.81% 0.79% 0.77% 0.82%
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Ratio of net investment income to average net assets 10.37% 9.41% 9.73% 10.36% 11.14%
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
Portfolio turnover 0.85% 117% 154% 108% 92%
- - ------------------------------------------------------------- ------------ ------------ ------------- ------------ ------------
</TABLE>
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------- -------------------------------- -------------
Delaware High-Yield Period
Opportunities Fund 12/30/96(1)
Institutional Class through
Year Ended 7/31 7/31/97
1999 1998
- - -------------------------------------------------------------------------- ----------------- -------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 5.920 $ 5.920 $5.500
- - -------------------------------------------------------------------------- -------------------------------- -------------
Income (loss) from investment operations:
- - -------------------------------------------------------------------------- -------------------------------- -------------
Net investment income 0.444 0.537(2) 0.290(2)
- - -------------------------------------------------------------------------- -------------------------------- -------------
Net realized and unrealized gain on investments (0.684) 0.330 0.299
------- ------- ------
- - -------------------------------------------------------------------------- -------------------------------- -------------
Total from investments operations (0.240) 0.867 0.589
------- ------- ------
- - -------------------------------------------------------------------------- -------------------------------- -------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Less dividends and distributions:
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Dividends from net investment income (0.455) (0.613) ---
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Distributions from net realized gain on investments (0.105) (0.254) (0.169)
------- -------
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Total dividends and distributions (0.560) (0.867) (0.169)
------- -------
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Net asset value, end of period $ 5.120 $ 5.920 $5.920
======= ======= ======
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Total return(3) (3.96%) 15.82% 10.81%
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Ratios and supplemental data:
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Net assets, end of period (000 omitted) $ 3,691 $3,837 $3,330
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Ratio of expenses to average net assets 0.97% 0.84% 0.75%
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Ratio of expenses to average net assets prior to expense limitation 1.59% 1.14% 1.27%
and fees paid indirectly
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Ratio of net investment income to average net assets 8.32% 9.18% 8.53%
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Ratio of net investment income to average net assets prior to
expense limitation and fees paid indirectly 7.69% 8.88% 8.00%
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
Portfolio turnover 382% 317% 270%
- - -------------------------------------------------------------------------- ----------------- -------------- ---------------
</TABLE>
29
<PAGE>
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be representative of longer term results.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes fee waivers by the Manager and
reinvestment of distributions at net asset value.
30
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, and assume the shareholder has
reinvested all dividends and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
31
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Corporate bond
A debt security issued by a corporation. See Bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
32
<PAGE>
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
NASD Regulation, Inc. (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
33
<PAGE>
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay dividends at a fixed rate
and is sometimes convertible into common stock.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
financial advisers for advice and service provided.
Salomon Smith Barney Cash Pay High-Yield Index
The Salomon Smith Barney Cash Pay High-Yield Index includes a mix of
non-investment grade corporate bonds that pay cash interest, it excludes both
corporate bonds that pay deferred-interest and bankrupt bonds.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Treasury bills
34
<PAGE>
Securities issued by the U.S. Treasury with maturities of one year or less.
Treasury bonds
Securities issued by the U.S. Treasury with maturities of 10 years or longer.
Treasury notes
Securities issued by the U.S. Treasury with maturities of one to 10 years.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
35
<PAGE>
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. You can find more detailed information about the Funds in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in these Funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Funds, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- - ---------------------------
E-mail
[email protected]
Client Services Representative
800.510.4015
Delaphone Service
800.362.FUND (800.362.3863)
For convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
Investment Company Act file number: 811-2071
<TABLE>
<CAPTION>
<S> <C>
- - ------------------------------------------------------------------ -------------------------------- --------------------------------
Fund name CUSIP number NASDAQ symbol
- - ------------------------------------------------------------------ -------------------------------- --------------------------------
Delaware Delchester Fund Institutional Class 245908306 DETIX
- - ------------------------------------------------------------------ -------------------------------- --------------------------------
Delaware High-Yield Opportunities Fund Institutional Class 245908843 DHOIX
- - ------------------------------------------------------------------ -------------------------------- --------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 6/99
36
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Strategic Income Fund
Class A o Class B o Class C
Prospectus
September 29, 1999
Current Income Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profile page
Delaware Strategic Income Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares
Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
2
<PAGE>
Profile: Delaware Strategic Income Fund
What are the Fund's goals?
The Fund seeks high current income and total return. Although the Fund will
strive to achieve its goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in bonds allocated among three sectors of the fixed income
market. These include:
o the High-Yield Sector, consisting of high-yielding, higher risk,
lower-rated or unrated fixed-income securities (commonly known as "junk
bonds") issued by U.S. companies;
o the Investment Grade Sector, consisting of investment grade debt
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or by U.S. companies; and
o the International Sector, consisting of obligations of foreign governments,
their agencies and instrumentalities, as well as other fixed-income
securities of issuers in foreign countries that are denominated in foreign
currencies. An issuer is considered to be from the country where it is
located, where the majority of its assets are or where it generates the
majority of its operating income.
We determine the amount of the Fund's assets that will be allocated to each of
the three sectors based on our analysis of economic and market conditions and
our assessment of the income and appreciation potential offered by each sector.
We will periodically reallocate the Fund's assets.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the securities held by the Fund.
This Fund will be affected primarily by declines in bond prices, which can be
caused by an adverse change in interest rates, adverse economic conditions or
poor performance from specific industries or bond issuers. The Fund is also
subject to the special risks associated with high-yield bond investing and with
foreign investing. In particular, high-yield bonds are rated below investment
grade and are subject to a higher credit risk that issuers will be unable to
make payments of interest or principal, particularly under adverse economic
conditions. For a more complete discussion of risk, please turn to page 9.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for an investment that offers professional allocation
among key types of fixed-income securities.
o Investors looking for a fixed income investment that offers potential for
high current income and total return.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
3
<PAGE>
How has the Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past two calendar years, as well as the average annual returns of all shares
for one year and life of the Fund. The Fund's past performance does not
necessarily indicate how it will perform in the future. The returns reflect
expense limitations. The returns would be lower without the limitations.
[bar chart]
Year-by-year total return (Class A)
- - -------------------------------------------------
1997 9.41%
- - -------------------------------------------------
1998 2.24%
- - -------------------------------------------------
As of June 30, 1999, the Fund's Class A shares had a year-to-date return of
- - -1.60%. During the two years illustrated in this bar chart, Class A's highest
quarterly return was 4.54% for the quarter ended June 30, 1997and its lowest
quarterly return was -0.21% for the quarter ended June 30, 1998.
The maximum Class A sales charge of 4.75%, which is normally deducted when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown in the table below do include the sales charge.
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
CLASS A B C Lehman Brothers
Aggregate Bond Index
(if redeemed)* (if redeemed)*
<S> <C> <C> <C> <C>
1 year -2.67% -2.22% 0.59% 8.69%
Lifetime (Inception 4.51% 4.87% 6.05% 9.38%
10/1/96)
</TABLE>
The table above shows the Fund's average annual returns compared to the
performance of the Lehman Brothers Aggregate Bond Index. You should remember
that unlike the Fund, the index is unmanaged and doesn't reflect the actual
costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be 1.53% and 6.05% for the one-year and lifetime periods,
respectively. Returns for Class C would be 1.53% and 6.05% for the one-year
and lifetime periods, respectively.
4
<PAGE>
What are the Fund's fees and expenses?
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Sales charges are fees paid directly from your CLASS A B C
investments when you buy or sell shares of the
Fund.
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases
as a percentage of offering price
4.75% none none
-------------------------------------------------------------------------------
Maximum contingent deferred
sales charge (load) as a
percentage of original
purchase price or
Redemption price, whichever
is lower
none(1) 4%(2) 1%(3)
-------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested
dividends none none none
-------------------------------------------------------------------------------
Redemption fees none none none
-------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Annual fund operating expenses are deducted from CLASS A B C
the Fund's assets.
-------------------------------------------------------------------------------
Management fees 0.65% 0.65% 0.65%
-------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
-------------------------------------------------------------------------------
Other expenses(4) 0.65% 0.65% 0.65%
-------------------------------------------------------------------------------
Total annual fund operating expenses 1.55% 2.30% 2.30%
-------------------------------------------------------------------------------
Fee waivers and payments(5) (0.55%) (0.55%) (0.55%)
-------------------------------------------------------------------------------
Net expenses 1.00% 1.75% 1.75%
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
This example is intended to help you compare the CLASS 7 A B B C C
cost of investing in the Fund to the cost of
investing in other mutual funds with similar (if (if
investment objectives. We show the cumulative redeemed) redeemed)
amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return
over the time shown.(6) This is an example only,
and does not represent future expenses, which
may be greater or less than those shown here. -------------------------------------------------------------------------------
Without Fee Limitation
-------------------------------------------------------------------------------
1 year $625 $233 $633 $233 $333
-------------------------------------------------------------------------------
3 years $941 $718 $1,018 $718 $718
-------------------------------------------------------------------------------
5 years $1,280 $1,230 $1,430 $1,230 $1,230
-------------------------------------------------------------------------------
10 years $2,233 $2,447 $2,447 $2,636 $2,636
-------------------------------------------------------------------------------
With Fee Limitation(5)
-------------------------------------------------------------------------------
1 year $572 $178 $578 $178 $278
-------------------------------------------------------------------------------
3 years $778 $551 $851 $551 $551
-------------------------------------------------------------------------------
5 years $1,001 $949 $1,149 $949 $949
-------------------------------------------------------------------------------
10 years $1,641 $1,864 $1,864 $2,062 $2,062
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
(1) A purchase of Class A shares of $1 million or more may be made at net
asset value. However, if you buy the shares through a financial adviser
who is paid a commission, a contingent deferred sales charge will apply to
certain redemptions. Additional Class A purchase options that involve a
contingent deferred sales charge may be permitted from time to time and
will be disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy
them, you will pay a contingent deferred sales charge of 4%, which
declines to 3% during the third and fourth years, 2% during the fifth
year, 1% during the sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Board of Trustees set the 12b-1 plan expenses for the Fund's Class A
shares at 0.25%. Expenses will not be more than 0.30% under the 12b-1
plan.
(5) The investment manager has contracted to waive fees and pay expenses
through June 30, 2000 in order to prevent total operating expenses
(excluding any 12b-1 expenses, taxes, interest, brokerage fees and
extraordinary expenses) from exceeding 0.75% of average daily net assets.
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and
tenth years reflects expenses of the Class A shares.
6
<PAGE>
How we manage the Fund
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for the Fund. Following
are descriptions of how the portfolio managers pursue the Fund's investment
goals.
Delaware Strategic Income Fund
The Fund is a type of fixed income fund that invests in three distinct sectors
of the fixed income market as it pursues its investment objective of providing
high current income and total return. Certain economic and market events may
have a greater impact on certain types of bonds. By spreading the portfolio
assets among three key types of bonds, we strive to reduce the affect that such
events might have on the portfolio. The foundation of our strategy is the belief
that when one or more bond sectors are not performing well, the others may
continue to provide high income and appreciation potential, helping to support
the Fund's performance.
Following are the three key sectors we focus on as well as our general
investment approach in each sector:
o U.S. government and high-quality corporate bonds are selected primarily on
the basis of their income potential. In periods of slower U.S. economic
growth, these bonds might also provide a stabilizing influence on the
portfolio which could enhance total return.
o U.S. high-yield corporate bonds are primarily used to increase the
portfolio's income potential. These bonds are of lower quality and involve
the risk that the companies issuing them may not be able to pay interest or
repay principal. However, we carefully select the high-yield bonds for the
portfolio after evaluating both the company's fundamental strength and the
bond's liquidity.
o Foreign bonds are used to add diversification to the portfolio. Because
foreign markets are often affected by different economic cycles than the
U.S., foreign bonds may experience performance cycles that are different as
well. In selecting foreign bonds for the portfolio, we strive to manage the
risk associated with foreign investing through a thorough analysis of the
bond's issuer and the inflation trends in the country where the bond is
issued.
In determining how much of the portfolio to allocate to each sector, we review
economic and market conditions and interest rate trends as well as the potential
risks and rewards associated with each sector. As little as 20% or as much as
60% of the Fund's assets may be invested in each fixed-income sector. In
addition, the Fund may invest up to 10% of its assets in U.S.
equity securities.
The Fund's investment objective - to seek a high level of current income and
total return - is a non-fundamental objective. This means that the Board of
Trustees may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders before the change in the
objective became effective.
7
<PAGE>
The securities we typically invest in
Fixed-income securities generally offer the potential for greater income
payments than stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- - ------------------------------------------------------- ------------------------------------------------------------------
Securities How we use them
---------- ---------------
- - ------------------------------------------------------- ------------------------------------------------------------------
<S> <C>
High-yield corporate bonds: Debt obligations issued The Fund may invest up to 60% of net assets in high-yield
by a corporation and rated lower than investment corporate bonds. Emphasis is typically on those rated BB or Ba
grade by a nationally recognized statistical ratings by an NRSRO.
organization (NRSRO) such as S&P or Moody's.
High-yield bonds are issued by corporations that have We carefully evaluate an individual company's financial
poor credit quality and may have difficulty repaying situation, its management, the prospects for its industry and
principal and interest. the technical factors related to its bond offering. Our goal is
to identify those companies that we believe will be able to repay
their debt obligations in spite of poor ratings. The Fund may
invest in unrated bonds if we believe their credit quality is
comparable to the rated bonds we are permitted to invest in.
Unrated bonds may be more speculative in nature than rated bonds.
- - ------------------------------------------------------- ------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations The Fund may invest up to 60% of net assets in direct U.S.
including bills, notes, bonds as well as other debt government obligations; however, these securities will typically
securities issued by the U.S. Treasury and securities be a smaller percentage of the portfolio because they generally
of U.S. government agencies or instrumentalities. do not offer as high a level of current income as other
fixed-income securities the Fund may invest in.
- - ------------------------------------------------------- ------------------------------------------------------------------
Mortgage-backed securities: Fixed-income securities We may invest up to 60% of net assets in government-related
that represent pools of mortgages, with investors mortgage-backed securities or fully collateralized privately
receiving principal and interest payments as the issued mortgage-backed securities.
underlying mortgage loans are paid back. Many are
issued and guaranteed against default by the U.S. We may invest in mortgage-backed securities issued by private
government or its agencies or instrumentalities, such companies whether or not the securities are 100% collateralized.
as the Federal Home Loan Mortgage Corporation, Fannie However, these securities must be rated in one of the four
Mae and the Government National Mortgage Association. highest categories by an NRSRO at the time of purchase. The
Others are issued by private financial institutions, privately issued securities we invest in are either CMOs or
with some fully collateralized by certificates issued REMICs (see below).
or guaranteed by the government or its agencies or
instrumentalities.
- - ------------------------------------------------------- ------------------------------------------------------------------
Collateralized mortgage obligations (CMOs): Privately See mortgage-backed securities above.
issued mortgage-backed bonds whose underlying value
is the mortgages that are grouped into different
pools according to their maturity.
- - ------------------------------------------------------- ------------------------------------------------------------------
Real estate mortgage investment conduits (REMICs): See mortgage-backed securities above.
Privately issued mortgage-backed bonds whose
underlying value is a fixed pool of mortgages secured
by an interest in real property. Like CMOs, REMICs
offer different pools.
- - ------------------------------------------------------- ------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------- ------------------------------------------------------------------
Securities How we use them
---------- ---------------
- - ------------------------------------------------------- ------------------------------------------------------------------
<S> <C>
Asset-backed securities: Bonds or notes backed by We invest only in asset-backed securities rated in one of the
accounts receivables including home equity, four highest categories by an NRSRO.
automobile or credit loans.
- - ------------------------------------------------------- ------------------------------------------------------------------
Investment grade corporate bonds: Debt obligations
issued by a corporation, rated in one of the four Debt securities within the top three categories comprise what
highest categories by an NRSRO (or, if unrated, that are known as high-grade bonds and are regarded as having a
we believe are of equal quality). strong ability to pay principal and interest. Securities in the
fourth category are known as medium-grade bonds and are regarded
as having an adequate capacity to pay principal and interest but
with greater vulnerability to adverse economic conditions and
speculative characteristics.
- - ------------------------------------------------------- ------------------------------------------------------------------
Foreign government securities: Securities issued by We may invest in foreign government securities and we primarily
foreign governments or supranational entities. A focus on better quality bonds with investment-grade credit
supranational entity is an entity established or ratings.
financially supported by the national governments of
one or more countries. The International Bank for However, up to 15% of the Fund's assets may also be invested in
Reconstruction and Development (more commonly known foreign government securities issued by emerging or developing
as the World Bank) is one example of a Supranational countries, which may be lower rated, including securities rated
entity. below investment grade.
We may also invest in securities issued by supranational entities,
which are typically of higher quality.
- - ------------------------------------------------------- ------------------------------------------------------------------
Foreign corporate bonds: Debt obligations issued by a We may invest in both rated and unrated securities of foreign
foreign corporation. corporations. We may invest both in investment-grade securities
and those rated BBB or lower by S&P or Fitch, Baa or lower by
Moody's, or similarly rated by another NRSRO.
- - ------------------------------------------------------- ------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment in kind bonds,
securities are debt obligations which do not entitle though we do not expect this to be a significant component of
the holder to any periodic payments of interest prior our strategy. The market prices of these bonds are generally
to maturity or a specified date when the securities more volatile than the market prices of securities that pay
begin paying current interest. Therefore, they are interest periodically and are likely to react to changes in
issued and traded at a price lower than their face interest rates to a greater degree than interest-paying bonds
amounts or par value. Payment-in-kind bonds pay having similar maturities and credit quality. They may have
interest or dividends in the form of additional bonds certain tax consequences which, under certain conditions, could
or preferred stock. be adverse to the Fund.
- - ------------------------------------------------------- ------------------------------------------------------------------
Equity securities: Common stocks, preferred stocks Up to 10% of the Fund's assets may be invested in U.S. equity
(including adjustable rate preferred stocks) and securities.
other equity securities, such as convertible
securities and warrants. We would select only equity securities that were consistent with
the Fund's objective of high current income and total return.
- - ------------------------------------------------------- ------------------------------------------------------------------
Investment company securities: In some foreign We may invest in either closed-end or open-end investment
countries, investments by a mutual fund may only be companies consistent with the 1940 Act requirements. These
made through investments in closed-end investment investments involve an indirect payment of a portion of the
companies that in turn invest in the securities of other investment companies' expenses, including advisory fees.
such countries.
- - ------------------------------------------------------- ------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------- ------------------------------------------------------------------
Securities How we use them
---------- ---------------
- - ------------------------------------------------------- ------------------------------------------------------------------
<S> <C>
Brady bonds: These are debt securities issued under We may invest in Brady Bonds. We believe that the economic
the framework of the Brady Plan, an initiative reforms undertaken by countries in connection with the issuance
announced by the U.S. Treasury Secretary, Nicholas F. of Brady Bonds makes the debt of countries that have issued Brady
in 1989, as a mechanism for debtor nations to Brady Bonds or those that have announced plans to issue them a
restructure their outstanding external indebtedness viable opportunity for investment.
(generally, commercial bank debt).
- - ------------------------------------------------------- ------------------------------------------------------------------
Foreign currency, foreign currency contracts or We may invest in securities issued in any currency and may hold
forward contracts: A forward contract involves an foreign currency.
obligation to purchase or sell a specific currency at
a future date at a price set at the time of the In addition, the Fund may enter into contracts to purchase or
contract. Forward contracts are used to "lock-in" sell foreign currencies at a future date. By entering into these
the price of a security that will be purchased or transactions, the Fund attempts to protect against a possible
sold, in terms of U.S. dollars or other currencies. loss resulting from an adverse change in currency exchange rates
during the period between when a security is purchased or sold and
the date on which payment is made or received.
Although the Fund values its assets daily in terms of U.S.
dollars, we do not convert our holdings of foreign currencies into
U.S. dollars on a daily basis. We may, however, from time to time,
purchase or sell foreign currencies and/or engage in forward
foreign currency transactions in order to expedite settlement of
portfolio transactions and to minimize currency value
fluctuations. We may conduct foreign currency transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market or through a forward foreign currency
contract or forward contract. These transactions may increase the
Fund's expenses.
- - ------------------------------------------------------- ------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term
of securities, such as the Fund, and a seller, in investment for the Fund's cash position. In order to enter into
which the seller agrees to buy the securities back these repurchase agreements, the Fund must have collateral of at
within a specified time at the same price the buyer least 102% of the repurchase price.
paid for them, plus an amount equal to an agreed upon
interest rate. Repurchase agreements are often viewed
as equivalent to cash.
- - ------------------------------------------------------- ------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest without limit in privately placed securities that
whose resale is restricted under securities law. are eligible for resale only among certain institutional buyers
without registration, including Rule 144A Securities. Restricted
securities that are determined to be illiquid may not exceed the
Fund's 15% limit on illiquid securities, which is described below.
- - ------------------------------------------------------- ------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 15% of net assets in illiquid securities,
ready market, and cannot be easily sold within seven including repurchase agreements with maturities of over seven
days at approximately the price that the Fund has days.
valued them.
- - ------------------------------------------------------- ------------------------------------------------------------------
</TABLE>
10
<PAGE>
The Fund may also invest in futures contracts and options on futures contracts
subject to certain limitations. Please see the Statement of Additional
Information for additional descriptions on these securities as well as those
listed in the table above.
Lending securities
The Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. To the extent that it does so, the Fund may be unable
to meet its investment objective. The Fund will not borrow money in excess of
one-third of the value of its net assets.
Purchasing securities on a when-issued or delayed delivery basis
The Fund may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will exceed 100%. A
turnover rate of 100% would occur if the Fund sold and replaced securities
valued at 100% of its net assets within one year. High turnover can result in
increased transaction costs and tax liability for the Fund.
11
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. An investment in the Fund typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in these funds. Please see the Statement of Additional
Information for further discussion of these risks and the other risks not
discussed here.
<TABLE>
<CAPTION>
- - ------------------------------------------------------- -------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------- -------------------------------------------------------------------
- - ------------------------------------------------------- -------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus on bonds
securities in a certain market--like the stock or bond that we believe will continue to pay interest regardless of
market--will decline in value because of factors such interim market fluctuations. We do not try to predict overall
as economic conditions, future expectations or bond market or interest rate movements and do not trade for
investor confidence. short-term purposes.
We may hold a substantial part of the Fund's assets in cash or
cash equivalents as a temporary defensive strategy.
- - ------------------------------------------------------- -------------------------------------------------------------------
Industry and security risk is the risk that the value We diversify the Fund assets across three distinct sectors of the
of securities in a particular industry or the value bond market and among a wide variety of individual issuers.
of an individual stock or bond will decline because
of changing expectations for the performance of that
industry or for the individual company issuing the
stock or bond.
- - ------------------------------------------------------- -------------------------------------------------------------------
Interest rate risk is the risk that securities will The Fund is subject to interest rate risk. We cannot eliminate
decrease in value if interest rates rise. The risk is that risk, but we do strive to manage it by monitoring economic
greater for bonds with longer maturities than for conditions.
those with shorter maturities.
- - ------------------------------------------------------- -------------------------------------------------------------------
Credit risk The possibility that a bond's issuer (or Our careful, credit-oriented bond selection and our commitment to
an entity that insures the bond) will not be able to hold a diversified selection of high-yield bonds are designed to
make timely payments of interest and principal. manage this risk.
Investing in so-called "junk" or "high-yield" bonds It is likely that protracted periods of economic uncertainty
entails the risk of principal loss, which may be would cause increased volatility in the market prices of
greater than the risk involved in investment grade high-yield bonds, an increase in the number of high-yield bond
bonds. High-yield bonds are sometimes issued by defaults and corresponding volatility in the Fund's net asset
companies whose earnings at the time the bond is value.
issued are less than the projected debt payments on
the bonds. Our holdings of high quality investment grade bonds are less
subject to credit risk and may help to balance any credit
Although experts disagree on the impact recessionary problems experienced by individual high yield bond issuers or
periods have had and will have on the high-yield foreign issuers.
market, some analysts believe a protracted economic
downturn would severely disrupt the market for
high-yield bonds, adversely affect the value of
outstanding bonds and adversely affect the ability of
high-yield issuers to repay principal and interest.
- - ------------------------------------------------------- -------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------- -------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------- -------------------------------------------------------------------
- - ------------------------------------------------------- -------------------------------------------------------------------
<S> <C>
Foreign risk is the risk that foreign securities may We may invest only 15% of the portfolio in securities of foreign
be adversely affected by political instability issuers. We carefully evaluate the reward and risk associated
(including governmental seizures or nationalization with each foreign security that we consider.
of assets), changes in currency exchange rates,
foreign economic conditions or inadequate regulatory
and accounting standards. Foreign markets may also be
less efficient, less liquid, have greater price
volatility, less regulation and higher transaction
costs than U.S. markets.
- - ------------------------------------------------------- -------------------------------------------------------------------
Foreign government securities risks involve the The Fund attempts to reduce the risks associated with investing
ability of a foreign government or government related in foreign governments by limiting the portion of portfolio
issuer to make timely principal and interest payments assets that may be invested in such securities.
on its external debt obligations. This ability to
make payments will be strongly influenced by the
issuer's balance of payments, including export
performance, its access to international credits and
investments, fluctuations in interest rates and the
extent of its foreign reserves.
- - ------------------------------------------------------- -------------------------------------------------------------------
Currency risk is the risk that the value of an We may try to hedge currency risk by purchasing foreign currency
investment may be negatively affected by changes in exchange contracts. By agreeing to purchase or sell foreign
foreign currency exchange rates. Adverse changes in securities at a pre-set price on a future date, the Fund strives
exchange rates may reduce or eliminate any gains to protect the value of the stock they own from future changes in
produced by investments that are denominated in currency rates. We will use forward currency exchange contracts
foreign currencies and may increase any losses. only for defensive measures, not to enhance portfolio returns.
However, there is no assurance that a strategy such as this will
be successful.
- - ------------------------------------------------------- -------------------------------------------------------------------
Emerging markets risk is the possibility that the While the Fund may purchase securities of issuers in any foreign
risks associated with international investing will be country, developed and emerging, no more than 15% of the Fund's
greater in emerging markets than in more developed assets may be invested in direct obligations of issuers located
foreign markets because, among other things, emerging in emerging market countries.
markets may have less stable political and economic
environments.
- - ------------------------------------------------------- -------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------- -------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------- -------------------------------------------------------------------
- - ------------------------------------------------------- -------------------------------------------------------------------
<S> <C>
Liquidity risk is the possibility that securities A less liquid secondary market may have an adverse effect on our
cannot be readily sold within seven days at ability to sell particular issues, when necessary, to meet the
approximately the price that the Fund values them. Fund's liquidity needs or in response to a specific economic
event, such as the declining creditworthiness of an issuer. In
There is generally no established retail secondary striving to manage this risk, we evaluate the size of a bond
market for high-yield securities. As a result, the issuance as a way to anticipate its likely liquidity level.
secondary market for high-yield securities is more
limited and less liquid than other secondary We may invest only 15% of net assets in illiquid securities,
securities markets. The high-yield secondary market excluding Rule 144A securities described above.
is particularly susceptible to liquidity problems
when the institutions, such as mutual funds
and certain financial institutions, which dominate
it temporarily stop buying bonds for regulatory,
financial or other reasons.
Adverse publicity and investor perceptions may also
disrupt the secondary market for high-yield
securities.
- - ------------------------------------------------------- -------------------------------------------------------------------
Valuation risk A less liquid secondary market as The Fund's privately placed high-yield securities are
described above makes it more difficult for the Fund particularly susceptible to the liquidity and valuation risks.
to obtain precise valuations of the high-yield We will strive to manage this risk by carefully evaluating
securities in its portfolio. During periods of individual bonds and by limiting the amount of the portfolio that
reduced liquidity, judgment plays a greater role in can be allocated to privately placed high-yield securities.
valuing high-yield securities.
- - ------------------------------------------------------- -------------------------------------------------------------------
Redemption risk If investors redeem more shares of a Volatility in the high-yield market could increase redemption
Fund than are purchased for an extended period of risk. We strive to maintain a cash balance sufficient to meet
time, a Fund may be required to sell securities any redemptions. We may also borrow money, if necessary, to meet
without regard to the investment merits of such redemptions.
actions. This could decrease the Fund's asset base,
potentially resulting in a higher expense ratio.
- - ------------------------------------------------------- -------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------- -------------------------------------------------------------------
Risks How we strive to manage them
- - ------------------------------------------------------- -------------------------------------------------------------------
- - ------------------------------------------------------- -------------------------------------------------------------------
<S> <C>
Legislative and regulatory risk The United States We monitor the status of regulatory and legislative proposals to
Congress has from time to time taken or considered evaluate any possible effects they might have on the Fund's
legislative actions that could adversely affect the portfolio.
high-yield bond market. For example, 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. Similar actions in the future could reduce
liquidity for high-yield securities, reduce the number
of new high-yield securities being issued and could
make it more difficult for the Fund to attain its
investment objective.
- - ------------------------------------------------------- -------------------------------------------------------------------
Recession risk Although the market for high-yield It is likely that protracted periods of economic uncertainty
bonds existed through periods of economic downturns, would cause increased volatility in the market prices of
the high-yield market grew rapidly during the long high-yield bonds, an increase in the number of high-yield bond
economic expansion which took place in the United defaults and corresponding volatility in the Fund's net asset
States during the 1980s. During that economic value. In the past, uncertainty and volatility in the high-yield
expansion, the use of high-yield debt securities to market have resulted in volatility in the Fund's net asset value.
finance highly leveraged corporate acquisitions and
restructurings increased dramatically. As a result, In striving to manage this risk, we allocate assets across a wide
the high-yield market grew substantially. Some range of industry sectors. We may emphasize industries that have
analysts believe a protracted economic downturn would been less susceptible to economic cycles in the past,
severely disrupt the market for high-yield bonds, particularly if we believe that the economy may be entering into
adversely affect the value of outstanding bonds and a period of slower growth.
adversely affect the ability of high-yield issuers to
repay principal and interest.
- - ------------------------------------------------------- -------------------------------------------------------------------
</TABLE>
15
<PAGE>
Who manages the Fund
Investment manager and sub-adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services.
Delaware International Advisers Ltd. is the sub-adviser for the Fund. Delaware
International Advisers Ltd. manages the foreign securities portion of the Fund's
portfolio under the overall supervision of Delaware Management Company and
furnishes Delaware Management Company with investment recommendations, asset
allocation advice, research and other investment services regarding foreign
securities.
For these services, the manager and sub-adviser, were paid an aggregate fee of
0.10% of average daily net assets for the last fiscal year after giving effect
to expense limitations.
Portfolio managers
Paul Grillo, Paul A. Matlack, Christopher A. Moth and Joanna Bates have primary
responsibility for making day-to-day investment decisions for the Fund. In
making investment decisions for the Fund, Mr. Moth and Ms. Bates regularly
consult with David G. Tilles as well as four global fixed-income team members.
Paul Grillo, Vice President/Senior Portfolio Manager for the Fund, is a CFA
charterholder and graduate of North Carolina State University with an MBA in
Finance from Pace University. Prior to joining the Manager in 1993, Mr. Grillo
served as mortgage strategist and trader at the Dreyfus Corporation. He also
served as a mortgage strategist and portfolio manager for the Chemical
Investment Group and as a financial analyst at Chemical Bank. He has primary
responsibility for making day-to-day investment decisions for the Fund regarding
its investments in investment grade securities. Mr. Grillo has been a member of
the Fund's management team since its inception.
Paul A. Matlack, Vice President/Senior Portfolio Manager for the Fund, is a CFA
charterholder and 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. He has primary responsibility for
allocating the Fund's assets among the fixed-income and equity sectors and for
making day-to-day investment decisions for the Fund regarding its investments in
the high-yield sector. Mr. Matlack has been a member of the Fund's management
team since its inception.
Christopher A. Moth, Senior Portfolio Manager - Investment Strategy of Delaware
International Advisers Ltd., is a graduate of The City University London. He
joined Delaware International in 1992. He previously worked at the Guardian
Royal Exchange in an actuarial capacity where he was responsible for technical
analysis, quantitative models and projections. Mr. Moth has been awarded the
certificate in Finance and Investment from the Institute of Actuaries in London.
Joanna Bates, Senior Portfolio Manager - Credit and Emerging Markets of Delaware
International Advisers Ltd., is a graduate of London University. She joined the
Fixed Income team at Delaware International in June 1997. Prior to that she was
Associate Director, Fixed Interest at Hill Samuel Investment Management which
she joined in 1990. She had previously worked at Fidelity International and Save
& Prosper as a fund manager and analyst for global bond markets. Ms. Bates is an
associate of the Institute of Investment Management and Research.
David G. Tilles, Managing Director and Chief Investment Officer of Delaware
International Advisers Ltd., was educated at the Sorbonne, Warwick University
and Heidelberg University. Prior to joining Delaware International in 1990 as
Managing Director and Chief Investment Officer, he spent 16 years with Hill
Samuel Investment Management Group in London, serving in a number of investment
capacities. His most recent position prior to joining Delaware International
Advisers was Chief Investment Officer of Hill Samuel Investment Management Ltd.
16
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Trustees
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-Adviser
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE
Portfolio managers Distributor Service agent
(see page 11 for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
Financial advisers
Shareholders
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the management
of the fund's assets. They are selected and supervised by the investment
manager.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASD) rules governing mutual fund sales practices.
17
<PAGE>
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
18
<PAGE>
About your account
Investing in the Fund
You can choose from a number of share classes for the Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 4.75% that you
pay when you buy the shares. The offering price for Class A shares
includes the front-end sales charge.
o If you invest $100,000 or more, your front-end sales charge will be
reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales
charge may be waived; please see the Statement of Additional Information
for details.
o Class A shares are also subject to an annual 12b-1 fee no greater than
0.30% (currently 0.25%) of average daily net assets, which is lower
than the 12b-1 fee for Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge, except in the limited circumstances described in the table
below.
Class A sales charges
<TABLE>
<CAPTION>
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
Amount of purchase Sales charge as % Sales charge as % of Dealer's commission as %
of offering price amount invested of offering price
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.94% 4.00%
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
$100,000 but under $250,000 3.75% 3.91% 3.00%
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
$250,000 but under $500,000 2.50% 2.56% 2.00%
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
$500,000 but under $1,000,000 2.00% 2.06% 1.60%
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year after your
purchase and 0.50% if you redeem them within the second year.
<TABLE>
<CAPTION>
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
Sales charge as % Sales charge as % of Dealer's commission as %
Amount of purchase of offering price amount invested of offering price
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
<S> <C> <C> <C>
$1 million up to $5 million none none 1.00%
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
Next $20 million
Up to $25 million none none 0.50%
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
Amount over $25 million none none 0.25%
- - ----------------------------------------- ---------------------- ----------------------------- -------------------------------
</TABLE>
19
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of
your purchase is invested in the Fund. However, you will pay a
contingent deferred sales charge if you redeem your shares within six
years after you buy them.
o If you redeem Class B shares during the first two years after you buy
them, the shares will be subject to a contingent deferred sales charge
of 4%. The contingent deferred sales charge is 3% during the third and
fourth years, 2% during the fifth year, 1% during the sixth year, and
0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o For approximately eight years after you buy your Class B shares, they
are subject to annual 12b-1 fees no greater than 1% of average daily
net assets, of which 0.25% are service fees paid to the distributor,
dealers or others for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses
and any dividends paid on these shares are lower than dividends on
Class A shares.
o Approximately eight years after you buy them, Class B shares
automatically convert into Class A shares with a 12b-1 fee of no more
than 0.30% (currently 0.25%). Conversion may occur as late as three
months after the eighth anniversary of purchase, during which time
Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
20
<PAGE>
Class C
o Class C shares have no up-front sales charge, so the full amount of
your purchase is invested in the Fund. However, you will pay a
contingent deferred sales charge of 1% if you redeem your shares within
12 months after you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o Class C shares are subject to an annual 12b-1 fee which may not be
greater than 1% of average daily net assets, of which 0.25% are service
fees paid to the distributor, dealers or others for providing services
and maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses
and pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at
any one time. The limitation on maximum purchases varies for retirement
plans.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
21
<PAGE>
About your account (continued)
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of Intent
agree to invest a certain amount and Rights of Accumulation do
in Delaware Investment Funds not apply to the purchase of
(except money market funds with no Class B and C shares, you can
sales charge) over a 13-month combine your purchase of Class A
period to qualify for reduced shares with your purchase of B
front-end sales charges. and C shares to fulfill your
Letter of Intent or qualify
for Rights of Accumulation.
- - -------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings or X
purchases of all funds in the Delaware
Investments family (except money market
funds with no sales charge) as well as the
holdings and purchases of your spouse and
children under 21 to qualify for reduced
front-end sales charges.
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reinvestment of redeemed Up to 12 months after you redeem For Class Not
shares shares, you can reinvest the A, you will For Class available.
proceeds with no additional sales not have to B, your
charge. pay an account
additional will be
front-end credited
sales with the
charge. contingent
deferred
sales
charge
you
previously
paid on
theamount
you are
reinvesting.
Your schedule
for contingent
deferred sales
charges and
conversion
to Class
A will not
start over
again, it
will pick up
from the
point at
which you
redeemed
your shares.
- - ------------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, SARSEP, These investment plans may qualify X There is no reduction in sales
Prototype Profit Sharing, for reduced sales charges by charges for Class B or Class C
Pension, 401(k), SIMPLE combining the purchases of all shares for group purchases for
401(k), 403(b)(7), and 457 members of the group. Members of retirement plans.
Retirement Plans these groups may also qualify to
purchase shares without a front-end sales
charge and a waiver of any contingent
deferred sales charges.
- - ---------------------------------- ---------------------------------------- --------------- -----------------------------------
</TABLE>
23
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service or through our web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800.523.1918.
24
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an initial
investment of $1,000 and make additional investments at any time for as little
as $100. If you are buying shares in an IRA or Roth IRA, under the Uniform Gifts
to Minors Act or the Uniform Transfers to Minors Act; or through an Automatic
Investing Plan, the minimum purchase is $250, and you can make additional
investments of only $25. The minimum for an Education IRA is $500. The minimums
vary for retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. We reserve the right to reject any purchase
order.
We determine each Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
trustees.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Funds may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in these Funds can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
25
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of more than
$50,000, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
26
<PAGE>
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time), you will receive the net asset value as determined on the
business day we receive your request. We will deduct any applicable contingent
deferred sales charges. You may also have to pay taxes on the proceeds from your
sale of shares. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares--not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $500 for Education IRAs) for three or
more consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at the
minimum by the required time, you will be charged a $9 fee for that quarter and
each quarter after that until your account reaches the minimum balance. If your
account does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
27
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for the same class of shares
in other funds, your new shares will be subject to the same contingent deferred
sales charge as the shares you originally purchased. The holding period for the
CDSC will also remain the same, with the amount of time you held your original
shares being credited toward the holding period of your new shares. You don't
pay sales charges on shares that you acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange.
28
<PAGE>
About your account (continued)
Special services (continued)
MoneyLineSM On Demand Service
Through our MoneyLineSM On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine Direct Deposit Service you can have $25 or more in
dividends and distributions deposited directly to your bank account. Delaware
Investments does not charge a fee for this service; however, your bank may
assess one. This service is not available for retirement plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly or
quarterly payment from your account made to you or someone you designate. If the
value of your account is $5,000 or more, you can make withdrawals of at least
$25 monthly, or $75 quarterly. You may also have your withdrawals deposited
directly to your bank account through our MoneyLine Direct Deposit Service.
Dividends, distributions and taxes
Dividends, if any, are declared daily and paid monthly. Capital gains, if any,
are paid twice a year. We automatically reinvest all dividends and any capital
gains, unless you tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
Distributions declared in October, November or December but paid in January are
taxable as if they were paid in December.
29
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." The Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund. The Year
2000 Problem may also adversely affect the issuers of securities in which the
Fund invests. The portfolio managers and investment professionals of the Fund
consider Year 2000 compliance in the securities selection and investment
process. However, there can be no guarantees that, even with their due diligence
efforts, they will be able to predict the affect of Year 2000 on any company or
the performance of its securities.
30
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
Period
A Class 10/1/96(1)
Year Ended 7/31 through
1999 1998 7/31/97
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $5.480 $5.700 $5.500
- - --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- - --------------------------------------------------------------------------------------------------------------------------------
Net investment income(2) 0.462 0.444 0.337
- - --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments, futures contracts and foreign
currencies (0.607) (0.104) 0.204
- - --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.145) 0.340 0.541
- - --------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- - --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.440) (0.440) (0.341)
- - --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.035) (0.120) none
- - --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.475) (0.560) (0.341)
- - --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.860 $5.480 $5.700
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total return(3) (2.77%) 6.23% 10.11%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $18,757 $17,871 $9,144
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.00% 1.00% 1.00%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation and expenses paid
indirectly 1.55% 1.73% 2.12%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 8.97% 7.93% 7.76%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation and
expenses paid indirectly 8.42% 7.20% 6.64%
- - --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 156% 175% 183%
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios have been annualized and total
returns have not been annualized.
(2) Per share information for the years ended July 31, 1998 and 1999 were based
on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge. Total
investment return reflects expense limitations.
32
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
B Class Period
Year Ended 7/31 10/1/96(1)
- - ---------------------------------------------------------------------------------------------------------------- through
1999 1998 7/31/97
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $5.480 $5.700 $5.500
- - ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- - ------------------------------------------------------------------------------------------------------------------------------------
Net investment income(2) 0.424 0.402 0.308
- - ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments, futures contracts and foreign
currencies (0.607) (0.100) 0.204
- - ------------------------------------------------------------------------------------------------------------------------------------
Total from investments operations (0.183) 0.302 0.511
- - ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- - ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.402) (0.402) (0.311)
- - ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.035) (0.120) none
- - ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.437) (0.522) (0.311)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.860 $5.480 $5.700
- - ------------------------------------------------------------------------------------------------------------------------------------
Total return(3) (3.31%) 5.32% 9.53%
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $19,318 $15,602 $6,878
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.75% 1.75% 1.75%
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation and expenses paid
indirectly 2.30% 2.48% 2.87%
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 8.22% 7.18% 7.01%
- - ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation and
expenses paid indirectly 7.67% 6.45% 5.89%
- - ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 156% 175% 183%
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[RESTUBED TABLE FOR ABOVE]
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
C Class Period
Year Ended 7/31 10/1/96(1)
- - ------------------------------------------------------------------------------------------------------------------ through
1999 1998 7/31/97
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $5.48 $5.700 $5.500
- - --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- - --------------------------------------------------------------------------------------------------------------------------------
Net investment income(2) 0.424 0.402 0.313
- - --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments, futures contracts and foreign
currencies (0.607) (0.100) 0.198
- - --------------------------------------------------------------------------------------------------------------------------------
Total from investments operations (0.183) 0.302 0.511
- - --------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- - --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.402) (0.402) (0.311)
- - --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.035) (0.120) none
- - --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.437) (0.522) (0.311)
- - --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.860 $5.480 $5.700
- - --------------------------------------------------------------------------------------------------------------------------------
Total return(3) (3.32%) 5.32% 9.53%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,548 $5,276 $1,944
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.75% 1.75% 1.75%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation and expenses paid
indirectly 2.30% 2.48% 2.87%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 8.22% 7.18% 7.01%
- - --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation and
expenses paid indirectly 7.67% 6.45% 5.89%
- - --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 156% 175% 183%
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) Per share information for the years ended July 31, 1998 and 1999 were based
on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. Total investment
return reflects expense limitations.
33
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's investments; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
34
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See Bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
35
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Lehman Brothers Aggregate Bond Index
The Lehman Brothers Aggregate Bond Index is an index that measures the
performance of about 6,500 U.S. corporate and government bonds. Neither index is
a perfect comparison to Delaware Balanced Series since the S&P 500 does not
include fixed-income securities and the Lehman Brothers Aggregate Bond Index
does not include stocks.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
NASD Regulation, Inc. (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
36
<PAGE>
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay dividends at a fixed rate
and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
financial advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
37
<PAGE>
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Treasury bills
Securities issued by the U.S. Treasury with maturities of one year or less.
Treasury bonds
Securities issued by the U.S. Treasury with maturities of 10 years or longer.
Treasury notes
Securities issued by the U.S. Treasury with maturities of one to 10 years.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
38
<PAGE>
Delaware Strategic Income Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawareinvestments.com
- - ---------------------------
E-mail
[email protected]
Client Services Representative
800.510.4015
Delaphone Service
800.362.FUND (800.362.3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-2071
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Delaware Strategic Income Fund A Class 245908603 DISAX
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware Strategic Income Fund B Class 245908702 DISBX
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware Strategic Income Fund C Class 245908801 DISCX
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002[--]PP 9/99
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Strategic Income Fund
Institutional Class
Prospectus
September 29, 1999
Current Income Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profile page
Delaware Strategic Income Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio manager
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial highlights page
2
<PAGE>
Profile: Delaware Strategic Income Fund
What are the Fund's goals?
The Fund seeks high current income and total return. Although the Fund will
strive to achieve its goal, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in bonds allocated among three sectors of the fixed income
market. These include:
o the High-Yield Sector, consisting of high-yielding, higher risk, lower-rated
or unrated fixed-income securities (commonly known as "junk bonds") issued by
U.S. companies;
o the Investment Grade Sector, consisting of investment grade debt obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or by U.S. companies; and
o the International Sector, consisting of obligations of foreign governments,
their agencies and instrumentalities, as well as other fixed-income securities
of issuers in foreign countries that are denominated in foreign currencies. An
issuer is considered to be from the country where it is located, where the
majority of its assets are or where it generates the majority of its operating
income.
We determine the amount of the Fund's assets that will be allocated to each of
the three sectors based on our analysis of economic and market conditions and
our assessment of the income and appreciation potential offered by each sector.
We will periodically reallocate the Fund's assets.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the securities held by the Fund.
This Fund will be affected primarily by declines in bond prices, which can be
caused by an adverse change in interest rates, adverse economic conditions or
poor performance from specific industries or bond issuers. The Fund is also
subject to the special risks associated with high-yield bond investing and with
foreign investing. In particular, high-yield bonds are rated below investment
grade and are subject to a higher credit risk that issuers will be unable to
make payments of interest or principal, particularly under adverse economic
conditions. For a more complete discussion of risk, please turn to page 8.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for an investment that offers professional allocation among
key types of fixed income securities.
o Investors looking for a fixed income investment that offers potential for high
current income and total return.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
3
<PAGE>
How has the Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns have varied over the past two calendar years,
as well as the average annual returns of all shares for one year and life of the
Fund. The Fund's past performance does not necessarily indicate how it will
perform in the future. The returns reflect expense limitations. The returns
would be lower without the limitations.
[bar chart]
Year-by-year total return (Institutional Class)
- - --------------------------------------------------
1997 9.54%
- - --------------------------------------------------
1998 2.55%
- - --------------------------------------------------
As of June 30, 1999, the Institutional Class shares had a year-to-date return of
- - -1.44%. During the two years illustrated in this bar chart, the Institutional
Class' highest quarterly return was 4.44% for the quarter ended June 30, 1997
and its lowest quarterly return was -0.14% for the quarter ended June 30, 1998.
Average annual returns for periods ending 12/31/98
- - --------------------------------------------------------------------------------
Institutional Class Lehman Brothers
Aggregate Bond Index
- - --------------------------------------------------------------------------------
1 year 2.55% 8.69%
- - --------------------------------------------------------------------------------
Lifetime 7.00% 9.38%
- - --------------------------------------------------------------------------------
The table above shows the Fund's average annual returns compared to the
performance of the Lehman Brothers Aggregate Bond Index. You should remember
that unlike the Fund, the index is unmanaged and doesn't reflect the actual
costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities.
4
<PAGE>
What are the Fund's fees and expenses?
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
You do not pay sales charges directly Maximum sales charge (load) imposed on
from your investments when you buy or Purchases as a percentage of offering price none
sell shares of the Institutional Class. --------------------------------------------------------------
Maximum contingent deferred
sales charge (load) as a
percentage of original
purchase price or redemption
price, whichever is lower none
--------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none
--------------------------------------------------------------
Redemption fees none
--------------------------------------------------------------
Exchange Fees(1) none
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
Annual fund operating expenses are deducted from Management fees 0.65%
the Fund's assets. --------------------------------------------------------------
Distribution and service (12b-1) fees none
--------------------------------------------------------------
--------------------------------------------------------------
Other expenses 0.65%
--------------------------------------------------------------
--------------------------------------------------------------
Total annual fund operating expenses 1.30%
--------------------------------------------------------------
--------------------------------------------------------------
Fee waivers and payments(2) (0.55%)
--------------------------------------------------------------
Net expenses 0.75%
- - -----------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------
This example is intended to help you compare the
cost of investing in the Fund to the cost of Without Fee Limitation
investing in other mutual funds with similar --------------------------------------------------------------
investment objectives. We show the cumulative
amount of Fund expenses on a hypothetical --------------------------------------------------------------
investment of $10,000 with an annual 5% return 1 year $132
over the time shown. 3This is an example only, --------------------------------------------------------------
and does not represent future expenses, which
may be greater or less than those shown here. --------------------------------------------------------------
3 years $412
--------------------------------------------------------------
--------------------------------------------------------------
5 years $713
--------------------------------------------------------------
--------------------------------------------------------------
10 years $1,568
--------------------------------------------------------------
With Fee Limitation(2)
-------------- -----------------------------------------------
1 year $77
--------------------------------------------------------------
3 years $240
--------------------------------------------------------------
5 years $417
--------------------------------------------------------------
10 years $930
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(2) The investment manager has contracted to waive fees and pay expenses through
June 30, 2000 in order to prevent total operating expenses (excluding taxes,
interest, brokerage fees and extraordinary expenses) from exceeding 0.75% of
average daily net assets.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
5
<PAGE>
How we manage the Fund
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for the Fund. Following
are descriptions of how the portfolio managers pursue the Fund's investment
goals.
Delaware Strategic Income Fund
The Fund is a type of fixed income fund that invests in three distinct sectors
of the fixed income market as it pursues its investment objective of providing
high current income and total return. Certain economic and market events may
have a greater impact on certain types of bonds. By spreading the portfolio
assets among three key types of bonds, we strive to reduce the affect that such
events might have on the portfolio. The foundation of our strategy is the belief
that when one or more bond sectors are not performing well, the others may
continue to provide high income and appreciation potential, helping to support
the Fund's performance.
Following are the three key sectors we focus on as well as our general
investment approach in each sector:
o U.S. government and high-quality corporate bonds are selected primarily on the
basis of their income potential. In periods of slower U.S. economic growth,
these bonds might also provide a stabilizing influence on the portfolio which
could enhance total return.
o U.S. high-yield corporate bonds are primarily used to increase the portfolio's
income potential. These bonds are of lower quality and involve the risk that
the companies issuing them may not be able to pay interest or repay principal.
However, we carefully select the high-yield bonds for the portfolio after
evaluating both the company's fundamental strength and the bond's liquidity.
o Foreign bonds are used to add diversification to the portfolio. Because
foreign markets are often affected by different economic cycles than the U.S.,
foreign bonds may experience performance cycles that are different as well. In
selecting foreign bonds for the portfolio, we strive to manage the risk
associated with foreign investing through a thorough analysis of the bond's
issuer and the inflation trends in the country where the bond is issued.
In determining how much of the portfolio to allocate to each sector, we review
economic and market conditions and interest rate trends as well as the potential
risks and rewards associated with each sector. As little as 20% or as much as
60% of the Fund's assets may be invested in each fixed-income sector. In
addition, the Fund may invest up to 10% of its assets in U.S.
equity securities.
The Fund's investment objective - to seek a high level of current income and
total return - is a non-fundamental objective. This means that the Board of
Trustees may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders before the change in the
objective became effective.
6
<PAGE>
The securities we typically invest in
Fixed-income securities generally offer the potential for greater income
payments than stocks, and also may provide capital appreciation.
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Securities How we use them
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High-yield corporate bonds: Debt obligations issued The Fund may invest up to 60% of net assets in high-yield
by a corporation and rated lower than investment corporate bonds. Emphasis is typically on those rated BB or Ba
grade by a nationally recognized statistical ratings by an NRSRO.
organization (NRSRO) such as S&P or Moody's. High-yield
bonds are issued by corporations that have We carefully evaluate an individual company's financial
poor credit quality and may have difficulty repaying situation, its management, the prospects for its industry and
principal and interest. the technical factors related to its bond offering. Our goal is
to identify those companies that we believe will be able to repay
their debt obligations in spite of poor ratings. The Fund may
invest in unrated bonds if we believe their credit quality is
comparable to the rated bonds we are permitted to invest in.
Unrated bonds may be more speculative in nature than rated bonds.
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U.S. government securities: Direct U.S. obligations The Fund may invest up to 60% of net assets in direct U.S.
including bills, notes, bonds as well as other debt government obligations; however, these securities will typically
securities issued by the U.S. Treasury and securities be a smaller percentage of the portfolio because they generally
of U.S. government agencies or instrumentalities. do not offer as high a level of current income as other
fixed-income securities the Fund may invest in.
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Mortgage-backed securities: Fixed-income securities We may invest up to 60% of net assets in government-related
that represent pools of mortgages, with investors mortgage-backed securities or fully collateralized privately
receiving principal and interest payments as the issued mortgage-backed securities.
underlying mortgage loans are paid back. Many are
issued and guaranteed against default by the U.S. We may invest in mortgage-backed securities issued by private
government or its agencies or instrumentalities, such companies whether or not the securities are 100% collateralized.
as the Federal Home Loan Mortgage Corporation, Fannie However, these securities must be rated in one of the four
Mae and the Government National Mortgage Association. highest categories by an NRSRO at the time of purchase. The
Others are issued by private financial institutions, privately issued securities we invest in are either CMOs or
with some fully collateralized by certificates issued REMICs (see below).
or guaranteed by the government or its agencies or
instrumentalities.
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Collateralized mortgage obligations (CMOs): Privately See mortgage-backed securities above.
issued mortgage-backed bonds whose underlying value
is the mortgages that are grouped into different
pools according to their maturity.
- - --------------------------------------------------------------------------------------------------------------------------------
Real estate mortgage investment conduits (REMICs): See mortgage-backed securities above.
Privately issued mortgage-backed bonds whose
underlying value is a fixed pool of mortgages secured
by an interest in real property. Like CMOs, REMICs
offer different pools.
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</TABLE>
7
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Securities How we use them
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Asset-backed securities: Bonds or notes backed by We invest only in asset-backed securities rated in one of the
accounts receivables including home equity, four highest categories by an NRSRO.
automobile or credit loans.
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Investment grade corporate bonds: Debt obligations Debt securities within the top three categories comprise what
issued by a corporation, rated in one of the four are known as high-grade bonds and are regarded as having a
highest categories by an NRSRO (or, if unrated, that strong ability to pay principal and interest. Securities in the
we believe are of equal quality). fourth category are known as medium-grade bonds and are regarded
as having an adequate capacity to pay principal and interest
but with greater vulnerability to adverse economic conditions and
speculative characteristics.
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Foreign government securities: Securities issued by We may invest in foreign government securities and we primarily
foreign governments or supranational entities. A focus on better quality bonds with investment-grade credit
supranational entity is an entity established or ratings.
financially supported by the national governments of
one or more countries. The International Bank for However, up to 15% of the Fund's assets may also be invested in
Reconstruction and Development (more commonly known foreign government securities issued by emerging or developing
as the World Bank) is one example of a Supranational countries, which may be lower rated, including securities rated
entity. below investment grade.
We may also invest in securities issued by supranational entities,
which are typically of higher quality.
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Foreign corporate bonds: Debt obligations issued by a We may invest in both rated and unrated securities of foreign
foreign corporation. corporations. We may invest both in investment -grade securities
and those rated BBB or lower by S&P or Fitch, Baa or lower by
Moody's, or similarly rated by another NRSRO.
- - --------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment in kind bonds,
securities are debt obligations which do not entitle though we do not expect this to be a significant component of
the holder to any periodic payments of interest prior our strategy. The market prices of these bonds are generally
to maturity or a specified date when the securities more volatile than the market prices of securities that pay
begin paying current interest. Therefore, they are interest periodically and are likely to react to changes in
issued and traded at a price lower than their face interest rates to a greater degree than interest-paying bonds
amounts or par value. Payment-in-kind bonds pay having similar maturities and credit quality. They may have
interest or dividends in the form of additional bonds certain tax consequences which, under certain conditions, could
or preferred stock. be adverse to the Fund.
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Equity securities: Common stocks, preferred stocks Up to 10% of the Fund's assets may be invested in U.S. equity
(including adjustable rate preferred stocks) and securities.
other equity securities, such as convertible
securities and warrants. We would select only equity securities that were consistent with
the Fund's objective of high current income and total return.
- - --------------------------------------------------------------------------------------------------------------------------------
Investment company securities: In some foreign We may invest in either closed-end or open-end investment
countries, investments by a mutual fund may only be companies consistent with the 1940 Act requirements. These
made through investments in closed-end investment investments involve an indirect payment of a portion of the
companies that in turn invest in the securities of other investment companies' expenses, including advisory fees.
such countries.
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</TABLE>
8
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<CAPTION>
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Securities How we use them
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<S> <C>
Brady bonds: These are debt securities issued under We may invest in Brady Bonds. We believe that the economic
the framework of the Brady Plan, an initiative reforms undertaken by countries in connection with the issuance
announced by the U.S. Treasury Secretary, Nicholas F. of Brady Bonds makes the debt of countries that have issued Brady
Bonds in 1989, as a mechanism for debtor nations to Bonds or those that have announced plans to issue them a
restructure their outstanding external indebtedness viable opportunity for investment.
(generally, commercial bank debt).
- - --------------------------------------------------------------------------------------------------------------------------------
Foreign currency, foreign currency contracts or We may invest in securities issued in any currency and may hold
forward contracts: A forward contract involves an foreign currency.
obligation to purchase or sell a specific currency at
a future date at a price set at the time of the In addition, the Fund may enter into contracts to purchase or
contract. Forward contracts are used to "lock-in" sell foreign currencies at a future date. By entering into these
the price of a security that will be purchased or transactions, the Fund attempts to protect against a possible
sold, in terms of U.S. dollars or other currencies. loss resulting from an adverse change in currency exchange rates
during the period between when a security is purchased or sold and
the date on which payment is made or received.
Although the Fund values its assets daily in terms of U.S. dollars,
we do not convert our holdings of foreign currencies into U.S.
dollars on a daily basis. We may, however, from time to time,
purchase or sell foreign currencies and/or engage in forward
foreign currency transactions in order to expedite settlement of
portfolio transactions and to minimize currency value fluctuations.
We may conduct foreign currency transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange
market or through a forward foreign currency contract or forward
contract. These transactions may increase the Fund's expenses.
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Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term
of securities, such as the Fund, and a seller, in investment for the Fund's cash position. In order to enter into
which the seller agrees to buy the securities back these repurchase agreements, the Fund must have collateral of
at within a specified time at the same price the buyer least 102% of the repurchase price.
paid for them, plus an amount equal to an agreed upon
interest rate. Repurchase agreements are often viewed
as equivalent to cash.
- - --------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest without limit in privately placed securities that
whose resale is restricted under securities law. are eligible for resale only among certain institutional buyers
without registration. These are commonly known as Rule 144A
Securities. Restricted securities that are determined to be
illiquid may not exceed the Fund's 15% limit on illiquid
securities, which is described below.
- - --------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 15% of net assets in illiquid securities,
ready market, and cannot be easily sold, if at all, including repurchase agreements with maturities of over seven
at approximately the price that the Fund has valued them. days.
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</TABLE>
9
<PAGE>
The Fund may also invest in futures contracts and options on futures contracts
subject to certain limitations. Please see the Statement of Additional
Information for additional descriptions on these securities as well as those
listed in the table above.
Lending securities
The Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. To the extent that it does so, the Fund may be unable
to meet its investment objective. The Fund will not borrow money in excess of
one-third of the value of its net assets.
Purchasing securities on a when-issued or delayed delivery basis
The Fund may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will exceed 100%. A
turnover rate of 100% would occur if the Fund sold and replaced securities
valued at 100% of its net assets within one year. High turnover can result in
increased transaction costs and tax liability for the Fund.
10
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. An investment in the Fund typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in these funds. Please see the Statement of Additional
Information for further discussion of these risks and the other risks not
discussed here.
<TABLE>
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Risks How we strive to manage them
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<S> <C>
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus on bonds
securities in a certain market--like the stock or bond that we believe will continue to pay interest regardless of
market--will decline in value because of factors such interim market fluctuations. We do not try to predict overall
as economic conditions, future expectations or bond market or interest rate movements and do not trade for
investor confidence. short-term purposes.
We may hold a substantial part of the Fund's assets in cash or
cash equivalents as a temporary defensive strategy.
- - ---------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the value We diversify the Fund assets across three distinct sectors of the
of securities in a particular industry or the value bond market and among a wide variety of individual issuers.
of an individual stock or bond will decline because
of changing expectations for the performance of that
industry or for the individual company issuing the
stock or bond.
- - ---------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities will The Fund is subject to interest rate risk. We cannot eliminate
decrease in value if interest rates rise. The risk is that risk, but we do strive to manage it by monitoring economic
greater for bonds with longer maturities than for conditions.
those with shorter maturities.
- - ---------------------------------------------------------------------------------------------------------------------------------
Credit risk The possibility that a bond's issuer (or an Our careful, credit-oriented bond selection and our commitment to
entity that insures the bond) will not be able to hold a diversified selection of high-yield bonds are designed to
make timely payments of interest and principal. manage this risk.
Investing in so-called "junk" or "high-yield" bonds It is likely that protracted periods of economic uncertainty
entails the risk of principal loss, which may be would cause increased volatility in the market prices of
greater than the risk involved in investment grade high-yield bonds, an increase in the number of high-yield bond
bonds. High-yield bonds are sometimes issued by defaults and corresponding volatility in the Fund's net asset
companies whose earnings at the time the bond is value.
issued are less than the projected debt payments on
the bonds. Our holdings of high quality investment grade bonds are less
subject to credit risk and may help to balance any credit
Although experts disagree on the impact recessionary problems experienced by individual high yield bond issuers or
periods have had and will have on the high-yield foreign issuers.
market, some analysts believe a protracted economic
downturn would severely disrupt the market for high-yield
bonds, adversely affect the value of outstanding bonds
and adversely affect the ability of high-yield issuers
to repay principal and interest.
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</TABLE>
11
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Risks How we strive to manage them
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Foreign risk is the risk that foreign securities may We may invest only 15% of the portfolio in securities of foreign
be adversely affected by political instability issuers. We carefully evaluate the reward and risk associated
(including governmental seizures or nationalization with each foreign security that we consider.
of assets), changes in currency exchange rates,
foreign economic conditions or inadequate regulatory
and accounting standards. Foreign markets may also be
less efficient, less liquid, have greater price
volatility, less regulation and higher transaction
costs than U.S. markets.
- - ---------------------------------------------------------------------------------------------------------------------------------
Foreign government securities risks involve the The Fund attempts to reduce the risks associated with investing
ability of a foreign government or government related in foreign governments by limiting the portion of portfolio
issuer to make timely principal and interest payments assets that may be invested in such securities.
on its external debt obligations. This ability to
make payments will be strongly influenced by the
issuer's balance of payments, including export
performance, its access to international credits and
investments, fluctuations in interest rates and the
extent of its foreign reserves.
- - ---------------------------------------------------------------------------------------------------------------------------------
Currency risk is the risk that the value of an We may try to hedge currency risk by purchasing foreign currency
investment may be negatively affected by changes in exchange contracts. By agreeing to purchase or sell foreign
foreign currency exchange rates. Adverse changes in securities at a pre-set price on a future date, the Fund strives
exchange rates may reduce or eliminate any gains to protect the value of the stock they own from future changes in
produced by investments that are denominated in currency rates. We will use forward currency exchange contracts
foreign currencies and may increase any losses. only for defensive measures, not to enhance portfolio returns.
However, there is no assurance that a strategy such as this
will be successful.
- - ---------------------------------------------------------------------------------------------------------------------------------
Emerging markets risk is the possibility that the While the Fund may purchase securities of issuers in any foreign
risks associated with international investing will be country, developed and emerging, no more than 15% of the Fund's
greater in emerging markets than in more developed assets may be invested in direct obligations of issuers located
foreign markets because, among other things, emerging in emerging market countries.
markets may have less stable political and economic
environments.
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</TABLE>
12
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<CAPTION>
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Risks How we strive to manage them
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<S> <C>
Liquidity risk is the possibility that securities A less liquid secondary market may have an adverse effect on our
cannot be readily sold within seven days at ability to sell particular issues, when necessary, to meet the
approximately the price that the Fund values them. Fund's liquidity needs or in response to a specific economic
event, such as the declining creditworthiness of an issuer. In
There is generally no established retail secondary striving to manage this risk, we evaluate the size of a bond
market for high-yield securities. As a result, the issuance as a way to anticipate its likely liquidity level.
secondary market for high-yield securities is more
limited and less liquid than other secondary securities We may invest only 15% of net assets in illiquid securities,
markets. The high-yield secondary market excluding Rule 144A securities described above.
is particularly susceptible to liquidity
problems when the institutions, such as mutual
funds and certain financial institutions,
which dominate it temporarily stop buying bonds for
regulatory, financial or other reasons.
Adverse publicity and investor perceptions may also
disrupt the secondary market for high-yield
securities.
- - ---------------------------------------------------------------------------------------------------------------------------------
Valuation risk A less liquid secondary market as The Fund's privately placed high-yield securities are
described above makes it more difficult for the Fund particularly susceptible to the liquidity and valuation risks.
to obtain precise valuations of the high-yield We will strive to manage this risk by carefully evaluating
securities in its portfolio. During periods of individual bonds and by limiting the amount of the portfolio that
reduced liquidity, judgment plays a greater role in can be allocated to privately placed high-yield securities.
valuing high-yield securities.
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Redemption risk If investors redeem more shares of a Volatility in the high-yield market could increase redemption
Fund than are purchased for an extended period of risk. We strive to maintain a cash balance sufficient to meet
time, a Fund may be required to sell securities any redemptions. We may also borrow money, if necessary, to meet
without regard to the investment merits of such redemptions.
actions. This could decrease the Fund's asset base,
potentially resulting in a higher expense ratio.
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13
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<TABLE>
<CAPTION>
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Risks How we strive to manage them
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<S> <C>
Legislative and regulatory risk The United States We monitor the status of regulatory and legislative proposals to
Congress has from time to time taken or considered evaluate any possible effects they might have on the Fund's
legislative actions that could adversely affect the portfolio.
high-yield bond market. For example, 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. Similar
actions in the future could reduce liquidity for
high-yield securities, reduce the number of new
high-yield securities being issued and could make it more
difficult for the Fund to attain its investment objective.
- - ---------------------------------------------------------------------------------------------------------------------------------
Recession risk Although the market for high-yield It is likely that protracted periods of economic uncertainty
bonds existed through periods of economic downturns, would cause increased volatility in the market prices of
the high-yield market grew rapidly during the long high-yield bonds, an increase in the number of high-yield bond
economic expansion which took place in the United defaults and corresponding volatility in the Fund's net asset
States during the 1980s. During that economic value. In the past, uncertainty and volatility in the high-yield
expansion, the use of high-yield debt securities to market have resulted in volatility in the Fund's net asset value.
finance highly leveraged corporate acquisitions and
restructurings increased dramatically. As a result, In striving to manage this risk, we allocate assets across a wide
the high-yield market grew substantially. Some range of industry sectors. We may emphasize industries that have
analysts believe a protracted economic downturn would been less susceptible to economic cycles in the past,
severely disrupt the market for high-yield bonds, particularly if we believe that the economy may be entering into
adversely affect the value of outstanding bonds and a period of slower growth.
adversely affect the ability of high-yield issuers to
repay principal and interest.
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</TABLE>
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<PAGE>
Who manages the Fund
Investment manager and sub-adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services.
Delaware International Advisers Ltd. is the sub-adviser for the Fund. Delaware
International Advisers Ltd. manages the foreign securities portion of the Fund's
portfolio under the overall supervision of Delaware Management Company and
furnishes Delaware Management Company with investment recommendations, asset
allocation advice, research and other investment services regarding foreign
securities.
For these services, the manager and sub-adviser, were paid an aggregate fee of
0.10% of average daily net assets for the last fiscal year after giving effect
to expense limitations.
Portfolio managers
Paul Grillo, Paul A. Matlack, Christopher A. Moth and Joanna Bates have primary
responsibility for making day-to-day investment decisions for the Fund. In
making investment decisions for the Fund, Mr. Moth and Ms. Bates regularly
consult with David G. Tilles as well as four global fixed-income team members.
Paul Grillo, Vice President/Senior Portfolio Manager for the Fund, is a CFA
charterholder and graduate of North Carolina State University with an MBA in
Finance from Pace University. Prior to joining the Manager in 1993, Mr. Grillo
served as mortgage strategist and trader at the Dreyfus Corporation. He also
served as a mortgage strategist and portfolio manager for the Chemical
Investment Group and as a financial analyst at Chemical Bank. He has primary
responsibility for making day-to-day investment decisions for the Fund regarding
its investments in investment grade securities. Mr. Grillo has been a member of
the Fund's management team since its inception.
Paul A. Matlack, Vice President/Senior Portfolio Manager for the Fund, is a CFA
charterholder and 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. He has primary responsibility for
allocating the Fund's assets among the fixed-income and equity sectors and for
making day-to-day investment decisions for the Fund regarding its investments in
the high-yield sector. Mr. Matlack has been a member of the Fund's management
team since its inception.
Christopher A. Moth, Senior Portfolio Manager - Investment Strategy of Delaware
International Advisers Ltd., is a graduate of The City University London. He
joined Delaware International in 1992. He previously worked at the Guardian
Royal Exchange in an actuarial capacity where he was responsible for technical
analysis, quantitative models and projections. Mr. Moth has been awarded the
certificate in Finance and Investment from the Institute of Actuaries in London.
Joanna Bates, Senior Portfolio Manager - Credit and Emerging Markets of Delaware
International Advisers Ltd., is a graduate of London University. She joined the
Fixed Income team at Delaware International in June 1997. Prior to that she was
Associate Director, Fixed Interest at Hill Samuel Investment Management which
she joined in 1990. She had previously worked at Fidelity International and Save
& Prosper as a fund manager and analyst for global bond markets. Ms. Bates is an
associate of the Institute of Investment Management and Research.
David G. Tilles, Managing Director and Chief Investment Officer of Delaware
International Advisers Ltd., was educated at the Sorbonne, Warwick University
and Heidelberg University. Prior to joining Delaware International in 1990 as
Managing Director and Chief Investment Officer, he spent 16 years with Hill
Samuel Investment Management Group in London, serving in a number of investment
capacities. His most recent position prior to joining Delaware International was
Chief Investment Officer of Hill Samuel Investment Management Ltd.
15
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
Board of Trustees
<S> <C> <C>
Investment manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-adviser
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE
Portfolio managers Distributor Service agent
(see page 10 for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
Shareholders
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the management
of the fund's assets. They are selected and supervised by the investment
manager.
Portfolio managers Portfolio managers are employed by the investment manager or
sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
16
<PAGE>
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASD) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
17
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o 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;
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor;
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate of
the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts;
o a bank, trust company and similar financial institution investing for its own
account or for the account of its trust customers for whom such financial
institution is exercising investment discretion in purchasing shares of the
Class, except where the investment is part of a program that requires payment
to the financial institution of a Rule 12b-1 Plan fee; and
o 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.
18
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How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800-510-4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
19
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at fair market value using a method approved by the Board of
Trustees.
20
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
21
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares, you
will receive the net asset value as determined on the business day we receive
your request. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
Account minimums
If you redeem shares and your account balance falls below $250, the Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
Dividends, if any, are declared daily and paid monthly. Capital gains, if any,
are paid twice a year. We automatically reinvest all dividends and any capital
gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
Distributions declared in October, November or December but paid in January are
taxable as if they were paid in December.
22
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." The Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund. The
portfolio managers and investment professionals of the Fund consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
23
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
Institutional Class
- - --------------------------------------------------------------------------------------------------------------- Period
Year Ended 7/31 10/1/96(1)
- - --------------------------------------------------------------------------------------------------------------- through
1999 1998 7/31/97
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $5.47 $5.700 $5.500
- - ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- - ----------------------------------------------------------------------------------------------------------------------------
Net investment income(2) 0.475 0.458 0.367
- - ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments, futures contracts and foreign
currencies (0.603) (0.111) 0.187
------- ------- -----
- - ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.128) 0.347 0.554
------- ----- -----
- - ----------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- - ----------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.457) (0.457) (0.354)
- - ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.035) (0.120) none
------- ------- ----
- - ----------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.492) (0.577) (0.354)
------- ------- -------
- - ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.850 $5.470 $5.700
====== ====== ======
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total return(3) (2.46%) 6.36% 10.36%
- - ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $4,350 $3,764 $3,405
- - ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.75% 0.75% 0.75%
- - ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation and fees paid
indirectly 1.30% 1.48% 1.87%
- - ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 9.22% 8.18% 7.90%
- - ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation and
fees paid indirectly 8.67% 7.45% 6.78%
- - ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 156% 175% 183%
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios have been annualized and total
returns have not been annualized.
(2) Per share information for the years ended July 31, 1998 and 1999 were based
on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
25
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
26
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Corporate bond
A debt security issued by a corporation. See Bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
27
<PAGE>
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Lehman Brothers Aggregate Bond Index
The Lehman Brothers Aggregate Bond Index is an index that measures the
performance of about 6,500 U.S. corporate and government bonds. Neither index is
a perfect comparison to Delaware Balanced Series since the S&P 500 does not
include fixed-income securities and the Lehman Brothers Aggregate Bond Index
does not include stocks.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
NASD Regulation, Inc. (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, Inc. (Fitch).
28
<PAGE>
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay dividends at a fixed rate
and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
29
<PAGE>
Treasury bills
Securities issued by the U.S. Treasury with maturities of one year or less.
Treasury bonds
Securities issued by the U.S. Treasury with maturities of 10 years or longer.
Treasury notes
Securities issued by the U.S. Treasury with maturities of one to 10 years.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
30
<PAGE>
Delaware Strategic Income Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- - ---------------------------
E-mail
[email protected]
Client Services Representative
800.510.4015
Delaphone Service
800.362.FUND (800.362.3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-2071
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
CUSIP number NASDAQ symbol
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delaware Strategic Income Fund Institutional Class 245908751 DGCIX
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002[--]PP9/99
31
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Class A o Class B o Class C
Prospectus
September 29, 1999
Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profiles page
Delaware Corporate Bond Fund and
Delaware Extended Duration Bond Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Funds
Choosing a share class
How to reduce your sales charge
How to buy shares
Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
2
<PAGE>
Profile: Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
What are the Funds' goals?
Both Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund seek
to provide investors with total return. Although each Fund will strive to
achieve its goal, there is no assurance that it will.
What are the Funds' main investment strategies?
We invest primarily in corporate bonds. Our focus is on corporate bonds that
have investment-grade credit ratings from a nationally recognized statistical
ratings organization (NRSRO). The bonds we select for the portfolio are
typically rated BBB and above by Standard and Poor's Ratings Group or Baa and
above by Moody's Investors Service, Inc. We may also invest in unrated bonds, if
we believe their credit quality is comparable to those that have
investment-grade ratings.
The most significant difference between the two funds is in their return
potential and their risk profiles as determined by the average duration of the
bonds in each Fund's portfolio. Duration measures a bond's sensitivity to
interest rates by indicating the approximate change in a bond or bond fund's
price given a 1% change in interest rates. We generally keep Delaware Corporate
Bond Fund's duration between four and seven years. This is a more conservative
strategy than that of Delaware Extended Duration Bond Fund, which will typically
have a duration between eight and 11 years.
What are the main risks of investing in the Funds?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of a Fund's investments. These Funds
will be affected by changes in bond prices, particularly as a result of changes
in interest rates. They may also be affected by economic conditions which may
hinder a company's ability to make interest and principal payments on its debt.
For a more complete discussion of risk, please turn to page 7.
An investment in the Funds is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
Who should invest in the Funds
o Investors with medium or long-range goals.
o Investors looking for a bond investment to help balance their investments
in stocks or more aggressive securities.
o Investors who are looking for an income investment that can provide total
return opportunities through the automatic reinvestment of income
dividends.
Who should not invest in the Funds
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors seeking long-term growth of capital.
You should keep in mind that an investment in either Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss these Funds with your financial adviser to
determine whether they are an appropriate choice for you.
3
<PAGE>
What are each Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Funds.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
CLASS A B C
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 4.75% none none
- - -------------------------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none(1) 4%(2) 1%(3)
- - -------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none none none
- - -------------------------------------------------------------------------------------------------
Redemption fees none none none
- - -------------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from each Fund's assets.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
Delaware Corporate Bond Fund Delaware Extended Duration
Bond Fund
- - ---------------------------------------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class C
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management fees 0.50% 0.50% 0.50% 0.55% 0.55% 0.55%
- - ---------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25%(4) 1.00% 1.00% 0.25%(4) 1.00% 1.00%
- - ---------------------------------------------------------------------------------------------------------------------
Other expenses 0.51% 0.51% 0.51% 0.47% 0.47% 0.47%
- - ---------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses 1.26% 2.01% 2.01% 1.27% 2.02% 2.02%
- - ---------------------------------------------------------------------------------------------------------------------
Fee waivers and payments(5) (0.46%) (0.46%) (0.46%) (0.47%) (0.47%) (0.47%)
- - ---------------------------------------------------------------------------------------------------------------------
Net expenses 0.80% 1.55% 1.55% 0.80% 1.55% 1.55%
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
This example is intended to help you compare the cost of investing in the Funds
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Without Fee Limitation
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Delaware Corporate Bond Fund Delaware Extended Duration Bond Fund
- - -----------------------------------------------------------------------------------------------------------------------------------
Class(7) A B B C C A B B C C
if if if if
redeemed redeemed redeemed redeemed
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $597 $204 $604 $204 $304 $598 $205 $605 $205 $305
- - -----------------------------------------------------------------------------------------------------------------------------------
3 years $856 $630 $930 $630 $630 $859 $634 $934 $634 $634
- - -----------------------------------------------------------------------------------------------------------------------------------
5 years $1,134 $1,083 $1,283 $1,083 $1,083 $1,139 $1,088 $1,288 $1,088 $1,088
- - -----------------------------------------------------------------------------------------------------------------------------------
10 years $1,925 $2,144 $2,144 $2,338 $2,338 $1,936 $2,155 $2,155 $2,348 $2,348
- - -----------------------------------------------------------------------------------------------------------------------------------
With Fee Limitation(5)
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Delaware Corporate Bond Fund Delaware Extended Duration Bond Fund
- - -----------------------------------------------------------------------------------------------------------------------------------
A B B C C A B B C C
if if if if
redeemed redeemed redeemed redeemed
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $553 $158 $558 $158 $258 $553 $158 $558 $158 $258
- - -----------------------------------------------------------------------------------------------------------------------------------
3 years $718 $490 $790 $490 $490 $718 $490 $790 $490 $490
- - -----------------------------------------------------------------------------------------------------------------------------------
5 years $898 $845 $1,045 $845 $845 $898 $845 $1,045 $845 $845
- - -----------------------------------------------------------------------------------------------------------------------------------
10 years $1,418 $1,643 $1,643 $1,845 $1,845 $1,418 $1,643 $1,643 $1,845 $1,845
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is
paid a commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be
disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 4%, which declines to 3%
during the third and fourth years, 2% during the fifth year, 1% during the
sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) However, the Board of Trustees set the 12b-1 plan expenses for the Fund's
Class A shares at 0.25%. Payments under the Class A 12b-1 plan may not
exceed 0.30% of average daily net assets.
(5) The investment manager has contracted to waive fees and pay expenses from
October 1, 1999 through September 30, 2000 in order to prevent total
operating expenses (excluding any 12b-1 plan expenses, taxes, interest,
brokerage fees and extraordinary expenses) from exceeding 0.55% of average
daily net assets.
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
5
<PAGE>
How we manage the Funds
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Investment strategy
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Funds'
investment goals.
The Funds strive to provide shareholders with total return through a combination
of income and capital appreciation from the bonds in their portfolios. We invest
primarily in corporate bonds, with a strong emphasis on those that are rated in
the four highest credit categories by an NRSRO. We may also invest in
high-yielding, lower quality corporate bonds (also called "junk bonds"). These
may involve greater risk because the companies issuing the bonds have lower
credit ratings and may have difficulty making interest and principal payments.
In selecting bonds we conduct a careful analysis of economic factors,
industry-related information and the underlying financial stability of the
company issuing the bond.
Choosing Between Delaware Corporate Bond Fund and Delaware Extended Duration
Bond Fund
We manage both Delaware Corporate Bond Fund and Delaware Extended Duration Bond
Fund using the same fundamental strategy. The main difference between the two
Funds is in their return potential and the corresponding risk associated with
each Fund. Delaware Corporate Bond Fund is the more conservative of the two
Funds and might be appropriate for investors who desire less potential
fluctuation in their share price. We generally keep Delaware Corporate Bond
Fund's duration between four and seven years. Delaware Extended Duration Bond
Fund will typically have a duration between eight and 11 years. This longer
duration gives Delaware Extended Duration Bond Fund greater income potential as
well as greater appreciation potential when interest rates decline.
Each Fund's investment objective - to seek to provide investors with total
return - is a non-fundamental objective. This means that the Board of Trustees
may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders before the change in the
objective became effective.
6
<PAGE>
The securities we typically invest in
Fixed-income securities generally offer the potential for greater income
payments than stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Corporate bonds: Debt obligations issued by a We will invest at least 65% of each Fund's assets in investment grade
corporation. corporate bonds.
Debt securities within the top three
categories comprise what are known as
high-grade bonds and are regarded as having a
strong ability to pay principal and interest.
Securities in the fourth category are known as
medium-grade bonds and are regarded as having
an adequate capacity to pay principal and
interest but with greater vulnerability to
adverse economic conditions and speculative
characteristics.
- - -----------------------------------------------------------------------------------------------------------------------------------
High-yield corporate bonds: Debt obligations issued Both Funds may invest up to 20% of net assets in high-yield corporate
by a corporation and rated lower than investment bonds.
grade by an NRSRO such as S&P or Moody's. High-yield
bonds are higher risk securities issued by We carefully evaluate an individual company's financial situation, its
corporations that have poor credit quality and may management, the prospects for its industry and the technical factors
have difficulty repaying principal and interest. related to its bond offering. Our goal is to identify those companies that
we believe will be able to repay their debt obligations in spite of poor
ratings. The Funds may invest in unrated bonds if we believe their credit
quality is comparable to the rated bonds we are permitted to invest in.
Unrated bonds may be more speculative in nature than rated bonds.
- - -----------------------------------------------------------------------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations The Funds may invest in direct U.S. government obligations; however, these
including bills, notes, bonds as well as other debt securities will typically be a smaller percentage of the portfolio because
securities issued by the U.S. Treasury and securities they generally do not offer as high a level of current income as other
of U.S. government agencies or instrumentalities. fixed-income securities the Fund may invest in.
- - -----------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment-in-kind bonds. We expect
securities are debt obligations which do not entitle payment-in-kind bonds to be a less significant component of our strategy.
the holder to any periodic payments of interest prior The market prices of these bonds are generally more volatile than the
to maturity or a specified date when the securities market prices of securities that pay interest periodically and are likely
begin paying current interest. Therefore, they are to react to changes in interest rates to a greater degree than
issued and traded at a price lower than their face interest-paying bonds having similar maturities and credit quality. They
amounts or par value. Payment-in-kind bonds pay may have certain tax consequences which, under certain conditions, could
interest or dividends in the form of additional bonds be adverse to the Funds.
or preferred stock.
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Foreign corporate and government securities: Debt Each Fund may invest up to 15% of its net assets in securities of issuers
obligations issued by a foreign corporation and in foreign countries.
securities issued by foreign governments.
- - -----------------------------------------------------------------------------------------------------------------------------------
Corporate commercial paper Short-term debt We may invest in commercial paper that is rated P-1 or P-2 by Moody's
obligations with maturities ranging from two to 270 and/or A-1 or A-2 by S&P. We may also invest in unrated commercial paper
days, issued by companies. if we determine its quality is comparable to these quality ratings.
- - -----------------------------------------------------------------------------------------------------------------------------------
Short-term debt or money market instruments: Very Each Fund may hold short-term debt or money market securities pending an
short-term debt securities generally considered to be investment in other securities or when the manager feels that it is
equivalent to cash. prudent to do so because of market conditions. All short-term instruments
held by the Funds must be of the highest quality as rated by an NRSRO or
determined to be of comparable quality by the Funds' manager.
- - -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term investment for our
and seller of securities in which the seller agrees cash position. In order to enter into these repurchase agreements, we must
to buy the securities back within a specified time at have collateral of at least 102% of the repurchase price.
the same price the buyer paid for them, plus an
amount equal to an agreed upon interest rate.
Repurchase agreements are often viewed as equivalent
to cash.
- - -----------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest in privately placed securities that are eligible for resale
whose resale is restricted under securities law. only among certain institutional buyers without registration, including
Rule 144A Securities. Restricted securities that are determined to be
illiquid may not exceed the Fund's 15% limit on illiquid securities,
which is described below.
- - -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 15% of total assets in illiquid securities.
ready market, and cannot be easily sold within seven
days at approximately the price that the Funds have
valued them.
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Funds may also invest in other types of income-producing securities
including common stocks, preferred stocks and warrants. Please see the Statement
of Additional Information for additional descriptions on these securities as
well as those listed in the table above.
Lending securities
Each Fund may lend up to 25% of their assets to qualified brokers, dealers and
investors for its use in security transactions.
Borrowing from banks
Each Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. To the extent that it does so, the Funds may be
unable to meet their investment objectives. The Funds will not borrow money in
excess of one-third of the value of their respective net assets.
8
<PAGE>
Purchasing securities on a when-issued or delayed delivery basis
Each Fund may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
Portfolio turnover
We anticipate that each Fund's annual portfolio turnover may exceed 100%. A
turnover rate of 100% would occur if a Fund sold and replaced securities valued
at 100% of its net assets within one year. High turnover can result in increased
transaction costs and tax liability for the Funds.
9
<PAGE>
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in a Fund you should
carefully evaluate the risks. You should consider an investment in a Fund to be
a long-term investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when you invest in
the Funds. Please see the Statement of Additional Information for further
discussion of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- - --------------------------------------------------------------------------------------------------------------------------------
Market risk is the risk that all or a We maintain a long-term investment approach and focus on high quality individual
majority of the securities in a bonds that we believe can provide a steady stream of income regardless of interim
certain market -- like the stock or fluctuations in the bond market. We do not try to predict overall interest rate
bond market -- will decline in value movements and do not buy and sell securities for short-term purposes.
because of factors such as economic
conditions, future expectations or We may hold a substantial part of each Fund's assets in cash or cash equivalents as
investor confidence. a temporary, defensive strategy.
- - --------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that Interest rate risk is a significant risk for these Funds. In striving to manage
securities will decrease in value if this risk, we monitor economic conditions and the interest rate environment and may
interest rates rise. The risk is adjust each Fund's duration or average maturity as a defensive measure against
greater for bonds with longer interest rate risk.
maturities than for those with
shorter maturities.
- - --------------------------------------------------------------------------------------------------------------------------------
Credit risk is the possibility that a We strive to minimize credit risk by investing primarily in higher quality,
bond's issuer (or an entity that investment-grade corporate bonds.
insures the bond) will be unable to
make timely payments of interest and Any portion of the portfolio that is invested in high-yielding, lower quality
principal. corporate bonds is subject to greater credit risk. We strive to manage that risk
through careful bond selection, by limiting the percentage of the portfolio that
Investing in so-called "junk" or can be invested in lower quality bonds and by maintaining a diversified portfolio
"high-yield" bonds entails the risk of of bonds representing a variety of industries and issuers.
principal loss, which may be greater
than the risk involved in investment
grade bonds, particularly in times of
economic declines. High-yield bonds
are sometimes issued by companies
whose earnings at the time the bond is
issued are less than the projected
debt payments on the bonds.
- - --------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit the percentage of the portfolio that can be invested in illiquid
securities cannot be readily sold securities.
within seven days at approximately the
price that a Fund has valued them.
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
Delaware Delaware
Corporate Bond Extended
Fund Duration Bond
Fund
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
As a percentage of average daily net assets 0.03%* 0.07%*
- - -------------------------------------------------------------------------------------------------------
</TABLE>
*Reflects the waiver of fees by the manager.
Portfolio manager
Gary A. Reed has primary responsibility for making day-to-day investment
decisions for each Fund.
Gary A. Reed, Vice President/Senior Portfolio Manager for the Funds, holds an AB
in economics from the University of Chicago and an MA in Economics from Columbia
University. He began his career in 1978 with the Equitable Life Assurance
Company in New York City, where he specialized in credit analysis. Prior to
joining the Delaware Investments in 1989, Mr. Reed was Vice President and
Manager of the fixed-income department at Irving Trust Company in New York. Mr.
Reed has managed both discretionary and structured fixed-income portfolios and
is experienced with a broad range of corporate fixed-income securities. Mr. Reed
has been managing the Funds since their inception.
11
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio manager Distributor Service agent
(see page 8 for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
</TABLE>
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager and distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASD) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
12
<PAGE>
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
13
<PAGE>
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 4.75% that you pay
when you buy the shares. The offering price for Class A shares includes the
front-end sales charge.
o If you invest $100,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information for
details.
o Class A shares are also subject to an annual 12b-1 fee no greater than 0.30%
(currently 0.25%) of average daily net assets, which is lower than the 12b-1
fee for Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge, except in the limited circumstances described in the table below.
Class A sales charges
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
Sales charge Sales charge Dealer's commission as %
Amount of purchase as % of as % of offering price
offering price of amount invested
- - ----------------------------------------------------------------------------------------------------------------------------------
Delaware Delaware Extended
Corporate Bond Duration Bond Fund
Fund
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.92% 5.05% 4.00%
- - ----------------------------------------------------------------------------------------------------------------------------------
$100,000 but under $250,000 3.75% 3.98% 3.88% 3.00%
- - ----------------------------------------------------------------------------------------------------------------------------------
$250,000 but under $500,000 2.50% 2.65% 2.52% 2.00%
- - ----------------------------------------------------------------------------------------------------------------------------------
$500,000 but under $1,000,000 2.00% 2.08% 2.14% 1.60%
- - ----------------------------------------------------------------------------------------------------------------------------------
As shown below, there is no front-end sales charge when you purchase $1 million or more of Class A shares. However, if your
financial adviser is paid a commission on your purchase, you may have to pay a limited contingent deferred sales charge of 1%
if you redeem these shares within the first year after your purchase and 0.50% if you redeem them within the second year.
- - ----------------------------------------------------------------------------------------------------------------------------------
Sales charge Sales charge Dealer's commission as %
Amount of purchase as % of as % of of
offering price amount invested offering price
- - ----------------------------------------------------------------------------------------------------------------------------------
$1 million up to $5 million none none 1.00%
- - ----------------------------------------------------------------------------------------------------------------------------------
Next $20 million
Up to $25 million none none 0.50%
- - ----------------------------------------------------------------------------------------------------------------------------------
Amount over $25 million none none 0.25%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Funds. However, you will pay a contingent
deferred sales charge if you redeem your shares within six years after you
buy them.
o If you redeem Class B shares during the first two years after you buy them,
the shares will be subject to a contingent deferred sales charge of 4%. The
contingent deferred sales charge is 3% during the third and fourth years, 2%
during the fifth year, 1% during the sixth year, and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1% of average daily net assets,
of which 0.25% are service fees paid to the distributor, dealers or others
for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and
any dividends paid on these shares are lower than dividends on Class A
shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%
(currently 0.25%). Conversion may occur as late as three months after the
eighth anniversary of purchase, during which time Class B's higher 12b-1
fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge of 1% if you redeem your shares within 12 months after
you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o Class C shares are subject to an annual 12b-1 fee which may not be greater
than 1% of average daily net assets, of which 0.25% are service fees paid to
the distributor, dealers or others for providing services and maintaining
shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any
one time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Funds has adopted a separate 12b-1 plan that allows it
to pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Funds' assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
15
<PAGE>
About your account (continued)
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of Intent
agree to invest a certain amount and Rights of Accumulation do
in Delaware Investment Funds not apply to the purchase of
(except money market funds with no Class B and C shares, you can
sales charge) over a 13-month combine your purchase of Class A
period to qualify for reduced shares with your purchase of B
front-end sales charges. and C shares to fulfill your
Letter of Intent or qualify
for Rights of Accumulation.
- - ----------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings or X
purchases of all funds in the Delaware
Investments family (except money market
funds with no sales charge) as well as the
holdings and purchases of your spouse and
children under 21 to qualify for reduced
front-end sales charges.
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reinvestment of redeemed Up to 12 months after you redeem For Class Not
shares shares, you can reinvest the A, you will For Class available.
proceeds with no additional sales not have to B, your
charge. pay an account
additional will be
front-end credited
sales with the
charge. contingent
deferred
sales
charge you
previously
paid on the
amount
you are
reinvesting.
Your
schedule
for
contingent
deferred
sales
charges
and
conversion
to Class A
will not
start over
again, it
will pick up
from the
point at
which you
redeemed
your
shares.
- - ----------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, SARSEP, These investment plans may qualify X There is no reduction in sales
Prototype Profit Sharing, for reduced sales charges by charges for Class B or Class C
Pension, 401(k), SIMPLE combining the purchases of all shares for group purchases for
401(k), 403(b)(7), and 457 members of the group. Members of retirement plans.
Retirement Plans these groups may also qualify to
purchase shares without a front-end sales
charge and a waiver of any contingent
deferred sales charges.
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service or through our web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800.523.1918.
18
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an initial
investment of $1,000 and make additional investments at any time for as little
as $100. If you are buying shares in an IRA or Roth IRA, under the Uniform Gifts
to Minors Act or the Uniform Transfers to Minors Act; or through an Automatic
Investing Plan, the minimum purchase is $250, and you can make additional
investments of only $25. The minimum for an Education IRA is $500. The minimums
vary for retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on a Fund's net asset
value. If we receive your order after the close of trading, you will pay the
next business day's price. A business day is any day that the New York Stock
Exchange is open for business. We reserve the right to reject any purchase
order.
We determine each Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in each Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
trustees.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Funds may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in these Funds can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
19
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of more than
$50,000, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
20
<PAGE>
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern Time), you will receive the net asset value as determined on the
business day we receive your request. We will deduct any applicable contingent
deferred sales charges. You may also have to pay taxes on the proceeds from your
sale of shares. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares--not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $500 for Education IRAs) for three or
more consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at the
minimum by the required time, you will be charged a $9 fee for that quarter and
each quarter after that until your account reaches the minimum balance. If your
account does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
21
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for the same class of shares
in other funds, your new shares will be subject to the same contingent deferred
sales charge as the shares you originally purchased. The holding period for the
CDSC will also remain the same, with the amount of time you held your original
shares being credited toward the holding period of your new shares. You don't
pay sales charges on shares that you acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange.
22
<PAGE>
About your account (continued)
Special services (continued)
MoneyLine(SM) On Demand Service
Through our MoneyLine(SM) On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine Direct Deposit Service you can have $25 or more in
dividends and distributions deposited directly to your bank account. Delaware
Investments does not charge a fee for this service; however, your bank may
assess one. This service is not available for retirement plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly or
quarterly payment from your account made to you or someone you designate. If the
value of your account is $5,000 or more, you can make withdrawals of at least
$25 monthly, or $75 quarterly. You may also have your withdrawals deposited
directly to your bank account through our MoneyLine Direct Deposit Service.
Dividends, distributions and taxes
Dividends, if any, are declared daily and paid monthly. Capital gains, if any,
are paid twice a year. We automatically reinvest all dividends and any capital
gains, unless you tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
Distributions declared in October, November or December but paid in January are
taxable as if they were paid in December.
23
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The Year
2000 Problem may also adversely affect the issuers of securities in which the
Funds invest. The portfolio managers and investment professionals of the Funds
consider Year 2000 compliance in the securities selection and investment
process. However, there can be no guarantees that, even with their due diligence
efforts, they will be able to predict the affect of Year 2000 on any company or
the performance of its securities.
Investments by Fund of Funds
Each Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, a Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, a Fund may be required to sell securities or invest cash at times
when it would not otherwise do so. These transactions could also have tax
consequences if sales of securities result in gains, and could also increase
transactions costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on each
Fund and Foundation Funds as a result of these transactions.
24
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand each Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Funds' financial statements, is included in the
Funds' annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Delaware Delaware Corporate Bond Delaware Corporate Bond
Corporate Bond Fund Fund Fund
A Class B Class C Class
- - -----------------------------------------------------------------------------------------------------------------------------------
Period Period Period
9/15/98(1) 9/15/98(1) 9/15/98(1)
through through through
7/31/99 7/31/99 7/31/99
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period 5.500 5.500 5.500
- - ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- - ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.201 0.171 0.171
- - ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and
futures contracts (0.216) (0.216) (0.216)
------- ------- -------
- - ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.015) (0.045) (0.045)
------- ------- -------
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- - ------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.201) (0.171) (0.171)
- - ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.004) (0.004) (0.004)
------- ------- -------
- - ------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.205) (0.175) (0.175)
------- ------- -------
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.28 $5.28 $5.28
===== ===== =====
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
Total return(2) (0.34%) (0.88%) (0.88%)
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,377 $1,236 $303
- - ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.80% 1.55% 1.55%
- - ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
expense limitation and fees paid indirectly 1.26% 2.01% 2.01%
- - ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.75% 5.00% 5.00%
- - ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets
prior to expense limitation and fees paid indirectly 5.29% 4.54% 4.54%
- - ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 175% 175% 175%
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
25
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Delaware Extended Delaware Extended Delaware Extended
Duration Duration Duration
Bond Fund Bond Fund Bond Fund
A Class B Class C Class
- - -----------------------------------------------------------------------------------------------------------------------------------
Period Period Period
9/15/98(1) 9/15/98(1) 9/15/98(1)
through through through
7/31/99 7/31/99 7/31/99
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.50 $5.50 $5.50
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- - -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.206 0.172 0.180
- - -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and
futures contracts (0.347) (0.347) (0.347)
------- ------- -------
- - -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.141) (0.175) (0.167)
------- ------- -------
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- - -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.206) (0.172) (0.180)
- - -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.003) (0.003) (0.003)
------- ------- -------
- - -------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.209) (0.175) (0.183)
------- ------- -------
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.15 $5.15 $5.15
===== ===== =====
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
Total return(2) (2.68%) (3.28%) (3.15%)
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- - -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,042 $114 $58
- - -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.80% 1.55% 1.55%
- - -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
expense limitation and fees paid indirectly 1.27% 2.02% 2.02%
- - -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.88% 5.13% 5.13%
- - -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets
prior to expense limitation and fees paid indirectly 5.41% 4.66% 4.66%
- - -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 201% 201% 201%
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
26
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's investments; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
27
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See Bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
28
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries
as well as agency-backed securities such as Fannie Maes.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
NASD Regulation, Inc. (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, Inc. (Fitch).
29
<PAGE>
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay dividends at a fixed rate
and is sometimes convertible into common stock.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
financial advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
30
<PAGE>
Treasury bills
Securities issued by the U.S. Treasury with maturities of one year or less.
Treasury bonds
Securities issued by the U.S. Treasury with maturities of 10 years or longer.
Treasury notes
Securities issued by the U.S. Treasury with maturities of one to 10 years.
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
31
<PAGE>
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. You can find more detailed information about the Funds in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in these Funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Funds, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- - ---------------------------
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
oFor fund information; literature; price, yield and performance figures.
oFor information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions and
telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-2071
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delaware Corporate Bond Fund
- - -----------------------------------------------------------------------------------------------------------------------------------
A Class 245908785 DGCAX
- - -----------------------------------------------------------------------------------------------------------------------------------
B Class 245908777 DGCBX
- - -----------------------------------------------------------------------------------------------------------------------------------
C Class 245908769 DGCCX
- - -----------------------------------------------------------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund
- - -----------------------------------------------------------------------------------------------------------------------------------
A Class 245908835 DEEAX
- - -----------------------------------------------------------------------------------------------------------------------------------
B Class 245908827 DEEBX
- - -----------------------------------------------------------------------------------------------------------------------------------
C Class 245908819 DEECX
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
32
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Institutional Class
Prospectus
September 29, 1999
Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profiles page
Delaware Corporate Bond Fund and
Delaware Extended Duration Bond Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio manager
Fund administration (Who's who)
About your account page
Investing in the Funds
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial highlights page
2
<PAGE>
Profile: Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
What are the Funds' goals?
Both Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund seek
to provide investors with total return. Although each Fund will strive to
achieve its goal, there is no assurance that it will.
What are the Funds' main investment strategies?
We invest primarily in corporate bonds. Our focus is on corporate bonds that
have investment-grade credit ratings from a nationally recognized statistical
ratings organization (NRSRO). The bonds we select for the portfolio are
typically rated BBB and above by Standard and Poor's Ratings Group or Baa and
above by Moody's Investors Service, Inc. We may also invest in unrated bonds, if
we believe their credit quality is comparable to those that have
investment-grade ratings.
The most significant difference between the two funds is in their return
potential and their risk profiles as determined by the average duration of the
bonds in each Fund's portfolio. Duration measures a bond's sensitivity to
interest rates by indicating the approximate change in a bond or bond fund's
price given a 1% change in interest rates. We generally keep Delaware Corporate
Bond Fund's duration between four and seven years. This is a more conservative
strategy than that of Delaware Extended Duration Bond Fund, which will typically
have a duration between eight and 11 years.
What are the main risks of investing in the Funds?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of a Fund's investments. These Funds
will be affected by changes in bond prices, particularly as a result of changes
in interest rates. They may also be affected by economic conditions which may
hinder a company's ability to make interest and principal payments on its debt.
For a more complete discussion of risk, please turn to page 7.
An investment in the Funds is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
Who should invest in the Funds
o Investors with medium or long-range goals.
o Investors looking for a bond investment to help balance their investments
in stocks or more aggressive securities.
o Investors who are looking for an income investment that can provide total
return opportunities through the automatic reinvestment of income
dividends.
Who should not invest in the Funds
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors seeking long-term growth of capital.
You should keep in mind that an investment in either Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss these Funds with your financial adviser to
determine whether they are an appropriate choice for you.
3
<PAGE>
What are the Funds' fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Funds.
- - -------------------------------------------------------------- ------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price none
- - -------------------------------------------------------------- ------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
- - -------------------------------------------------------------- ------------
Maximum sales charge (load) imposed on
Reinvested dividends none
- - -------------------------------------------------------------- ------------
Redemption fees none
- - -------------------------------------------------------------- ------------
Exchange Fees(1) none
- - -------------------------------------------------------------- ------------
Annual fund operating expenses are deducted from a Fund's assets.
<TABLE>
<CAPTION>
- - -------------------------------------------- ------------------------------------ -----------------------------------
Delaware Corporate Bond Fund Delaware Extended Duration
Bond Fund
- - -------------------------------------------- ------------------------------------ -----------------------------------
<S> <C> <C>
Management fees 0.50% 0.55%
- - -------------------------------------------- ------------------------------------ -----------------------------------
Distribution and service (12b-1) fees none none
- - -------------------------------------------- ------------------------------------ -----------------------------------
Other expenses 0.51% 0.47%
- - -------------------------------------------- ------------------------------------ -----------------------------------
Total annual fund operating expenses 1.01% 1.02%
- - -------------------------------------------- ------------------------------------ -----------------------------------
Fee waivers and payments(2) (0.46%) (0.47%)
- - -------------------------------------------- ------------------------------------ -----------------------------------
Net expenses 0.55% 0.55%
- - -------------------------------------------- ------------------------------------ -----------------------------------
</TABLE>
This example is intended to help you compare the cost of investing in the Funds
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(3) This is
an example only, and does not represent future expenses, which may be greater
or less than those shown here.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
Without Expense Limitation
- - -------------------------------------------------------------------------------------------
Delaware Corporate Bond Delaware Extended Duration
Fund Bond Fund
- - ---------------------------- --------------------------- ----------------------------------
<S> <C> <C>
1 year $ 103 $ 104
- - ---------------------------- --------------------------- ----------------------------------
3 years $ 322 $ 325
- - ---------------------------- --------------------------- ----------------------------------
5 years $ 558 $ 563
- - ---------------------------- --------------------------- ----------------------------------
10 years $1,236 $1,248
- - -------------------------------------------------------------------------------------------
With Expense Limitation(2)
- - -------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------- --------------------------- ----------------------------------
Delaware Corporate Bond Delaware Extended Duration
Fund Bond Fund
- - ---------------------------- --------------------------- ----------------------------------
<S> <C> <C>
1 year $ 56 $ 56
- - ---------------------------- --------------------------- ----------------------------------
3 years $176 $176
- - ---------------------------- --------------------------- ----------------------------------
5 years $307 $307
- - ---------------------------- --------------------------- ----------------------------------
10 years $689 $689
- - ---------------------------- --------------------------- ----------------------------------
</TABLE>
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange
your shares into a fund that has a front-end sales charge.
(2) The investment manager has contracted to waive fees and pay expenses
from October 1, 1999 through September 30, 2000 in order to prevent
total operating expenses (excluding any taxes, interest, brokerage fees
and extraordinary expenses) from exceeding 0.55% of average daily net
assets.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods
we show.
5
<PAGE>
How we manage the Funds
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Investment strategy
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio manager pursues the Funds'
investment goals.
The Funds strive to provide shareholder with total return through a combination
of income and capital appreciation from the bonds in their portfolios. We invest
primarily in corporate bonds, with a strong emphasis on those that are rated in
the four highest credit categories by an NRSRO. We may also invest in
high-yielding, lower quality corporate bonds (also called "junk bonds"). These
may involve greater risk because the companies issuing the bonds have lower
credit ratings and may have difficulty making interest and principal payments.
In selecting bonds we conduct a careful analysis of economic factors,
industry-related information and the underlying financial stability of the
company issuing the bond.
Choosing Between Delaware Corporate Bond Fund and Delaware Extended Duration
Bond Fund We manage both Delaware Corporate Bond Fund and Delaware Extended
Duration Bond Fund using the same fundamental strategy. The main difference
between the two Funds is in their return potential and the corresponding risk
associated with each Fund. Delaware Corporate Bond Fund is the more conservative
of the two Funds and might be appropriate for investors who desire less
potential fluctuation in their share price. We generally keep Delaware Corporate
Bond Fund's duration between four and seven years. Delaware Extended Duration
Bond Fund will typically have a duration between eight and 11 years. This longer
duration gives Delaware Extended Duration Bond Fund greater income potential as
well as greater appreciation potential when interest rates decline.
Each Fund's investment objective - to seek to provide investors with total
return - is a non-fundamental objective. This means that the Board of Trustees
may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders before the change in the
objective became effective.
6
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- - ------------------------------------------------------- ----------------------------------------------------------------------------
Securities How we use them
- - ------------------------------------------------------- ----------------------------------------------------------------------------
<S> <C>
Corporate bonds: Debt obligations issued by a We will invest at least 65% of each Fund's assets in investment grade
corporation. corporate bonds.
Debt securities within the top three categories
comprise what are known as high-grade bonds and
are regarded as having a strong ability to pay
principal and interest. Securities in the fourth
category are known as medium-grade bonds and are
regarded as having an adequate capacity to pay
principal and interest but with greater vulnerability
to adverse economic conditions and speculative
characteristics.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
High-yield corporate bonds: Debt obligations issued Both Funds may invest up to 20% of net assets in high-yield corporate
by a corporation and rated lower than investment bonds.
grade by an NRSRO such as S&P or Moody's.. High-yield
bonds are higher risk securities issued by We carefully evaluate an individual company's financial situation, its
corporations that have poor credit quality and may management, the prospects for its industry and the technical factors
have difficulty repaying principal and interest. related to its bond offering. Our goal is to identify those companies that
we believe will be able to repay their debt obligations in spite of
poor ratings. The Funds may invest in unrated bonds if we believe
their credit quality is comparable to the rated bonds we are permitted
to invest in. Unrated bonds may be more speculative in nature than rated
bonds.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations The Funds may invest in direct U.S. government obligations; however, these
including bills, notes, bonds as well as other debt securities will typically be a smaller percentage of the portfolio because
securities issued by the U.S. Treasury and securities they generally do not offer as high a level of current income as other
of U.S. government agencies or instrumentalities. fixed-income securities the Funds may invest in.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------- ----------------------------------------------------------------------------
Securities How we use them
- - ------------------------------------------------------- ----------------------------------------------------------------------------
<S> <C>
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment-in-kind bonds. We expect
securities are debt obligations which do not entitle payment-in-kind bonds to be a less significant component of our strategy.
the holder to any periodic payments of interest prior The market prices of these bonds are generally more volatile than the
to maturity or a specified date when the securities market prices of securities that pay interest periodically and are likely
begin paying current interest. Therefore, they are to react to changes in interest rates to a greater degree than
issued and traded at a price lower than their face interest-paying bonds having similar maturities and credit quality. They
amounts or par value. Payment-in-kind bonds pay may have certain tax consequences which, under certain conditions, could
interest or dividends in the form of additional bonds be adverse to the Funds.
or preferred stock.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
Foreign corporate and government securities: Debt Each Fund may invest up to 15% of its net assets in securities of issuers
obligations issued by a foreign corporation and in foreign countries.
securities issued by foreign governments.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
Corporate commercial paper Short-term debt We may invest in commercial paper that is rated P-1 or P-2 by Moody's
obligations with maturities ranging from 2 to 270 and/or A-1 or A-2 by S&P. We may also invest in unrated commercial paper
days, issued by companies. if we determine its quality is comparable to these quality ratings.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
Short-term debt or money market instruments: Very Each Fund may hold short-term debt or money market securities pending an
short-term debt securities generally considered to be investment in other securities or when the manager feels that it is
equivalent to cash. prudent to do so because of market conditions. All short-term instruments
held by the Funds must be of the highest quality as rated by an NRSRO or
determined to be of comparable quality by the Funds' manager.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term investment for our
and seller of securities in which the seller agrees cash position. In order to enter into these repurchase agreements, we must
to buy the securities back within a specified time at have collateral of at least 102% of the repurchase price.
the same price the buyer paid for them, plus an
amount equal to an agreed upon interest rate.
Repurchase agreements are often viewed as equivalent
to cash.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------- ----------------------------------------------------------------------------
Securities How we use them
- - ------------------------------------------------------- ----------------------------------------------------------------------------
<S> <C>
Restricted securities: Privately placed securities We may invest in privately placed securities that are eligible for resale
whose resale is restricted under securities law. only among certain institutional buyers without registration. These are
commonly known as Rule 144A Securities. Restricted securities that are
determined to be illiquid may not exceed the Funds' 15% limit on illiquid
securities, which is described below.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 15% of total assets in illiquid securities.
ready market, and cannot be easily sold, if at all,
at approximately the price that the Funds have valued
them.
- - ------------------------------------------------------- ----------------------------------------------------------------------------
</TABLE>
The Funds may also invest in other types of income-producing securities
including common stocks, preferred stocks and warrants. Please see the Statement
of Additional Information for additional descriptions on these securities as
well as those listed in the table above.
Lending securities
Each Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for its use in security transactions.
Borrowing from banks
Each Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. To the extent that it does so, the Funds may be
unable to meet their investment objective. The Funds will not borrow money in
excess of one-third of the value of their respective net assets.
Purchasing securities on a when-issued or delayed delivery basis
Each Fund may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
Portfolio turnover
We anticipate that each Fund's annual portfolio turnover may exceed 100%. A
turnover rate of 100% would occur if a Fund sold and replaced securities valued
at 100% of its net assets within one year. High turnover can result in increased
transaction costs and tax liability for the Funds.
9
<PAGE>
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in a Fund you should
carefully evaluate the risks. You should consider an investment in a Fund to be
a long-term investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when you invest in
the Funds. Please see the Statement of Additional Information for further
discussion of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- - ---------------------------------------- -------------------------------------------------------------------------------------
Risks How we strive to manage them
- - ---------------------------------------- -------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a We maintain a long-term investment approach and focus on high quality individual
majority of the securities in a bonds that we believe can provide a steady stream of income regardless of interim
certain market -- like the stock or fluctuations in the bond market. We do not try to predict overall interest rate
bond market -- will decline in value movements and do not buy and sell securities for short-term purposes.
because of factors such as economic
conditions, future expectations or We may hold a substantial part of each Fund's assets in cash or cash equivalents as
investor confidence. a temporary, defensive strategy.
- - ---------------------------------------- -------------------------------------------------------------------------------------
Interest rate risk is the risk that Interest rate risk is a significant risk for these Funds. In striving to manage
securities will decrease in value if this risk, we monitor economic conditions and the interest rate environment and may
interest rates rise. The risk is adjust each Fund's duration or average maturity as a defensive measure against
greater for bonds with longer interest rate risk.
maturities than for those with shorter
maturities.
- - ---------------------------------------- -------------------------------------------------------------------------------------
Credit risk is the possibility that a We strive to minimize credit risk by investing primarily in higher quality,
bond's issuer (or an entity that investment-grade corporate bonds.
insures the bond) will be unable to
make timely payments of interest and Any portion of the portfolio that is invested in high-yielding, lower quality
principal. corporate bonds is subject to greater credit risk. We strive to manage that risk
through careful bond selection, by limiting the percentage of the portfolio that
Investing in so-called "junk" or can be invested in lower quality bonds and by maintaining a diversified portfolio
"high-yield" bonds entails the risk of of bonds representing a variety of industries and issuers.
principal loss, which may be greater
than the risk involved in investment
grade bonds, particularly in times of
economic declines. High-yield bonds
are sometimes issued by companies
whose earnings at the time the bond is
issued are less than the projected
debt payments on the bonds.
- - ---------------------------------------- -------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------- -------------------------------------------------------------------------------------
Risks How we strive to manage them
- - ---------------------------------------- -------------------------------------------------------------------------------------
<S> <C>
Liquidity risk is the possibility that We limit the percentage of the portfolio that can be invested in illiquid
securities cannot be readily sold securities.
within seven days at approximately the
price that a Fund has valued them.
- - ---------------------------------------- -------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
-------------------------------------------- ----------------- ---------------
Delaware Delaware
Corporate Bond Extended
Fund Duration Bond
Fund
-------------------------------------------- ----------------- ---------------
As a percentage of average daily net assets 0.03%* 0.07%*
-------------------------------------------- ----------------- ---------------
*Reflects the waiver of fees by the manager.
Portfolio manager
Gary A. Reed has primary responsibility for making day-to-day investment
decisions for each Fund.
Gary A. Reed, Vice President/Senior Portfolio Manager for the Funds, holds an AB
in Economics from the University of Chicago and an MA in Economics from Columbia
University. He began his career in 1978 with the Equitable Life Assurance
Company in New York City, where he specialized in credit analysis. Prior to
joining the Delaware Investments in 1989, Mr. Reed was Vice President and
Manager of the fixed-income department at Irving Trust Company in New York. Mr.
Reed has managed both discretionary and structured fixed-income portfolios and
is experienced with a broad range of corporate fixed-income securities. Mr. Reed
has been managing the Funds since their inception.
12
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
Board of Trustees
<S> <C> <C>
Investment manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Shareholders
</TABLE>
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager or
sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASD) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
13
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the following:
o 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;
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor;
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate
of the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts;
o a bank, trust company and similar financial institution investing for its
own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee;
o 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; and
o clients of brokers or dealers affiliated with a broker or dealer, if such
broker or dealer has entered into an agreement with the Distributor
providing specifically for the purchase of shares of the Classes in
connection with special investment products, such as wrap accounts or
similar fee based programs. Investors may be charged a fee when effecting
transactions in shares of the Classes through a broker or agent that offers
these special products.
14
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800-510-4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
15
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on a Fund's net asset
value. If we receive your order after the close of trading, you will pay the
next business day's price. A business day is any day that the New York Stock
Exchange is open for business. We reserve the right to reject any purchase
order.
We determine each Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in each Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at fair market value using a method approved by the board of
trustees.
16
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
17
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares, you
will receive the net asset value as determined on the business day we receive
your request. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
Account minimums
If you redeem shares and your account balance falls below $250, a Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
Dividends, if any, are declared daily and paid monthly. Capital gains, if any,
are paid twice a year. We automatically reinvest all dividends and any capital
gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
Distributions declared in October, November or December but paid in January are
taxable as if they were paid in December.
18
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The
portfolio managers and investment professionals of the Funds consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
Investments by Fund of Funds
Each Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, a Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, a Fund may be required to sell securities or invest cash at times
when it would not otherwise do so. These transactions could also have tax
consequences if sales of securities result in gains, and could also increase
transactions costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on each
Fund and Foundation Funds as a result of these transactions.
19
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the Funds'
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Funds' financial statements, is included in the
Funds' annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------- ----------------------------
Delaware Corporate Bond
Fund
Institutional Class
- - --------------------------------------------------------------------------------------- ----------------------------
Period
9/15/98(1)
through
7/31/99
- - --------------------------------------------------------------------------------------- ----------------------------
<S> <C>
Net asset value, beginning of period $5.500
- - --------------------------------------------------------------------------------------- ----------------------------
Income (loss) from investment operations:
- - --------------------------------------------------------------------------------------- ----------------------------
Net investment income 0.212
- - --------------------------------------------------------------------------------------- ----------------------------
Net realized and unrealized loss on investments and futures contracts (0.216)
------
- - --------------------------------------------------------------------------------------- ----------------------------
Total from investment operations (0.004)
- - --------------------------------------------------------------------------------------- ----------------------------
Less dividends and distributions:
- - --------------------------------------------------------------------------------------- ----------------------------
Dividends from net investment income (0.212)
- - --------------------------------------------------------------------------------------- ----------------------------
Distributions from net realized gain on investments (0.004)
------
- - --------------------------------------------------------------------------------------- ----------------------------
Total dividends and distributions (0.216)
- - --------------------------------------------------------------------------------------- ----------------------------
- - --------------------------------------------------------------------------------------- ----------------------------
Net asset value, end of period $ 5.28
======
- - --------------------------------------------------------------------------------------- ----------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------- ----------------------------
<S> <C>
Total return(2) (0.14%)
- - --------------------------------------------------------------------------------------- ----------------------------
- - --------------------------------------------------------------------------------------- ----------------------------
Ratios and supplemental data:
- - --------------------------------------------------------------------------------------- ----------------------------
Net assets, end of period (000 omitted) $55,201
- - --------------------------------------------------------------------------------------- ----------------------------
Ratio of expenses to average net assets 0.55%
- - --------------------------------------------------------------------------------------- ----------------------------
Ratio of expenses to average net assets prior to expense limitation
and fees paid indirectly 1.01%
- - --------------------------------------------------------------------------------------- ----------------------------
Ratio of net investment income to average net assets 6.00%
- - --------------------------------------------------------------------------------------- ----------------------------
Ratio of net investment income to average net assets prior to expense limitation
and fees paid indirectly 5.54%
- - --------------------------------------------------------------------------------------- ----------------------------
Portfolio turnover 175%
- - --------------------------------------------------------------------------------------- ----------------------------
- - --------------------------------------------------------------------------------------- ----------------------------------
Delaware Extended Duration
Bond Fund
Institutional Class
- - --------------------------------------------------------------------------------------- ----------------------------------
Period
9/15/98(1)
through
7/31/99
- - --------------------------------------------------------------------------------------- ----------------------------------
Net asset value, beginning of period 5.500
- - --------------------------------------------------------------------------------------- ----------------------------------
Income (loss) from investment operations:
- - --------------------------------------------------------------------------------------- ----------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- - --------------------------------------------------------------------------------------- ----------------------------------
Net investment income 0.215
- - --------------------------------------------------------------------------------------- ----------------------------------
Net realized and unrealized loss on investments and futures contracts (0.347)
-------
- - --------------------------------------------------------------------------------------- ----------------------------------
Total from investment operations (0.132)
- - --------------------------------------------------------------------------------------- ----------------------------------
Less dividends and distributions:
- - --------------------------------------------------------------------------------------- ----------------------------------
Dividends from net investment income (0.215)
- - --------------------------------------------------------------------------------------- ----------------------------------
Distributions from net realized gain on investments (0.003)
-------
- - --------------------------------------------------------------------------------------- ----------------------------------
Total dividends and distributions (0.218)
- - --------------------------------------------------------------------------------------- ----------------------------------
Net asset value, end of period $ 5.150
=======
- - --------------------------------------------------------------------------------------- ----------------------------------
Total return(2) (2.52%)
- - --------------------------------------------------------------------------------------- ----------------------------------
Ratios and supplemental data:
- - --------------------------------------------------------------------------------------- ----------------------------------
Net assets, end of period (000 omitted) $55,631
- - --------------------------------------------------------------------------------------- ----------------------------------
Ratio of expenses to average net assets 0.55%
- - --------------------------------------------------------------------------------------- ----------------------------------
Ratio of expenses to average net assets prior to expense limitation
and fees paid indirectly 1.02%
- - --------------------------------------------------------------------------------------- ----------------------------------
Ratio of net investment income to average net assets 6.13%
- - --------------------------------------------------------------------------------------- ----------------------------------
Ratio of net investment income to average net assets prior to expense limitation
and fees paid indirectly 5.66%
- - --------------------------------------------------------------------------------------- ----------------------------------
Portfolio turnover 201%
- - --------------------------------------------------------------------------------------- ----------------------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
22
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's investments; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, and assume the shareholder has
reinvested all dividends and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
23
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Corporate bond
A debt security issued by a corporation. See Bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
24
<PAGE>
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
NASD Regulation, Inc. (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service,
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay dividends at a fixed rate
and is sometimes convertible into common stock.
25
<PAGE>
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Salomon Smith Barney High-Yield Bond Index
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Treasury bills
Securities issued by the U.S. Treasury with maturities of one year or less.
Treasury bonds
Securities issued by the U.S. Treasury with maturities of 10 years or longer.
Treasury notes
Securities issued by the U.S. Treasury with maturities of one to 10 years.
26
<PAGE>
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
27
<PAGE>
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. You can find more detailed information about the Funds in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in these Funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Funds, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- - ---------------------------
E-mail
[email protected]
Client Services Representative
800.510.4015
- - ------------
Delaphone Service
800.362.FUND (800.362.3863)
- - ---------------------------
For convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
Investment Company Act file number: 811-2071
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------ -------------------------------- ----------------
<S> <C> <C>
Fund name CUSIP number NASDAQ symbol
- - ------------------------------------------------------------------ -------------------------------- ----------------
Delaware Corporate Bond Fund Institutional Class 245908751 DGCIX
- - ------------------------------------------------------------------ -------------------------------- ----------------
Delaware Extended Duration Bond Fund Institutional Class 245914817 DEMIX
- - ------------------------------------------------------------------ -------------------------------- ----------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 1/99
28
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 29, 1999
DELAWARE DELCHESTER FUND
DELAWARE STRATEGIC INCOME FUND
DELAWARE HIGH-YIELD OPPORTUNITIES FUND
DELWARE CORPORATE BOND FUND
DELWARE EXTENDED DURATION BOND FUND
1818 Market Street, Philadelphia, PA 19103
For Prospectus, Performance and Information on Existing Accounts of
Class A Shares, Class B Shares and Class C Shares:
Nationwide 800-523-1918
For more information about Institutional Classes: 800-510-4015
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
Delaware Group Income Funds ("Income Funds"), a Delaware business
trust, is a professionally-managed mutual fund of the series type which
currently offers five series of shares: Delaware Delchester Fund ("Delchester
Fund"), Delaware Strategic Income Fund ("Strategic Income Fund"), Delaware
High-Yield Opportunities Fund ("High-Yield Opportunities Fund"), Delaware
Corporate Bond Fund ("Corporate Bond Fund") and Delaware Extended Duration Bond
Fund ("Extended Duration Bond Fund") (individually, a "Fund", and collectively,
the "Funds"). Each Fund offers three retail classes: Class A Shares, Class B
Shares and Class C Shares (individually, a "Class" and collectively, the "Fund
Classes"). Each Fund also offers an institutional class (collectively, the
"Institutional Classes").
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectuses for
the Fund Classes dated September 29, 1999, as it may be amended from time to
time. Part B should be read in conjunction with the Class' Prospectuses. Part B
is not itself a prospectus but is, in its entirety, incorporated by reference
into each Class' Prospectus. A prospectus relating to a Fund Class may be
obtained by writing or calling your investment dealer or by contacting each
Fund's national distributor, Delaware Distributors, L.P. (the "Distributor"), at
the above address or by calling the above phone numbers. The Funds' financial
statements, the notes relating thereto, the financial highlights and the report
of independent auditors are incorporated by reference from each Fund's Annual
Report into this Part B. The Annual Reports will accompany any request for Part
B. The Annual Reports can be obtained, without charge, by calling 800-523-1918.
<TABLE>
<CAPTION>
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
TABLE OF CONTENTS
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
<S> <C> <C> <C>
Investment Objectives and Policies Redemption and Exchange
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Performance Information Dividends and Distributions
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Performance Information Taxes
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Trading Practices and Brokerage Investment Management Agreements and Sub-Advisory
Agreement
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Purchasing Shares Officers and Trustees
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Retirement Plans General Information
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Investment Plans Appendix A -- Ratings
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Determining Offering Price and Net Asset Value Financial Statements
- - ---------------------------------------------------- -------- ----------------------------------------------------------- -------
</TABLE>
-1-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Restrictions
Fundamental Investment Restrictions
Each 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 of the
Fund, or 67% of the voting securities of that Fund 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 a Fund purchases securities.
A Fund may not:
1. Make investments that will result in the concentration (as that term
may be defined in the 1940 Act, any rule or order thereunder, or U.S. Securities
and Exchange Commission ("SEC") staff interpretation thereof) of its investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit a Fund from investing in obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities, or in
certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that a Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent a Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent a Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent a Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
Prospectus, each Fund will be subject to the following investment restrictions,
which are considered non-fundamental and may be changed by the Board of Trustees
without shareholder approval.
1. Each Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, a Fund may not operate as a "fund of funds" which
invests primarily in the shares of other investment companies as permitted by
Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
2
<PAGE>
2. Neither Fund may invest more than 15% of its net assets in
securities which it can not sell or dispose of in the ordinary course of
business within seven days at approximately the value at which a Fund has valued
the investment.
Additional Investment Restrictions - Non-Fundamental
Following are additional non-fundamental investment restrictions for the Funds:
Delchester Fund
Delchester 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 of
Delchester Fund, or 67% of the voting securities of Delchester Fund 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. Delchester 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. Delchester Fund will not invest for the purpose of acquiring
control of any company.
3. Delchester Fund will not purchase or retain securities of a company
which has an officer or director who is an officer or director of Income Funds,
Inc., or an officer, director or partner of the 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. Delchester Fund will not invest in securities of other investment
companies.
5. Delchester 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. Delchester Fund will not sell short any security or property.
7. Delchester Fund will not buy or sell commodities or commodity
contracts.
8. Delchester 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 Sundays and holidays) or such longer period as the SEC 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 1940 Act, except for notes to banks.
9. Delchester 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.
3
<PAGE>
10. Delchester 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. Delchester 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
Income Funds, Inc.'s officers, trustees or any of its affiliated persons. Such
persons may buy shares of the Fund for investment purposes, however, as
described under Purchasing Shares.
13. Delchester Fund will not invest more than 25% of its assets in any
one particular industry.
Although not a fundamental investment restriction, Delchester Fund
currently does not invest its assets in real estate limited partnerships or oil,
gas and other mineral leases.
Strategic Income Fund
Strategic Income 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 of Strategic Income Fund, or 67% of the voting securities of
Strategic Income Fund 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. With respect to 75% of its total assets, Strategic Income Fund will
not invest more than 5% of the value of its total assets in securities of any
one issuer (except obligations issued, or guaranteed by, the U.S. government,
its agencies or instrumentalities or certificates of deposit for any such
securities, and cash and cash items) or purchase more than 10% of the voting
securities of any one company.
2. Strategic Income 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, the purchase of securities issued by companies
that deal in real estate, or the investment in securities secured by real estate
or interests therein.
3. Strategic Income Fund will not sell short any security or property.
4. Strategic Income Fund will not buy or sell commodities or commodity
contracts, except that the Fund may enter into futures contracts and options
thereon.
5. Strategic Income Fund will not borrow money in excess of one-third
of the value of its net assets. Any borrowing will be done in accordance with
the rules and regulations prescribed from time to time by the SEC with respect
to open-end investment companies.
6. Strategic Income 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 securities to qualified broker/dealers or institutional investors for their
use relating to short sales and other security transactions.
4
<PAGE>
7. Strategic Income 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.
8. Strategic Income Fund will not invest more than 25% of the value of
its total assets in securities of issuers all of which conduct their principal
business activities in the same industry. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the above fundamental investment restrictions, Strategic
Income Fund has the following investment restrictions which may be amended or
changed without approval of shareholders.
1. Strategic Income Fund will not invest for the purpose of acquiring
control of any company.
2. Strategic Income Fund will not invest in securities of other
investment companies, except that the Fund may invest in securities of open-end,
closed-end and unregistered investment companies, in accordance with the
limitations contained in the Investment Company Act of 1940 at the time of the
investment.
3. Strategic Income Fund will not purchase or retain securities of a
company which has an officer or director who is an officer or director of Income
Funds, Inc., or an officer, director or partner of the Manager if, to the
knowledge of the Fund, one or more of such persons beneficially owns in the
aggregate more than 5% thereof.
4. Strategic Income 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 investment at the time
of purchase would cause more than 5% of the total Fund assets to be invested in
the securities of such company or companies.
Although not a fundamental investment restriction, Strategic Income
Fund currently does not invest its assets in real estate limited partnerships or
oil, gas and other mineral leases. In addition, Strategic Income Fund currently
does not purchase securities on margin except short-term credits that may be
necessary for the clearance of purchases and sales of securities, and the Fund
may make margin payments as may be necessary in connection with the futures and
options transactions described in the Fund's Prospectuses and this Part B.
High-Yield Opportunities Fund
High-Yield Opportunities 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 of High-Yield Opportunities Fund, or 67% of the voting
securities of High-Yield Opportunities Fund 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 the Fund purchases securities.
1. With respect to 75% of its total assets, High-Yield Opportunities
Fund will not invest more than 5% of its total assets in the securities of any
one issuer (other than obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities or certificates of deposit for any such
securities and cash and cash items) or purchase more than 10% of the voting
securities of any one company.
5
<PAGE>
2. High-Yield Opportunities Fund will not make any investment in real
estate. This restriction does preclude the Fund's purchase of securities issued
by real estate investment trusts, the purchase of securities issued by companies
that deal in real estate, or the investment in securities secured by real estate
or interests therein.
3. High-Yield Opportunities Fund will not sell short any security or
property.
4. High-Yield Opportunities Fund will not buy or sell commodities or
commodity contracts except that the Fund may enter into futures contracts and
options thereon.
5. High-Yield Opportunities Fund will not borrow money in excess of
one-third of the value of its net assets. Any borrowing will be done in
accordance with the rules and regulations prescribed from time to time by the
SEC with respect to open-end investment companies. The Fund shall not issue
senior securities as defined in the Investment Company Act of 1940, except for
notes to banks.
6. High-Yield Opportunities 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 securities to qualified broker/dealers or institutional investors for their
use relating to short sales and other security transactions.
7. High-Yield Opportunities 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 may be deemed to be an underwriter for purposes of the Securities
Act of 1933.
8. High-Yield Opportunities Fund will not invest more than 25% of its
total assets in securities of issuers all of which conduct their principal
business activities in the same industry. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the above fundamental investment restrictions,
High-Yield Opportunities Fund has the following investment restrictions which
may be amended or changed without approval of shareholders.
1. High-Yield Opportunities Fund will not invest for the purpose of
acquiring control of any company.
2. High-Yield Opportunities Fund will not invest in securities of other
investment companies, except the Fund may invest in securities of open-end,
closed-end and unregistered investment companies, in accordance with the
limitations contained in the Investment Company Act at the time of the
investment.
3. High-Yield Opportunities Fund will not write, purchase or sell
options, puts, calls or combinations thereof with respect to securities.
4. High-Yield Opportunities Fund will not enter into futures contracts
or options thereon.
5. High-Yield Opportunities Fund will not purchase or retain the
securities of any issuer which has an officer, director or security holder who
is a director or officer of Income Funds, Inc. or of the Manager if or so long
as the trustees and officers of Income Funds, Inc. and of the Manager together
own beneficially more than 5% of any class of securities of such issuer.
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6. High-Yield Opportunities Fund will not invest in interests in oil,
gas and other mineral leases or other mineral exploration or development
programs.
7. High-Yield Opportunities Fund will not purchase securities on margin
except short-term credits that may be necessary for the clearance of purchases
and sales of securities.
Delchester Fund
In investing for income and safety of principal, Delchester Fund's
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 Delchester Fund invests are subject to price fluctuations
particularly due to changes in interest rates and economic conditions.
Management will seek to achieve Delchester 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 Ratings Group ("S&P") or
rated P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's") or similarly
rated by other rating agencies.
As a matter of practice, Delchester Fund has consistently invested more
than 80% of its assets in such securities. With respect to the remaining assets,
if any, that Delchester 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, in unusual market conditions, in order to meet redemption
requests, for temporary defensive purposes, and pending investment, 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, Delchester Fund's assets are
invested primarily in unrated bonds and bonds rated BB or lower by S&P or Ba or
lower by Moody's.
High-Yield Opportunities Fund
The types of securities in which High-Yield Opportunities Fund invests
are subject to price fluctuations particularly due to changes in interest rates
and economic conditions. Management will seek to achieve High-Yield
Opportunities Fund's objective by investing at least 65% of the Fund's assets at
time of purchase in corporate bonds rated BB or lower by S&P or Ba or lower by
Moody's or similarly rated by other rating agencies, and in unrated bonds judged
to be of comparable quality by Delaware Management Company, Inc. (the
"Manager"). Unrated bonds may be more speculative in nature than rated bonds.
The Fund may also invest in securities of, or guaranteed by, the U.S.
and foreign governments, their agencies or instrumentalities and 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 S&P
or rated P-1 or P-2 by Moody's or similarly rated by other rating agencies, and
in unrated paper judged to be of comparable quality by the Manager.
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Corporate Bond Fund and Extended Duration Bond Fund
The types of securities in which each Fund invests are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Management will seek to achieve each Fund's objective by investing
in investment grade corporate bonds. Each Fund may also invest in corporate
bonds rated BB by S&P or Ba by Moody's or similarly rated by other rating
agencies, and in unrated bonds judged to be of comparable quality by Delaware
Management Company (the "Manager"). Unrated bonds may be more speculative in
nature than rated bonds.
Each Fund may also invest in securities of, or guaranteed by, the U.S.
and foreign governments, their agencies or instrumentalities and 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 S&P
or rated P-1 or P-2 by Moody's or similarly rated by other rating agencies, and
in unrated paper judged to be of comparable quality by the Manager.
Appendix A - Ratings in this Part B describes the ratings of S&P and
Moody's.
High-Yield, High Risk Securities
Investing in so-called "high-yield" or "high risk" securities entails
certain risks, including the risk of loss of principal, which may be greater
than the risks involved in investment grade securities, and which should be
considered by investors contemplating an investment in the Funds. Such
securities are sometimes issued by companies whose earnings at the time of
issuance are less than the projected debt service on the high-yield securities.
The risks include the following:
A. Youth and Volatility of the High-Yield Market--Although the market
for high-yield securities 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
securities, 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 securities, an increase in the number of high-yield bond defaults
and corresponding volatility in a Fund's net asset value.
B. 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 such securities for regulatory, financial or other
reasons, such as the savings and loan crisis. A less liquid secondary market may
have an adverse effect on a Fund's ability to dispose of particular issues, when
necessary, to meet a 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 a 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. Privately placed high-yield securities
are particularly susceptible to the liquidity and valuation risks outlined
above.
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C. 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
and could reduce the number of new high-yield securities being issued.
Corporate Bond Fund and Extended Duration Bond Fund will not purchase
securities rated below BB by S&P or Ba by Moody's. The Funds will not invest
more than 20% of its assets in such securities.
Zero Coupon and Pay-In-Kind Bonds
The credit risk factors pertaining to lower rated securities also apply
to lower rated zero coupon, deferred interest and pay-in-kind bonds. These bonds
carry an additional risk in that, unlike bonds that pay interest throughout the
period to maturity, a Fund will realize no cash until the cash payment date and,
if the issuer defaults, the Fund may obtain no return at all on its investment.
Zero coupon, deferred interest and pay-in-kind bonds involve additional special
considerations.
Zero coupon or deferred interest securities are debt obligations that
do not entitle the holder to any periodic payments of interest prior to maturity
or a specified date when the securities begin paying current interest (the "cash
payment date") and therefore are generally issued and traded at a discount from
their face amounts or par value. The discount varies depending on the time
remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer, typically
decreases as the final maturity or cash payment date of the security approaches.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero coupon
or deferred interest securities having similar maturities and credit quality.
Current federal income tax law requires that a holder of a zero coupon security
report as income each year the portion of the original issue discount on the
security that accrues that year, even though the holder receives no cash
payments of interest during the year.
Pay-in-kind bonds are securities that pay interest through the issuance
of additional bonds. The Fund will be deemed to receive interest over the life
of these bonds and be treated as if interest were paid on a current basis for
federal income tax purposes, although no cash interest payments are received by
the Fund until the cash payment date or until the bonds mature. Accordingly,
during periods when the Fund receive no cash interest payments on its zero
coupon securities or deferred interest or pay-in-kind bonds, it may be required
to dispose of portfolio securities to meet the distribution requirements and
these sales may be subject to the risk factors discussed above. The Fund is not
limited in the amount of its assets that may be invested in these types of
securities.
Foreign and Emerging Markets Securities
Strategic Income Fund, High-Yield Opportunities Fund, Corporate Bond
Fund and Extended Duration Bond Fund may invest in foreign and emerging markets
securities. Investors should recognize that investing in foreign issuers,
including issuers located in emerging market countries, involves certain
considerations which are not typically associated with investing in United
States issuers. Since the stocks of foreign companies are frequently denominated
in foreign currencies, and since Strategic Income Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of Strategic Income Fund permit it
to enter into forward foreign currency exchange contracts in order to hedge the
Fund's holdings and commitments against changes in the level of future currency
rates. Such contracts involve an obligation to purchase or sell a specific
currency at a future date at a price set at the time of the contract.
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There are a number of risks involved in investing in foreign
securities. For example, the assets and profits appearing on the financial
statements of a developing or emerging country issuer may not reflect its
financial position or results of operations in the way they would be reflected
had the financial statements been prepared in accordance with United States
generally accepted accounting principles. Also, for an issuer that keeps
accounting records in local currency, inflation accounting rules may require for
both tax and accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items in terms of
currency or constant purchasing power. Inflation accounting may indirectly
generate losses on profits.
With reference to the Fund's investment in foreign government
securities, there is the risk that a foreign governmental issuer may default on
its obligations. If such a default occurs, the Fund may have limited effective
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting party itself, and the ability
of the holder of foreign government and government-related debt securities to
obtain recourse may be subject to the political climate in the relevant country.
In addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of other foreign government and
government-related debt obligations in the event of default under their
commercial bank loan agreements.
The issuers of the foreign government and government-related debt
securities in which the Fund expects to invest have in the past experienced
substantial difficulties in servicing their external debt obligations, which
have led to defaults on certain obligations and the restructuring of certain
indebtedness. Restructuring arrangements have included, among other things,
reducing and rescheduling interest and principal payments by negotiating new or
amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Holders of certain foreign government and government-related high-yield
securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no
assurance that the Brady Bonds and other foreign government and
government-related securities in which the Fund may invest will not be subject
to similar defaults or restructuring arrangements which may adversely affect the
value of such investments. Furthermore, certain participants in the secondary
market for such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.
There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by Strategic Income Fund.
Payment of such interest equalization tax, if imposed, would reduce the Fund's
rate of return on its investment. Dividends paid by foreign issuers may be
subject to withholding and other foreign taxes which may decrease the net return
on such investments as compared to dividends paid to the Fund by United States
corporations. Special rules govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules generally
include the following: (i) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in Treasury
Regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instruments other than
any "regulated futures contract" or "nonequity option" marked to market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also
treated as a transaction subject to the special currency rules. However, foreign
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currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules, if they are or would be treated as
sold for their fair market value at year-end under the marking to market rules
applicable to other futures contracts, unless an election is made to have such
currency rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss on
the underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. Certain transactions subject to the special currency rules
that are part of a "section 988 hedging transaction" (as defined in the Internal
Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations)
will be integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. The income tax effects of integrating and
treating a transaction as a single transaction are generally to create a
synthetic debt instrument that is subject to the original discount provisions.
It is anticipated that some of the non-U.S. dollar denominated investments and
foreign currency contracts the Funds may make or enter into will be subject to
the special currency rules described above.
Investments and opportunities for investments by foreign investors in
emerging market countries are subject to a variety of national policies and
restrictions. These restrictions may take the form of prior governmental
approval, limits on the amount or type of securities held by foreigners, limits
on the types of companies in which foreigners may invest and prohibitions on
foreign investments in issuers or industries deemed sensitive to national
interests. Additional restrictions may be imposed at any time by these or other
countries in which the Funds invest. Although these restrictions may in the
future make it undesirable to invest in emerging countries, a Fund's manager or
sub-adviser does not believe that any current registration restrictions would
affect its decision to invest in such countries.
Foreign Currency Transactions
The foreign investments made by Strategic Income Fund present currency
considerations which pose special risks. The Sub-Adviser uses a purchasing power
parity approach to evaluate currency risk. A purchasing power parity approach
attempts to identify the amount of goods and services that a dollar will buy in
the United States and compares that to the amount of a foreign currency required
to buy the same amount of goods and services in another country. When the dollar
buys less abroad, the foreign currency may be considered to be overvalued. When
the dollar buys more abroad, the foreign currency may be considered to be
undervalued. Eventually, currencies should trade at levels that should make it
possible for the dollar to buy the same amount of goods and services overseas as
in the United States.
Strategic Income Fund may purchase or sell currencies and/or engage in
forward foreign currency transactions in order to expedite settlement of
portfolio transactions and to minimize currency value fluctuations. Forward
foreign currency contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Strategic Income Fund will account for forward
contracts by marking to market each day at daily exchanges rates. When the Fund
enters into a forward contract to sell an amount of foreign currency
approximating the value of some or all of the Fund's assets denominated in such
foreign currency, the Fund's custodian bank or subcustodian will place cash or
liquid high grade debt securities in a separate account of the Fund in an amount
not less than the value of the Fund's total assets committed to the consummation
of such forward contract. If the additional cash or securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of Strategic Income Fund's commitments with respect to such contract.
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Strategic Income Fund's use of forward foreign currency exchange
contracts for hedging and other non-speculative purposes involves certain risks.
For example, a lack of correlation between price changes of a forward contract
and the assets being hedged could render Strategic Income Fund's hedging
strategy unsuccessful and could result in losses. The same results could occur
if movements of foreign currencies do not correlate as expected by the
Sub-Adviser at a time when the Fund is using a hedging instrument denominated in
one foreign currency to protect the value of a security denominated in a second
foreign currency against changes caused by fluctuations in the exchange rate for
the dollar and the second currency. If the direction of securities prices,
interest rates or foreign currency prices is incorrectly predicted, Strategic
Income Fund will be in a worse position than if such transactions had not been
entered into. In addition, since there can be no assurance that a liquid
secondary market will exist for any contract purchased or sold, the Fund may be
required to maintain a position until exercise or expiration, which could result
in losses. Further, forward contracts entail particular risks related to
conditions affecting the underlying currency. Over-the-counter transactions in
forward contracts also involve risks arising from the lack of an organized
exchange trading environment.
Successful use by Strategic Income Fund of forward foreign currency
exchange contracts for hedging and other non-speculative purposes is subject to
the Sub-Adviser's ability to predict correctly the direction of movements in
foreign currencies relative to the U.S. dollar. This requires different skills
and techniques than predicting changes in the prices of individual securities.
Non-Traditional Equity Securities
Strategic Income Fund may invest in convertible preferred stocks that
offer enhanced yield features, such as Preferred Equity Redemption Cumulative
Stock ("PERCS"), which provide an investor, such as the Fund, with the
opportunity to earn higher dividend income than is available on a company's
common stock. A PERCS is a preferred stock which generally features a mandatory
conversion date, as well as a capital appreciation limit which is usually
expressed in terms of a stated price. Upon the conversion date, most PERCS
convert into common stock of the issuer (PERCS are generally not convertible
into cash at maturity). Under a typical arrangement, if after a predetermined
number of years the issuer's common stock is trading at a price below that set
by the capital appreciation limit, each PERCS would convert to one share of
common stock. If, however, the issuer's common stock is trading at a price above
that set by the capital appreciation limit, the holder of the PERCS would
receive less than one full share of common stock. The amount of that fractional
share of common stock received by the PERCS holder is determined by dividing the
price set by the capital appreciation limit of the PERCS by the market price of
the issuer's common stock. PERCS can be called at any time prior to maturity,
and hence do not provide call protection. However, if called early, the issuer
may pay a call premium over the market price to the investor. This call premium
declines at a preset rate daily, up to the maturity date of the PERCS.
Strategic Income Fund, High-Yield Opportunities Fund, Corporate Bond
Fund and Extended Duration Bond Fund may also invest in other enhanced
convertible securities. These include but are not limited to ACES (Automatically
Convertible Equity Securities), PEPS (Participating Equity Preferred Stock),
PRIDES (Preferred Redeemable Increased Dividend Equity Securities), SAILS (Stock
Appreciation Income Linked Securities), TECONS (Term Convertible Notes), QICS
(Quarterly Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS, and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.
When-Issued and Delayed Delivery Securities
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the Fund enters into the commitment
and no interest accrues to the Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.
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Borrowing From Banks
Each Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. The Fund will not borrow money in excess
of one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net 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 Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.
Duration
Most debt obligations provide interest (coupon) payments in addition to
a final (par) payment at maturity. Some obligations also have call provisions.
Depending on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates. Traditionally, a debt
security's term-to-maturity has been used as a proxy for the sensitivity of the
security's price to changes in interest rates (which is the interest rate risk
or volatility of the security). However, term-to-maturity measures only the time
until a debt security provides its final payment, taking no account of the
pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept of
term-to-maturity. Duration incorporates a bond's yield, coupon interest
payments, final maturity and call features into one measure. Duration is one of
the fundamental tools used by the Manager in the selection of fixed income
securities. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any fixed income security with interest payments
occurring prior to the payment of principal, duration is always less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a fixed income security, the longer the duration of
the security; conversely, the higher the stated or coupon rate of interest of a
fixed income security, the shorter the duration of the security.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other similar situations, the Manager will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Restricted Securities
The Funds 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 Funds obtaining a less favorable price on a resale. Each Fund will not
purchase illiquid assets if more than 15% of its respective net assets (10% for
Delchester Fund) would then consist of such illiquid securities.
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Repurchase Agreements
The Funds are permitted to invest in repurchase agreements, but they
normally so only 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 a Fund, if any, would be the difference between the repurchase price and
the market value of the security. Each Fund will limit its investments in
repurchase agreements to those which the Manager, under the guidelines of the
Board of Trustees, determines present minimal credit risks and which are of high
quality. In addition, each Fund must have collateral of at least 102% of the
repurchase price, including the portion representing the Fund's yield under such
agreements, which is monitored on a daily basis.
The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the Investment
Company Act of 1940 (the "1940 Act") to allow the such funds jointly to invest
cash balances. The Funds 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.
Portfolio Loan Transactions
Each Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.
It is the understanding of the Manager that the staff of the Securities
and Exchange Commission (the "SEC" or the "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 involved 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 any 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 Trustees of Income Funds, Inc. know that a
material event will occur affecting an investment loan, they must either
terminate the loan in order to vote the proxy or enter into an alternative
arrangement with the borrower to enable the Trustees to vote the proxy.
The major risk to which a 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, each Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Trustees, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.
Options, Futures and Options on Futures
Strategic Income Fund may purchase call options or purchase put options
and will not engage in option strategies for speculative purposes. Strategic
Income Fund may invest in options that are either listed on U.S. or recognized
foreign exchanges or traded over-the-counter. Certain over-the-counter options
may be illiquid. Thus, it may not be possible to close options positions and
this may have an adverse impact on the Fund's ability to effectively hedge its
securities. Strategic Income Fund will not, however, invest more than 15% of the
value of its net assets in illiquid securities.
14
<PAGE>
Purchasing Call Options--Strategic Income Fund may purchase call
options to the extent that premiums paid by the Fund do not aggregate more than
2% of the Fund's total assets. When the Fund purchases a call option, in return
for a premium paid by the Fund to the writer of the option, the Fund obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that Strategic
Income Fund may alter portfolio characteristics and modify portfolio maturities
without incurring the cost associated with portfolio transactions.
Strategic Income Fund may, following the purchase of a call option,
liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. Strategic Income Fund will realize a profit from a closing sale
transaction if the price received on the transaction is more than the premium
paid to purchase the original call option; the Fund will realize a loss from a
closing sale transaction if the price received on the transaction is less than
the premium paid to purchase the original call option.
Although Strategic Income Fund will generally purchase only those call
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange may exist. In such event, it may not be possible to effect
closing transactions in particular options, with the result that the Fund would
have to exercise its options in order to realize any profit and would incur
brokerage commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by Strategic Income Fund may expire
without any value to the Fund.
Purchasing Put Options--Strategic Income Fund may invest up to 2% of
its total assets in the purchase of put options. Strategic Income Fund will, at
all times during which it holds a put option, own the security covered by such
option.
A put option purchased by Strategic Income Fund gives it the right to
sell one of its securities for an agreed price up to an agreed date. The Fund
intends to purchase put options in order to protect against a decline in the
market value of the underlying security below the exercise price less the
premium paid for the option ("protective puts"). The ability to purchase put
options will allow Strategic Income Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. If
the security does not drop in value, Strategic Income Fund will lose the value
of the premium paid. The Fund may sell a put option which it has previously
purchased prior to the sale of the securities underlying such option. Such sale
will result in a net gain or loss depending on whether the amount received on
the sale is more or less than the premium and other transaction costs paid on
the put option which is sold.
Strategic Income Fund may sell a put option purchased on individual
portfolio securities. Additionally, the Fund may enter into closing sale
transactions. A closing sale transaction is one in which the Fund, when it is
the holder of an outstanding option, liquidates its position by selling an
option of the same series as the option previously purchased.
Futures and Options on Futures--Strategic Income Fund may enter into
contract for the purchase or sale for future delivery of securities or foreign
currencies. When the Fund engages in futures transactions, to the extent
required by the SEC, it will maintain with its custodian bank, assets in a
segregated account to cover its obligations with respect to such contracts,
which assets will consist of cash, cash equivalents or high quality debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the margin payments made by the Fund with respect to such futures contracts.
15
<PAGE>
The Fund may enter into such futures contracts to protect against the
adverse affects of fluctuations in interest or foreign exchange rates without
actually buying or selling the securities or foreign currency. For example, if
interest rates are expected to increase, the Fund might enter into futures
contracts for the sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the debt securities owned by the Fund.
If interest rates did increase, the value of the debt securities in the
portfolio would decline, but the value of the futures contracts to the Fund
would increase at approximately the same rate, thereby keeping the net asset
value of the Fund from declining as much as it otherwise would have. Similarly,
when it is expected that interest rates may decline, futures contracts may be
purchased to hedge in anticipation of subsequent purchases of securities at
higher prices. Since the fluctuations in the value of futures contracts should
be similar to those of debt securities, the Fund could take advantage of the
anticipated rise in value of debt securities without actually buying them until
the market had stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the cash market.
With respect to options on futures contracts, when Strategic Income
Fund is not fully invested, it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates. The writing
of a call option on a futures contract constitutes a partial hedge against
declining prices of the U.S. government securities which are deliverable upon
exercise of the futures contract. If the futures price at the expiration of the
option is below the exercise price, Strategic Income Fund will retain the full
amount of the option premium which provides a partial hedge against any decline
that may have occurred in the portfolio holdings. The writing of a put option on
a futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price,
Strategic Income Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of U.S. government
securities which Strategic Income Fund intends to purchase.
If a put or call option that Strategic Income Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between the value of
its portfolio securities and changes in the value of its futures positions,
Strategic Income Fund's losses from existing options on futures may, to some
extent, be reduced or increased by changes in the value of portfolio securities.
Strategic Income Fund will purchase a put option on futures contracts to hedge
the Fund's portfolio against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction,
Strategic Income Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize a loss. For example, if
Strategic Income Fund hedged against the possibility of an increase in interest
rates which would adversely affect the price of U.S. government securities held
in its portfolio and interest rates decrease instead, Strategic Income Fund will
lose part or all of the benefit of the increased value of its U.S. government
securities which it has because it will have offsetting losses in its futures
position. In addition, in such situations, if the Fund had insufficient cash, it
may be required to sell U.S. government securities from its portfolio to meet
daily variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. Strategic
Income Fund may be required to sell securities at a time when it may be
disadvantageous to do so.
Further, with respect to options on futures contracts, Strategic Income
Fund may seek to close out an option position by writing or buying an offsetting
position covering the same securities or contracts and have the same exercise
price and expiration date. The ability to establish and close out positions on
options will be subject to the maintenance of a liquid secondary market, which
cannot be assured.
16
<PAGE>
Although not fundamental policy, the Fund currently intends to limit
its investments in futures contracts and options thereon to the extent that not
more than 5% of the Funds assets are required as futures contract margin
deposits and premiums on options and only to the extent that obligations under
such contracts and transactions represent not more than 20% of the Fund's
assets.
Concentration
In applying a Fund's policy on concentration; (i) utility companies
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (iii) asset backed
securities will be classified according to the underlying assets securing such
securities.
17
<PAGE>
PERFORMANCE INFORMATION
From time to time, each Fund may state its Classes' total return in
advertisements and other types of literature. Any statement 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 periods, as applicable. Each
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.
In presenting performance information for Class A Shares, the Limited
CDSC, applicable only to certain redemptions of those shares, will not be
deducted from any computation of total return. See the Prospectus for a
description of the Limited CDSC and the limited instances in which it applies.
All references to a CDSC in this Performance Information section will apply to
Class B Shares or Class C Shares.
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:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of
$1,000 from which, in the case of only
Class A Shares, the maximum front-end
sales charge is deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period
after the deduction of the applicable
CDSC, if any, with respect to Class B
Shares and Class C Shares
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, each Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
Each Fund may also state total return performance for its Classes in
the form of an average annual return. This average annual return figure will be
computed by taking the sum of a Class' annual returns, then dividing that figure
by the number of years in the overall period indicated. The computation will
reflect the impact of the maximum front-end sales charge or CDSC, if any, paid
on the illustrated investment amount against the first year's return.
The average annual total return (and, as applicable, aggregate total
return) for Class A Shares at offer reflects the maximum front-end sales charge
of 4.75% paid on the purchase of shares. The average annual total return (and,
as applicable, aggregate total return) for Class A Shares at net asset value
(NAV) does not reflect the payment of any front-end sales charge.
The average annual total return (and, as applicable, aggregate total
return) for Class B Shares and Class C Shares including deferred sales charge
reflects the deduction of the applicable CDSC that would have been paid if the
shares were redeemed at July 31, 1999. The average annual total return (and, as
applicable, aggregate total return) for Class B Shares and Class C Shares
excluding deferred sales charge assumes the shares were not redeemed at July 31,
1999 and therefore does not reflect the deduction of a CDSC.
18
<PAGE>
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
Average Annual Total Return
<TABLE>
<CAPTION>
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Class B Class B Class C Class C
Class A (1) Class A (1) Institutional including excluding including excluding
at offer(2) at NAV Class CDSC CDSC CDSC CDSC
Delchester (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund 8/20/70) 8/20/70) 6/1/92) 5/2/94) 5/2/94) 11/29/95) 11/29/95)
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
7/31/99 (12.02%) (7.65%) (7.42%) (11.67%) (8.34%) (9.18%) (8.34%)
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
3 years ended
7/31//99 4.59% 6.32% 6.58% 4.71% 5.53% 5.53% 5.53%
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
5 years ended
7/31/99 6.07% 7.10% 7.36% 6.03% 6.30% N/A N/A
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
10 years ended
7/31/99 7.86% 8.39% 8.66% N/A N/A N/A N/A
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
15 years ended
7/31//99 10.13% 10.50% 10.70% N/A N/A N/A N/A
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Life of Fund 9.06% 9.25% 9.36% 5.54% 5.67% 5.95% 5.95%
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
at offer at NAV Class CDSC CDSC CDSC CDSC
Strategic Income (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 0/1/96) 10/1/96)
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
7/31/99 (7.34%) (2.77%) (2.46%) (6.87%) (3.31%) (4.20%) (3.32%)
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Life of Fund 2.89% 4.65% 4.90% 3.05% 3.93% 3.93% 3.93%
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
High-Yield at offer at NAV Class CDSC CDSC CDSC CDSC
Opportunities (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 12/30/96) 12/30/96) 12/30/96) 2/17/98) 2/17/98) 2/17/98) 2/17/98)
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
7/31/99 (8.88%) (4.26%) (3.96%) (8.37%) (4.91%) (5.78%) (4.91%)
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Life of Fund 6.23% 8.21% 8.39% (3.50%) (1.06%) (1.08%) (1.08%)
- - ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
</TABLE>
20
<PAGE>
Aggregate Total Return
<TABLE>
<CAPTION>
- - ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
at offer at NAV Class CDSC CDSC CDSC CDSC
Corporate Bond (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98)
- - ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund (5.01%) (0.34%) (0.14%) (4.72%) (0.88%) (1.84%) (0.88%)
- - ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
</TABLE>
Aggregate Total Return
<TABLE>
<CAPTION>
- - ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
Extended at offer at NAV Class CDSC CDSC CDSC CDSC
Duration Bond (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98)
- - ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund (7.24%) (2.68%) (2.52%) (7.03%) (3.28%) (4.09%) (3.15%)
- - ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
</TABLE>
- - -------------------
(1) Performance figures for periods after May 31, 1992 reflect applicable Rule
12b-1 distribution expenses. Future performance will be affected by such
expenses.
(2) Total return reflects voluntary expense limitations in effect for the
Fund. Returns would be lower without the caps. See Investment Management
Agreement.
Each Fund may also quote its current yield for each Class 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 6
YIELD = 2[(-------- + 1) -- 1]
cd
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.
21
<PAGE>
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 yields of Class A Shares, Class B Shares and Class C Shares of each
Fund as of July 31, 1999 using this formula were as follows:
<TABLE>
<CAPTION>
- - --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Class A Shares Class B Shares Class C Shares Institutional Class
Shares
- - --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
Delchester Fund 9.78% 9.53% 9.53% 10.57%
- - --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Strategic Income Fund 8.32% 7.97% 7.97% 9.02%
- - --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
High-Yield Opportunities
Fund 8.01% 7.70% 7.70% 8.73%
- - --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Corporate Bond Fund 6.34% 5.89% 5.89% 6.91%
- - --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Extended Duration Bond
Fund 6.82% 6.43% 6.41% 7.43%
- - --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
</TABLE>
Yield calculations assume the maximum front-end sales charge, if any,
and does not reflect the deduction of any CDSC or Limited CDSC. The yields for
Strategic Income Fund, High-Yield Opportunities Fund, Corporate Bond Fund and
Extended Duration Bond Fund reflect the expense limitations in effect for the
Fund. Actual yield 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 a
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of a Fund may change. Unlike money market funds,
each Fund invests in longer-term securities that fluctuate in value and do so in
a manner inversely correlated with changing interest rates. A Fund's net asset
value will tend to rise when interest rates fall. Conversely, a 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 a Fund will vary from day to day and investors
should consider the volatility of a Fund's net asset value as well as its yield
before making a decision to invest.
Total return performance of each Class 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 CDSC, 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. As securities prices fluctuate, an illustration of past
performance should not be considered as representative of future results.
From time to time, each Fund may also quote its Classes' actual total
return and/or yield performance, dividend results and other performance
information in advertising and other types of literature. This information may
be compared to that of other mutual funds with similar investment objectives and
to stock, bond and other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance of a Fund (or Class)
may be compared to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. or the performance of unmanaged indices compiled or maintained
by statistical research firms such as Lehman Brothers or Salomon Brothers, Inc.
22
<PAGE>
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare a Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The total
return performance reported for these indices will reflect the reinvestment of
all distributions on a quarterly basis and market price fluctuations. The
indices do not take into account any sales charge or other fees. A direct
investment in an unmanaged index is not possible.
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. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which a Fund may
invest and the assumptions that were used in calculating the blended performance
will be described.
Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. 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.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. A Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of a Fund. Each Fund may also compare performance to that of other compilations
or indices that may be developed and made available in the future.
A Fund may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments or global or international investments), economic and
political conditions, the relationship between sectors of the economy and the
economy as a whole, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
bills.
23
<PAGE>
From time to time advertisements, sales literature, communications to
shareholders or other materials may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund), as well as the views as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund. In
addition, selected indices may be used to illustrate historic performance of
selected asset classes. A Fund may also include in advertisements, sales
literature, communications to shareholders or other materials, charts, graphs or
drawings which illustrate the potential risks and rewards of investment in
various investment vehicles, including but not limited to, domestic stocks,
and/or bonds, treasury bills and shares of that Fund. In addition,
advertisements, sales literature, communications to shareholders or other
materials may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax planning and investment alternatives to certificates of deposit
and other financial instruments. Such sales literature, communications to
shareholders or other materials may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
Materials may refer to the CUSIP numbers of a Fund and may illustrate
how to find the listings of that Fund in newspapers and periodicals. Materials
may also include discussions of other Fund products and services.
Each Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, a Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. Each Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to a Fund may include information
regarding the background and experience of its portfolio managers.
The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class of the Funds through
July 31, 1999. Comparative information on the Consumer Price Index is also
included. For these purposes, the calculations reflect maximum sales charges, if
any, and assume the reinvestment of any capital gains distributions and income
dividends paid during the indicated periods. The performance does not reflect
any income taxes payable by shareholders on the reinvested distributions
included in the calculations. The performance of Class A Shares as shown below,
reflects maximum front-end sales charge paid on the purchase of shares but may
also be shown without reflecting the impact on any front-end sales charge. The
performance of Class B Shares and Class C Shares is calculated both with the
applicable CDSC included and excluded. The net asset value of a Class fluctuates
so shares, when redeemed, may be worth more or less than the original
investment, and a Class' results should not be considered as representative of
future performance.
24
<PAGE>
Cumulative Total Return
<TABLE>
<CAPTION>
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
Class B Class B Class C Class C
Class A (1) Class A (1) Institutional including excluding including excluding
at offer(2) at NAV Class CDSC CDSC CDSC CDSC
(Inception (Inception (Inception (Inception (Inception (Inception (Inception
Delchester Fund 8/20/70) 8/20/70) 6/1/92) 5/2/94) 5/2/94) 11/29/95) 11/29/95)
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 (8.65%) (4.02%) (3.96%) (7.94%) (4.20%) (5.14%) (4.20%)
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
6 months ended
7/31/99 (5.61%) (0.96%) (0.83%) (5.09%) (1.32%) (2.20%) (1.32%)
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
9 months ended
7/31/99 (1.32%) 3.64% 3.84% (0.77%) 3.07% 2.11% (3.07%)
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
1 year ended
7/31/99 (12.02%) (7.65%) (7.42%) (11.67%) (8.34%) (9.18%) (8.34%)
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
3 years ended
7/31/99 14.41% 20.18% 21.08% 14.82% 17.53% 17.52% 17.52%
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
5 years ended
7/31/99 34.25% 40.91% 42.66% 34.03% 35.75% N/A N/A
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
10 years ended
7/31/99 113.18% 123.72% 129.41% N/A N/A N/A N/A
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
15 years ended
7/31/99 325.43% 346.86% 359.59% N/A N/A N/A N/A
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
Life of Fund 1,132.61% 1,194.58% 1,231.45% 32.73% 33.55% 23.63% 23.63%
- - ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
</TABLE>
25
<PAGE>
Cumulative Total Return
<TABLE>
<CAPTION>
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
at offer at NAV Class CDSC CDSC CDSC CDSC
Strategic Income (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 10/1/96)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 (7.27%) (2.73%) (2.65%) (6.73%) (2.92%) (3.97%) (2.92%)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
6 months ended
7/31/99 (7.34%) (2.73%) (2.57%) (6.82%) (3.10%) (4.03%) (3.10%)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
9 months ended
7/31/99 (7.73%) (3.08%) (2.84%) (7.25%) (3.62%) (4.53%) (3.62%)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
1 year ended 7/31/99 (7.34%) (2.77%) (2.46%) (6.87%) (3.31%) (4.20%) (3.32%)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
Life of Fund 8.41% 13.73% 14.50% 8.89% 11.54% 11.53% 11.53%
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
High-Yield at offer at NAV Class CDSC CDSC CDSC CDSC
Opportunities (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 12/30/96) 12/30/96) 12/30/96) 2/17/98) 2/17/98) 2/17/98) 3/17/98)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 (6.10%) (1.49%) (1.41%) (5.52%) (1.66%) (2.62%) (1.66%)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
6 months ended
7/31/99 (4.55%) 0.12% 0.28% (4.07%) (0.21%) (1.17%) (0.21%)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
9 months ended
7/31/99 (3.24%) (1.65%) (1.89%) (2.70%) 1.14% 0.18% 1.14%
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
1 year ended 7/31/99 (8.88%) (4.26%) (3.96%) (8.37%) (4.91%) (5.78%) (4.91%)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
Life of Fund 16.97% 22.71% 23.26% (5.03%) (1.54%) (1.56%) (1.56%)
- - --------------------- ------------ --------------- ----------------- ---------------- --------------- -------------- --------------
</TABLE>
26
<PAGE>
Cumulative Total Return
<TABLE>
<CAPTION>
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
at offer at NAV Class CDSC CDSC CDSC CDSC
Corporate Bond (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 (7.06%) (2.49%) (2.43%) (6.52%) (2.68%) (3.64%) (2.68%)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
6 months ended
7/31/99 (8.88%) (4.40%) (4.28%) (8.47%) (4.76%) (5.68%) (4.75%)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
9 months ended
7/31/99 (7.10%) (2.47%) (2.28%) (6.76%) (3.00%) (3.94%) (3.00%)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
Life of Fund (5.01%) (0.34%) (0.14%) (4.72%) (0.88%) (1.84%) (0.88%)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
</TABLE>
<TABLE>
<CAPTION>
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
at offer at NAV Class CDSC CDSC CDSC CDSC
Extended Duration (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Bond Fund(2) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 (8.31%) (3.76%) (3.71%) (7.74%) (3.95%) (4.90%) (3.95%)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
6 months ended
7/31/99 (11.20%) (6.84%) (6.74%) (10.80%) (7.19%) (8.10%) (7.19%)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
9 months ended
7/31/99 (9.28%) (4.76%) (4.60%) (9.01%) (5.35%) (6.13%) (5.22%)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
Life of Fund (7.24%) (2.68%) (2.52%) (7.03%) (3.28%) (4.09%) (3.15%)
- - --------------------- --------------- --------------- ----------------- ---------------- --------------- -------------- ------------
</TABLE>
- - -------------------
(1) Performance figures for periods after May 31, 1992 reflect applicable Rule
12b-1 distribution expenses. Future performance will be affected by such
expenses.
(2) Total return reflects expense limitations in effect for the Fund. Returns
would be lower without the caps. See Investment Management Agreement.
27
<PAGE>
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Funds and other mutual funds available from
Delaware Investments, 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 Funds', and other
Delaware Investments funds', investment disciplines employed in seeking their
objectives. The Distributor may also from time to time cite general or specific
information about the institutional clients of the Manager, including the number
of such clients serviced by such persons.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Investments offers three services -- Automatic Investing Program, Direct Deposit
Program and the Wealth Builder Option -- that can help to keep your regular
investment program on track. See Investing by Electronic Fund Transfer - Direct
Deposit Purchase Plan and Automatic Investing Plan under Investment Plans and
Wealth Builder Option under Investment Plans for a complete description of these
services, including restrictions or limitations.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
---------- --------- ---------
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $5.00 12
Month 4 $100 $10.00 10
---- ------ --
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of any stock or bond fund available from
Delaware Investments.
28
<PAGE>
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding. Each Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.
29
<PAGE>
TRADING PRACTICES AND BROKERAGE
Brokers, dealers and banks are selected to execute transactions for the
purchase or sale of portfolio securities on the basis of the Manager's judgment
of their professional capability to provide the service. The primary
consideration is to have brokers, dealers or banks execute transactions at best
execution. Best execution refers to many factors, including the price paid or
received for a security, the commission charged, the promptness and reliability
of execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. In nearly all instances, trades are made on a net basis where
securities are either bought or sold directly from or to a broker, dealer or
bank. In these instances, there is no direct commission charged, but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission. When a commission is paid, a Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of the
Manager's trading department as to rates paid and charged for similar
transactions throughout the securities industry. In some instances, a Fund pays
a minimal share transaction cost when the transaction presents no difficulty.
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.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") and
each Fund's Investment Management Agreement, higher commissions are permitted to
be paid to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, a 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 a Fund and to other funds in the Delaware
Investments family. Subject to best price and execution, commissions allocated
to brokers providing such pricing services may or may not be generated by the
funds receiving the pricing service.
30
<PAGE>
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 Board of
Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Conduct Rules of the NASD Regulation, Inc. (the
"NASD"), and subject to seeking best execution, the Funds may place orders with
broker/dealers that have agreed to defray certain expenses of the funds in the
Delaware Investments family such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of such funds' shares as a factor
in the selection of brokers and dealers to execute Fund portfolio transactions.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish a Fund's
objective in relation to anticipated movements in the general level of interest
rates. A Fund is free to dispose of portfolio securities at any time, subject to
complying with the Internal Revenue Code of 1986, as amended, (the "Code") and
the 1940 Act, when changes in circumstances or conditions make such a move
desirable in light of the investment objective. A Fund will not attempt to
achieve or be limited to a predetermined rate of portfolio turnover, such a
turnover always being incidental to transactions undertaken with a view to
achieving a Fund's investment objective. Portfolio transactions will be
undertaken only to accomplish a Fund's objectives and not for the purpose of
realizing capital gains, although capital gains may be realized on certain
portfolio transactions. For example, capital gains may be realized when a
security is sold: (1) so that, provided capital is preserved or enhanced,
another security can be purchased to obtain a higher yield; (2) to take
advantage of what the Manager believes to be a temporary disparity in the normal
yield relationship between the two securities to increase income or improve the
quality of the portfolio; (3) to purchase a security which the Manager believes
is of higher quality than its rating or current market value would indicate; or
(4) when the Manager anticipates a decline in value due to market risk or credit
risk. A Fund anticipates the portfolio turnover rate will ordinarily be less
than 100%.
During the past two fiscal years, each Fund's portfolio turnover rates
were as follows:
July 31
1998 1999
------ ------
Delchester Fund 117% 85%
Strategic Income Fund 175% 156%
High-Yield Opportunities Fund 317% 382%
Corporate Bond Fund (1) N/A 175%*
Extended Duration Bond Fund (1) N/A 201%*
- - -------------------
(1) Date of initial public offering was September 15, 1999.
*Annualized.
Each Fund's portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned by
the Fund during the particular fiscal year, exclusive of securities whose
maturities at the time of acquisition are one year or less.
31
<PAGE>
PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's
classes of shares, and has agreed to use its best efforts to sell shares of each
Fund. See the Prospectuses for additional information on how to invest. Shares
of the Funds are offered on a continuous basis, and may be purchased through
authorized investment dealers or directly by contacting Income Funds or the
Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, trustees and
employees of any fund in the Delaware Investments family, the Manager or any of
the its affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Asset Planner service are
subject to a minimum initial investment of $2,000 per Asset Planner Strategy
selected. There are no minimum purchase requirements for the Funds'
Institutional Classes, but certain eligibility requirements must be satisfied.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. See Investment Plans for purchase limitations
applicable to retirement plans. Income Funds will reject any purchase order for
more than $250,000 of Class B Shares and $1,000,000 or more of Class C Shares.
An investor may exceed these limitations by making cumulative purchases over a
period of time. An investor should keep in mind, however, that reduced front-end
sales charges apply to investments of $100,000 or more in Class A Shares, and
that Class A Shares are subject to lower annual 12b-1 Plan expenses than Class B
Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Income Funds reserves the right to reject any order for the purchase of shares
of a Fund if in the opinion of management such rejection is in such Fund's best
interests. If a purchase is canceled because your check is returned unpaid, you
are responsible for any loss incurred. A Fund can redeem shares from your
account(s) to reimburse itself for any loss, and you may be restricted from
making future purchases in any of the funds in the Delaware Investments family.
Each Fund reserves the right to reject purchase orders paid by third-party
checks or checks that are not drawn on a domestic branch of a United States
financial institution. If a check drawn on a foreign financial institution is
accepted, you may be subject to additional bank charges for clearance and
currency conversion.
Each Fund also reserves the right, following shareholder notification,
to charge a service fee on non-retirement accounts that, as a result of
redemption, have remained below the minimum stated account balance for a period
of three or more consecutive months. Holders of such accounts may be notified of
their insufficient account balance and advised that they have until the end of
the current calendar quarter to raise their balance to the stated minimum. If
the account has not reached the minimum balance requirement by that time, the
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
32
<PAGE>
The NASD has adopted Conduct Rules, as amended, relating to investment
company sales charges. Income Funds 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 table in the Fund Classes' Prospectuses.
Class A Shares are also subject to annual 12b-1 Plan expenses for the life of
the investment.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the third or
fourth year following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; and (iv) 1% if shares are redeemed during the sixth
year following purchase. Class B Shares are subject to annual 12b-1 Plan
expenses for approximately eight years after purchase. See Automatic Conversion
of Class B Shares, below.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will receive a
proportionate interest in that Fund's income, before application, as to Class A,
Class B and Class C Shares, of any expenses under that Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued in
the case of Class A Shares or Institutional Class shares, unless a shareholder
submits a specific request. Certificates are not issued in the case of Class B
Shares or Class C Shares or in the case of any retirement plan account including
self-directed IRAs. However, purchases not involving the issuance of
certificates are confirmed to the investor and credited to the shareholder's
account on the books maintained by Delaware Service Company, Inc. (the "Transfer
Agent"). The investor will have the same rights of ownership with respect to
such shares as if certificates had been issued. An investor that is permitted to
obtain a certificate may receive a certificate representing full share
denominations purchased by sending a letter signed by each owner of the account
to the Transfer Agent requesting the certificate. No charge is assessed by
Income Funds for any certificate issued. A shareholder may be subject to fees
for replacement of a lost or stolen certificate under certain conditions,
including the cost of obtaining a bond covering the lost or stolen certificate.
Please contact the Funds for further information. Investors who hold
certificates representing any of their shares may only redeem those shares by
written request. The investor's certificate(s) must accompany such request.
Alternative Purchase Arrangements-Class A, B and C Shares
The alternative purchase arrangements of Class A Shares, Class B Shares
and Class C Shares permit investors to choose the method of purchasing shares
that is most suitable for their needs given the amount of their purchase, the
length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of
0.30% (currently no more than 0.25% in the case of Strategic Income Fund,
pursuant to Board action) of the average daily net assets of Class A Shares, or
to purchase either Class B or Class C Shares and have the entire initial
purchase amount invested in the Fund with the investment thereafter subject to a
CDSC and annual 12b-1 Plan expenses. Class B Shares are subject to a CDSC if the
shares are redeemed within six years of purchase, and Class C Shares are subject
to a CDSC if the shares are redeemed within 12 months of purchase. Class B and
Class C Shares are each subject to annual 12b-1 Plan expenses of up to a maximum
of 1% (0.25% of which are service fees to be paid to the Distributor, dealers or
others for providing personal service and/or maintaining shareholder accounts)
of average daily net assets of the respective Class. Class B Shares will
automatically convert to Class A Shares at the end of approximately eight years
after purchase and, thereafter, be subject to annual 12b-1 Plan expenses of up
to a maximum of 0.30% of average daily net assets of such shares. Unlike Class B
Shares, Class C Shares do not convert to another Class.
33
<PAGE>
The higher 12b-1 Plan expenses on Class B Shares and Class C Shares
will be offset to the extent a return is realized on the additional money
initially invested upon the purchase of such shares. However, there can be no
assurance as to the return, if any, that will be realized on such additional
money. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also consider the duration of the annual 12b-1 Plan expenses to
which each of the classes is subject and the desirability of an automatic
conversion feature, which is available only for Class B Shares.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in the
case of Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A Shares, Class B Shares and Class C Shares. Investors should understand
that the purpose and function of the respective 12b-1 Plans and the CDSCs
applicable to Class B Shares and Class C Shares are the same as those of the
12b-1 Plan and the front-end sales charge applicable to Class A Shares in that
such fees and charges are used to finance the distribution of the respective
Classes. See Plans under Rule 12b-1 for the Fund Classes.
Dividends, if any, paid on Class A Shares, Class B Shares and Class C
Shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except that the additional amount of 12b-1
Plan expenses relating to Class B Shares and Class C Shares will be borne
exclusively by such shares. See Determining Offering Price and Net Asset Value.
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectus, and may include a series of purchases over a 13-month period under a
Letter of Intention signed by the purchaser. See Special Purchase Features -
Class A Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may reallow to dealers up to the full amount of the front-end sales.
In addition, certain dealers who enter into an agreement to provide extra
training and information on Delaware Investments products and services and who
increase sales of Delaware Investments funds may receive an additional
commission of up to 0.15% of the offering price in connection with sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the 1933 Act.
34
<PAGE>
Dealer's Commission
As described in the Prospectus, for initial purchases of Class A Shares
of $1,000,000 or more, a dealer's commission may be paid by the Distributor to
financial advisers through whom such purchases are effected.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other Delaware Investments
funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) may be aggregated with those of the Class A Shares of a
Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Investments funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above, and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of Class B Shares or Class C
Shares of a Fund, even if those shares are later exchanged for shares of another
Delaware Investments fund. In the event of an exchange of the shares, the "net
asset value of such shares at the time of redemption" will be the net asset
value of the shares that were acquired in the exchange. See Waiver of Contingent
Deferred Sales Charge--Class B Shares and Class C Shares under Redemption and
Exchange for the Fund Classes for a list of the instances in which the CDSC is
waived.
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the same
Fund. See Automatic Conversion of Class B Shares below. Such conversion will
constitute a tax-free exchange for federal income tax purposes. Investors are
reminded that the Class A Shares into which Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30%
(currently no more than 0.25% in the case of Strategic Income Fund) of average
daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
35
<PAGE>
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class B Shares at the time of purchase from its
own assets in an amount equal to no more than 4% of the dollar amount purchased.
In addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if redeemed within six
years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for a Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Part B, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the 18th day (or next
business day) of March, June, September and December (each, a "Conversion
Date"). If the eighth anniversary after a purchase of Class B Shares falls on a
Conversion Date, an investor's Class B Shares will be converted on that date. If
the eighth anniversary occurs between Conversion Dates, an investor's Class B
Shares will be converted on the next Conversion Date after such anniversary.
Consequently, if a shareholder's eighth anniversary falls on the day after a
Conversion Date, that shareholder will have to hold Class B Shares for as long
as three additional months after the eighth anniversary of purchase before the
shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, Class C Shares are subject to annual 12b-1 Plan expenses
and, if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
36
<PAGE>
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this Part B. See Redemption and Exchange.
Plans Under Rule 12b-1 for the Funds' Classes
Pursuant to Rule 12b-1 under the 1940 Act, Income Funds has adopted a
separate plan for each of the Class A Shares, Class B Shares and Class C Shares
of each Fund (the "Plans"). Each Plan permits the relevant Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the class of shares to which the Plan applies. The Plans do not apply to
Institutional Classes of shares. Such shares are not included in calculating the
Plans' fees, and the Plans are not used to assist in the distribution and
marketing of shares of the Institutional Classes. Shareholders of the
Institutional Classes may not vote on matters affecting the Plans.
The Plans permit a Fund, pursuant to its Distribution Agreement, to pay
out of the assets of Class A Shares, Class B Shares and Class C Shares monthly
fees to the Distributor for its services and expenses in distributing and
promoting sales of shares of such classes. These expenses include, among other
things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition each Fund may make payments out of the assets of Class A,
Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares of, or provide services to,
such classes.
The maximum aggregate fee payable by a Fund under its Plans, and the
Funds' Distribution Agreements, is on an annual basis, up to 0.30% of the Class
A Shares' average daily net assets for the year, and up to 1% (0.25% of which
are service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of the Class B
Shares' and Class C Shares' average daily net assets for the year. Income Funds'
Board of Trustees may reduce these amounts at any time. The Distributor has
agreed to waive the distribution fees with respect to Delchester Fund and
High-Yield Opportunities Fund to the extent such fee for any day exceeds the net
investment income realized by such Funds' respective Class A, Class B and Class
C Shares for such day.
37
<PAGE>
Although the maximum fee payable under the 12b-1 Plan relating to
Delchester Fund A Class is 0.30% of average daily net assets of such class, the
Board of Trustees has determined that the annual fee, payable on a monthly
basis, under the Plan relating to Delchester Fund A Class, will be equal to the
sum of: (i) the amount obtained by multiplying 0.10% by the average daily net
assets represented by Delchester Fund A Class that were originally purchased
prior to June 1, 1992 in Delchester I class (which was converted into what is
now referred to as Class A Shares on June 1, 1992 pursuant to a Plan of
Recapitalization approved by shareholders of Delchester I class), and (ii) the
amount obtained by multiplying 0.30% by the average daily net assets represented
by all other Delchester Fund A Class shares. While this is the method to be used
to calculate the 12b-1 fees to be paid by Delchester Fund A Class under its
Plan, the fee is a Class A Shares' expense so that all shareholders of
Delchester Fund A Class, regardless of whether they originally purchased or
received shares in Delchester I class, or in one of the other classes that is
now known as Class A Shares, will bear 12b-1 expenses at the same rate. In
addition, pursuant to Board action, the maximum aggregate fee payable by Class A
Shares of Strategic Income Fund is 0.25%. While this describes the current basis
for calculating the fees which will be payable under the Delchester Fund A
Class' and Strategic Income Fund A Class' Plans, such Plans permit a full 0.30%
on all Class A Shares' 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 on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from such Fund Classes. Subject to seeking best price and
execution, a Fund may, from time to time, buy or sell portfolio securities from
or to firms which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
38
<PAGE>
The Plans and the Distribution Agreements, have all been approved by
the Board of Trustees of Income Funds, including a majority of the trustees who
are not "interested persons" (as defined in the 1940 Act) of Income Funds and
who have no direct or indirect financial interest in the Plans, by vote cast in
person at a meeting duly called for the purpose of voting on the Plans and such
Agreements. Continuation of the Plans and the Distribution Agreements, as
amended, must be approved annually by the Board of Trustees in the same manner
as specified above.
Each year, the trustees must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of each Fund and that there is a reasonable
likelihood of the Plan relating to a Fund Class providing a benefit to that
Class. The Plans and the Distribution Agreements may be terminated with respect
to a Class at any time without penalty by a majority of those trustees who are
not "interested persons" or by a majority vote of the outstanding voting
securities of the relevant Fund Class. Any amendment materially increasing the
percentage payable under the Plans must likewise be approved by a majority vote
of the outstanding voting securities of the relevant Fund Class, as well as by a
majority vote of those trustees who are not "interested persons." With respect
to each Class A Shares' Plan, any material increase in the maximum percentage
payable thereunder must also be approved by a majority of the outstanding voting
securities of Class B of the same Fund. Also, any other material amendment to
the Plans must be approved by a majority vote of the trustees including a
majority of the noninterested trustees of Income Funds having no interest in the
Plans. In addition, in order for the Plans to remain effective, the selection
and nomination of trustees who are not "interested persons" of Income Funds must
be effected by the trustees who themselves are not "interested persons" and who
have no direct or indirect financial interest in the Plans. Persons authorized
to make payments under the Plans must provide written reports at least quarterly
to the Board of Trustees for their review.
39
<PAGE>
For the fiscal year ended July 31, 1999, payments from Class A Shares,
Class B Shares and Class C Shares of each Fund were as follows:
<TABLE>
<CAPTION>
- - ----------------- ------------------------------------- -------------------------------------- -------------------------------------
Delchester Fund Strategic Income Fund High-Yield Opportunities Fund
------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Class A Class B Class C Class A Class B Class C Class A Class B Class C
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising $11,368 --- --- $131.00 --- --- $14 --- ---
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Annual/Semi $61,994 --- --- --- --- $5,892 --- ---
Annual Reports
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Broker Trails $2,058,971 $908,467 $193,223 $44,387 $47,986 $25,589 $12,709 $8,524 $628
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Broker Sales --- $1,392,227 $159,589 --- $55,554 $31,711 --- $14,463 $8,605
Charges
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Dealer Service --- --- --- --- --- --- --- --- ---
Expenses
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Interest on
Broker Sales --- $1,159,548 $13,552 --- $70,506 $1,381 --- $9,443 $499
Charges
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Commissions to $164,343 $184,894 $39,101 $1,140 $9,040 $4,590 $4,740 $1,720 $1,162
Wholesalers
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Promotional- $10,526 $258 --- --- --- $48 $139 --- ---
Broker Meetings
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Promotional-Other $128,258 --- --- --- --- --- $2,929 --- ---
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Prospectus $65,350 --- --- $436 --- --- $5,505 --- ---
Printing
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Telephone --- --- --- --- --- --- --- --- ---
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Other $27,132 --- $6,040 --- --- --- $1,731 --- ---
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
Total $2,527,942 $3,645,394 $411,505 $46,094 $183,086 $63,319 $33,659 $34,150 $10,894
- - ----------------- ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- - ----------------- -------------------------------------- ---------------------------------------
Corporate Bond Fund Extended Duration Bond Fund
-------------------------------------- ---------------------------------------
Class A Class B Class C Class A Class B Class C
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Advertising --- --- --- --- --- ---
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Annual/Semi --- --- --- --- --- ---
Annual Reports
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Broker Trails $2,066 $891 $431 $1,261 $40 $39
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Broker Sales --- $1,040 $1,029 --- $69 $145
Charges
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Dealer Service --- --- --- --- --- ---
Expenses
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Interest on
Broker Sales --- $1,590 $49 --- $55 $8
Charges
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Commissions to --- $254 $14 --- $14 ---
Wholesalers
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Promotional- --- --- --- --- --- ---
Broker Meetings
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Promotional-Other --- --- --- --- --- ---
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Prospectus --- --- --- --- --- ---
Printing
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Telephone --- --- --- --- --- ---
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Other --- --- --- --- --- ---
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
Total $2,066 $3,775 $1,523 $1,261 $182 $192
- - ----------------- ------------ ------------ ------------ ------------- ------------ ------------
</TABLE>
41
<PAGE>
Other Payments to Dealers - Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Investments family of funds. In some instances, these
incentives or payments may be offered only to certain dealers who maintain, have
sold or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Investments fund shares.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value under the
Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege.
Purchases of Class A Shares may be made at net asset value by current
and former officers, trustees and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Investments family,
certain of their agents and registered representatives and employees of
authorized investment dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts, must be for
accounts in the name of the individual or a qualifying family member. Class A
Shares may also be purchased at net asset value by current and former officers,
trustees and employees (and members of their families) of the Dougherty
Financial Group LLC.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of funds in the
Delaware Investments family. Officers, trustees and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Investors may be charged a fee when effecting transactions in Class A
Shares through a broker or agent that offers these special investment products.
Purchases of Class A Shares of each Fund at net asset value may also be
made by the following: financial institutions investing for the account of their
trust customers if they are not eligible to purchase shares of the Institutional
Class of a Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Retirement Financial Services, Inc. (formerly known as
Delaware Investment & Retirement Services, Inc.) proprietary record keeping
system that (i) has in excess of $500,000 of plan assets invested in Class A
Shares of funds in the Delaware Investments family and any stable value account
available to investment advisory clients of the Manager or its affiliates; or
(ii) is sponsored by an employer that has at any point after May 1, 1997 had
more than 100 employees while such plan has held Class A Shares of a fund in the
Delaware Investments family and such employer has properly represented in
writing to Retirement Financial Services, Inc. that it has the requisite number
of employees and received written confirmation back from Retirement Financial
Services, Inc. See Group Investment Plans for information regarding the
applicability of the Limited CDSC.
42
<PAGE>
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a fund account
in connection with loans originated from accounts previously maintained by
another investment firm will also be invested at net asset value.
Income Funds must be notified in advance that the trade qualifies for
purchase at net asset value.
Allied Plans
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Investments funds ("eligible Delaware Investments
fund shares"), as well as shares of designated classes of non-Delaware
Investments funds ("eligible non-Delaware Investments fund shares"). Class B
Shares and Class C Shares are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware Investments
fund shares held by the Allied Plan may be combined with the dollar amount of
new purchases by that Allied Plan to obtain a reduced front-end sales charge on
additional purchases of eligible Delaware Investments fund shares. See Combined
Purchases Privilege, below.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments fund
shares or for eligible non-Delaware Investments fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible fund
shares, both Delaware Investments and non-Delaware Investments, which were not
subject to a front end sales charge, will be subject to the applicable sales
charge if exchanged for eligible Delaware Investments fund shares to which a
sales charge applies. No sales charge will apply if the eligible fund shares
were previously acquired through the exchange of eligible shares on which a
sales charge was already paid or through the reinvestment of dividends.
See Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
adviser's eligibility for a dealer's commission on net asset value purchases of
eligible Delaware Investments fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated. See Class A Shares,
above.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Investments and non-Delaware Investments fund shares.
When eligible Delaware Investments fund shares are exchanged into eligible
non-Delaware Investments fund shares, the Limited CDSC will be imposed at the
time of the exchange, unless the joint venture agreement specifies that the
amount of the Limited CDSC will be paid by the financial adviser or selling
dealer. See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange.
43
<PAGE>
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Income Funds, which provides for the holding in escrow by the Transfer
Agent of 5% of the total amount of Class A Shares intended to be purchased until
such purchase is completed within the 13-month period. A Letter of Intention may
be dated to include shares purchased up to 90 days prior to the date the Letter
is signed. The 13-month period begins on the date of the earliest purchase. If
the intended investment is not completed, except as noted below, the purchaser
will be asked to pay an amount equal to the difference between the front-end
sales charge on Class A Shares purchased at the reduced rate and the front-end
sales charge otherwise applicable to the total shares purchased. If such payment
is not made within 20 days following the expiration of the 13-month period, the
Transfer Agent will surrender an appropriate number of the escrowed shares for
redemption in order to realize the difference. Such purchasers may include the
value (at offering price at the level designated in their Letter of Intention)
of all their shares of the Funds and of any class of any of the other mutual
funds in the Delaware Investments family (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC) previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter.
Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge on
investments of Class A Shares made by the plan. The aggregate investment level
of the Letter of Intention will be determined and accepted by the Transfer Agent
at the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in Delaware Investments funds that are offered with a front-end
sales charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent
reserves the right to adjust the signed Letter of Intention based on this
acceptance criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments exceed the
anticipated level and equal an amount that would qualify the plan for further
discounts, any front-end sales charges will be automatically adjusted. In the
event this Letter of Intention is not fulfilled within the 13-month period, the
plan level will be adjusted (without completing another Letter of Intention) and
the employer will be billed for the difference in front-end sales charges due,
based on the plan's assets under management at that time. Employers may also
include the value (at offering price at the level designated in their Letter of
Intention) of all their shares intended for purchase that are offered with a
front-end sales charge, CDSC or Limited CDSC of any class. Class B Shares and
Class C Shares of a Fund and other funds in the Delaware Investments family
which offer corresponding classes of shares may also be aggregated for this
purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Funds, as well as shares of any other class of any of the other
funds in the Delaware Investments family (except shares of any Delaware
Investments fund which do not carry a front-end sales charge, CDSC or Limited
CDSC, other than shares of Delaware Group Premium Fund, Inc. beneficially owned
in connection with the ownership of variable insurance products, unless they
were acquired through an exchange from a Delaware Investments fund which carried
a front-end sales charge, CDSC or Limited CDSC). In addition, assets held in any
stable value product available through Delaware Investments may be combined with
other Delaware Investments fund holdings.
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
44
<PAGE>
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund, as
well as shares of any other class of any of the other funds in the Delaware
Investments funds which offer such classes (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a Delaware
Investments fund which carried a front-end sales charge, CDSC or Limited CDSC).
If, for example, any such purchaser has previously purchased and still holds
Class A Shares and/or shares of any other of the classes described in the
previous sentence with a value of $60,000 and subsequently purchases $40,000 at
offering price of additional shares of Class A Shares, the charge applicable to
the $40,000 purchase would currently 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
Holders of Class A Shares and Class B Shares of a Fund (and of the
Institutional Class holding shares which were acquired through an exchange from
one of the other mutual funds in the Delaware Investments family offered with a
front-end sales charge) who redeem such shares have one year from the date of
redemption to reinvest all or part of their redemption proceeds in the same
Class of the Fund or in the same Class of any of the other funds in the Delaware
Investments family. In the case of Class A Shares, the reinvestment will not be
assessed a front-end sales charge and in the case of Class B Shares, the amount
of the CDSC previously charged on the redemption will be reimbursed by the
Distributor. The reinvestment will be subject to applicable eligibility and
minimum purchase requirements and must be in states where shares of such other
funds may be sold. This reinvestment privilege does not extend to Class A Shares
where the redemption of the shares triggered the payment of a Limited CDSC.
Persons investing redemption proceeds from direct investments in mutual funds in
the Delaware Investments family, offered without a front-end sales charge will
be required to pay the applicable sales charge when purchasing Class A Shares.
The reinvestment privilege does not extend to a redemption of Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. In the case of
Class B Shares, the time that the previous investment was held will be included
in determining any applicable CDSC due upon redemptions as well as the automatic
conversion into Class A Shares.
A redemption and reinvestment of Class B Shares could have income tax
consequences. Shareholders will receive from the Distributor the amount of the
CDSC paid at the time of redemption as part of the reinvested shares, which may
be treated as a capital gain to the shareholder for tax purposes. It is
recommended that a tax adviser be consulted with respect to such transactions.
Any reinvestment directed to a fund in which the investor does not then
have an account will be treated like all other initial purchases of the fund's
shares. Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is intended to be made before
investing or sending money.
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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 Class A Limited CDSC in connection with the features
described above.
Group Investment Plans
Group Investment Plans that are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares, based on total plan assets. If a company has
more than one plan investing in the Delaware Investments family of funds, then
the total amount invested in all plans would be used in determining the
applicable front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to the Fund in which the investment is being made
at the time of each such purchase. Employees participating in such Group
Investment Plans may also combine the investments made in their plan account
when determining the applicable front-end sales charge on purchases to
non-retirement investment accounts of Delaware Investments if they so notify the
Fund in connection with each purchase. For other retirement plans and special
services, see Retirement Plans for the Fund Classes under Investment Plans.
The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from a fund in the Delaware Investments family.
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
The Institutional Classes
The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager, the Sub-Adviser or their affiliates and securities
dealer firms with a selling agreement with the Distributor; (c) institutional
advisory accounts of the Manager, the Sub-Adviser or their 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 rollover individual retirement accounts
from such institutional advisory accounts; (d) a bank, trust company and similar
financial institution investing for its own account or for the account of its
trust customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment to the financial institution of a Rule
12b-1 fee; and (e) registered investment advisers investing on behalf of clients
that consist solely of institutions and high net-worth individuals having at
least $1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and derives
compensation for its services exclusively from its clients for such advisory
services.
The Institutional Class of each of Corporate Bond Fund and Extended
Duration Bond Fund is also available for purchase by clients of brokers or
dealers affiliated with a broker or dealer, if such broker or dealer has entered
into an agreement with the Distributor providing specifically for the purchase
of shares of the Classes in connection with special investment products, such as
wrap accounts or similar fee based programs. Investors may be charged a fee when
effecting transactions in shares of the Classes through a broker or agent that
offers these special products.
Shares of the Institutional Classes are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
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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
Classes are reinvested in the accounts of the holders of such shares (based on
the net asset value in effect on the reinvestment date). A confirmation of each
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 specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectuses
and this Part B, are made, for Class A Shares at the public offering price, and
for Class B Shares, Class C Shares and Institutional Class shares 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 Funds in the Delaware Investments Family
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest dividends and/or distributions in
any of the mutual funds in the Delaware Investments family, including the Funds,
in states where their shares may be sold. Such investments will be at net asset
value at the close of business on the reinvestment date without any front-end
sales charge or service fee. The shareholder must notify the Transfer Agent in
writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account will be treated like
all other initial purchases of a fund's shares. Consequently, an investor should
obtain and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Investments family may be invested in shares of
the Funds, provided an account has been established. Dividends from Class A
Shares may not be directed to Class B Shares or Class C Shares. Dividends from
Class B Shares may only be directed to other Class B Shares and dividends from
Class C Shares may only be directed to other Class C Shares.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same Delaware
Investments fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE
IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, or 403(b)(7) or 457 Deferred Compensation Plans.
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Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors may arrange for a Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan -- Shareholders of Class A, Class B and Class
C Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A 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 Income Funds for proper
instructions.
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MoneyLine(SM) On Demand
You or your investment dealer may request purchases of Fund Class shares
by phone using MoneyLine (SM) On Demand. When you authorize a Fund to accept
such requests from you or your investment dealer, funds will be withdrawn from
(for share purchases) your predesignated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine (SM) On Demand transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this service by completing an Account Services form.
If your name and address are not identical to the name and address on your Fund
account, you must have your signature guaranteed. The Funds do not charge a fee
for this service; however, your bank may charge a fee.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Investments family. Shareholders of the Fund Classes may
elect to invest in one or more of the other mutual funds in the Delaware
Investments family through the Wealth Builder Option. See Wealth Builder Option
and Redemption and Exchange in the Prospectuses for the Fund Classes.
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Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Fund Classes' Prospectuses. The investment will be made on the 20th day of each
month (or, if the fund selected is not open that day, the next business day) at
the public offering price or net asset value, as applicable, of the fund
selected on the date of investment. No investment will be made for any month if
the value of the shareholder's account is less than the amount specified for
investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Redemption and Exchange for a brief summary of the tax consequences
of exchanges. Shareholders can terminate their participation at any time by
giving written notice to their Fund.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Classes.
Asset Planner
To invest in the funds in the Delaware Investments family using the
Asset Planner asset allocation service, you should complete a Asset Planner
Account Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial adviser, you may also design a customized asset allocation
strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Exchanges in the Prospectus. Also
see Buying Class A Shares at Net Asset Value. The minimum initial investment per
Strategy is $2,000; subsequent investments must be at least $100. Individual
fund minimums do not apply to investments made using the Asset Planner service.
Class A, Class B and Class C Shares are available through the Asset Planner
service. Generally, only shares within the same class may be used within the
same Strategy. However, Class A Shares of the Fund and of other funds in the
Delaware Investments family may be used in the same Strategy with consultant
class shares that are offered by certain other Delaware Investments funds.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number.
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Investors will receive a customized quarterly Strategy Report
summarizing all Asset Planner investment performance and account activity during
the prior period. Confirmation statements will be sent following all
transactions other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
Retirement Plans for the Fund Classes
An investment in a Fund may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including the 401(k) deferred compensation plan, Individual Retirement Account
("IRA") and the new Roth IRA and Education IRA.
Among the retirement plans that Delaware Investments offers, Class B
Shares are available for investment only by Individual Retirement Accounts,
SIMPLE IRAs, Roth IRAs, Education IRAs, Simplified Employee Pension Plans,
Salary Reduction Simplified Employee Pension Plans and 403(b) and 457 Deferred
Compensation Plans. The CDSC may be waived on certain redemptions of Class B
Shares and Class C Shares. See Waiver of Contingent Deferred Sales Charge under
Redemption and Exchange for a list of the instances in which the CDSC is waived.
Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C Shares must be
in an amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25 regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such plans.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase Institutional Class Shares. See
Institutional Classes, above. For additional information on any of the Plans and
Delaware's retirement services, call the Shareholder Service Center telephone
number.
It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these plans, contact your investment dealer or the Distributor.
Taxable distributions from the retirement plans described below may be
subject to withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the plans described below.
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Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations. These
plans can be maintained as Section 401(k), profit sharing or money purchase
pension plans. Contributions may be invested only in Class A Shares and Class C
Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year; however, participation
may be restricted based on certain income limits.
IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that can be
utilized depending on the individual's circumstances. A new Roth IRA and
Education IRA are available in addition to the existing deductible IRA and
non-deductible IRA.
Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income ("AGI") and whether the taxpayer is an active participant
in an employer sponsored retirement plan. Even if a taxpayer is an active
participant in an employer sponsored retirement plan, the full $2,000 is still
available if the taxpayer's AGI is below $30,000 ($50,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $50,000 and $60,000, and for
single individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available for
contributions to IRAs by taxpayers whose AGI after IRA deductions exceeds the
maximum income limit established for each year and who are active participants
in an employer sponsored retirement plan.
Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as $2,000 for each working
spouse and defer taxes on interest or other earnings from the IRAs.
Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI is
below $150,000. The maximum deductible IRA contribution for a married individual
who is not an active participant, but whose spouse is, is phased out for
combined AGI between $150,000 and $160,000.
Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or another IRA
may rollover the distribution tax-free to a Conduit IRA. The rollover of the
eligible distribution must be completed by the 60th day after receipt of the
distribution; however, if the rollover is in the form of a direct
trustee-to-trustee transfer without going through the distributee's hand, the
60-day limit does not apply.
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A distribution qualifies as an "eligible rollover distribution" if it
is made from a qualified retirement plan, a 403(b) plan or another IRA and does
not constitute one of the following:
(1) Substantially equal periodic payments over the employee's life or
life expectancy or the joint lives or life expectancies of the employee and
his/her designated beneficiary;
(2) Substantially equal installment payments for a period certain of 10
or more years;
(3) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;
(4) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the employee; and
(5) A distribution of after-tax contributions which is not includable
in income.
Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA. The $2,000
annual limit is reduced by any contributions to a deductible or nondeductible
IRA for the same year. The maximum contribution that can be made to a Roth IRA
is phased out for single filers with AGI between $95,000 and $110,000, and for
couples filing jointly with AGI between $150,000 and $160,000. Qualified
distributions from a Roth IRA would be exempt from federal taxes. Qualified
distributions are distributions (1) made after the five-taxable year period
beginning with the first taxable year for which a contribution was made to a
Roth IRA and (2) that are (a) made on or after the date on which the individual
attains age 59 1/2, (b) made to a beneficiary on or after the death of the
individual, (c) attributed to the individual being disabled, or (d) for a
qualified special purpose (e.g., first time homebuyer expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the conversion
is done prior to January 1, 1999, then the income from the conversion can be
included in income ratably over a four-year period beginning with the year of
conversion.
Education IRAs
For taxable years beginning after December 31, 1997, an Education IRA
has been created exclusively for the purpose of paying qualified higher
education expenses. Taxpayers can make non-deductible contributions up to $500
per year per beneficiary. The $500 annual limit is in addition to the $2,000
annual contribution limit applicable to IRAs and Roth IRAs. Eligible
contributions must be in cash and made prior to the date the beneficiary reaches
age 18. Similar to the Roth IRA, earnings would accumulate tax-free. There is no
requirement that the contributor be related to the beneficiary, and there is no
limit on the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can be created for the same
beneficiaries, however, the contribution limit of all contributions for a single
beneficiary cannot exceed $500 annually.
This $500 annual contribution limit for Education IRAs is phased out
ratably for single contributors with modified AGI between $95,000 and $110,000,
and for couples filing jointly with modified AGI of between $150,000 and
$160,000. Individuals with modified AGI above the phase-out range are not
allowed to make contributions to an Education IRA established on behalf of any
other individual.
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Distributions from an Education IRA are excludable from gross income to
the extent that the distribution does not exceed qualified higher education
expenses incurred by the beneficiary during the year the distribution is made
regardless of whether the beneficiary is enrolled at an eligible educational
institution on a full-time, half-time, or less than half-time basis.
Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of such a
distribution will be includible in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
educations expenses. Tax-free (and penalty-free) transfers and rollovers of
account balances from one Education IRA benefiting one beneficiary to another
Education IRA benefiting a different beneficiary (as well as redesignations of
the named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or rollover is
made before the time the old beneficiary reaches age 30 and the new beneficiary
reaches age 18.
A company or association may establish a Group IRA or Group Roth IRA
for employees or members who want to purchase shares of a Fund.
Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. For information concerning the applicability of a CDSC upon
redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectus for Class B Shares and Class C Shares.
Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks. In addition, effective January 1, 1998, the new law allows for premature
distribution without a 10% penalty if (i) the amounts are used to pay qualified
higher education expenses (including graduate level courses) of the taxpayer,
the taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer, taxpayer's
spouse or any child or grandchild of the taxpayer or the taxpayer's spouse. A
qualified first-time homebuyer is someone who has had no ownership interest in a
residence during the past two years. The aggregate amount of distribution for
first-time home purchases cannot exceed a lifetime cap of $10,000.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.
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Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may continue to be maintained by employers having 25 or
fewer employees. An employer may elect to make additional contributions to such
existing plans.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans. Plan
documents are available to enable employers to establish a plan. An employer may
also elect to make profit sharing contributions and/or matching contributions
with investments in only Class A Shares and Class C Shares or certain other
funds in the Delaware Investments family. Purchases under the Plan may be
combined for purposes of computing the reduced front-end sales charge applicable
to Class A Shares as set forth in the table the Prospectuses for the Fund
Classes.
Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase shares
of any of the Classes in conjunction with such an arrangement. Purchases under
the Plan may be combined for purposes of computing the reduced front-end sales
charge applicable to Class A Shares as set forth in the table the Prospectuses
for the Fund Classes.
Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of the Fund. Although investors may use their
own plan, there is available a Delaware Investments 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Purchases under the Plan may be combined
for purposes of computing the reduced front-end sales charge applicable to Class
A Shares as set forth in the table the Prospectuses for the Fund Classes.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or
fewer employees.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is available
only to plan sponsors with 100 or fewer employees and, in exchange for mandatory
plan sponsor contributions, discrimination testing is not required.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund or its agent or certain other authorized
persons. See Distribution and Service under Investment Management Agreements and
Sub-Advisory Agreements. Orders for purchases of Class B Shares, Class C Shares
and the Institutional Classes are effected at the net asset value per share next
calculated by the Fund in which shares are being purchased after receipt of the
order by the Fund, its agent or certain other authorized persons. Selling
dealers are responsible for transmitting orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for days on which the following holidays are
observed: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Funds will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, will be included in
the Fund's financial statements which are incorporated by reference into this
Part B.
Each Fund's net asset value per share is computed by adding the value
of all the securities and other assets in the portfolio, deducting any
liabilities and dividing by the number of shares outstanding. Expenses and fees
are accrued daily. In determining a Fund's total net assets, portfolio
securities listed or traded on a national securities exchange, except for bonds,
are valued at the last sale price on the exchange upon which such securities are
primarily traded. 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. Foreign currencies and the prices of foreign securities denominated
in foreign currencies are translated to U.S. Dollars at the mean between the bid
and offer quotations of such securities based on rates in effect as of the close
of the London Stock Exchange. Use of a pricing service has been approved by the
Board of Trustees. Prices provided by a pricing service take into account
appropriate factors such as institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. 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 Trustees.
Each Class of a Fund will bear, pro-rata, all of the common expenses of
that Fund. The net asset values of all outstanding shares of each Class of a
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in that Fund represented by the value of shares
of that Class. All income earned and expenses incurred by a Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes,
except that Institutional Classes will not incur any of the expenses under
Income Funds' 12b-1 Plans and Class A, Class B and Class C Shares alone will
bear the 12b-1 Plan expenses payable under their respective Plans. Due to the
specific distribution expenses and other costs that may be allocable to each
Class of a Fund, the dividends paid to each Class of the Fund may vary. The net
asset value per share of each Class of a Fund is expected to be equivalent.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, tax-advantaged funds, bond
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund and all exchanges of shares constitute taxable events. Further, in
order for an exchange to be processed, shares of the fund being acquired must be
registered in the state where the acquiring shareholder resides. You may want to
consult your financial adviser or investment dealer to discuss which funds in
Delaware Investments will best meet your changing objectives, and the
consequences of any exchange transaction. You may also call the Delaware
Investments directly for fund information.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. A shareholder submitting a redemption
request may indicate that he or she wishes to receive redemption proceeds of a
specific dollar amount. In the case of such a request, and in the case of
certain redemptions from retirement plan accounts, a Fund will redeem the number
of shares necessary to deduct the applicable CDSC in the case of Class B Shares
and Class C Shares, and, if applicable, the Limited CDSC in the case of Class A
Shares and tender to the shareholder the requested amount, assuming the
shareholder holds enough shares in his or her account for the redemption to be
processed in this manner. Otherwise, the amount tendered to the shareholder upon
redemption will be reduced by the amount of the applicable CDSC or Limited CDSC.
Redemption proceeds will be distributed promptly, as described below, but not
later than seven days after receipt of a redemption request.
Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. Each Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund,
its agent, or certain authorized persons, subject to applicable CDSC or Limited
CDSC. This is computed and effective at the time the offering price and net
asset value are determined. See Determining Offering Price and Net Asset Value.
The Funds and the Distributor end their business days at 5 p.m., Eastern time.
This offer is discretionary and may be completely withdrawn without further
notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
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Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by the Fund or certain other authorized persons (see Distribution
and Service under Investment Management Agreements and Sub-Advisory Agreement);
provided, however, that each commitment to mail or wire redemption proceeds by a
certain time, as described below, is modified by the qualifications described in
the next paragraph.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the purchase check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to a Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the SEC has provided for such suspension for the protection of
shareholders, a Fund may postpone payment or suspend the right of redemption or
repurchase. In such case, the shareholder may withdraw the request for
redemption or leave it standing as a request for redemption at the net asset
value next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash or
kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Income Funds
has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which
each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of such Fund during any 90-day period for
any one shareholder.
The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value, below.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed during
the first two years following purchase; (ii) 3% if shares are redeemed during
the third or fourth year following purchase; (iii) 2% if shares are redeemed
during the fifth year following purchase; (iv) 1% if shares are redeemed during
the sixth year following purchase; (v) and 0% thereafter. Class C Shares are
subject to a CDSC of 1% if shares are redeemed within 12 months following
purchase. See Contingent Deferred Sales Charge - Class B Shares and Class C
Shares under Purchasing Shares. Except for the applicable CDSC or Limited CDSC
and, with respect to the expedited payment by wire described below for which, in
the case of the Fund Classes, there is currently a $7.50 bank wiring cost,
neither the Funds nor the Distributor charges a fee for redemptions or
repurchases, but such fees could be charged at any time in the future.
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Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments (in
each case, "New Shares") in a permitted exchange, will not be subject to a CDSC
that might otherwise be due upon redemption of the Original Shares. However,
such shareholders will continue to be subject to the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the Original Shares as
described in this Part B and any CDSC assessed upon redemption will be charged
by the fund from which the Original Shares were exchanged. In an exchange of
Class B Shares from a Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. With respect to Class B
Shares, the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to Class B
Shares of a Fund for a longer period of time than if the investment in New
Shares were made directly.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares. The request must be signed by all owners
of the account or your investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s) at the address
of record, the Funds require a signature by all owners of the account and a
signature guarantee for each owner. A signature guarantee can be obtained from a
commercial bank, a trust company or a member of a Securities Transfer
Association Medallion Program ("STAMP"). Each Fund reserves the right to reject
a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request. Certificates are not issued for Class B Shares or Class C
Shares.
Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund in Delaware Investments, subject to the same conditions and limitations as
other exchanges noted above and in the Prospectuses.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
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Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes are generally tape recorded, and a written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. If the
proceeds are wired to the shareholder's account at a bank which is not a member
of the Federal Reserve System, there could be a delay in the crediting of the
funds to the shareholder's bank account. First Union National Bank's fee
(currently $7.50) will be deducted from Fund Class redemption proceeds. If you
ask for a check, it will normally be mailed the next business day after receipt
of your redemption request to your predesignated bank account. There are no
separate fees for this redemption method, but the mail time may delay getting
funds into your bank account. Simply call the Shareholder Service Center prior
to the time the offering price and net asset value are determined, as noted
above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in Delaware Investments under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above and in the Prospectuses. Telephone
exchanges may be subject to limitations as to amounts or frequency.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Investments family. Telephone exchanges may be subject to
limitations as to amounts or frequency. The Transfer Agent and each Fund reserve
the right to record exchange instructions received by telephone and to reject
exchange requests at any time in the future.
MoneyLine(SM) On Demand
You or your investment dealer may request redemptions of your Fund
shares by phone using MoneyLine(SM) On Demand. When you authorize a Fund to
accept such requests from you or your investment dealer, funds will be deposited
to (for share redemptions) your predesignated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine(SM) On Demand transactions. See
MoneyLine(SM) On Demand under Investment Plans.
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Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), the Funds will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Investments funds from Timing Firms. A Fund reserves the right to temporarily or
permanently terminate the exchange privilege or reject any specific purchase
order for any person whose transactions seem to follow a timing pattern who: (i)
makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of the Fund's net assets. Accounts
under common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Investments funds: (1)
Decatur Equity Income Fund, (2) Growth and Income Fund, (3) Delaware Fund, (4)
Limited-Term Government Fund, (5) USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware
Investments funds are available for timed exchanges. Assets redeemed or
exchanged out of Timing Accounts in Delaware Investments funds not listed above
may not be reinvested back into that Timing Account. Each Fund reserves the
right to apply these same restrictions to the account(s) of any person whose
transactions seem to follow a time pattern (as described above).
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized brokers of
record will be permitted to make exchanges or redemptions.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who
own or purchase $5,000 or more of shares at the offering price, or net asset
value, as applicable, for which certificates have not been issued may establish
a Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or
quarterly withdrawals of $75 or more, although a Fund does not recommend any
specific amount of withdrawal. This is particularly useful to shareholders
living on fixed incomes, since it can provide them with a stable supplemental
amount. This $5,000 minimum does not apply for 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 either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital, and the share
balance may in time be depleted, particularly in a declining market.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.
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Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a Fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in Delaware Investments funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net
asset value and a dealer's commission has been paid on that purchase. The
applicable Limited CDSC for Class A Shares and CDSC for Class B and C Shares
redeemed via a Systematic Withdrawal Plan will be waived if the annual amount
withdrawn in each year is less than 12% of the account balance on the date that
the Plan is established. If the annual amount withdrawn in any year exceeds 12%
of the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subjected to the applicable
contingent deferred sales charge, including an assessment for previously
redeemed amounts under the Plan. Whether a waiver of the contingent deferred
sales charge is available or not, the first shares to be redeemed for each
Systematic Withdrawal Plan payment will be those not subject to a contingent
deferred sales charge because they have either satisfied the required holding
period or were acquired through the reinvestment of distributions. See Waiver of
Contingent Deferred Sales Charges, below.
An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. Each Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
Systematic Withdrawal Plan payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine (SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. It may take up to four business days for the transactions to
be completed. You can initiate this service by completing an Account Services
form. If your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Funds do not charge a
fee for any this service; however, your bank may charge a fee. This service is
not available for retirement plans.
The Systematic Withdrawal Plan is not available for the Institutional
Class. Shareholders should consult with their financial advisers to determine
whether a Systematic Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000 or more made on or after July 1, 1998, a
Limited CDSC will be imposed on certain redemptions of Class A Shares (or shares
into which such Class A Shares are exchanged) according to the following
schedule: (1) 1.00% if shares are redeemed during the first year after the
purchase; and (2) 0.50% if such shares are redeemed during the second year after
the purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission described above.
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The Limited CDSC will be paid to the Distributor and will be assessed
on an amount equal to the lesser of : (1) the net asset value at the time of
purchase of the Class A Shares being redeemed or (2) the net asset value of such
Class A Shares at the time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset value at purchase of
the Class A Shares even if those shares are later exchanged for shares of
another Delaware Investments fund and, in the event of an exchange of Class A
Shares, the "net asset value of such shares at the time of redemption" will be
the net asset value of the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than two years will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the two-year
holding period. The Limited CDSC is assessed if such two year period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waivers of Contingent Deferred Sales Charges
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the Internal Revenue Code; (v) returns of excess contributions to an IRA;
(vi) distributions by other employee benefit plans to pay benefits; (vii)
distributions described in (ii), (iv), and (vi) above pursuant to a systematic
withdrawal plan; (viii) distributions form an account if the redemption results
from a death of a registered owner, or a registered joint owner, of the account
(in the case of accounts established under the Uniform Gifts to Minors or
Uniform transfers to Minors Acts or trust accounts, the waiver applies upon the
death of all beneficial owners) or a total disability (as defined in Section 72
of the Code) of all registered owners occurring after the purchase of the shares
being redeemed; and (ix) redemptions by the classes of shareholders who are
permitted to purchase shares at net asset value, regardless of the size of the
purchase (see Buying Class A Shares at Net Asset Value under Purchasing Shares).
Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic
distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, or 403(b)(7) or 457
Deferred Compensation Plan due to death, disability or attainment of age 59 1/2,
and IRA distributions qualifying under Section 72(t) of the Internal Revenue
Code; and (iv) distributions from an account if the redemption results from the
death of a registered owner, or a registered joint owner, of the account (in the
case of accounts established under the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts or trust accounts, the waiver applies upon the death of
all beneficial owners) or a total and permanent disability (as defined in
Section 72 of the Code) of all registered owners occurring after the purchase of
the shares being redeemed.
63
<PAGE>
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from the Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Internal
Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred Compensation
Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or a 401(k)
Defined Contribution Plan upon attainment of normal retirement age under the
plan or upon separation from service; (vi) periodic distributions from an IRA or
SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of a registered owner, or a
registered joint owner, of the account (in the case of accounts established
under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners) or a total
and permanent disability (as defined in Section 72 of the Code) of all
registered owners occurring after the purchase of the shares being redeemed.
* * *
In addition, the CDSC will be waived on Class A Shares, Class B Shares
and Class C Shares redeemed in accordance with a Systematic Withdrawal Plan if
the annual amount selected to be withdrawn under the Plan does not exceed 12% of
the value of the account on the date that the Systematic Withdrawal Plan was
established or modified.
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
Each Fund declares a dividend to shareholders of each Class of the
respective Fund's shares from net investment income on a daily basis. Dividends
are declared each day the respective Fund is open and paid monthly. Net
investment income earned on days when the respective Fund is not open will be
declared as a dividend on the next business day. Purchases of shares of the
respective Fund by wire begin earning dividends when converted into Federal
Funds and are available for investment, normally the next business day after
receipt. However, if the respective 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 respective Fund. Income Funds 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 a Fund will share proportionately in the
investment income and expenses of that Fund, except that Class A Shares, Class B
Shares and Class C Shares alone will incur distribution fees under their
respective 12b-1 Plans.
64
<PAGE>
Dividends and any realized securities profits distributions are
automatically reinvested in additional shares of the same Class of the
respective Fund at net asset value, unless, in the case of shareholders of the
Fund Classes, an election to receive dividends in cash has been made. Payment by
check of cash dividends will ordinarily be mailed within three business days
after the payable date. 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 United States Post
Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. A 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 United States 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 Code. Such distributions will be
reinvested in shares, unless the shareholders of the Fund Classes elect to
receive them in cash. The Funds will mail a quarterly statement showing the
dividends paid and all the transactions made during the period.
TAXES
It is each Fund's policy to pay out substantially all net investment
income and net realized gains to relieve each Fund of federal income tax
liability on that portion of its income paid to shareholders under Subchapter M
of the Code. The Funds intend to meet the requirements each year. The Funds also
intend to meet the calendar year distribution requirements imposed by the Code
to avoid the imposition of a 4% excise tax.
The Funds have 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 Funds intend to offset
realized securities profits to the extent of the capital losses carried forward.
Delchester Fund had an accumulated capital loss carryforward of approximately
$100,669,876 at July 31, 1999 which for federal income tax purposes may be
carried forward and applied against future capital gains. The capital loss
carryforward expires as follows: 2002--$3,628,131, 2003--$87,593,579 and
2007--$9,448,166.
Distributions of net investment income and short-term realized
securities profits are taxable as ordinary income to shareholders. Since the
major portion of Delchester Fund's and High-Yield Opportunities 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. It is expected that either none or a nominal portion
of Strategic Income Fund's dividends will be eligible for the dividends-received
deduction. 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. Long-term capital gains 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 Funds 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. Delchester Fund's portfolio
securities had an unrealized net appreciation for tax purposes of $117,111,332
as of July 31, 1999.
65
<PAGE>
Under the 1997 Act, as revised by the 1998 Act and the Omnibus
Consolidated and Emergency Supplemental Appropriations Act, a Fund is required
to track its sales of portfolio securities and to report any capital gain
distributions to you according to the following categories of holding periods:
"Mid-term capital gains" or "28 percent rate gain": securities sold by a
Fund after July 28, 1997 that were held more than one year but not more
than 18 months. These gains will be taxable to individual investors at a
maximum rate of 28%. This category of gains applied only to gains and
distributions in 1997.
"1997 Act long-term capital gains" or "20 percent rate gain": securities
sold by a Fund between May 7, 1997 and July 28, 1997 that were held for
more than 12 months, and securities sold by the Fund after July 28, 1997
that were held for more than 18 months. As revised by the 1998 Act, this
rate applies to securities held for more than 12 months and sold in tax
years beginning after December 1, 1997. These gains will be taxable to
individual investors at a maximum rate of 20% for investors in the 28%
or higher federal income tax brackets, and at a maximum rate of 10% for
investors in the 15% federal income tax bracket. The Omnibus
Consolidated and Emergency Supplemental Appropriations Act passed in
October of 1998 included technical corrections to the 1998 Act. The
effect of this correction is that essentially all capital gain
distributions paid to shareholders during 1998 will be taxed at a
maximum rate of 20%.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individual who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as
qualified 5-year property. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket when sold after the five year
holding period.
66
<PAGE>
INVESTMENT MANAGEMENT AGREEMENTS AND SUB-ADVISORY AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to each Fund, subject to the
supervision and direction of the Board of Trustees of Income Funds.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On July 31, 1999 the Manager and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $46 billion in assets in
the various institutional or separately managed (approximately $27,865,360,000)
and investment company ($19,110,740,000) accounts.
The Investment Management Agreement for the Funds is dated September
29, 1999 and was approved by the initial shareholder on that date. The Agreement
provides for an initial term of two years and may be renewed each year only so
long as such renewal and continuance are specifically approved at least annually
by the Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund to which the Agreement relates, and only if the terms and
the renewal thereof have been approved by the vote of a majority of the trustees
of Income Funds or by the Manager. The Agreement will terminate automatically in
the event of its assignment.
The management fee rate schedule for each Fund is as follows:
-------------------------------- -------------------------------
Fund Name Management Fee Schedule
--------- (as a percentage of
average daily net assets)
Annual Rate
-----------
-------------------------------- -------------------------------
Corporate Bond Fund 0.50% on first $500 million
0.475% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
-------------------------------- -------------------------------
Delchester Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
-------------------------------- -------------------------------
Extended Duration Bond Fund 0.55% on first $500 million
0.50% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
-------------------------------- -------------------------------
High-Yield Opportunities Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
-------------------------------- -------------------------------
Strategic Income Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
-------------------------------- -------------------------------
67
<PAGE>
Subject to the overall supervision of the Manager, the Sub-Adviser
manages the international sector of Strategic Income Fund's portfolio and
furnishes the Manager with investment recommendations, asset allocation advice,
research and other investment services with respect to foreign securities. For
the services provided to the Manager, the Manager pays the Sub-Adviser a fee
equal to one-third of the investment management fees paid to the Manager under
the terms of the Investment Management Agreement. For the fiscal year ended July
31, 1999, no fees were paid to Delaware International as a result of the waiver
of fees by the Manager.
The Manager has contracted to waive that portion, if any, of the annual
management fees payable by Strategic Income Fund and to pay certain expenses of
the Fund to the extent necessary to ensure that the total operating expenses of
each Class do not exceed 0.75% (exclusive of taxes, interest, brokerage
commissions, extraordinary expenses and 12b-1 expenses) through June 30, 2000.
The Manager has contracted to waive that portion, if any, of the annual
management fees payable by High-Yield Opportunities Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the total operating
expenses of each Class do not exceed 1.00% (exclusive of taxes, interest,
brokerage commissions, extraordinary expenses and 12b-1 expenses) through
September 30, 2000. The Manager has contracted to waive that portion, if any, of
the annual management fees payable by Corporate Bond Fund and Extended Duration
Bond Fund and to pay certain expenses of the Fund to the extent necessary to
ensure that the total operating expenses of each Class do not exceed 0.55%
(exclusive of taxes, interest, brokerage commissions, extraordinary expenses and
12b-1 expenses) through September 30, 2000.
On July 31, 1999, the total net assets of Income Funds were
$1,453,441,440, broken down as follows:
Delchester Fund $1,265,047,623
Strategic Income Fund $ 48,973,288
High-Yield Opportunities Fund $ 24,457,793
Corporate Bond Fund $ 58,117,139
Extended Duration Bond Fund $ 56,845,597
On July 31, 1999, the total net assets for each Fund and investment
management fees paid for each Fund for the past three fiscal years were as
follows:
<TABLE>
<CAPTION>
Fund July 31, 1999 July 31, 1998 July 31, 1997
- - ---- ------------- ------------- -------------
<S> <C> <C> <C>
Delchester Fund $8,019,247 paid $8,245,496 paid $7,362,089 paid
Strategic Income Fund(1) $307,418 earned $212,472 earned $73,164 earned
$49,230 paid $-0- paid $-0- paid
$258,188 waived $212,472 waived $73,164 waived
High-Yield Opportunities $ 131,019 earned $70,555 earned $30,869 earned
Fund(2) $ 4,056 paid $28,057 paid $6,031 paid
$ 126,963 waived $42,498 waived $24,838 waived
Corporate Bond Fund(3) $175,448 earned N/A N/A
$10,850 paid N/A N/A
$164,598 waived N/A N/A
Extended Duration Bond $178,398 earned N/A N/A
Fund(3) $24,290 paid N/A N/A
$154,108 waived N/A N/A
</TABLE>
- - -------------------
(1) Commenced operations on October 1, 1996.
(2) Commenced operations on December 30, 1996.
(3) Commenced operations on September 15, 1998.
68
<PAGE>
Under the general supervision of the Board of Trustees, the Manager
makes all investment decisions which are implemented by the Funds. The Manager
pays the salaries of all trustees, officers and employees of each Fund who are
affiliated with the Manager. Each Fund pays all of its other expenses, including
its proportionate share of rent and certain other administrative expenses. The
Manager is a series of Delaware Management Business Trust. The Manager changed
its form of organization from a corporation to a business trust on March 1,
1998.
Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor for the Funds under a
Distribution Agreement dated September 29, 1999. The Distributor is an affiliate
of the Manager and bears all of the costs of promotion and distribution, except
for payments by each Fund on behalf of the Class A Shares, Class B Shares and
Class C Shares under their respective 12b-1 Plans. Delaware Distributors, Inc.
("DDI") is the corporate general partner of Delaware Distributors, L.P. and both
DDI and Delaware Distributors, L.P. are indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
each Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to an agreement dated September 29, 1999. The Transfer Agent also
provides accounting services to each Fund pursuant to the terms of a separate
Fund Accounting Agreement. The Transfer Agent is also an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
The Funds have authorized one or more brokers to accept on their behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Funds. For purposes of pricing, the Funds
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Investors may be charged a fee effecting transactions through a broker or
agent.
69
<PAGE>
OFFICERS AND TRUSTEES
The business and affairs of Income Funds are managed under the
direction of its Board of Trustees.
Certain officers and trustees of Income Funds hold identical positions
in each of the other funds available from the Delaware Investments family. As of
August 31, 1999, the Trust's officers and trustees, as a group, owned less than
1% of each of the Institutional Class, Class A Shares, B Shares and C Shares of
Delchester Fund, Strategic Opportunities Fund, High-Yield Opportunities Fund,
Corporate Bond Fund and Extended Duration Bond Fund.
As of August 31, 1999, management believes the following accounts held
5% or more of the outstanding shares of Class A Shares, Class B Shares, Class C
Shares, and Institutional Class Shares of each Fund. Management does not have
knowledge of beneficial owners.
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- - ----- --------------------------- ------------ ----------
<S> <C> <C>
Delchester Fund Merrill Lynch, Pierce, Fenner & Smith 8,204,967.810 12.97%
Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Delchester Fund Merrill Lynch, Pierce, Fenner & Smith 2,576,700.400 22.83%
Class C Shares For the Sole Benefit of its Customers
SEC #97HO2
Attn: Fund Administration
4800 Dear Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Nationwide Life Insurance Co. 2,122,943.020 30.21%
Delchester Fund Institutional National QPVA
Class Shares c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Bear Stearns Securities Corp 1,126,154.530 16.02%
FBO 220-47681-19
1 Metrotech Center North
Brooklyn, NY 11201-3870
RS DMC Employee Profit Sharing Plan 775,572.950 11.03%
Delaware Management Company
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3682
Class Name and Address of Account Share Amount Percentage
- - ----- --------------------------- ------------ ----------
Delchester Fund Institutional Ogden Financial Services, Inc. 632,864.160 9.00%
Class Shares Attn: George Warren
3411 Silverside Street
103 Springer Building
Wilmington, DE 19810-4812
Chase Manhattan Bank C/F 504,856.200 7.18%
Delaware Group Foundation Funds
Income Portfolio
Attn: Marisol Gordon
Global Investment Services
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3 Metrotech Center 8th Floor
Brooklyn, NY 11201-3800
Chase Manhattan Bank C/F 378,320.320 5.38%
Delaware Group Foundation Funds
Income Portfolio
Attn: Marisol Gordon
Global Investment Services
3 Metrotech Center 8th Floor
Brooklyn, NY 11201-3800
Strategic Income Fund Merrill Lynch, Pierce, Fenner & Smith 457,940.240 11.57%
Class B Shares For the Sole Benefit of its Customers
SEC #97LM7
Attn: Fund Administration
4800 Dear Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Strategic Income Fund Merrill Lynch Pierce Fenner & Smith 296,571.380 22.13%
Class C Shares For the sole benefit of its customers
SEC #97LM8
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-66484
Strategic Income Fund Chicago Trust Company 706,372.630 78.85%
Institutional Class Shares FBO Lincoln National Corporation
Employees Retirement Trust
1000 N. Water Street TR 14
Milwaukee, WI 53202-6648
RS DMC Employee Profit Sharing Plan 58,930.640 6.57%
Delaware Management Company
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3682
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- - ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Strategic Income Fund RS 401(k) Plan 47,499.020 5.30%
Institutional Class Shares Waterfield Group 401(k) Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638
RS 401(k) Plan 47,030.310 5.25%
Beam Pines, Inc.
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638
High-Yield Opportunities Wayne A. Stork 1,180,513.180 48.19%
Fund Class A Shares 5727 Twin Silo Road
Doylestown, PA 18901
Merrill Lynch Pierce Fenner & Smith 132,246.980 5.39%
For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Drive, 3rd Floor
Jacksonville, FL 32246-6484
High-Yield Opportunities Merrill Lynch Pierce Fenner & Smith 499,164.970 40.82%
Fund Class B Shares For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Drive, 3rd Floor
Jacksonville, FL 32246-6484
High-Yield Opportunities Merrill Lynch Pierce Fenner & Smith 148,026.260 39.71%
Fund Class C Shares For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Drive, 3rd Floor
Jacksonville, FL 32246-6484
High-Yield Opportunities Chicago Trust Company 720,490.610 99.97%
Fund Institutional Class FBO Lincoln National Corp.
Employee Retirement Plan
c/o Marshall & Ilsley Trust Company
P.O. Box 2977
Milwaukee, WI 53201-2977
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- - ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Corporate Bond Fund Class A RS DMTC Money Purchase 23,139.280 8.86%
Shares Pension Plan
J. Rex Burner Co., Inc.
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638
Merrill Lynch Pierce Fenner & Smith 16,227.680 6.22%
For the sole benefit of its customers
Attn: Fund Administration
SEC #97YN5
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246-6484
DMTC Custodian for the IRA of 15,913.130 6.09%
Norman Myricks IRA
2337 Reno Dr.
San Jose, CA 95148-1738
Corporate Bond Fund Class B Merrill Lynch Pierce Fenner & Smith 100,506.010 43.22%
Shares For the sole benefit of its customers
Attn: Fund Administration
SEC #97YN7
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246-6484
Raymond James and Assoc., Inc. CSDN 35,014.750 15.05%
Geoffrey Ryan IRA
2102 N. Bissell St.
Chicago, IL 60614-4202
AG Edwards and Sons, Inc. C/F 15,417.480 6.63%
Charles Siebels
Rollover IRA Account
12447 Wedgehill Ave.
Houston, TX 77077-4807
First Clearing Corporation 13,911.330 5.98%
A/C 5750-2607
Charles G. Moore III TTEE
Moore Charitable Remainder Trust
R209
2751 Regency Oaks Blvd
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- - ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Corporate Bond Fund Merrill Lynch Pierce Fenner & Smith 38,419.700 66.96%
Class C Shares For the sole benefit of its customers
Attn: Fund Administration
SEC #97YN8
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette 6,577.370 11.46%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
DMTC Custodian for the IRA of 5,066.160 8.82%
Gaile Rider IRA
P.O. Box 432
Darby, MT 59829-0432
Extended Duration Bond Fund DMTC Custodian for the IRA of 16,213.600 8.37%
Class A Shares Norman Myricks IRA
2337 Reno Dr.
San Jose, CA 95148-1738
William A. Stern 10,857.440 5.60%
Meredyth J. Stern JTTEN
TOD Michael and Gina Stern
9830 Colorado Road
Bloomington, MN 55438-1743
Extended Duration Bond Fund Merrill Lynch Pierce Fenner & Smith 9,332.700 42.28%
Class B Shares For the sole benefit of its customers
Attn: Fund Administration
SEC #97YJ5
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246-6484
NFSC FEBO #APX-389447 4,602.610 20.85%
NFSC/FMTC IRA
FBO Antonio Ramirez Shearer
144-77 41st Ave.
Flushing, NY 11355-1465
Donaldson Lufkin Jenrette 4,040.670 18.30%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- - ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Extended Duration Bond Fund NFSC FEBO #APX-389447 1,712.130 7.75%
Class B Shares NFSC/FMTC IRA
FBO Robert W. Gellner
1812 N. Griffin St.
Bismarck, ND 58501-1545
Extended Duration Bond Fund Merrill Lynch Pierce Fenner & Smith 5,890.170 54.86%
Class C Shares For the sole benefit of its customers
Attn: Fund Administration
SEC #97YN4
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246-6484
Wexford Clearing Services Corp. 4,195.260 39.07%
John S. Walkenhorst
P.O. Box 1141
Blue Hill, ME 04614-1141
</TABLE>
73
<PAGE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Management Company, Inc., Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Management Trust Company,
Delaware International Holdings Ltd., Founders Holdings, Inc., Delaware
International Advisers Ltd., Delaware Capital Management, Inc. and Retirement
Financial Services, Inc. are direct or indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.
Trustees and principal officers of the Funds are noted below along with
their ages and their business experience for the past five years. Unless
otherwise noted, the address of each officer and trustee is One Commerce Square,
Philadelphia, PA 19103.
<TABLE>
<CAPTION>
- - ------------------------------------------- -------------------------------------------------------------------------------
Trustee/Officer Business Experience
- - ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
*Wayne A. Stork (62) Chairman, Trustee and/or Director of Income Funds and each of the other 32
investment companies in the Delaware Investments family.
Chairman and Director of Delaware Management Holdings, Inc.
Prior to January 1, 1999, Mr. Stork was Director of Delaware Capital
Management, Inc.; Chairman, President and Chief Executive Officer and
Director/Trustee of DMH Corp., Delaware Distributors, Inc. and Founders
Holdings, Inc.; Chairman, President, Chief Executive Officer, Chief Investment
Officer and Director/Trustee of Delaware Management Company, Inc. and Delaware
Management Business Trust; Chairman, President, Chief Executive Officer and
Chief Investment Officer of Delaware Management Company (a series of Delaware
Management Business Trust); Chairman, Chief Executive Officer and Chief
Investment Officer of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Chairman and Chief Executive Officer of Delaware
International Advisers Ltd.; Chairman, Chief Executive Officer and Director of
Delaware International Holdings Ltd.; Chief Executive Officer of Delaware
Management Holdings, Inc.; President and Chief Executive Officer of Delvoy,
Inc.; Chairman of Delaware Distributors, L.P.; Director of Delaware Service
Company, Inc. and Retirement Financial Services, Inc.
In addition, during the five years prior to January 1, 1999, Mr. Stork has
served in various executive capacities at different times within the Delaware
organization.
- - ------------------------------------------- -------------------------------------------------------------------------------
- - ----------------------
* Trustee affiliated with Income Funds' investment manager and considered an
"interested person" as defined in the 1940 Act.
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------- -------------------------------------------------------------------------------
<S> <C>
*David K. Downes (59) President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and Trustee and/or Director of Income Funds and each of the other 32
investment companies in the Delaware Investments family.
President and Director of Delaware Management Company, Inc.
President of Delaware Management Company (a series of Delaware Management
Business Trust)
President, Chief Executive Officer and Director of Delaware Capital
Management, Inc.
Chairman, President, Chief Executive Officer and Director of Delaware
Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware International Holdings Ltd.
Chairman and Director of Delaware Management Trust Company and Retirement
Financial Services, Inc.
Executive Vice President, Chief Operating Officer, Chief Financial Officer
of Delaware Management Holdings, Inc., Founders CBO Corporation, Delaware
Investment Advisers (a series of Delaware Management Business Trust) and
Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial Officer
and Director of DMH Corp., Delaware Distributors, Inc., Founders Holdings,
Inc. and Delvoy, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various executive
capacities at different times within the Delaware organization.
- - ---------------------------------------------------------------------------------------------------------------------------
- - ----------------------
* Trustee affiliated with Income Funds' investment manager and considered an
"interested person" as defined in the 1940 Act.
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Richard G. Unruh, Jr. (59) Executive Vice President and Chief Investment Officer, Equities of Income
Funds, each of the other 32 investment companies in the Delaware Investments
family Delaware Management Holdings, Inc., Delaware Management Company (a
series of Delaware Management Business Trust) and Delaware Capital
Management, Inc.
Chief Executive Officer/Chief Investment Officer/DIA Equity of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management Company,
Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware organization.
- - ------------------------------------------- -------------------------------------------------------------------------------
H. Thomas McMeekin (46) Executive Vice President and Chief Investment Officer, Fixed Income of
Income Funds and each of the other 32 investment companies in the Delaware
Investments family.
Director of Delaware Management Holdings, Inc. and Founders CBO Corporation.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Capital Management, Inc.
President of Lincoln Investment Management, Inc.
Mr. McMeekin joined Delaware Investments in 1999. Mr. McMeekin has also served in
various executive capacities for Lincoln National Corporation since 1984.
- - ------------------------------------------- ------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Richard J. Flannery (41) Executive Vice President/General Counsel of Income Funds and each of the
other 32 investment companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Delaware Distributors, L.P., Delaware Management
Company (a series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and Founders CBO
Corporation.
Executive Vice President/General Counsel and Director of Delaware
International Holdings Ltd., Founders Holdings, Inc., Delvoy, Inc., DMH Corp.,
Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware
Capital Management, Inc., Retirement Financial Services, Inc., Delaware
Distributors, Inc. and Delaware Management Business Trust.
Executive Vice President and Trustee of Delaware Management Business Trust.
Director of Delaware International Advisers Ltd.
Director of HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various executive
capacities at different times within the Delaware organization.
- - ------------------------------------------- -------------------------------------------------------------------------------
Walter P. Babich (71) Trustee and/or Director of Income Funds and each of the other 32 investment
companies in the Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from 1988
to 1991, he was a partner of I&L Investors.
- - ------------------------------------------- -------------------------------------------------------------------------------
John H. Durham (62) Trustee and/or Director of Income Funds and 18 other investment companies in
the Delaware Investments family
Private Investor.
P.O. Box 819, Gwynedd Valley, PA 19437
Mr. Durham served as Chairman of the Board of each fund in the Delaware
Investments family from 1986 to 1991; President of each firm from, 1977
to 1990; and Chief Executive Officer of each fund from xxx to 1990. Prior
to 1992, with respect to Delaware Management Hold Inc., Delaware Management
Company, Delaware Distributors, Inc. a Delaware Service Company, Inc., Mr.
Durham served as a director a various executive capacities at different times.
He was also a Partner Complete Care Services from 1995 to 1999.
- - ------------------------------------------- -------------------------------------------------------------------------------
Anthony D. Knerr (60) Trustee and/or Director of Income Funds and each of the 32 other investment
companies in the Delaware Investments family.
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to 1989, he was also a
lecturer in English at the University. In addition, Mr. Knerr was Chairman
of The Publishing Group, Inc., New York, from 1988 to 1990. Mr. Knerr
founded The Publishing Group, Inc. in 1988.
- - ------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Ann R. Leven (58) Trustee and/or Director of Income Funds and each of the other 32 other
investment companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of the
Smithsonian Institution, Washington, DC, and from 1975 to 1992, she was
Adjunct Professor of Columbia Business School.
- - ------------------------------------------- -------------------------------------------------------------------------------
Thomas F. Madison (63) Trustee and/or Director of Income Funds and each of the other 32 investment
companies in the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of AetherWorks, Inc. since September
1999 and Director since 1992. From 1996 - 1999, Mr. Madison was
Chairman of the Board of Communications Holdings,
Inc., from February to September 1994, he served as Vice
Chairman--Office of the CEO of The Minnesota Mutual Life Insurance Company
and from 1988 to 1993, he was President of U.S. WEST Communications--Markets.
- - ------------------------------------------- -------------------------------------------------------------------------------
Charles E. Peck (73) Trustee and/or Director of Income Funds and each of the other 32 investment
companies in the Delaware Investments family
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of The
Ryland Group, Inc., Columbia, MD.
- - ------------------------------------------- -------------------------------------------------------------------------------
Janet L. Yeomans (50) Trustee and/or Director of Income Funds and 32 other investment companies in
the Delaware Investments family.
Building 220-13W-37, St. Paul, MN 55144
Vice President and Treasurer, 3M Corporation.
President, 3M Invesement Management Coporation.
From 1987-1994, Ms. Yeomans was Director of Benefit Funds and Financial
Markets for the 3M Corporation; Manager of Benefit Fund Investments for the 3M
Corporation, 1985-1987; Manager of Pension Funds for the 3M Corporation,
1983-1985; Consultant--Investment Technology Group of Chase Econometrics,
1982-1983; Consultant for Data Resources, 1980-1982; Programmer for the
Federal Reserve Bank of Chicago, 1970-1974.
- - ------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------- ---------------------------------------------------------------------------
<S> <C>
Eric E. Miller (45) Senior Vice President/Deputy General Counsel and Secretary of Income
Funds and each of the other 32 investment companies in Delaware
Investments.
Senior Vice President/Deputy General Counsel and Assistant Secretary of
Delaware Management Holdings, Inc., DMH Corp., Delvoy, Inc., Delaware
Management Company, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business Trust),
Delaware Service Company, Inc., Delaware Capital Management, Inc., Retirement
Financial Services, Inc., Delaware Distributors, Inc., Delaware Distributors,
L.P. and Founders Holdings, Inc.
During the past five years, Mr. Miller has served in various executive
capacities at different times within Delaware Investments.
- - -------------------------------------------- ---------------------------------------------------------------------------
Paul A. Matlack (39) Vice President/Senior Portfolio Manager of Income Funds and each of the
other 32 investment companies in Delaware Investments, Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Investment Advisers (a series of Delaware Management Business
Trust).
President and Director of Founders CBO Corporation.
Vice President of Founders Holdings, Inc.
During the past five years, Mr. Matlack has served in various capacities at
different times within the Delaware organization.
- - -------------------------------------------- ---------------------------------------------------------------------------
Gerald T. Nichols (40) Vice President/Senior Portfolio Manager of Income Funds and each of the
other 32 investment companies in Delaware Investments, Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Investment Advisers (a series of Delaware Management Business
Trust).
Vice President of Founders Holdings, Inc.
Assistant Secretary, Treasurer and Director of Founders CBO Corporation.
During the past five years, Mr. Nichols has served in various capacities at
different times within the Delaware organization.
- - -------------------------------------------- ---------------------------------------------------------------------------
Paul Grillo (40) Vice President/Portfolio Manager of Income Funds and each of the other 32
investment companies in Delaware Investments, Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware Investment
Advisers (a series of Delaware Management Business Trust).
During the past five years, Mr. Grillo has served in various capacities at
different times within the Delaware organization.
- - -------------------------------------------- ---------------------------------------------------------------------------
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------- ---------------------------------------------------------------------------
<S> <C>
Gary A. Reed (44) Vice President/Senior Portfolio Manager of the Fund and the other 32
investment companies in the Delaware Investments family, Delaware Management
Company (a series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of series of Delaware Management Business Trust) and
Delaware Capital Management, Inc.
During the past five years, Mr. Reed has served in such capacities within the
Delaware organization.
- - ------------------------------------------- -------------------------------------------------------------------------------
Joseph H. Hastings (49) Senior Vice President/Corporate Controller of Income Funds and each of the
other 32 investment companies in the Delaware Investments family.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust),
Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Capital Management, Inc., Delaware International
Holdings Ltd., Delvoy, Inc., Retirement Financial Services, Inc., Founders
Holdings, Inc. and Delaware Management Business Trust
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
During the past five years, Mr. Hastings has served in various executive
capacities at different times within the Delaware organization.
- - ------------------------------------------- -------------------------------------------------------------------------------
Michael P. Bishof (37) Senior Vice President and Treasurer of Income Funds and each of the other 32
investment companies in the Delaware Investments family.
Senior Vice President/Investment Accounting of Delaware Service Company, Inc.
and Delaware Capital Management, Inc.
Senior Vice President and Treasurer/ Investment Accounting of Delaware
Distributors, L.P. , Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) Delaware International Holdings, Inc. and
Founders Holdings, Inc.
Senior Vice President and Assistant Treasurer of Founders CBO Corporation
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice President
for Bankers Trust, New York, NY from 1994 to 1995, a Vice President for CS
First Boston Investment Management, New York, NY from 1993 to 1994 and an
Assistant Vice President for Equitable Capital Management Corporation, New
York, NY from 1987 to 1993.
- - ------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
80
<PAGE>
The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from Income Funds
and the total compensation received from all investment companies in the
Delaware Investments family for which he or she serves as a director or trustee
for the fiscal year ended July 31, 1999 and an estimate of annual benefits to be
received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of July 31, 1999. Only the independent trustees of Income
Funds receive compensation from Income Funds.
<TABLE>
<CAPTION>
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Pension Retirement
Aggregate Benefits Accrued as Estimated Annual Total Compensation from
Compensation from Part of Trust Benefits Upon Delaware Investments
the Trust Expenses Retirement(1) Investment Companies(2)
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
<S> <C> <C> <C> <C>
Walter B. Babich $4,040 None $38,500 $59,983
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
John H. Durham $3,788 None $32,180 $50,015
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Anthony D. Knerr $4,302 None $38,500 $65,210
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Ann R. Leven $4,387 None $38,500 $66,209
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
W. Thacher Longstreth(3) $3,598 None $38,500 $50,780
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Thomas F. Madison $4,376 None $38,500 $66,043
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Charles E. Peck $4,051 None $38,500 $62,292
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Janet L. Yeomans(4) $1,403 None $38,500 $25,238
- - ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
</TABLE>
- - -------------------
(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the
time of his or her retirement from the Board, has attained the age of
70 and served on the Board for at least five continuous years, is
entitled to receive payments from each investment company in the
Delaware Investments family for which he or she serves as a director or
trustee for a period equal to the lesser of the number of years that
such person served as a director or trustee or the remainder of such
person's life. The amount of such payments will be equal, on an annual
basis, to the amount of the annual retainer that is paid to
directors/trustees of each investment company at the time of such
person's retirement. If an eligible director/trustee retired as of July
31, 1999, he or she would be entitled to annual payments totaling the
amount noted above, in the aggregate, from all of the investment
companies in the Delaware Investments family for which he or she served
as director or trustee, based on the number of investment companies in
the Delaware Investments family as of that date.
81
<PAGE>
(2) Each independent director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,000 for serving as a
director or trustee for all 33 investment companies in Delaware
Investments, plus $3,145 for each Board Meeting attended. John H.
Durham currently receives a total annual retainer fee of $32,180 for
serving as a director or trustee for 19 investment companies in
Delaware Investments, plus $1,810 for each Board Meeting attended. Ann
R. Leven, Anthony D. Knerr, Thomas F. Madison and Charles E. Peck serve
on the Fund's audit committee; Ms. Leven is the chairperson. Members of
the audit committee currently receive additional annual compensation of
$5,000 from all investment companies, in the aggregate, with the
exception of the chairperson, who receives $6,000.
(3) W. Thacher Longstreth retired from the Board of Trustees of Income
Funds on March 17, 1999. The compensation shown in the table is the
amount Mr. Longstreth received from May 1, 1998 through March 17, 1999.
(4) Janet L. Yeomans joined the Board of Trustees of Income Funds on March
17, 1999. The compensation shown is the amount Ms. Yeomans received
from March 17, 1999 through April 30, 1999.
82
<PAGE>
GENERAL INFORMATION
The Trust is an open-end management investment company. Each Fund's
portfolio of assets is diversified as defined by the 1940 Act. Income Funds was
originally organized as a Delaware corporation in 1970. It was subsequently
reorganized as a Maryland corporation, Delaware Group Income Funds, Inc. on
March 4, 1983 and as a Delaware business trust on September 29, 1999.
The Manager is the investment manager of Income Funds. The Manager also
provides investment management services to certain of the other funds in the
Delaware Investments family. An affiliate of the Manager also manages private
investment accounts. While investment decisions of the Funds are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for the Funds.
The Manager and its affiliate Delaware International Advisers Ltd.,
manage the investment options for Delaware-Lincoln Choice Plus and Delaware
Medallion (SM) III Variable Annuities. Choice Plus is issued and distributed by
Lincoln National Life Insurance Company. Choice Plus offers a variety of
different investment styles managed by leading money managers. Medallion is
issued by Allmerica Financial Life Insurance and Annuity Company (First
Allmerica Financial Life Insurance Company in New York and Hawaii). Delaware
Medallion offers various investment series ranging from domestic equity funds,
international equity and bond funds and domestic fixed income funds. Each
investment series available through Choice Plus and Medallion utilizes an
investment strategy and discipline the same as or similar to one of the Delaware
Investments mutual funds available outside the annuity. The Manager or Delaware
International Advisers also manage many of the investment options for the
Delaware-Lincoln Choice Plus Variable Annuity. Choice Plus is issued and
distributed by Lincoln National Life Insurance Company. Choice Plus offers a
variety of different investment styles managed by ten leading money managers.
See Delaware Group Premium Fund, in Appendix B.
Access persons and advisory persons of the Delaware Investments family
of funds, as those terms are defined in SEC Rule 17j-1 under the 1940 Act, who
provide services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
83
<PAGE>
The Distributor acts as national distributor for the Funds and for the
other mutual funds in the Delaware Investments family. The Distributor received
net commissions from each Fund on behalf of Class A Shares, after reallowances
to dealers, as follows:
<TABLE>
<CAPTION>
Delchester Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
----------------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
7/31/99 $2,539,387 $2,118,309 $421,078
7/31/98 $3,072,617 $2,540,252 $532,365
7/31/97 $2,938,512 $2,431,253 $507,259
</TABLE>
<TABLE>
<CAPTION>
Strategic Income Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
----------------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
7/31/99 $177,248 $148,658 $28,590
7/31/98 $288,045 $257,495 $30,551
7/31/97* $281,015 $266,705 $14,310
</TABLE>
- - -------------------
* Date of initial public offering of Strategic Income Fund Class A Shares was
October 1, 1996.
<TABLE>
<CAPTION>
High-Yield Opportunities Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
----------------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
7/31/99 $99,895 $84,602 $15,293
7/31/98 $43,825 $40,025 $3,799
7/31/97* -0- -0- -0-
</TABLE>
- - -------------------
* Date of initial public offering of High-Yield Opportunities Fund Class A
Shares was December 30, 1996.
84
<PAGE>
<TABLE>
<CAPTION>
Corporate Bond Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
----------------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
7/31/99 * $7,108 $5,881 $1,227
</TABLE>
- - -------------------
* Date of initial public offering of Corporate Bond Fund Class A Shares was
September 15, 1998.
<TABLE>
<CAPTION>
Extended Duration Bond Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
----------------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
7/31/99* $594 $508 $86
</TABLE>
- - -------------------
* Date of initial public offering of Extended Duration Bond Fund Class A Shares
was September 15, 1998.
85
<PAGE>
The Distributor and, in its capacity as such, DDI received in the
aggregate Limited CDSC payments with respect to Class A Shares of each Fund as
follows:
<TABLE>
<CAPTION>
Extended
Strategic Income High-Yield Corporate Bond Duration Bond
Fiscal Year Delchester Fund Opportunities Fund Fund Class A Fund Class A
Ended Class A Shares Class A Shares Class A Shares Shares Shares
- - ----------- -------------- ---------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
7/31/99* $41 $-0- $-0- $-0- $-0-
7/31/98 $2,671 $-0- $-0- N/A N/A
7/31/97** $563 $-0- $-0- N/A N/A
</TABLE>
- - -------------------
* Date of initial public offering of Corporate Bond Fund and Extended Duration
Bond Fund Class A Shares was September 15, 1998.
** Date of initial public offering of Strategic Income Fund Class A Shares was
October 1, 1996. Date of initial public offering of High-Yield Opportunities
Fund Class A Shares was December 30, 1996.
The Distributor and, in its capacity as such, DDI received in the
aggregate CDSC payments with respect to Class B Shares of each Fund as follows:
<TABLE>
<CAPTION>
Extended
Duration Bond
Strategic Income High-Yield Corporate Bond Fund
Fiscal Year Delchester Fund Opportunities Fund Fund Class B Class B
Ended Class B Shares Class B Shares Class B Shares Shares Shares
- - ----------- -------------- ---------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
7/31/99* $1,199,675 $67,645 $12,138 $1,060 $-0-
7/31/98 $818,163 $34,503 $-0- N/A N/A
7/31/97** $596,357 $2,376 $2,376 N/A N/A
</TABLE>
- - -------------------
* Date of initial public offering of Corporate Bond Fund and Extended Duration
Bond Fund Class A Shares was September 15, 1998.
** Date of initial public offering of Strategic Income Fund Class A Shares was
October 1, 1996. Date of initial public offering of High-Yield Opportunities
Fund Class A Shares was December 30, 1996.
86
<PAGE>
The Distributor received CDSC payments with respect to each Fund as
follows:
<TABLE>
<CAPTION>
Extended
Strategic Income High-Yield Corporate Bond Duration Bond
Fiscal Year Delchester Fund Opportunities Fund Fund Class C Fund Class C
Ended Class C Shares Class C Shares Class C Shares Shares Shares
- - ----------- -------------- ---------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
7/31/99* $40,611 $2,192 $2,831 $6 $-0-
7/31/98 $22,000 $3,440 $0 N/A N/A
7/31/97** $9,434 $384 $0 N/A N/A
</TABLE>
- - -------------------
* Date of initial public offering of Corporate Bond Fund and Extended Duration
Bond Fund Class A Shares was September 15, 1998.
** Date of initial public offering of Strategic Income Fund Class A Shares was
October 1, 1996. Date of initial public offering of High-Yield Opportunities
Fund Class A Shares was December 30, 1996.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Funds and for the
other mutual funds in the Delaware Investments family. The Transfer Agent is
paid a fee by the Funds 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 Trustees, including a majority of the unaffiliated trustees. The
Transfer Agent also provides accounting services to the Funds. Those services
include performing all functions related to calculating a Fund's net asset value
and providing all financial reporting services, regulatory compliance testing
and other related accounting services. For its services, the Transfer Agent is
paid a fee based on total assets of all funds in the Delaware Investments family
for which it provides such accounting services. Such fee is equal to 0.25%
multiplied by the total amount of assets in the complex for which the Transfer
Agent furnishes accounting services, where such aggregate complex assets are $10
billion or less, and 0.20% of assets if such aggregate complex assets exceed $10
billion. The fees are charged to each fund, including the Funds, on an aggregate
pro-rata basis. The asset-based fee payable to the Transfer Agent is subject to
a minimum fee calculated by determining the total number of investment
portfolios and associated classes.
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of the Trust's advisory
relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Income Funds to delete
the words "Delaware Group" from a Fund's name.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn,
NY 11245 is custodian of each Fund's securities and cash. As custodian for a
Fund, Chase maintains a separate account or accounts for the Fund; receives,
holds and releases portfolio securities on account of the Fund; receives and
disburses money on behalf of the Fund; and collects and receives income and
other payments and distributions on account of the Fund's portfolio securities.
87
<PAGE>
Capitalization
Income Funds has an unlimited authorized number of shares of beneficial
interest with no par value allocated to each Class. Each fund offers four
classes of shares, each representing a proportionate interest in the assets of
that Fund, and each having the same voting and other rights and preferences as
the other classes, except that shares of a fund's Institutional Class may not
vote on matters affecting that fund's Distribution Plans under Rule 12b-1.
Similarly, as a general matter, shareholders of Class A Shares, Class B Shares
and Class C Shares of a fund may vote only on matters affecting the 12b-1 Plan
that relates to the class of shares that they hold. However, Class B Shares of a
fund may vote on any proposal to increase materially the fees to be paid by the
Fund under the Rule 12b-1 Plans relating to its Class A Shares. General expenses
of a fund will be allocated on a pro-rata basis to the classes according to
asset size, except that expenses of the Rule 12b-1 Plans of each Fund's Class A,
Class B and Class C Shares will be allocated solely to those classes.
All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.
Until September 30, 1996, Income Funds operated as Delaware Group
Delchester High-Yield Bond Fund, Inc., and offered one series of shares, the
Delchester Fund series. Beginning September 30, 1996, Income Funds offered
Strategic Income Fund series, beginning December 27, 1996 offered the High-Yield
Opportunities Fund series and beginning September 14, 1998 offered Corporate
Bond Fund series and Extended Duration Bond Fund series. Beginning August 16,
1999, Delchester Fund changed its name and its classes' names to Delaware
Delchester Fund; Strategic Income Fund changed it name and its classes' names to
Delaware Strategic Income Fund; High-Yield Opportunities Fund changed it name
and its classes' names to Delaware High-Yield Opportunities Fund; Corporate Bond
Fund changed it name and its classes' names to Delaware Corporate Bond Fund; and
Extended Duration Bond Fund changed it name and its classes' names to Delaware
Extended Duration Bond Fund. Beginning September , 1999, Delaware Group Income
Funds, Inc. changed its name to Delaware Group Income Funds.
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Noncumulative Voting
Income Funds' shares have noncumulative voting rights which means that
the holders of more than 50% of the shares of Income Funds voting for the
election of trustees can elect all the trustees if they choose to do so, and, in
such event, the holders of the remaining shares will not be able to elect any
trustees.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
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APPENDIX A--RATINGS
General Rating Information
Bonds
The ratings list below can be further described as follows. For all
categories lower than Aaa, Moody's Investors Service, Inc. includes a "1", "2"
or "3" following the rating to designate a high, medium or low rating,
respectively. Similarly, for all categories lower than AAA, Standard & Poor's
Ratings Group and Fitch IBCA, Inc. may add a "+" or "-" following the rating to
characterize a higher or lower rating, respectively.
<TABLE>
<CAPTION>
<S> <C> <C>
Moody's Investors Aaa Highest quality, smallest degree of investment risk.
Service, Inc.
Aa High quality; together with Aaa bonds, they compose the high-grade bond group
A Upper-medium-grade obligations; many favorable investment attributes.
Baa Medium-grade obligations; neither highly protected nor poorly secured.
Interest and principal appear adequate for the present, but certain
protective elements may be lacking or may be unreliable over any great
length of time.
Ba More uncertain with speculative elements. Protective of interest
and principal payments not well safeguarded in good and bad times.
B Lack characteristics of desirable investment; potentially low assurance of
timely interest and principal payments or maintenance of other contract
terms over time.
Caa Poor standing, may be in default; elements of danger with respect to principal
or interest payments.
Ca Speculative in high degree; could be in default or have other marked shortcomings.
C Lowest rated. Extremely poor prospects of ever attaining investment standing.
Standard & Poor's AAA Highest rating; extremely strong capacity to pay principal and interest.
Ratings Group
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more susceptible to
the adverse effects of changing circumstances and economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit adequate
protection parameters, but adverse economic conditions or changing
circumstances more likely to lead to weakened capacity to pay principal and
interest than for higher-rated bonds.
BB, B, Predominantly speculative with respect to the issuer's capacity to meet
CCC, CC required interest and principal payments. BB-lowest degree of speculation;
CC-the highest degree of speculation. Quality and protective
characteristics outweighed by large uncertainties or major risk exposure to
adverse conditions.
D In default.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Fitch IBCA, Inc. AAA Highest quality; obligor has exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Very high quality; obligor's ability to pay interest and repay principal is
very strong. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+.
A High quality; obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than higher-rated bonds.
BBB Satisfactory credit quality; obligor's ability to pay interest and repay
principal is considered adequate. Unfavorable changes in economic
conditions and circumstances are more likely to adversely affect these
bonds and impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for higher-rated
bonds.
BB, Not investment grade; predominantly speculative with respect to the issuer's
CCC, capacity to repay interest and repay principal in accordance with the terms
CC, C of the obligation for bond issues not in default. BB is the least
speculative. C is the most speculative.
</TABLE>
Commercial Paper
<TABLE>
<CAPTION>
Moody's S&P Fitch
<S> <C> <C> <C> <C> <C>
P-1 Superior quality A-1+ Extremely strong quality F-1+ Exceptionally strong quality
A-1 Strong quality F-1 Very strong quality
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
P-3 Acceptable quality A-3 Adequate quality F-3 Fair quality
B Speculative quality F-S Weak credit quality
C Doubtful quality
</TABLE>
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State and Municipal Notes
<TABLE>
<CAPTION>
Moody's S&P Fitch
<S> <C> <C> <C> <C> <C>
MIG1/
VMIG1 Best quality SP1+ Very strong quality F-1+ Exceptionally strong quality
SP1 Strong grade F-1 Very strong quality
MIG2/
VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
MIG3/
VMIG3 Favorable quality F-3 Fair credit quality
MIG4/
VMIG4 Adequate quality
SG Speculative quality SP3 Speculative grade F-S Weak credit quality
</TABLE>
Earnings and Dividend Rankings for Common Stocks
Standard & Poor's Ratings Group. The investment process involves
assessment of various factors -- such as product and industry position,
corporate resources and financial policy -- with results that make some common
stocks more highly esteemed than others. In this assessment, Standard & Poor's
believes that earnings and dividend performance is the end result of the
interplay of these factors and that, over the long run, the record of this
performance has a considerable bearing on relative quality. The rankings,
however, do not pretend to reflect all of the factors, tangible or intangible,
that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of
protection for principal and interest, called creditworthiness, cannot be
applied to common stocks, and therefore rankings are not to be confused with
bond quality ratings which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key
elements in establishing Standard & Poor's earnings and dividend rankings for
common stocks, which are designed to capsulize the nature of this record in a
single symbol. It should be noted, however, that the process also takes into
consideration certain adjustments and modifications deemed desirable in
establishing such rankings.
The point of departure in arriving at these rankings is a
computerized scoring system based on per-share earnings and dividend records of
the most recent ten years -- a period deemed long enough to measure significant
time segments of secular growth, to capture indications of basic change in trend
as they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
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NR signifies no ranking because of insufficient data or because the
stock is not amenable to the ranking process.
The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and
non-recurring accounting adjustments.
A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and dividend
record, public relations standing, recent competitive shifts, and a host of
other factors that may be relevant to investment status and decision.
Preferred Stock Rating
<TABLE>
<CAPTION>
<S> <C> <C>
Moody's Investors Aaa Considered to be a top-quality preferred stock. This rating indicates good asset
Service, Inc. protection and the least risk of dividend impairment within the universe of
preferred stocks.
Aa Considered a high-grade preferred stock. This rating indicates that there is
reasonable assurance that earnings and asset protection will remain relatively
well maintained in the foreseeable future.
A Considered to be an upper-medium grade preferred stock. While risks are judged
to be somewhat greater than in the "aaa" and "aa" classifications, earnings and
asset protection are, nevertheless, expected to be maintained at adequate levels.
Baa Considered to be medium-grade, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be questionable
over any great length of time.
Ba Considered to have speculative elements and its future cannot be considered well
assured. Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
B Generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long period
of time may be small.
Caa Likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
Ca Speculative in a high degree and is likely to be in arrears on dividends
with little likelihood of eventual payment.
C The lowest rated class of preferred or preference stock. Issues so rated can be
regarded as having extremely poor prospects of ever attaining any real investment
standing.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Standard& Poor's AAA Has the highest rating that may be assigned by Standard& Poor's to a preferred stock
Ratings Group issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA Qualifies as a high-quality fixed income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as for issues
rated "AAA."
A Backed by a sound capacity to pay the preferred stock obligations, although it
is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB Regarded as backed by an adequate capacity to pay the preferred stock obligations.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to make payments for a preferred stock in this category than for issues
in the "A" category.
BB,B, Regarded, on balance, as predominantly speculative with respect to the issuer's
CCC capacity to pay preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC Reserved for a preferred stock issue in arrears on dividends or sinking fund
payments but that is currently paying.
C A non-paying issue.
D A non-paying issue with the issuer in default on debt instruments.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular type
of obligation as a matter of policy.
</TABLE>
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APPENDIX B--INVESTMENT OBJECTIVES OF THE OTHER FUNDS IN THE DELAWARE INVESTMENTS
FAMILY
Following is a summary of the investment objectives of the funds in the
Delaware Investments family:
Delaware Balanced Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. 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. Delaware Devon
Fund seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
Delaware Trend Fund seeks long-term growth by investing in common
stocks issued by emerging growth companies exhibiting strong capital
appreciation potential.
Delaware Small Cap Value Fund seeks capital appreciation by investing
primarily in common stocks whose market values appear low relative to their
underlying value or future potential.
Delaware 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.
Delaware Decatur Equity Income Fund seeks the highest possible current
income by investing primarily in common stocks that provide the potential for
income and capital appreciation without undue risk to principal. Delaware Growth
and Income Fund seeks long-term growth by investing primarily in securities that
provide the potential for income and capital appreciation without undue risk to
principal. Delaware Blue Chip Fund seeks to achieve long-term capital
appreciation. Current income is a secondary objective. It seeks to achieve these
objectives by investing primarily in equity securities and any securities that
are convertible into equity securities. Delaware Social Awareness Fund seeks to
achieve long-term capital appreciation. It seeks to achieve this objective by
investing primarily in equity securities of medium- to large-sized companies
expected to grow over time that meet the Fund's "Social Criteria" strategy.
Delaware Delchester Fund seeks as high a current income as possible by
investing principally in high yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Delaware Strategic Income Fund seeks
to provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities. Delaware High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Delaware Corporate Bond Fund seeks to provide investors with total return by
investing primarily in corporate bonds. Delaware Extended Duration Bond Fund
seeks to provide investors with total return by investing primarily in corporate
bonds.
Delaware Limited-Term Government Fund seeks high, stable income by
investing primarily in a portfolio of short- and intermediate-term securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
and instruments secured by such securities.
Delaware American Government Bond Fund seeks high current income by
investing primarily in long-term debt obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
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Delaware Cash Reserve Fund seeks the highest level of income consistent
with the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
Delaware REIT Fund seeks to achieve maximum long-term total return with
capital appreciation as a secondary objective. It seeks to achieve its
objectives by investing in securities of companies primarily engaged in the real
estate industry.
Delaware Tax-Free USA Fund seeks high current income exempt from
federal income tax by investing in municipal bonds of geographically-diverse
issuers. Delaware Tax-Free Insured Fund invests in these same types of
securities but with an emphasis on municipal bonds protected by insurance
guaranteeing principal and interest are paid when due. Delaware Tax-Free USA
Intermediate Fund seeks a high level of current interest income exempt from
federal income tax, consistent with the preservation of capital by investing
primarily in municipal bonds.
Delaware Tax-Free Money Fund seeks high current income, exempt from
federal income tax, by investing in short-term municipal obligations, while
maintaining a stable net asset value.
Delaware Tax-Free New Jersey Fund seeks a high level of current
interest income exempt from federal income tax and New Jersey state and local
taxes, consistent with preservation of capital. Delaware Tax-Free Ohio Fund
seeks a high level of current interest income exempt from federal income tax and
Ohio state and local taxes, consistent with preservation of capital. Delaware
Tax-Free Pennsylvania Fund seeks a high level of current interest income exempt
from federal income tax and Pennsylvania state and local taxes, consistent with
the preservation of capital.
Delaware Foundation Funds are "fund of funds" which invest in other
funds in the Delaware Investments family (referred to as "Underlying Funds").
Delaware Foundation Funds Income Portfolio seeks a combination of current income
and preservation of capital with capital appreciation by investing primarily in
a mix of fixed income and domestic equity securities, including fixed income and
domestic equity Underlying Funds. Delaware Foundation Funds Balanced Portfolio
seeks capital appreciation with current income as a secondary objective by
investing primarily in domestic equity and fixed income securities, including
domestic equity and fixed income Underlying Funds. Delaware Foundation Funds
Growth Portfolio seeks long term capital growth by investing primarily in equity
securities, including equity Underlying Funds, and, to a lesser extent, in fixed
income securities, including fixed-income Underlying Funds.
Delaware International Equity Fund seeks to achieve long-term growth
without undue risk to principal by investing primarily in international
securities that provide the potential for capital appreciation and income.
Delaware Global Bond Fund seeks to achieve current income consistent with the
preservation of principal by investing primarily in global fixed-income
securities that may also provide the potential for capital appreciation.
Delaware Global Equity Fund seeks to achieve long-term total return by investing
in global securities that provide the potential for capital appreciation and
income. Delaware Emerging Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries.
Delaware U.S. Growth Fund seeks to maximize capital appreciation by
investing in companies of all sizes which have low dividend yields, strong
balance sheets and high expected earnings growth rates relative to their
industry. Delaware Overseas Equity Fund seeks to maximize total return (capital
appreciation and income), principally through investments in an internationally
diversified portfolio of equity securities. Delaware New Pacific Fund seeks
long-term capital appreciation by investing primarily in companies which are
domiciled in or have their principal business activities in the Pacific Basin.
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Delaware Group Premium Fund, Inc. offers 17 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Growth and
Income Series seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. Delchester Series seeks as high a current
income as possible by investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves Series seeks a high
stable level of current income while minimizing fluctuations in principal by
investing in a diversified portfolio of short- and intermediate-term securities.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Balanced Series seeks a balance of
capital appreciation, income and preservation of capital. It uses a
dividend-oriented valuation strategy to select securities issued by established
companies that are believed to demonstrate potential for income and capital
growth. International Equity Series seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers that
provide the potential for capital appreciation and income. Small Cap Value
Series seeks capital appreciation by investing primarily in small-cap common
stocks whose market values appear low relative to their underlying value or
future earnings and growth potential. Emphasis will also be placed on securities
of companies that may be temporarily out of favor or whose value is not yet
recognized by the market. Trend Series seeks long-term capital appreciation by
investing primarily in small-cap common stocks and convertible securities of
emerging and other growth-oriented companies. These securities will have been
judged to be responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective. Global Bond
Series seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed-income securities that may also
provide the potential for capital appreciation. Strategic Income Series seeks
high current income and total return by using a multi-sector investment
approach, investing primarily in three sectors of the fixed-income securities
markets: high-yield, higher risk securities; investment grade fixed-income
securities; and foreign government and other foreign fixed-income securities.
Devon Series seeks current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on common stocks that
the investment manager believes have the potential for above-average dividend
increases over time. Emerging Markets Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of issuers located or
operating in emerging countries. Convertible Securities Series seeks a high
level of total return on its assets through a combination of capital
appreciation and current income by investing primarily in convertible
securities. Social Awareness Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in securities
of companies primarily engaged in the real estate industry. Aggressive Growth
Series seeks long-term capital appreciation. The Series attempts to achieve its
investment objective by investing primarily in equity securities of companies
which the manager believes have the potential for high earnings growth.
Delaware US Government Securities Fund seeks to provide a high level of
current income consistent with the prudent investment risk by investing in U.S.
Treasury bills, notes, bonds, and other obligations issued or unconditionally
guaranteed by the full faith and credit of the U.S. Treasury, and repurchase
agreements fully secured by such obligations.
Delaware Tax-Free Arizona Insured Fund seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware Minnesota Insured
Fund seeks to provide a high level of current income exempt from federal income
tax and the Minnesota personal income tax, consistent with the preservation of
capital.
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Delaware Tax-Free Minnesota Intermediate Fund seeks to provide a high
level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
Delaware Tax-Free California Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the California personal
income tax, consistent with the preservation of capital. Delaware Tax-Free
Florida Insured Fund seeks to provide a high level of current income exempt from
federal income tax, consistent with the preservation of capital. The Fund will
seek to select investments that will enable its shares to be exempt from the
Florida intangible personal property tax. Delaware Tax-Free Florida Fund seeks
to provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital. The Fund will seek to select
investments that will enable its shares to be exempt from the Florida intangible
personal property tax. Delaware Tax-Free Kansas Fund seeks to provide a high
level of current income exempt from federal income tax, the Kansas personal
income tax and the Kansas intangible personal property tax, consistent with the
preservation of capital. Delaware Tax-Free Missouri Insured Fund seeks to
provide a high level of current income exempt from federal income tax and the
Missouri personal income tax, consistent with the preservation of capital.
Delaware Tax-Free New Mexico Fund seeks to provide a high level of current
income exempt from federal income tax and the New Mexico personal income tax,
consistent with the preservation of capital. Delaware Tax-Free Oregon Insured
Fund seeks to provide a high level of current income exempt from federal income
tax and the Oregon personal income tax, consistent with the preservation of
capital.
Delaware Tax-Free Arizona Fund seeks to provide a high level of current
income exempt from federal income tax and the Arizona personal income tax,
consistent with the preservation of capital. Delaware Tax-Free California Fund
seeks to provide a high level of current income exempt from federal income tax
and the California personal income tax, consistent with the preservation of
capital. Delaware Tax-Free Iowa Fund seeks to provide a high level of current
income exempt from federal income tax and the Iowa personal income tax,
consistent with the preservation of capital. Delaware Tax-Free Idaho Fund seeks
to provide a high level of current income exempt from federal income tax and the
Idaho personal income tax, consistent with the preservation of capital. Delaware
Minnesota High Yield Municipal Bond Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax primarily through investment in medium and lower grade municipal
obligations. Delaware National High Yield Municipal Fund seeks to provide a high
level of income exempt from federal income tax, primarily through investment in
medium and lower grade municipal obligations. Delaware Tax-Free New York Fund
seeks to provide a high level of current income exempt from federal income tax
and the personal income tax of the state of New York and the city of New York,
consistent with the preservation of capital. Delaware Tax-Free Wisconsin Fund
seeks to provide a high level of current income exempt from federal income tax
and the Wisconsin personal income tax, consistent with the preservation of
capital.
Delaware Tax-Free Colorado Fund seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal income
tax, consistent with the preservation of capital.
Delaware Tax-Free Minnesota Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax, consistent with the preservation of capital. Delaware Tax-Free North Dakota
Fund seeks to provide a high level of current income exempt from federal income
tax and the North Dakota personal income tax, consistent with the preservation
of capital.
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Delaware Aggressive Growth Fund seeks long-term capital appreciation,
which the Fund attempts to achieve by investing primarily in equity securities
believed to have the potential for high earnings growth. Although the Fund, in
seeking its objective, may receive current income from dividends and interest,
income is only an incidental consideration in the selection of the Fund's
investments. Delaware Growth Stock Fund has an objective of long-term capital
appreciation. The Fund seeks to achieve its objective from equity securities
diversified among individual companies and industries. Delaware Tax-Efficient
Equity Fund seeks to obtain for taxable investors a high total return on an
after-tax basis. The Fund will attempt to achieve this objective by seeking to
provide a high long-term after-tax total return through managing its portfolio
in a manner that will defer the realization of accrued capital gains and
minimize dividend income.
For more complete information about any of the funds in the Delaware
Investments family, including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
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FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditor for Income Funds
and, in its capacity as such, audits the annual financial statements contained
in the Funds' Annual Reports. Each Fund's Statement of Net Assets (and Statement
of Assets and Liabilities, as applicable), Statement of Operations, Statements
of Changes in Net Assets, Financial Highlights and Notes to Financial
Statements, as well as the report of Ernst & Young LLP, independent auditors,
for the fiscal year ended July 31, 1999, are included in the Funds' Annual
Reports to shareholders. The financial statements and financial highlights, the
notes relating thereto and the reports of Ernst & Young LLP listed above are
incorporated by reference from the Annual Reports into this Part B.
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<TABLE>
<CAPTION>
<S> <C>
---------------------------------------------------------------
Delaware Investments includes funds with a wide DELAWARE GROUP INCOME FUNDS
range of investment objectives. Stock funds, income
funds, national and state-specific tax-exempt funds, money ---------------------------------------------------------------
market funds, global and international funds and
closed-end funds give investors the ability to create a DELAWARE DELCHESTER FUND
portfolio that fits their personal financial goals. For DELAWARE STRATEGIC INCOME FUND
more information, shareholders of the Funds' Classes DELAWARE HIGH-YIELD OPPORTUNITIES FUND
should contact their financial adviser or call Delaware DELAWARE CORPORATE BOND FUND
Investments at 800-523-1918. DELAWARE EXTENDED DURATION BOND FUND
---------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company DELAWARE GROUP INCOME FUNDS
One Commerce Square ---------------------------------------------------------------
Philadelphia, PA 19103
SUB-ADVISER
Strategic Income Fund:
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street PART B
Philadelphia, PA 19103
STATEMENT OF
SHAREHOLDER SERVICING, ADDITIONAL INFORMATION
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc. SEPTEMBER 29, 1999
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
Delaware(SM) Investments
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
</TABLE>
<PAGE>
PART C
Other Information
Item 23. Exhibits
(a) Agreement and Declaration of Trust.
(1) Agreement and Declaration of Trust (December 17,
1998) incorporated into this filing by reference to
Post-Effective Amendment No. 61 filed July 29, 1999.
(2) Certificate of Trust (December 17, 1998) incorporated
into this filing by reference to Post-Effective
Amendment No. 61 filed July 29, 1999.
(b) By-Laws. By-Laws (December 17, 1998) reference to
Post-Effective Amendment No. 61 filed July 29, 1999.
(c) Copies of All Instruments Defining the Rights of Holders.
(1) Agreement and Declaration of Trust. Articles III, IV,
V and VI of Agreement and Declaration of Trust
reference to Post-Effective Amendment No. 61 filed
July 29, 1999.
(2) By-Laws. Article II of By-Laws reference to
Post-Effective Amendment No. 61 filed July 29, 1999.
(d) Investment Management Agreement and Sub-Advisory Agreement.
(1) Form of Investment Management Agreement (September
29, 1999) between Delaware Management Company and the
Registrant incorporated into this filing by reference
to Post-Effective Amendment No. 61 filed July 29,
1999.
(2) Form of Sub-Advisory Agreement (September 29, 1999)
between Delaware International Advisers Ltd. and
Delaware Management Company on behalf of Delaware
Strategic Income Fund incorporated into this filing
by reference to Post-Effective Amendment No. 61 filed
July 29, 1999.
(e) (1) Distribution Agreement.
(i) Form of Distribution Agreement incorporated
into this filing by reference to
Post-Effective Amendment No. 53 filed July
17, 1996.
(ii) Form of Amendment No. 1 to Distribution
Agreement incorporated into this filing by
reference to Post-Effective Amendment No. 53
filed July 17, 1996.
(2) Administration and Service Agreement. Form of
Administration and Service Agreement (as amended
November 1995) incorporated into this filing by
reference to Post-Effective Amendment No. 52 filed
November 22, 1995.
(3) Dealer's Agreement. Dealer's Agreement (as amended
November 1995) incorporated into this filing by
reference to Post-Effective Amendment No. 52 filed
November 22, 1995.
(4) Mutual Fund Agreement for the Delaware Group of Funds
(as amended November 1995) (Module) incorporated into
this filing by reference to Post-Effective Amendment
No. 53 filed July 17, 1996.
(f) Inapplicable.
<PAGE>
(g) Custodian Agreement.
(1) Form of Custodian Agreement with The Chase Manhattan
Bank incorporated into this filing by reference to
Post-Effective Amendment No. 61 filed July 29, 1999.
(2) Form of Securities Lending Agreement with The Chase
Manhattan Bank incorporated into this filing by
reference to Post-Effective Amendment No. 61 filed
July 29, 1999.
(h) Other Material Contracts.
(1) Form of Shareholders Services Agreement incorporated
into this filing by reference to Post-Effective
Amendment No. 59 filed July 2, 1998.
(2) Form of Delaware Group of Funds Fund Accounting
Agreement incorporated into this filing by reference
to Post-Effective Amendment No. 54 filed September
27, 1996 and Post-Effective Amendment No. 59 filed
July 2, 1998.
(i) Opinion of Counsel. reference to Post-Effective Amendment No.
61 filed July 29, 1999.
(j) Consent of Auditors. Attached as Exhibit.
(k-l) Inapplicable.
(m) Plans under Rule 12b-1.
(1) Form of Plan under Rule 12b-1 for Class A
incorporated into this filing by reference to
Post-Effective Amendment No. 53 filed July 17, 1996.
(2) Form of Plan under Rule 12b-1 for Class B
incorporated into this filing by reference to
Post-Effective Amendment No. 53 filed July 17, 1996.
(3) Form of Plan under Rule 12b-1 for Class C
incorporated into this filing by reference to
Post-Effective Amendment No. 53 filed July 17, 1996.
(n) Plan under Rule 18f-3. Form of Plan under Rule 18f-3
incorporated into this filing by reference to Post-Effective
Amendment No. 55 filed August 28, 1996.
(o) Powers of Attorney. incorporated into this filing by reference
to Post-Effective Amendment No. 61 filed July 29, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant. None.
Item 25. Indemnification. Article VI of the By-Laws incorporated into this
filing by reference to Post- Effective Amendment No. 61 filed
July 29, 1999.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser.
(a) Delaware Management Company (the "Manager"), a series of Delaware
Management Business Trust, serves as investment manager to the Registrant and
also serves as investment manager or sub-adviser to certain of the other funds
in the Delaware Investments family (Delaware Group Equity Funds I, Inc.,
Delaware Group Equity Funds II, Inc., Delaware Group Equity Funds III, Delaware
Group Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc., Delaware Group
Government Fund, Delaware Group Limited-Term Government Funds, Inc., Delaware
Group Cash Reserve, Inc., Delaware Group Tax-Free Fund, Inc., Delaware Group
State Tax-Free Income Trust, Delaware Group Tax-Free Money Fund, Delaware Group
Premium Fund, Inc., Delaware Group Global & International Funds, Inc., Delaware
Pooled Trust, Inc., Delaware Group Adviser Funds, Inc., Delaware Group Dividend
and Income Fund, Inc., Delaware Group Global Dividend and Income Fund, Inc.,
Delaware Group Foundation Funds, Inc., Voyageur Intermediate Tax-Free Funds,
Inc., Voyageur Tax-Free Funds, Inc., Voyageur Funds, Inc., Voyageur Insured
Funds, Inc., Voyageur Investment Trust, Voyageur Mutual Funds, Inc., Voyageur
Mutual Funds II, Inc., Voyageur Mutual Funds III, Inc., Voyageur Arizona
Municipal Income Fund, Inc., Voyageur Colorado Insured Municipal Income Fund,
Inc., Voyageur Florida Insured Municipal Income Fund, Voyageur Minnesota
Municipal Fund, Inc., Voyageur Minnesota Municipal Fund II, Inc. and Voyageur
Minnesota Municipal Fund III, Inc.). In addition, certain officers of the
Manager also serve as directors/trustees of the other funds in the Delaware
Investments family, and certain officers are also officers of these other funds.
A company indirectly owned by the Manager's indirect parent company acts as
principal underwriter to the mutual funds in the Delaware Investments family
(see Item 29 below) and another such company acts as the shareholder services,
dividend disbursing, accounting servicing and transfer agent for all of the
mutual funds in the Delaware Investments family.
<PAGE>
The following persons serving as directors or officers of the Manager
have held the following positions during the past two years:
<TABLE>
<CAPTION>
====================================================================================================================================
Name and Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
David K. Downes President of Delaware Management Company (a series of Delaware Management Business Trust); Executive
Vice President, Chief Operating Officer and Chief Financial Officer of Delaware Management Holdings,
Inc.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of DMH
Corp.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of
Delvoy, Inc.; President and Director of Delaware Management Company, Inc.; Executive Vice President,
Chief Operating Officer, Chief Financial Officer and Trustee of Delaware Management Business Trust;
Executive Vice President, Chief Operating Officer and Chief Financial Officer of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Chairman, President, Chief Executive Officer
and Director of Delaware Service Company, Inc.; President, Chief Executive Officer and Director of
Delaware Capital Management, Inc.; Chairman and Director of Retirement Financial Services, Inc.;
Chairman and Director of Delaware Management Trust Company; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director of Delaware Distributors, Inc.; Executive Vice President,
Chief Operating Officer and Chief Financial Officer of Delaware Distributors, L.P.; President, Chief
Operating Officer, Chief Financial Officer and Director of Delaware International Holdings Ltd.;
Director of Delaware International Advisers Ltd.; Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director of Founders Holdings, Inc.; Executive Vice President, Chief
Operating Officer and Chief Financial Officer of Founders CBO Corporation; President, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and Director/Trustee of each fund in the
Delaware Investments family.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place, Newtown Square, PA
- - ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Flannery Executive Vice President and General Counsel of Delaware Management Company (a series of Delaware
Management Business Trust); Executive Vice President and General Counsel of Delaware Management
Holdings, Inc.; Executive Vice President, General Counsel and Director of DMH Corp.; Executive Vice
President, General Counsel and Director of Delvoy, Inc.; Executive Vice President, General Counsel and
Director of Delaware Management Company, Inc.; Executive Vice President, General Counsel and Trustee of
Delaware Management Business Trust; Executive Vice President and General Counsel of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Executive Vice President, General Counsel and
Director of Delaware Service Company, Inc.; Executive Vice President, General Counsel and Director of
Delaware Capital Management, Inc.; Executive Vice President, General Counsel and Director of Retirement
Financial Services, Inc.; Executive Vice President, General Counsel and Director of Delaware Management
Trust Company; Executive Vice President, General Counsel and Director of Delaware Distributors, Inc.;
Executive Vice President and General Counsel of Delaware Distributors, L.P.; Executive Vice President,
General Counsel and Director of Delaware International Holdings Ltd.; Director of Delaware International
Advisers Ltd.; Executive Vice President, General Counsel and Director of Founders Holdings, Inc.;
Executive Vice President and General Counsel of Founders CBO Corporation; Executive Vice President and
General Counsel of each fund in the Delaware Investments family.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA; Director and Member of
Executive Committee of Stonewall Links, Inc. since 1991, Bulltown Rd., Elverton, PA
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard G. Unruh Executive Vice President, Chief Investment Officer/ DMC Equity of Delaware Management Company (a series
of Delaware Management Business Trust); Executive Vice President of Delaware Management Holdings, Inc.;
Executive Vice President and Trustee of Delaware Management Business Trust; Chief Executive Office,
Chief Investment Officer/DIA Equity of Delaware Investment Advisers (a series of Delaware Management
Business Trust; Executive Vice President of Delaware Capital Management, Inc.; Director of Delaware
Investment Advisers Ltd.; Executive Vice President, Chief Investment Officer/Equity of each fund in the
Delaware Investments family.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors, Chairman of Finance Committee, AAA Mid Atlantic, Inc.
since 1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Metron, Inc. since 1995, 11911
Freedom Drive, Reston, VA
- - ------------------------------------------------------------------------------------------------------------------------------------
H. Thomas McMeekin(1) Executive Vice President of Delaware Management Business Trust; Executive Vice President of Delaware
Management Company (a series of Delaware Management Business Trust); Executive Vice President of
Delaware Capital Management, Inc.; Executive Vice President and Director of Founders Holdings, Inc.;
Director of Delaware Management Holdings, Inc., Director of Founders CBO Corporation, Director of
Vantage Investment Advisers; Director of Lincoln National Investment Companies; Executive Vice President
and Chief Investment Officer, Fixed Income of each Fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company (a series of Delaware Management
Business Trust; Senior Vice President/Operations of Delaware Service Company, Inc.; Senior Vice
President/Operations of Retirement Financial Services, Inc.; Senior Vice President/Operations of
Delaware Management Trust Company.
- - ------------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President, Treasurer/Investment Accounting of Delaware Management Company (a series of
Delaware Management Business Trust); Senior Vice President, Treasurer/Investment Accounting of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Investment
Accounting of Delaware Service Company, Inc.; Senior Vice President/Investment Accounting of Delaware
Capital Management, Inc.; Senior Vice President, Treasurer/Investment Accounting of Delaware
Distributors, L.P.; Senior Vice President, Manager of Investment Accounting of Delaware International
Holdings Ltd.; Senior Vice President, Treasurer/Investment Accounting of Founders Holdings, Inc.; Senior
Vice President and Assistant Treasurer of Founders CBO Corporation; Senior Vice President and Treasurer
of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Robert J. DiBraccio Senior Vice President/Head of Equity Trading of Delaware Management Company (a series of Delaware
Management Business Trust); Senior Vice President/Head of Equity Trading of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Senior Vice President/Head of Equity Trading of
Delaware Capital Management, Inc.
- - ------------------------------------------------------------------------------------------------------------------------------------
John B. Fields Senior Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware
Management Business Trust); Trustee of Delaware Management Business Trust; Senior Vice President/Senior
Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust);
Senior Vice President/Senior Portfolio Manager of Delaware Capital Management, Inc.; Senior Vice
President/Senior Portfolio Manager of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Susan L. Hanson Senior Vice President/Global Marketing and Client Services of Delaware Management Company (a series of
Delaware Management Business Trust); Senior Vice President/Global Marketing and Client Services of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Joseph H. Hastings Senior Vice President/Treasurer/Corporate Controller of Delaware Management Company (a series of
Delaware Management Business Trust); Senior Vice President/Treasurer/Corporate Controller of Delaware
Management Holdings, Inc.; Senior Vice President/Treasurer/Corporate Controller of DMH Corp; Senior Vice
President/Treasurer/Corporate Controller of Delvoy, Inc.; Senior Vice President/Treasurer/Corporate
Controller of Delaware Management Company, Inc.; Senior Vice President/Treasurer/Corporate Controller of
Delaware Management Business Trust; Senior Vice President/Treasurer/Corporate Controller of Delaware
Service Company, Inc.; Senior Vice President/Treasurer/Corporate Controller of Delaware Capital
Management, Inc.; Senior Vice President/Treasurer/Corporate Controller of Retirement Financial Services,
Inc.; Executive Vice President/Corporate Controller/Treasurer of Delaware Management Trust Company;
Senior Vice President/Treasurer/Corporate Controller of Delaware Distributors, L.P.; Senior Vice
President/Treasurer/Corporate Controller of Delaware International Holdings; Senior Vice
President/Treasurer/Corporate Controller of Founders Holdings, Inc.; Senior Vice President/ Assistant
Treasurer Founders CBO Corporation; Senior Vice President/Corporate Controller of each fund in the
Delaware Investments family
- - ------------------------------------------------------------------------------------------------------------------------------------
Joanne O. Hutcheson Senior Vice President/Human Resources of Delaware Management Company (a series of Delaware Management
Business Trust); Senior Vice President/Human Resources of Delaware Management Holdings, Inc.; Senior
Vice President/Human Resources of DMH Corp.; Senior Vice President/Human Resources of Delvoy, Inc.;
Senior Vice President/Human Resources of Delaware Management Company, Inc.; Senior Vice President/Human
Resources of Delaware Management Business Trust; Senior Vice President/Human Resources of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Human
Resources of Delaware Service Company, Inc.; Senior Vice President/Human Resources of Delaware Capital
Management, Inc.; Senior Vice President/Human Resources of Delaware Retirement Financial Services, Inc.;
Senior Vice President/Human Resources of Delaware Management Trust Company; Senior Vice President/Human
Resources of Delaware Distributors, Inc.; Senior Vice President/Human Resources of Delaware
Distributors, L.P.; Senior Vice President/Human Resources of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy
General Counsel of Delaware Management Holdings, Inc.; Senior Vice President, Assistant Secretary and
Deputy General Counsel of DMH Corp.; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delvoy, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of
Delaware Management Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel
of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice
President, Assistant Secretary and Deputy General Counsel of Delaware Service Company, Inc.; Senior Vice
President, Assistant Secretary and Deputy General Counsel of Delaware Capital Management, Inc.; Senior
Vice President, Assistant Secretary and Deputy General Counsel of Retirement Financial Services, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, L.P.;
Senior Vice President, Secretary and Deputy General Counsel of Delaware International Holdings Ltd.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Founders Holdings, Inc.;
Secretary of Founders CBO Corporation; Senior Vice President, Assistant Secretary and Deputy General
Counsel of each fund in the Delaware Investments family.
General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane, Philadelphia, PA.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Eric E. Miller Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy
General Counsel of Delaware Management Holdings, Inc.; Senior Vice President, Assistant Secretary and
Deputy General Counsel of DMH Corp.; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delvoy, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of
Delaware Management Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel
of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice
President, Assistant Secretary and Deputy General Counsel of Delaware Service Company, Inc.; Senior Vice
President, Assistant Secretary and Deputy General Counsel of Delaware Capital Management, Inc.; Senior
Vice President, Assistant Secretary and Deputy General Counsel of Retirement Financial Services, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, L.P.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Founders Holdings, Inc.; Senior
Vice President, Secretary and Deputy General Counsel of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
James L. Shields Senior Vice President, Chief Information Officer of Delaware Management Company (a series of Delaware
Management Business Trust); Senior Vice President, Chief Information Officer of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Senior Vice President, Chief Information
Officer of Delaware Service Company, Inc.; Senior Vice President, Chief Information Officer of Delaware
Capital Management Company, Inc.; Senior Vice President, Chief Information Officer of Retirement
Financial Services, Inc.; Senior Vice President, Chief Information Officer of Delaware Distributors,
L.P.
- - ------------------------------------------------------------------------------------------------------------------------------------
Christopher S. Adams Vice President/Business Manager, Equity of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Business Manager, Equity of Delaware Investment Advisers (a series of
Delaware Management Business Trust)
- - ------------------------------------------------------------------------------------------------------------------------------------
Robert L. Arnold Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of Delaware Capital Management, Inc., Vice
President/Portfolio Manager of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Marshall T. Bassett Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Christopher S. Beck Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
Trustee of New Castle County Pension Board since October 1992, Wilmington DE.
- - ------------------------------------------------------------------------------------------------------------------------------------
Richard E. Beister Vice President/Trading Operations of Delaware Management Company (a series of Delaware Management
Business Trust)
- - ------------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley Vice President/Compliance Director of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Compliance Director of Delaware Management Holdings, Inc.;Vice
President/Compliance Director of DMH Corp.;Vice President/Compliance Director of Delvoy, Inc.;Vice
President/Compliance Director of Delaware Management Company, Inc.;Vice President/Compliance Director of
Delaware Management Business Trust; Vice President/Compliance Director of Delaware Investment Advisers
(a series of Delaware Management Business Trust);Vice President/Compliance Director of Delaware Service
Company, Inc.;Vice President/Compliance Director of Delaware Capital Management, Inc.;Vice
President/Compliance Director of Retirement Financial Services, Inc.; Vice President/Compliance
Director/Assistant Secretary of Delaware Management Business Trust; Vice President/Compliance Director
of Delaware Distributors, Inc.;Vice President/Compliance Director of Delaware Distributors, L.P.;Vice
President/Compliance Director of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
MaryEllen M. Carrozza Vice President/Client Services of Delaware Management Company (a series of Delaware Management
Business Trust);Vice President/Client Services of Delaware Investment Advisers (a series of Delaware
Management Business Trust);Vice President/Client Services of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Stephen R. Cianci Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Mitchell L. Conery Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Timothy G. Connors Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust).
- - ------------------------------------------------------------------------------------------------------------------------------------
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Capital
Management, Inc.; Vice President/Senior Portfolio Manager of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Nancy M. Crouse Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
George E. Deming Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
James P. Dokas Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/ Portfolio Manager of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Dugan Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Joel A. Ettinger(2) Vice President/Taxation of Delaware Management Company (a series of Delaware Management Business
Trust);Vice President/Taxation of Delaware Management Holdings, Inc.;Vice President/Taxation of DMH
Corp.;Vice President/Taxation of Delvoy, Inc.; Vice President/Taxation of Delaware Management Company,
Inc.;Vice President/Taxation of Delaware Management Business Trust; Vice President/Taxation of Delaware
Investment Advisers (a series of Delaware Management Business Trust);Vice President/Taxation of Delaware
Service Company, Inc.;Vice President/Taxation of Delaware Capital Management, Inc.;Vice
President/Taxation of Retirement Financial Services, Inc.;Vice President/Taxation of Delaware
Distributors, Inc.;Vice President/Taxation of Delaware Distributors, L.P.;Vice President/Taxation of
Founders Holdings, Inc.; Vice President/Taxation of Founders CBO Corporation; Vice President/Taxation of
each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Gerald S. Frey Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
James A. Furgele Vice President/Investment Accounting of Delaware Management Company (a series of Delaware Management
Business Trust);Vice President/Investment Accounting of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Investment Accounting of Delaware Service Company,
Inc.;Vice President/Investment Accounting of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Stuart M. George Vice President/Equity Trading of Delaware Management Company (a series of Delaware Management Business
Trust);Vice President/Equity Trading of Delaware Investment Advisers (a series of Delaware Management
Business Trust).
- - ------------------------------------------------------------------------------------------------------------------------------------
Paul Grillo Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Brian T. Hannon Vice President of Delaware Management Company (a series of Delaware Management Business Trust); Vice
President of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice
President/Senior Portfolio Manager of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
John A. Heffern Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Elizabeth H. Howell Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey Hynoski Vice President/Analyst of Delaware Management Company (a series of Delaware Management Business
Trust);Vice President/Analyst of Delaware Investment Advisers (a series of Delaware Management Business
Trust);Vice President/Analyst of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Cynthia Isom Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Karina J. Ivstan Vice President/Strategic Planning of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Strategic Planning of Delaware Management Holdings, Inc.;Vice
President/Strategic Planning of Delaware Management Business Trust; Senior Vice President, Assistant
Secretary and Deputy General Counsel of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Strategic Planning of Delaware Service Company, Inc.;Vice
President/Strategic Planning of Delaware Capital Management, Inc.; Vice President/Strategic Planning of
Retirement Financial Services, Inc.; Vice President/Strategic Planning of Delaware Management Trust
Company; Vice President/Strategic of Delaware Distributors, L.P.; Vice President/Strategic Planning of
each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Audrey E. Kohart Vice President/Assistant Controller/Corporate Accounting of Delaware Management Company (a series of
Delaware Management Business Trust)
- - ------------------------------------------------------------------------------------------------------------------------------------
Steven T. Lampe Vice President/Research Analyst of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Philip Y. Lin Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice
President, Assistant Secretary and Associate General Counsel of Delaware Management Trust Company; Vice
President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.;Vice
President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Michael D. Mabry Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice
President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice
President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings, Inc.,
President and Director of Founders CBO Corporation; Vice President/Senior Portfolio Manager of each fund
in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Andrew M. McCullagh, Jr. Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Francis X Morris Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings, Inc.,
Treasurer, Assistant Secretary and Director of Founders CBO Corporation; Vice President/Senior Portfolio
Manager of each fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Robert A Norton, Jr. Vice President/Research Analyst of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust).
- - ------------------------------------------------------------------------------------------------------------------------------------
David P. O'Connor Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust);Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.;Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice
President, Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice
President, Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments
family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates
Principal Business and other Positions and Offices Held
Address*
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard Salus Vice President/Assistant Controller of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Assistant Controller of Delaware Management Trust
Company; Vice President/Assistant Controller of Delaware International Holdings Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
Richard D. Seidel Vice President/Assistant Controller/Manager Payroll of Delaware Management Company (a series of Delaware
Management Business Trust).
- - ------------------------------------------------------------------------------------------------------------------------------------
Alan R. Stuart Vice President/Trading of Delaware Management Company (a series of Delaware Management Business Trust);
Vice President/Trading of Delaware Investment Advisers (a series of Delaware Management Business Trust).
- - ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Taggart Vice President/Facilities and Administration Services of Delaware Management Company (a series of
Delaware Management Business Trust);Vice President/Facilities and Administration Services of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Vice President/Facilities and
Administration Services of Delaware Service Company, Inc.;Vice President/Facilities and Administration
Services of Delaware Distributors, L.P.
- - ------------------------------------------------------------------------------------------------------------------------------------
Thomas J. Trottman Vice President/Senior Corporate Bond Analyst of Delaware Management Company (a series of Delaware
Management Business Trust); Vice President/Senior Corporate Bond Analyst of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Vice President/Senior Corporate Bond Analyst of each
fund in the Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
Lori P. Wachs Vice President/Assistant Portfolio Manager of Delaware Management Company (a series of Delaware
Management Business Trust);Vice President/Assistant Portfolio Manager of Delaware Investment Advisers (a
series of Delaware Management Business Trust);Vice President/Assistant Portfolio Manager of each fund in
the Delaware Investments family.
====================================================================================================================================
* Business Address is 1818 Market Street, Philadelphia, PA 19103.
- - ------------------------------------------------------------------------------------------------------------------------------------
(1) PRESIDENT AND DIRECTOR, Lincoln Investment Management, Inc. 1987-present.
(2) TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Delaware International Advisers Ltd. ("Delaware International")
serves as sub-investment adviser to Strategic Income Fund of the Registrant and
also serves as investment manager or sub-investment adviser to certain of the
other funds in the Delaware Group (Delaware Group Global Dividend and Income
Fund, Inc., Delaware Group Global & International Funds, Inc., Delaware Pooled
Trust, Inc., Delaware Group Premium Fund, Inc. and Delaware Group Adviser Funds,
Inc.) and other institutional accounts.
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Positions and Offices with Delaware International and its affiliates and other
Business Address Positions and Offices Held
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
*David K. Downes Director of Delaware International Advisers Ltd.; President of Delaware Management Company (a series of
Delaware Management Business Trust); Executive Vice President, Chief Operating Officer and Chief
Financial Officer of Delaware Management Holdings, Inc.; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director of DMH Corp.; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director of Delvoy, Inc.; President and Director of Delaware
Management Company, Inc.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Trustee of Delaware Management Business Trust; Executive Vice President, Chief Operating Officer and
Chief Financial Officer of Delaware Investment Advisers (a series of Delaware Management Business
Trust); Chairman, President, Chief Executive Officer and Director of Delaware Service Company, Inc.;
President, Chief Executive Officer and Director of Delaware Capital Management, Inc.; Chairman and
Director of Retirement Financial Services, Inc.; Chairman and Director of Delaware Management Trust
Company; Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware Distributors, Inc.; Executive Vice President, Chief Operating Officer and Chief Financial
Officer of Delaware Distributors, L.P.; President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.; Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director of Founders Holdings, Inc.; Executive Vice President, Chief
Operating Officer and Chief Financial Officer of Founders CBO Corporation; President, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and Director/Trustee of each fund in the
Delaware Investments family.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place, Newtown Square, PA
- - ------------------------------------------------------------------------------------------------------------------------------------
**G Roger H. Kitson Vice Chairman and Director of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Timothy W. Sanderson Chief Investment Officer, Equities and Director of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Ian G. Sims Deputy Managing Director/Chief Investment Officer, Global Fixed Income and Director of Delaware
International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**David G. Tilles Managing Director and Director of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Elizabeth A. Desmond Senior Portfolio Manager and Director of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**John Emerson Finance Director and Director of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Clive A. Gillmore Senior Portfolio Manager and Director of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Nigel G. May Senior Portfolio Manager and Director of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Hamish O. Parker Senior Portfolio Manager and Director of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Robert Akester Senior Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Fiona Barwick Senior Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Joanna Bates Senior Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Joshua Brooks Senior Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Gavin A. Hall Senior Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**John Kirk Senior Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Hywel Morgan Senior Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Christopher A. Moth Senior Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Richard J. Ginty Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Positions and Offices with Delaware International and its affiliates and other
Business Address Positions and Offices Held
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
**R. Emma Lewis Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
**Hugh A. Serjeant Portfolio Manager of Delaware International Advisers Ltd.
- - ------------------------------------------------------------------------------------------------------------------------------------
*John C.E. Campbell Director of Delaware International Advisers Ltd.; Executive Vice President/Global Marketing and Client
Services of Delaware Investment Advisers (a series of Delaware Management Business Trust)
- - ------------------------------------------------------------------------------------------------------------------------------------
*George E. Deming Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family.
- - ------------------------------------------------------------------------------------------------------------------------------------
*Richard J. Flannery Executive Vice President and General Counsel of Delaware Management Company (a series of Delaware
Management Business Trust); Executive Vice President and General Counsel of Delaware Management
Holdings, Inc.; Executive Vice President, General Counsel and Director of DMH Corp.; Executive Vice
President, General Counsel and Director of Delvoy, Inc.; Executive Vice President, General Counsel and
Director of Delaware Management Company, Inc.; Executive Vice President, General Counsel and Trustee of
Delaware Management Business Trust; Executive Vice President and General Counsel of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Executive Vice President, General Counsel and
Director of Delaware Service Company, Inc.; Executive Vice President, General Counsel and Director of
Delaware Capital Management, Inc.; Executive Vice President, General Counsel and Director of Retirement
Financial Services, Inc.; Executive Vice President, General Counsel and Director of Delaware Management
Trust Company; Executive Vice President, General Counsel and Director of Delaware Distributors, Inc.;
Executive Vice President and General Counsel of Delaware Distributors, L.P.; Executive Vice President,
General Counsel and Director of Delaware International Holdings Ltd.; Director of Delaware International
Advisers Ltd.; Executive Vice President, General Counsel and Director of Founders Holdings, Inc.;
Executive Vice President and General Counsel of Founders CBO Corporation; Executive Vice President of
each fund in the Delaware Investments family.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA; Director and
Member of Executive Committee of Stonewall Links, Inc. since 1991, Bulltown Rd., Elverton, PA
- - ------------------------------------------------------------------------------------------------------------------------------------
*Wayne A. Stork Director of Delaware International Advisers Ltd.; Chairman and Director/Trustee of each fund in the
Delaware Investments family and Delaware Management Holdings, Inc.
- - ------------------------------------------------------------------------------------------------------------------------------------
*Richard G. Unruh Executive Vice President, Chief Investment Officer/ DMC Equity of Delaware Management Company (a series
of Delaware Management Business Trust); Executive Vice President of Delaware Management Holdings, Inc.;
Executive Vice President and Trustee of Delaware Management Business Trust; Chief Executive Office,
Chief Investment Officer/DIA Equity of Delaware Investment Advisers (a series of Delaware Management
Business Trust; Executive Vice President of Delaware Capital Management, Inc.; Director of Delaware
Investment Advisers Ltd.; Executive Vice President, Chief Investment Officer/Equity of each fund in the
Delaware Investments family.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors, Chairman of Finance Committee, AAA Mid Atlantic, Inc.
since 1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Metron, Inc. since 1995, 11911
Freedom Drive, Reston, VA
- - ------------------------------------------------------------------------------------------------------------------------------------
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
** Business address of each is Third Floor, 80 Cheapside, London, England EC2V6EE.
</TABLE>
<PAGE>
Item 27. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter
for all the mutual funds in the Delaware Investments family.
(b) Information with respect to each director, officer or partner
of principal underwriter:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware Investment Advisers Limited Partner None
- - ------------------------------------------------------------------------------------------------------------------------------------
Delaware Capital Management, Inc. Limited Partner None
- - ------------------------------------------------------------------------------------------------------------------------------------
Bruce D. Barton President and Chief Executive Officer None
- - ------------------------------------------------------------------------------------------------------------------------------------
David K. Downes Executive Vice President/Chief Operating President/Chief Executive Officer/Chief
Officer/Chief Financial Officer Operating Officer/Chief Financial
Officer/Director/Trustee
- - ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Flannery Executive Vice President/General Counsel Executive Vice President/General Counsel
- - ------------------------------------------------------------------------------------------------------------------------------------
Diane M. Anderson Senior Vice President/Retirement None
Operations
- - ------------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President/Treasurer/ Senior Vice President/Treasurer
Investment Accounting
- - ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. Brooks III Senior Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Terrence P. Cunningham Senior Vice President/National Sales None
Director, Financial Institutions
- - ------------------------------------------------------------------------------------------------------------------------------------
Stephen J. DeAngelis Senior Vice President/National Sales, None
Managed Account Services
- - ------------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings Senior Vice President/Treasurer/ Senior Vice President/Corporate Controller
Corporate Controller
- - ------------------------------------------------------------------------------------------------------------------------------------
Joanne O. Hutcheson Senior Vice President/Human Resources Senior Vice President/Human Resources
- - ------------------------------------------------------------------------------------------------------------------------------------
Bradley L. Kolstoe Senior Vice President/Western Division None
Sales, IPI Channel
- - ------------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President/Deputy General Senior Vice President/Deputy General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- - ------------------------------------------------------------------------------------------------------------------------------------
Mac MacAuliffe Senior Vice President/Divisional Sales None
Manager
- - ------------------------------------------------------------------------------------------------------------------------------------
J Chris Meyer Senior Vice President/Director, Product None
Management
- - ------------------------------------------------------------------------------------------------------------------------------------
Eric E. Miller Senior Vice President/Deputy General Senior Vice President/Deputy General
Counsel/Assistant Secretary Counsel/Secretary
- - ------------------------------------------------------------------------------------------------------------------------------------
Stephen C. Nell Senior Vice President/National None
Retirement Sales
- - ------------------------------------------------------------------------------------------------------------------------------------
Henry W. Orvin Senior Vice President/Eastern Division None
Sales
- - ------------------------------------------------------------------------------------------------------------------------------------
Christopher H. Price Senior Vice President/Channel Manager None
- - ------------------------------------------------------------------------------------------------------------------------------------
Thomas E. Sawyer Senior Vice President/Director, National None
Sales
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James L. Shields Senior Vice President/Chief Information None
Officer
- - ------------------------------------------------------------------------------------------------------------------------------------
Richard P. Allen Vice President/Wholesaler, Midwest None
- - ------------------------------------------------------------------------------------------------------------------------------------
David P. Anderson, Jr. Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey H. Arcy Vice President/Wholesaler, South East None
Region
- - ------------------------------------------------------------------------------------------------------------------------------------
Patrick A. Bearss Vice President/Wholesaler - Midwest None
- - ------------------------------------------------------------------------------------------------------------------------------------
Gabriella Bercze Vice President/Wholesaler, Financial None
Institution
- - ------------------------------------------------------------------------------------------------------------------------------------
Denise D. Bradley Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Larry Bridwell Vice President/Financial Institutions None
Wholesaler
- - ------------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley Vice President/Compliance Director Vice President/Compliance Director
- - ------------------------------------------------------------------------------------------------------------------------------------
Terrance L. Bussard Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Daniel H. Carlson Vice President/Marketing Services None
- - ------------------------------------------------------------------------------------------------------------------------------------
Larry Carr Vice President/VA Sales Manager None
- - ------------------------------------------------------------------------------------------------------------------------------------
William S. Carroll Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Matthew Coldren Vice President/National Accounts None
- - ------------------------------------------------------------------------------------------------------------------------------------
Patrick A Connelly Vice President/RIA Sales None
- - ------------------------------------------------------------------------------------------------------------------------------------
Jessie V. Emery Vice President/Marketing Communications None
- - ------------------------------------------------------------------------------------------------------------------------------------
Joel A. Ettinger Vice President/Taxation Vice President/Taxation
- - ------------------------------------------------------------------------------------------------------------------------------------
Susan T. Friestedt Vice President/Retirement Services None
- - ------------------------------------------------------------------------------------------------------------------------------------
Douglan R. Glennon Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Darryl S. Grayson Vice President/Director, Internal Sales None
- - ------------------------------------------------------------------------------------------------------------------------------------
Rhonda J. Guido Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Haimowitz Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Edward J. Hecker Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
John R. Herron Vice President/VA Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Dinah J. Huntoon Vice President/Product Manager, Equities None
- - ------------------------------------------------------------------------------------------------------------------------------------
Karina J. Istvan Vice President/Strategic Planning None
- - ------------------------------------------------------------------------------------------------------------------------------------
Chirstopher L. Johnston Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Jordan Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Carolyn Kelly Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Richard M. Koerner Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Ellen M. Krott Vice President/Marketing None
- - ------------------------------------------------------------------------------------------------------------------------------------
John Leboeuf Vice President/VA Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SooHee Lee Vice President/Fixed Income & None
International Product Management
- - ------------------------------------------------------------------------------------------------------------------------------------
Philip Y. Lin Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- - ------------------------------------------------------------------------------------------------------------------------------------
John R. Logan Vice President/Wholesaler, Financial None
Institutions
- - ------------------------------------------------------------------------------------------------------------------------------------
Michael D. Mabry Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- - ------------------------------------------------------------------------------------------------------------------------------------
Thoedore T. Malone Vice President/IPI Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Debbie Marler Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Gregory J. McMillan Vice President/National Accounts None
- - ------------------------------------------------------------------------------------------------------------------------------------
Nathan W. Medin Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Scott L. Metzger Vice President/Business Development None
- - ------------------------------------------------------------------------------------------------------------------------------------
Roger J. Miller Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Christopher W. Moore Vice President/VA Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Andrew F. Morris Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Patrick L. Murphy Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Scott E. Naughton Vice President/IPI Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Julie Nusbaum Vice President/Wholesaler, Financial None
Institutions
- - ------------------------------------------------------------------------------------------------------------------------------------
Julie A. Nye Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. O'Brien Vice President/Insurance Products None
- - ------------------------------------------------------------------------------------------------------------------------------------
David P. O'Connor Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- - ------------------------------------------------------------------------------------------------------------------------------------
Joseph T. Owczarek Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Otis S. Page Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Mark A. Pletts Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Philip G. Rickards Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Laura E. Roman Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Rovert A. Rosso Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Linda D. Shulz Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Gordon E. Searles Vice President/Client Services None
- - ------------------------------------------------------------------------------------------------------------------------------------
James R. Searles Vice President/VA Sales Manager None
- - ------------------------------------------------------------------------------------------------------------------------------------
Catherine A. Seklecki Vice President/Retirement Sales None
- - ------------------------------------------------------------------------------------------------------------------------------------
John C. Shalloe Vice President/Wrap Fee Wholesaler, None
Western Region
- - ------------------------------------------------------------------------------------------------------------------------------------
Edward B. Sheridan Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert E. Stansbury Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Taggart Vice President/Facilities and None
Administration Services
- - ------------------------------------------------------------------------------------------------------------------------------------
Julia R. Vander-Els Vice President/Retirement Plan None
Communications
- - ------------------------------------------------------------------------------------------------------------------------------------
Wayne W. Wagner Vice President/Wholesaler None
- - ------------------------------------------------------------------------------------------------------------------------------------
John A. Wells Vice President/Marketing Technology None
- - ------------------------------------------------------------------------------------------------------------------------------------
Courtney S. West Vice President/Institutional Sales None
- - ------------------------------------------------------------------------------------------------------------------------------------
Andrew J. Whitaker Vice President/Wholesaler, Financial None
Institutions
- - ------------------------------------------------------------------------------------------------------------------------------------
Theodore V. Wood Vice President/Technical Systems Officer None
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Inapplicable.
Item 28. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818 Market
Street, Philadelphia, PA 19103 or One Commerce Square, Philadelphia, PA
19103.
Item 29. Management Services. None.
Item 30. Undertakings. Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia, Commonwealth of Pennsylvania on this
13th day of September, 1999.
DELAWARE GROUP INCOME FUNDS
By /s/David K. Downes
------------------
David K. Downes
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- - ---------------------------------- ------------------------------------------ ------------------
<S> <C> <C>
/s/ David K. Downes President/Chief Executive Officer/ September 13, 1999
- - ---------------------------------- Chief Operating Officer/Chief Financial
David K. Downes Officer and Trustee (Principal Executive
Officer and Principal Accounting Officer)
/s/ Wayne A. Stork Trustee September 13, 1999
- - ----------------------------------
Wayne A. Stork
/s/ Walter P. Babich Trustee September 13, 1999
- - ----------------------------------
Walter P. Babich
/s/ Anthony D. Knerr Trustee September 13, 1999
- - ----------------------------------
Anthony D. Knerr
/s/ Ann R. Leven Trustee September 13, 1999
- - ----------------------------------
Ann R. Leven
/s/ Thomas F. Madison Trustee September 13, 1999
- - ----------------------------------
Thomas F. Madison
/s/ Charles E. Peck Trustee September 13, 1999
- - ----------------------------------
Charles E. Peck
/s/ John H. Durham Trustee September 13, 1999
- - ----------------------------------
John H. Durham
/s/ Jan L. Yeomans Trustee September 13, 1999
- - ----------------------------------
Jan L. Yeomans
</TABLE>
*By /s/David K. Downes
------------------
David K. Downes
as Attorney-in-Fact for
each of the persons indicated
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- - ----------- -------
EX-99.J Consent and Report of Auditors
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 62 to the Registration Statement (Form N-1A) (No.
2-37707) of Delaware Group Income Funds, Inc. of our reports dated September 6,
1999, included in the 1999 Annual Reports to shareholders.
/s/Ernst & Young LLP
Philadelphia, Pennsylvania
September 27, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Income Funds, Inc. - Delchester Fund
We have audited the accompanying statement of net assets of Delaware Group
Income Funds, Inc. - Delchester Fund (the "Fund") as of July 31, 1999, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Income Funds, Inc. - Delchester Fund at July 31, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and its financial highlights
for each of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/Ernst & Young LLP
- - --------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
September 6, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund
We have audited the accompanying statement of net assets and statement of assets
and liabilities of Delaware Group Income Funds, Inc. - High-Yield Opportunities
Fund (the "Fund") as of July 31, 1999, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund at July 31,
1999, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
- - --------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
September 6, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Income Funds, Inc. - Strategic Income Fund
We have audited the accompanying statement of net assets and the statement of
assets and liabilities of Delaware Group Income Funds, Inc. - Strategic Income
Fund (the "Fund") as of July 31, 1999, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Income Funds, Inc. - Strategic Income Fund at July 31, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and its financial highlights
for each of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/Ernst & Young LLP
- - --------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
September 6, 1999
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Income Funds, Inc. - Corporate Bond Fund
Delaware Group Income Funds, Inc. - Extended Duration Bond Fund
We have audited the accompanying statements of net assets and the statements of
assets and liabilities of Delaware Group Income Funds, Inc - Corporate Bond Fund
and Delaware Group Income Funds, Inc Extended Duration Bond Fund (the "Funds")
as of July 31, 1999, and the related statements of operations, statements of
changes in net assets and financial highlights for the period September 16, 1998
(commencement of operations) through July 31, 1999. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of July 31, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds at July 31, 1999, and the results of their operations,
changes in their net assets and their financial highlights for the period
September 16, 1998 (commencement of operations) through July 31, 1999, in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
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Ernst & Young LLP
Philadelphia, Pennsylvania
September 6, 1999
