<PAGE>
DELAWARE(SM)
INVESTMENTS
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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
PHOTO OF ILLUSTRATION FROM
CURRENT INCOME BROCHURE
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.
<PAGE>
Table of contents
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Fund profiles page 2
Delaware Delchester Fund 2
Delaware High-Yield Opportunities Fund 4
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How we manage the Funds page 6
Our investment strategies 6
The securities we typically invest in 7
The risks of investing in the Funds 9
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Who manages the Funds page 11
Investment manager 11
Portfolio managers 11
Fund administration (Who's who) 12
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About your account page 13
Investing in the Funds 13
Choosing a share class 13
How to reduce your sales charge 15
How to buy shares 16
Retirement plans 17
How to redeem shares 18
Account minimums 19
Special services 19
Dividends, distributions and taxes 21
Certain management considerations 21
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Financial highlights page 22
1
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<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.
Who should invest in the Fund
o Investors looking for 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.
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.
What are the Fund's main investment strategies? We invest primarily in
high-yielding corporate bonds rated BB or lower by Standard and Poor's Ratings
Group or similarily rated by another nationally recognized statistical ratings
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 bonds, 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.
<PAGE>
How has Delaware Delchester Fund performed?
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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)
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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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0.75% -12.20% 43.45% 17.19% 16.50% -4.47% 13.99% 12.33% 13.91% -1.81%
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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.
2
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How has Delaware Delchester Fund performed? (continued)
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Average annual returns for period ending 12/31/98
<TABLE>
<CAPTION>
CLASS A B C Salomon Smith Merrill Lynch
Barney Cash Pay High-Yield
High-Yield Index Master Index
(if redeemed)* (if redeemed)*
(Inception 8/20/70) (Inception 5/2/94) (Inception 11/29/95)
<S> <C> <C> <C> <C> <C>
1 year -6.48% -6.11% -3.43% 4.43% 2.95%
5 years 5.43% N/A N/A 9.13% 9.11%
10 years or Lifetime** 9.26% 6.21% 7.28% N/A 11.18%
</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. The Salomon Smith Barney Cash Pay High-Yield Index is
the primary benchmark for this Fund. However, we also show the Merrill Lynch
High-Yield Master Index because the Salomon Index has not been in existence
for the entire 10-year period shown here.
*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. Merrill Lynch High-Yield Master Index returns are for 10 years. Index
returns for Class B and Class C lifetimes were 10.51% and 9.46%, respectively.
Maximum sales charges are included in the Fund returns above.
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What are the Fund's fees and expenses?
CLASS A B C
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<S> <C> <C> <C> <C>
Sales charges are fees paid directly from your Maximum sales charge (load) imposed on
investments when you buy or sell shares of purchases as a percentage of offering price 4.75% none none
the Fund. 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
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Annual fund operating expenses are deducted from Management fees 0.61% 0.61% 0.61%
the Fund's assets. Distribution and service (12b-1) fees 0.25%(4) 1.00% 1.00%
Other expenses 0.27% 0.27% 0.27%
Total operating expenses 1.13% 1.88% 1.88%
</TABLE>
<TABLE>
<CAPTION>
CLASS(6) A B B C C
(if redeemed) (if redeemed)
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<S> <C> <C> <C> <C> <C> <C>
This example is intended to help you compare the 1 year $585 $191 $591 $191 $291
cost of investing in the Fund to the cost of 3 years $817 $591 $891 $591 $591
investing in other mutual funds with similar 5 years $1,068 $1,016 $1,216 $1,016 $1,016
investment objectives. We show the cumulative 10 years $1,784 $2,005 $2,005 $2,201 $2,201
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>
<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 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%.
(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.
3
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<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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for 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.
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.
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 NRSRO. 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.
<PAGE>
How has Delaware High-Yield Opportunities Fund performed?
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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 Class A 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]
Year-by-year total return (Class A)
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1997 1998
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17.31% 2.85%
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As of June 30, 1999, the Fund's Class A shares had a 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 on page 5 do include the sales
charge.
4
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How has Delaware High-Yield Opportunities Fund performed?
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Average annual returns for periods ending 12/31/98
CLASS A Salomon Smith
Barney Cash Pay
High-Yield Index
(Inception 12/30/96)
1 year -1.97% 4.43%
Lifetime 7.19% 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.
<TABLE>
<CAPTION>
What are the Fund's fees and expenses? CLASS A B C
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<S> <C> <C> <C> <C>
Sales charges are fees paid directly Maximum sales charge (load) imposed on
from your investments when you buy or purchases as a percentage of offering price 4.75% none none
sell shares of the Fund. 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
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Annual fund operating expenses are Management fees 0.65% 0.65% 0.65%
deducted from the Fund's assets. 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 payments4 (0.59%) (0.59%) (0.59%)
Net expenses 1.30% 2.00% 2.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS(6) A B B C C
(if redeemed) (if redeemed)
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<S> <C> <C> <C> <C> <C> <C>
This example is intended to help you Without fee limitation
compare the cost of investing in the 1 year $658 $262 $662 $262 $362
Fund to the cost of investing in 3 years $1,041 $805 $1,105 $805 $805
other mutual funds with similar 5 years $1,448 $1,375 $1,575 $1,375 $1,375
investment objectives. We show the 10 years $2,581 $2,754 $2,754 $2,925 $2,925
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.
CLASS(6) A B B C C
(if redeemed) (if redeemed)
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With fee limitation(4)
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>
<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.
5
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<PAGE>
How we manage the Funds
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 Funds. Following
are descriptions of how the portfolio managers pursue the Funds' investment
goals.
We take a disciplined approach to investing, combining
investment strategies and risk management techniques
that can help shareholders meet their 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 criterion.
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
How to use
this glossary
This glossary includes
definitions of investment
terms used throughout the Glossary A-C Amortized cost Average maturity
prospectus. If you would like ----------------------------------------------------------------------------------
to know the meaning of an Amortized cost is a method used to value An average of when
investment term that is not a fixed-income security that starts with the individual bonds
explained in the text please the face value of the security and then and other debt
check the glossary. adds or subtracts from that value depending securities held in a
on whether the purchase price was greater or portfolio will mature.
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.
</TABLE>
6
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<PAGE>
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 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
BB or lower by S&P or similarly rated by another NRSRO, 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.
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>
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Securities How we use them
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Delaware Delchester Fund Delaware High-Yield Opportunities Fund
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<S> <C> <C>
High-yield corporate bonds: Debt obligations Delaware Delchester Fund may Delaware High-Yield Opportunities Fund may
issued by a corporation and rated lower than invest without limit in invest without limit in high-yield
investment grade by an NRSRO such as S&P or high-yield corporate bonds. corporate bonds. The Fund generally will not
Moody's or, if unrated, that we believe are Emphasis is typically on those purchase corporate bonds which, at the time
of comparable quality. These securities are rated BB or B by an NRSRO. of purchase, are rated lower than CCC by S&P
considered to be of poor standing and or Caa by Moody's.
predominantly speculative.
U.S. government securities: Direct U.S. Both Funds may invest without limit in U.S. government securities. However,
obligations including bills, notes, bonds they will typically be a small percentage of the portfolio because they
and other debt securities issued by the U.S. generally do not offer as high a level of current income as high-yield corporate
Treasury or securities of U.S. government bonds.
agencies or instrumentalities which are
backed by the full faith and credit of the
United States.
Foreign government or corporate securities: Delaware Delchester Fund may not Delaware High-Yield Opportunities Fund may
Securities issued by foreign governments or invest in securities of foreign invest up to 15% of its total assets in
supranational entities or foreign corporations. issuers. securities of issuers domiciled in foreign
countries including both established
A supranational entity is an entity established countriesand those with emerging markets.
or financially supported by the national
governments of 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.
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Bond Bond ratings Capital
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A debt security, like an IOU, issued by a Independent evaluations of The amount of money you invest.
company, municipality or government agency. In creditworthiness, ranging from
return for lending money to the issuer, a bond Aaa/AAA (highest quality) to D
buyer generally receives fixed periodic interest (lowest quality). Bonds rated
payments and repayment of the loan amount on a Baa/BBB or better are considered
specified maturity date. A bond's price changes investment grade. Bonds rated
prior to maturity and is inversely related to Ba/BB or lower are commonly known
current interest rates. When interest rates as junk bonds. See also Nationally
rise, bond prices fall, and when interest rates recognized statistical rating
fall, bond prices rise. organization.
</TABLE>
7
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<PAGE>
How we manage the Funds (continued)
<TABLE>
<CAPTION>
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Securities How we use them
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Delaware Delchester Fund Delaware High-Yield Opportunities Fund
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<S> <C> <C>
Zero coupon bonds and payment-in-kind bonds: We may invest in zero coupon bonds and payment-in-kind bonds, though we do
Zero coupon bonds are debt obligations which not expect this to be a significant component of our strategy. The market
do not entitle the holder to any periodic prices of these bonds are generally more volatile than the market prices
payments of interest prior to maturity or a of securities that pay interest periodically and are likely to react to
specified date when the securities begin paying changes in interest rates to a greater degree than interest-paying bonds
current interest. Therefore, they are issued and having similar maturities and credit quality. They may have certain tax
traded at a price lower than their face amounts consequences which, under certain conditions, could be adverse to the
or par value. Payment-in-kind bonds pay interest Funds.
or dividends in the form of additional bonds or
preferred stock.
Repurchase agreements: An agreement between Typically, we use repurchase agreements as a short-term investment for
a buyer and seller of securities in which the each Fund's cash position. In order to enter into these repurchase
seller agrees to buy the securities back within agreements, a Fund must have collateral of at least 102% of the repurchase
a specified time at the same price the buyer price. No more than 10% of either Fund's assets may be invested in
paid for them, plus an amount equal to an repurchase agreements of over seven days' maturity.
agreed upon interest rate. Repurchase agreements
are often viewed as equivalent to cash.
Restricted securities: Privately placed We may invest in privately placed securities that are eligible for resale
securities whose resale is restricted under only among certain institutional buyers without registration, including
securities law. Rule 144A Securities.
Restricted securities that are Restricted securities that are determined
determined to be illiquid may not to be illiquid may not exceed Delaware
exceed Delaware Delchester Fund's High-Yield Opportunities Fund's 15% limit
10% limit on illiquid securities, on illiquid securities, which is described
which is described below. below.
Illiquid securities: Securities that do not We may invest up to 10% of net We may invest up to 15% of net assets in
have a ready market, and cannot be easily assets in illiquid securities, illiquid securities, including repurchase
sold within seven days at approximately the including repurchase agreements agreements with maturities of over seven
price that a fund has valued them. with maturities of over seven days.
days.
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</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.
<PAGE>
Lending securities Each Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional 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.
<TABLE>
<CAPTION>
Glossary C Capital appreciation Capital gains distributions Commission
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<S> <C> <C>
An increase in the value of Payments to mutual fund shareholders of profits The fee an investor pays to a
an investment. (realized gains) from the sale of a fund's portfolio financial adviser for investment
securities. Usually paid once a year; may be either advice and help in buying or
short-term gains or long-term gains. selling mutual funds, stocks,
bonds or other securities.
</TABLE>
8
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<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>
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Risks How we strive to manage them
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Delaware Delchester Fund Delaware High-Yield Opportunities Fund
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<S> <C>
Market risk is the risk that all or a majority We maintain a long-term investment approach and focus on bonds that we
of the securities in a certain market--like the believe will continue to pay interest regardless of interim market
stock or bond market--will decline in value fluctuations. We do not try to predict overall bond market or interest
because of factors such as economic conditions, rate movements and do not trade for short-term purposes.
future expectations or investor 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 We limit the amount of each Fund's assets invested in any one industry and
value of securities in a particular industry or in any individual security. We also follow a rigorous selection process
the value of an individual stock or bond will before choosing securities for each Fund.
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 Each Fund is subject to interest rate risk. We cannot eliminate that risk,
will decrease in value if interest rates rise. but we do strive to manage it by monitoring economic conditions.
The risk is greater for bonds with longer
maturities than for those with shorter maturities.
Credit risk is the risk that there is the Our careful, credit-oriented bond selection and our commitment to hold a
possibility that a bond's issuer will be unable diversified selection of high-yield bonds are designed to manage this
to make timely payments of interest and principal. risk.
Investing in so-called "junk" or "high-yield" For Delaware High-Yield Opportunities
bonds entails the risk of principal loss, Fund: We generally do not purchase
which may be greater than the risk involved corporate bonds which, at the time of
in investment grade bonds. High-yield bonds are purchase, are rated lower than CCC by S&P
sometimes issued by companies whose earnings at or Caa by Moody's. If a corporate bond
the time of issuance are less than the projected held by the Fund drops below these levels
debt service on the junk bonds. or goes into default, the Fund will begin
to sell the security in an orderly manner,
striving to minimize any adverse effect on
the Fund.
Recession risk Although the market for It is likely that protracted periods of economic uncertainty would cause
high-yield bonds existed through periods of increased volatility in the market prices of high-yield bonds, an increase
economic downturns, the high-yield market in the number of high-yield bond defaults and corresponding volatility in
grew rapidly during the long economic each Fund's net asset value. In the past, uncertainty and volatility in
expansion which took place in the United the high-yield market have resulted in volatility in a Fund's net asset
States during the 1980s. During that value.
economic expansion, the use of high-yield
debt securities to finance highly leveraged In striving to manage this risk, we allocate assets across a wide range of
corporate acquisitions and restructurings industry sectors. We may emphasize industries that have been less
increased dramatically. As a result, the susceptible to economic cycles in the past, particularly if we believe
high-yield market grew substantially. Some that the economy may be entering into a period of slower growth.
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>
<TABLE>
<CAPTION>
Compounding Consumer Price Index (CPI) Contingent deferred sales Corporate bond
charge (CDSC)
- ----------------------------------------------------------------------------------------------------------------------------------->
<S> <C> <C> <C>
Earnings on an Measurement of U.S. inflation; Fee charged by some mutual funds A debt security issued by
investment's previous represents the price of a basket of when shares are redeemed (sold a corporation. See Bond.
earnings. commonly purchased goods. 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.
</TABLE>
9
----------
<PAGE>
How we manage the Funds (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
---------------------------------------------------------------------------------
<S> <C> <C>
Foreign risk is the risk that foreign The Fund does not invest in We may invest only 15% of the portfolio in
securities may be adversely affected by foreign securities. securities of foreign issuers. We
political instability, changes in currency carefully evaluate the reward and risk
exchange rates, foreign economic conditions associated with each foreign security that
or inadequate regulatory and accounting we consider.
standards.
Liquidity risk is the possibility that A less liquid secondary market may have an adverse effect on a Fund's
securities cannot be readily sold within ability to dispose of particular issues, when necessary, to meet a Fund's
seven days at approximately the price that a liquidity needs or in response to a specific economic event, such as the
fund values them. deterioration in the creditworthiness of the issuer. In striving to manage
this risk, we evaluate the size of a bond issuance as a way to anticipate
There is generally no established retail its likely liquidity level.
secondary market for high-yield securities.
As a result, the secondary market for We may invest only 10% of net We may invest only 15% of net assets in
high-yield securities is more limited and assets in illiquid securities. illiquid securities.
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.
Valuation risk A less liquid secondary Each Fund's privately placed high-yield securities are particularly
market as described above can make it more susceptible to the liquidity and valuation risks. We will strive to manage
difficult to obtain precise valuations of this risk by carefully evaluating individual bonds and by limiting the
the high-yield securities in its portfolio. amount of the portfolio that can be allocated to privately placed
During periods of reduced liquidity, high-yield securities.
judgment plays a greater role in valuing
high-yield securities.
Redemption risk If investors redeem more Volatility in the high-yield market could increase redemption risk. We
shares of a fund than are purchased for an strive to maintain a cash balance sufficient to meet any redemptions. We
extended period of time, a fund may be may also borrow money, if necessary, to meet redemptions.
required to sell securities without regard
to the investment merits of such actions.
This could decrease a fund's asset base,
potentially resulting in a higher expense
ratio.
Legislative and regulatory risk The United We monitor the status of regulatory and legislative proposals to evaluate
States Congress has from time to time taken any possible effects they might have on each Fund's portfolio.
or considered legislative actions that could
adversely affect the 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>
<TABLE>
<CAPTION>
Glossary D-F Depreciation Diversification Dividend distribution Duration
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A decline in an The process of spreading Payments to mutual fund A measurement of a fixed-
investment's value. investments among a shareholders of dividends income investment's price
number of different passed along from the volatility. The larger the
securities, asset classes or fund's portfolio of securities. number, the greater the likely
investment styles to reduce price change for a given
the risks of investing. change in interest rates.
</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 fees for the
last fiscal year as follows:
Investment Management Fees
Delaware Delaware High-Yield
Delchester Fund Opportunities Fund
As a percentage of average daily net 0.58% 0.02%*
assets
*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's 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.
<TABLE>
<CAPTION>
Expense ratio Financial adviser Fixed-income securities
- ----------------------------------------------------------------------------------------------------------------------------------->
<S> <C> <C>
A mutual fund's total operating expenses, expressed as a Financial professional (e.g., With fixed-income securities, the
percentage of its total net assets. Operating expenses are the broker, banker, accountant, money you originally invested is
costs of running a mutual fund, including management fees, planner or insurance agent) paid back at a pre-specified
offices, staff, equipment and expenses related to maintaining who analyzes clients' finances maturity date. These securities,
the fund's portfolio of securities and distributing its shares. and prepares personalized which include government, corporate
They are paid from the fund's assets before any earnings are programs to meet objectives. or municipal bonds, as well as
distributed to shareholders. money market securities, typically
pay a fixed rate of return (often
referred to as interest).
See Bond.
</TABLE>
11
<PAGE>
Who manages the Funds (continued)
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square The Funds 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Distributor Service agent
Delaware Distributors, L.P. Delaware Service Company, Inc.
Portfolio managers 1818 Market Street 1818 Market Street
(see page 11 for details) 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 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.
<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.
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.
Glossary G-N
<TABLE>
<CAPTION>
Government securities Inflation Investment goal Management fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities issued by the The increase in the cost The objective, such as long- The amount paid by a mutual
U.S. government or its of goods and services term capital growth or high fund to the investment adviser
agencies. They include over time. U.S. inflation is current income, that a for management services,
Treasuries as well as frequently measured by mutual fund pursues. expressed as an annual
agency-backed securities changes in the Consumer percentage of the fund's
such as Fannie Maes. Price Index (CPI). average daily net assets.
</TABLE>
12
<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.
Class A
Choosing a share class
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 as % Sales charge as % of Dealer's commission as
Amount of purchase of offering price 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%
- -----------------------------------------------------------------------------------------------------
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 as % Sales charge as % of Dealer's commission as
Amount of purchase of offering price amount invested % of 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%
- -----------------------------------------------------------------------------------------------------
Merrill Lynch High-Yield NASD Regulation, Inc.
Market capitalization Maturity Master Index (NASD)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The value of a corporation determined The length of time The Merrill Lynch A self-regulating
by multiplying the current market until a bond issuer High-Yield Master organization,
price of a share of common stock by must repay the Index provides a consisting of
the number of shares held by underlying loan broad-based measure of brokerage firms
shareholders. A corporation with principal to the performance of (including distributors
one million shares outstanding bondholders. the non-investment of mutual funds),
and the market price per share grade U.S. domestic that is responsible
of $10 has a market bond market. The index for overseeing the
capitalization of $10 million. currently captures actions of
close to $200 billion its members.
in outstanding debt
of domestic market
issuers rated below
investment grade but
not in default.
</TABLE>
13
<PAGE>
About your account (continued)
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in a 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 theseshares 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.
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in a 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 onmaximum 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.
Glossary N-R
<TABLE>
<CAPTION>
Nationally recognized statistical rating
organization (NRSRO) Net asset value (NAV)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
A company that assesses the credit quality of bonds, commercial paper, preferred The daily dollar value of one
and common stocks and municipal short-term issues, rating the probability that mutual fund share. Equal to a
the issuer of the debt will meet the scheduled interest payments and repay the fund's net assets divided by the
principal. Ratings are published by such companies as Moody's Investors Service, number of shares outstanding.
Inc. (Moody's), Standard & Poor's Ratings Group (S&P), Duff & Phelps, Inc.
(Duff), and Fitch IBCA, Inc. (Fitch).
</TABLE>
14
<PAGE>
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>
- ------------------------------------------------------------------------------------------------------------------------------------
Share class
Program How it works A B C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you agree to X Although the Letter of Intent and Rights of
invest a certain amount in Delaware Accumulation do not apply to the purchase of
Investments Funds (except money Class B and C shares, you can combine your
market funds with no sales charge) over a purchase of Class A shares with your purchase
13-month period to qualify for reduced of B and C shares to fulfill your Letter of
front-end sales charges. 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.
Reinvestment of redeemed Up to 12 months after you redeem For Class A, For Class B, your Not available.
shares shares, you can reinvest the proceeds you will account will be
with no additional sales charge. not have credited with the
to pay an contingent deferred
additional sales charge you
front-end previously paid on the
sales charge. 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 for X There is no reduction in sales charges for
SARSEP, Prototype Profit reduced sales charges by combining the Class B or Class C shares for group purchases
Sharing, Pension, 401(k), purchases of all members of the group. by retirement plans.
SIMPLE 401(k), 403(b)(7), Members of these groups may also
and 457 Retirement Plans qualify to purchase shares without a
front-end sales charge and a waiver of
any contingent deferred sales charges.
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred stock Principal Prospectus Redeem
- ----------------------------------------------------------------------------------------------------------------------------------->
Preferred stock has preference over Amount of money you The official offering document that To cash in your shares
common stock in the payment of invest (also called describes a mutual fund, containing by selling them back to
dividends and liquidation of assets. capital). Also refers information required by the SEC, such the mutual fund.
Preferred stocks also often pay to a bond's original as investment objectives, policies,
dividends at a fixed rate and are face value, due to services and fees.
sometimes convertible into common be repaid at
stock. maturity.
</TABLE>
15
<PAGE>
About your account (continued)
How to buy shares
[graphic omitted]
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]
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]
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]
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]
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.
Glossary R-S
<TABLE>
<CAPTION>
Salomon Smith Barney Cash Pay
Risk Sales charge High-Yield Index
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Generally defined as variability Charge on the purchase or The Salomon Smith Barney Cash Pay High-Yield
of value; also credit risk, redemption of fund shares sold Index includes a mix of non-investment grade
inflation risk, currency and through financial advisers. May corporate bonds that pay cash interest--it
interest rate risk. Different vary with the amount invested. excludes both corporate bonds that pay
investments involve different Typically used to compensate deferred-interest and bankrupt bonds.
types and degrees of risk. financial advisers for advice
and service provided.
</TABLE>
16
<PAGE>
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.
<TABLE>
<CAPTION>
SEC (Securities and
Exchange Commission) Share classes Signature guarantee Retirement plans
- ----------------------------------------------------------------------------------------------------------------------------------->
<S> <C> <C> <C>
Federal agency established by Congress Different classifications of Certification by a bank, brokerage A measure of an
to administer the laws governing the shares; mutual fund share firm or other financial institution investment's
securities industry, including mutual classes offer a variety of that a customer's signature is valid; volatility; for
fund companies. sales charge choices. signature guarantees can be mutual funds,
provided by members of the measures how much
STAMP program. a fund's total
return has
typically varied
from its
historical average.
</TABLE>
17
<PAGE>
About your account (continued)
How to redeem
shares
[graphic ommitted]
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]
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]
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]
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]
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.
Glossary S-V
<TABLE>
<CAPTION>
Statement of Additional
Information (SAI) Stock Total return Treasury bills
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The document serving as An investment that An investment performance Securities issued by
"Part B" of a fund's represents a share of measurement, expressed as a the U.S. Treasury
prospectus that provides ownership (equity) in percentage, based on the with maturities of
more detailed information a corporation. Stocks combined earnings from dividends, one year or less.
about the fund's are often referred to capital gains and change in price
organization, investments, as "equities." over a given period.
policies and risks.
</TABLE>
18
<PAGE>
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, a Fund may redeem your account after
60 days' written notice to you.
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.
<TABLE>
<CAPTION>
Uniform Gift to Minors Act and
Treasury bonds Treasury notes Uniform Transfers to Minors Act Volatility
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities issued by Securities issued by Federal and state laws that provide a The tendency of an investment
the U.S. Treasury the U.S. Treasury simple way to transfer property to a to go up or down in value by
with maturities of 10 with maturities of minor with special tax advantages. different magnitudes.
years or longer. one to 10 years. 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.
</TABLE>
19
<PAGE>
About your account (continued)
Special services
(continued)
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.
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.
20
<PAGE>
Special services
(continued)
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.
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.
21
<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, are included in the
Funds' annual reports, which are available upon request by calling 800.523.1918.
- --------------------------------------------------------------------------------
Class A
<TABLE>
<CAPTION>
Year ended
7/31
Delaware Delchester Fund 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 omitted) $813,787 $1,060,136 $1,030,328 $973,939 $1,020,763
Ratio of expenses to average net assets 1.10% 1.06% 1.04% 1.02% 1.09%
Ratio of net investment income to
average net assets 10.12% 9.16% 9.48% 10.11% 10.77%
Portfolio turnover 85% 117% 154% 108% 92%
- -------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
How to read the Net realized and unrealized gain
Financial highlights Net investment income (loss) from investments Net asset value (NAV)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income includes A realized gain on investments This is the value of a mutual
dividend and interest income occurs when we sell an fund share, calculated by
earned from a Fund's investment at a profit, while dividing the net assets by the
investments; it is after a realized loss occurs when we number of shares outstanding.
expenses have been deducted. 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."
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Class B
- ----------------------------------------------------------------------------------------------------
Year ended
7/31
Delaware Delchester Fund 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) $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%
Class C
- --------------------------------------------------------------------------------------
Period
11/29/95(1)
Year ended 7/31 through
Delaware Delchester Fund 1999 1998 1997 7/31/96
- ---------------------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
Ratio of expenses to
Total return Net assets average net assets
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
This represents the rate that Net assets represent the total The expense ratio is the
an investor would have earned value of all the assets in a percentage of net assets that
or lost on an investment in a Fund's portfolio, less any a fund pays annually for
Fund. In calculating this liabilities, that are operating expenses and
figure for the financial attributable to that class of management fees. These
highlights table, we include the Fund. expenses include accounting
applicable fee waivers, and administration expenses,
exclude front-end and services for shareholders, and
contingent deferred sales similar expenses.
charges, and assume the
shareholder has reinvested all
dividends and realized gains.
</TABLE>
23
<PAGE>
Financial highlights (continued)
<TABLE>
<CAPTION>
Class A
- -------------------------------------------------------------------------------------------------------
Year Year Period
Ended Ended 12/30/96(1)
7/31 7/31 through
Delaware High-Yield Opportunities Fund 1999 1998 7/31/97
- -------------------------------------------------------------------------------------------------------
<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 limitations 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>
(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.
<TABLE>
<CAPTION>
How to read the
Financial highlights Ratio of net investment
(continued) income to average net assets Portfolio turnover
------------------------------------------------------------------
<S> <C> <C>
We determine this ratio by This figure tells you the
dividing net investment income amount of trading activity in
by average net assets. 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.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
------------------------------ ------------------------------
Period Period
2/17/98(1) 2/17/98(1)
Year ended 7/31 through Year ended 7/31 through
Delaware High-Yield Opportunities Fund 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 0.101 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 limitations and fees paid indirectly 2.59% 2.14% 2.59% 2.14%
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>
25
<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 Service Center
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
Delaware Delchester Fund Symbols
CUSIP NASDAQ
----- ------
A Class 245908207 DETWX
B Class 245908405 DHYBX
C Class 245908504 DELCX
Delaware High-Yield Opportunities Fund Symbols
CUSIP NASDAQ
----- ------
A Class 245908876 DHOAX
B Class 245908868 DHOBX
C Class 245908850 DHOCX
DELAWARE(SM)
INVESTMENTS
- -----------
Philadelphia o London
P-002 [--] PP 9/99
<PAGE>
DELAWARE(SM)
INVESTMENTS
- ------------
Philadelphia o London
Delaware
Delchester Fund
Delaware
High-Yield
Opportunities Fund
Institutional Class
Prospectus September 29, 1999
(photo of illustration from Current Income brochure)
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.
<PAGE>
Table of contents
- -----------------------------------------------------------------
Fund profiles page 2
Delaware Delchester Fund 2
Delaware High-Yield Opportunities Fund 4
- -----------------------------------------------------------------
How we manage the Funds page 6
Our investment strategies 6
The securities we typically invest in 7
The risks of investing in the Funds 9
- -----------------------------------------------------------------
Who manages the Funds page 11
Investment manager 11
Portfolio managers 11
Fund administration (Who's who) 12
- -----------------------------------------------------------------
About your account page 13
Investing in the Funds 13
How to buy shares 14
How to redeem shares 16
Account minimum 17
Exchanges 17
Dividends, distributions and taxes 17
Certain management considerations 17
- -----------------------------------------------------------------
Financial highlights page 18
1
<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.
Who should invest in the Fund
o Investors looking for 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.
What are the Fund's main investment strategies? We invest primarily in
high-yielding corporate bonds rated BB or lower by Standard and Poor's Ratings
Group or similarly rated by another nationally recognized statistical ratings
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 bonds, 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.
<PAGE>
How has Delaware Delchester Fund performed?
- --------------------------------------------------------------------------------
[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%
- --------------------------------------------------------------------------------
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-year periods. 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.
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.
2
<PAGE>
How has Delaware Delchester Fund performed? (continued)
- --------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/98
Salomon Smith Barney Merrill Lynch
Institutional Class Cash Pay High-Yield High-Yield
(Inception 6/1/92) Index Master Index
1 year -1.56% 4.43% 2.95%
5 years 6.71% 9.13% 9.11%
10 years 9.28% N/A 11.18%
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. The Salomon Smith Barney Cash Pay High-Yield Index is
the primary benchmark for this Fund. However, we also show the Merrill Lynch
High-Yield Master Bond Index because the Salomon Index has not been in existence
for the entire 10-year period shown here.
<PAGE>
What are the Fund's fees and expenses?
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
You do not pay sales charges directly from your Maximum sales charge (load) imposed on
investments when you buy or sell shares of the purchases as a percentage of offering price none
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 the Management fees 0.61%
Fund's assets. 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 1 year $90
investing in the Fund to the cost of investing in other mutual 3 years $281
funds with similar investment objectives. We show the 5 years $488
cumulative amount of Fund expenses on a hypothetical 10 years $1,084
investment of $10,000 with an annual 5% return over the
time shown.(2) This is an example only, and does not
represent future expenses, which may be greater or less than
those shown here.
</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 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.
3
<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.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for 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.
What are the Fund's main investment strategies? We invest primarily in corporate
bonds rated BB or lower by S&P or similary rated by another NRSRO. 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.
4
<PAGE>
How has Delaware High-Yield Opportunities Fund performed?
- --------------------------------------------------------------------------------
Year-by-year total return (Institutional Class)
[Bar Chart]
1997 1998
- -------------------
17.31% 3.12%
- -------------------
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.
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
Salomon Smith Barney
Institutional Class Cash Pay High-Yield
(Inception 12/30/96) 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.
<PAGE>
What are the Fund's fees and expenses?
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
You do not pay sales charges directly from your investments Maximum sales charge (load) imposed on
when you buy or sell shares of the Institutional Class. 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 Management fees 0.65%
assets. 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%
- ------------------------------------------------------------------------------------------------------------------------------------
Without Expense Limitation
This example is intended to help you compare the cost of 1 year $162
investing in the Fund to the cost of investing in other mutual 3 years $502
funds with similar investment objectives. We show the 5 years $866
cumulative amount of Fund expenses on a hypothetical 10 years $1,889
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 With Expense Limitation(2)
here. 1 year $102
3 years $318
5 years $552
10 years $1,225
</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 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.
5
<PAGE>
How we manage the Funds
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 Funds. 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 Fund's 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 focus in Delaware Delchester Fund is to provide a high level of
current income. For this reason, the income potential of a bond is a key
selection criterion.
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.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that may help shareholders meet their goals.
How to use
this glossary
This glossary includes definitions of investment terms used throughout the
prospectus. If you would like to know the meaning of an investment term that is
not explained in the text please check the glossary.
<TABLE>
<CAPTION>
Glossary A-B Amortized cost Average maturity
---------------------------------------------------------------------------------------
<S> <C> <C>
Amortized cost is a method used to value An average of when the individual bonds
a fixed-income security that starts with and other debt securities held in a
the face value of the security and then portfolio will mature.
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.
</TABLE>
6
<PAGE>
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 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
BB or lower by S&P or similarly rated by another NRSRO, 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.
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 Delaware Delchester Fund may invest Delaware High-Yield Opportunities Fund
obligations issued by a corporation and without limit in high-yield corporate may invest without limit in high-yield
rated lower than investment grade by an bonds. Emphasis is typically on those corporate bonds. The Fund generally will
NRSRO such as S&P or Moody's or, if rated BB or B by an NRSRO. not purchase corporate bonds which, at
unrated, that we believe are of the time of purchase, are rated lower
comparable quality. These securities are than CCC by S&P or Caa by Moody's.
considered to be of poor standing and
predominantly speculative.
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. government securities: Direct U.S. Both Funds may invest without limit in U.S. government securities. However, they
obligations including bills, notes, will typically be a small percentage of the portfolio because they generally do
bonds and other debt securities issued not offer as high a level of current income as high-yield corporate bonds.
by the U.S. Treasury or securities of
U.S. government agencies or
instrumentalities which are backed by
the full faith and credit of the United
States.
- ----------------------------------------------------------------------------------------------------------------------------------
Foreign government or corporate Delaware Delchester Fund may not invest Delaware High-Yield Opportunities Fund
securities: Securities issued by foreign in securities of foreign issuers. may invest up to 15% of its total assets
governments or supranational entities or in securities of issuers domiciled in
foreign corporations. foreign countries including both
established countries and those with
A supranational entity is an entity emerging markets.
established or financially supported by
the national governments of 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.
- ----------------------------------------------------------------------------------------------------------------------------------
Bond Bond ratings
- --------------------------------------------------------------------------------
A debt security, like an IOU, issued by Independent evaluations of
a company, municipality or government creditworthiness, ranging from Aaa/AAA
agency. In return for lending money to (highest quality) to D (lowest quality).
the issuer, a bond buyer generally Bonds rated Baa/BBB or better are
receives fixed periodic interest considered investment grade. Bonds rated
payments and repayment of the loan Ba/BB or lower are commonly known as
amount on a specified maturity date. A junk bonds. See also Nationally
bond's price changes prior to maturity recognized statistical rating
and is inversely related to current organization.
interest rates. When interest rates
rise, bond prices fall, and when
interest rates fall, bond prices rise.
</TABLE>
7
<PAGE>
How we manage the Funds (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ----------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
-------------------------------------------------------------------------------------
<S> <C> <C>
Zero coupon bonds and payment-in-kind We may invest in zero coupon bonds and payment-in-kind bonds, though we do
bonds: Zero coupon bonds are debt not expect this to be a significant component of our strategy. The market prices
obligations which do not entitle the of these bonds are generally more volatile than the market prices of securities
holder to any periodic payments of that pay interest periodically and are likely to react to changes in interest
interest prior to maturity or a rates to a greater degree than interest-paying bonds having similar maturities
specified date when the securities begin and credit quality. They may have certain tax consequences which, under certain
paying current interest. Therefore, they conditions, could be adverse to the Funds.
are issued and traded at a price lower
than their face amounts or par value.
Payment-in-kind bonds pay interest or
dividends in the form of additional
bonds or preferred stock.
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase agreements as a short-term investment for each
between a buyer and seller of securities Fund's cash position. In order to enter into these repurchase agreements, a Fund
in which the seller agrees to buy the must have collateral of at least 102% of the repurchase price. No more than 10%
securities back within a specified time of either Fund's assets may be invested in repurchase agreements of over seven
at the same price the buyer paid for days' maturity.
them, plus an amount equal to an agreed
upon interest rate. Repurchase
agreements are often viewed as
equivalent to cash.
- ----------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed We may invest in privately placed securities that are eligible for resale
securities whose resale is restricted only among certain institutional buyers without registration, including Rule
under securities law. 144A Securities.
Restricted securities that are Restricted securities that are
determined to be illiquid may not exceed determined to be illiquid may not exceed
Delaware Delchester Fund's 10% limit on Delaware High-Yield Opportunities Fund's
illiquid securities, which is described 15% limit on illiquid securities, which
below. is described below.
- ----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do We may invest up to 10% of net assets in We may invest up to 15% of net assets in
not have a ready market, and cannot be illiquid securities, including illiquid securities, including
easily sold within seven days at repurchase agreements with maturities of repurchase agreements with maturities of
approximately the price that a fund has over seven days. over seven days.
valued them.
- ----------------------------------------------------------------------------------------------------------------------------------
</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.
<PAGE>
Lending securities Each Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional 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.
<TABLE>
<CAPTION>
Capital Capital gains
Glossary C-D Capital appreciation distributions Commission Compounding
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The amount of An increase in the Payments to mutual fund The fee an investor pays Earnings on an
money you invest. value of an investment. shareholders of profits to a financial adviser for investment's
(realized gains) from the investment advice and help previous
sale of a fund's portfolio in buying or selling earnings.
securities. Usually paid mutual funds, stocks,
once a year; may be either bonds or other securities.
short-term gains or
long-term gains.
</TABLE>
8
<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> <C>
Market risk is the risk that all or a We maintain a long-term investment approach and focus on bonds that we
majority of the securities in a certain believe will continue to pay interest regardless of interim market fluctuations.
market-like the stock or bond We do not try to predict overall bond market or interest rate movements and do
market-will decline in value because of not trade for short-term purposes.
factors such as economic conditions,
future expectations or investor We may hold a substantial part of each Fund's assets in cash or cash
confidence. equivalents as a temporary defensive strategy.
- ----------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk We limit the amount of each Fund's assets invested in any one industry and in
that the value of securities in a any individual security. We also follow a rigorous selection process before
particular industry or the value of an choosing securities for each Fund.
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 Each Fund is subject to interest rate risk. We cannot eliminate that risk,
securities will decrease in value if but we do strive to manage it by monitoring economic conditions.
interest rates rise. The risk is greater
for bonds with longer maturities than
for those with shorter maturities.
- ----------------------------------------------------------------------------------------------------------------------------------
Credit risk is the risk that there is Our careful, credit-oriented bond selection and our commitment to hold a
the possibility that a bond's issuer diversified selection of high-yield bonds are designed to manage this risk.
will be unable to make timely payments
of interest and principal. For Delaware High-Yield Opportunities
Fund: We generally do not purchase
Investing in so-called "junk" or corporate bonds which, at the time of
"high-yield" bonds entails the risk of purchase, are rated lower than CCC by
principal loss, which may be greater S&P or Caa by Moody's. If a corporate
than the risk involved in investment bond held by the Fund drops below these
grade bonds. High-yield bonds are levels or goes into default, the Fund
sometimes issued by companies whose will begin to sell the security in an
earnings at the time of issuance are orderly manner, striving to minimize any
less than the projected debt service on adverse effect on the Fund.
the junk bonds.
- ----------------------------------------------------------------------------------------------------------------------------------
Recession risk Although the market for It is likely that protracted periods of economic uncertainty would cause
high-yield bonds existed through periods increased volatility in the market prices of high-yield bonds, an increase in
of economic downturns, the high-yield the number of high-yield bond defaults and corresponding volatility in each
market grew rapidly during the long Fund's net asset value. In the past, uncertainty and volatility in the
economic expansion which took place in high-yield market have resulted in volatility in a Fund's net asset value.
the United States during the 1980s.
During that economic expansion, the use In striving to manage this risk, we allocate assets across a wide range of
of high-yield debt securities to finance industry sectors. We may emphasize industries that have been less susceptible to
highly leveraged corporate acquisitions economic cycles in the past, particularly if we believe that the economy may be
and restructurings increased entering into a period of slower growth.
dramatically. As a result, the
high-yield market grew substantially.
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.
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index (CPI) Corporate bond Depreciation Diversification
- ----------------------------------------------------------------------------------------------------------------------------------
Measurement of U.S. inflation; A debt security issued A decline in an The process of spreading investments
represents the price of a basket by a corporation. investment's value. among a number of different securities,
of commonly purchased goods. See Bond. asset classes or investment styles to
reduce the risks of investing.
</TABLE>
9
<PAGE>
How we manage the Funds (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ----------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Delaware High-Yield Opportunities Fund
-------------------------------------------------------------------------------------
<S> <C> <C>
Foreign risk is the risk that foreign The Fund does not invest in foreign We may invest only 15% of the portfolio
securities may be adversely affected by securities. in securities of foreign issuers. We
political instability, changes in carefully evaluate the reward and risk
currency exchange rates, foreign associated with each foreign security
economic conditions or inadequate that we consider.
regulatory and accounting standards.
- ----------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that A less liquid secondary market may have an adverse effect on a Fund's ability
securities cannot be readily sold within to dispose of particular issues, when necessary, to meet a Fund's liquidity
seven days at approximately the price needs or in response to a specific economic event, such as the deterioration in
that a fund values them. the creditworthiness of the issuer. In striving to manage this risk, we evaluate
the size of a bond issuance as a way to anticipate its likely liquidity level.
There is generally no established retail
secondary market for high-yield
securities. As a result, the secondary We may invest only 10% of net assets in We may invest only 15% of net assets in
market for high-yield securities is more illiquid securities. illiquid securities.
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.
- ----------------------------------------------------------------------------------------------------------------------------------
Valuation risk A less liquid secondary Each Fund's privately placed high-yield securities are particularly
market as described above can make it susceptible to the liquidity and valuation risks. We will strive to manage this
more difficult to obtain precise risk by carefully evaluating individual bonds and by limiting the amount of the
valuations of the high-yield securities portfolio that can be allocated to privately placed high-yield securities.
in its portfolio. During periods of
reduced liquidity, judgment plays a
greater role in valuing high-yield
securities.
- ----------------------------------------------------------------------------------------------------------------------------------
Redemption risk If investors redeem more Volatility in the high-yield market could increase redemption risk. We strive
shares of a fund than are purchased for to maintain a cash balance sufficient to meet any redemptions. We may also
an extended period of time, a fund may borrow money, if necessary, to meet redemptions.
be required to sell securities without
regard to the investment merits of such
actions. This could decrease a fund's
asset base, potentially resulting in a
higher expense ratio.
- ----------------------------------------------------------------------------------------------------------------------------------
Legislative and regulatory risk The We monitor the status of regulatory and legislative proposals to evaluate any
United States Congress has from time to possible effects they might have on each Fund's portfolio.
time taken or considered legislative
actions that could adversely affect the
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.
- ----------------------------------------------------------------------------------------------------------------------------------
Glossary D-I Dividend distribution Duration Expense ratio
--------------------------------------------------------------------------------------------------------------------
Payments to mutual fund A measurement of a A mutual fund's total operating expenses,
shareholders of dividends fixed-income investment's expressed as a percentage of its total
passed along from the fund's price volatility. The net assets. Operating expenses are the
portfolio of securities. larger the number, the costs of running a mutual fund, including
greater the likely price management fees, offices, staff, equipment
change for a given change and expenses related to maintaining
in interest rates. 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.
</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 fees for the
last fiscal year as follows:
Investment Management Fees
- --------------------------------------------------------------------------------
Delaware
Delaware High-Yield
Delchester Fund 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's 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.
<TABLE>
<CAPTION>
Government
Financial adviser Fixed-income securities securities Inflation Investment goal
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial With fixed-income Securities issued by The increase in the The objective, such
professional (e.g., securities, the the U.S. government cost of goods and as long-term capital
broker, banker, money you originally or its agencies. services over time. growth or high
accountant, planner invested is paid They include U.S. inflation is current income, that
or insurance agent) back at a Treasuries as well frequently measured a mutual fund
who analyzes pre-specified as agency-backed by changes in the pursues.
clients' finances maturity date. These securities such as Consumer Price Index
and prepares securities, which Fannie Maes. (CPI).
personalized include government,
programs to meet corporate or
objectives. municipal bonds, as
well as money market
securities,
typically pay a
fixed rate of return
(often referred to
as interest). See
Bond.
</TABLE>
11
<PAGE>
Who manages the Funds (continued)
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square The Funds 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Distributor Service agent
Delaware Distributors, L.P. Delaware Service Company, Inc.
Portfolio managers 1818 Market Street 1818 Market Street
(see page 11 for details) 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 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.
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.
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch High-
Glossary M-P Management fee Market capitalization Maturity Yield Master Index
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The amount paid by a The value of a corporation The length of time The Merrill Lynch High-Yield
mutual fund to the determined by multiplying until a bond issuer Master Index provides a
investment adviser for the current market price of must repay the broad-based measure of the
management services, a share of common stock by underlying loan performance of the
expressed as an annual the number of shares held by principal to non-investment grade U.S.
percentage of the fund's shareholders. A corporation bondholders. domestic bond market. The
average daily net with one million shares index currently captures close
assets. outstanding and the market to $200 billion in outstanding
price per share of $10 has a debt of domestic market issuers
market capitalization of $10 rated below investment grade
million. but not in default.
</TABLE>
12
<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.
<TABLE>
<CAPTION>
NASD Regulation, Inc. Nationally recognized statistical rating
(NASD) organization (NRSRO) Net asset value (NAV) Preferred stock
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A self-regulating A company that assesses the credit quality of The daily dollar value Preferred stock has
organization, bonds, commercial paper, preferred and common of one mutual fund preference over
consisting of brokerage stocks and municipal short-term issues, rating share. Equal to a common stock in the
firms (including the probability that the issuer of the debt will fund's net assets payment of dividends
distributors of mutual meet the scheduled interest payments and repay divided by the number and liquidation of
funds), that is the principal. Ratings are published by such of shares outstanding. assets. Preferred
responsible for companies as Moody's Investors Service, Inc. stocks also often
overseeing the actions (Moody's), Standard & Poor's Ratings Group (S&P), pay dividends at a
of its members. Duff & Phelps, Inc. (Duff), and Fitch IBCA, Inc. fixed rate and are
(Fitch). sometimes
convertible into
common stock.
</TABLE>
13
<PAGE>
About your account (continued)
How to buy shares
By mail
[GRAPHIC OMITTED]
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.
By wire
[GRAPHIC OMITTED]
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 at 800.510.4015 so we can assign you an
account number.
By exchange
[GRAPHIC OMITTED]
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.
Through your financial adviser
[GRAPHIC OMITTED]
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.
<TABLE>
<CAPTION>
Glossary P-S Price/earnings ratio Principal Prospectus Redeem
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A measure of a stock's Amount of money you The official offering document that describes To cash in your
value calculated by invest (also called a mutual fund, containing information shares by selling
dividing the current capital). Also required by the SEC, such as investment them back to the
market price of a share refers to a bond's objectives, policies, services and fees. mutual fund.
of stock by its annual original face value,
earnings per share. A due to be repaid at
stock selling for $100 maturity.
per share with annual
earnings per share of $5
has a P/E of 20.
</TABLE>
14
<PAGE>
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 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 fair market value using a method approved by the Board of
Trustees.
<TABLE>
<CAPTION>
Salomon Smith Barney SEC (Securities and
Risk Cash Pay High-Yield Index Exchange Commission) Share classes Signature guarantee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Generally defined as The Salomon Smith Barney Cash Federal agency Different classifications Certification by a bank,
variability of Pay High-Yield Index includes established by Congress of shares; mutual fund brokerage firm or other
value; also credit a mix of non-investment grade to administer the laws share classes offer a financial institution
risk, inflation corporate bonds that pay cash governing the securities variety of sales charge that a customer's
risk, currency and interest - it excludes both industry, including choices. signature is valid;
interest rate risk. corporate bonds that pay mutual fund companies. signature guarantees can
Different deferred-interest and bankrupt be provided by members of
investments involve bonds. the STAMP program.
different types and
degrees of risk.
</TABLE>
15
<PAGE>
About your account (continued)
How to redeem shares
By mail
[GRAPHIC OMITTED]
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. 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.
By telephone
[GRAPHIC OMITTED]
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.
By wire
[GRAPHIC OMITTED]
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.
Through your financial adviser
[GRAPHIC OMITTED]
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
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.
<TABLE>
<CAPTION>
Glossary S-V Standard deviation Statement of Additional Information (SAI) Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A measure of an The document serving as "Part B" of a fund's prospectus An investment that
investment's volatility; that provides more detailed information about the fund's represents a share of
for mutual funds, organization, investments, policies and risks. ownership (equity) in a
measures how much a corporation. Stocks are
fund's total return has often referred to as
typically varied from its "equities."
historical average.
</TABLE>
16
<PAGE>
Account minimum
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 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.
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.
<TABLE>
<CAPTION>
Total return Treasury bills Treasury bonds Treasury notes Volatility
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investment Securities issued by Securities issued by Securities issued by The tendency of an investment to go
performance the U.S. Treasury the U.S. Treasury the U.S. Treasury up or down in value by different
measurement, with maturities of with maturities of with maturities of magnitudes. Investments that
expressed as a one year or less. 10 years or longer. one to 10 years. generally go up or down in value in
percentage, based on relatively small amounts are
the combined considered "low volatility"
earnings from investments, whereas those
dividends, capital investments that generally go up or
gains and change in down in value in relatively large
price over a given amounts are considered "high
period. volatility" investments.
</TABLE>
17
<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 the Funds' financial statements, are included in the
Funds' annual reports, which are available upon request by calling 800.523.1918.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Institutional Class
- -----------------------------------------------------------------------------------------------------------------------
Year ended
7/31
Delaware Delchester Fund 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $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)
on investments (1.104) 0.075 0.429 (0.142) (0.169)
------ ----- ----- ------ ------
Total from investment 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 year $5.540 $6.650 $6.570 $6.140 $6.280
====== ====== ====== ====== ======
Total return(1) (7.42%) 11.00% 17.82% 8.37% 8.72%
Ratios and supplemental data:
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>
How to read the Net realized and unrealized
Financial highlights Net investment income gain (loss) on investments Net asset value (NAV) Total return
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment A realized gain on This is the value of This represents the
income includes investments occurs a mutual fund share, rate that an
dividend and when we sell an calculated by investor would have
interest income investment at a dividing the net earned or lost on an
earned from a Fund's profit, while a assets by the number investment in a
securities; it is realized loss occurs of shares Fund. In calculating
after expenses have when we sell an outstanding. this figure for the
been deducted. investment at a financial highlights
loss. When an table, we include
investment increases applicable fee
or decreases in waivers, and assume
value but we do not the shareholder has
sell it, we record reinvested all
an unrealized gain dividends and
or loss. The amount realized gains.
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."
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Institutional Class
- -------------------------------------------------------------------------------------------------
Period
Year ended 12/30/96(1)
7/31 through
Delaware High-Yield Opportunities Fund 1999 1998 7/31/97
- -------------------------------------------------------------------------------------------------
<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 investment operations (0.240) 0.867 0.589
------ ----- -----
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 and fees paid indirectly 1.59% 1.14% 1.27%
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>
(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.
<TABLE>
<CAPTION>
How to read the
Financial highlights Ratio of expenses to Ratio of net investment
(continued) Net assets average net assets income to average net assets Portfolio turnover
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets represent The expense ratio is We determine this This figure tells
the total value of the percentage of ratio by dividing you the amount of
all the assets in a net assets that a net investment trading activity in
Fund's portfolio, fund pays annually income by average a fund's portfolio.
less any for operating net assets. For example, a fund
liabilities, that expenses and with a 50% turnover
are attributable to management fees. has bought and sold
that class of the These expenses half of the value of
Fund. include accounting its total investment
and administration portfolio during the
expenses, services stated period.
for shareholders,
and similar
expenses.
</TABLE>
19
<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)
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 service. Investment Company Act file number: 811-2071
Delaware Delchester Fund
CUSIP NASDAQ
----- ------
Institutional Class 245908306 DETIX
Delaware High-Yield Opportunities Fund
CUSIP NASDAQ
----- ------
Institutional Class 245908843 DHOIX
DELAWARE(SM)
INVESTMENTS
- -----------
Philadelphia o London
P-044 [--] PP 9/99
<PAGE>
DELAWARE(SM)
INVESTMENTS
- ---------------------
Philadelphia o London
Delaware Strategic
Income Fund
Class A o Class B o Class C
Prospectus September 29, 1999
Current Income Fund
(photo of illustration from Current Income Brochure)
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.
<PAGE>
Table of contents
- -----------------------------------------------------------------
Fund profile page 2
Delaware Strategic Income Fund 2
- -----------------------------------------------------------------
How we manage the Fund page 4
Our investment strategies 4
The securities we typically invest in 5
The risks of investing in the Fund 8
- -----------------------------------------------------------------
Who manages the Fund page 11
Investment manager and sub-adviser 11
Portfolio managers 11
Fund administration (Who's who) 13
- -----------------------------------------------------------------
About your account page 14
Investing in the Fund 14
Choosing a share class 14
How to reduce your sales charge 16
How to buy shares 17
Retirement plans 18
How to redeem shares 19
Account minimums 20
Special services 21
Dividends, distributions and taxes 22
- -----------------------------------------------------------------
Certain management considerations page 23
- -----------------------------------------------------------------
Financial highlights page 24
1
------
<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.
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.
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.
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, lower-rated or unrated
fixed-income securities that we believe to be similary rated issued by U.S.
companies (These involve higher risk and are commonly known as "junk
bonds.");
o the Investment Grade Sector, consisting of investment grade debt
obligations of U.S. companies and those issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or by U.S. companies; and
o the International Sector, consisting of bonds issued by foreign
governments, their agencies and instrumentalities, as well as other
fixed-income securities of issuers in foreign countries and 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 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 risk that issuers will be unable to make interest or principal
payments, 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.
<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 the one-year and lifetime periods. 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.
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 to the right
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.
- ------------------------------
- ------------------------------
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, 1997 and its lowest
quarterly return was -0.21% for the quarter ended June 30, 1998.
2
- ------
<PAGE>
How has the Fund performed?
- --------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/98
- --------------------------------------------------------------------------------
CLASS A B C Lehman Brothers
Aggregate
(if redeemed)* (if redeemed)* Bond Index
- --------------------------------------------------------------------------------
1 year -2.67% -2.22% 0.59% 8.69%
Lifetime
(Inception
10/1/96) 4.51% 4.87% 6.05% 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. The Index also does not include foreign
fixed-income securities or high-yield bonds, which are a significant
component of the Fund's strategy.
* 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.
<TABLE>
<CAPTION>
What the Fund's fees and expenses? CLASS A B C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales charges are fees paid directly Maximum sales charge (load) imposed on
from your investments when you buy or purchases as a percentage of offering price 4.75% none none
sell shares of the Fund. 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
CLASS A B C
- ------------------------------------------------------------------------------------------------------------------------------------
Annual fund operating expenses are Management fees 0.65% 0.65% 0.65%
deducted from the Fund's assets. Distribution and service (12b-1) fees 0.25%(4) 1.00% 1.00%
Other expenses 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%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS(7) A B B C C
(if redeemed) (if redeemed)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
This example is intended to help you Without Fee Limitation(5)
compare the cost of investing in the 1 year $625 $233 $633 $233 $333
Fund to the cost of investing in other 3 years $941 $718 $1,018 $718 $718
mutual funds with similar investment 5 years $1,280 $1,230 $1,430 $1,230 $1,230
objectives. We show the cumulative 10 years $2,233 $2,447 $2,447 $2,636 $2,636
amount of Fund expenses on a With Fee Limitation(5)
hypothetical investment of $10,000 with 1 year $572 $178 $578 $178 $278
an annual 5% return over the time 3 years $778 $551 $851 $551 $551
shown.(6) This is an example only, and 5 years $1,001 $949 $1,149 $949 $949
does not represent future expenses, 10 years $1,641 $1,864 $1,864 $2,062 $2,062
which may be greater or less than those
shown here.
</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) The Board of Trustees set the 12b-1 plan expenses for the Fund's Class A
shares at 0.25%. Payments under the 12b-1 plan will not be more than 0.30%.
(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.
3
------
<PAGE>
How we manage the Fund
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.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Delaware Strategic Income 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 Fund.
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
Fund after evaluating both the company's fundamental strength and the
bond's liquidity.
o Foreign bonds are used to add diversification. 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 Fund, 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.
<PAGE>
<TABLE>
<CAPTION>
How to use
this glossary
<S> <C> <C> <C>
This glossary includes
definitions of investment
terms used throughout the
prospectus. If you would like Glossary A-C Amortized cost Average maturity
to know the meaning of an -------------------------------------------------------------------------------------
investment term that is not Amortized cost is a method used to value a fixed- An average of when the
explained in the text please income security that starts with the face value of the individual bonds and other
check the glossary. security and then adds or subtracts from that value debt securities held in a
depending on whether the purchase price was greater portfolio will mature.
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.
</TABLE>
4
- ------
<PAGE>
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 high current income and total return -
is non-fundamental. This means 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.
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 corporate
by a corporation and rated lower than investment bonds. Emphasis is typically on those rated BB or Ba by an NRSRO.
grade by a nationally recognized statistical ratings
organization (NRSRO) such as S&P or Moody's. We carefully evaluate an individual company's financial situation, its
High-yield bonds are issued by corporations that management, the prospects for its industry and the technical factors
have lower credit quality and may have difficulty related to its bond offering. Our goal is to identify those companies
repaying principal and interest. 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. government
including bills, notes, bonds as well as other debt obligations; however, these securities will typically be a smaller
securities issued by the U.S. Treasury and percentage of the portfolio because they generally do not offer as high
securities of U.S. government agencies or a level of current income as other fixed-income securities the Fund may
instrumentalities. 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 issued
receiving principal and interest payments as the 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 companies
government or its agencies or instrumentalities, whether or not the securities are 100% collateralized. However, these
such as the Federal Home Loan Mortgage Corporation, securities must be rated in one of the four highest categories by an
Federal National Mortgage Association and the NRSRO at the time of purchase. The privately issued securities we invest
Government National Mortgage Association. Others are in are either CMOs or REMICs (see below).
issued by private financial institutions, with some
fully collateralized by certificates issued or
guaranteed by the U.S. government or its agencies or
instrumentalities.
- ------------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations (CMOs): See mortgage-backed securities above.
Privately 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Asset-backed securities: Bonds or notes backed by We invest only in asset-backed securities rated in one of the four
accounts receivables including home equity, highest categories by an NRSRO.
automobile or credit loans.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Bond Bond ratings Capital
- ------------------------------------------------------------------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, Independent evaluations of creditworthiness, The amount of
municipality or government agency. In return for ranging from Aaa/AAA (highest quality) to D money you invest.
lending money to the issuer, a bond buyer generally (lowest quality). Bonds rated Baa/BBB or
receives fixed periodic interest payments and better are considered investment grade. Bonds
repayment of the loan amount on a specified maturity rated Ba/BB or lower are commonly known as
date. A bond's price changes prior to maturity and is junk bonds. See also Nationally recognized
inversely related to current interest rates. When statistical rating organization.
interest rates rise, bond prices fall, and when
interest rates fall, bond prices rise.
</TABLE>
5
------
<PAGE>
How we manage the Fund (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment-grade corporate bonds: Debt obligations Debt securities within the top three categories comprise what are known
issued by a corporation, rated in one of the four as high-grade bonds and are regarded as having a strong ability to pay
highest categories by an NRSRO (or, if unrated, that principal and interest. Securities in the fourth category are known as
we believe are of equal quality). 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 primarily focus on
foreign governments or supranational entities. A better quality bonds with investment-grade credit ratings.
supranational entity is an entity established or
financially supported by the national governments of However, up to 15% of the Fund's assets may also be invested in foreign
one or more countries. The International Bank for government securities issued by emerging or developing countries, which
Reconstruction and Development (more commonly known may be lower rated, including securities rated below investment grade.
as the World Bank) is one example of a supranational
entity. We may also invest in securities issued by supranational entities, which
are typically of higher quality.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign corporate bonds: Debt obligations issued by We may invest in both rated and unrated securities of foreign
foreign corporations. corporations. We may invest both in investment-grade securities and
non-investment grade securities (i.e., those rated BB or lower by S&P or
Fitch, Ba or lower by Moody's, or similarly rated by another NRSRO.)
- ------------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and payment-in-kind bonds: Zero We may invest in zero coupon bonds and payment-in-kind bonds, though we
coupon bonds are debt obligations which do not do not expect this to be a significant component of our strategy. The
entitle the holder to any periodic payments of market prices of these bonds are generally more volatile than the market
interest prior to maturity or a specified date when prices of securities that pay interest periodically and are likely to
the securities begin paying current interest. react to changes in interest rates to a greater degree than
Therefore, they are issued and traded at a price interest-paying bonds having similar maturities and credit quality. They
lower than their face amounts or par value. may have certain tax consequences which, under certain conditions, could
Payment-in-kind bonds pay interest or dividends in be adverse to the Fund.
the form of additional bonds or preferred stock.
- ------------------------------------------------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------------------------------------------------
Options and futures: Options represent a right to At times when we anticipate adverse conditions, we may want to protect
buy or sell a security or group of securities at an gains on securities without actually selling them. We might use options
agreed upon price at a future date. The purchaser of or futures to neutralize the effect of any price declines, without
an option may or may not choose to go through with selling a bond or bonds, or as a hedge against changes in interest
the transaction. rates.
Futures contracts are agreements for the purchase or Use of these strategies can increase the operating costs of the Fund and
sale of a security or group of securities at a can lead to loss of principal.
specified price, on a specified date: Unlike an
option, a futures contract must be executed unless
it is sold before the settlement date.
Certain options and futures may be considered to be
derivative securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment company securities: In some foreign We may invest in either closed-end or open-end investment companies
countries, investments by a mutual fund may only be consistent with Investment Company Act of 1940 requirements. These
made through investments in closed-end investment investments involve an indirect payment of a portion of the other
companies that in turn invest in the securities of investment companies' expenses, including advisory fees.
such countries.
- ------------------------------------------------------------------------------------------------------------------------------------
Brady Bonds: These are debt securities issued under We may invest in Brady Bonds. We believe that the economic reforms
the framework of the Brady Plan, an initiative undertaken by countries in connection with the issuance of Brady Bonds
announced by the U.S. Treasury Secretary, Nicholas makes the debt of countries that have issued Brady Bonds or those that
F. Brady in 1989, as a mechanism for debtor nations have announced plans to issue them a viable opportunity for investment.
to restructure their outstanding external
indebtedness (generally, commercial bank debt).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Glossary C Capital appreciation Capital gains distributions Commission
- ------------------------------------------------------------------------------------------------------------------------------------
An increase in the Payments to mutual fund shareholders of profits The fee an investor pays to a
value of an investment. (realized gains) from the sale of a fund's portfolio financial adviser for investment
securities. Usually paid once a year; may be either advice and help in buying or
short-term gains or long-term gains. selling mutual funds, stocks,
bonds or other securities.
</TABLE>
6
- ------
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Foreign currency, foreign currency contracts or We may invest in securities issued in any currency and may hold foreign
forward contracts: A forward contract involves an currency.
obligation to purchase or sell a specific currency
at a future date at a price set at the time of the Although the Fund values its assets daily in terms of U.S. dollars, we
contract. Forward contracts are used to "lock-in" do not convert our holdings of foreign currencies into U.S. dollars on a
the price of a security that will be purchased or daily basis. We may, however, from time to time, purchase or sell
sold, in terms of U.S. dollars or other currencies. foreign currencies and/or engage in forward foreign currency
transactions in order to expedite settlement of portfolio transactions
or to minimize currency value fluctuations. We may conduct foreign
currency transactions on a cash basis at the rate prevailing in the
foreign currency exchange market or through a forward foreign currency
contract or forward contract. By entering into these transactions, the
Fund attempts to protect against a possible 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. These transactions may increase the Fund's expenses.
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term investment for
of securities, such as the Fund, and a seller, in the Fund's cash position. In order to enter into these repurchase
which the seller agrees to buy the securities back agreements, the Fund must have collateral of at least 102% of the
within a specified time at the same price the buyer 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 are
whose resale is restricted under securities law. 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 above.
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate swap and index swap agreements: In an Interest rate swaps may be used to adjust the Fund's sensitivity to
interest rate swap, a fund receives payments from interest rates by changing its duration. We may also use interest rate
another party based on a floating interest rate in swaps to hedge against changes in interest rates.
return for making payments based on a fixed interest
rate. An interest rate swap can also work in We use index swaps to gain exposure to markets that the Fund invests in,
reverse, with a fund receiving payments based on a such as the corporate bond market. We may also use index swaps as a
fixed interest rate and making payments based on a substitute for futures, options or forward contracts if such contracts
floating interest rate. In an index swap, a fund are not directly available to the Fund on favorable terms.
receives gains or incurs losses based on the total
return of an index, in exchange for making fixed or Interest rates swaps and index swaps will be considered illiquid
floating interest rate payments to another party. securities (see below).
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 15% of net assets in illiquid securities, including
ready market, and cannot be easily sold within seven repurchase agreements with maturities of over seven days.
days at approximately the price that the fund has
valued them.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Please see the Statement of Additional Information for additional descriptions
on these securities.
Lending securities The Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Compounding Consumer Price Index (CPI) Contingent deferred sales charge (CDSC) Corporate bond
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings on an Measurement of U.S. inflation; Fee charged by some mutual funds when A debt security issued by
investment's represents the price of a basket shares are redeemed (sold back to the fund) a corporation. See bond.
previous earnings. of commonly purchased goods. 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.
</TABLE>
7
------
<PAGE>
How we manage the Fund (continued)
- --------------------------------------------------------------------------------
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 the Fund. 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 We maintain a long-term investment approach and focus on bonds that we
the securities in a certain market--like the stock believe will continue to pay interest regardless of interim market
or bond market--will decline in value because of fluctuations. We do not try to predict overall bond market or interest
factors such as economic conditions, future rate movements and do not trade for short-term purposes.
expectations or investor confidence. Index swaps are
subject to the same market risks as the investment We may hold a substantial part of the Fund's assets in cash or cash
market or sector that the index represents. equivalents as a temporary defensive strategy.
Depending on the actual movements of the index and
how well the portfolio managers forecast those In evaluating the use of an index swap, we carefully consider how market
movements, a fund could experience a higher or lower changes could affect the swap and how that compares to us investing
return than anticipated. directly in the market the swap is intended to represent.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the We diversify the Fund's assets across three distinct sectors of the bond
value of securities in a particular industry or the market and among a wide variety of individual issuers.
value 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 that
decrease in value if interest rates rise. The risk risk, but we do strive to manage it by monitoring economic conditions.
is greater for bonds with longer maturities than for
those with shorter maturities. The Fund will not invest in interest rate or index swaps with maturities
of more than two years. Each business day we will calculate the amount
Swaps may be particularly sensitive to interest rate the Fund must pay for any swaps it holds and will segregate enough cash
changes. Depending on the actual movements of or other liquid securities to cover that amount.
interest rates and how well the portfolio managers
anticipate them, a fund could experience a higher or
lower return than anticipated. For example, if a
fund holds interest rate swaps and is required to
make payments based on variable interest rates, it
will have to make increased payments if interest
rates rise, which will not necessarily be offset by
the fixed-rate payments it is entitled to receive
under the swap agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
Credit risk the possibility that a bond's issuer (or Our careful, credit-oriented bond selection and our commitment to hold a
an entity that insures the bond) will not be able to diversified selection of high-yield bonds are designed to manage this
make timely payments of interest and principal. risk.
Investing in so-called "junk" or "high-yield" bonds It is likely that protracted periods of economic uncertainty would cause
entails the risk of principal loss, which may be increased volatility in the market prices of high-yield bonds, an
greater than the risk involved in investment-grade increase in the number of high-yield bond defaults and corresponding
bonds. High-yield bonds are sometimes issued by volatility in the Fund's net asset value.
companies whose earnings at the time the bond is
issued are less than the projected debt payments on Our holdings of high-quality investment grade bonds are less subject to
the bonds. credit risk and may help to balance any credit problems experienced by
individual high-yield bond issuers or foreign issuers.
Some analysts believe a protracted economic downturn
would severely disrupt the market for high-yield When selecting dealers with whom we would make interest rate or index
bonds, adversely affect the value of outstanding swap agreements, we focus on those with high quality ratings and do
bonds and adversely affect the ability of high-yield careful credit analysis before investing.
issuers to repay principal and interest.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Glossary D-F Depreciation Diversification Dividend distribution Duration
- ------------------------------------------------------------------------------------------------------------------------------------
A decline in an The process of spreading Payments to mutual fund A measurement of a fixed-
investment's value. investments among a shareholders of dividends income investment's price
number of different passed along from the fund's volatility. The larger the
securities, asset classes or portfolio of securities. number, the greater the likely
investment styles to reduce price change for a given
the risks of investing. change in interest rates.
</TABLE>
8
- ------
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Futures and options risk is the possibility that a We will use options and futures for defense purposes, such as to protect
fund may experience a significant loss if it employs gains in the portfolio without actually selling a security or to
an options or futures strategy related to a security neutralize the impact of interest rate changes. We will not use futures
or a market index and that security or index moves and options for speculative reasons or in an effort to enhance return.
in the opposite direction from what the portfolio
managers anticipated. Futures and options also
involve additional expenses, which could reduce any
benefit or increase any loss to a fund from using
the strategy.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign securities may The Fund will attempt to reduce foreign investing risks through
be adversely affected by political instability portfolio diversification, credit analysis and attention to trends in
(including governmental seizures or nationalization world economies, industries and financial markets.
of assets), changes in currency exchange rates,
foreign economic conditions or inadequate regulatory We carefully evaluate the political and economic situations in the
and accounting standards. Foreign markets may also countries where we invest and take these risks into account before we
be less efficient, less liquid, have greater price select securities for the portfolio. However, there is no way to
volatility, less regulation and higher transaction eliminate foreign risks when investing internationally.
costs than U.S. markets.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign government securities risk involves the The Fund attempts to reduce the risks associated with investing in
ability of a foreign government or foreign governments by limiting the portion of portfolio assets that may
government-related issuer to make timely principal be invested in such securities.
and interest payments 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 credit 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 securities
foreign currency exchange rates. Adverse changes in at a pre-set price on a future date, the Fund strives to protect the
exchange rates may reduce or eliminate any gains value of the security it owns from future changes in currency rates. We
produced by investments that are denominated in will use forward currency exchange contracts only for defensive
foreign currencies and may increase any losses. 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 country, developed and emerging, no more than 15% of the Fund's assets
be greater in emerging markets than in more may be invested in direct obligations of issuers located in emerging
developed foreign markets because, among other market countries.
things, emerging markets may have less stable
political and economic environments.
- ------------------------------------------------------------------------------------------------------------------------------------
Expense ratio Financial adviser
- ------------------------------------------------------------------------------------------------------------------------------------
A mutual fund's total operating expenses, expressed as a percentage of its total Financial professional (e.g., broker, banker,
net assets. Operating expenses are the costs of running a mutual fund, including accountant, planner or insurance agent) who
management fees, offices, staff, equipment and expenses related to maintaining analyzes clients' finances and prepares
the fund's portfolio of securities and distributing its shares. They are paid personalized programs to meet objectives.
from the fund's assets before any earnings are distributed to shareholders.
</TABLE>
9
------
<PAGE>
How we manage the Fund (continued)
- --------------------------------------------------------------------------------
<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 ability
cannot be readily sold within seven days at to sell particular issues, when necessary, to meet the Fund's liquidity
approximately the price that a fund values them. needs or in response to a specific event, such as the declining
creditworthiness of an issuer. In striving to manage this risk, we
The high-yield secondary market is particularly evaluate the size of a bond issuance as a way to anticipate its likely
susceptible to liquidity problems when the liquidity level.
institutions, such as mutual funds and certain
financial institutions that dominate it temporarily We may invest only 15% of net assets in illiquid securities.
stop buying bonds for regulatory, financial or other
reasons.
- ------------------------------------------------------------------------------------------------------------------------------------
Valuation risk A less liquid secondary market as We will strive to manage this risk by carefully evaluating individual
described above makes it more difficult to obtain bonds and by limiting the amount of the portfolio that can be allocated
precise valuations of high-yield securities. During to privately placed high-yield securities.
periods of reduced liquidity, judgment plays a
greater role in valuing high-yield securities.
- ------------------------------------------------------------------------------------------------------------------------------------
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 portfolio.
legislative actions that could adversely affect the
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>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Government
Glossary F-M Fixed-income securities securities Inflation Investment goal
- ------------------------------------------------------------------------------------------------------------------------------------
With fixed-income securities, Securities issued by The increase in the The objective, such as
the money you originally invested the U.S. government cost of goods and long-term capital
is paid back at a pre-specified or its agencies. They services over time. U.S. growth or high current
maturity date. These securities, include Treasuries as inflation is frequently income, that a mutual
which include government, well as agency-backed measured by changes fund pursues.
corporate or municipal bonds, securities such as in the Consumer
as well as money market Fannie Maes. Price Index (CPI).
securities, typically pay
a fixed rate of return
(often referred to as interest).
See Bond.
</TABLE>
10
- ------
<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 Fund, manages the Fund's 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, which includes a
reduction due 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. Grillo and Mr. Matlack regularly
consult with H. Thomas McMeekin. 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, is a CFA charterholder and
graduate of North Carolina State University with an MBA in Finance from Pace
University. Prior to joining Delaware Investments 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
allocating the Fund's assets among the fixed-income and equity sectors and for
making day-to-day investment decisions regarding the Fund's holdings of
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 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.
H. Thomas McMeekin, Executive Vice President and Chief Investment Officer, Fixed
Income, joined Delaware Investments in 1999. He has over 24 years of investment
management experience which includes serving as President of Lincoln Investment
Management, Inc., an affiliate of Delaware Investments. Mr. McMeekin holds a BA
in Economics from the University of Rochester and an MBA in Finance and
Accounting from Cornell University. He also completed the Advanced Management
Program at Harvard Business School.
<TABLE>
Lehman Brothers Aggregate Bond Index Management fee Market capitalization
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Lehman Brothers Aggregate Bond Index The amount paid by a mutual The value of a corporation determined by
is an index that measures the fund to the investment adviser multiplying the current market price of
performance of about 6,500 U.S. for management services, a share of common stock by the number of
corporate and government bonds. expressed as an annual shares held by shareholders. A
percentage of the fund's corporation with one million shares
average daily net assets. outstanding and the market price per
share of $10 has a market capitalization
of $10 million.
</TABLE>
11
<PAGE>
Who manages the Fund (continued)
Christopher A. Moth, Senior Portfolio Manager - Investment Strategy of Delaware
International Advisers Ltd., is a graduate of The City University London. Mr.
Moth joined Delaware International in 1992 and has had responsibility for making
day-to-day investment decisions for the Fund's holdings of foreign securities
since July 1999. 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. Ms. Bates has
had primary responsibility for making day-to-day investment decisions regarding
the Fund's holdings of foreign securities since July 1999 and has been a mamber
of the Fixed Income team at Delaware International since 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, 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.
<TABLE>
<CAPTION>
Glossary M-P Maturity NASD Regulation, Inc. (NASD)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The length of time until a bond issuer A self-regulating organization,
must repay the underlying loan principal consisting of brokerage firms (including
to bondholders. distributors of mutual funds), that is
responsible for overseeing the actions
of its members.
</TABLE>
12
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square The Funds 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-adviser Distributor Service agent
Delaware International Delaware Distributors, L.P. Delaware Service Company, Inc.
Advisers Ltd. 1818 Market Street 1818 Market Street
Third Floor Philadelphia, PA 19103 Philadelphia, PA 19103
80 Cheapside
London, England EC2V 6EE
Financial advisers
Portfolio managers
(see page 11 for details)
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.
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 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.
<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.
<TABLE>
<CAPTION>
Nationally recognized statistical rating
organization (NRSRO) Net asset value (NAV) Preferred stock
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A company that assesses the credit quality of The daily dollar value of one Preferred stock has preference
bonds, commercial paper, preferred and common mutual fund share. Equal to a over common stock in the
stocks and municipal short-term issues, rating the fund's net assets divided by payment of dividends and
probability that the issuer of the debt will meet the number of shares liquidation of assets.
the scheduled interest payments and repay the outstanding. Preferred stocks also often
principal. Ratings are published by such companies pay dividends at a fixed rate
as Moody's Investors Service, Inc. (Moody's), and are sometimes convertible
Standard & Poor's Ratings Group (S&P), Duff & into common stock.
Phelps, Inc. (Duff), and Fitch IBCA, Inc. (Fitch).
</TABLE>
13
<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.
Class A
Choosing a share class
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 as % Sales charge as % of Dealer's commission as %
Amount of purchase 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 none none 0.50%
Up to $25 million none none 0.25%
Amount over $25 million
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Glossary P-S Principal Prospectus Redeem Risk
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amount of money you The official offering To cash in your shares by Generally defined as
invest (also called document that describes a selling them back to the variability of value;
capital). Also refers to mutual fund, containing mutual fund. also credit risk,
a bond's original face information required by inflation risk, currency
value, due to be repaid the SEC, such as and interest rate risk.
at maturity. investment objectives, Different investments
policies, services and involve different types
fees. and degrees of risk.
</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 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 theseshares 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 onmaximum 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 sale 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.
<TABLE>
<CAPTION>
SEC (Securities and
Sales charge Exchange Commission) Share classes Signature guarantee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charge on the purchase or Federal agency established Different classifications Certification by a bank,
redemption of fund shares by Congress to administer of shares; mutual fund brokerage firm or other
sold through financial the laws governing the share classes offer a financial institution that
advisers. May vary with securities industry, variety of sales charge a customer's signature is
the amount invested. including mutual fund choices. valid; signature
Typically used to companies. guarantees can be provided
compensate financial by members of the STAMP
advisers for advice and program.
service provided.
</TABLE>
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>
- ------------------------------------------------------------------------------------------------------------------------------------
Share class
Program How it works 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 and Rights of Accumulation do
amount in Delaware Investment not apply to the purchase of
funds (except money market Class B and C shares, you can
funds with no sales charge) combine your purchase of Class
over a 13-month period to A shares with your purchase of
qualify for reduced front-end B and C shares to fulfill your
sales charges. Letter of Intent or qualify
for Rights of Accumulation.
Rights of Accumulation You can combine your holdings X
or 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.
Reinvestment of redeemed Up to 12 months after you For Class A, you will not have For Class B, Not available.
shares redeem shares, you can to pay an additional front-end your account
reinvest the proceeds with no sales charge. will be
additional sales charge. credited with
the 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 X There is no reduction in sales
Prototype Profit Sharing, qualify for reduced sales charge for Class B or Class C
Pension, 401(k), SIMPLE charges by combining the shares for group purchases by
401(k), 403(b)(7), and 457 purchases of all members of retirement plans.
Retirement Plans the group. Members of these
groups may also qualify to
purchase shares without a
front-end sales charge and a
waiver of any contingent
deferred sales charges.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of Additional
Glossary S-T Standard deviation Information (SAI) Stock
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A measure of an investment's The document serving as "Part An investment that represents
volatility; for mutual funds, B" of a fund's prospectus that a share of ownership (equity)
measures how much a fund's provides more detailed in a corporation. Stocks are
total return has typically information about the fund's often referred to as
varied from its historical organization, investments, "equities."
average. policies and risks.
</TABLE>
16
<PAGE>
How to buy shares
Through your financial adviser
[GRAPHIC OMITTED]
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.
By mail
[GRAPHIC OMITTED]
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.
By wire
[GRAPHIC OMITTED]
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.
By exchange
[GRAPHIC OMITTED]
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.
Through automated shareholder services
[GRAPHIC OMITTED]
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.
<TABLE>
<CAPTION>
Total return Treasury bills Treasury bonds Treasury notes
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
An investment performance Securities issued by the U.S. Securities issued by the U.S. Securities issued by the U.S.
measurement, expressed as a Treasury with maturities of Treasury with maturities of 10 Treasury with maturities of
percentage, based on the one year or less. years or longer. one to 10 years.
combined earnings from
dividends, capital gains and
change in price over a given
period.
</TABLE>
17
<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 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 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 Fund 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 the Fund 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.
<TABLE>
<CAPTION>
Uniform Gift to Minors Act and
Glossary U-V Uniform Transfers to Minors Act Volatility
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal and state laws that provide a The tendency of an investment to go up or down in value by
simple way to transfer property to a different magnitudes. Investments that generally go up or
minor with special tax advantages. 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.
</TABLE>
18
<PAGE>
How to redeem shares
Through your financial adviser
[GRAPHIC OMITTED]
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
By mail
[GRAPHIC OMITTED]
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.
By telephone
[GRAPHIC OMITTED]
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.
By wire
[GRAPHIC OMITTED]
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.
Through automated shareholder services
[GRAPHIC OMITTED]
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.
19
<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.
20
<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 The Automatic Investing Plan allows you to
Investing Plan 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 Through our Dividend Reinvestment Plan, you
Reinvestment Plan 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.
21
<PAGE>
About your account (continued)
Special services
(continued)
------------------------------------------------------------------------
MoneyLine(SM) Through our MoneyLine(SM) On Demand Service,
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 Through our MoneyLine Direct Deposit Service
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 Through our Systematic Withdrawal Plan you
Withdrawal Plan 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.
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 its 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.
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>
Class A
- ---------------------------------------------------------------------------------------------------------------------------
Period
10/1/96(1)
Year ended 7/31 through
Delaware Strategic Income Fund 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
====== ====== ======
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 but 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.
<TABLE>
<CAPTION>
How to read
the Financial Net investment Net realized and Net asset
highlights income unrealized gain (loss) on investments value (NAV)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income A realized gain on investments occurs when This is the value of a
includes dividend and we sell an investment at a profit, while a mutual fund share,
interest income earned realized loss occurs when we sell an investment calculated by dividing
from the Fund's investments; at a loss. When an investment increases or the net assets by the
it is after expenses decreases in value but we do not sell it, we number of shares outstanding.
have been deducted. 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."
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Class B
- -----------------------------------------------------------------------------------------------------------------
Period
10/1/96(1)
Year ended 7/31 through
Delaware Strategic Income Fund 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 investment 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%
- -----------------------------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------------------------
Period
10/1/96(1)
Year ended 7/31 through
Delaware Strategic Income Fund 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 0.313
Net realized and unrealized gain (loss)
on investments, futures contracts and foreign currencies (0.607) (0.100) 0.198
------ ------ ------
Total from investment 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>
<TABLE>
<CAPTION>
Ratio of net investment
Ratio of expenses to income to average
Total return Net assets average net assets net assets Portfolio turnover
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
This represents the Net assets represent The expense ratio is We determine this This figure tells
rate that an the total value of the percentage of ratio by dividing you the amount of
investor would have all the assets in net assets that a net investment trading activity in
earned or lost on an the Fund's fund pays annually income by average a fund's portfolio.
investment in the portfolio, less any for operating net assets. For example, a fund
Fund. In calculating liabilities, that expenses and with a 50% turnover
this figure for the are attributable to management fees. has bought and sold
financial highlights that class of the These expenses half of the value of
table, we include Fund. include accounting its total investment
applicable fee and administration portfolio during the
waivers, exclude expenses, services stated period.
front-end and for shareholders,
contingent deferred and similar
sales charges, and expenses.
assume the
shareholder has
reinvested all
dividends and
realized gains.
</TABLE>
25
<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]
Shareholder Service Center
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
DELAWARE STRATEGIC INCOME FUND CUSIP NASDAQ
----- ------
Class A 245908603 DISAX
Class B 245908702 DISBX
Class C 245908801 DISCX
DELAWARE(SM)
INVESTMENTS
- ---------------------
Philadelphia o London
P-002 [--] PP 9/99
<PAGE>
DELAWARE(SM)
INVESTMENTS
- -----------
PhiladelphiaoLondon
Delaware Strategic
Income Fund
Institutional Class
Prospectus September 29, 1999
(photo of illustration from
current income brochure)
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.
<PAGE>
Table of contents
- -----------------------------------------------------------------
Fund profile page 2
Delaware Strategic Income Fund 2
- -----------------------------------------------------------------
How we manage the Fund page 4
Our investment strategies 4
The securities we typically invest in 5
The risks of investing in the Fund 9
- -----------------------------------------------------------------
Who manages the Fund page 12
Investment manager and sub-adviser 12
Portfolio managers 12
Fund administration (Who's who) 14
- -----------------------------------------------------------------
About your account page 15
Investing in the Fund 15
How to buy shares 16
How to redeem shares 18
Account minimum 19
Exchanges 19
Dividends, distributions and taxes 19
Certain management considerations 19
- -----------------------------------------------------------------
Financial highlights page 20
1
<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.
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.
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 that we believe to be similarly rated
issued by U.S. companies. (These involve higher risk and are commonly known as
"junk bonds").
o the Investment Grade Sector, consisting of investment grade debt obligations
of U.S. companies and those 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 and 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 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 risk that issuers will be unable to make interest or principal
payments, 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.
2
<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 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 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
Lehman Brothers
Institutional Class Aggregate Bond Index
- --------------------------------------------------------------------------------
1 year 2.55% 8.69%
Lifetime (Inception 10/1/96) 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. The Index also does not include foreign fixed-income
securities or high-yield bonds, which are a significant component of the Fund's
strategy.
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 0.65%
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 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 Fee Limitation
1 year $132
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
<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 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.
3
<PAGE>
How we manage the Fund
- --------------------------------------------------------------------------------
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.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that may help shareholders meet their goals.
Delaware Strategic Income 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 generally 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 Fund.
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.
<PAGE>
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
Fund after evaluating both the company's fundamental strength and the bond's
liquidity.
o Foreign bonds are used to add diversification. 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 Fund, 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 high current income and total
return--is non-fundamental. 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.
How to use this glossary
This glossary includes definitions of investment terms used throughout the
prospectus. If you would like to know the meaning of an investment term that is
not explained in the text please check the glossary.
Glossary A-B Amortized cost Average maturity
- --------------------------------------------------------------------------------
Amortized cost is a method An average of when the
used to value a fixed-income individual bonds and other
security that starts with the debt securities held in a
face value of the security and portfolio will mature.
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.
4
<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.
- --------------------------------------------------------------------------------
Securities How we use them
- --------------------------------------------------------------------------------
High-yield corporate bonds: Debt The Fund may invest up to 60% of
obligations issued by a corporation net assets in high-yield corporate
and rated lower than investment bonds. Emphasis is typically on
grade by a nationally recognized those rated BB or Ba by an NRSRO.
statistical ratings organization
(NRSRO) such as S&P or Moody's. We carefully evaluate an individual
High-yield bonds are issued by company's financial situation, its
corporations that have lower credit management, the prospects for its
quality and may have difficulty industry and the technical factors
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 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 The Fund may invest up to 60% of
U.S. obligations including bills, net assets in direct U.S.
notes, bonds as well as other debt government obligations; however,
securities issued by the U.S. these securities will typically be
Treasury and securities of U.S. a smaller percentage of the
government agencies or portfolio because they generally do
instrumentalities. not offer as high a level of
current income as other
fixed-income securities the Fund
may invest in.
- --------------------------------------------------------------------------------
Mortgage-backed securities: We may invest up to 60% of net
Fixed-income securities that assets in government-related
represent pools of mortgages, with mortgage-backed securities or fully
investors receiving principal and collateralized privately issued
interest payments as the underlying mortgage-backed securities.
mortgage loans are paid back. Many
are issued and guaranteed against We may invest in mortgage-backed
default by the U.S. government or securities issued by private
its agencies or instrumentalities, companies whether or not the
such as the Federal Home Loan securities are 100% collateralized.
Mortgage Corporation, Federal However, these securities must be
National Mortgage Association and rated in one of the four highest
the Government National Mortgage categories by an NRSRO at the time
Association. Others are issued by of purchase. The privately issued
private financial institutions, securities we invest in are either
with some fully collateralized by CMOs or REMICs (see below).
certificates issued or guaranteed
by the government or its agencies
or instrumentalities.
- --------------------------------------------------------------------------------
Collateralized mortgage obligations See mortgage-backed securities
(CMOs): Privately issued above.
mortgage-backed bonds whose
underlying value is the mortgages
that are grouped into different
pools according to their maturity.
- --------------------------------------------------------------------------------
Real estate mortgage investment See mortgage-backed securities
conduits (REMICs): Privately issued above.
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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Asset-backed securities: Bonds or We invest only in asset-backed
notes backed by accounts securities rated in one of the four
receivables including home equity, highest categories by an NRSRO.
automobile or credit loans.
- --------------------------------------------------------------------------------
Investment grade corporate bonds: Debt securities within the top
Debt obligations issued by a three categories comprise what are
corporation, rated in one of the known as high-grade bonds and are
four highest categories by an NRSRO regarded as having a strong ability
(or, if unrated, that we believe to pay principal and interest.
are of equal quality). 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.
- --------------------------------------------------------------------------------
Bond Bond ratings
- --------------------------------------------------------------------------------
A debt security, like an IOU, Independent evaluations of
issued by a company, municipality creditworthiness, ranging from
or government agency. In return for Aaa/AAA (highest quality) to D
lending money to the issuer, a bond (lowest quality). Bonds rated
buyer generally receives fixed Baa/BBB or better are considered
periodic interest payments and investment grade. Bonds rated Ba/BB
repayment of the loan amount on a or lower are commonly known as junk
specified maturity date. A bond's bonds. See also Nationally
price changes prior to maturity and recognized statistical rating
is inversely related to current organization.
interest rates. When interest rates
rise, bond prices fall, and when
interest rates fall, bond prices
rise.
5
<PAGE>
How we manage the Fund (continued)
The securities we typically
invest in (continued)
- --------------------------------------------------------------------------------
Securities How we use them
- --------------------------------------------------------------------------------
Foreign government securities: We may invest in foreign government
Securities issued by foreign securities and primarily focus on
governments or supranational better quality bonds with
entities. A supranational entity is investment-grade credit ratings.
an entity established or
financially supported by the However, up to 15% of the Fund's
national governments of one or more assets may also be invested in
countries. The International Bank foreign government securities
for Reconstruction and Development issued by emerging or developing
(more commonly known as the World countries, which may be lower
Bank) is one example of a rated, including securities rated
supranational entity. below investment grade.
We may also invest in securities
issued by supranational entities,
which are typically of higher
quality.
- --------------------------------------------------------------------------------
Foreign corporate bonds: Debt We may invest in both rated and
obligations issued by foreign unrated securities of foreign
corporation. corporations. We may invest both in
investment-grade securities and
non-investment grade securities
(i.e., those rated BB or lower by
S&P or Fitch, Ba or lower by
Moody's, or similarly rated by
another NRSRO).
- --------------------------------------------------------------------------------
Zero coupon bonds and We may invest in zero coupon bonds
payment-in-kind bonds: Zero coupon and payment in-kind bonds, though
bonds are debt obligations which do we do not expect this to be a
not entitle the holder to any significant component of our
periodic payments of interest prior strategy. The market prices of
to maturity or a specified date these bonds are generally more
when the securities begin paying volatile than the market prices of
current interest. Therefore, they securities that pay interest
are issued and traded at a price periodically and are likely to
lower than their face amounts or react to changes in interest rates
par value. Payment-in-kind bonds to a greater degree than
pay interest or dividends in the interest-paying bonds having
form of additional bonds or similar maturities and credit
preferred stock. quality. They may have certain tax
consequences which, under certain
conditions, could be adverse to the
Fund.
- --------------------------------------------------------------------------------
Equity securities: Common stocks, Up to 10% of the Fund's assets may
preferred stocks (including be invested in U.S. equity
adjustable rate preferred stocks) securities.
and other equity securities, such
as convertible securities and We would select only equity
warrants. securities that were consistent
with the Fund's objective of high
current income and total return.
- --------------------------------------------------------------------------------
Options and futures: Options At times when we anticipate adverse
represent a right to buy or sell a conditions, we may want to protect
security or group of securities at gains on securities without
an agreed upon price at a future actually selling them. We might use
date. The purchaser of an option options or futures to neutralize
may or may not choose to go through the effect of any price declines,
with the transaction. without selling a bond or bonds, or
as a hedge against changes in
Futures contracts are agreements interest rates.
for the purchase or sale of a
security or group of securities at Use of these strategies can
a specified price, on a specified increase the operating costs of the
date. Unlike an option, a futures Fund and can lead to loss of
contract must be executed unless it principal.
is sold before the settlement date.
Certain options and futures may be
considered to be derivative
securities.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Investment company securities: In We may invest in either closed-end
some foreign countries, investments or open-end investment companies
by a mutual fund may only be made consistent with Investment Company
through investments in closed-end Act of 1940 requirements. These
investment companies that in turn investments involve an indirect
invest in the securities of such payment of a portion of the other
countries. investment companies' expenses,
including advisory fees.
- --------------------------------------------------------------------------------
Brady Bonds: These are debt We may invest in Brady Bonds. We
securities issued under the believe that the economic reforms
framework of the Brady Plan, an undertaken by countries in
initiative announced by the U.S. connection with the issuance of
Treasury Secretary, Nicholas F. Brady Bonds makes the debt of
Brady in 1989, as a mechanism for countries that have issued Brady
debtor nations to restructure their Bonds or those that have announced
outstanding external indebtedness plans to issue them a viable
(generally, commercial bank debt). opportunity for investment.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Glossary C-D Capital Capital appreciation Compounding Consumer Price Index (CPI)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The amount of money An increase in the Earnings on an Measurement of U.S.
you invest. value of an investment's inflation;
investment. previous earnings. represents the price
of a basket of
commonly purchased
goods.
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
Securities How we use them
- --------------------------------------------------------------------------------
Foreign currency, foreign currency We may invest in securities issued
contracts or forward contracts: A in any currency and may hold
forward contract involves an foreign currency.
obligation to purchase or sell a
specific currency at a future date Although the Fund values its assets
at a price set at the time of the daily in terms of U.S. dollars, we
contract. Forward contracts are do not convert our holdings of
used to "lock-in" the price of a foreign currencies into U.S.
security that will be purchased or dollars on a daily basis. We may,
sold, in terms of U.S. dollars or however, from time to time,
other currencies. purchase or sell foreign currencies
and/or engage in forward foreign
currency transactions in order to
expedite settlement of portfolio
transactions or to minimize
currency value fluctuations. We may
conduct foreign currency
transactions on a cash basis at the
rate prevailing in the foreign
currency exchange market or through
a forward foreign currency contract
or forward contract. By entering
into these transactions, the Fund
attempts to protect against a
possible 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. These
transactions may increase the
Fund's expenses.
- --------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase
between a buyer of securities, such agreements as a short-term
as the Fund, and a seller, in which investment for the Fund's cash
the seller agrees to buy the position. In order to enter into
securities back within a specified these repurchase agreements, the
time at the same price the buyer Fund must have collateral of at
paid for them, plus an amount equal least 102% of the repurchase price.
to an agreed upon interest rate.
Repurchase agreements are often
viewed as equivalent to cash.
- --------------------------------------------------------------------------------
Restricted securities: Privately We may invest without limit in
placed securities whose resale is privately placed securities that
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.
- --------------------------------------------------------------------------------
Interest rate swap and index swap Interest rate swaps may be used to
agreements: In an interest rate adjust the Fund's sensitivity to
swap, the Fund receives payments interest rates by changing its
from another party based on a duration. We may also use interest
floating interest rate in return rate swaps to hedge against changes
for making payments based on a in interest rates. We use index
fixed interest rate. An interest swaps to gain exposure to markets
rate swap can also work in reverse, that the Fund invests in, such as
with a fund receiving payments the corporate bond market. We may
based on a fixed interest rate and also use index swaps as a
making payments based on a floating substitute for futures, options or
interest rate. In an index swap, a forward contracts if such contracts
fund receives gains or incurs are not indirectly available to the
losses based on the total return of Fund on favorable terms.
an index, in exchange for making
fixed or floating interest rate Interest rate swaps and index swaps
payments to another party. will be considered illiquid
securities (see below).
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Illiquid securities: Securities We may invest up to 15% of net
that do not have a ready market, assets in illiquid securities,
and cannot be easily sold within including repurchase agreements
seven days at approximately the with maturities of over seven days.
price that the fund has valued
them.
- --------------------------------------------------------------------------------
Please see the Statement of Additional Information for additional descriptions
on these securities.
<TABLE>
<CAPTION>
Corporate bond Depreciation Diversification Dividend distribution
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
A debt security A decline in an The process of Payments to mutual
issued by a investment's value. spreading fund shareholders of
corporation. See investments among a dividends passed
Bond. number of different along from the
securities, asset fund's portfolio of
classes or securities.
investment styles to
reduce the risks of
investing.
</TABLE>
7
<PAGE>
How we manage the Fund (continued)
Lending securities The Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional 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.
<TABLE>
<CAPTION>
Glossary D-G Duration Expense ratio
- ------------------------------------------------------------------------------------------
<S> <C> <C>
A measurement of a fixed-income A mutual fund's total operating
investment's price volatility. The expenses, expressed as a percentage
larger the number, the greater the of its total net assets. Operating
likely price change for a given expenses are the costs of running a
change in rates. 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.
</TABLE>
8
<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 the Fund. Please see the Statement of Additional
Information for further discussion of these risks and the other risks not
discussed here.
- --------------------------------------------------------------------------------
Risks How we strive to manage them
- --------------------------------------------------------------------------------
Market risk is the risk that all or We maintain a long-term investment
a majority of the securities in a approach and focus on bonds that we
certain market--like the stock or believe will continue to pay
bond market--will decline in value interest regardless of interim
because of factors such as economic market fluctuations. We do not try
conditions, future expectations or to predict overall bond market or
investor confidence. interest rate movements and do not
trade for short-term purposes.
Index swaps are subject to the same
market risks as the investment We may hold a substantial part of
market or sector that the index the Fund's assets in cash or cash
represents. Depending on the actual equivalents as a temporary
movements of the index and how well defensive strategy.
the portfolio managers forecast
those movements, a fund could In evaluating the use of an index
experience a higher or lower return swap, we carefully consider how
than anticipated. market changes could affect the
swap and how that compares to us
investing directly in the market
the swap is intended to represent.
- --------------------------------------------------------------------------------
Industry and security risk is the We diversify the Fund's assets
risk that the value of securities across three distinct sectors of
in a particular industry or the the bond market and among a wide
value of an individual stock or variety of individual issuers.
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 The Fund is subject to interest
securities will decrease in value rate risk. We cannot eliminate that
if interest rates rise. The risk is risk, but we do strive to manage it
greater for bonds with longer by monitoring economic conditions.
maturities than those with shorter
maturities. The Fund will not invest in
interest rate or index swaps with
Swaps may be particularly sensitive maturities of more than two years.
to interest rate changes. Depending Each business day we will calculate
on the actual movements of interest the amount the Fund must pay for
rates and how well the portfolio any swaps it holds and will
managers anticipate them, a fund segregate enough cash or other
could experience a higher or lower liquid securities to cover that
return than anticipated. For amount.
example, if a fund holds interest
rate swaps and is required to make
payments based on variable interest
rates, it will have to make
increased payments if interest
rates rise, which will not
necessarily be offset by the
fixed-rate payments it is entitled
to receive under the swap
agreement.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Credit risk The possibility that a Our careful, credit-oriented bond
bond's issuer (or an entity that selection and our commitment to
insures the bond) will not be able hold a diversified selection of
to make timely payments of interest high-yield bonds are designed to
and principal. manage this risk.
Investing in so-called "junk" or It is likely that protracted
"high-yield" bonds entails the risk periods of economic uncertainty
of principal loss, which may be would cause increased volatility in
greater than the risk involved in the market prices of high-yield
investment grade bonds. High-yield bonds, an increase in the number of
bonds are sometimes issued by high-yield bond defaults and
companies whose earnings at the corresponding volatility in the
time the bond is issued are less Fund's net asset value.
than the projected debt payments on
the bonds. Our holdings of high-quality
investment grade bonds are less
Some analysts believe a protracted subject to credit risk and may help
economic downturn would severely to balance any credit problems
disrupt the market for high-yield experienced by individual
bonds, adversely affect the value high-yield bond issuers or foreign
of outstanding bonds and adversely issuers.
affect the ability of high-yield
issuers to repay principal and When selecting dealers with whom we
interest. would make interest rate or index
swap agreements, we focus on those
with high quality ratings and do
careful credit analysis before
investing.
- --------------------------------------------------------------------------------
Financial adviser Fixed-income securities Government securities
- --------------------------------------------------------------------------------
Financial professional With fixed-income Securities issued by the
(e.g., broker, banker, securities, the money you U.S. government or its
accountant, planner or originally invested is agencies. They include
insurance agent) who paid back at a Treasuries as well as
analyzes clients' pre-specified maturity agency-backed securities
finances and prepares date. These securities, such as Fannie Maes.
personalized programs which include government,
to meet objectives. corporate or municipal
bonds, as well as money
market securities,
typically pay a fixed
rate of return (often
referred to as interest).
See Bond.
9
<PAGE>
How we manage the Fund (continued)
- --------------------------------------------------------------------------------
Risks How we strive to manage them
- --------------------------------------------------------------------------------
Futures and options risk is the We will use options and futures for
possibility that a Fund may defensive purposes, such as to
experience a significant loss if it protect gains in the portfolio
employs an options or futures without actually selling a security
strategy related to a security or a or to neutralize the impact of
market index and that security or interest rate changes. We will not
index moves in the opposite use futures and options for
direction from what the portfolio speculative reasons or in an effort
managers anticipated. Futures and to enhance return.
options also involve additional
expenses, which could reduce any
benefit or increase any loss to a
fund from using the strategy.
- --------------------------------------------------------------------------------
Foreign risk is the risk that The Fund will attempt to reduce
foreign securities may be adversely foreign investing risks through
affected by political instability portfolio diversification, credit
(including governmental seizures or analysis and attention to trends in
nationalization of assets), changes world economies, industries and
in currency exchange rates, foreign financial markets.
economic conditions or inadequate
regulatory and accounting We carefully evaluate the political
standards. Foreign markets may also and economic situations in the
be less efficient, less liquid, countries where we invest and take
have greater price volatility, less these risks into account before we
regulation and higher transaction select securities for the
costs than U.S. markets. portfolio. However, there is no way
to eliminate foreign risks when
investing internationally.
- --------------------------------------------------------------------------------
Foreign government securities risks The Fund attempts to reduce the
involves the ability of a foreign risks associated with investing in
government or government-related foreign governments by limiting the
issuer to make timely principal and portion of portfolio assets that
interest payments on its external may be invested in such securities.
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 credit and
investments, fluctuations in
interest rates and the extent of
its foreign reserves.
- --------------------------------------------------------------------------------
Currency risk is the risk that the We may try to hedge currency risk
value of an investment may be by purchasing foreign currency
negatively affected by changes in exchange contracts. By agreeing to
foreign currency exchange rates. purchase or sell foreign securities
Adverse changes in exchange rates at a pre-set price on a future
may reduce or eliminate any gains date, the Fund strives to protect
produced by investments that are the value of the security it owns
denominated in foreign currencies from future changes in currency
and may increase any losses. rates. We will use forward currency
exchange contracts 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 While the Fund may purchase
possibility that the risks securities of issuers in any
associated with international foreign country, developed and
investing will be greater in emerging, no more than 15% of the
emerging markets than in more Fund's assets may be invested in
developed foreign markets because, direct obligations of issuers
among other things, emerging located in emerging market
markets may have less stable countries.
political and economic environments.
- --------------------------------------------------------------------------------
Liquidity risk is the possibility A less liquid secondary market may
that securities cannot be readily have an adverse effect on our
sold within seven days at ability to sell particular issues,
approximately the price that the when necessary, to meet the Fund's
fund values them. liquidity needs or in response to a
specific event, such as the
The high-yield secondary market is declining creditworthiness of an
particularly susceptible to issuer. In striving to manage this
liquidity problems when the risk, we evaluate the size of a
institutions, such as mutual funds bond issuance as a way to
and certain financial institutions, anticipate its likely liquidity
that dominate it temporarily stop level.
buying bonds for regulatory,
financial or other reasons. We may invest only 15% of net
assets in illiquid securities.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Lehman Brothers Aggregate
Glossary I-N Inflation Investment goal Bond Index
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The increase in the cost The objective, such as The Lehman Brothers
of goods and services long-term capital growth Aggregate Bond Index is
over time. U.S. inflation or high current income, an index that measures
is frequently measured by that a mutual fund the performance of about
changes in the Consumer pursues. 6,500 U.S. corporate and
Price Index (CPI). government bonds.
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
Risks How we strive to manage them
- --------------------------------------------------------------------------------
Valuation risk A less liquid We will strive to manage this risk
secondary market as described above by carefully evaluating individual
makes it more difficult to obtain bonds and by limiting the amount of
precise valuations of high-yield the portfolio that can be allocated
securities. During periods of to privately placed high-yield
reduced liquidity, judgment plays a securities.
greater role in valuing high-yield
securities.
- --------------------------------------------------------------------------------
Legislative and regulatory risk The We monitor the status of regulatory
United States Congress has from and legislative proposals to
time to time taken or considered evaluate any possible effects they
legislative actions that could might have on the Fund's portfolio.
adversely affect the 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
reduced 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>
<CAPTION>
Management fee Market capitalization Maturity NASD Regulation, Inc.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The amount paid by a The value of a The length of time until A self-regulating
mutual fund to the corporation determined by a bond issuer must repay organization, consisting
investment adviser for multiplying the current the underlying loan of brokerage firms
management services, market price of a share principal to bondholders. (including distributors
expressed as an annual of common stock by the of mutual funds), that is
percentage of the fund's number of shares held by responsible for
average daily net assets. shareholders. A overseeing the actions of
corporation with one its members.
million shares
outstanding and the
market price per share of
$10 has a market
capitalization of $10
million.
</TABLE>
11
<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 Fund, manages the Fund's 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, which includes a
reduction due 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 Grillo and Mr. Matlack regularly
consult with H. Thomas McMeekin. 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, is a CFA charterholder and
graduate of North Carolina State University with an MBA in Finance from Pace
University. Prior to joining Delaware Investments 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
allocating the Fund's assets among the fixed-income and equity sectors and for
making day-to-day investment decisions regarding the Fund's holding of
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 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.
H. Thomas McMeekin, Executive Vice President and Chief Investment Officer, Fixed
Income, joined Delaware Investments in 1999. He has over 24 years of investment
management experience which includes serving as President of Lincoln Investment
Management, Inc., an affiliate of Delaware Investments. Mr. McMeekin holds a BA
in Economics from the University of Rochester and an MBA in Finance and
Accounting from Cornell University. He also completed the Advanced Management
Program at Harvard Business School.
<TABLE>
<CAPTION>
Glossary N-R Nationally recognized statistical rating organization
(NRSRO) Net asset value (NAV) Preferred stock
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A company that assesses the credit quality of bonds, The daily dollar Preferred stock has
commercial paper, preferred and common stocks and value of one mutual preference over common stock
municipal short-term issues, rating the probability fund share. Equal to in the payment of dividends
that the issuer of the debt will meet the scheduled a fund's net assets and liquidation of assets.
interest payments and repay the principal. Ratings divided by the number Preferred stocks also often
are published by such companies as Moody's Investors of shares pay dividends at a fixed
Service, Inc. (Moody's), Standard & Poor's Ratings outstanding. rate and are sometimes
Group (S&P), Duff & Phelps, Inc. (Duff), and Fitch convertible into common
IBCA, Inc. (Fitch). stock.
</TABLE>
12
<PAGE>
Portfolio managers (continued)
Christopher A. Moth, Senior Portfolio Manager - Investment Strategy of Delaware
International Advisers Ltd., is a graduate of The City University London. Mr.
Moth joined Delaware International in 1992 and has had primary responsibility
for making day-to-day investment decisions regarding the Fund's holdings of
foreign securities since July 1999. 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. Mrs. Bates has
had responsibility for making day-to-day investment decisions regarding the
Fund's holdings of foreign securities since July 1999 and has been a member of
the Fixed Income team at Delaware International since 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.
<TABLE>
<CAPTION>
Principal Prospectus Redeem Risk
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of money you invest The official offering document To cash in your shares by Generally defined as variability of
(also called capital). Also that describes a mutual fund, selling them back to the value; also credit risk, inflation risk,
refers to a bond's original containing information mutual fund. currency and interest rate risk.
face value, due to be repaid required by the SEC, such as Different investments involve different
at maturity. investment objectives, types and degrees of risk.
policies, services and fees.
</TABLE>
13
<PAGE>
Who manages the Fund (continued)
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square The Fund 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-Adviser Distributor Service agent
Delaware International Delaware Distributors, L.P. Delaware Service Company, Inc.
Advisers Ltd. 1818 Market Street 1818 Market Street
Third Floor Philadelphia, PA 119103 Philadelphia, PA 19103
80 Cheapside
London, England EC2V 6EE
Portfolio managers
(see page 12 for details) 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.
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.
<PAGE>
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.
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.
<TABLE>
<CAPTION>
Glossary S-T SEC (Securities and Exchange
Commission) Share classes Signature guarantee
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Federal agency established by Congress to administer the Different Certification by a bank,
laws governing the securities industry, including mutual classifications of brokerage firm or other
fund companies. shares; mutual fund financial institution that a
share classes offer a customer's signature is
variety of sales valid; signature guarantees
charge choices. can be provided by members
of the STAMP program.
</TABLE>
14
<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.
<TABLE>
<CAPTION>
Statement of Additional
Standard deviation Information (SAI) Stock Total return
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
A measure of an investment's The document serving as "Part An investment that An investment performance measurement,
volatility; for mutual B" of a fund's prospectus that represents a share of expressed as a percentage, based on the
funds, measures how much a provides more detailed ownership (equity) in a combined earnings from dividends, capital
fund's total return has information about the fund's corporation. Stocks are gains and change in price over a given
typically varied from its organization, investments, often referred to as period.
historical average. policies and risks. "equities."
</TABLE>
15
<PAGE>
About your account (continued)
How to buy shares
By mail
[GRAPHIC OMITTED]
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.
By wire
[GRAPHIC OMITTED]
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.
By exchange
[GRAPHIC OMITTED]
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.
Through your financial adviser
[GRAPHIC OMITTED]
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.
<TABLE>
<CAPTION>
Treasury bills Treasury bonds Treasury notes Volatility
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Glossary T-V Securities issued by Securities issued by Securities issued by The tendency of an investment to go up or
the U.S. Treasury the U.S. Treasury the U.S. Treasury down in value by different magnitudes.
with maturities of with maturities of with maturities of Investments that generally go up or down in
one year or less. 10 years or longer. one to 10 years. 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.
</TABLE>
16
<PAGE>
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.
17
<PAGE>
About your account (continued)
How to redeem shares
By mail
[GRAPHIC OMITTED]
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. 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.
By telephone
[GRAPHIC OMITTED]
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.
By wire
[GRAPHIC OMITTED]
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.
Through your financial adviser
[GRAPHIC OMITTED]
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
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 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.
18
<PAGE>
Account minimum
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 laws.
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.
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 its 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 effect of Year 2000 on any company or the performance of its
securities.
19
<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
10/1/96(1)
Year ended 7/31 through
Delaware Strategic Income Fund 1999 1998 7/31/97
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.470 $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
======= ======= =======
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 expenses 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 expenses paid indirectly 8.67% 7.45% 6.78%
Portfolio turnover 156% 175% 183%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but 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 the manager's waiver of fees.
20
<PAGE>
<TABLE>
<CAPTION>
How to read the
Financial highlights --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income Net asset value (NAV) Ratio of expenses to Portfolio turnover rate
Net investment income This is the value of average net assets This figure tells you the
includes dividend and a mutual fund share, The expense ratio is amount of trading
interest income earned calculated by the percentage of net activity in a fund's
from the Fund's dividing the net assets that a fund portfolio. For example, a
securities; it is after assets by the number pays annually for fund with a 50% turnover
expenses have been of shares operating expenses and has bought and sold half
deducted. outstanding. management fees. These of the value of its total
expenses include investment portfolio
accounting and during the stated period.
Net realized and administration
unrealized gain (loss) expenses, services for
on investments Total return shareholders, and
A realized gain on This represents the similar expenses.
investments occurs when rate that an
we sell an investment investor would have Ratio of net
at a profit, while a earned or lost on an investment income to
realized loss occurs investment in the average net assets
when we sell an Fund. In calculating We determine this
investment at a loss. this figure for the ratio by dividing net
When an investment financial highlights investment income by
increases or decreases table, we include average net assets.
in value but we do not applicable fee
sell it, we record an waivers, and assume
unrealized gain or the shareholder has
loss. The amount of reinvested all
realized gain per share dividends and
that we pay to realized gains.
shareholders, if any,
is listed under "Less
dividends and Net assets
distributions--Distributions Net assets represent
from net realized gain the total value of
on investments." all the assets in
the Fund's
portfolio, less any
liabilities, that
are attributable to
that class of the
Fund.
</TABLE>
21
<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 800.510.4015. 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
o 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
DELAWARE STRATEGIC INCOME FUND
CUSIP NASDAQ
----- -------
Institutional Class 245908884 DISIX
DELAWARE(SM)
INVESTMENTS
- ------------
Philadelphia o London
(J5157)
P-002 [--] PP 9/99
<PAGE>
Delaware
Investments(sm)
- ---------------------
Philadelphia o 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
[photo of illustrationfrom Current Income Brochure]
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.
<PAGE>
Table of contents
Fund profile page 2
Delaware Corporate Bond Fund 2
Delaware Extended Duration Bond Fund 2
How we manage the Funds page 4
Investment strategies 4
The securities we typically invest in 5
The risks of investing in the Funds 7
Who manages the Funds page 8
Investment manager 8
Portfolio managers 8
Fund administration (Who's who) 9
About your account page 10
Investing in the Funds 10
Choosing a share class 10
How to reduce your sales charge 12
How to buy shares 13
Retirement plans 14
How to redeem shares 15
Account minimums 16
Special services 17
Dividends, distributions and taxes 18
Certain management considerations page 19
Financial highlights page 20
1
<PAGE>
Profile: Delaware Corporate Bond Fund
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.
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.
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 bonds 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.
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.
2
<PAGE>
What are the Funds' fees and expenses?
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
CLASS A B C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales charges are fees paid Maximum sales charge (load) imposed on
directly from your investments purchases as a percentage of offering price 4.75% none none
when you buy or sell shares Maximum contingent deferred sales charge (load)
of the Funds. 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>
<TABLE>
<CAPTION>
Delaware Corporate Delaware Extended
Bond Fund Duration Bond Fund
-----------------------------------------------------------------------------------------------------
CLASS A B C A B C
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Annual fund Management fees 0.50% 0.50% 0.50% 0.55% 0.55% 0.55%
operating expenses Distribution and service (12b-1) fees 0.25%(4) 1.00% 1.00% 0.25%(4) 1.00% 1.00%
are deducted from Other expenses 0.51% 0.51% 0.51% 0.47% 0.47% 0.47%
each Fund's assets. 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>
The example below 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>
Delaware Corporate Bond Fund Delaware Extended Duration Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS (7) A B B C C A B B C C
(if redeemed) (if redeemed) (if redeemed) (if redeemed)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
With fee limitation
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
Without fee limitation(5)
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) Payments under the Class A 12b-1 plan may not exceed 0.30% of average daily
net assets. However, the Board of Trustees set the 12b-1 plan expenses for
the Fund's Class A shares at 0.25%.
(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.
3
<PAGE>
How we manage the Funds
Investment strategy
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for the Funds. 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 for
fluctuation of 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 non-fundamental. 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.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
<TABLE>
<CAPTION>
How to use
this glossary
<S> <C> <C> <C>
This glossary includes
definitions of investment Glossary A-C Amortized cost Average maturity
terms used throughout the -----------------------------------------------------------------------
prospectus. If you would Amortized cost is a method used to value An average of when the
like to know the meaning a fixed-income security that starts with individual bonds and
of an investment term the face value of the security and then other debt securities
that is not explained in adds or subtracts from that value held in a portfolio will
the text please check the depending on whether the purchase price mature.
glossary. 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.
</TABLE>
4
<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 corporate
corporation. bonds.
Debt securities within the top three
categories 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 Both Funds may invest up to 20% of net assets in high-yield corporate bonds.
issued by a corporation and rated lower than
investment grade by an NRSRO such as S&P or We carefully evaluate an individual company's financial situation, its
Moody's. High-yield bonds are higher risk management, the prospects for its industry and the technical factors related to
securities issued by corporations that have its bond offering. Our goal is to identify those companies that we believe will
lower credit quality and may have difficulty be able to repay their debt obligations in spite of poor ratings. The Funds may
repaying principal and interest. 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. The Funds may invest in direct U.S. government obligations; however, these
obligations including bills, notes, bonds as securities will typically be a smaller percentage of the portfolio because they
well as other debt securities issued by the generally do not offer as high a level of current income as other fixed-income
U.S. Treasury and securities of U.S. securities the Funds may invest in.
government agencies or instrumentalities.
Zero coupon bonds and payment-in-kind bonds: We may invest in zero coupon bonds and payment-in-kind bonds. We expect
Zero coupon securities are debt obligations payment-in- kind bonds to be a less significant component of our strategy. The
which do not entitle the holder to any market prices of these bonds are generally more volatile than the market prices
periodic payments of interest prior to of securities that pay interest periodically and are likely to react to changes
maturity or a specified date when the in interest rates to a greater degree than interest-paying bonds having similar
securities begin paying current interest. maturities and credit quality. They may have certain tax consequences which,
Therefore, they are issued and traded at a under certain conditions, could be adverse to the Funds.
price lower than their face amounts or par
value. Payment-in-kind bonds pay interest or
dividends in the form of additional bonds or
preferred stock.
Foreign corporate and government securities: Each Fund may invest up to 15% of its net assets in securities of issuers in
Debt obligations issued by a foreign foreign countries.
corporation and 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 and/or A-1
obligations with maturities ranging from two or A-2 by S&P. We may also invest in unrated commercial paper if we determine
to 270 days, issued by companies. its quality is comparable to these quality ratings.
Short-term debt or money market instruments: Each Fund may hold short-term debt or money market securities pending an
Very short-term debt securities generally investment in other securities or when the manager feels that it is prudent to
considered to be equivalent to cash. 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.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Bond Bond ratings Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A debt security, like an IOU, issued by a company, Independent evaluations of The amount of money
municipality or government agency. In return for lending creditworthiness, ranging from Aaa/AAA you invest.
money to the issuer, a bond buyer generally receives fixed (highest quality) to D (lowest quality).
periodic interest payments and repayment of the loan amount Bonds rated Baa/BBB or better are
on a specified maturity date. A bond's price changes prior considered investment grade. Bonds rated
to maturity and is inversely related to current interest Ba/BB or lower are commonly known as
rates. When interest rates rise, bond prices fall, and when junk bonds. See also Nationally
interest rates fall, bond prices rise. recognized statistical rating
organization.
</TABLE>
5
<PAGE>
How we manage the Funds (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Repurchase agreements: An agreement between a Typically, we use repurchase agreements as a short-term investment for our
buyer and seller of securities in which the cash position. In order to enter into these repurchase agreements, we must have
seller agrees to buy the securities back collateral of at least 102% of the repurchase price.
within a specified time at 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 We may invest in privately placed securities that are eligible for resale only
securities whose resale is restricted under among certain institutional buyers without registration, including Rule 144A
securities law. Securities. Restricted securities that are determined to be illiquid may not
exceed a Fund's 15% limit on illiquid securities, which is described below.
Interest rate swap and index swap agreements: Interest rate swaps may be used to adjust a Fund's sensitivity to interest rates
In an interest rate swap, a fund receives by changing its duration. We may also use interest rate swaps to hedge against
payments from another party based on a changes in interest rates. We use index swaps to gain exposure to markets that a
floating interest rate, in return for making Fund invests in, such as the corporate bond market. We may also use index swaps
payments based on a fixed interest rate. An as a substitute for futures, options or forward contracts if such contracts are
interest rate swap can also work in reverse, not directly available to a Fund on favorable terms. Interest rate swaps and
with a fund receiving payments based on a index swaps will be considered illiquid securities (see below).
fixed interest rate and making payments based
on a floating interest rate. In an index
swap, a fund receives gains or incurs losses
based on the total return of an index, in
exchange for making fixed or floating
interest rate payments to another party.
Illiquid securities: Securities that do not We may invest up to 15% of total assets in illiquid securities.
have a ready market, and cannot be easily
sold within seven days at approximately the
price that a fund has 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 institutional 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, a Fund may be unable to meet its investment objective. A Fund will not
borrow money in excess of one-third of the value of its 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.
<TABLE>
<CAPTION>
C-D Capital appreciation Capital gains distributions Commission Compounding
<S> <C> <C> <C> <C>
An increase in the Payments to mutual fund shareholders The fee an investor pays to a financial Earnings on an
value of an of profits (realized gains) from adviser for investment advice and help investment's
investment. the sale of a fund's portfolio in buying or selling mutual funds, stocks, previous earnings.
securities. Capital gains may be bonds or other securities.
either short-term gains or long-term
gains.
</TABLE>
6
<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 certain bonds that we believe can provide a steady stream of income regardless of
market - like the stock or bond market will interim fluctuations in the bond market. We do not try to predict overall
decline in value because of factors such as interest rate movements and do not buy and sell securities for short-term
economic conditions, future expectations or purposes.
investor confidence. Index swaps are subject
to the same market risks as the investment We may hold a substantial part of each Fund's assets in cash or cash equivalents
market or sector that the index represents. as a temporary, defensive strategy.
Depending on the actual movements of the
index and how well the portfolio managers In evaluating the use of an index swap, we carefully consider how market changes
forecast those movements, a fund could could affect the swap and how that compares to us investing directly in the
experience a higher or lower return than market the swap is intended to represent.
anticipated.
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 interest this risk, we monitor economic conditions and the interest rate environment and
rates rise. The risk is greater for bonds may adjust each Fund's duration or average maturity as a defensive measure
with longer maturities than for those with against interest rate risk.
shorter maturities.
A Fund will not invest in interest rate or index swaps with maturities of more
Swaps may be particularly sensitive to than two years. Each business day we will calculate the amount a Fund must pay
interest rate changes. Depending on the for any swaps it holds and will segregate enough cash or other liquid securities
actual movements of interest rates and how to cover that amount.
well the portfolio manager anticipates them,
a fund could experience a higher or lower
return than anticipated. For example, if a
fund holds interest rate swaps and is
required to make payments based on variable
interest rates, it will have to make
increased payments if interest rates rise,
which will not necessarily be offset by the
fixed-rate payments it is entitled to receive
under the swap agreement.
Credit risk is the possibility that a bond's We strive to minimize credit risk by investing primarily in higher quality,
issuer (or an entity that insures the bond) investment-grade corporate bonds.
will be unable to make timely payments of
interest and principal. Any portion of the portfolio that is invested in high-yielding, lower quality
corporate bonds is subject to greater credit risk. We strive to manage that risk
Investing in so-called "junk" or "high-yield" through careful bond selection, by limiting the percentage of the portfolio that
bonds entails the risk of principal loss, can be invested in lower quality bonds and by maintaining a diversified
which may be greater than the risk involved portfolio of bonds representing a variety of industries and issuers.
in investment grade bonds, particularly in
times of economic declines. High-yield bonds When selecting dealers with whom we would make interest rate or index swap
are sometimes issued by companies whose agreements, we focus on those with high quality ratings and do careful credit
earnings at the time the bond is issued are analysis before investing.
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, within securities.
seven days at approximately the price that a
fund has valued them.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Consumer Price Contingent deferred sales
Index (CPI) charge (CDSC) Corporate bond Depreciation Diversification
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Measurement of U.S. Fee charged by some mutual A debt security A decline in an The process of spreading
inflation; funds when shares are redeemed issued by a investment's value. investments among a number of
represents the price (sold back to the fund) within corporation. See different securities, asset
of a basket of a set number of years; an Bond. classes or investment styles
commonly purchased alternative method for to reduce the risks of
goods. investors to compensate a investing.
financial adviser for advice
and service, rather than an
up-front commission.
</TABLE>
7
<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 fees for the
last fiscal year as follows:
Investment management fees
Delaware Corporate Delaware Extended
Bond Fund Duration Bond Fund
As a percentage of average
daily net assets 0.03%* 0.07%*
* Reflects a waiver of fees by the manager.
Portfolio managers
Gary A. Reed has primary responsibility for making day-to-day investment
decisions for each Fund. In making investment decisions for the Funds, Mr. Reed
regularly consults with H. Thomas McMeekin.
Gary A. Reed, Vice President/Senior Portfolio Manager, 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 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.
H. Thomas McMeekin, Executive Vice President and Chief Investment Officer,
Fixed-Income, joined Delaware Investments in 1999. He has over 24 years of
investment management experience which includes serving as President of Lincoln
Investment Management, Inc., an affiliate of Delaware Investments. Mr. McMeekin
holds a BA in Economics from the University of Rochester and an MBA in Finance
and Accounting from Cornell University. He also completed the Advanced
Management Program at Harvard Business School.
<TABLE>
<CAPTION>
D-M Dividend distribution Duration Expense ratio Financial adviser
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Payments to mutual A measurement of a A mutual fund's total operating expenses, expressed Financial professional
fund shareholders of fixed-income as a percentage of its total net assets. Operating (e.g., broker, banker,
dividends passed investment's price expenses are the costs of running a mutual fund, accountant, planner or
along from the fund's volatility. The including management fees, offices, staff, equipment insurance agent) who
portfolio of larger the number, and expenses related to maintaining the fund's analyzes clients'
securities. the greater the portfolio of securities and distributing its shares. finances and prepares
likely price change They are paid from the fund's assets before any personalized programs
for a given change earnings are distributed to shareholders. to meet objectives.
in interest rates.
</TABLE>
8
- ------
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager Custodian
Delaware Management Company The Funds The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers 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.
<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.
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.
<TABLE>
<CAPTION>
Fixed-income securities Government securities Inflation Investment goal Management fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
With fixed-income Securities issued by the The increase in the The objective, such The amount paid by a
securities, the money you U.S. government or its cost of goods and as long-term capital mutual fund to the
originally invested is paid agencies. They include services over time. growth or high investment adviser
back at a pre-specified Treasuries as well as U.S. inflation is current income, that for management
maturity date. These agency-backed securities frequently measured a mutual fund pursues. services, expressed
securities, which include such as Fannie Maes. by changes in the as an annual
government, corporate or Consumer Price percentage of the
municipal bonds, as well as Index (CPI). fund's average daily
money market securities, net assets.
typically pay a fixed rate
of return (often referred to
as interest). See Bond.
</TABLE>
9
------
<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.
Class A
Choosing a share class
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
- ----------------------------------------------------------------------------------------------------------
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond 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%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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>
- ----------------------------------------------------------------------------------------------------------
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>
$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>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
M-P Market capitalization Maturity NASD Regulation, Inc. (NASD)
-------------------------------------------------------------------------------------------------------------------------------
The value of a corporation determined by The length of time until A self-regulating organization, consisting
multiplying the current market price of a bond issuer must repay of brokerage firms (including distributors
a share of common stock by the number of the underlying loan of mutual funds), that is responsible for
shares held by shareholders. A principal to bondholders. overseeing the actions of its members.
corporation with one million shares
outstanding and the market price per
share of $10 has a market capitalization
of $10 million.
</TABLE>
10
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<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 Funds. 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.
<TABLE>
<CAPTION>
Nationally recognized statistical
rating organization (NRSRO) Net asset value (NAV) Preferred stock Principal
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A company that assesses the credit The daily dollar value of Preferred stock has preference Amount of money
quality of bonds, commercial paper, one mutual fund share. over common stock in the you invest (also
preferred and common stocks and Equal to a fund's net payment of dividends and called capital).
municipal short-term issues, rating assets divided by the liquidation of assets. Also refers to
the probability that the issuer of number of shares Preferred stocks also often a bond's
the debt will meet the scheduled outstanding. pay dividends at a fixed rate original face
interest payments and repay the and are sometimes convertible value, due to
principal. Ratings are published into common stock. be repaid at
by such companies as Moody's maturity.
Investors Service, Inc. (Moody's),
Standard & Poor's Ratings Group
(S&P), Duff & Phelps, Inc. (Duff),
and Fitch IBCA, Inc. (Fitch).
</TABLE>
11
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<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>
- ------------------------------------------------------------------------------------------------------------------------------------
Share class
Program How it works A B C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Letter of Intent Through a Letter of Intent you agree to X Although the Letter of Intent and Rights
invest a certain amount in Delaware of Accumulation do not apply to the
Investments funds (except money market purchase of Class B and C shares, you
funds with no sales charge) over a can combine your purchase of Class A
13-month period to qualify for reduced shares with your purchase of B and C
front-end sales charges. 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.
Reinvestment of Up to 12 months after you redeem shares, For Class A, you For Class B, your Not available.
redeemed shares you can reinvest the proceeds with no will not have to account will be
additional sales charge. pay an additional credited with the
front-end sales contingent
charge. 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 These investment plans may qualify for X There is no reduction in sales charges
IRA, SARSEP, reduced sales charges by combining the for Class B or Class C shares for group
Prototype Profit purchases of all members of the group. purchases for retirement plans.
Sharing, Pension, Members of these groups may also qualify
401(k), SIMPLE to purchase shares without a front-end
401(k), 403(b)(7), sales charge and a waiver of any
and 457 Retirement contingent deferred sales charges.
Plans
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
P-S Prospectus Redeem Risk Sales charge
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The official offering To cash in your shares by selling them Generally defined Charge on the purchase or redemption of
document that back to the mutual fund. as variability fund shares sold through financial
describes a mutual of value; also advisers. May vary with the amount
fund, containing credit risk, invested. Typically used to compensate
information required inflation risk, financial advisers for advice and
by the SEC, such as currency and service provided.
investment objectives, interest rate
policies, services risk. Different
and fees. investments
involve different
types and degrees
of risk.
</TABLE>
12
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<PAGE>
How to buy shares
[GRAPHIC OMITTED]
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]
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]
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]
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]
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.
<TABLE>
<CAPTION>
SEC (Securities and
Exchange Commission) Share classes Signature guarantee Standard deviation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal agency established Different classifications Certification by a bank, A measure of an investment's
by Congress to administer of shares; mutual fund brokerage firm or other volatility; for mutual funds,
the laws governing the share classes offer a financial institution measures how much a fund's
securities industry, variety of sales charge that a customer's total return has typically
including mutual fund choices. signature is valid; varied from its historical
companies. signature guarantees can average.
be provided by members
of the STAMP program.
</TABLE>
13
------
<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.
<TABLE>
<CAPTION>
Statement of Additional
S-V Information (SAI) Stock Total return Treasury bills
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The document serving An investment that An investment Securities issued by
as "Part B" of a represents a share performance the U.S. Treasury
fund's prospectus of ownership measurement, with maturities of
that provides more (equity) in a expressed as a one year or less.
detailed information corporation. Stocks percentage, based on
about the fund's are often referred the combined
organization, to as "equities." earnings from
investments, dividends, capital
policies and risks. gains and change in
price over a given
period.
</TABLE>
14
- ------
<PAGE>
How to redeem shares
[GRAPHIC OMITTED]
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]
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]
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]
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]
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.
<TABLE>
<CAPTION>
Uniform Gift to Minors Act and
Treasury bonds Treasury notes Uniform Transfers to Minors Act Volatility
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities issued by Securities issued by Federal and state laws that provide a The tendency of an investment to go up
the U.S. Treasury the U.S. Treasury simple way to transfer property to a or down in value by different
with maturities of with maturities of minor with special tax advantages. magnitudes. Investments that generally
10 years or longer. one to 10 years. 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.
</TABLE>
15
- ------
<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, a Fund may redeem your account after
60 days' written notice to you.
16
- ------
<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.
17
------
<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 a Fund 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.
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 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.
19
<PAGE>
Financial highlights
The Financial highlights tables are 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>
Class A B C
- -------------------------------------------------------------------------------------------------
Period Period Period
9/15/98(1) 9/15/98(1) 9/15/98(1)
through through through
Delaware Corporate Bond Fund 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 $5.280 $5.280 $5.280
====== ====== ======
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 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 at net asset
value and does not reflect the impact of a sales charge. Total return
reflects expense limitations.
<PAGE>
<TABLE>
<CAPTION>
How to read the Net realized and unrealized
Financial highlights Net investment income gain (loss) on investments Net asset value (NAV) Total return
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment A realized gain on This is the value of This represents the
income includes investments occurs a mutual fund share, rate that an
dividend and when we sell an calculated by investor would have
interest income investment at a dividing the net earned or lost on an
earned from a Fund's profit, while a assets by the number investment in a
investments; it is realized loss occurs of shares Fund. In calculating
after expenses have when we sell an outstanding. this figure for the
been deducted. investment at a financial highlights
loss. When an table, we include
investment increases applicable fee
or decreases in waivers, exclude
value but we do not front-end and
sell it, we record contingent deferred
an unrealized gain sales charges, and
or loss. The amount assume the
of realized gain per shareholder has
share that we pay to reinvested all
shareholders, if dividends and
any, is listed under realized gains.
"Less dividends and
distributions-Distributions
from net realized
gain on
investments."
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Class A B C
- -------------------------------------------------------------------------------------------------
Period Period Period
9/15/98(1) 9/15/98(1) 9/15/98(1)
through through through
Delaware Extended Duration Bond Fund 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 0.206 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 $5.150 $5.150 $5.150
====== ====== ======
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 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 at net asset
value and does not reflect the impact of a sales charge. Total return
reflects expense limitations.
<TABLE>
<CAPTION>
How to read the
Financial highlights Ratio of expenses to Ratio of net investment
(continued) Net assets average net assets income to average net assets Portfolio turnover
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets represent The expense ratio is We determine this This figure tells
the total value of the percentage of ratio by dividing you the amount of
all the assets in a net assets that a net investment trading activity in
Fund's portfolio, fund pays annually income by average a fund's portfolio.
less any for operating net assets. For example, a fund
liabilities, that expenses and with a 50% turnover
are attributable to management fees. has bought and sold
that class of the These expenses half of the value of
Fund. include accounting its total investment
and administration portfolio during the
expenses, services stated period.
for shareholders,
and similar
expenses.
</TABLE>
21
<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:
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
Delaware Corporate Bond Fund
CUSIP NASDAQ
----- ------
A Class 245908785 DGCAX
B Class 245908777 DGCBX
C Class 245908769 DGCCX
Delaware Extended Duration Bond Fund
CUSIP NASDAQ
----- ------
A Class 245908835 DEEAX
B Class 245908827 DEEBX
C Class 245908819 DEECX
DELAWARE(SM)
INVESTMENTS
- -----------
Philadelphia o London
P-460 [--] PP 9/99
<PAGE>
DELAWARE(SM)
INVESTMENTS
- ---------------------
Philadelphia o London
Delaware
Corporate Bond
Fund
Delaware Extended
Duration Bond
Fund
Institutional Class
Prospectus September 29, 1999
Current Income Funds
(photo of illustration from
current income brochure)
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.
<PAGE>
Table of contents
- -----------------------------------------------------------------
Fund profile page 2
Delaware Corporate Bond Fund 2
Delaware Extended Duration Bond Fund 2
- -----------------------------------------------------------------
How we manage the Funds page 4
Our Investment strategies 4
The securities we typically invest in 5
The risks of investing in the Funds 7
- -----------------------------------------------------------------
Who manages the Funds page 8
Investment manager 8
Portfolio managers 8
Fund administration (Who's who) 9
- -----------------------------------------------------------------
About your account page 10
Investing in the Funds 10
How to buy shares 11
How to redeem shares 13
Account minimum 14
Exchanges 14
Dividends, distributions and taxes 14
- -----------------------------------------------------------------
Certain management considerations page 15
- -----------------------------------------------------------------
Financial highlights page 16
1
<PAGE>
Profile: Delaware Corporate Bond Fund
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.
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.
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 bonds 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.
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.
2
<PAGE>
What are the Funds' fees and expenses?
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales charges are fees paid Maximum sales charge (load) imposed on
directly from your investments when purchases as a percentage of offering price none
you buy or sell shares of the Maximum contingent deferred sales charge (load)
Funds. 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
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from each Fund's assets.
- --------------------------------------------------------------------------------
Delaware Corporate Delaware Extended Duration
Bond Fund Bond Fund
- --------------------------------------------------------------------------------
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%
The example below 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.
- --------------------------------------------------------------------------------
Delaware Corporate Delaware Extended Duration
Bond Fund Bond Fund
- --------------------------------------------------------------------------------
Without expense limitation
1 year $103 $104
3 years $322 $325
5 years $558 $536
10 years $1,236 $1,248
- --------------------------------------------------------------------------------
Delaware Corporate Delaware Extended Duration
Bond Fund Bond Fund
- --------------------------------------------------------------------------------
With expense limitation(2)
1 year $56 $56
3 years $176 $176
5 years $307 $307
10 years $689 $689
(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 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.
3
<PAGE>
How we manage the Funds
Investment strategy
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for the Funds. 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 for
fluctuation of 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 non-fundamental. 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 official.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
How to use
this glossary
This glossary includes definitions of investment terms used throughout the
prospectus. If you would like to know the meaning of an investment term that is
not explained in the text, please check the glossary.
<TABLE>
<CAPTION>
Glossary A-C Amortized cost Average maturity
-------------------------------------------------------------------------------
<S> <C> <C>
Amortized cost is a method used to value An average of when the individual
a fixed-income security that starts with bonds and other debt securities held
the face value of the security and then in a portfolio will mature.
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.
</TABLE>
4
<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 We will invest at least 65% of each Fund's assets in investment-grade
by a corporation. corporate bonds.
Debt securities within the top three
categories 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 Both Funds may invest up to 20% of net assets in high-yield corporate bonds.
obligations issued by a corporation and
rated lower than investment grade by an We carefully evaluate an individual company's financial situation, its
NRSRO such as S&P or Moody's. High-yield management, the prospects for its industry and the technical factors related to
bonds are higher risk securities issued its bond offering. Our goal is to identify those companies that we believe will
by corporations that have poor credit be able to repay their debt obligations in spite of poor ratings. The Funds may
quality and may have difficulty repaying invest in unrated bonds if we believe their credit quality is comparable to the
principal and interest. 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. The Funds may invest in direct U.S. government obligations; however, these
obligations including bills, notes, securities will typically be a smaller percentage of the portfolio because they
bonds as well as other debt securities generally do not offer as high a level of current income as other fixed-income
issued by the U.S. Treasury and securities the Funds may invest in.
securities of U.S. government agencies
or instrumentalities.
- -----------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and payment-in-kind We may invest in zero coupon bonds and payment-in-kind bonds. We expect
bonds: Zero coupon securities are debt payment-in-kind bonds to be a less significant component of our strategy. The
obligations which do not entitle the market prices of these bonds are generally more volatile than the market prices
holder to any periodic payments of of securities that pay interest periodically and are likely to react to changes
interest prior to maturity or a in interest rates to a greater degree than interest-paying bonds having similar
specified date when the securities begin maturities and credit quality. They may have certain tax consequences which,
paying current interest. Therefore, they under certain conditions, could be adverse to the Funds.
are issued and traded at a price lower
than their face amounts or par value.
Payment-in-kind bonds pay interest or
dividends in the form of additional
bonds or preferred stock.
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign corporate and government Each Fund may invest up to 15% of its net assets in securities of issuers in
securities: Debt obligations issued by a foreign countries.
foreign corporation and securities
issued by foreign governments.
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate commercial paper: Short-term We may invest in commercial paper that is rated P-1 or P-2 by Moody's and/or
debt obligations with maturities ranging A-1 or A-2 by S&P. We may also invest in unrated commercial paper if we
from two to 270 days, issued by determine its quality is comparable to these quality ratings.
companies.
- -----------------------------------------------------------------------------------------------------------------------------------
Bond Bond ratings Capital
- -----------------------------------------------------------------------------------------------------------------------------------
A debt security, like an IOU, issued by Independent evaluations of The amount of money you invest.
a company, municipality or government creditworthiness, ranging from Aaa/AAA
agency. In return for lending money to (highest quality) to D (lowest quality).
the issuer, a bond buyer generally Bonds rated Baa/BBB or better are
receives fixed periodic interest considered investment grade. Bonds rated
payments and repayment of the loan Ba/BB or lower are commonly known as
amount on a specified maturity date. A junk bonds. See also Nationally
bond's price changes prior to maturity recognized statistical rating
and is inversely related to current organization.
interest rates. When interest rates
rise, bond prices fall, and when
interest rates fall, bond prices rise.
</TABLE>
5
<PAGE>
How we manage the Funds (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Short-term debt or money market Each Fund may hold short-term debt or money market securities pending an
instruments: Very short-term debt investment in other securities or when the manager feels that it is prudent to
securities generally considered to be do so because of market conditions. All short-term instruments held by the Funds
equivalent to cash. 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 Typically, we use repurchase agreements as a short-term investment for our
between a buyer and seller of securities cash position. In order to enter into these repurchase agreements, we must have
in which the seller agrees to buy the collateral of at least 102% of the repurchase price.
securities back within a specified time
at 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 We may invest in privately placed securities that are eligible for resale
securities whose resale is restricted only among certain institutional buyers without registration, including Rule
under securities law. 144A Securities. Restricted securities that are determined to be illiquid may
not exceed a Fund's 15% limit on illiquid securities, which is described below.
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate swap and index swap Interest rate swaps may be used to adjust a Fund's sensitivity to interest
agreements: In an interest rate swap, a rates by changing its duration. We may also use interest rate swaps to hedge
fund receives payments from another against changes in interest rates. We use index swaps to gain exposure to
party based on a floating interest rate markets that a Fund invests in, such as the corporate bond market. We may also
in return for making payments based on a use index swaps as a substitute for futures, options or forward contracts if
fixed interest rate. An interest rate such contracts are not directly available to a Fund on favorable terms.
swap can also work in reverse, with a
fund receiving payments based on a fixed Interest rate swaps and index swaps will be considered illiquid securities
interest rate and making payments based (see below).
on a floating interest rate. In an index
swap, a fund receives gains or incurs
losses based on the total return of an
index, in exchange for making fixed or
floating interest rate payments to
another party.
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do We may invest up to 15% of total assets in illiquid securities.
not have a ready market, and cannot be
easily sold, if at all, at approximately
the price that a fund has 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 institutional 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, a Fund may be unable to meet its investment objective. A Fund will not
borrow money in excess of one-third of the value of its 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.
<TABLE>
<CAPTION>
Consumer Price
C-D Capital appreciation Capital gains distributions Compounding Index (CPI)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
An increase in the Payments to mutual fund Earnings on an Measurement of U.S.
value of an shareholders of profits investment's inflation;
investment. (realized gains) from the sale previous earnings. represents the price
of a fund's portfolio of a basket of
securities. Capital gains may commonly purchased
be either short-term gains or goods.
long-term gains.
</TABLE>
6
<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>
- -----------------------------------------------------------------------------------------------------------------------------------
Securities How we use 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 certain bonds that we believe can provide a steady stream of income regardless of
market - like the stock or bond market interim fluctuations in the bond market. We do not try to predict overall
will decline in value because of factors interest rate movements and do not buy and sell securities for short-term
such as economic conditions, future purposes.
expectations or investor confidence.
Index swaps are subject to the same We may hold a substantial part of each Fund's assets in cash or cash equivalents
market risks as the investment market or as a temporary, defensive strategy.
sector that the index represents.
Depending on the actual movements of the In evaluating the use of an index swap, we carefully consider how market changes
index and how well the portfolio could affect the swap and how that compares to us investing directly in the
managers forecast those movements, a market the swap is intended to represent.
fund could experience a higher or lower
return than anticipated.
- -----------------------------------------------------------------------------------------------------------------------------------
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
interest rates rise. The risk is greater may adjust each Fund's duration or average maturity as a defensive measure
for bonds with longer maturities than against interest rate risk.
for those with shorter maturities.
A Fund will not invest in interest rate or index swaps with maturities of more
Swaps may be particularly sensitive to than two years. Each business day we will calculate the amount a Fund must pay
interest rate changes. Depending on the for any swaps it holds and will segregate enough cash or other liquid securities
actual movements of interest rates and to cover that amount.
how well the portfolio manager
anticipates them, a fund could
experience a higher or lower return than
anticipated. For example, if a fund
holds interest rate swaps and is
required to make payments based on
variable interest rates, it will have to
make increased payments if interest
rates rise, which will not necessarily
be offset by the fixed-rate payments it
is entitled to receive under the swap
agreement.
- -----------------------------------------------------------------------------------------------------------------------------------
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 insures investment-grade corporate bonds.
the bond) will be unable to make timely
payments of interest and principal. Any portion of the portfolio that is invested in high-yielding, lower quality
corporate bonds is subject to greater credit risk. We strive to manage that risk
Investing in so-called "junk" or through careful bond selection, by limiting the percentage of the portfolio that
"high-yield" bonds entails the risk of can be invested in lower quality bonds and by maintaining a diversified
principal loss, which may be greater portfolio of bonds representing a variety of industries and issuers.
than the risk involved in investment
grade bonds, particularly in times of When selecting dealers with whom we would make interest rate or index swap
economic declines. High-yield bonds are agreements, we focus on those with high quality ratings and do careful credit
sometimes issued by companies whose analysis before investing.
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.
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate bond Depreciation Diversification Dividend distribution Duration
- -----------------------------------------------------------------------------------------------------------------------------------
A debt security A decline in an The process of Payments to mutual A measurement of a
issued by a investment's value. spreading fund shareholders of fixed-income
corporation. See investments among a dividends passed investment's price
Bond. number of different along from the volatility. The
securities, asset fund's portfolio of larger the number,
classes or securities. the greater the
investment styles to likely price change
reduce the risks of for a given change
investing. in interest rates.
</TABLE>
7
<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 fees for the
last fiscal year as follows:
Investment management fees
- --------------------------------------------------------------------------------
Delaware Corporate Delaware Extended
Bond Fund Duration Bond Fund
- --------------------------------------------------------------------------------
As a percentage of average daily net assets 0.03%* 0.07%*
- --------------------------------------------------------------------------------
*Reflects a waiver of fees by the manager.
Portfolio
managers
Gary A. Reed has primary responsibility for making day-to-day investment
decisions for each Fund. In making investment decisions for the Funds, Mr. Reed
regularly consults with H. Thomas McMeekin.
Gary A. Reed, Vice President/Senior Portfolio Manager, 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 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.
H. Thomas McMeekin, Executive Vice President and Chief Investment Officer,
Fixed-Income, joined Delaware Investments in 1999. He has over 24 years of
investment management experience which includes serving as President of Lincoln
Investment Management, Inc., an affiliate of Delaware Investments. Mr. McMeekin
holds a BA in economics from the University of Rochester and an MBA in finance
and accounting from Cornell University. He also completed the Advanced
Management Program at Harvard Business School.
E-M Expense ratio Fixed-income securities
--------------------------------------------------------------------------
A mutual fund's total operating With fixed-income securities, the
expenses, expressed as a percentage money you originally invested is
of its total net assets. Operating paid back at a pre-specified
expenses are the costs of running a maturity date. These securities,
mutual fund, including management which include government, corporate
fees, offices, staff, equipment and or municipal bonds, as well as
expenses related to maintaining the money market securities, typically
fund's portfolio of securities and pay a fixed rate of return (often
distributing its shares. They are referred to as interest). See Bond.
paid from the fund's assets before
any earnings are distributed to
shareholders.
8
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Board of Trustees
Investment manager Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square The Funds 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Distributor Service agent
Delaware Distributors, L.P. Delaware Service Company, Inc.
Portfolio managers 1818 Market Street 1818 Market Street
(see page 8 for details) 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 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.
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.
<TABLE>
<CAPTION>
Government securities Inflation Investment goal Management fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities issued by the The increase in the cost The objective, such as The amount paid by a
U.S. government or its of goods and services long-term capital growth mutual fund to the
agencies. They include over time. U.S. inflation or high current income, investment adviser for
Treasuries as well as is frequently measured by that a mutual fund management services,
agency-backed securities changes in the Consumer pursues. expressed as an annual
such as Fannie Maes. Price Index (CPI). percentage of the fund's
average daily net assets.
</TABLE>
9
<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;
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.
<TABLE>
<CAPTION>
M-P Market capitalization Maturity NASD Regulation, Inc. (NASD)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The value of a corporation determined by The length of time until A self-regulating organization, consisting
multiplying the current market price of a bond issuer must repay of brokerage firms (including distributors
a share of common stock by the number of the underlying loan of mutual funds), that is responsible for
shares held by shareholders. A corporation principal to bondholders. overseeing the actions of its members.
with one million shares outstanding and
the market price per share of $10 has a
market capitalization of $10 million.
</TABLE>
10
- ----------
<PAGE>
How to buy shares
By mail
[GRAPHIC OMITTED]
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.
By wire
[GRAPHIC OMITTED]
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 at 800.510.4050 so we can assign you an
account number.
By exchange
[GRAPHIC OMITTED]
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.
Through your financial adviser
[GRAPHIC OMITTED]
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.
<TABLE>
<CAPTION>
Nationally recognized statistical rating Net asset value (NAV) Preferred stock
organization (NRSRO)
- ----------------------------------------------------------------------------------------------------------------------------------->
<S> <C> <C>
A company that assesses the credit quality of bonds, The daily dollar value of one Preferred stock has preference over
commercial paper, preferred and common stocks and mutual fund share. Equal to common stock in the payment of
municipal short-term issues, rating the probability a fund's net assets divided dividends and liquidation of assets.
that the issuer of the debt will meet the scheduled by the number of shares Preferred stocks also often pay dividends
interest payments and repay the principal. Ratings outstanding. at a fixed rate and are sometimes
are published by such companies as Moody's Investors convertible into common stock.
Service, Inc.(Moody's), Standard & Poor's Ratings
Group (S&P), Duff & Phelps, Inc.(Duff), and Fitch
IBCA, Inc. (Fitch).
</TABLE>
11
----------
<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.
<TABLE>
<CAPTION>
P-S Principal Prospectus Redeem
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Amount of money you invest (also The official offering document that describes a To cash in your shares by
called capital). Also refers to mutual fund, containing information required selling them back to the
a bond's original face value, due to by the SEC, such as investment objectives, mutual fund.
be repaid at maturity. policies, services and fees.
</TABLE>
12
- ----------
<PAGE>
How to redeem
shares
By mail
[GRAPHIC OMITTED]
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. 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.
By telephone
[GRAPHIC OMITTED]
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.
By wire
[GRAPHIC OMITTED]
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.
Through your financial adviser
[GRAPHIC OMITTED]
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
<TABLE>
<CAPTION>
SEC (Securities and
Risk Exchange Commission) Signature guarantee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Generally defined as variability of value; Federal agency established by Certification by a bank, brokerage firm or other
also credit risk, inflation risk, currency Congress to administer the laws financial institution that a customer's
and interest rate risk. Different governing the securities industry, signature is valid; signature guarantees can
investments involve different types and including mutual fund companies. be provided by members of the STAMP program.
degrees of risk.
</TABLE>
13
----------
<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 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 minimum
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 a Fund 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.
<TABLE>
<CAPTION>
Statement of Additional
Standard deviation Information (SAI) Stock Total return
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S-V A measure of an The document serving as "Part An investment that An investment performance
investment's volatility; for B" of a fund's prospectus that represents a share of measurement, expressed as
mutual funds, measures provides more detailed ownership (equity) in a percentage, based on the
how much a fund's total information about the fund's a corporation. Stocks combined earnings from
return has typically varied organization, investments, are often referred to dividends, capital gains and
from its historical average. policies and risks. as "equities." change in price over a
given period.
</TABLE>
14
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<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 each
Fund and Foundation Funds as a result of these transactions.
<TABLE>
<CAPTION>
Treasury bills Treasury bonds Treasury notes Volatility
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities issued by Securities issued by Securities issued by The tendency of an investment to go up or down in
the U.S. Treasury the U.S. Treasury the U.S. Treasury value by different magnitudes. Investments that
with maturities of with maturities of with maturities of generally go up or down in value in relatively
one year or less. 10 years or longer. one to 10 years. 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.
</TABLE>
15
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<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 Delaware Extended
Bond Fund Duration Bond Fund
- -----------------------------------------------------------------------------------------------------------
Period Period
9/15/98(1) 9/15/98(1)
through through
Institutional Class 7/31/99 7/31/99
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $5.500 $5.500
Income (loss) from investment operations:
Net investment income 0.212 0.215
Net realized and unrealized loss on investments and futures contracts (0.216) (0.347)
------- -------
Net increase in net assets from investment operations (0.004) (0.132)
------- -------
Less dividends and distributions:
Dividends from net investment income (0.212) (0.215)
Distributions from net realized gain on investments (0.004) (0.003)
------- -------
Total dividends and distributions (0.216) (0.218)
------- -------
Net asset value, end of period $5.280 $5.150
======= =======
Total return(2) (0.14%) (2.52%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $55,201 $55,631
Ratio of expenses to average net assets 0.55% 0.55%
Ratio of expenses to average net assets prior to expense limitation
and fees paid indirectly 1.01% 1.02%
Ratio of net investment income to average net assets 6.00% 6.13%
Ratio of net investment income to average net assets prior
to expense limitation and fees paid indirectly 5.54% 5.66%
Portfolio turnover 175% 201%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover 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 at net asset
value. Total return reflects expense limitations.
16
- ----------
<PAGE>
<TABLE>
<CAPTION>
How to read the
Financial highlights
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income Net Net asset value Net assets Ratio of net investment
investment income includes (NAV) Net assets represent the income to average net
dividend and interest income This is the value of a total value of all the assets
earned from a Fund's mutual fund share, assets in a Fund's We determine this ratio by
investments; it is after calculated by dividing the portfolio, less any dividing net investment
expenses have been deducted. net assets by the number of liabilities, that are income by average net
shares outstanding. attributable to that class assets.
Net realized on investments of the Fund.
and unrealized gain (loss) on Total return Portfolio turnover
investments A realized gain This represents the rate Ratio of expenses to This figure tells you the
on investments occurs when we that an investor would have average net assets amount of trading activity
sell an investment at a earned or lost on an The expense ratio is the in a fund's portfolio. For
profit, while a realized loss investment in a Fund. In percentage of net assets example, a fund with a 50%
occurs when we sell an calculating this figure for that a fund pays annually turnover has bought and
investment at a loss. When an the financial highlights for operating expenses and sold half of the value of
investment increases or table, we include management fees. These its total investment
decreases in value but we do applicable fee waivers, and expenses include accounting portfolio during the stated
not sell it, we record an assume the shareholder has and administration period.
unrealized gain or loss. The reinvested all dividends expenses, services for
amount of realized gain per and realized gains. shareholders, and similar
share that we pay to expenses.
shareholders, if any, is
listed under "Less dividends
and distributions--Distributions
from net realized gain on
investments."
</TABLE>
17
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<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
800.510.4050
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
Delaware Corporate Bond Fund Symbol
CUSIP NASDAQ
----- ------
Institutional Class 245908751 DGCIX
Delaware Extended Duration Bond Fund Symbol
CUSIP NASDAQ
----- ------
Institutional Class 245908793 DEEIX
DELAWARE(SM)
INVESTMENTS
- ---------------------
Philadelphia * London
