<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-37707
File No. 811-2071
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 61 X
----
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 61 X
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DELAWARE GROUP INCOME FUNDS
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(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-1244
--------------
Richard J. Flannery, Esquire, 1818 Market Street, Philadelphia, PA 19103
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(Name and Address of Agent for Service)
Approximate Date of Public Offering: September 29, 1999
------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
_X_ on September 29, 1999 pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
Pursuant to Rule 414 under the Securities Act of 1933, Delaware Group Income
Funds, as successor issuer of Delaware Group Income Funds, Inc., is filing this
amendment to the registration statement of Delaware Group Income Funds, Inc. and
expressly adopts the registration statement as its own for all purposes of the
Securities Act of 1933 and the Investment Company Act of 1940.
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 61 to Registration File No. 2-37707 includes
the following:
1. Facing Page
2. Contents Page
3. Part A - Prospectuses
4. Part B - Statement of Additional Information
5. Part C - Other Information
6. Signatures
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
Class A o Class B o Class C
Prospectus
September 29, 1999
Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profiles page
Delchester Fund
High-Yield Opportunities Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Funds
Choosing a share class
How to reduce your sales charge
How to buy shares
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
2
<PAGE>
Profile: Delchester Fund
What are the Fund's goals?
Delchester Fund seeks the highest level of current income as is consistent with
providing reasonable safety. Although the Fund will strive to achieve its goal,
there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in fixed-income securities having a liberal and consistent
yield and those tending to reduce the risk of market fluctuations. The primary
focus of the portfolio will be corporate bonds, primarily those rated BBB or
lower by S&P or another nationally recognized statistical rating organization
(NRSRO). These are commonly known as high-yield bonds or junk bonds and involve
greater risks than investment grade bonds. The Fund will also invest in unrated
bonds. Unrated bonds may be more speculative in nature than rated bonds. The
Fund may also invest in U.S. government securities and commercial paper of
companies rated A-1 or A-2 by Standard & Poor's Ratings Group or rated P-1 or
P-2 by Moody's Investors Service, Inc. 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.
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. Bonds rated below investment grade 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 ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking a fixed income investment that offers potential for very
high current income.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
3
<PAGE>
How has Delchester Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the average annual returns of all shares
for one, five, and ten years, if applicable. The Fund's past performance does
not necessarily indicate how it will perform in the future.
[bar chart]
Year-by-year total return (Class A)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of June 30, 1999, the Fund's Class A shares had a year-to-date return of
0.00%. During the ten years illustrated in this bar chart, Class A's highest
quarterly return was 0.00% for the quarter ended ___________ and its lowest
quarterly return was 0.00% for the quarter ended ____________________.
The maximum Class A sales charge of 4.75%, which is normally deducted when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown in the table below do include the sales charge.
How has Delchester Fund performed? (continued)
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A B C Salomon Smith Barney
Cash Pay High-Yield Index
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- ------------------------------------------------------------------------------------------------------------------------------------
(Inception 11/2/87) (Inception 5/2/94) (Inception 11/29/95)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1 year 0.00% 0.00% 0.00% 0.00%
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5 years 0.00% N/A N/A 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
10 years or lifetime** 0.00% 0.00% 0.00% 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns compared to the
performance of the Salomon Smith Barney Cash Pay High-Yield Index You should
remember that unlike the Fund, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be 0.00% and 0.00% for the one-year and lifetime periods,
respectively. Returns for Class C would be 0.00% and 0.00% for the one-year and
lifetime periods, respectively.
** Lifetime returns are shown if the Fund or Class existed for less than 10
years. Salomon Smith Barney Cash Pay High-Yield Index returns are for 10 years.
Index returns for Class B and Class C lifetimes were 0.00% and 0.00%,
respectively. Maximum sales charges are included in the Fund returns above.
4
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
- --------------------------------------------------------------------------------
CLASS A B C
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 4.75% none none
- --------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none(1) 4%(2) 1%(3)
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none none none
- --------------------------------------------------------------------------------
Redemption fees none none none
- --------------------------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets.
- --------------------------------------------------------------------------------
Management fees 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees(4) 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Other expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Total operating expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(5) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
CLASS(6) A B B C C
(if redeemed) (if redeemed)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
1 year $000 $000 $000 $000 $000
- ---------------------------------------------------------------------------------------
3 years $000 $000 $000 $000 $000
- ---------------------------------------------------------------------------------------
5 years $000 $000 $0,000 $000 $000
- ---------------------------------------------------------------------------------------
10 years $0,000 $0,000 $0,000 $0,000 $0,000
- ---------------------------------------------------------------------------------------
</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 adopted a formula for calculating 12b-1 plan expenses
for 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.
5
<PAGE>
Profile: High-Yield Opportunities Fund
What are the Fund's goals?
High-Yield Opportunities Fund seeks total return and, as a secondary objective,
high current income. Although the Fund will strive to achieve its goal, there is
no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in fixed-income securities having a liberal and consistent
yield and those tending to reduce the risk of market fluctuations. The primary
focus of the portfolio will be corporate bonds, primarily those rated BB or
lower by S&P. 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. Unrated bonds may be more speculative in nature than rated bonds.
The Fund may also invest in U.S. and foreign government securities and
commercial paper of companies rated A-1 or A-2 by Standard & Poor's Ratings
Group or rated P-1 or P-2 by Moody's Investors Service, Inc. 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 an adverse change in interest rates, adverse
economic conditions or poor performance from specific industries or bond
issuers. Bonds rated below investment grade 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. 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 ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking a fixed income investment that offers a combination of
total return with high current income.
o Investors who want a total return-oriented income investment as a
diversification tool for long-term, equity -oriented portfolios.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
6
<PAGE>
How has High-Yield Opportunities Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show returns for the Fund's Class A shares for the past two
calendar years, as well as the average annual returns of all shares for one year
and since inception. The Fund's past performance does not necessarily indicate
how it will perform in the future. The returns reflect expense limitations. The
returns would be lower without the expense limitations.
[bar chart]
Total return (Class A)
- ----------------------
1997 1998
- ----------------------
- ----------------------
As of June 30, 1999, the Fund's Class A shares had a year-to-date return of
0.00%. During the periods illustrated in this bar chart, Class A's highest
quarterly return was 0.00% for the quarter ended _____________ and its lowest
quarterly return was 0.00% for the quarter ended ____________________.
The maximum Class A sales charge of 4.75%, which is normally assessed when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown in the table on page __ do include the sales charge.
Average annual returns for periods ending 12/31/98
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A B C Salomon Smith Barney Cash Pay
High-Yield Index
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
(if redeemed)* (if redeemed)*
- ------------------------------------------------------------------------------------------------------------------------------------
(Inception 12/30/96) (Inception 2/17/98) (Inception 2/17/98)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1 year 0.00% 0.00% 0.00% 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Lifetime 0.00% 0.00% 0.00% 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above shows the Fund's average annual returns compared to the
performance of the Salomon Smith Barney Cash Pay High-Yield Index. You should
remember that unlike the Fund, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be 0.00% and 0.00% for the one-year and lifetime periods,
respectively. Returns for Class C would be 0.00% and 0.00% for the one-year and
lifetime periods, respectively.
7
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS A B C
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 4.75% none none
- ----------------------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
As a percentage of original purchase price or
Redemption price, whichever is lower none(1) 4%(2) 1%(3)
- ----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none none none
- ----------------------------------------------------------------------------------------------
Redemption fees none none none
- ----------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Management fees 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
- --------------------------------------------------------------------------------
Total annual fund operating expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Fee waivers and payments(4) (0.00%) (0.00%) (0.00%)
- --------------------------------------------------------------------------------
Net expenses 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(5) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Without Fee Limitation
- -------------------------------------------------------------------------------------------------
Class(6) A B B C C
if redeemed if redeemed
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
1 year
- -------------------------------------------------------------------------------------------------
3 years
- -------------------------------------------------------------------------------------------------
5 years
- -------------------------------------------------------------------------------------------------
10 years
- -------------------------------------------------------------------------------------------------
With Fee Limitation(4)
- -------------------------------------------------------------------------------------------------
Class(6) A B B C C
if redeemed if redeemed
- -------------------------------------------------------------------------------------------------
1 year
- -------------------------------------------------------------------------------------------------
3 years
- -------------------------------------------------------------------------------------------------
5 years
- -------------------------------------------------------------------------------------------------
10 years
- -------------------------------------------------------------------------------------------------
</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.
8
<PAGE>
(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. The
fees and expenses shown in the table above do not reflect this voluntary expense
cap.
(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.
9
<PAGE>
How we manage the Funds
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Funds'
investment goals.
For both Delchester Fund and High-Yield Opportunities Fund, we invest primarily
in fixed-income securities having a liberal and consistent yield and those
tending to reduce the risk of market fluctuations. These include:
o Corporate Bonds. We expect to invest the majority of the Fund's assets
primarily in bonds rated BB or lower by S&P. These are commonly known as
high-yield bonds or junk bonds and 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;
o Government Securities. Securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities; and
o Commercial Paper. Commercial paper of companies rated A-1 or A-2 by Standard
& Poor's Ratings Group or rated P-1 or P-2 by Moody's Investors Service,
Inc., which are the two highest commercial paper ratings.
Before selecting high-yield corporate bonds for the portfolio, 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.
Delchester Fund
Our primary focus in Delchester Fund is to provide a high level of current
income. For this reason, the income potential of a bond is a key selection
criteria. In general, we focus on bonds rated BB or B, generally emphasizing
bonds rated B in times of economic growth and better quality bonds rated BB when
the economy appears to be slowing. We do not invest in non-U.S.
securities or in the debt of emerging market countries.
High Yield Opportunities Fund
High-Yield Opportunities Fund follows a bond selection process similar to
Delchester's; however, because the objective of the portfolio is total return,
we evaluate both the income level of a bond and its potential for price
appreciation. High-Yield Opportunities Fund also has greater flexibility to
invest in bonds of foreign issuers. This provides both diversification and
potential for higher returns.
10
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
High-yield corporate bonds: Debt Delchester Fund may invest High-Yield Opportunities Fund may invest
obligations issued by a corporation and without limit in high-yield without limit in high-yield corporate bonds.
rated lower than investment grade by a corporate bonds. Emphasis is The Fund generally will not purchase corporate
nationally recognized statistical typically on those rated BB or bonds which, at the time of purchase, are rated
ratings organization (NRSRO) such as S&P B by an NRSRO. lower than CCC by S&P or Caa by Moody's.
or Moody's or, if unrated, that we
believe are of comparable quality. These
securities are considered to be of poor
standing and predominately 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 bonds: Delchester Fund may not invest High-Yield Opportunities Fund may invest up to
Securities issued by foreign governments in bonds of foreign issuers. 15% of its total assets in securities of
or supranational entities or foreign issuers domiciled in foreign countries
corporations. including both established countries and those
with emerging markets.
A supranational entity is an entity
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.
- ------------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: We may invest in zero coupon bonds and payment in kind bonds, though we do not
Zero coupon securities are debt expect this to be a significant component of our strategy. The market prices of
obligations which do not entitle the these bonds are generally more volatile than the market prices of securities that
holder to any periodic payments of pay interest periodically and are likely to react to changes in interest rates to
interest prior to maturity or a a greater degree than interest-paying bonds having similar maturities and credit
specified date when the securities begin quality. They may have certain tax consequences which, under certain conditions,
paying current interest. Therefore, they could be adverse to the Fund.
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 Fund's
between a buyer and seller of securities cash position. In order to enter into these repurchase agreements, a Fund must
in which the seller agrees to buy the have 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 only
securities whose resale is restricted among certain institutional buyers without registration. These are commonly known
under securities law. as Rule 144A Securities.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Restricted securities that are Restricted securities that are determined to be
determined to be illiquid may illiquid may not exceed High-Yield
not exceed Delchester Fund's Opportunities Fund's 15% illiquid limit on
10% limit on which is illiquid securities, described below.
securities, which is described
below.
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do We may invest up to 10% of net We may invest up to 15% of net assets in
not have a ready market, and cannot be assets in illiquid securities, illiquid securities, including repurchase
easily sold, if at all, at approximately including repurchase agreements with maturities of over seven days.
the price that a Fund has valued them. agreements with maturities of
over seven days.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Delchester Fund and High-Yield Opportunities Fund may also invest in other
income-producing securities including common stocks and preferred stocks, some
of which may have convertible features or attached warrants. Please see the
Statement of Additional Information for additional descriptions on these
securities as well as those listed in the table above.
Lending securities
Each Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
Borrowing from banks
Each Fund is permitted to borrow money but normally does not do so. As a
temporary measure for extraordinary purposes or to meet redemption requests, a
Fund may borrow up to one-third of the value of their assets.
Purchasing securities on a when-issued or delayed delivery basis
Delchester Fund and 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.
12
<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 Delchester Fund or 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
- ------------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus on bonds
securities in a certain market--like the stock or bond that we believe will continue to pay interest regardless of
market--will decline in value because of factors such as interim market fluctuations. We do not try to predict overall bond
economic conditions, future expectations or investor market or interest rate movements and do not trade for short-term
confidence. purposes.
We may hold a substantial part of each Fund's assets in cash or
cash equivalents as a temporary defensive strategy.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the value of We limit the amount of each Fund's assets invested in any one
securities in a particular industry or the value of an industry and in any individual security. We also follow a rigorous
individual stock or bond will decline because of changing selection process before choosing securities for the portfolio.
expectations for the performance of that industry or for the
individual company issuing the stock or bond.
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities will decrease Each Fund is subject to interest rate risk. We cannot eliminate
in value if interest rates rise. The risk is greater for that risk, but we do strive to manage it by monitoring economic
bonds with longer maturities than for those with shorter conditions.
maturities.
- ------------------------------------------------------------------------------------------------------------------------------------
Credit risk is the risk that there is the possibility that a Our careful, credit-oriented bond selection and our commitment to
bond's issuer will be unable to make timely payments of hold a diversified selection of high-yield bonds are designed to
interest and principal. manage this risk.
Investing in so-called "junk" or "high-yield" bonds entails
the risk of principal loss, which may be greater than the For High-Yield Opportunities Fund: We generally do not purchase
risk involved in investment grade bonds. High-yield bonds corporate bonds which, at the time of purchase, are rated lower
are sometimes issued by companies whose earnings at the time than CCC by S&P or Caa by Moody's. If a corporate bond held by the
of issuance are less than the projected debt service on the Fund drops below these levels or goes into default, the Fund will
junk bonds. begin to sell the security in an orderly manner, striving to
minimize any adverse affect on the Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Recession risk Although the market for It is likely that protracted periods of economic uncertainty would cause increased
high-yield bonds existed through periods volatility in the market prices of high-yield bonds, an increase in the number
of economic downturns, the high-yield market of high-yield bond defaults and corresponding volatility in each Fund's net asset
grew rapidly during the long economic value. In the past, uncertainty and volatility in the high-yield market have
expansion which took place in the United resulted in volatility in the Fund's net asset value.
States during the 1980s. During that
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 susceptible to
increased dramatically. As a result, the economic cycles in the past, particularly if we believe that the economy may be
high-yield market grew substantially. Although entering into a period of slower growth.
experts disagree on the impact recessionary
periods have had and will have on the high-yield
market, some analysts believe a protracted
economic downturn would severely disrupt the
market for high-yield bonds, adversely affect
the value of outstanding bonds and adversely
affect the ability of high-yield issuers
to repay principal and interest.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign We typically invest only a small We limit the percentage of the portfolio that
securities may be adversely affected by portion, if any, of Delchester can be invested in bonds of foreign issuers and
political instability, changes in Fund's portfolio in foreign we carefully evaluate the reward and risk
currency exchange rates, foreign securities. associated with each foreign bond that we
economic conditions or inadequate consider.
regulatory and accounting standards.
- ------------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that A less liquid secondary market may have an adverse effect on each Fund's ability
securities cannot be readily sold, if at to dispose of particular issues, when necessary, to meet a Fund's liquidity needs
all, at approximately the price that the or in response to a specific economic event, such as the deterioration in the
Series values them. 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.
The secondary market for high-yield
securities is currently dominated by
institutional investors, including
mutual funds and certain financial
institutions. There is generally no
established retail secondary market for
high-yield securities. As a result, the
secondary market for high-yield
securities is more limited and less
liquid than other secondary securities
markets. The high-yield secondary market
is particularly susceptible to liquidity
problems when the institutions which
dominate it temporarily stops buying
bonds for regulatory, financial or other
reasons.
Adverse publicity and investor
perceptions are also considered more
likely to disrupt the secondary market
for high-yield securities than the more
established secondary securities
markets.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
We may invest only 10% of net We may invest only 15% of net assets in
assets in illiquid securities. illiquid securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Valuation risk A less liquid secondary Each Fund's privately placed high-yield securities are particularly susceptible to
market as described above can make it the liquidity and valuation risks outlined here. 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, as a result of We strive to maintain a cash balance sufficient to meet any redemptions. We may
volatility in the high-yield market or also borrow money, if necessary, to meet redemptions.
other factors, investors redeem more
shares of a fund than are purchased for
an extended period of time, fundsmay be
required to sell securities without
regard to the investment merits of such
actions. This could decrease, the fund's
asset base potentially resulting in a
higher expense ratio.
- ------------------------------------------------------------------------------------------------------------------------------------
Legislative and regulatory risk The 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 portfolios.
time taken or considered a variety of
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. For example, many
insurance companies have restricted or
eliminated their purchases of high-yield
bonds primarily as a result of actions
taken by the National Association of
Insurance Commissioners. 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>
15
<PAGE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust, which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield
Opportnities
Fund
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
As a percentage of average daily net assets 0.00% 0.00%*
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Reflects the voluntary 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 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 High-Yield Opportunities Fund management team since the Fund's
inception.
Paul A. Matlack, Vice President/Senior Portfolio Manager for the Funds, is a CFA
charterholder and graduate of the University of Pennsylvania with an MBA in
Finance from George Washington University. He began his career at Mellon Bank as
a credit specialist, and later served as a corporate loan officer for Mellon
Bank and then Provident National Bank.
Gerald T. Nichols, Vice President/Senior Portfolio Manager for the Funds, is a
graduate of the University of Kansas, where he received a BS in Business
Administration and an MS in Finance. Prior to joining Delaware Investments, he
was a high-yield credit analyst at Waddell & Reed, Inc. and subsequently the
investment officer for a private merchant banking firm. He is a CFA
charterholder.
16
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
Board of Trustees
<S> <C> <C>
Investment Manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page ___ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
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 or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with the objective and policies
stated in the mutual fund's prospectus. The investment manager places portfolio
orders with broker/dealers and is responsible for obtaining the best overall
execution of those orders. A written contract between a mutual fund and its
investment manager specifies the services the manager performs. Most management
contracts provide for the manager to receive an annual fee based on a percentage
of the fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager
to make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, 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.
17
<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.
18
<PAGE>
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 4.75% that you pay
when you buy the shares. The offering price for Class A shares includes the
front-end sales charge.
o If you invest $100,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information for
details.
o Class A shares are also subject to an annual 12b-1 fee no greater than 0.30%
of average daily net assets, which is lower than the 12b-1 fee for Class B
and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge, except in the limited circumstances described in the table below.
Class A sales charges
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charge Sales charge Dealer's commission
Amount of purchase as % of as % as %
offering price of amount invested of offering price
- ------------------------------------------------------------------------------------------------------------------------------------
Delchester Delaware High-Yield
Opportunities
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Less than $100,000 4.75% 4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 but under $250,000 3.75% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 but under $500,000 2.50% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000 but under $1,000,000 2.00% 1.60%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year after your
purchase and 0.50% if you redeem them within the second year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sales charge Sales charge Dealer's commission
Amount of purchase as % of as % of as % of
offering price amount invested offering price
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
$1 million up to $5 million none none 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Next $20 million
Up to $25 million none none 0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Amount over $25 million none none 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within six years after you
buy them.
o If you redeem Class B shares during the first two years after you buy them,
the shares will be subject to a contingent deferred sales charge of 4%. The
contingent deferred sales charge is 3% during the third and fourth years, 2%
during the fifth year, 1% during the sixth year, and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1% of average daily net assets,
of which 0.25% are service fees paid to the distributor, dealers or others
for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and
any dividends paid on these shares are lower than dividends on Class A
shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%.
Conversion may occur as late as three months after the eighth anniversary of
purchase, during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
20
<PAGE>
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within 12 months after you
buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o Class C shares are subject to an annual 12b-1 fee which may not be greater
than 1% of average daily net assets, of which 0.25% are service fees paid to
the distributor, dealers or others for providing services and maintaining
shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any
one time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Funds has adopted a separate 12b-1 plan that allows it
to pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Funds' assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
21
<PAGE>
About your account (continued)
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of B and C
shares to fulfill your
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 shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X There is no reduction in
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales charges sales charge for Class B
401(k), 403(b)(7), and 457 Retirement by combining the purchases of all or Class C shares for
Plans members of the group. Members of group purchases by
these groups may also qualify to retirement plans.
purchase shares without a
front-end sales charge and a
waiver of any contingent deferred
sales charges.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service or through our web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800.523.1918.
23
<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 determine each Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. 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
directors.
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.
24
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
25
<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.
26
<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 similar 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.
27
<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
For each Fund, dividends, if any, are paid monthly, while any capital gains are
distributed 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 distributions 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. Short-term capital gains
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. The sale
of Fund shares either through redemption or exchange, is a taxable event and may
result in a capital gain or loss to shareholders.
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
as well as all redemptions and exchanges.
28
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The
portfolio managers and investment professionals of the Funds consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
Investments by Fund of Funds
Each Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, each 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.
29
<PAGE>
Financial highlights
The Financial highlights table is intended to help you understand each Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose 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>
- ------------------------------------------------------------------------------------------------------------------------------------
Delchester Fund A Class Delchester Fund B Class
Year Ended 7/31 Year Ended 7/31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $0.000 $6.570 $6.140 $6.280 $6.450 $0.000 $6.570 $6.140 $6.280
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.000 0.608 0.598 0.628 0.668 0.000 0.556 0.550 0.581
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 0.000 0.070 0.430 (0.141) (0.167) 0.000 0.072 0.430 (0.141)
(loss) from investments ----- ----- ----- ------ ------- ----- ----- ----- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.000 0.678 1.028 0.487 0.501 0.000 0.628 0.980 0.440
----- ----- ----- ----- ----- ----- ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.000) (0.598) (0.598) (0.627) (0.671) (0.000) (0.548) (0.550) (0.580)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.000) (0.598) (0.598) (0.627) (0.671) (0.000) (0.548) (0.550) (0.580)
------- ------- ------- ------ ------- ------- ------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $0.000 $6.650 $6.570 $6.140 $6.280 $0.000 $6.650 $6.570 $6.140
====== ====== ====== ====== ====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total return(2) 00.00% 10.73% 17.53% 8.10% 8.46% 0.00% 9.91% 16.66% 7.30%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $000,000 $1,060,136 $1,030,328 $973,939 $1,020,763 $000,000 $376,463 $273,499 $176,266
(000 omitted)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net 0.00% 1.06% 1.04% 1.02% 1.09% 0.00% 1.81% 1.79% 1.77%
assets
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income 0.00% 9.16% 9.48% 10.11% 10.77% 0.00% 8.41% 8.73% 9.36%
to average net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 000% 117% 154% 108% 92% 000% 117% 154% 108%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Period
Delchester Fund C Class 11/29/95(1)
Year Ended 7/31 through
7/31/96
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
1995 1999 1998 1997
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $6.450 $0.000 $6.570 $6.140 $6.210
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------
Net investment income 0.624 0.000 0.555 0.550 0.385
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) from investments (0.170) 0.000 0.073 0.430 (0.069)
------ ----- ----- ----- -----
- ----------------------------------------------------------------------------------------
Total from investment operations 0.454 0.000 0.628 0.980 0.316
----- ----- ----- ----- -----
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Less dividends and distributions:
- ----------------------------------------------------------------------------------------
Dividends from net investment income (0.624) (0.000) (0.548) (0.550) (0.386)
- ----------------------------------------------------------------------------------------
Total dividends and distributions (0.624) (0.000) (0.548) (0.550) (0.386)
------ ------- ------- ------- -------
- ----------------------------------------------------------------------------------------
Net asset value, end of period $6.280 $0.000 $6.650 $6.570 $6.140
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Total return(2) 7.64% 0.00% 9.91% 16.66% 5.20%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Ratios and supplemental data:
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 11,860 $000,000 $50,945 $19,094 $4,953
omitted)
- ----------------------------------------------------------------------------------------
Ratio of expenses to average net 1.82% 0.00% 1.81% 1.79% 1.77%
assets
- ----------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets 10.14% 0.00% 8.41% 8.73% 9.36%
- ----------------------------------------------------------------------------------------
Portfolio turnover 92% 000% 117% 154% 108%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Commence of operations; ratios have been annualized and total returns have
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.
30
<PAGE>
Financial highlights
The Financial highlights table is intended to help you understand each Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose 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 High-Yield Opportunities
Fund A Class
- --------------------------------------------------------------------------------------------------------------------
Year Ended 7/31 Period
12/30/96(1)
through
7/31/97
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $0.000 $5.920 $5.500
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.000 0.523 0.290(2)
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.000 0.336 0.299
----- ----- -----
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.000 0.859 0.589
----- ----- -----
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.000) (0.605) (0.169)
- --------------------------------------------------------------------------------------------------------------------
Distributions from realized gain on investments (0.000) (0.254) ---
------- ---
- --------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.000) (0.859) (0.169)
------- ------ -------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $0.000 $5.920 $5.920
====== ====== ======
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total return(3) 0.00% 15.66% 10.81%
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $000,000 $9,670 $5,990
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.00% 1.14% 0.75%
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation 0.00% 1.44% 1.57%
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.00% 8.88% 8.53%
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense
limitation 0.00% 8.58% 7.70%
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 0.00% 317% 270%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
High-Yield Opportunities High-Yield Opportunities
Fund B Class Fund C Class
- ------------------------------------------------------------------------------------------------------------------------------------
Year Period Year Period
Ended 2/17/98(1) Ended 2/17/98(1)
7/31 through 7/31 through
1999 7/31/98 1999 7/31/98
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $0.000 $5.870 $0.000 $5.870
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.000 0.161 0.000 0.161
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.000 0.044 0.000 0.044
----- ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.000 0.205 0.000 0.205
----- ----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.000) (0.155) (0.000) (0.155)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from realized gain on investments (0.000) --- (0.000) ---
--- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.000) (0.155) (0.000) (0.155)
----- ----- ----- ------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $0.000 $5.920 $0.000 $5.920
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total return(3) 0.00% 3.54% 0.00% 3.54%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $000,000 $1,603 $000,000 $547
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.00% 1.84% 0.00% 1.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation 0.00% 2.14% 0.00% 2.14%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.00% 8.18% 0.00% 8.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense
limitation 0.00% 7.88% 0.00% 7.88%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 0.00% 317% 0.00% 317%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short a time period
may not be representative of longer term results.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
31
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss)
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
32
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
33
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bond.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
34
<PAGE>
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
Salomon Smith Barney Cash Pay High-Yield Index
The Salomon Smith Barney Cash Pay High-Yield Index includes cash-pay bonds and
excludes deferred-interest and bankrupt bonds. When an issuer misses or expects
to miss an interest payment or enters into Chapter 11, the corresponding bonds
exit the index at month end, reflecting the loss of the coupon payment or
accrued interest.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
35
<PAGE>
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
36
<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
- --------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
- --------------------------------------------------------------------------------
Delchester Fund
- --------------------------------------------------------------------------------
A Class 245908207 DETWX
- --------------------------------------------------------------------------------
B Class 245908405 DHYBX
- --------------------------------------------------------------------------------
C Class 245908504 DELCX
- --------------------------------------------------------------------------------
High-Yield Opportunities Fund
- --------------------------------------------------------------------------------
A Class 245908876 DHOAX
- --------------------------------------------------------------------------------
B Class 245908868 DHOBX
- --------------------------------------------------------------------------------
C Class 245908850 DHOCX
- --------------------------------------------------------------------------------
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 9/99
37
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
Institutional Class
Prospectus
September 29, 1999
Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profiles page
Delchester Fund
High-Yield Opportunities Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Funds
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial highlights page
2
<PAGE>
Profile: Delchester Fund
What are the Fund's goals?
Delchester Fund seeks the highest level of current income as is consistent with
providing reasonable safety. Although the Fund will strive to achieve its goal,
there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in fixed-income securities having a liberal and consistent
yield and those tending to reduce the risk of market fluctuations. The primary
focus of the portfolio will be corporate bonds, primarily those rated BBB or
lower by S&P or another nationally recognized statistical rating organization
(NRSRO). These are commonly known as high-yield bonds or junk bonds and involve
greater risks than investment grade bonds. The Fund will also invest in unrated
bonds. Unrated bonds may be more speculative in nature than rated bonds. The
Fund may also invest in U.S. government securities and commercial paper of
companies rated A-1 or A-2 by Standard & Poor's Ratings Group or rated P-1 or
P-2 by Moody's Investors Service, Inc. 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.
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. Bonds rated below investment grade 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 ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking a fixed income investment that offers potential for very
high current income.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
3
<PAGE>
How has Delchester Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Institutional Class shares have
varied over the past ten calendar years, as well as the average annual returns
of all shares for one, five, and ten years. 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 charges that apply to Class A shares.
However, for those periods, no adjustment has been made to eliminate the impact
of 12b-1 plan payments, and performance may have been affected had such an
adjustment been made. The Fund's past performance is not necessarily an
indication of how it will perform in the future.
[bar chart]
Year-by-year total return (Institutional Class)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of June 30, 1999, the Fund's Institutional Class shares had a year-to-date
return of 0.00%. During the ten years illustrated in this bar chart, the
Institutional Class' highest quarterly return was 0.00% for the quarter ended
___________ and its lowest quarterly return was 0.00% for the quarter ended
____________________.
How has Delchester Fund performed? (continued)
Average annual returns for periods ending 12/31/98
- -------------------------------------------------------------------------------
Institutional Class Salomon Smith Barney Cash Pay
High-Yield Index
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 year 00.00% 00.00%
- -------------------------------------------------------------------------------
5 years 00.00% 00.00%
- -------------------------------------------------------------------------------
10 years 00.00% 00.00%
- -------------------------------------------------------------------------------
The table above shows the Fund's average annual returns compared to the
performance of the Salomon Smith Barney Cash Pay High-Yield Index. You should
remember that unlike the Fund, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
4
<PAGE>
What are the Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
- -------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price none
- -------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
- -------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none
- -------------------------------------------------------------------------
Redemption fees none
- -------------------------------------------------------------------------
Exchange fees(1) none
- -------------------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets.
- ------------------------------------------------------------------------
Management fees 0.00%
- ------------------------------------------------------------------------
Distribution and service (12b-1) fees none
- ------------------------------------------------------------------------
Other expenses 0.00%
- ------------------------------------------------------------------------
Total operating expenses 0.00%
- ------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(2) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
- ----------------------
1 year $000
- ----------------------
3 years $000
- ----------------------
5 years $000
- ----------------------
10 years $0,000
- ----------------------
(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.
5
<PAGE>
What are the Fund's goals?
High-Yield Opportunities Fund seeks total return and, as a secondary objective,
high current income. Although the Fund will strive to achieve its goal, there is
no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in fixed-income securities having a liberal and consistent
yield and those tending to reduce the risk of market fluctuations. The primary
focus of the portfolio will be corporate bonds, primarily those rated BB or
lower by S&P. 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. Unrated bonds may be more speculative in nature than rated bonds.
The Fund may also invest in U.S. and foreign government securities and
commercial paper of companies rated A-1 or A-2 by Standard & Poor's Ratings
Group or rated P-1 or P-2 by Moody's Investors Service, Inc. 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 an adverse change in interest rates, adverse
economic conditions or poor performance from specific industries or bond
issuers. Bonds rated below investment grade 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. 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 ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking a fixed income investment that offers a combination of total
return with high current income.
o Investors who want a total return-oriented income investment as a
diversification tool for long-term, equity -oriented portfolios.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
6
<PAGE>
How has High-Yield Opportunities Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns have varied over the past two calendar years,
as well as the average annual returns for one year and since inception. The
Fund's past performance does not necessarily indicate how it will perform in the
future. The returns reflect voluntary expense caps. The returns would be lower
without the voluntary caps.
Total return (Institutional Class)
- ----------------------
1997 1998
- ----------------------
- ----------------------
As of June 30, 1999, the Fund's Institutional Class shares had a year-to-date
return of 0.00%. During the period illustrated in this bar chart, the
Institutional Class' highest quarterly return was 0.00% for the quarter ended
_____________ and its lowest quarterly return was 0.00% for the quarter ended
____________________.
Average annual returns for periods ending 12/31/98
- --------------------------------------------------------------------------------
Institutional Class Salomon Smith Barney Cash Pay
High-Yield Index
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1 year 00.00% 00.00%
- --------------------------------------------------------------------------------
Lifetime 00.00% 00.00%
- --------------------------------------------------------------------------------
The table above shows the Fund's average annual returns compared to the
performance of the Salomon Smith Barney Cash Pay High-Yield Index. You should
remember that unlike the Fund, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
7
<PAGE>
What are the Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
- --------------------------------------------------------------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price none
- --------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
- --------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none
- --------------------------------------------------------------------
Redemption fees none
- --------------------------------------------------------------------
Exchange fees(1) none
- --------------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets.
- --------------------------------------------------------------------
Management fees 0.00%
- --------------------------------------------------------------------
Distribution and service (12b-1) fees none
- --------------------------------------------------------------------
Total annual fund operating expenses 0.00%
- --------------------------------------------------------------------
Fee waivers and payments(2) (0.00%)
- --------------------------------------------------------------------
Net expenses 0.00%
- --------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(3) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
- -------------------------------------
Without Expense Limitation
- -------------------------------------
1 year $000
- -------------------------------------
3 years $000
- -------------------------------------
5 years $000
- -------------------------------------
10 years $0,000
- -------------------------------------
- -------------------------------------
With Expense Limitation
- -------------------------------------
1 year $000
- -------------------------------------
3 years $000
- -------------------------------------
5 years $000
- -------------------------------------
10 years $0,000
- -------------------------------------
(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.
8
<PAGE>
How we manage the Funds
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Funds'
investment goals.
For both Delchester Fund and High-Yield Opportunities Fund, we invest primarily
in fixed-income securities having a liberal and consistent yield and those
tending to reduce the risk of market fluctuations. These include:
o Corporate Bonds. We expect to invest the majority of the Fund's assets
primarily in bonds rated BB or lower by S&P. These are commonly known as
high-yield bonds or junk bonds and 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;
o Government Securities. Securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities; and
o Commercial Paper. Commercial paper of companies rated A-1 or A-2 by Standard &
Poor's Ratings Group or rated P-1 or P-2 by Moody's Investors Service, Inc.,
which are the two highest commercial paper ratings.
Before selecting high-yield corporate bonds for the portfolio, 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.
Delchester Fund
Our primary focus in Delchester Fund is to provide a high level of current
income. For this reason, the income potential of a bond is a key selection
criteria. In general, we focus on bonds rated BB or B, generally emphasizing
bonds rated B in times of economic growth and better quality bonds rated BB when
the economy appears to be slowing. We do not invest in non-U.S. securities or in
the debt of emerging market countries.
High Yield Opportunities Fund
High-Yield Opportunities Fund follows a bond selection process similar to
Delchester's; however, because the objective of the portfolio is total return,
we evaluate both the income level of a bond and its potential for price
appreciation. High-Yield Opportunities Fund also has greater flexibility to
invest in bonds of foreign issuers. This provides both diversification and
potential for higher returns.
9
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -----------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
High-yield corporate bonds: Debt obligations issued by Delchester Fund may invest High-Yield Opportunities Fund may invest
a corporation and rated lower than investment grade by without limit in high-yield without limit in high-yield corporate
a nationally recognized statistical ratings corporate bonds. Emphasis is bonds. The Fund generally will not
organization (NRSRO) such as S&P or Moody's or, if typically on those rated BB or purchase corporate bonds which, at
the unrated, that we believe are of comparable quality. B by an NRSRO. time of purchase, are rated lower than
These securities are considered to be of poor standing CCC by S&P or Caa by Moody's.
and predominately speculative.
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations Both Funds may invest without limit in U.S. government securities;
including bills, notes, bonds and other debt securities however, they will typically be a small percentage of the portfolio
issued by the U.S. Treasury or securities of U.S. because they generally do not offer as high a level of current income as
government agencies or instrumentalities which are high yield corporate bonds.
backed by the full faith and credit of the United
States.
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign government or corporate bonds: Securities Delchester Fund may not invest High-Yield Opportunities Fund may invest
issued by foreign governments or supranational entities in bonds of foreign issuers. up to 15% of its total assets in
or foreign corporations. securities of issuers domiciled in
foreign countries including both
A supranational entity is an entity established or established countries and those with
financially supported by the national governments of emerging markets.
one or more countries. The International Bank for
Reconstruction and Development (more commonly known as
the World Bank) is one example of a Supranational
entity.
- -----------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment in kind bonds, though we do
securities are debt obligations which do not entitle not expect this to be a significant component of our strategy. The market
the holder to any periodic payments of interest prior prices of these bonds are generally more volatile than the market prices
to maturity or a specified date when the securities of securities that pay interest periodically and are likely to react to
begin paying current interest. Therefore, they are changes in interest rates to a greater degree than interest-paying bonds
issued and traded at a price lower than their face having similar maturities and credit quality. They may have certain tax
amounts or par value. Payment-in-kind bonds pay consequences which, under certain conditions, could be adverse to the
interest or dividends in the form of additional bonds Fund.
or preferred stock.
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer and Typically, we use repurchase agreements as a short-term investment for
seller of securities in which the seller agrees to buy each Fund's cash position. In order to enter into these repurchase
the securities back within a specified time at the same agreements, a Fund must have collateral of at least 102% of the repurchase
price the buyer paid for them, plus an amount equal to price.
an agreed upon interest rate. Repurchase agreements are
often viewed as equivalent to cash.
- -----------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest in privately placed securities that are eligible for resale
whose resale is restricted under securities law. only among certain institutional buyers without registration. These are
commonly known as Rule 144A Securities.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -----------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Restricted securities that are Restricted securities that are determined
determined to be illiquid may to be illiquid may not exceed High-Yield
not exceed Delchester Fund's Opportunities Fund's 15% limit on
10% limit on illiquid illiquid securities, which is described
securities, which is described below.
below.
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 10% of net We may invest up to 15% of net assets in
ready market, and cannot be easily sold, if at all, at assets in illiquid securities, illiquid securities, including
approximately the price that a Fund has valued them. including repurchase agreements repurchase agreements with maturities of
with maturities of over seven over seven days.
days.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Delchester Fund and High-Yield Opportunities Fund may also invest in other
income-producing securities including common stocks and preferred stocks, some
of which may have convertible features or attached warrants. Please see the
Statement of Additional Information for additional descriptions on these
securities as well as those listed in the table above.
Lending securities
Each Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
Borrowing from banks
Each Fund is permitted to borrow money but normally does not do so. As a
temporary measure for extraordinary purposes or to meet redemption requests, a
Fund may borrow up to one-third of the value of their assets.
Purchasing securities on a when-issued or delayed delivery basis
Delchester Fund and 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.
11
<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 Delchester Fund or 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
- -----------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus on bonds that we
securities in a certain market--like the stock or bond believe will continue to pay interest regardless of interim market
market--will decline in value because of factors such as fluctuations. We do not try to predict overall bond market or interest
economic conditions, future expectations or investor rate movements and do not trade for short-term purposes.
confidence.
We may hold a substantial part of each Fund's assets in cash or cash
equivalents as a temporary defensive strategy.
- -----------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the value of We limit the amount of each Fund's assets invested in any one industry
securities in a particular industry or the value of an and in any individual security. We also follow a rigorous selection
individual stock or bond will decline because of changing process before choosing securities for the portfolio.
expectations for the performance of that industry or for
the individual company issuing the stock or bond.
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities will Each Fund is subject to interest rate risk. We cannot eliminate that
decrease in value if interest rates rise. The risk is risk, but we do strive to manage it by monitoring economic conditions.
greater for bonds with longer maturities than for those
with shorter maturities.
- -----------------------------------------------------------------------------------------------------------------------------------
Credit risk is the risk that there is the possibility that Our careful, credit-oriented bond selection and our commitment to hold
a bond's issuer will be unable to make timely payments of a diversified selection of high-yield bonds are designed to manage
interest and principal. this risk.
Investing in so-called "junk" or "high-yield" bonds For High-Yield Opportunities Fund: We generally do not purchase
entails the risk of principal loss, which may be greater corporate bonds which, at the time of purchase, are rated lower than
than the risk involved in investment grade bonds. CCC by S&P or Caa by Moody's. If a corporate bond held by the Fund
High-yield bonds are sometimes issued by companies whose drops below these levels or goes into default, the Fund will begin to
earnings at the time of issuance are less than the sell the security in an orderly manner, striving to minimize any
projected debt service on the junk bonds. adverse affect on the Fund.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Recession risk Although the market for high-yield bonds It is likely that protracted periods of economic uncertainty would
existed through periods of economic downturns, the cause increased volatility in the market prices of high-yield bonds,
high-yield market grew rapidly during the long economic an increase in the number of high-yield bond defaults and
expansion which took place in the United States during the corresponding volatility in each Fund's net asset value. In the past,
1980s. During that economic expansion, the use of uncertainty and volatility in the high-yield market have resulted in
high-yield debt securities to finance highly leveraged volatility in the Fund's net asset value.
corporate acquisitions and restructurings increased
dramatically. As a result, the high-yield market grew In striving to manage this risk, we allocate assets across a wide
substantially. Although experts disagree on the impact range of industry sectors. We may emphasize industries that have been
recessionary periods have had and will have on the less susceptible to economic cycles in the past, particularly if we
high-yield market, some analysts believe a protracted believe that the economy may be entering into a period of slower
economic downturn would severely disrupt the market for growth.
high-yield bonds, adversely affect the value of
outstanding bonds and adversely affect the ability of
high-yield issuers to repay principal and interest.
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign securities may be We typically invest only a We limit the percentage of the
adversely affected by political instability, changes in small portion, if any, of portfolio that can be invested in
currency exchange rates, foreign economic conditions or Delchester Fund's portfolio in bonds of foreign issuers and we
inadequate regulatory and accounting standards. foreign securities. carefully evaluate the reward and
risk associated with each foreign
bond that we consider.
- -----------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that securities cannot A less liquid secondary market may have an adverse effect on each
be readily sold, if at all, at approximately the price Fund's ability to dispose of particular issues, when necessary, to
that the Series values them. meet a Fund's liquidity needs or in response to a specific economic
event, such as the deterioration in the creditworthiness of the issuer.
The secondary market for high-yield securities is issuer. In striving to manage this risk, we evaluate the size of a
currently dominated by institutional investors, including bond issuance as a way to anticipate its likely liquidity level.
mutual funds and certain financial institutions. There is
generally no established retail secondary market for
high-yield securities. As a result, the secondary market
for high-yield securities is more limited and less liquid
than other secondary securities markets. The high-yield
secondary market is particularly susceptible to liquidity
problems when the institutions which dominate it
temporarily stops buying bonds for regulatory, financial
or other reasons.
Adverse publicity and investor perceptions are also
considered more likely to disrupt the secondary market for
high-yield securities than the more established secondary
securities markets.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Opportunities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
We may invest only 10% of net We may invest only 15% of net assets
assets in illiquid securities. in illiquid securities.
- -----------------------------------------------------------------------------------------------------------------------------------
Valuation risk A less liquid secondary market as described
above can make it more difficult to obtain precise Each Fund's privately placed high-yield securities are particularly
valuations of the high-yield securities in its portfolio. susceptible to the liquidity and valuation risks outlined here. We
During periods of reduced liquidity, judgment plays a will strive to manage this risk by carefully evaluating individual
greater role in valuing high-yield securities. bonds and by limiting the amount of the portfolio that can be
allocated to privately placed high-yield securities.
- -----------------------------------------------------------------------------------------------------------------------------------
Redemption risk If, as a result of volatility in the We strive to maintain a cash balance sufficient to meet any
high-yield market or other factors, investors redeem more redemptions. We may also borrow money, if necessary, to meet
shares of a fund than are purchased for an extended redemptions.
period of time, fundsmay be required to sell securities
without regard to the investment merits of such actions.
This could decrease, the fund's asset base potentially
resulting in a higher expense ratio.
- -----------------------------------------------------------------------------------------------------------------------------------
Legislative and regulatory risk The United States We monitor the status of regulatory and legislative proposals to
Congress has from time to time taken or considered a evaluate any possible effects they might have on each Fund's
variety of legislative actions that could adversely affect portfolios.
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. For
example, many insurance companies have restricted or
eliminated their purchases of high-yield bonds primarily
as a result of actions taken by the National Association
of Insurance Commissioners. 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>
14
<PAGE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust, which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
- -------------------------------------------------------------------------------
Delchester Fund Delaware
High-Yield
Opportnities
Fund
- -------------------------------------------------------------------------------
As a percentage of average daily net assets 0.00% 0.00%*
- -------------------------------------------------------------------------------
*Reflects the voluntary 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 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 High-Yield Opportunities Fund management team since the Fund's
inception.
Paul A. Matlack, Vice President/Senior Portfolio Manager for the Funds, is a CFA
charterholder and graduate of the University of Pennsylvania with an MBA in
Finance from George Washington University. He began his career at Mellon Bank as
a credit specialist, and later served as a corporate loan officer for Mellon
Bank and then Provident National Bank.
Gerald T. Nichols, Vice President/Senior Portfolio Manager for the Funds, is a
graduate of the University of Kansas, where he received a BS in Business
Administration and an MS in Finance. Prior to joining Delaware Investments, he
was a high-yield credit analyst at Waddell & Reed, Inc. and subsequently the
investment officer for a private merchant banking firm. He is a CFA
charterholder.
15
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
<S> <C> <C>
Board of trustees
Investment manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page __ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Shareholders
</TABLE>
Board of trustees A mutual fund is governed by a board of trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with the objective and policies
stated in the mutual fund's prospectus. The investment manager places portfolio
orders with broker/dealers and is responsible for obtaining the best overall
execution of those orders. A written contract between a mutual fund and its
investment manager specifies the services the manager performs. Most management
contracts provide for the manager to receive an annual fee based on a percentage
of the fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager
or sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, 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.
16
<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
17
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800-510-4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
18
<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 the funds 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.
19
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
20
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares, you
will receive the net asset value as determined on the business day we receive
your request. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
Account minimums
If you redeem shares and your account balance falls below $250, a Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
For each Fund, dividends, if any, are paid monthly, while any capital gains are
distributed 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 distributions 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. Short-term capital gains
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. The sale
of Fund shares either through redemption or exchange, is a taxable event and may
result in a capital gain or loss to shareholders.
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
as well as all redemptions and exchanges.
21
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The
portfolio managers and investment professionals of the Funds consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
Investments by Fund of Funds
Each Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, each 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.
22
<PAGE>
Financial highlights
The Financial highlights table is intended to help you understand each Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose 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>
- ---------------------------------------------------------------------------------------------------------------------------------
Delchester Fund Institutional Class
Year Ended 7/31
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $0.000 $6.570 $6.140 $6.280 $6.450
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.000 0.620 0.614 0.644 0.685
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) gain from investments 0.000 0.075 0.429 (0.142) (0.169)
----- ----- ----- ------- -------
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investments operations 0.000 0.695 1.043 0.502 0.516
----- ----- ----- ----- -----
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.000) (0.615) (0.613) (0.642) (0.686)
------- ------- ------- ------- -------
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.000) (0.615) (0.613) (0.642) (0.686)
------- ------- ------- ------- -------
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $0.000 $6.650 $6.570 $6.140 $6.280
====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(1) 0.00% 11.00% 17.82% 8.37% 8.72%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $000,000 $53,673 $44,065 $59,513 $61,742
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.00% 0.81% 0.79% 0.77% 0.82%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.00% 9.41% 9.73% 10.36% 11.14%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 0.00% 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 and does not reflect the impact of a sales charge.
23
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
High-Yield Opportunities Fund Period
Institutional Class 12/30/96(1)
Year Ended 7/31 through
- ----------------------------------------------------------------------------------------------------- 7/31/99
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $0.000 $5.920 $5.500
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 0.000 0.537 0.290(2)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.000 0.330 0.299
----- ----- -----
- -----------------------------------------------------------------------------------------------------------------------
Total from investments operations 0.000 0.867 0.589
----- ----- -----
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- -----------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.000) (0.613) ---
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.000) (0.254) (0.169)
------- -------
- -----------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.000) (0.867) (0.169)
------- -------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $0.000 $5.920 $5.920
====== ====== ======
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Total return(2)(3) 00.00% 15.82% 10.81%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $000,000 $3,837 $3,330
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.00% 0.84% 0.75%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation 0.00% 1.14% 1.27%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.00% 9.18% 8.53%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense 0.00% 8.88% 8.00%
limitation
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 000% 317% 270%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return reflects the voluntary waiver and payment of fees by
the manager.
(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.
24
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss)
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
25
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
26
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bond.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
27
<PAGE>
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
Salomon Smith Barney Cash Pay High-Yield Index
The Salomon Smith Barney Cash Pay High-Yield Index includes cash-pay bonds and
excludes deferred-interest and bankrupt bonds. When an issuer misses or expects
to miss an interest payment or enters into Chapter 11, the corresponding bonds
exit the index at month end, reflecting the loss of the coupon payment or
accrued interest.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
28
<PAGE>
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
29
<PAGE>
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. You can find more detailed information about the Funds in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in these Funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Funds, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- ---------------------------
E-mail
[email protected]
Client Services Representative
800-510-4015
Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
Investment Company Act file number: 811-2071
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
- ----------------------------------------------------------------------------------------------
<S> <C>
Delchester Fund Institutional Class 245908306 DETIX
- ----------------------------------------------------------------------------------------------
High-Yield Opportunities Fund Institutional Class 245908843 DHOIX
- ----------------------------------------------------------------------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 6/99
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Strategic Income Fund
Class A o Class B o Class C
Prospectus
September 29, 1999
Current Income Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of contents
Fund profile page
Strategic Income Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
<PAGE>
Profile: Strategic Income Fund
What are the Fund's goals?
Strategic Income Fund seeks a high level current income and total return.
Although the Fund will strive to achieve its goal, there is no assurance that it
will.
What are the Fund's main investment strategies?
We invest primarily in bonds allocated among three sectors of the fixed income
market. These include:
o the High-Yield Sector, consisting of high-yielding, higher risk, lower-rated
or unrated fixed-income securities (commonly known as "junk bonds") issued
by U.S. companies;
o the Investment Grade Sector, consisting of investment grade debt obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or by U.S. companies; and
o the International Sector, consisting of obligations of foreign governments,
their agencies and instrumentalities, as well as other fixed-income
securities of issuers in foreign countries that are denominated in foreign
currencies. An issuer is considered to be from the country where it is
located, where the majority of its assets are or where it generates the
majority of its operating income.
We determine the amount of the Fund's assets that will be allocated to each of
the three sectors based on our analysis of economic and market conditions and
our assessment of the income and appreciationpotential offered by each sector.
We will periodically reallocate the Fund's assets.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the securities held by the Fund.
This Fund will be affected primarily by declines in bond prices, which can be
caused by an adverse change in interest rates, adverse economic conditions or
poor performance from specific industries or bond issuers. The Fund is also
subject to the special risks associated with high-yield bond investing and with
foreign investing. In particular, bonds rated below investment grade are subject
to a higher credit risk that issuers will be unable to make payments of interest
or principal, particularly under adverse economic conditions. For a more
complete discussion of risk, please turn to page ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for an investment that offers professional allocation
among key types of fixed income securities.
o Investors looking for a fixed income investment that offers potential for
high current income and total return.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
3
<PAGE>
How has Strategic Income 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 years, as well as the average annual returns of all shares for one
year and life of the Fund. The Fund's past performance does not necessarily
indicate how it will perform in the future. The returns reflect expense
limitations. The returns would be lower without the limitations.
[bar chart]
Year-by-year total return (Class A)
- --------------------------------------------------
Strategic Income Fund
- --------------------------------------------------
1997 0.00%
- --------------------------------------------------
1998 0.00%
- --------------------------------------------------
As of June 30, 1999, the Fund's Class A shares had a year-to-date return of
0.00%. During the two years illustrated in this bar chart, Class A's highest
quarterly return was 0.00% for the quarter ended ___________ and its lowest
quarterly return was 0.00% for the quarter ended ____________________.
The maximum Class A sales charge of 4.75%, which is normally deducted when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown in the table on page ___ do include the sales charge.
How has Strategic Income Fund performed? (continued)
<TABLE>
<CAPTION>
Average annual returns for periods ending 12/31/98
<S> <C> <C> <C> <C>
CLASS A B C Lehman Brothers
Aggregate Bond Index
(if redeemed)* (if redeemed)*
1 year 0.00% 0.00% 0.00% 0.00%
Lifetime (Inception 0.00% 0.00% 0.00% 0.00%
10/1/96)
</TABLE>
The table above shows the Fund's average annual returns compared to the
performance of the Lehman Brothers Aggregate Bond Index. You should remember
that unlike the Fund, the index is unmanaged and doesn't reflect the actual
costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities.
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be 0.00% and 0.00% for the one-year and lifetime periods,
respectively. Returns for Class C would be 0.00% and 0.00% for the one-year
and lifetime periods, respectively.
4
<PAGE>
What are the Fund's fees and expenses?
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales charges are fees paid directly from your CLASS A B C
investments when you buy or sell shares of the
Fund.
----------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
as a percentage of offering price
4.75% none none
----------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
Redemption price, whichever is lower
none(1) 4%(2) 1%(3)
-----
Maximum sales charge (load) imposed on reinvested
dividends none none none
----------------------------------------------------------------------------------
Redemption fees none none none
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Annual fund operating expenses are deducted CLASS A B C
from the Fund's assets.
----------------------------------------------------------------------------------
Management fees 0.65% 0.65% 0.65%
----------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
----------------------------------------------------------------------------------
Other expenses(4) 0.00% 0.00% 0.00%
----------------------------------------------------------------------------------
Total annual fund operating expenses 0.00% 0.00% 0.00%
----------------------------------------------------------------------------------
Fee waivers and payments(5) (0.00%) (0.00%) (0.00%)
----------------------------------------------------------------------------------
Net expenses 1.00% 1.75% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
This example is intended to help you compare the CLASS(7) A B B C C
cost of investing in the Fund to the cost of (if (if
investing in other mutual funds with similar redeemed) redeemed)
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.
----------------------------------------------------------------------------------
Without Fee Limitation
----------------------------------------------------------------------------------
1 year
----------------------------------------------------------------------------------
3 years
----------------------------------------------------------------------------------
5 years
----------------------------------------------------------------------------------
10 years
----------------------------------------------------------------------------------
With Fee Limitation
----------------------------------------------------------------------------------
1 year $572 $178 $578 $178 $278
----------------------------------------------------------------------------------
3 years $778 $551 $851 $551 $551
----------------------------------------------------------------------------------
5 years $1,001 $949 $1,149 $949 $949
----------------------------------------------------------------------------------
10 years $1,641 $1,864 $1,864 $2,062 $2,062
----------------------------------------------------------------------------------
</TABLE>
(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.
5
<PAGE>
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 4%, which declines to 3%
during the third and fourth years, 2% during the fifth year, 1% during the
sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Board of Trustees set the 12b-1 plan expenses for the Fund's Class A
shares at 0.25%. Expenses will not be more than 0.30% under the 12b-1 plan.
(5) The investment manager has contracted to waive fees and pay expenses through
June 30, 2000 in order to prevent total operating expenses (excluding any
12b-1 expenses, taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.75% of average daily net assets.
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
6
<PAGE>
How we manage the Fund
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Fund's
investment goals.
Strategic Income Fund
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 portfolio. The foundation
of our strategy is the belief that when one or more bond sectors are not
performing well, the others may continue to provide high income and appreciation
potential, helping to support Strategic Income Fund's performance.
Following are the three key sectors we focus on as well as our general
investment approach in each sector:
o U.S. government and high-quality corporate bonds are selected primarily on
the basis of their income potential. In periods of slower U.S. economic
growth, these bonds might also provide a stabilizing influence on the
portfolio which could enhance total return.
o U.S. high-yield corporate bonds are primarily used to increase the
portfolio's income potential. These bonds are of lower quality and involve
the risk that the companies issuing them may not be able to pay interest or
repay principal. However, we carefully select the high-yield bonds for the
portfolio after evaluating both the company's fundamental strength and the
bond's liquidity.
o Foreign bonds are used to add diversification to the portfolio. Because
foreign markets are often affected by different economic cycles than the
U.S., foreign bonds may experience performance cycles that are different as
well. In selecting foreign bonds for the portfolio, we strive to manage the
risk associated with foreign investing through a thorough analysis of the
bond's issuer and the inflation trends in the country where the bond is
issued.
In determining how much of the portfolio to allocate to each sector, we review
economic and market conditions and interest rate trends as well as the potential
risks and rewards associated with each sector. As little as 20% or as much as
60% of the Fund's assets may be invested in each fixed-income sector. In
addition, the Fund may invest up to 10% of its assets in U.S. equity securities.
7
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
Strategic Income Fund
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
High-yield corporate bonds: Debt obligations issued by a Strategic Income Fund may invest up to 60% of net assets in
corporation and rated lower than investment grade by a high-yield corporate bonds. Emphasis is typically on those
nationally recognized statistical ratings organization (NRSRO) rated BB or Ba by an NRSRO.
such as S&P or Moody's. High-yield bonds are issued by
corporations that have poor credit quality and may have We carefully evaluate an individual company's financial
difficulty repaying principal and interest. situation, its management, the prospects for its industry and
the technical factors related to its bond offering. Our goal
is to identify those companies that we believe will be able to
repay their debt obligations in spite of poor ratings. The
Fund may invest in unrated bonds if we believe their credit
quality is comparable to the rated bonds we are permitted to
invest in. Unrated bonds may be more speculative in nature
than rated bonds.
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations including The Fund may invest up to 60% of net assets in direct U.S.
bills, notes, bonds as well as other debt securities issued by government obligations; however, these securities will
the U.S. Treasury and securities of U.S. government agencies or typically be a smaller percentage of the portfolio because
instrumentalities. they generally do not offer as high a level of current income
as other fixed-income securities the Fund may invest in.
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities: Fixed-income securities that We may invest up to 60% of net assets in government-related
represent pools of mortgages, with investors receiving principal mortgage-backed securities or fully collateralized privately
and interest payments as the underlying mortgage loans are paid issued mortgage-backed securities.
back. Many are issued and guaranteed against default by the U.S.
government or its agencies or instrumentalities, such as the We may invest in mortgage-backed securities issued by private
Federal Home Loan Mortgage Corporation, Fannie Mae and the companies whether or not the securities are 100%
Government National Mortgage Association. collateralized. However, these securities must be rated in one
of the four highest categories by an NRSRO at the time of
purchase. The Others are issued by private financial
institutions, privately issued securities we invest in are
either CMOs or with some fully collateralized by certificates
issued REMICs (see below). or guaranteed by the government or
its agencies or instrumentalities.
- ------------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations (CMOs): Privately issued See mortgage-backed securities above.
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): Privately See mortgage-backed securities above.
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 accounts We invest only in asset-backed securities rated in one of the
receivables including home equity, automobile or credit loans. four highest categories by an NRSRO.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
Strategic Income Fund
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Investment grade corporate bonds: Debt obligations issued by a Debt securities within the top three categories comprise what
corporation, rated in one of the four highest categories by an are known as high-grade bonds and are regarded as having a
NRSRO (or, if unrated, that we believe are of equal quality). strong ability to pay principal and interest. Securities in
the fourth category are known as medium-grade bonds and are
regarded as having an adequate capacity to pay principal and
interest but with greater vulnerability to adverse economic
conditions and speculative characteristics.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign government securities: Securities issued by We may invest in foreign government securities and we
foreign governments or supranational entities. A primarily focus on better quality bonds with investment-grade
supranational entity is an entity established or credit ratings.
financially supported by the national governments of
one or more countries. The International Bank for However, up to 15% of the Fund's assets may also be invested
Reconstruction and Development (more commonly known in foreign government securities issued by emerging or
as the World Bank) is one example of a Supranational developing countries, which may be lower rated, including
entity. securities rated below investment grade.
We may also invest in securities issued by supranational
entities, which are typically of higher quality.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign corporate bonds: Debt obligations issued by a foreign We may invest in both rated and unrated securities of foreign
corporation. corporations. We may invest both in investment-grade
securities and those rated BBB or lower by S&P or Fitch, Baa
or lower by Moody's, or similarly rated by another NRSRO.
- ------------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon securities We may invest in zero coupon bonds and payment in kind bonds,
are debt obligations which do not entitle the holder to any though we do not expect this to be a significant component of
periodic payments of interest prior to maturity or a specified our strategy. The market prices of these bonds are generally
date when the securities begin paying current interest. more volatile than the market prices of securities that pay
Therefore, they are issued and traded at a price lower than interest periodically and are likely to react to changes in
their face amounts or par value. Payment-in-kind bonds pay interest rates to a greater degree than interest-paying bonds
interest or dividends in the form of additional bonds or having similar maturities and credit quality. They may have
preferred stock. certain tax consequences which, under certain conditions,
could be adverse to the Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities: Common stocks, preferred stocks (including Up to 10% of the Fund's assets may be invested in U.S. equity
adjustable rate preferred stocks) and other equity securities, securities.
such as convertible securities and warrants.
We would select only equity securities that were consistent
with the Fund's objective of high current income and total
return.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment company securities: In some foreign countries, We may invest in either closed-end or open-end investment
investments by a mutual fund may only be made through companies consistent with the 1940 Act requirements. These
investments in closed-end investment companies that in turn investments involve an indirect payment of a portion of the
invest in the securities of such countries. other investment companies' expenses, including advisory fees.
- ------------------------------------------------------------------------------------------------------------------------------------
Brady bonds: These are debt securities issued under the We may invest in Brady Bonds. We believe that the economic
framework of the Brady Plan, an initiative announced by the U.S. reforms undertaken by countries in connection with the
Treasury Secretary, Nicholas F. Brady in 1989, as a mechanism issuance of Brady Bonds makes the debt of countries that have
for debtor nations to restructure their outstanding external issued Brady Bonds or those that have announced plans to issue
indebtedness (generally, commercial bank debt). them a viable opportunity for investment.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
Strategic Income Fund
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currency, foreign currency contracts or forward We may invest in securities issued in any currency and may
contracts: A forward contract involves an obligation to purchase hold foreign currency.
or sell a specific currency at a future date at a price set at
the time of the or contract. Forward contracts are used to In addition, the Fund may enter into contracts to purchase
"lock-in" the price of a security that will be purchased or sell foreign currencies at a future date. By entering into
sold, in terms of U.S. dollars or other currencies. 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.
Although the Fund values its assets daily in terms of U.S.
dollars, we do not convert our holdings of foreign currencies
into U.S. dollars on a daily basis. We may, however, from time
to time, purchase or sell foreign currencies and/or engage in
forward foreign currency transactions in order to expedite
settlement of portfolio transactions and to minimize currency
value fluctuations. We may conduct foreign currency
transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through
a forward foreign currency contract or forward contract. These
transactions may increase the Fund's expenses.
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer of Typically, we use repurchase agreements as a short-term
securities, such as the Fund, and a seller, in which the seller investment for the Fund's cash position. In order to enter
agrees to buy the securities back within a specified time at the into these repurchase agreements, the Fund must have
same price the buyer paid for them, plus an amount equal to an collateral of at least 102% of the repurchase price.
agreed upon interest rate. Repurchase agreements are often
viewed as equivalent to cash.
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities whose resale We may invest without limit in privately placed securities
is restricted under securities law. that are eligible for resale only among certain institutional
buyers without registration. These are commonly known as Rule
144A Securities. Restricted securities that are determined to
be illiquid may not exceed the Fund's 15% limit on illiquid
securities, which is described below.
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a ready market, We may invest up to 15% of net assets in illiquid securities,
and cannot be easily sold, if at all, at approximately the price including repurchase agreements with maturities of over seven
that the Fund has valued them. days.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also invest in futures contracts and options on futures contracts
subject to certain limitations. Please see the Statement of Additional
Information for additional descriptions on these securities as well as those
listed in the table above.
Lending securities
The Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
10
<PAGE>
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. To the extent that it does so, the Fund may be unable
to meet its investment objective. The Fund will not borrow money in excess of
one-third of the value of its net assets.
Purchasing securities on a when-issued or delayed delivery basis
The Fund may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will exceed 100%. A
turnover rate of 100% would occur if the Fund sold and replaced securities
valued at 100% of its net assets within one year. High turnover can result in
increased transaction costs and tax liability for the Fund.
11
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. An investment in the Fund typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in these funds. Please see the Statement of Additional
Information for further discussion of these risks and the other risks not
discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of the securities We maintain a long-term investment approach and focus on bonds
in a certain market--like the stock or bond market--will decline that we believe will continue to pay interest regardless of
in value because of factors such as economic conditions, future interim market fluctuations. We do not try to predict overall
expectations or investor confidence. bond market or interest rate movements and do not trade for
investor confidence. short-term purposes.
We may hold a substantial part of the Fund's assets in cash or
cash equivalents as a temporary defensive strategy.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the value of We diversify the Fund assets across three distinct sectors of
securities in a particular industry or the value of an the bond market and among a wide variety of individual
individual stock or bond will decline because of changing issuers.
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 decrease in The Fund is subject to interest rate risk. We cannot eliminate
value if interest rates rise. The risk is greater for bonds with that risk, but we do strive to manage it by monitoring
longer maturities than for those with shorter maturities. economic conditions.
- ------------------------------------------------------------------------------------------------------------------------------------
Credit risk The possibility that a bond's issuer (or an entity Our careful, credit-oriented bond selection and our commitment
that insures the bond) will not be able to make timely payments to hold a diversified selection of high-yield bonds are
of interest and principal. designed to manage this risk.
Investing in so-called "junk" or "high-yield" bonds entails the
risk of principal loss, which may be greater than the risk It is likely that protracted periods of economic uncertainty
involved in investment grade bonds. High-yield bonds are would cause increased volatility in the market prices of
sometimes issued by companies whose earnings at the time the high-yield bonds, an increase in the number of high-yield bond
bond is issued are less than the projected debt payments on the defaults and corresponding volatility in the Fund's net asset
bonds. value.
Although experts disagree on the impact recessionary periods Our holdings of high quality investment grade bonds are less
have had and will have on the high-yield market, some analysts subject to credit risk and may help to balance any credit
believe a protracted economic downturn would severely disrupt problems experienced by individual high yield bond issuers or
the market for high-yield bonds, adversely affect the value of foreign issuers.
outstanding bonds and adversely affect the ability of high-yield
issuers to repay principal and interest.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Foreign risk is the risk that foreign securities may be The Fund will attempt to reduce foreign investing risks
adversely affected by political instability (including through portfolio diversification, credit analysis and
governmental seizures or nationalization of assets), changes in attention to trends in world economies, industries and
currency exchange rates, foreign economic conditions or financial markets.
inadequate regulatory and accounting standards. Foreign markets
may also be less efficient, less liquid, have greater price We carefully evaluate the political and economic situations in
volatility, less regulation and higher transaction costs than the countries where we invest and take these risks into
U.S. markets. account before we select securities for the portfolio.
However, there is no way to eliminate foreign risks when
investing internationally.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign government securities risks involve the ability of a The Fund attempts to reduce the risks associated with
foreign government or government related issuer to make timely investing in foreign governments by limiting the portion of
principal and interest payments on its external debt portfolio assets that may be invested in such securities.
obligations. This ability to make payments will be strongly
influenced by the issuer's balance of payments, including export
performance, its access to international credits and
investments, fluctuations in interest rates and the extent of
its foreign reserves.
- ------------------------------------------------------------------------------------------------------------------------------------
Currency risk is the risk that the value of an investment may be We may try to hedge currency risk by purchasing foreign
negatively affected by changes in foreign currency exchange currency exchange contracts. By agreeing to purchase or sell
rates. Adverse changes in exchange rates may reduce or eliminate foreign securities at a pre-set price on a future date, the
any gains produced by investments that are denominated in Fund strives to protect the value of the stock they own from
foreign currencies and may increase any losses. future changes in currency 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 possibility that the risks While the Fund may purchase securities of issuers in any
associated with international investing will be greater in foreign country, developed and emerging, no more than 15% of
emerging markets than in more developed foreign markets because, the Fund's assets may be invested in direct obligations of
among other things, emerging markets may have less stable issuers located in emerging market countries.
political and economic environments.
- ------------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that securities cannot be A less liquid secondary market may have an adverse effect on
readily sold, if at all, at approximately the price that the our ability to sell particular issues, when necessary, to meet
Fund values them. the Fund's liquidity needs or in response to a specific
economic event, such as the declining creditworthiness of an
The secondary market for high-yield securities is currently issuer. In striving to manage this risk, we evaluate the size
dominated by institutional investors, including mutual funds and of a bond issuance as a way to anticipate its likely liquidity
certain financial institutions. The high-yield secondary market level.
is particularly susceptible to liquidity problems when the
institutions which dominate it temporarily stop buying bonds for We may invest only 15% of net assets in illiquid securities,
regulatory, financial or other reasons. excluding Rule 144A securities described above.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Valuation risk A less liquid secondary market as described above We will strive to manage this risk by carefully evaluating
makes it more difficult for the Fund to obtain precise individual bonds and by limiting the amount of the portfolio
valuations of the high-yield securities in its portfolio. During that can be allocated to privately placed high-yield
periods of reduced liquidity, judgment plays a greater role in securities.
valuing high-yield securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Legislative and regulatory risk The United States Congress has We monitor the status of regulatory and legislative proposals
from time to time taken or considered legislative actions that to evaluate any possible effects they might have on the Fund's
could adversely affect the high-yield bond market. Such actions portfolio.
in the future could reduce liquidity for high-yield securities,
reduce the number of new high-yield securities being issued and
could make it more difficult for the Fund to attain its
investment objective.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Who manages the Fund
Investment manager and sub-adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services.
Delaware International Advisers Ltd. is the sub-adviser for Strategic Income
Fund. Delaware International Advisers Ltd. manages the foreign securities
portion of Strategic Income 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
0.00% of average daily net assets for the last fiscal year after giving effect
to expense limitations.
Portfolio managers
Paul Grillo, Paul A. Matlack, Christopher A. Moth and Joanna Bates have primary
responsibility for making day-to-day investment decisions for Strategic Income
Fund. In making investment decisions for the Fund, Mr. Moth and Ms. Bates
regularly consult with David G. Tilles as well as four global fixed-income team
members.
Paul Grillo, Vice President/Senior Portfolio Manager for the Fund, is a CFA
charterholder and graduate of North Carolina State University with an MBA in
Finance from Pace University. Prior to joining the Manager in 1993, Mr. Grillo
served as mortgage strategist and trader at the Dreyfus Corporation. He also
served as a mortgage strategist and portfolio manager for the Chemical
Investment Group and as a financial analyst at Chemical Bank. He has primary
responsibility for making day-to-day investment decisions for the Fund regarding
its investments in investment grade securities. Mr. Grillo has been a member of
Strategic Income Fund management team since its inception.
Paul A. Matlack, Vice President/Senior Portfolio Manager for the Fund, is a CFA
charterholder and graduate of the University of Pennsylvania with an MBA in
Finance from George Washington University. He began his career at Mellon Bank as
a credit specialist, and later served as a corporate loan officer for Mellon
Bank and then Provident National Bank. He has primary responsibility for
allocating Strategic Income Fund's assets among the fixed-income and equity
sectors and for making day-to-day investment decisions for the Fund regarding
its investments in the high-yield sector. Mr. Matlack has been a member of
Strategic Income Fund's management team since its inception.
Christopher A. Moth, Senior Portfolio Manager of Delaware International Advisers
Ltd., is a graduate of The City University London. He joined Delaware
International in 1992. He previously worked at the Guardian Royal Exchange in an
actuarial capacity where he was responsible for technical analysis, quantitative
models and projections. Mr. Moth has been awarded the certificate in Finance and
Investment from the Institute of Actuaries in London.
Joanna Bates, Senior Portfolio Manager of Delaware International Advisers, Ltd.,
is a graduate of London University. She joined the Fixed Income team at Delaware
International in June 1997. Prior to that she was Associate Director, Fixed
Interest at Hill Samuel Investment Management which she joined in 1990. She had
previously worked at Fidelity International and Save & Prosper as a fund manager
and analyst for global bond markets. Ms. Bates is an associate of the Institute
of Investment Management and Research.
David G. Tilles, Managing Director and Chief Investment Officer of Delaware
International Advisers Ltd., was educated at the Sorbonne, Warwick University
and Heidelberg University. Prior to joining Delaware International in 1990 as
Managing Director and Chief Investment Officer, he spent 16 years with Hill
Samuel Investment Management Group in London, serving in a number of investment
capacities. His most recent position prior to joining Delaware International was
Chief Investment Officer of Hill Samuel Investment Management Ltd.
15
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
<TABLE>
<CAPTION>
Board of Trustees
<S> <C> <C>
Investment Manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-Adviser
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE
Portfolio managers Distributor Service agent
(see page ___ 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 or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with the objective and policies
stated in the mutual fund's prospectus. The investment manager places portfolio
orders with broker/dealers and is responsible for obtaining the best overall
execution of those orders. A written contract between a mutual fund and its
investment manager specifies the services the manager performs. Most management
contracts provide for the manager to receive an annual fee based on a percentage
of the fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the
management of the fund's assets. They are selected and supervised by the
investment manager.
Portfolio managers Portfolio managers are employed by the investment manager
to make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
16
<PAGE>
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Financial advisers Financial advisers provide advice to their
clients--analyzing their financial objectives and recommending appropriate funds
or other investments. Financial advisers are compensated for their services,
generally through sales commissions, and through 12b-1 and/or service fees
deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders
have specific voting rights, including the right to elect trustees. Material
changes in the terms of a fund's management contract must be approved by a
shareholder vote, and funds seeking to change fundamental investment objectives
or policies must also seek shareholder approval.
17
<PAGE>
About your account
Investing in the Fund
You can choose from a number of share classes for the Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 4.75% that you pay
when you buy the shares. The offering price for Class A shares includes the
front-end sales charge.
o If you invest $100,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information for
details.
o Class A shares are also subject to an annual 12b-1 fee no greater than 0.30%
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 % of Sales charge as % of amount Dealer's commission as % of
offering price invested offering price
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Less than $100,000 4.75% 4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 but under $250,000 3.75% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 but under $500,000 2.50% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000 but under $1,000,000 2.00% 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>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of purchase Sales charge as % of Sales charge as % of amount Dealer's commission as % of
offering price invested offering price
<S> <C> <C> <C>
<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>
18
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within six years after you
buy them.
o If you redeem Class B shares during the first two years after you buy them,
the shares will be subject to a contingent deferred sales charge of 4%. The
contingent deferred sales charge is 3% during the third and fourth years, 2%
during the fifth year, 1% during the sixth year, and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1% of average daily net assets,
of which 0.25% are service fees paid to the distributor, dealers or others
for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and
any dividends paid on these shares are lower than dividends on Class A
shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%.
Conversion may occur as late as three months after the eighth anniversary of
purchase, during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
19
<PAGE>
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within 12 months after you
buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o Class C shares are subject to an annual 12b-1 fee which may not be greater
than 1% of average daily net assets, of which 0.25% are service fees paid to
the distributor, dealers or others for providing services and maintaining
shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any
one time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
20
<PAGE>
About your account (continued)
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of B and C
shares to fulfill your
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 shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X There is no reduction in
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales sales charge for Class B
401(k), 403(b)(7), and 457 Retirement charges by combining the and Class C shares for
Plans purchases of all members of the group purchases by
group. Members of these groups retirement plans.
may also qualify to purchase
shares without a front-end sales
charge and a waiver of any
contingent deferred sales
charges.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service or through our web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800.523.1918.
22
<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 determine each Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
trustees.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Funds may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in these Funds can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
23
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
24
<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.
25
<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 similar 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.
26
<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 paid monthly, while any capital gains are distributed
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 distributions from the 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. Short-term capital gains
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. The sale
of Fund shares either through redemption or exchange, is a taxable event and may
result in a capital gain or loss to shareholders.
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
as well as all redemptions and exchanges.
27
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." The Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund. The
portfolio managers and investment professionals of the Fund consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
28
<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>
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund Period
A Class 10/1/96(1)
Year Ended 7/31 through
---------------------------- 7/31/97
1999 1998
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.700 $5.500
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.444 0.337
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) from investments and foreign currencies (0.104) 0.204
------- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.340 0.541
----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.440) (0.341)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.120) none
------- ----
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.560) (0.341)
------- -------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.480 $5.700
====== ======
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total return(2) 6.23% 10.11%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $17,871 $9,144
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation 1.73% 2.12%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 7.92% 7.76%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation 7.20% 6.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 175% 183%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios have been annualized and total
returns have 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 investment
return reflects expense limitations.
29
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
B Class Period
Year Ended 7/31 10/1/96(1)
- ------------------------------------------------------------------------------------------------------------------- through
1999 1998 7/31/97
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.700 $5.500
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.402 0.308
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) investments (0.100) 0.204
------ -----
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investments operations 0.302 0.511
----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.402) (0.311)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.120) none
------ ----
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.522) (0.311)
------ ------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.480 $5.700
====== ======
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total return(2) 5.32% 9.53%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $15,602 $6,878
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.75% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation 2.48% 2.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 7.18% 7.01%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation 6.45% 5.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 175% 183%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
C Class Period
Year Ended 7/31 10/1/96(1)
- -------------------------------------------------------------------------------- ---------------------- through
1999 1998 7/31/97
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.700 $5.500
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 0.402 0.313
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) investments (0.100) 0.198
------- -----
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investments operations 0.302 0.511
----- -----
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- ----------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.402) (0.311)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.120) none
------- ----
- ----------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.522) (0.311)
------- -------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.480 $5.700
====== ======
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Total return(2) 5.32% 9.53%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,944 $5,276
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.75% 1.75%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation 2.48% 2.87%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 7.18% 7.01%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation 6.45% 5.89%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 175% 183%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. Total investment
return reflects expense limitations.
30
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss)
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
31
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
32
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bond.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Lehman Brothers Aggregate Bond Index
The Lehman Brothers Aggregate Bond Index is an index that measures the
performance of about 6,500 U.S. corporate and government bonds. Neither index is
a perfect comparison to Delaware Balanced Series since the S&P 500 does not
include fixed-income securities and the Lehman Brothers Aggregate Bond Index
does not include stocks.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch IBCA, Inc. (Fitch).
33
<PAGE>
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
34
<PAGE>
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
35
<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
- --------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
- --------------------------------------------------------------------------------
Strategic Income Fund A Class 245908603 DISAX
- --------------------------------------------------------------------------------
Strategic Income Fund B Class 245908702 DISBX
- --------------------------------------------------------------------------------
Strategic Income Fund C Class 245908801 DISCX
- --------------------------------------------------------------------------------
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 9/99
36
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Strategic Income Fund
Institutional Class
Prospectus
September 29, 1999
Current Income Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profile page
Strategic Income Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio manager
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial highlights page
2
<PAGE>
Profile: Strategic Income Fund
What are the Fund's goals?
Strategic Income Fund seeks a high level current income and total return.
Although the Fund will strive to achieve its goal, there is no assurance that it
will.
What are the Fund's main investment strategies?
We invest primarily in bonds allocated among three sectors of the fixed income
market. These include:
o the High-Yield Sector, consisting of high-yielding, higher risk, lower-rated
or unrated fixed-income securities (commonly known as "junk bonds") issued by
U.S. companies;
o the Investment Grade Sector, consisting of investment grade debt obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or by U.S. companies; and
o the International Sector, consisting of obligations of foreign governments,
their agencies and instrumentalities, as well as other fixed-income securities
of issuers in foreign countries that are denominated in foreign currencies. An
issuer is considered to be from the country where it is located, where the
majority of its assets are or where it generates the majority of its operating
income.
We determine the amount of the Fund's assets that will be allocated to each of
the three sectors based on our analysis of economic and market conditions and
our assessment of the income and appreciationpotential offered by each sector.
We will periodically reallocate the Fund's assets.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the securities held by the Fund.
This Fund will be affected primarily by declines in bond prices, which can be
caused by an adverse change in interest rates, adverse economic conditions or
poor performance from specific industries or bond issuers. The Fund is also
subject to the special risks associated with high-yield bond investing and with
foreign investing. In particular, bonds rated below investment grade are subject
to a higher credit risk that issuers will be unable to make payments of interest
or principal, particularly under adverse economic conditions. For a more
complete discussion of risk, please turn to page ___.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for an investment that offers professional allocation among
key types of fixed income securities.
o Investors looking for a fixed income investment that offers potential for high
current income and total return.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
3
<PAGE>
How has Strategic Income 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 years, as well as
the average annual returns of all shares for one year and life of the Fund. The
Fund's past performance does not necessarily indicate how it will perform in the
future. The returns reflect expense limitations. The returns would be lower
without the limitations.
[bar chart]
Year-by-year total return (Institutional Class)
- -----------------------
1997 0.00%
- -----------------------
1998 0.00%
- -----------------------
As of June 30, 1999, the Institutional Class shares had a year-to-date return of
0.00%. During the two years illustrated in this bar chart, the Institutional
Class' highest quarterly return was 0.00% for the quarter ended ___________ and
its lowest quarterly return was 0.00% for the quarter ended
____________________.
How has Strategic Income Fund performed? (continued)
Average annual returns for periods ending 12/31/98
- --------------------------------------------------------------------------
Institutional Class Lehman Brothers Aggregate Bond
Index
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
1 year 00.00% 00.00%
- --------------------------------------------------------------------------
Lifetime 00.00% 00.00%
- --------------------------------------------------------------------------
The table above shows the Fund's average annual returns compared to the
performance of the Lehman Brothers Aggregate Bond Index. You should remember
that unlike the Fund, the index is unmanaged and doesn't reflect the actual
costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities.
4
<PAGE>
What are the Fund's fees and expenses?
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
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 Management fees 0.65%
the Fund's assets. ------------------------------------------------------------
Distribution and service (12b-1) fees none
------------------------------------------------------------
Other expenses 0.00%
------------------------------------------------------------
Total annual fund operating expenses 0.00%
------------------------------------------------------------
Fee waivers and payments(2) (0.00%)
------------------------------------------------------------
Net expenses 0.75%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
This example is intended to help you compare the
cost of investing in the Fund to the cost of Without Fee Limitation
investing in other mutual funds with similar ------------------------------------------------------------
investment objectives. We show the cumulative 1 year
amount of Fund expenses on a hypothetical ------------------------------------------------------------
investment of $10,000 with an annual 5% return 3 years
over the time shown.(3) This is an example only, ------------------------------------------------------------
and does not represent future expenses, which 5 years
may be greater or less than those shown here. ------------------------------------------------------------
10 years
------------------------------------------------------------
With Fee Limitation(2)
------------------------------------------------------------
1 year $77
------------------------------------------------------------
3 years $240
------------------------------------------------------------
5 years $417
------------------------------------------------------------
10 years $930
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(2) The investment manager has contracted to waive fees and pay expenses through
June 30, 2000 in order to prevent total operating expenses (excluding taxes,
interest, brokerage fees and extraordinary expenses) from exceeding 0.75% of
average daily net assets.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
5
<PAGE>
How we manage the Fund
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Fund's
investment goals.
Strategic Income Fund
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 portfolio. The foundation
of our strategy is the belief that when one or more bond sectors are not
performing well, the others may continue to provide high income and appreciation
potential, helping to support Strategic Income Fund's performance.
Following are the three key sectors we focus on as well as our general
investment approach in each sector:
o U.S. government and high-quality corporate bonds are selected primarily on the
basis of their income potential. In periods of slower U.S. economic growth,
these bonds might also provide a stabilizing influence on the portfolio which
could enhance total return.
o U.S. high-yield corporate bonds are primarily used to increase the portfolio's
income potential. These bonds are of lower quality and involve the risk that
the companies issuing them may not be able to pay interest or repay principal.
However, we carefully select the high-yield bonds for the portfolio after
evaluating both the company's fundamental strength and the bond's liquidity.
o Foreign bonds are used to add diversification to the portfolio. Because
foreign markets are often affected by different economic cycles than the U.S.,
foreign bonds may experience performance cycles that are different as well. In
selecting foreign bonds for the portfolio, we strive to manage the risk
associated with foreign investing through a thorough analysis of the bond's
issuer and the inflation trends in the country where the bond is issued.
In determining how much of the portfolio to allocate to each sector, we review
economic and market conditions and interest rate trends as well as the potential
risks and rewards associated with each sector. As little as 20% or as much as
60% of the Fund's assets may be invested in each fixed-income sector. In
addition, the Fund may invest up to 10% of its assets in U.S. equity securities.
6
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Securities How we use them
Strategic Income Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
High-yield corporate bonds: Debt obligations issued Strategic Income Fund may invest up to 60% of net assets in
by a corporation and rated lower than investment high-yield corporate bonds. Emphasis is typically on those
grade by a nationally recognized statistical ratings rated BB or Ba by an NRSRO.
organization (NRSRO) such as S&P or Moody's.
High-yield bonds are issued by corporations that have We carefully evaluate an individual company's financial
poor credit quality and may have difficulty repaying situation, its management, the prospects for its industry and
principal and interest. the technical factors related to its bond offering. Our goal is
to identify those companies that we believe will be able to
repay their debt obligations in spite of poor ratings. The Fund
may invest in unrated bonds if we believe their credit quality
is comparable to the rated bonds we are permitted to invest in.
Unrated bonds may be more speculative in nature than rated
bonds.
- -------------------------------------------------------------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations The Fund may invest up to 60% of net assets in direct U.S.
including bills, notes, bonds as well as other debt government obligations; however, these securities will typically
securities issued by the U.S. Treasury and securities be a smaller percentage of the portfolio because they generally
of U.S. government agencies or instrumentalities. do not offer as high a level of current income as other
fixed-income securities the Fund may invest in.
- -------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities: Fixed-income securities We may invest up to 60% of net assets in government-related
that represent pools of mortgages, with investors mortgage-backed securities or fully collateralized privately
receiving principal and interest payments as the issued mortgage-backed securities.
underlying mortgage loans are paid back. Many are
issued and guaranteed against default by the U.S. We may invest in mortgage-backed securities issued by private
government or its agencies or instrumentalities, such companies whether or not the securities are 100% collateralized.
as the Federal Home Loan Mortgage Corporation, Fannie However, these securities must be rated in one of the four
Mae and the Government National Mortgage Association. highest categories by an NRSRO at the time of purchase. The
Others are issued by private financial institutions, privately issued securities we invest in are either CMOs or
with some fully collateralized by certificates issued REMICs (see below).
or guaranteed by the government or its agencies or
instrumentalities.
- -------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations (CMOs): Privately See mortgage-backed securities above.
issued mortgage-backed bonds whose underlying value
is the mortgages that are grouped into different
pools according to their maturity.
- -------------------------------------------------------------------------------------------------------------------------
Real estate mortgage investment conduits (REMICs): See mortgage-backed securities above.
Privately issued mortgage-backed bonds whose
underlying value is a fixed pool of mortgages secured
by an interest in real property. Like CMOs, REMICs
offer different pools.
- -------------------------------------------------------------------------------------------------------------------------
Asset-backed securities: Bonds or notes backed by We invest only in asset-backed securities rated in one of the
accounts receivables including home equity, four highest categories by an NRSRO.
automobile or credit loans.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Securities How we use them
Strategic Income Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment grade corporate bonds: Debt obligations
issued by a corporation, rated in one of the four Debt securities within the top three categories comprise what
highest categories by an NRSRO (or, if unrated, that are known as high-grade bonds and are regarded as having a
we believe are of equal quality). strong ability to pay principal and interest. Securities in the
fourth category are known as medium-grade bonds and are regarded
as having an adequate capacity to pay principal and interest but
with greater vulnerability to adverse economic conditions and
speculative characteristics.
- -------------------------------------------------------------------------------------------------------------------------
Foreign government securities: Securities issued by We may invest in foreign government securities and we primarily
foreign governments or supranational entities. A focus on better quality bonds with investment-grade credit
supranational entity is an entity established or ratings.
financially supported by the national governments of
one or more countries. The International Bank for However, up to 15% of the Fund's assets may also be invested in
Reconstruction and Development (more commonly known foreign government securities issued by emerging or developing
as the World Bank) is one example of a Supranational countries, which may be lower rated, including securities rated
entity. below investment grade.
We may also invest in securities issued by supranational
entities, which are typically of higher quality.
- -------------------------------------------------------------------------------------------------------------------------
Foreign corporate bonds: Debt obligations issued by a We may invest in both rated and unrated securities of foreign
foreign corporation. corporations. We may invest both in investment-grade
securities and those rated BBB or lower by S&P or Fitch, Baa or
lower by Moody's, or similarly rated by another NRSRO.
- -------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment in kind bonds,
securities are debt obligations which do not entitle though we do not expect this to be a significant component of
the holder to any periodic payments of interest prior our strategy. The market prices of these bonds are generally
to maturity or a specified date when the securities more volatile than the market prices of securities that pay
begin paying current interest. Therefore, they are interest periodically and are likely to react to changes in
issued and traded at a price lower than their face interest rates to a greater degree than interest-paying bonds
amounts or par value. Payment-in-kind bonds pay having similar maturities and credit quality. They may have
interest or dividends in the form of additional bonds certain tax consequences which, under certain conditions, could
or preferred stock. be adverse to the Fund.
- -------------------------------------------------------------------------------------------------------------------------
Equity securities: Common stocks, preferred stocks Up to 10% of the Fund's assets may be invested in U.S. equity
(including adjustable rate preferred stocks) and securities.
other equity securities, such as convertible
securities and warrants. We would select only equity securities that were consistent with
the Fund's objective of high current income and total return.
- -------------------------------------------------------------------------------------------------------------------------
Investment company securities: In some foreign We may invest in either closed-end or open-end investment
countries, investments by a mutual fund may only be companies consistent with the 1940 Act requirements. These
made through investments in closed-end investment investments involve an indirect payment of a portion of
the companies that in turn invest in the securities of other investment companies' expenses, including advisory fees.
such countries.
- -------------------------------------------------------------------------------------------------------------------------
Brady bonds: These are debt securities issued under We may invest in Brady Bonds. We believe that the economic
the framework of the Brady Plan, an initiative reforms undertaken by countries in connection with the issuance
announced by the U.S. Treasury Secretary, Nicholas F. of Brady Bonds makes the debt of countries that have issued
Brady in 1989, as a mechanism for debtor nations to Brady Bonds or those that have announced plans to issue them a
restructure their outstanding external indebtedness viable opportunity for investment.
(generally, commercial bank debt).
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Securities How we use them
Strategic Income Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Foreign currency, foreign currency contracts or We may invest in securities issued in any currency and may hold
forward contracts: A forward contract involves an foreign currency.
obligation to purchase or sell a specific currency at
a future date at a price set at the time of the In addition, the Fund may enter into contracts to purchase or
contract. Forward contracts are used to "lock-in" sell foreign currencies at a future date. By entering into these
the price of a security that will be purchased or transactions, the Fund attempts to protect against a possible
sold, in terms of U.S. dollars or other currencies. loss resulting from an adverse change in currency exchange rates
during the period between when a security is purchased or sold
and the date on which payment is made or received.
Although the Fund values its assets daily in terms of U.S.
dollars, we do not convert our holdings of foreign currencies
into U.S. dollars on a daily basis. We may, however, from time
to time, purchase or sell foreign currencies and/or engage in
forward foreign currency transactions in order to expedite
settlement of portfolio transactions and to minimize currency
value fluctuations. We may conduct foreign currency transactions
on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through a forward foreign
currency contract or forward contract. These transactions may
increase the Fund's expenses.
- -------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term
of securities, such as the Fund, and a seller, in investment for the Fund's cash position. In order to enter into
which the seller agrees to buy the securities back these repurchase agreements, the Fund must have collateral of at
within a specified time at the same price the buyer least 102% of the repurchase price.
paid for them, plus an amount equal to an agreed upon
interest rate. Repurchase agreements are often viewed
as equivalent to cash.
- -------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest without limit in privately placed securities that
whose resale is restricted under securities law. are eligible for resale only among certain institutional buyers
without registration. These are commonly known as Rule 144A
Securities. Restricted securities that are determined to be
illiquid may not exceed the Fund's 15% limit on illiquid
securities, which is described below.
- -------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 15% of net assets in illiquid securities,
ready market, and cannot be easily sold, if at all, including repurchase agreements with maturities of over seven
at approximately the price that the Fund has valued days.
them.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also invest in futures contracts and options on futures contracts
subject to certain limitations. Please see the Statement of Additional
Information for additional descriptions on these securities as well as those
listed in the table above.
Lending securities
The Fund may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
9
<PAGE>
Borrowing from banks
The Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. To the extent that it does so, the Fund may be unable
to meet its investment objective. The Fund will not borrow money in excess of
one-third of the value of its net assets.
Purchasing securities on a when-issued or delayed delivery basis
The Fund may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will exceed 100%. A
turnover rate of 100% would occur if the Fund sold and replaced securities
valued at 100% of its net assets within one year. High turnover can result in
increased transaction costs and tax liability for the Fund.
10
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. An investment in the Fund typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in these funds. Please see the Statement of Additional
Information for further discussion of these risks and the other risks not
discussed here.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus on bonds
securities in a certain market--like the stock or bond that we believe will continue to pay interest regardless of
market--will decline in value because of factors such interim market fluctuations. We do not try to predict overall
as economic conditions, future expectations or bond market or interest rate movements and do not trade for
investor confidence. short-term purposes.
We may hold a substantial part of the Fund's assets in cash or
cash equivalents as a temporary defensive strategy
- ---------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the value We diversify the Fund assets across three distinct sectors of the
of securities in a particular industry or the value bond market and among a wide variety of individual issuers.
of an individual stock or bond will decline because
of changing expectations for the performance of that
industry or for the individual company issuing the
stock or bond.
- ---------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities will The Fund is subject to interest rate risk. We cannot eliminate
decrease in value if interest rates rise. The risk is that risk, but we do strive to manage it by monitoring economic
greater for bonds with longer maturities than for conditions.
those with shorter maturities.
- ---------------------------------------------------------------------------------------------------------------------------
Credit risk The possibility that a bond's issuer (or
an entity that insures the bond) will not be able to Our careful, credit-oriented bond selection and our commitment to
make timely payments of interest and principal. hold a diversified selection of high-yield bonds are designed to
manage this risk.
Investing in so-called "junk" or "high-yield" bonds
entails the risk of principal loss, which may be It is likely that protracted periods of economic uncertainty
greater than the risk involved in investment grade would cause increased volatility in the market prices of
bonds. High-yield bonds are sometimes issued by high-yield bonds, an increase in the number of high-yield bond
companies whose earnings at the time the bond is defaults and corresponding volatility in the Fund's net asset
issued are less than the projected debt payments on value.
the bonds.
Our holdings of high quality investment grade bonds are less
Although experts disagree on the impact recessionary subject to credit risk and may help to balance any credit
periods have had and will have on the high-yield problems experienced by individual high yield bond issuers or
market, some analysts believe a protracted economic foreign issuers.
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>
11
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Foreign risk is the risk that foreign securities may be The Fund will attempt to reduce foreign investing risks through
adversely affected by political instability (including portfolio diversification, credit analysis and attention to
governmental seizures or nationalization of assets), trends in world economies, industries and financial markets.
changes in currency exchange rates, foreign economic
conditions or inadequate regulatory and accounting We carefully evaluate the political and economic situations in
standards. Foreign markets may also be less efficient, the countries where we invest and take these risks into account
less liquid, have greater price volatility, less before we select securities for the portfolio. However, there is
regulation and higher transaction costs than U.S. no way to eliminate foreign risks when investing internationally.
markets.
- ---------------------------------------------------------------------------------------------------------------------------
Foreign government securities risks involve the The Fund attempts to reduce the risks associated with investing
ability of a foreign government or government related in foreign governments by limiting the portion of portfolio
issuer to make timely principal and interestpayments assets that may be invested in such securities.
on its external debt obligations. This ability to
make payments will be strongly influenced by the
issuer's balance of payments, including export
performance, its access to international credits and
investments, fluctuations in interest rates and the
extent of its foreign reserves.
- ---------------------------------------------------------------------------------------------------------------------------
Currency risk is the risk that the value of an We may try to hedge currency risk by purchasing foreign currency
investment may be negatively affected by changes in exchange contracts. By agreeing to purchase or sell foreign
foreign currency exchange rates. Adverse changes in securities at a pre-set price on a future date, the Fund strives
exchange rates may reduce or eliminate any gains to protect the value of the stock they own from future changes in
produced by investments that are denominated in currency rates. We will use forward currency exchange contracts
foreign currencies and may increase any losses. only for defensive measures, not to enhance portfolio returns.
However, there is no assurance that a strategy such as this
will be successful.
- ---------------------------------------------------------------------------------------------------------------------------
Emerging markets risk is the possibility that the While the Fund may purchase securities of issuers in any foreign
risks associated with international investing will be country, developed and emerging, no more than 15% of the Fund's
greater in emerging markets than in more developed assets may be invested in direct obligations of issuers located
foreign markets because, among other things, emerging in emerging market countries.
markets may have less stable political and economic
environments.
- ---------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that securities A less liquid secondary market may have an adverse effect on our
cannot be readily sold, if at all, at approximately ability to sell particular issues, when necessary, to meet the
the price that the Fund values them. Fund's liquidity needs or in response to a specific economic
event, such as the declining creditworthiness of an issuer. In
The secondary market for high-yield securities is striving to manage this risk, we evaluate the size of a bond
currently dominated by institutional investors, issuance as a way to anticipate its likely liquidity level.
including mutual funds and certain financial
institutions. The high-yield secondary market is We may invest only 15% of net assets in illiquid securities,
particularly susceptible to liquidity problems when excluding Rule 144A securities described above.
the institutions which dominate it temporarily stop
buying bonds for regulatory, financial or other
reasons.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Valuation risk A less liquid secondary market as We will strive to manage this risk by carefully evaluating
described above makes it more difficult for the Fund individual bonds and by limiting the amount of the portfolio that
to obtain precise valuations of the high-yield can be allocated to privately placed high-yield securities.
securities in its portfolio. During 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
legislative actions that could adversely affect the portfolio.
high-yield bond market. Such actions in the future
could reduce liquidity for high-yield securities,
reduce the number of new high-yield securities being
issued and could make it more difficult for the Fund
to attain its investment objective.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Who manages the Fund
Investment manager and sub-adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services.
Delaware International Advisers Ltd. is the sub-adviser for Strategic Income
Fund. Delaware International Advisers Ltd. manages the foreign securities
portion of Strategic Income 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
0.00% of average daily net assets for the last fiscal year after giving effect
to expense limitations.
Portfolio managers
Paul Grillo, Paul A. Matlack, Christopher A. Moth and Joanna Bates have primary
responsibility for making day-to-day investment decisions for Strategic Income
Fund. In making investment decisions for the Fund, Mr. Moth and Ms. Bates
regularly consult with David G. Tilles as well as four global fixed-income team
members.
Paul Grillo, Vice President/Senior Portfolio Manager for the Fund, is a CFA
charterholder and graduate of North Carolina State University with an MBA in
Finance from Pace University. Prior to joining the Manager in 1993, Mr. Grillo
served as mortgage strategist and trader at the Dreyfus Corporation. He also
served as a mortgage strategist and portfolio manager for the Chemical
Investment Group and as a financial analyst at Chemical Bank. He has primary
responsibility for making day-to-day investment decisions for the Fund regarding
its investments in investment grade securities. Mr. Grillo has been a member of
Strategic Income Fund management team since its inception.
Paul A. Matlack, Vice President/Senior Portfolio Manager for the Fund, is a CFA
charterholder and graduate of the University of Pennsylvania with an MBA in
Finance from George Washington University. He began his career at Mellon Bank as
a credit specialist, and later served as a corporate loan officer for Mellon
Bank and then Provident National Bank. He has primary responsibility for
allocating Strategic Income Fund's assets among the fixed-income and equity
sectors and for making day-to-day investment decisions for the Fund regarding
its investments in the high-yield sector. Mr. Matlack has been a member of
Strategic Income Fund's management team since its inception.
Christopher A. Moth, Senior Portfolio Manager of Delaware International Advisers
Ltd., is a graduate of The City University London. He joined Delaware
International in 1992. He previously worked at the Guardian Royal Exchange in an
actuarial capacity where he was responsible for technical analysis, quantitative
models and projections. Mr. Moth has been awarded the certificate in Finance and
Investment from the Institute of Actuaries in London.
Joanna Bates, Senior Portfolio Manager of Delaware International Advisers, Ltd.,
is a graduate of London University. She joined the Fixed Income team at Delaware
International in June 1997. Prior to that she was Associate Director, Fixed
Interest at Hill Samuel Investment Management which she joined in 1990. She had
previously worked at Fidelity International and Save & Prosper as a fund manager
and analyst for global bond markets. Ms. Bates is an associate of the Institute
of Investment Management and Research.
David G. Tilles, Managing Director and Chief Investment Officer of Delaware
International Advisers Ltd., was educated at the Sorbonne, Warwick University
and Heidelberg University. Prior to joining Delaware International in 1990 as
Managing Director and Chief Investment Officer, he spent 16 years with Hill
Samuel Investment Management Group in London, serving in a number of investment
capacities. His most recent position prior to joining Delaware International was
Chief Investment Officer of Hill Samuel Investment Management Ltd.
14
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
<S> <C> <C>
Board of trustees
Investment manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Sub-adviser
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE
Portfolio managers Distributor Service agent
(see page __ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Shareholders
</TABLE>
Board of trustees A mutual fund is governed by a board of trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with the objective and policies
stated in the mutual fund's prospectus. The investment manager places portfolio
orders with broker/dealers and is responsible for obtaining the best overall
execution of those orders. A written contract between a mutual fund and its
investment manager specifies the services the manager performs. Most management
contracts provide for the manager to receive an annual fee based on a percentage
of the fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the
management of the fund's assets. They are selected and supervised by the
investment manager.
Portfolio managers Portfolio managers are employed by the investment manager
or sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
15
<PAGE>
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, 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.
16
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o retirement plans introduced by persons not associated with brokers or dealers
that are primarily engaged in the retail securities business and rollover
individual retirement accounts from such plans
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate of
the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts
o a bank, trust company and similar financial institution investing for its own
account or for the account of its trust customers for whom such financial
institution is exercising investment discretion in purchasing shares of the
Class, except where the investment is part of a program that requires payment
to the financial institution of a Rule 12b-1 Plan fee
o registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least
$1,000,000 entrusted to the adviser for investment purposes, but only if the
adviser is not affiliated or associated with a broker or dealer and derives
compensation for its services exclusively from its clients for such advisory
services
17
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800-510-4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
18
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. We reserve the right to reject any purchase
order.
We determine the funds 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.
19
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
20
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares, you
will receive the net asset value as determined on the business day we receive
your request. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
Account minimums
If you redeem shares and your account balance falls below $250, the Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
For Strategic Income Fund, dividends, if any, are paid monthly, while any
capital gains are distributed annually. 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 distributions from the 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. Short-term capital gains 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.
The sale of Fund shares either through redemption or exchange, is a taxable
event and may result in a capital gain or loss to shareholders.
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
as well as all redemptions and exchanges.
21
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." The Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund. The
portfolio managers and investment professionals of the Fund consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
22
<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>
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund
Institutional Class
- --------------------------------------------------------------------------------------------------------------- Period
Year Ended 7/31 10/1/96(1)
- --------------------------------------------------------------------------------------------------------------- through
1999 1998 7/31/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.700 $5500
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.458 0.367
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) from investments and foreign currencies (0.111) 0.187
------- -----
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.347 0.554
----- -----
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.457) (0.354)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.120) none
------- ----
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.577) (0.354)
======= =======
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.470 $5.700
====== ======
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total return(2) 6.36% 10.36%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,764 $3,305
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation 1.48% 1.87%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 8.18% 7.90%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation 7.45% 6.77%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 175% 183%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios have been annualized and total
returns have 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.
23
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss)
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
24
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
25
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bond.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Lehman Brothers Aggregate Bond Index
The Lehman Brothers Aggregate Bond Index is an index that measures the
performance of about 6,500 U.S. corporate and government bonds. Neither index is
a perfect comparison to Delaware Balanced Series since the S&P 500 does not
include fixed-income securities and the Lehman Brothers Aggregate Bond Index
does not include stocks.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch IBCA, Inc. (Fitch).
26
<PAGE>
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
27
<PAGE>
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
28
<PAGE>
Delaware Strategic Income Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- ---------------------------
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
oFor fund information; literature; price, yield and performance figures.
oFor information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions and
telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-2071
- --------------------------------------------------------------------------------
CUSIP number NASDAQ symbol
- --------------------------------------------------------------------------------
Strategic Income Fund Institutional Class 245908751 DGCIX
- --------------------------------------------------------------------------------
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 9/99
29
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Class A o Class B o Class C
Prospectus
September 29, 1999
Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profile page
Corporate Bond Fund and
Extended Duration Bond Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Funds
Choosing a share class
How to reduce your sales charge
How to buy shares
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
2
<PAGE>
Profile: Corporate Bond Fund and Extended Duration Bond Fund
- ------------------------------------------------------------
What are the Funds' goals?
Both Corporate Bond Fund and Extended Duration Bond Fund seek to provide
investors with total return.
What are the Funds' main investment strategies?
We invest primarily in corporate bonds. Our focus is on corporate bonds that
have investment-grade credit ratings from a nationally recognized statistical
ratings organization (NRSRO). The bonds we select for the portfolio are
typically rated BBB and above by Standard and Poor's Ratings Group or Baa and
above by Moody's Investors Service, Inc. We may also invest in unrated bonds, if
we believe their credit quality is comparable to those that have
investment-grade ratings.
The most significant difference between the two funds is in their return
potential and their risk profiles as determined by the average duration of the
bonds in each Fund's portfolio. Duration measures a bond's sensitivity to
interest rates by indicating the approximate change in a bond or bond fund's
price given a 1% change in interest rates. We generally keep Corporate Bond
Fund's duration between four and seven years. This is a more conservative
strategy than that of 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.
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. For a more complete discussion of risk, please turn to
page x.
Who should invest in the Funds
o Investors with medium or long-range goals.
o Investors looking for a bond investment to help balance their investments
in stocks or more aggressive securities.
o Investors who are looking for an income investment that can provide total
return opportunities through the automatic reinvestment of income
dividends.
Who should not invest in the Funds
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors seeking long-term growth of capital.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss these Funds with your financial adviser to
determine whether they are an appropriate choice for you.
3
<PAGE>
What are each Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund.
- --------------------------------------------------------- ------- ------- ------
CLASS A B C
- --------------------------------------------------------- ------- ------- ------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 4.75% none none
- --------------------------------------------------------- ------- ------- ------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none(1) 4%(2) 1%(3)
- --------------------------------------------------------- ------- ------- ------
Maximum sales charge (load) imposed on
Reinvested dividends none none none
- --------------------------------------------------------- ------- ------- ------
Redemption fees none none none
- --------------------------------------------------------- ------- ------- ------
Annual fund operating expenses are deducted from each Fund's assets.
<TABLE>
<CAPTION>
- -------------------------------------------- ------------------------------------- ------------------------------------
Corporate Bond Fund Extended Duration Bond Fund
- -------------------------------------------- ------------------------------------- ------------------------------------
Class A Class B Class C Class A Class B Class C
- -------------------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Management fees 0.50% 0.50% 0.50% 0.55% 0.55% 0.55%
- -------------------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
Distribution and service (12b-1) fees 0.25%(4) 1.00% 1.00% 0.25%(4) 1.00% 1.00%
- -------------------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
Total annual fund operating expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
Fee waivers and payments(5) (0.00%) (0.00%) (0.00%) (0.00%) (0.00%) (0.00%)
- -------------------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
Net expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
</TABLE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------- ------------------------------------------------------------
Without Fee Limitation
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Bond Fund Extended Duration Bond Fund
- -------------------------------------------------------------------- ------------------------------------------------------------
Class A(7) A B B C C A B B C C
if if if if
redeemed redeemed redeemed redeemed
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
<S> <C>
1 year
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
3 years
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
5 years
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
10 years
- -------------------------------------------------------------------- ------------------------------------------------------------
With Fee Limitation(5)
Corporate Bond Fund Extended Duration Bond Fund
- -------------------------------------------------------------------- ------------------------------------------------------------
A B B C C A B B C C
if if if if
redeemed redeemed redeemed redeemed
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
1 year
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
3 years
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
5 years
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
10 years
- --------------- ---------- -------- ----------- ------- ------------ ------------ ------------ ----------- ---------- -----------
</TABLE>
4
<PAGE>
(1) A purchase of Class A shares of $1 million or more may be made at net
asset value. However, if you buy the shares through a financial adviser
who is paid a commission, a contingent deferred sales charge will apply
to certain redemptions. Additional Class A purchase options that involve
a contingent deferred sales charge may be permitted from time to time
and will be disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first two years after you buy
them, you will pay a contingent deferred sales charge of 4%, which
declines to 3% during the third and fourth years, 2% during the fifth
year, 1% during the sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Board of Trustees set the 12b-1 plan expenses for the Fund's Class A
shares at 0.25%. 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
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. This example does not reflect the voluntary expense cap
described in footnote 5.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and
tenth years reflects expenses of the Class A shares.
5
<PAGE>
How we manage the Funds
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Investment strategy
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Funds'
investment goals.
The Funds strive to provide shareholder with total return through a combination
of income and capital appreciation from the bonds in their portfolios. We invest
primarily in corporate bonds, with a strong emphasis on those that are rated in
the four highest credit categories by an NRSRO. We may also invest in
high-yielding, lower quality corporate bonds. 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 for the portfolio we conduct a careful analysis of economic
factors, industry-related information and the underlying financial stability of
the company issuing the bond.
Choosing Between Corporate Bond Fund and Extended Duration Bond Fund
We manage both Corporate Bond Fund and 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 the each Fund.
Corporate Bond Fund is the more conservative of the two funds and might be
appropriate for investors who desire less fluctuation in their share price. We
generally keep Corporate Bond Fund's duration between four and seven years.
Extended Duration Bond Fund will typically have a duration between eight and 11
years. This longer duration gives Extended Duration Bond Fund greater income
potential as well as greater appreciation potential when interest rates decline.
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- ------------------------------------------------------- ----------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------- ----------------------------------------------------------------------------
<S> <C>
Corporate bonds: Debt obligations issued by a We will invest at least 65% of each Fund's assets in investment grade
corporation. corporate bonds.
Debt securities within the top three categories
comprise what are known as high-grade bonds and are
regarded as having a strong ability to pay principal
and interest. Securities in the fourth category are
known as medium-grade bonds and are regarded as having
an adequate capacity to pay principal and interest but
with greater vulnerability to adverse economic
conditions and speculative characteristics.
- ------------------------------------------------------- ----------------------------------------------------------------------------
High-yield corporate bonds: Debt obligations issued Both Funds may invest up to 20% of net assets in high-yield corporate
by a corporation and rated lower than investment bonds.
grade by a nationally recognized statistical ratings
organization (NRSRO) such as S&P or Moody's.. We carefully evaluate an individual company's financial
High-yield bonds are higher risk securities issued by situation, its management, the prospects for its
corporations that have poor credit quality and may industry and the technical factors related to its bond
have difficulty repaying principal and interest. offering. Our goal is to identify those companies that
we believe will be able to repay their debt obligations
in spite of poor ratings. The Fund may invest in
unrated bonds if we believe their credit quality is
comparable to the rated bonds we are permitted to
invest in. Unrated bonds may be more speculative in
nature than rated bonds.
- ------------------------------------------------------- ----------------------------------------------------------------------------
U.S. government securities: Direct U.S. obligations The Fund may invest in direct U.S. government obligations; however, these
including bills, notes, bonds as well as other debt securities will typically be a smaller percentage of the portfolio because
securities issued by the U.S. Treasury and securities they generally do not offer as high a level of current income as other
of U.S. government agencies or instrumentalities. fixed-income securities the Fund may invest in.
- ------------------------------------------------------- ----------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment in kind bonds. We expect
securities are debt obligations which do not entitle payment in kind bonds to be a less significant component of our strategy.
the holder to any periodic payments of interest prior The market prices of these bonds are generally more volatile than the
to maturity or a specified date when the securities market prices of securities that pay interest periodically and are likely
begin paying current interest. Therefore, they are to react to changes in interest rates to a greater degree than
issued and traded at a price lower than their face interest-paying bonds having similar maturities and credit quality. They
amounts or par value. Payment-in-kind bonds pay may have certain tax consequences which, under certain conditions, could
interest or dividends in the form of additional bonds be adverse to the Fund.
or preferred stock.
- ------------------------------------------------------- ----------------------------------------------------------------------------
Foreign government securities: Securities issued by We may invest in foreign government securities and we primarily focus on
foreign governments. better quality bonds with investment-grade credit ratings.
- ------------------------------------------------------- ----------------------------------------------------------------------------
Foreign corporate bonds: Debt obligations issued by a Each Fund may invest up to 15% of its net assets in securities of issuers
foreign corporation. in foreign countries.
- ------------------------------------------------------- ----------------------------------------------------------------------------
Corporate commercial paper Short-term debt We may invest in commercial paper that is rated P-1 or P-2 by Moody's
obligations with maturities ranging from 2 to 270 and/or A-1 or A-2 by S&P. We may also invest in unrated commerical paper
days, issued by companies. if we determine its quality is comparable to these quality ratings.
- ------------------------------------------------------- ----------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------- ----------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------- ----------------------------------------------------------------------------
<S> <C>
Short-term debt or money market instruments: Very Each Fund may hold short-term debt or money market
short-term debt securities generally considered to be securities pending an investment in other securities or
equivalent to cash. when the manager feels that it is prudent to do so
because of market conditions. All short-term
instruments held by the Funds must be of the highest
quality as rated by a NRSRO or determined to be of
comparable quality by the Funds' manager.
- ------------------------------------------------------- ----------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term investment for our
and seller of securities in which the seller agrees cash position. In order to enter into these repurchase agreements, we must
to buy the securities back within a specified time at have collateral of at least 100% of the repurchase price.
the same price the buyer paid for them, plus an
amount equal to an agreed upon interest rate.Repurchase
agreements are often viewed as equivalent to cash.
- ------------------------------------------------------- ----------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest in privately placed securities that are
whose resale is restricted under securities law. eligible for resale only among certain institutional
buyers without registration. These are commonly known
as Rule 144A Securities. Restricted securities that are
determined to be illiquid may not exceed the Fund's 15%
limit on illiquid securities, which is described below.
- ------------------------------------------------------- ----------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 15% of total assets in illiquid securities.
ready market, and cannot be easily sold, if at all,
at approximately the price that the Series has valued
them.
- ------------------------------------------------------- ----------------------------------------------------------------------------
</TABLE>
The Fund may also invest in other types of income-producing securities including
common stocks, preferred stocks and warrents. Please see the Statement of
Additional Information for additional descriptions on these securities as well
as those listed in the table above.
Lending securities
The Funds may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
Borrowing from banks
The Funds 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 Funds will not borrow money in excess of
one-third of the value of their respective net assets.
Purchasing securities on a when-issued or delayed delivery basis
The Funds 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 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.
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. You should consider an investment in a Fund to be
a long-term investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when you invest in
the Funds. Please see the Statement of Additional Information for further
discussion of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------------------------------------------------------
Risks How we strive to manage them
- ---------------------------------------- -------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a We maintain a long-term investment approach and focus on high quality individual
majority of the securities in a bonds that we believe can provide a steady stream of income regardless of interim
certain market -- like the stock or fluctuations in the bond market. We do not try to predict overall interest rate
bond market -- will decline in value movements and do not buy and sell securities for short-term purposes.
because of factors such as economic
conditions, future expectations or We may hold a substantial part of each Fund's assets in cash or cash equivalents as
investor confidence. a temporary, defensive strategy.
- ---------------------------------------- -------------------------------------------------------------------------------------
Interest rate risk is the risk that Interest rate risk is a significant risk for these Funds. In striving to manage
securities will decrease in value if this risk, we monitor economic conditions and the interest rate environment and may
interest rates rise. The risk is adjust the Fund's duration or average maturity as a defensive measure against
greater for bonds with longer interest rate risk.
maturities than for those with shorter
maturities.
- ---------------------------------------- -------------------------------------------------------------------------------------
Credit risk The possibility that a We strive to minimize credit risk by investing primarily in higher quality,
bond's issuer (or an entity that investment-grade corporate bonds.
insures the bond) will be unable to
make timely payments of interest and Any portion of the portfolio that is invested in high-yielding, lower quality
principal. corporate bonds is subject to greater credit risk. We strive to manage that risk
through careful bond selection, by limiting the percentage of the portfolio that
Investing in so-called "junk" or can be invested in lower quality bonds and by maintaining a diversified portfolio
"high-yield" bonds entails the risk of of bonds representing a variety of industries and issuers.
principal loss, which may be greater
than the risk involved in investment
grade bonds, particularly in times of
economic declines. High-yield bonds
are sometimes issued by companies
whose earnings at the time the bond is
issued are less than the projected
debt payments on the bonds.
- ---------------------------------------- -------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit the percentage of the portfolio that can be invested in illiquid
securities cannot be readily sold, or securities.
can only be sold at a price lower than
the price that the Fund has valued
them.
- ---------------------------------------- -------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
------------------------------------------------------------------------------
Corporate Bond Extended
Fund Duration Bond
Fund
------------------------------------------------------------------------------
As a percentage of average daily net assets 0.00%* 0.00%*
------------------------------------------------------------------------------
*Reflects the voluntary waiver of fees by the manager.
Portfolio manager
Gary A. Reed has primary responsibility for making day-to-day investment
decisions for each Fund.
Gary A. Reed, Vice President/Senior Portfolio Manager for the Funds, 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. Mr. Reed has been managing the Funds
since their inception.
10
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
Board of Trustees
Investment Manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio manager Distributor Service agent
(see page ___ for details) Delaware Distributors, L.P. Delaware Service
1818 Market Street Company, Inc.
Philadelphia, PA 19103 1818 Market Street
Philadelphia, PA 19103
Financial advisers
Shareholders
Board of trustees A mutual fund is governed by a board of trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with the objective and policies
stated in the mutual fund's prospectus. The investment manager places portfolio
orders with broker/dealers and is responsible for obtaining the best overall
execution of those orders. A written contract between a mutual fund and its
investment manager specifies the services the manager performs. Most management
contracts provide for the manager to receive an annual fee based on a percentage
of the fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager
to make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, 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.
11
<PAGE>
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 4.75% that you pay
when you buy the shares. The offering price for Class A shares includes
the front-end sales charge.
o If you invest $100,000 or more, your front-end sales charge will be
reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales
charge may be waived; please see the Statement of Additional Information
for details.
o Class A shares are also subject to an annual 12b-1 fee no greater than
0.30% of average daily net assets, which is lower than the 12b-1 fee for
Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge, except in the limited circumstances described in the table below.
Class A sales charges
<TABLE>
<CAPTION>
- --------------------------------------------- ---------------- ------------------------------------------ --------------------------
Sales charge Sales charge Dealer's commission
Amount of purchase as % of as % as %
offering price of amount invested of offering price
- --------------------------------------------- ---------------- -------------------- --------------------- --------------------------
Corporate Bond Delaware Extended
Duration Bond
- --------------------------------------------- ---------------- -------------------- --------------------- --------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.00%
- --------------------------------------------- ---------------- -------------------- --------------------- --------------------------
$100,000 but under $250,000 3.75% 3.00%
- --------------------------------------------- ---------------- -------------------- --------------------- --------------------------
$250,000 but under $500,000 2.50% 2.00%
- --------------------------------------------- ---------------- -------------------- --------------------- --------------------------
$500,000 but under $1,000,000 2.00% 1.60%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year after your
purchase and 0.50% if you redeem them within the second year.
<TABLE>
<CAPTION>
- -------------------------------------------- -------------------------- -------------------------------- ---------------------------
Sales charge Sales charge Dealer's commission
Amount of purchase as % of as % of as % of
offering price amount invested offering price
- -------------------------------------------- -------------------------- -------------------------------- ---------------------------
<S> <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>
12
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within six years after
you buy them.
o If you redeem Class B shares during the first two years after you buy
them, the shares will be subject to a contingent deferred sales charge of
4%. The contingent deferred sales charge is 3% during the third and
fourth years, 2% during the fifth year, 1% during the sixth year, and 0%
thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1% of average daily net
assets, of which 0.25% are service fees paid to the distributor, dealers
or others for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and
any dividends paid on these shares are lower than dividends on Class A
shares.
o Approximately eight years after you buy them, Class B shares
automatically convert into Class A shares with a 12b-1 fee of no more
than 0.30%. Conversion may occur as late as three months after the eighth
anniversary of purchase, during which time Class B's higher 12b-1 fees
apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
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 if you redeem your shares within 12 months after
you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information for details.
o Class C shares are subject to an annual 12b-1 fee which may not be
greater than 1% of average daily net assets, of which 0.25% are service
fees paid to the distributor, dealers or others for providing services
and maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any
one time. The limitation on maximum purchases varies for retirement
plans.
Each share class of the Funds has adopted a separate 12b-1 plan that allows it
to pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Funds' assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
13
<PAGE>
About your account (continued)
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------- ------------------------------------- ------------------------------------------
Program How it works Share class
A B C
- ------------------------------------------- ----------------------------------- ------------- ---------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of B and C
shares to fulfill your
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 shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------- ----------------------------------- ------------- ---------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X There is no reduction in
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales charges sales charge for Class B
401(k), 403(b)(7), and 457 Retirement by combining the purchases of all or Class C shares for
Plans members of the group. Members of group purchases by
these groups may also qualify to retirement plans.
purchase shares without a
front-end sales charge and a
waiver of any contingent deferred
sales charges.
- ------------------------------------------- ----------------------------------- ------------- ---------------------------
</TABLE>
14
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service or through our web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800.523.1918.
15
<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 determine each Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of trustees. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
trustees.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Funds may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in these Funds can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
16
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
17
<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.
18
<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 similar 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.
19
<PAGE>
About your account (continued)
Special services (continued)
MoneyLineSM On Demand Service
Through our MoneyLineSM On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs.
MoneyLine has a minimum transfer of $25 and a maximum transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine Direct Deposit Service you can have $25 or more in
dividends and distributions deposited directly to your bank account. Delaware
Investments does not charge a fee for this service; however, your bank may
assess one. This service is not available for retirement plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly or
quarterly payment from your account made to you or someone you designate. If the
value of your account is $5,000 or more, you can make withdrawals of at least
$25 monthly, or $75 quarterly. You may also have your withdrawals deposited
directly to your bank account through our MoneyLine Direct Deposit Service.
Dividends, distributions and taxes
For each Fund, dividends, if any, are paid monthly, while any capital gains are
distributed 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 distributions 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. Short-term capital gains
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. The sale
of Fund shares either through redemption or exchange, is a taxable event and may
result in a capital gain or loss to shareholders.
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
as well as all redemptions and exchanges.
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The
portfolio managers and investment professionals of the Funds consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
20
<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>
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Corporate Bond Fund Corporate Bond Fund Corporate Bond Fund
A Class B Class C Class
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Period Period Period
9/15/98(1) 9/15/98(1) 9/15/98(1)
through through through
7/31/99 7/31/99 7/31/99
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net asset value, beginning of period
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Income from investment operations:
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net investment income
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net realized and unrealized gain from investments
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net increase in net assets from investment operations
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Less dividends and distributions:
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Dividends from net investment income
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Distributions from net realized gain on security
transactions
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Total dividends and distributions
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net asset value, end of period
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Total return(2)
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratios and supplemental data:
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net assets, end of period (000 omitted)
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratio of expenses to average net assets
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratio of expenses to average net assets prior to
expense limitation
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratio of net investment income to average net assets
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratio of net investment income to average net assets
prior to expense limitation
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Portfolio turnover
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have
been annualized and total return has not been annualized.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
21
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Extended Duration Extended Duration Extended Duration
Bond Fund Bond Fund Bond Fund
A Class B Class C Class
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Period Period Period
9/15/98(1) 9/15/98(1) 9/15/98(1)
through through through
7/31/99 7/31/99 7/31/99
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
<S> <C> <C> <C>
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net asset value, beginning of period
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Income from investment operations:
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net investment income
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net realized and unrealized gain from investments
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net increase in net assets from investment operations
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Less dividends and distributions:
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Dividends from net investment income
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Distributions from net realized gain on security
transactions
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Total dividends and distributions
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net asset value, end of period
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Total return(2)
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratios and supplemental data:
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Net assets, end of period (000 omitted)
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratio of expenses to average net assets
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratio of expenses to average net assets prior to
expense limitation
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratio of net investment income to average net assets
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Ratio of net investment income to average net assets
prior to expense limitation
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
Portfolio turnover
- -------------------------------------------------------- --------------------------- -------------------------- --------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have
been annualized and total return has not been annualized.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
22
<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss)
A realized gain on investments occurs when we sell an investment at a profit,
while a realized loss occurs when we sell an investment at a loss. When an
investment increases or decreases in value but we do not sell it, we record an
unrealized gain or loss. The amount of realized gain per share that we pay to
shareholders, if any, is listed under "Less dividends and
distributions-Distributions from net realized gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
23
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
24
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bond.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
25
<PAGE>
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
26
<PAGE>
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
27
<PAGE>
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the report
period. You can find more detailed information about the Funds in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in these Funds, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Funds from your financial adviser.
You can find reports and other information about the Funds on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Funds, including their
Statement of Additional Information, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get information on the public reference room by calling the SEC at
1.800.SEC.0330.
Web site
www.delawareinvestments.com
- ---------------------------
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
oFor fund information; literature; price, yield and performance figures.
oFor information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions and
telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-2071
- ------------------------------- ---------------- -------------------------------
Fund name CUSIP number NASDAQ symbol
- ------------------------------- ---------------- -------------------------------
Corporate Bond Fund
- ------------------------------- ---------------- -------------------------------
A Class 245908785 DGCAX
- ------------------------------- ---------------- -------------------------------
B Class 245908777 DGCBX
- ------------------------------- ---------------- -------------------------------
C Class 245908769 DGCCX
- ------------------------------- ---------------- -------------------------------
Extended Duration Bond Fund
- ------------------------------- ---------------- -------------------------------
A Class 245908835 DEEAX
- ------------------------------- ---------------- -------------------------------
B Class 245908827 DEEBX
- ------------------------------- ---------------- -------------------------------
C Class 245908819 DEECX
- ------------------------------- ---------------- -------------------------------
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P= 002 [--] PP 6/99
28
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Institutional Class
Prospectus
September 29, 1999
Current Income Funds
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
1
<PAGE>
Table of contents
Fund profiles page
Corporate Bond Fund
Extended Duration Bond Fund
How we manage the Funds page
Our investment strategies
The securities we typically invest in
The risks of investing in the Funds
Who manages the Funds page
Investment manager
Portfolio manager
Fund administration (Who's who)
About your account page
Investing in the Funds
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial highlights page
2
<PAGE>
Profile: Corporate Bond Fund and Extended Duration Bond Fund
- -------------------------------------------------------------
What are the Funds' goals?
Both Corporate Bond Fund and Extended Duration Bond Fund seek to provide
investors with total return.
What are the Funds' main investment strategies?
We invest primarily in corporate bonds. Our focus is on corporate bonds that
have investment-grade credit ratings from a nationally recognized statistical
ratings organization (NRSRO). The bonds we select for the portfolio are
typically rated BBB and above by Standard and Poor's Ratings Group or Baa and
above by Moody's Investors Service, Inc. We may also invest in unrated bonds, if
we believe their credit quality is comparable to those that have
investment-grade ratings.
The most significant difference between the two funds is in their return
potential and their risk profiles as determined by the average duration of the
bonds in each Fund's portfolio. Duration measures a bond's sensitivity to
interest rates by indicating the approximate change in a bond or bond fund's
price given a 1% change in interest rates. We generally keep Corporate Bond
Fund's duration between four and seven years. This is a more conservative
strategy than that of 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.
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. For a more complete discussion of risk, please turn to
page x.
Who should invest in the Funds
o Investors with medium or long-range goals.
o Investors looking for a bond investment to help balance their investments
in stocks or more aggressive securities.
o Investors who are looking for an income investment that can provide total
return opportunities through the automatic reinvestment of income
dividends.
Who should not invest in the Funds
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors seeking long-term growth of capital.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss these Funds with your financial adviser to
determine whether they are an appropriate choice for you.
3
<PAGE>
What are the Funds' fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Funds.
- ---------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price none
- ---------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
- ---------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends none
- ---------------------------------------------------------------------------
Redemption fees none
- ---------------------------------------------------------------------------
Exchange Fees(1) none
- ---------------------------------------------------------------------------
Annual fund operating expenses are deducted from a Fund's assets.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Corporate Bond Fund Extended Duration Bond Fund
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management fees 0.50% 0.55%
- ---------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees None none
- ---------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses 0.00% 0.00%
- ---------------------------------------------------------------------------------------------------------------------
Fee waivers and payments(2) (0.00%) (0.00%)
- ---------------------------------------------------------------------------------------------------------------------
Net expenses 0.00% 0.00%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(3) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Without Expense Limitation
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Corporate Bond Fund Extended Duration Bond Fund
- -------------------------------------------------------------------------------------------
<S> <C> <C>
1 year $000 $000
- -------------------------------------------------------------------------------------------
3 years $000 $000
- -------------------------------------------------------------------------------------------
5 years $000 $000
- -------------------------------------------------------------------------------------------
10 years $0,000 $0,000
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
With Expense Limitation(2)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Corporate Bond Fund Extended Duration Bond Fund
- -------------------------------------------------------------------------------------------
1 year $000 $000
- -------------------------------------------------------------------------------------------
3 years $000 $000
- -------------------------------------------------------------------------------------------
5 years $000 $000
- -------------------------------------------------------------------------------------------
10 years $0,000 $0,000
- -------------------------------------------------------------------------------------------
</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
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.
4
<PAGE>
How we manage the Funds
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Investment strategy
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular fund.
Following are descriptions of how the portfolio managers pursue the Funds'
investment goals.
The Funds strive to provide shareholder with total return through a combination
of income and capital appreciation from the bonds in their portfolios. We invest
primarily in corporate bonds, with a strong emphasis on those that are rated in
the four highest credit categories by an NRSRO. We may also invest in
high-yielding, lower quality corporate bonds. 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 for the portfolio we conduct a careful analysis of economic
factors, industry-related information and the underlying financial stability of
the company issuing the bond.
Choosing Between Corporate Bond Fund and Extended Duration Bond Fund
We manage both Corporate Bond Fund and 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 the each Fund.
Corporate Bond Fund is the more conservative of the two funds and might be
appropriate for investors who desire less fluctuation in their share price. We
generally keep Corporate Bond Fund's duration between four and seven years.
Extended Duration Bond Fund will typically have a duration between eight and 11
years. This longer duration gives Extended Duration Bond Fund greater income
potential as well as greater appreciation potential when interest rates decline.
5
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Corporate bonds: Debt obligations issued by a We will invest at least 65% of each Fund's assets in investment grade
corporation. corporate bonds.
Debt securities within the top three categories
comprise what are known as high-grade bonds and are
regarded as having a strong ability to pay principal
and interest. Securities in the fourth category are
known as medium-grade bonds and are regarded as having
an adequate capacity to pay principal and interest but
with greater vulnerability to adverse economic
conditions and speculative characteristics.
- ------------------------------------------------------------------------------------------------------------------------------------
High-yield corporate bonds: Debt obligations issued Both Funds may invest up to 20% of net assets in high-yield corporate
by a corporation and rated lower than investment bonds.
grade by 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 higher risk securities issued by management, the prospects for its industry and the technical factors
corporations that have poor credit quality and may related to its bond offering. Our goal is to identify those companies that
have difficulty repaying principal and interest. 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 in direct U.S. government obligations; however, these
including bills, notes, bonds as well as other debt securities will typically be a smaller percentage of the portfolio because
securities issued by the U.S. Treasury and securities they generally do not offer as high a level of current income as other
of U.S. government agencies or instrumentalities. fixed-income securities the Fund may invest in.
- ------------------------------------------------------------------------------------------------------------------------------------
Zero coupon bonds and pay-in-kind bonds: Zero coupon We may invest in zero coupon bonds and payment in kind bonds. We expect
securities are debt obligations which do not entitle payment in kind bonds to be a less significant component of our strategy.
the holder to any periodic payments of interest prior The market prices of these bonds are generally more volatile than the
to maturity or a specified date when the securities market prices of securities that pay interest periodically and are likely
begin paying current interest. Therefore, they are to react to changes in interest rates to a greater degree than
issued and traded at a price lower than their face interest-paying bonds having similar maturities and credit quality. They
amounts or par value. Payment-in-kind bonds pay may have certain tax consequences which, under certain conditions, could
interest or dividends in the form of additional bonds be adverse to the Fund.
or preferred stock.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign government securities: Securities issued by We may invest in foreign government securities and we primarily focus on
foreign governments. better quality bonds with investment-grade credit ratings.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign corporate bonds: Debt obligations issued by a Each Fund may invest up to 15% of its net assets in securities of issuers
foreign corporation. in foreign countries.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Corporate commercial paper Short-term debt We may invest in commercial paper that is rated P-1 or P-2 by Moody's
obligations with maturities ranging from 2 to 270 and/or A-1 or A-2 by S&P. We may also invest in unrated commerical paper
days, issued by companies. if we determine its quality is comparable to these quality ratings.
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term debt or money market instruments: Very Each Fund may hold short-term debt or money market securities pending an
short-term debt securities generally considered to be investment in other securities or when the manager feels that it is
equivalent to cash. prudent to do so because of market conditions. All short-term instruments
held by the Funds must be of the highest quality as rated by a NRSRO or
determined to be of comparable quality by the Funds' manager.
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term investment for our
and seller of securities in which the seller agrees cash position. In order to enter into these repurchase agreements, we must
to buy the securities back within a specified time at have collateral of at least 100% of the repurchase price.
the same price the buyer paid for them, plus an
amount equal to an agreed upon interest rate.
Repurchase agreements are often viewed as equivalent
to cash.
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest in privately placed securities that are eligible for resale
whose resale is restricted under securities law. only among certain institutional buyers without registration. These are
commonly known as Rule 144A Securities. Restricted securities that are
determined to be illiquid may not exceed the Fund's 15% limit on illiquid
securities, which is described below.
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 15% of total assets in illiquid securities.
ready market, and cannot be easily sold, if at all,
at approximately the price that the Series has valued
them.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also invest in other types of income-producing securities including
common stocks, preferred stocks and warrents. Please see the Statement of
Additional Information for additional descriptions on these securities as well
as those listed in the table above.
Lending securities
The Funds may lend up to 25% of its assets to qualified brokers, dealers and
investors for their use in security transactions.
Borrowing from banks
The Funds 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 Funds will not borrow money in excess of
one-third of the value of their respective net assets.
Purchasing securities on a when-issued or delayed delivery basis
The Funds 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 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.
7
<PAGE>
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in a Fund you should
carefully evaluate the risks. You should consider an investment in a Fund to be
a long-term investment that typically provides the best results when held for a
number of years. The following are the chief risks you assume when you invest in
the Funds. Please see the Statement of Additional Information for further
discussion of these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Market risk is the risk that all or a We maintain a long-term investment approach and focus on high quality individual
majority of the securities in a bonds that we believe can provide a steady stream of income regardless of interim
certain market -- like the stock or fluctuations in the bond market. We do not try to predict overall interest rate
bond market -- will decline in value movements and do not buy and sell securities for short-term purposes.
because of factors such as economic
conditions, future expectations or We may hold a substantial part of each Fund's assets in cash or cash equivalents as
investor confidence. a temporary, defensive strategy.
- ------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that Interest rate risk is a significant risk for these Funds. In striving to manage
securities will decrease in value if this risk, we monitor economic conditions and the interest rate environment and may
interest rates rise. The risk is adjust the Fund's duration or average maturity as a defensive measure against
greater for bonds with longer interest rate risk.
maturities than for those with
shorter maturities.
- ------------------------------------------------------------------------------------------------------------------------------
Credit risk The possibility that a We strive to minimize credit risk by investing primarily in higher quality,
bond's issuer (or an entity that investment-grade corporate bonds.
insures the bond) will be unable to
make timely payments of interest and Any portion of the portfolio that is invested in high-yielding, lower quality
principal. corporate bonds is subject to greater credit risk. We strive to manage that risk
through careful bond selection, by limiting the percentage of the portfolio that
Investing in so-called "junk" or can be invested in lower quality bonds and by maintaining a diversified portfolio
"high-yield" bonds entails the risk of of bonds representing a variety of industries and issuers.
principal loss, which may be greater
than the risk involved in investment
grade bonds, particularly in times of
economic declines. High-yield bonds
are sometimes issued by companies
whose earnings at the time the bond is
issued are less than the projected
debt payments on the bonds.
- ------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit the percentage of the portfolio that can be invested in illiquid
securities cannot be readily sold, or securities.
can only be sold at a price lower than
the price that the Fund has valued
them.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Funds, manages the Funds' business affairs and provides daily
administrative services. For these services, the manager was paid a fee for the
last fiscal year as follows:
Investment management fees
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Corporate Bond Extended
Fund Duration Bond
Fund
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
As a percentage of average daily net assets 0.00%* 0.00%*
---------------------------------------------------------------------------------------------------------
</TABLE>
*Reflects the voluntary waiver of fees by the manager.
Portfolio manager
Gary A. Reed has primary responsibility for making day-to-day investment
decisions for each Fund.
Gary A. Reed, Vice President/Senior Portfolio Manager for the Funds, 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. Mr. Reed has been managing the Funds
since their inception.
9
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
Board of trustees
<S> <C> <C>
Investment manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page __ for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Shareholders
</TABLE>
Board of trustees A mutual fund is governed by a board of trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of trustees must be independent of the fund's
investment manager or distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for
selecting portfolio investments consistent with the objective and policies
stated in the mutual fund's prospectus. The investment manager places portfolio
orders with broker/dealers and is responsible for obtaining the best overall
execution of those orders. A written contract between a mutual fund and its
investment manager specifies the services the manager performs. Most management
contracts provide for the manager to receive an annual fee based on a percentage
of the fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager
or sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, 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.
10
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the following:
o retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate
of the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts
o a bank, trust company and similar financial institution investing for its
own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee
o registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least
$1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services
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.
11
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800-510-4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
12
<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 the funds 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.
13
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
14
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares, you
will receive the net asset value as determined on the business day we receive
your request. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
Account minimums
If you redeem shares and your account balance falls below $250, a Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
For each Fund, dividends, if any, are paid monthly, while any capital gains are
distributed 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 distributions 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. Short-term capital gains
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. The sale
of Fund shares either through redemption or exchange, is a taxable event and may
result in a capital gain or loss to shareholders.
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
as well as all redemptions and exchanges.
15
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by their service providers do not properly process and calculate
date-related information from and after January 1, 2000. This is commonly known
as the "Year 2000 Problem." Each Fund is taking steps to obtain satisfactory
assurances that its major service providers are taking steps reasonably designed
to address the Year 2000 Problem on the computer systems that the service
providers use. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Funds. The
portfolio managers and investment professionals of the Funds consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantees that, even with their due diligence efforts, they will be
able to predict the effect of Year 2000 on any company or the performance of its
securities.
16
<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>
- --------------------------------------------------------------------------------------------------------------------
Corporate Bond Fund
Institutional Class
- --------------------------------------------------------------------------------------------------------------------
Period
9/15/98(1)
through
7/31/99
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------------------
Net investment income
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain from investments
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on security transactions
- --------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total return(2)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
17
<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>
- --------------------------------------------------------------------------------------------------------------------------
Extended Duration Bond Fund
Institutional Class
- --------------------------------------------------------------------------------------------------------------------------
Period
9/15/98(1)
through
7/31/99
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------------------------
Net investment income
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain from investments
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from investment operations
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions:
- --------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on security transactions
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total return(2)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to expense limitation
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets prior to expense limitation
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
18
<PAGE>
[begin glossary]
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
19
<PAGE>
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bond.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
20
<PAGE>
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
Salomon Smith Barney High-Yield Bond Index
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
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]
Client Services Representative
800-510-4015
Delaphone Service
800-362-FUND (800-362-3863)
For convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
Investment Company Act file number: 811-2071
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fund name CUSIP number NASDAQ symbol
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Corporate Bond Fund Institutional Class 245908751 DGCIX
- -----------------------------------------------------------------------------------------------------------------------------------
Extended Duration Bond Fund Institutional Class 245914817 DEMIX
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002[--]PP 1/99
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 29, 1999
DELAWARE DELCHESTER FUND
DELAWARE STRATEGIC INCOME FUND
DELAWARE HIGH-YIELD OPPORTUNITIES FUND
DELWARE CORPORATE BOND FUND
DELWARE EXTENDED DURATION BOND FUND
1818 Market Street, Philadelphia, PA 19103
For Prospectus, Performance and Information on
Existing Accounts of Class A Shares, Class B
Shares and Class C Shares:
Nationwide 800-523-1918
For more information about Institutional Classes: 800-510-4015
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
Delaware Group Income Funds, a Delaware business trust ("Income Funds")
is a professionally-managed mutual fund of the series type which currently
offers five series of shares: Delaware Delchester Fund ("Delchester Fund"),
Delaware Strategic Income Fund ("Strategic Income Fund"), Delaware High-Yield
Opportunities Fund ("High-Yield Opportunities Fund"), Delaware Corporate Bond
Fund ("Corporate Bond Fund") and Delaware Extended Duration Bond Fund ("Extended
Duration Bond Fund") (individually, a "Fund", and collectively, the "Funds").
Each Fund offers three retail classes: Class A Shares, Class B Shares and Class
C Shares (individually, a "Class" and collectively, the "Fund Classes"). Each
Fund also offers an institutional class (collectively, the "Institutional
Classes").
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectuses for
the Fund Classes dated September 29, 1999, as it may be amended from time to
time. Part B should be read in conjunction with the Class' Prospectuses. Part B
is not itself a prospectus but is, in its entirety, incorporated by reference
into each Class' Prospectus. A prospectus relating to a Fund Class may be
obtained by writing or calling your investment dealer or by contacting each
Fund's national distributor, Delaware Distributors, L.P. (the "Distributor"), at
the above address or by calling the above phone numbers. The Funds' financial
statements, the notes relating thereto, the financial highlights and the report
of independent auditors are incorporated by reference from each Fund's Annual
Report into this Part B. The Annual Reports will accompany any request for Part
B. The Annual Reports can be obtained, without charge, by calling 800-523-1918.
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
TABLE OF CONTENTS
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Investment Objectives and Policies Redemption and Exchange
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Performance Information Dividends and Distributions
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Performance Information Taxes
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Trading Practices and Brokerage Investment Management Agreements and Sub-Advisory
Agreement
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Purchasing Shares Officers and Trustees
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Retirement Plans General Information
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Investment Plans Appendix A -- Ratings
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
Determining Offering Price and Net Asset Value Financial Statements
- ---------------------------------------------------- -------- ----------------------------------------------------------- -------
</TABLE>
-2-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Restrictions
Fundamental Investment Restrictions
Each Fund has the following investment restrictions which may not be
amended without approval of a majority of the outstanding voting securities,
which is the lesser of more than 50% of the outstanding voting securities of the
Fund, or 67% of the voting securities of that Fund present at a shareholder
meeting if 50% or more of the voting securities are present in person or
represented by proxy. The percentage limitations contained in the restrictions
and policies set forth herein apply at the time a Fund purchases securities.
A Fund may not:
1. Make investments that will result in the concentration (as that term
may be defined in the 1940 Act, any rule or order thereunder, or U.S. Securities
and Exchange Commission ("SEC") staff interpretation thereof) of its investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit a Fund from investing in obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities, or in
certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that a Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent a Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent a Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent a Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
Prospectus, each Fund will be subject to the following investment restrictions,
which are considered non-fundamental and may be changed by the Board of Trustees
without shareholder approval.
1. Each Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, a Fund may
3
<PAGE>
not operate as a "fund of funds" which invests primarily in the shares of other
investment companies as permitted by Section 12(d)(1)(F) or (G) of the 1940 Act,
if its own shares are utilized as investments by such a "fund of funds."
2. Neither Fund may invest more than 15% of its net assets in
securities which it can not sell or dispose of in the ordinary course of
business within seven days at approximately the value at which a Fund has valued
the investment.
Additional Investment Restrictions - Non-Fundamental
Following are additional non-fundamental investment restrictions for the Funds:
Delchester Fund
Delchester Fund has the following investment restrictions which may not
be amended without approval of a majority of the outstanding voting securities,
which is the lesser of more than 50% of the outstanding voting securities of
Delchester Fund, or 67% of the voting securities of Delchester Fund present at a
shareholder meeting if 50% or more of the voting securities are present in
person or represented by proxy. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities.
1. Delchester Fund will not invest more than 5% of the value of its
assets in securities of any one company (except U.S. government bonds) or
purchase more than 10% of the voting or nonvoting securities of any one company.
2. Delchester Fund will not invest for the purpose of acquiring
control of any company.
3. Delchester Fund will not purchase or retain securities of a company
which has an officer or director who is an officer or director of Income Funds,
Inc., or an officer, director or partner of the Manager if, to the knowledge of
the Fund, one or more of such persons owns beneficially more than 1/2 of 1% of
the shares of the company, and in the aggregate more than 5% thereof.
4. Delchester Fund will not invest in securities of other investment
companies.
5. Delchester Fund will not make any investment in real estate. This
restriction does not preclude the Fund's purchase of securities issued by real
estate investment trusts.
6. Delchester Fund will not sell short any security or property.
7. Delchester Fund will not buy or sell commodities or commodity
contracts.
8. Delchester Fund will not borrow money in excess of 10% of the value
of its assets and then only as a temporary measure for extraordinary or
emergency purposes. Any borrowing will be done from a bank and to the extent
that such borrowing exceeds 5% of the value of the Fund's assets, asset coverage
of at least 300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter (not
including Sundays and holidays) or such longer period as the SEC may prescribe
by rules and regulations, reduce the amount of its borrowings to an extent that
the asset coverage of such borrowings shall be at least 300%. The Fund shall not
issue senior securities as defined in the 1940 Act, except for notes to banks.
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9. Delchester Fund will not make loans. However, (i) the purchase of a
portion of an issue of publicly distributed bonds, debentures or other
securities, or of other securities authorized to be purchased by the Fund's
investment policies, whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase agreements" are not
to be considered the making of a loan by the Fund; and (ii) the Fund may loan up
to 25% of its assets to qualified broker/dealers or institutional investors for
their use relating to short sales and other security transactions.
10. Delchester Fund will not invest in the securities of companies
which have a record of less than three years' continuous operation, including
any predecessor company or companies, if such purchase at the time thereof would
cause more than 5% of the total Fund assets to be invested in the securities of
such company or companies.
11. Delchester Fund will not act as an underwriter of securities of
other issuers, except that the Fund may acquire restricted or not readily
marketable securities under circumstances where, if such securities are sold,
the Fund might be deemed to be an underwriter for purposes of the Securities Act
of 1933.
12. No long or short positions on shares of the Fund may be taken by
Income Funds, Inc.'s officers, trustees or any of its affiliated persons. Such
persons may buy shares of the Fund for investment purposes, however, as
described under Purchasing Shares.
13. Delchester Fund will not invest more than 25% of its assets in any
one particular industry.
Although not a fundamental investment restriction, Delchester Fund
currently does not invest its assets in real estate limited partnerships or oil,
gas and other mineral leases.
Strategic Income Fund
Strategic Income Fund has the following investment restrictions which
may not be amended without approval of a majority of the outstanding voting
securities, which is the lesser of more than 50% of the outstanding voting
securities of Strategic Income Fund, or 67% of the voting securities of
Strategic Income Fund present at a shareholder meeting if 50% or more of the
voting securities are present in person or represented by proxy. The percentage
limitations contained in the restrictions and policies set forth herein apply at
the time of purchase of securities.
1. With respect to 75% of its total assets, Strategic Income Fund will
not invest more than 5% of the value of its total assets in securities of any
one issuer (except obligations issued, or guaranteed by, the U.S. government,
its agencies or instrumentalities or certificates of deposit for any such
securities, and cash and cash items) or purchase more than 10% of the voting
securities of any one company.
2. Strategic Income Fund will not make any investment in real estate.
This restriction does not preclude the Fund's purchase of securities issued by
real estate investment trusts, the purchase of securities issued by companies
that deal in real estate, or the investment in securities secured by real estate
or interests therein.
3. Strategic Income Fund will not sell short any security or property.
4. Strategic Income Fund will not buy or sell commodities or commodity
contracts, except that the Fund may enter into futures contracts and options
thereon.
5. Strategic Income Fund will not borrow money in excess of one-third
of the value of its net assets. Any borrowing will be done in accordance with
the rules and regulations prescribed from time to time by the SEC with respect
to open-end investment companies.
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6. Strategic Income Fund will not make loans. However, (i) the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other securities, or of other securities authorized to be purchased by the
Fund's investment policies, whether or not the purchase was made upon the
original issuance of the securities, and the entry into "repurchase agreements"
are not to be considered the making of a loan by the Fund; and (ii) the Fund may
loan securities to qualified broker/dealers or institutional investors for their
use relating to short sales and other security transactions.
7. Strategic Income Fund will not act as an underwriter of securities
of other issuers, except that the Fund may acquire restricted or not readily
marketable securities under circumstances where, if such securities are sold,
the Fund might be deemed to be an underwriter for purposes of the Securities Act
of 1933.
8. Strategic Income Fund will not invest more than 25% of the value of
its total assets in securities of issuers all of which conduct their principal
business activities in the same industry. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the above fundamental investment restrictions, Strategic
Income Fund has the following investment restrictions which may be amended or
changed without approval of shareholders.
1. Strategic Income Fund will not invest for the purpose of acquiring
control of any company.
2. Strategic Income Fund will not invest in securities of other
investment companies, except that the Fund may invest in securities of open-end,
closed-end and unregistered investment companies, in accordance with the
limitations contained in the Investment Company Act of 1940 at the time of the
investment.
3. Strategic Income Fund will not purchase or retain securities of a
company which has an officer or director who is an officer or director of Income
Funds, Inc., or an officer, director or partner of the Manager if, to the
knowledge of the Fund, one or more of such persons beneficially owns in the
aggregate more than 5% thereof.
4. Strategic Income Fund will not invest in the securities of
companies which have a record of less than three years' continuous operation,
including any predecessor company or companies, if such investment at the time
of purchase would cause more than 5% of the total Fund assets to be invested in
the securities of such company or companies.
Although not a fundamental investment restriction, Strategic Income
Fund currently does not invest its assets in real estate limited partnerships or
oil, gas and other mineral leases. In addition, Strategic Income Fund currently
does not purchase securities on margin except short-term credits that may be
necessary for the clearance of purchases and sales of securities, and the Fund
may make margin payments as may be necessary in connection with the futures and
options transactions described in the Fund's Prospectuses and this Part B.
High-Yield Opportunities Fund
High-Yield Opportunities Fund has the following investment restrictions
which may not be amended without approval of a majority of the outstanding
voting securities, which is the lesser of more than 50% of the outstanding
voting securities of High-Yield Opportunities Fund, or 67% of the voting
securities of High-Yield Opportunities Fund present at a shareholder meeting if
50% or more of the voting securities are present in person or represented by
proxy. The percentage limitations contained in the restrictions and policies set
forth herein apply at the time the Fund purchases securities.
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1. With respect to 75% of its total assets, High-Yield Opportunities
Fund will not invest more than 5% of its total assets in the securities of any
one issuer (other than obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities or certificates of deposit for any such
securities and cash and cash items) or purchase more than 10% of the voting
securities of any one company.
2. High-Yield Opportunities Fund will not make any investment in real
estate. This restriction does preclude the Fund's purchase of securities issued
by real estate investment trusts, the purchase of securities issued by companies
that deal in real estate, or the investment in securities secured by real estate
or interests therein.
3. High-Yield Opportunities Fund will not sell short any security or
property.
4. High-Yield Opportunities Fund will not buy or sell commodities or
commodity contracts except that the Fund may enter into futures contracts and
options thereon.
5. High-Yield Opportunities Fund will not borrow money in excess of
one-third of the value of its net assets. Any borrowing will be done in
accordance with the rules and regulations prescribed from time to time by the
SEC with respect to open-end investment companies. The Fund shall not issue
senior securities as defined in the Investment Company Act of 1940, except for
notes to banks.
6. High-Yield Opportunities Fund will not make loans. However, (i) the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other securities, or of other securities authorized to be purchased by the
Fund's investment policies, whether or not the purchase was made upon the
original issuance of the securities, and the entry into "repurchase agreements"
are not to be considered the making of a loan by the Fund; and (ii) the Fund may
loan securities to qualified broker/dealers or institutional investors for their
use relating to short sales and other security transactions.
7. High-Yield Opportunities Fund will not act as an underwriter of
securities of other issuers, except that the Fund may acquire restricted or not
readily marketable securities under circumstances where, if such securities are
sold, the Fund may be deemed to be an underwriter for purposes of the Securities
Act of 1933.
8. High-Yield Opportunities Fund will not invest more than 25% of its
total assets in securities of issuers all of which conduct their principal
business activities in the same industry. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the above fundamental investment restrictions,
High-Yield Opportunities Fund has the following investment restrictions which
may be amended or changed without approval of shareholders.
1. High-Yield Opportunities Fund will not invest for the purpose of
acquiring control of any company.
2. High-Yield Opportunities Fund will not invest in securities of other
investment companies, except the Fund may invest in securities of open-end,
closed-end and unregistered investment companies, in accordance with the
limitations contained in the Investment Company Act at the time of the
investment.
3. High-Yield Opportunities Fund will not write, purchase or sell
options, puts, calls or combinations thereof with respect to securities.
4. High-Yield Opportunities Fund will not enter into futures contracts
or options thereon.
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5. High-Yield Opportunities Fund will not purchase or retain the
securities of any issuer which has an officer, director or security holder who
is a director or officer of Income Funds, Inc. or of the Manager if or so long
as the trustees and officers of Income Funds, Inc. and of the Manager together
own beneficially more than 5% of any class of securities of such issuer.
6. High-Yield Opportunities Fund will not invest in interests in oil,
gas and other mineral leases or other mineral exploration or development
programs.
7. High-Yield Opportunities Fund will not purchase securities on margin
except short-term credits that may be necessary for the clearance of purchases
and sales of securities.
Delchester Fund
In investing for income and safety of principal, Delchester Fund's
emphasis in selection will be on securities having a liberal and consistent
yield and those tending to reduce the risk of market fluctuations. The types of
securities in which Delchester Fund invests are subject to price fluctuations
particularly due to changes in interest rates and economic conditions.
Management will seek to achieve Delchester Fund's objective by investing at
least 80% of the Fund's assets at time of purchase in:
(1) Corporate Bonds. The Fund will invest in both rated and unrated
bonds. Unrated bonds may be more speculative in nature than rated bonds; or
(2) Government Securities. Securities of, or guaranteed by, the U.S.
government, its agencies or instrumentalities; or
(3) Commercial Paper. Commercial paper of companies having, at the time
of purchase, an issue of outstanding debt securities rated as described above or
commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Group ("S&P") or
rated P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's") or similarly
rated by other rating agencies.
As a matter of practice, Delchester Fund has consistently invested more
than 80% of its assets in such securities. With respect to the remaining assets,
if any, that Delchester Fund may invest in other securities, the Fund must
invest in income-producing securities, including common stocks and preferred
stocks, some of which may have convertible features or attached warrants.
Additionally, in unusual market conditions, in order to meet redemption
requests, for temporary defensive purposes, and pending investment, the Fund may
hold a substantial portion of its assets in cash or short-term obligations for
an appreciable period of time when market conditions warrant and the Fund is
anticipating higher interest rates. Currently, Delchester Fund's assets are
invested primarily in unrated bonds and bonds rated BB or lower by S&P or Ba or
lower by Moody's.
High-Yield Opportunities Fund
The types of securities in which High-Yield Opportunities Fund invests
are subject to price fluctuations particularly due to changes in interest rates
and economic conditions. Management will seek to achieve High-Yield
Opportunities Fund's objective by investing at least 65% of the Fund's assets at
time of purchase in corporate bonds rated BB or lower by S&P or Ba or lower by
Moody's or similarly rated by other rating agencies, and in unrated bonds judged
to be of comparable quality by Delaware Management Company, Inc. (the
"Manager"). Unrated bonds may be more speculative in nature than rated bonds.
The Fund may also invest in securities of, or guaranteed by, the U.S.
and foreign governments, their agencies or instrumentalities and commercial
paper of companies having, at the time of purchase, an issue of
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outstanding debt securities rated as described above or commercial paper rated
A-1 or A-2 by S&P or rated P-1 or P-2 by Moody's or similarly rated by other
rating agencies, and in unrated paper judged to be of comparable quality by the
Manager.
Corporate Bond Fund and Extended Duration Bond Fund
The types of securities in which each Fund invests are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Management will seek to achieve each Fund's objective by investing
in investment grade corporate bonds. Each Fund may also invest in corporate
bonds rated BB by S&P or Ba by Moody's or similarly rated by other rating
agencies, and in unrated bonds judged to be of comparable quality by Delaware
Management Company (the "Manager"). Unrated bonds may be more speculative in
nature than rated bonds.
Each Fund may also invest in securities of, or guaranteed by, the U.S.
and foreign governments, their agencies or instrumentalities and commercial
paper of companies having, at the time of purchase, an issue of outstanding debt
securities rated as described above or commercial paper rated A-1 or A-2 by S&P
or rated P-1 or P-2 by Moody's or similarly rated by other rating agencies, and
in unrated paper judged to be of comparable quality by the Manager.
Appendix A - Ratings in this Part B describes the ratings of S&P and
Moody's.
High-Yield, High Risk Securities
Investing in so-called "high-yield" or "high risk" securities entails
certain risks, including the risk of loss of principal, which may be greater
than the risks involved in investment grade securities, and which should be
considered by investors contemplating an investment in the Funds. Such
securities are sometimes issued by companies whose earnings at the time of
issuance are less than the projected debt service on the high-yield securities.
The risks include the following:
A. Youth and Volatility of the High-Yield Market--Although the market
for high-yield securities has been in existence for many years, including
periods of economic downturns, the high-yield market grew rapidly during the
long economic expansion which took place in the United States during the 1980s.
During that economic expansion, the use of high-yield debt securities to fund
highly leveraged corporate acquisitions and restructurings increased
dramatically. As a result, the high-yield market grew substantially during that
economic expansion. Although experts disagree on the impact recessionary periods
have had and will have on the high-yield market, some analysts believe a
protracted economic downturn would severely disrupt the market for high-yield
securities, would adversely affect the value of outstanding bonds and would
adversely affect the ability of high-yield issuers to repay principal and
interest. Those analysts cite volatility experienced in the high-yield market in
the past as evidence for their position. It is likely that protracted periods of
economic uncertainty would result in increased volatility in the market prices
of high-yield securities, an increase in the number of high-yield bond defaults
and corresponding volatility in a Fund's net asset value.
B. Liquidity and Valuation--The secondary market for high-yield
securities is currently dominated by institutional investors, including mutual
funds and certain financial institutions. There is generally no established
retail secondary market for high-yield securities. As a result, the secondary
market for high-yield securities is more limited and less liquid than other
secondary securities markets. The high-yield secondary market is particularly
susceptible to liquidity problems when the institutions which dominate it
temporarily cease buying such securities for regulatory, financial or other
reasons, such as the savings and loan crisis. A less liquid secondary market may
have an adverse effect on a Fund's ability to dispose of particular issues, when
necessary, to meet a Fund's liquidity needs or in response to a specific
economic event, such as the deterioration in the creditworthiness of the issuer.
In addition, a less liquid secondary market makes it more difficult for a Fund
to obtain precise valuations of the high-yield securities
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in its portfolio. During periods involving such liquidity problems, judgment
plays a greater role in valuing high-yield securities than is normally the case.
The secondary market for high-yield securities is also generally considered to
be more likely to be disrupted by adverse publicity and investor perceptions
than the more established secondary securities markets. Privately placed
high-yield securities are particularly susceptible to the liquidity and
valuation risks outlined above.
C. Legislative and Regulatory Action and Proposals--There are a variety of
legislative actions which have been taken or which are considered from time to
time by the United States Congress which could adversely affect the market for
high-yield bonds. For example, Congressional legislation limited the
deductibility of interest paid on certain high-yield bonds used to finance
corporate acquisitions. Also, Congressional legislation has, with some
exceptions, generally prohibited federally-insured savings and loan institutions
from investing in high-yield securities. Regulatory actions have also affected
the high-yield market. For example, many insurance companies have restricted or
eliminated their purchases of high-yield bonds as a result of, among other
factors, actions taken by the National Association of Insurance Commissioners.
If similar legislative and regulatory actions are taken in the future, they
could result in further tightening of the secondary market for high-yield issues
and could reduce the number of new high-yield securities being issued.
Corporate Bond Fund and Extended Duration Bond Fund will not purchase
securities rated below BB by S&P or Ba by Moody's. The Funds will not invest
more than 20% of its assets in such securities.
Zero Coupon and Pay-In-Kind Bonds
The credit risk factors pertaining to lower rated securities also apply
to lower rated zero coupon, deferred interest and pay-in-kind bonds. These bonds
carry an additional risk in that, unlike bonds that pay interest throughout the
period to maturity, a Fund will realize no cash until the cash payment date and,
if the issuer defaults, the Fund may obtain no return at all on its investment.
Zero coupon, deferred interest and pay-in-kind bonds involve additional special
considerations.
Zero coupon or deferred interest securities are debt obligations that
do not entitle the holder to any periodic payments of interest prior to maturity
or a specified date when the securities begin paying current interest (the "cash
payment date") and therefore are generally issued and traded at a discount from
their face amounts or par value. The discount varies depending on the time
remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer, typically
decreases as the final maturity or cash payment date of the security approaches.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero coupon
or deferred interest securities having similar maturities and credit quality.
Current federal income tax law requires that a holder of a zero coupon security
report as income each year the portion of the original issue discount on the
security that accrues that year, even though the holder receives no cash
payments of interest during the year.
Pay-in-kind bonds are securities that pay interest through the issuance
of additional bonds. The Fund will be deemed to receive interest over the life
of these bonds and be treated as if interest were paid on a current basis for
federal income tax purposes, although no cash interest payments are received by
the Fund until the cash payment date or until the bonds mature. Accordingly,
during periods when the Fund receive no cash interest payments on its zero
coupon securities or deferred interest or pay-in-kind bonds, it may be required
to dispose of portfolio securities to meet the distribution requirements and
these sales may be subject to the risk factors discussed above. The Fund is not
limited in the amount of its assets that may be invested in these types of
securities.
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Foreign and Emerging Markets Securities
Strategic Income Fund, High-Yield Opportunities Fund, Corporate Bond
Fund and Extended Duration Bond Fund may invest in foreign and emerging markets
securities. Investors should recognize that investing in foreign issuers,
including issuers located in emerging market countries, involves certain
considerations which are not typically associated with investing in United
States issuers. Since the stocks of foreign companies are frequently denominated
in foreign currencies, and since Strategic Income Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of Strategic Income Fund permit it
to enter into forward foreign currency exchange contracts in order to hedge the
Fund's holdings and commitments against changes in the level of future currency
rates. Such contracts involve an obligation to purchase or sell a specific
currency at a future date at a price set at the time of the contract.
There are a number of risks involved in investing in foreign
securities. For example, the assets and profits appearing on the financial
statements of a developing or emerging country issuer may not reflect its
financial position or results of operations in the way they would be reflected
had the financial statements been prepared in accordance with United States
generally accepted accounting principles. Also, for an issuer that keeps
accounting records in local currency, inflation accounting rules may require for
both tax and accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items in terms of
currency or constant purchasing power. Inflation accounting may indirectly
generate losses on profits.
With reference to the Fund's investment in foreign government
securities, there is the risk that a foreign governmental issuer may default on
its obligations. If such a default occurs, the Fund may have limited effective
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting party itself, and the ability
of the holder of foreign government and government-related debt securities to
obtain recourse may be subject to the political climate in the relevant country.
In addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of other foreign government and
government-related debt obligations in the event of default under their
commercial bank loan agreements.
The issuers of the foreign government and government-related debt
securities in which the Fund expects to invest have in the past experienced
substantial difficulties in servicing their external debt obligations, which
have led to defaults on certain obligations and the restructuring of certain
indebtedness. Restructuring arrangements have included, among other things,
reducing and rescheduling interest and principal payments by negotiating new or
amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Holders of certain foreign government and government-related high-yield
securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no
assurance that the Brady Bonds and other foreign government and
government-related securities in which the Fund may invest will not be subject
to similar defaults or restructuring arrangements which may adversely affect the
value of such investments. Furthermore, certain participants in the secondary
market for such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.
There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by Strategic Income Fund.
Payment of such interest equalization tax, if imposed, would reduce the Fund's
rate of return on its investment. Dividends paid by foreign issuers may be
subject to withholding and other foreign taxes which may decrease the net return
on such investments as compared to dividends paid to the Fund by United States
corporations. Special rules govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules generally
include the following: (i) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in
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Treasury Regulations, preferred stock); (ii) the accruing of certain trade
receivables and payables; and (iii) the entering into or acquisition of any
forward contract, futures contract, option and similar financial instruments
other than any "regulated futures contract" or "nonequity option" marked to
market. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency rules.
However, foreign currency-related regulated futures contracts and nonequity
options are generally not subject to the special currency rules, if they are or
would be treated as sold for their fair market value at year-end under the
marking to market rules applicable to other futures contracts, unless an
election is made to have such currency rules apply. With respect to transactions
covered by the special rules, foreign currency gain or loss is calculated
separately from any gain or loss on the underlying transaction and is normally
taxable as ordinary gain or loss. A taxpayer may elect to treat as capital gain
or loss foreign currency gain or loss arising from certain identified forward
contracts, futures contracts and options that are capital assets in the hands of
the taxpayer and which are not part of a straddle. Certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), and the Treasury Regulations) will be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
The income tax effects of integrating and treating a transaction as a single
transaction are generally to create a synthetic debt instrument that is subject
to the original discount provisions. It is anticipated that some of the non-U.S.
dollar denominated investments and foreign currency contracts the Funds may make
or enter into will be subject to the special currency rules described above.
Investments and opportunities for investments by foreign investors in
emerging market countries are subject to a variety of national policies and
restrictions. These restrictions may take the form of prior governmental
approval, limits on the amount or type of securities held by foreigners, limits
on the types of companies in which foreigners may invest and prohibitions on
foreign investments in issuers or industries deemed sensitive to national
interests. Additional restrictions may be imposed at any time by these or other
countries in which the Funds invest. Although these restrictions may in the
future make it undesirable to invest in emerging countries, a Fund's manager or
sub-adviser does not believe that any current registration restrictions would
affect its decision to invest in such countries.
Foreign Currency Transactions
The foreign investments made by Strategic Income Fund present currency
considerations which pose special risks. The Sub-Adviser uses a purchasing power
parity approach to evaluate currency risk. A purchasing power parity approach
attempts to identify the amount of goods and services that a dollar will buy in
the United States and compares that to the amount of a foreign currency required
to buy the same amount of goods and services in another country. When the dollar
buys less abroad, the foreign currency may be considered to be overvalued. When
the dollar buys more abroad, the foreign currency may be considered to be
undervalued. Eventually, currencies should trade at levels that should make it
possible for the dollar to buy the same amount of goods and services overseas as
in the United States.
Strategic Income Fund may purchase or sell currencies and/or engage in
forward foreign currency transactions in order to expedite settlement of
portfolio transactions and to minimize currency value fluctuations. Forward
foreign currency contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Strategic Income Fund will account for forward
contracts by marking to market each day at daily exchanges rates. When the Fund
enters into a forward contract to sell an amount of foreign currency
approximating the value of some or all of the Fund's assets denominated in such
foreign currency, the Fund's custodian bank or subcustodian will place cash or
liquid high grade debt securities in a separate account of the Fund in an amount
not less than the value of the Fund's total assets committed to the consummation
of such forward contract. If the additional cash or securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of Strategic Income Fund's commitments with respect to such contract.
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Strategic Income Fund's use of forward foreign currency exchange
contracts for hedging and other non-speculative purposes involves certain risks.
For example, a lack of correlation between price changes of a forward contract
and the assets being hedged could render Strategic Income Fund's hedging
strategy unsuccessful and could result in losses. The same results could occur
if movements of foreign currencies do not correlate as expected by the
Sub-Adviser at a time when the Fund is using a hedging instrument denominated in
one foreign currency to protect the value of a security denominated in a second
foreign currency against changes caused by fluctuations in the exchange rate for
the dollar and the second currency. If the direction of securities prices,
interest rates or foreign currency prices is incorrectly predicted, Strategic
Income Fund will be in a worse position than if such transactions had not been
entered into. In addition, since there can be no assurance that a liquid
secondary market will exist for any contract purchased or sold, the Fund may be
required to maintain a position until exercise or expiration, which could result
in losses. Further, forward contracts entail particular risks related to
conditions affecting the underlying currency. Over-the-counter transactions in
forward contracts also involve risks arising from the lack of an organized
exchange trading environment.
Successful use by Strategic Income Fund of forward foreign currency
exchange contracts for hedging and other non-speculative purposes is subject to
the Sub-Adviser's ability to predict correctly the direction of movements in
foreign currencies relative to the U.S. dollar. This requires different skills
and techniques than predicting changes in the prices of individual securities.
Non-Traditional Equity Securities
Strategic Income Fund may invest in convertible preferred stocks that
offer enhanced yield features, such as Preferred Equity Redemption Cumulative
Stock ("PERCS"), which provide an investor, such as the Fund, with the
opportunity to earn higher dividend income than is available on a company's
common stock. A PERCS is a preferred stock which generally features a mandatory
conversion date, as well as a capital appreciation limit which is usually
expressed in terms of a stated price. Upon the conversion date, most PERCS
convert into common stock of the issuer (PERCS are generally not convertible
into cash at maturity). Under a typical arrangement, if after a predetermined
number of years the issuer's common stock is trading at a price below that set
by the capital appreciation limit, each PERCS would convert to one share of
common stock. If, however, the issuer's common stock is trading at a price above
that set by the capital appreciation limit, the holder of the PERCS would
receive less than one full share of common stock. The amount of that fractional
share of common stock received by the PERCS holder is determined by dividing the
price set by the capital appreciation limit of the PERCS by the market price of
the issuer's common stock. PERCS can be called at any time prior to maturity,
and hence do not provide call protection. However, if called early, the issuer
may pay a call premium over the market price to the investor. This call premium
declines at a preset rate daily, up to the maturity date of the PERCS.
Strategic Income Fund, High-Yield Opportunities Fund, Corporate Bond
Fund and Extended Duration Bond Fund may also invest in other enhanced
convertible securities. These include but are not limited to ACES (Automatically
Convertible Equity Securities), PEPS (Participating Equity Preferred Stock),
PRIDES (Preferred Redeemable Increased Dividend Equity Securities), SAILS (Stock
Appreciation Income Linked Securities), TECONS (Term Convertible Notes), QICS
(Quarterly Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS, and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.
13
<PAGE>
When-Issued and Delayed Delivery Securities
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the Fund enters into the commitment
and no interest accrues to the Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.
Borrowing From Banks
Each Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. The Fund will not borrow money in excess
of one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.
Duration
Most debt obligations provide interest (coupon) payments in addition to
a final (par) payment at maturity. Some obligations also have call provisions.
Depending on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates. Traditionally, a debt
security's term-to-maturity has been used as a proxy for the sensitivity of the
security's price to changes in interest rates (which is the interest rate risk
or volatility of the security). However, term-to-maturity measures only the time
until a debt security provides its final payment, taking no account of the
pattern of the security's payments prior to maturity.
Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept of
term-to-maturity. Duration incorporates a bond's yield, coupon interest
payments, final maturity and call features into one measure. Duration is one of
the fundamental tools used by the Manager in the selection of fixed income
securities. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any fixed income security with interest payments
occurring prior to the payment of principal, duration is always less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a fixed income security, the longer the duration of
the security; conversely, the higher the stated or coupon rate of interest of a
fixed income security, the shorter the duration of the security.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
14
<PAGE>
In these and other similar situations, the Manager will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Restricted Securities
The Funds may purchase privately-placed debt and other securities whose
resale is restricted under applicable securities laws. Such restricted
securities generally offer a higher return than comparable registered securities
but involve some additional risk since they can be resold only in
privately-negotiated transactions or after registration under applicable
securities laws. The registration process may involve delays which could result
in the Funds obtaining a less favorable price on a resale. Each Fund will not
purchase illiquid assets if more than 15% of its respective net assets (10% for
Delchester Fund) would then consist of such illiquid securities.
Repurchase Agreements
The Funds are permitted to invest in repurchase agreements, but they
normally so only to invest cash balances. A repurchase agreement is a short-term
investment by which the purchaser acquires ownership of a debt security and the
seller agrees to repurchase the obligation at a future time and set price,
thereby determining the yield during the purchaser's holding period. Should an
issuer of a repurchase agreement fail to repurchase the underlying security, the
loss to a Fund, if any, would be the difference between the repurchase price and
the market value of the security. Each Fund will limit its investments in
repurchase agreements to those which the Manager, under the guidelines of the
Board of Trustees, determines present minimal credit risks and which are of high
quality. In addition, each Fund must have collateral of at least 102% of the
repurchase price, including the portion representing the Fund's yield under such
agreements, which is monitored on a daily basis.
The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the Investment
Company Act of 1940 (the "1940 Act") to allow the such funds jointly to invest
cash balances. The Funds may invest cash balances in a joint repurchase
agreement in accordance with the terms of the Order and subject generally to the
conditions described above.
Portfolio Loan Transactions
Each Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.
It is the understanding of the Manager that the staff of the Securities
and Exchange Commission (the "SEC" or the "Commission") permits portfolio
lending by registered investment companies if certain conditions are met. These
conditions are as follows: 1) each transaction must have 100% collateral in the
form of cash, short-term U.S. government securities, or irrevocable letters of
credit payable by banks acceptable to the Fund involved from the borrower; 2)
this collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund; 3) the Fund must be able to terminate any loan after notice, at any time;
4) the Fund must receive reasonable interest on any loan, and any dividends,
interest or other distributions on the lent securities, and any increase in the
market value of such securities; 5) the Fund may pay reasonable custodian fees
in connection with the loan; 6) the voting rights on the lent securities may
pass to the borrower; however, if the Trustees of Income Funds, Inc. know that a
material event will occur affecting an investment loan, they must either
terminate the loan in order to vote the proxy or enter into an alternative
arrangement with the borrower to enable the Trustees to vote the proxy.
The major risk to which a Fund would be exposed on a loan transaction
is the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, each Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Trustees, including the creditworthiness of the borrowing broker,
15
<PAGE>
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.
Options, Futures and Options on Futures
Strategic Income Fund may purchase call options or purchase put options
and will not engage in option strategies for speculative purposes. Strategic
Income Fund may invest in options that are either listed on U.S. or recognized
foreign exchanges or traded over-the-counter. Certain over-the-counter options
may be illiquid. Thus, it may not be possible to close options positions and
this may have an adverse impact on the Fund's ability to effectively hedge its
securities. Strategic Income Fund will not, however, invest more than 15% of the
value of its net assets in illiquid securities.
Purchasing Call Options--Strategic Income Fund may purchase call
options to the extent that premiums paid by the Fund do not aggregate more than
2% of the Fund's total assets. When the Fund purchases a call option, in return
for a premium paid by the Fund to the writer of the option, the Fund obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that Strategic
Income Fund may alter portfolio characteristics and modify portfolio maturities
without incurring the cost associated with portfolio transactions.
Strategic Income Fund may, following the purchase of a call option,
liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. Strategic Income Fund will realize a profit from a closing sale
transaction if the price received on the transaction is more than the premium
paid to purchase the original call option; the Fund will realize a loss from a
closing sale transaction if the price received on the transaction is less than
the premium paid to purchase the original call option.
Although Strategic Income Fund will generally purchase only those call
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange may exist. In such event, it may not be possible to effect
closing transactions in particular options, with the result that the Fund would
have to exercise its options in order to realize any profit and would incur
brokerage commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by Strategic Income Fund may expire
without any value to the Fund.
Purchasing Put Options--Strategic Income Fund may invest up to 2% of
its total assets in the purchase of put options. Strategic Income Fund will, at
all times during which it holds a put option, own the security covered by such
option.
A put option purchased by Strategic Income Fund gives it the right to
sell one of its securities for an agreed price up to an agreed date. The Fund
intends to purchase put options in order to protect against a decline in the
market value of the underlying security below the exercise price less the
premium paid for the option ("protective puts"). The ability to purchase put
options will allow Strategic Income Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. If
the security does not drop in value, Strategic Income Fund will lose the value
of the premium paid. The Fund may sell a put option which it has previously
purchased prior to the sale of the securities underlying such option. Such sale
will result in a net gain or loss depending on whether the amount received on
the sale is more or less than the premium and other transaction costs paid on
the put option which is sold.
Strategic Income Fund may sell a put option purchased on individual
portfolio securities. Additionally, the Fund may enter into closing sale
transactions. A closing sale transaction is one in which the Fund, when it is
16
<PAGE>
the holder of an outstanding option, liquidates its position by selling an
option of the same series as the option previously purchased.
Futures and Options on Futures--Strategic Income Fund may enter into
contract for the purchase or sale for future delivery of securities or foreign
currencies. When the Fund engages in futures transactions, to the extent
required by the SEC, it will maintain with its custodian bank, assets in a
segregated account to cover its obligations with respect to such contracts,
which assets will consist of cash, cash equivalents or high quality debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the margin payments made by the Fund with respect to such futures contracts.
The Fund may enter into such futures contracts to protect against the
adverse affects of fluctuations in interest or foreign exchange rates without
actually buying or selling the securities or foreign currency. For example, if
interest rates are expected to increase, the Fund might enter into futures
contracts for the sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the debt securities owned by the Fund.
If interest rates did increase, the value of the debt securities in the
portfolio would decline, but the value of the futures contracts to the Fund
would increase at approximately the same rate, thereby keeping the net asset
value of the Fund from declining as much as it otherwise would have. Similarly,
when it is expected that interest rates may decline, futures contracts may be
purchased to hedge in anticipation of subsequent purchases of securities at
higher prices. Since the fluctuations in the value of futures contracts should
be similar to those of debt securities, the Fund could take advantage of the
anticipated rise in value of debt securities without actually buying them until
the market had stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the cash market.
With respect to options on futures contracts, when Strategic Income
Fund is not fully invested, it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates. The writing
of a call option on a futures contract constitutes a partial hedge against
declining prices of the U.S. government securities which are deliverable upon
exercise of the futures contract. If the futures price at the expiration of the
option is below the exercise price, Strategic Income Fund will retain the full
amount of the option premium which provides a partial hedge against any decline
that may have occurred in the portfolio holdings. The writing of a put option on
a futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price,
Strategic Income Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of U.S. government
securities which Strategic Income Fund intends to purchase.
If a put or call option that Strategic Income Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between the value of
its portfolio securities and changes in the value of its futures positions,
Strategic Income Fund's losses from existing options on futures may, to some
extent, be reduced or increased by changes in the value of portfolio securities.
Strategic Income Fund will purchase a put option on futures contracts to hedge
the Fund's portfolio against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction,
Strategic Income Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize a loss. For example, if
Strategic Income Fund hedged against the possibility of an increase in interest
rates which would adversely affect the price of U.S. government securities held
in its portfolio and interest rates decrease instead, Strategic Income Fund will
lose part or all of the benefit of the increased value of its U.S. government
securities which it has because it will have offsetting losses in its futures
position. In addition, in such situations, if the Fund had insufficient cash, it
may be required to sell U.S. government securities from its portfolio to meet
daily variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. Strategic
Income Fund may be required to sell securities at a time when it may be
disadvantageous to do so.
17
<PAGE>
Further, with respect to options on futures contracts, Strategic Income
Fund may seek to close out an option position by writing or buying an offsetting
position covering the same securities or contracts and have the same exercise
price and expiration date. The ability to establish and close out positions on
options will be subject to the maintenance of a liquid secondary market, which
cannot be assured.
Although not fundamental policy, the Fund currently intends to limit
its investments in futures contracts and options thereon to the extent that not
more than 5% of the Funds assets are required as futures contract margin
deposits and premiums on options and only to the extent that obligations under
such contracts and transactions represent not more than 20% of the Fund's
assets.
Concentration
In applying a Fund's policy on concentration; (i) utility companies
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (iii) asset backed
securities will be classified according to the underlying assets securing such
securities.
18
<PAGE>
PERFORMANCE INFORMATION
From time to time, each Fund may state its Classes' total return in
advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year, or life-of-fund periods, as applicable. Each
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.
In presenting performance information for Class A Shares, the Limited
CDSC, applicable only to certain redemptions of those shares, will not be
deducted from any computation of total return. See the Prospectus for a
description of the Limited CDSC and the limited instances in which it applies.
All references to a CDSC in this Performance Information section will apply to
Class B Shares or Class C Shares.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from
which, in the case of only Class A Shares, the maximum
front-end sales charge is deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period
after the deduction of the applicable
CDSC, if any, with respect to Class B
Shares and Class C Shares
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, each Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
Each Fund may also state total return performance for its Classes in
the form of an average annual return. This average annual return figure will be
computed by taking the sum of a Class' annual returns, then dividing that figure
by the number of years in the overall period indicated. The computation will
reflect the impact of the maximum front-end sales charge or CDSC, if any, paid
on the illustrated investment amount against the first year's return.
The average annual total return (and, as applicable, aggregate total
return) for Class A Shares at offer reflects the maximum front-end sales charge
of 4.75% paid on the purchase of shares. The average annual total return (and,
as applicable, aggregate total return) for Class A Shares at net asset value
(NAV) does not reflect the payment of any front-end sales charge.
The average annual total return (and, as applicable, aggregate total
return) for Class B Shares and Class C Shares including deferred sales charge
reflects the deduction of the applicable CDSC that would have been paid if the
19
<PAGE>
shares were redeemed at July 31, 1999. The average annual total return (and, as
applicable, aggregate total return) for Class B Shares and Class C Shares
excluding deferred sales charge assumes the shares were not redeemed at July 31,
1999 and therefore does not reflect the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
Average Annual Total Return
<TABLE>
<CAPTION>
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Institutional Class B Class C
Class A (1) Class A (1) Class Class B excluding including Class C
at offer(2) at NAV (Inception including CDSC CDSC CDSC excluding CDSC
Delchester (Inception (Inception 6/1/92) (Inception (Inception (Inception (Inception
Fund 8/20/70) 8/20/70) 5/2/94) 5/2/94) 11/29/95) 11/29/95)
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
7/31/99
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
3 years ended 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
7/31//99
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
5 years ended 0.00% 0.00% 0.00% N/A N/A N/A N/A
7/31/99
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
10 years ended 0.00% 0.00% N/A N/A N/A N/A N/A
7/31/99
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
15 years ended 0.00% 0.00% N/A N/A N/A N/A N/A
7/31//99
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Institutional Class B Class C
Class A Class A Class Class B excluding including Class C
at offer at NAV (Inception including CDSC CDSC CDSC excluding CDSC
Strategic Income (Inception (Inception 10/1/96) (Inception (Inception (Inception (Inception
Fund(2) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 0/1/96) 10/1/96)
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
7/31/99
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Institutional Class B Class C
Class A Class A Class Class B excluding including Class C
High-Yield at offer at NAV (Inception including CDSC CDSC CDSC excluding CDSC
Opportunities (Inception (Inception 12/30/96) (Inception (Inception (Inception (Inception
Fund(2) 12/30/96) 12/30/96) 2/17/98) 2/17/98) 2/17/98) 2/17/98)
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
7/31/99
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ -------------- --------------- ----------------- --------------- -------------- -------------- ---------------
</TABLE>
20
<PAGE>
Aggregate Total Return
<TABLE>
<CAPTION>
- ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including CDSC excluding including excluding
at offer at NAV Class (Inception CDSC CDSC CDSC
(Inception (Inception (Inception 9/15/98) (Inception (Inception (Inception
Corporate Bond 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98)
Fund(2)
- ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
</TABLE>
Aggregate Total Return
<TABLE>
<CAPTION>
- ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including CDSC excluding including excluding
at offer at NAV Class (Inception CDSC CDSC CDSC
(Inception (Inception (Inception 9/15/98) (Inception (Inception (Inception
Extended 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98)
Duration Bond
Fund(2)
- ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ -------------- --------------- ----------------- ------------------ --------------- -------------- --------------
</TABLE>
(1) Performance figures for periods after May 31, 1992 reflect applicable
Rule 12b-1 distribution expenses. Future performance will be affected
by such expenses.
(2) Total return reflects voluntary expense limitations in effect for the
Fund. Returns would be lower without the caps. See Investment
Management Agreement.
Each Fund may also quote its current yield for each Class in
advertisements and investor communications. The yield computation is determined
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period and annualizing
the resulting figure, according to the following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends;
d = the maximum offering price per share on the last day
of the period.
21
<PAGE>
The above formula will be used in calculating quotations of yield of
each Class, based on specified 30-day periods identified in advertising by the
Fund. The yields of Class A Shares, Class B Shares and Class C Shares of each
Fund as of July 31, 1999 using this formula were as follows:
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Class A Shares Class B Shares Class C Shares Institutional Class
Shares
- --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
Delchester Fund 0.00% 0.00% 0.00% 0.00%
- --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Strategic Income Fund 0.00% 0.00% 0.00% 0.00%
- --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
High-Yield Opportunities 0.00% 0.00% 0.00% 0.00%
Fund
- --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Corporate Bond Fund
0.00% 0.00% 0.00% 0.00%
- --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Extended Duration Bond
Fund 0.00% 0.00% 0.00% 0.00%
- --------------------------- ------------------------ ------------------------- ------------------------ -------------------------
</TABLE>
Yield calculations assume the maximum front-end sales charge, if any,
and does not reflect the deduction of any CDSC or Limited CDSC. The yields for
Strategic Income Fund, High-Yield Opportunities Fund, Corporate Bond Fund and
Extended Duration Bond Fund reflect the expense limitations in effect for the
Fund. Actual yield may be affected by variations in sales charges on
investments.
Past performance, such as is reflected in quoted yields, should not be
considered as a representation of the results which may be realized from an
investment in any Class of the Fund in the future.
Investors should note that the income earned and dividends paid by a
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of a Fund may change. Unlike money market funds,
each Fund invests in longer-term securities that fluctuate in value and do so in
a manner inversely correlated with changing interest rates. A Fund's net asset
value will tend to rise when interest rates fall. Conversely, a Fund's net asset
value will tend to fall as interest rates rise. Normally, fluctuations in
interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held in a Fund will vary from day to day and investors
should consider the volatility of a Fund's net asset value as well as its yield
before making a decision to invest.
Total return performance of each Class will reflect the appreciation or
depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period, and the impact of the maximum
front-end sales charge or CDSC, if any, paid on the illustrated investment
amount, annualized. The results will not reflect any income taxes, if
applicable, payable by shareholders on the reinvested distributions included in
the calculations. As securities prices fluctuate, an illustration of past
performance should not be considered as representative of future results.
From time to time, each Fund may also quote its Classes' actual total
return and/or yield performance, dividend results and other performance
information in advertising and other types of literature. This information may
be compared to that of other mutual funds with similar investment objectives and
to stock, bond and other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance of a Fund (or Class)
may be compared to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. or the performance of unmanaged indices compiled or maintained
by statistical research firms such as Lehman Brothers or Salomon Brothers, Inc.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare a Fund's
22
<PAGE>
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The total
return performance reported for these indices will reflect the reinvestment of
all distributions on a quarterly basis and market price fluctuations. The
indices do not take into account any sales charge or other fees. A direct
investment in an unmanaged index is not possible.
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which a Fund may
invest and the assumptions that were used in calculating the blended performance
will be described.
Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. The Consumer Price Index, as
prepared by the U.S. Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of a representative
group of consumer goods. It does not represent a return from an investment.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. A Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of a Fund. Each Fund may also compare performance to that of other compilations
or indices that may be developed and made available in the future.
A Fund may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments or global or international investments), economic and
political conditions, the relationship between sectors of the economy and the
economy as a whole, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
bills.
From time to time advertisements, sales literature, communications to
shareholders or other materials may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund), as well as the views as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund. In
addition, selected indices may be used to illustrate historic performance of
selected asset classes. A Fund may also include in advertisements, sales
literature, communications to shareholders or other materials, charts, graphs or
drawings which illustrate the potential risks and rewards of investment in
various investment vehicles, including but not limited to, domestic stocks,
and/or bonds, treasury bills and shares of that Fund. In addition,
advertisements, sales literature, communications to shareholders or other
materials may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax planning and investment alternatives to certificates of deposit
and other financial instruments. Such sales literature, communications to
shareholders or other materials may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
23
<PAGE>
Materials may refer to the CUSIP numbers of a Fund and may illustrate
how to find the listings of that Fund in newspapers and periodicals. Materials
may also include discussions of other Fund products and services.
Each Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, a Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. Each Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to a Fund may include information
regarding the background and experience of its portfolio managers.
The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class of the Funds through
July 31, 1999. Comparative information on the Consumer Price Index is also
included. For these purposes, the calculations reflect maximum sales charges, if
any, and assume the reinvestment of any capital gains distributions and income
dividends paid during the indicated periods. The performance does not reflect
any income taxes payable by shareholders on the reinvested distributions
included in the calculations. The performance of Class A Shares as shown below,
reflects maximum front-end sales charge paid on the purchase of shares but may
also be shown without reflecting the impact on any front-end sales charge. The
performance of Class B Shares and Class C Shares is calculated both with the
applicable CDSC included and excluded. The net asset value of a Class fluctuates
so shares, when redeemed, may be worth more or less than the original
investment, and a Class' results should not be considered as representative of
future performance.
Cumulative Total Return
<TABLE>
<CAPTION>
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
Class B Class B Class C Class C
Class A (1) Class A (1) Institutional including excluding including excluding
at offer(2) at NAV Class CDSC CDSC CDSC CDSC
(Inception (Inception (Inception (Inception (Inception (Inception (Inception
Delchester Fund 8/20/70) 8/20/70) 6/1/92) 5/2/94) 5/2/94) 11/29/95) 11/29/95)
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
6 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
9 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
1 year ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
3 years ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
5 years ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
10 years ended
7/31/99 00.00% 00.00% 00.00% 00.00% 00.00% 00.00% 00.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
15 years ended
7/31/99 00.00% 00.00% 00.00% 00.00% 00.00% 00.00% 00.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
Life of Fund 000.00% 000.00% 000.00% 000.00% 000.00% 000.00% 000.00%
- ------------------ --------------- ---------------- ---------------- ---------------- -------------- ---------------- --------------
</TABLE>
24
<PAGE>
Cumulative Total Return
<TABLE>
<CAPTION>
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
at offer at NAV Class CDSC CDSC CDSC CDSC
Strategic Income (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 10/1/96) 10/1/96)
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
6 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
9 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
1 year ended 7/31/99
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
High-Yield at offer at NAV Class CDSC CDSC CDSC CDSC
Opportunities (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 12/30/96) 12/30/96) 12/30/96) 2/17/98) 2/17/98) 2/17/98) 3/17/98)
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended 0.00% 0.00% 0.00%
7/31/99 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
6 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
9 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
1 year ended 7/31/99
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
</TABLE>
25
<PAGE>
Cumulative Total Return
<TABLE>
<CAPTION>
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
at offer at NAV Class CDSC CDSC CDSC CDSC
Corporate Bond (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Fund(2) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98)
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
6 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
9 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------- ----------- --------------- ----------------- ---------------- --------------- -------------- --------------
Class B Class B Class C Class C
Class A Class A Institutional including excluding including excluding
at offer at NAV Class CDSC CDSC CDSC CDSC
Extended Duration (Inception (Inception (Inception (Inception (Inception (Inception (Inception
Bond Fund(2) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98) 9/15/98)
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
6 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
9 months ended
7/31/99 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
Life of Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------- ------------- --------------- ----------------- ---------------- --------------- -------------- --------------
</TABLE>
(1) Performance figures for periods after May 31, 1992 reflect applicable
Rule 12b-1 distribution expenses. Future performance will be affected
by such expenses.
(2) Total return reflects expense limitations in effect for the Fund.
Returns would be lower without the caps. See Investment Management
Agreement.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Funds and other mutual funds available from
Delaware Investments, will provide general information about investment
alternatives and scenarios that will allow investors to assess their personal
goals. This information will include general material about investing as well as
materials reinforcing various industry-accepted principles of prudent and
responsible personal financial planning. One typical way of addressing these
issues is to compare an individual's goals and the length of time the individual
has to attain these goals to his or her risk threshold. In addition, the
Distributor will provide information that discusses the Manager's overriding
investment philosophy and how that philosophy impacts the Funds', and other
Delaware Investments funds', investment disciplines employed in seeking their
objectives. The Distributor may also from time to time cite general or specific
information about the institutional clients of the Manager, including the number
of such clients serviced by such persons.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.
26
<PAGE>
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Investments offers three services -- Automatic Investing Program, Direct Deposit
Program and the Wealth Builder Option -- that can help to keep your regular
investment program on track. See Investing by Electronic Fund Transfer - Direct
Deposit Purchase Plan and Automatic Investing Plan under Investment Plans and
Wealth Builder Option under Investment Plans for a complete description of these
services, including restrictions or limitations.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
Number of Shares
Investment Price Per Purchased
Amount Share
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $5.00 12
Month 4 $100 $10.00 10
---- ------ --
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of any stock or bond fund available from
Delaware Investments.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding. Each Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.
27
<PAGE>
TRADING PRACTICES AND BROKERAGE
Brokers, dealers and banks are selected to execute transactions for the
purchase or sale of portfolio securities on the basis of the Manager's judgment
of their professional capability to provide the service. The primary
consideration is to have brokers, dealers or banks execute transactions at best
execution. Best execution refers to many factors, including the price paid or
received for a security, the commission charged, the promptness and reliability
of execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. In nearly all instances, trades are made on a net basis where
securities are either bought or sold directly from or to a broker, dealer or
bank. In these instances, there is no direct commission charged, but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission. When a commission is paid, a Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of the
Manager's trading department as to rates paid and charged for similar
transactions throughout the securities industry. In some instances, a Fund pays
a minimal share transaction cost when the transaction presents no difficulty.
The Manager may allocate out of all commission business generated by
all of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software and hardware used in
security analyses; and providing portfolio performance evaluation and technical
market analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") and
each Fund's Investment Management Agreement, higher commissions are permitted to
be paid to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, a Fund believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to a Fund and to other funds in the Delaware
Investments family. Subject to best price and execution, commissions allocated
to brokers providing such pricing services may or may not be generated by the
funds receiving the pricing service.
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices,
28
<PAGE>
each account participating in the order may be allocated an average price
obtained from the executing broker. It is believed that the ability of the
accounts to participate in volume transactions will generally be beneficial to
the accounts and funds. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the security
that a particular account or fund may obtain, it is the opinion of the Manager
and the Board of Trustees that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the NASD Regulation, Inc. (the
"NASD"), and subject to seeking best execution, the Funds may place orders with
broker/dealers that have agreed to defray certain expenses of the funds in the
Delaware Investments family such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of such funds' shares as a factor
in the selection of brokers and dealers to execute Fund portfolio transactions.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish a Fund's
objective in relation to anticipated movements in the general level of interest
rates. A Fund is free to dispose of portfolio securities at any time, subject to
complying with the Internal Revenue Code of 1986, as amended, (the "Code") and
the 1940 Act, when changes in circumstances or conditions make such a move
desirable in light of the investment objective. A Fund will not attempt to
achieve or be limited to a predetermined rate of portfolio turnover, such a
turnover always being incidental to transactions undertaken with a view to
achieving a Fund's investment objective. Portfolio transactions will be
undertaken only to accomplish a Fund's objectives and not for the purpose of
realizing capital gains, although capital gains may be realized on certain
portfolio transactions. For example, capital gains may be realized when a
security is sold: (1) so that, provided capital is preserved or enhanced,
another security can be purchased to obtain a higher yield; (2) to take
advantage of what the Manager believes to be a temporary disparity in the normal
yield relationship between the two securities to increase income or improve the
quality of the portfolio; (3) to purchase a security which the Manager believes
is of higher quality than its rating or current market value would indicate; or
(4) when the Manager anticipates a decline in value due to market risk or credit
risk. A Fund anticipates the portfolio turnover rate will ordinarily be less
than 100%.
During the past two fiscal years, each Fund's portfolio turnover rates
were as follows:
July 31
1998 1999
Delchester Fund 117% 000%
Strategic Income Fund 000% 000%
High-Yield Opportunities Fund 317% 000%
Corporate Bond Fund (1) N/A 000%*
Extended Duration Bond Fund (1) N/A 000%*
(1) Date of initial public offering was September 15, 1999.
*Annualized.
Each Fund's portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned by
the Fund during the particular fiscal year, exclusive of securities whose
maturities at the time of acquisition are one year or less.
29
<PAGE>
PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's
classes of shares, and has agreed to use its best efforts to sell shares of each
Fund. See the Prospectuses for additional information on how to invest. Shares
of the Funds are offered on a continuous basis, and may be purchased through
authorized investment dealers or directly by contacting Income Funds or the
Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, trustees and
employees of any fund in the Delaware Investments family, the Manager or any of
the its affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Asset Planner service are
subject to a minimum initial investment of $2,000 per Asset Planner Strategy
selected. There are no minimum purchase requirements for the Funds'
Institutional Classes, but certain eligibility requirements must be satisfied.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. See Investment Plans for purchase limitations
applicable to retirement plans. Income Funds will reject any purchase order for
more than $250,000 of Class B Shares and $1,000,000 or more of Class C Shares.
An investor may exceed these limitations by making cumulative purchases over a
period of time. An investor should keep in mind, however, that reduced front-end
sales charges apply to investments of $100,000 or more in Class A Shares, and
that Class A Shares are subject to lower annual 12b-1 Plan expenses than Class B
Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Income Funds reserves the right to reject any order for the purchase of shares
of a Fund if in the opinion of management such rejection is in such Fund's best
interests. If a purchase is canceled because your check is returned unpaid, you
are responsible for any loss incurred. A Fund can redeem shares from your
account(s) to reimburse itself for any loss, and you may be restricted from
making future purchases in any of the funds in the Delaware Investments family.
Each Fund reserves the right to reject purchase orders paid by third-party
checks or checks that are not drawn on a domestic branch of a United States
financial institution. If a check drawn on a foreign financial institution is
accepted, you may be subject to additional bank charges for clearance and
currency conversion.
Each Fund also reserves the right, following shareholder notification,
to charge a service fee on non-retirement accounts that, as a result of
redemption, have remained below the minimum stated account balance for a period
of three or more consecutive months. Holders of such accounts may be notified of
their insufficient account balance and advised that they have until the end of
the current calendar quarter to raise their balance to the stated minimum. If
the account has not reached the minimum balance requirement by that time, the
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
30
<PAGE>
The NASD has adopted Conduct Rules, as amended, relating to investment
company sales charges. Income Funds and the Distributor intend to operate in
compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. See the table in the Fund Classes' Prospectuses.
Class A Shares are also subject to annual 12b-1 Plan expenses for the life of
the investment.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the third or
fourth year following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; and (iv) 1% if shares are redeemed during the sixth
year following purchase. Class B Shares are subject to annual 12b-1 Plan
expenses for approximately eight years after purchase. See Automatic Conversion
of Class B Shares, below.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will receive a
proportionate interest in that Fund's income, before application, as to Class A,
Class B and Class C Shares, of any expenses under that Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued in
the case of Class A Shares or Institutional Class shares, unless a shareholder
submits a specific request. Certificates are not issued in the case of Class B
Shares or Class C Shares or in the case of any retirement plan account including
self-directed IRAs. However, purchases not involving the issuance of
certificates are confirmed to the investor and credited to the shareholder's
account on the books maintained by Delaware Service Company, Inc. (the "Transfer
Agent"). The investor will have the same rights of ownership with respect to
such shares as if certificates had been issued. An investor that is permitted to
obtain a certificate may receive a certificate representing full share
denominations purchased by sending a letter signed by each owner of the account
to the Transfer Agent requesting the certificate. No charge is assessed by
Income Funds for any certificate issued. A shareholder may be subject to fees
for replacement of a lost or stolen certificate under certain conditions,
including the cost of obtaining a bond covering the lost or stolen certificate.
Please contact the Funds for further information. Investors who hold
certificates representing any of their shares may only redeem those shares by
written request. The investor's certificate(s) must accompany such request.
Alternative Purchase Arrangements-Class A, B and C Shares
The alternative purchase arrangements of Class A Shares, Class B Shares
and Class C Shares permit investors to choose the method of purchasing shares
that is most suitable for their needs given the amount of their purchase, the
length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of
0.30% (currently no more than 0.25% in the case of Strategic Income Fund,
pursuant to Board action) of the average daily net assets of Class A Shares, or
to purchase either Class B or Class C Shares and have the entire initial
purchase amount invested in the Fund with the investment thereafter subject to a
CDSC and annual 12b-1 Plan expenses. Class B Shares are subject to a CDSC if the
shares are redeemed within six years of purchase, and Class C Shares are subject
to a CDSC if the shares are redeemed within 12 months of purchase. Class B and
Class C Shares are each subject to annual 12b-1 Plan expenses of up to a maximum
of 1% (0.25% of which are service fees to be paid to the Distributor, dealers or
others for providing personal service and/or
31
<PAGE>
maintaining shareholder accounts) of average daily net assets of the respective
Class. Class B Shares will automatically convert to Class A Shares at the end of
approximately eight years after purchase and, thereafter, be subject to annual
12b-1 Plan expenses of up to a maximum of 0.30% of average daily net assets of
such shares. Unlike Class B Shares, Class C Shares do not convert to another
Class.
The higher 12b-1 Plan expenses on Class B Shares and Class C Shares
will be offset to the extent a return is realized on the additional money
initially invested upon the purchase of such shares. However, there can be no
assurance as to the return, if any, that will be realized on such additional
money. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also consider the duration of the annual 12b-1 Plan expenses to
which each of the classes is subject and the desirability of an automatic
conversion feature, which is available only for Class B Shares.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in the
case of Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A Shares, Class B Shares and Class C Shares. Investors should understand
that the purpose and function of the respective 12b-1 Plans and the CDSCs
applicable to Class B Shares and Class C Shares are the same as those of the
12b-1 Plan and the front-end sales charge applicable to Class A Shares in that
such fees and charges are used to finance the distribution of the respective
Classes. See Plans under Rule 12b-1 for the Fund Classes.
Dividends, if any, paid on Class A Shares, Class B Shares and Class C
Shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except that the additional amount of 12b-1
Plan expenses relating to Class B Shares and Class C Shares will be borne
exclusively by such shares. See Determining Offering Price and Net Asset Value.
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectus, and may include a series of purchases over a 13-month period under a
Letter of Intention signed by the purchaser. See Special Purchase Features -
Class A Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may reallow to dealers up to the full amount of the front-end sales.
In addition, certain dealers who enter into an agreement to provide extra
training and information on Delaware Investments products and services and who
increase sales of Delaware Investments funds may receive an additional
commission of up to 0.15% of the offering price in connection with sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the 1933 Act.
Dealer's Commission
As described in the Prospectus, for initial purchases of Class A Shares
of $1,000,000 or more, a dealer's commission may be paid by the Distributor to
financial advisers through whom such purchases are effected.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other Delaware Investments
32
<PAGE>
funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) may be aggregated with those of the Class A Shares of a
Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Investments funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above, and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of Class B Shares or Class C
Shares of a Fund, even if those shares are later exchanged for shares of another
Delaware Investments fund. In the event of an exchange of the shares, the "net
asset value of such shares at the time of redemption" will be the net asset
value of the shares that were acquired in the exchange. See Waiver of Contingent
Deferred Sales Charge--Class B Shares and Class C Shares under Redemption and
Exchange for the Fund Classes for a list of the instances in which the CDSC is
waived.
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the same
Fund. See Automatic Conversion of Class B Shares below. Such conversion will
constitute a tax-free exchange for federal income tax purposes. Investors are
reminded that the Class A Shares into which Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30%
(currently no more than 0.25% in the case of Strategic Income Fund) of average
daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
33
<PAGE>
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class B Shares at the time of purchase from its
own assets in an amount equal to no more than 4% of the dollar amount purchased.
In addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if redeemed within six
years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for a Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Part B, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the 18th day (or next
business day) of March, June, September and December (each, a "Conversion
Date"). If the eighth anniversary after a purchase of Class B Shares falls on a
Conversion Date, an investor's Class B Shares will be converted on that date. If
the eighth anniversary occurs between Conversion Dates, an investor's Class B
Shares will be converted on the next Conversion Date after such anniversary.
Consequently, if a shareholder's eighth anniversary falls on the day after a
Conversion Date, that shareholder will have to hold Class B Shares for as long
as three additional months after the eighth anniversary of purchase before the
shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, Class C Shares are subject to annual 12b-1 Plan expenses
and, if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
34
<PAGE>
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this Part B. See Redemption and Exchange.
Plans Under Rule 12b-1 for the Funds' Classes
Pursuant to Rule 12b-1 under the 1940 Act, Income Funds has adopted a
separate plan for each of the Class A Shares, Class B Shares and Class C Shares
of each Fund (the "Plans"). Each Plan permits the relevant Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the class of shares to which the Plan applies. The Plans do not apply to
Institutional Classes of shares. Such shares are not included in calculating the
Plans' fees, and the Plans are not used to assist in the distribution and
marketing of shares of the Institutional Classes. Shareholders of the
Institutional Classes may not vote on matters affecting the Plans.
The Plans permit a Fund, pursuant to its Distribution Agreement, to pay
out of the assets of Class A Shares, Class B Shares and Class C Shares monthly
fees to the Distributor for its services and expenses in distributing and
promoting sales of shares of such classes. These expenses include, among other
things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition each Fund may make payments out of the assets of Class A,
Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares of, or provide services to,
such classes.
The maximum aggregate fee payable by a Fund under its Plans, and the
Funds' Distribution Agreements, is on an annual basis, up to 0.30% of the Class
A Shares' average daily net assets for the year, and up to 1% (0.25% of which
are service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of the Class B
Shares' and Class C Shares' average daily net assets for the year. Income Funds'
Board of Trustees may reduce these amounts at any time. The Distributor has
agreed to waive the distribution fees with respect to Delchester Fund and
High-Yield Opportunities Fund to the extent such fee for any day exceeds the net
investment income realized by such Funds' respective Class A, Class B and Class
C Shares for such day.
Although the maximum fee payable under the 12b-1 Plan relating to
Delchester Fund A Class is 0.30% of average daily net assets of such class, the
Board of Trustees has determined that the annual fee, payable on a monthly
basis, under the Plan relating to Delchester Fund A Class, will be equal to the
sum of: (i) the amount obtained by multiplying 0.10% by the average daily net
assets represented by Delchester Fund A Class that were originally purchased
prior to June 1, 1992 in Delchester I class (which was converted into what is
now referred to as Class A Shares on June 1, 1992 pursuant to a Plan of
Recapitalization approved by shareholders of Delchester I class), and (ii) the
amount obtained by multiplying 0.30% by the average daily net assets represented
by all other Delchester Fund A Class shares. While this is the method to be used
to calculate the 12b-1 fees to be paid by Delchester Fund A Class under its
Plan, the fee is a Class A Shares' expense so that all shareholders of
Delchester Fund A Class, regardless of whether they originally purchased or
35
<PAGE>
received shares in Delchester I class, or in one of the other classes that is
now known as Class A Shares, will bear 12b-1 expenses at the same rate. In
addition, pursuant to Board action, the maximum aggregate fee payable by Class A
Shares of Strategic Income Fund is 0.25%. While this describes the current basis
for calculating the fees which will be payable under the Delchester Fund A
Class' and Strategic Income Fund A Class' Plans, such Plans permit a full 0.30%
on all Class A Shares' assets to be paid at any time following appropriate Board
approval.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from such Fund Classes. Subject to seeking best price and
execution, a Fund may, from time to time, buy or sell portfolio securities from
or to firms which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
36
<PAGE>
The Plans and the Distribution Agreements have all been approved by
the Board of Trustees of Income Funds, including a majority of the trustees who
are not "interested persons" (as defined in the 1940 Act) of Income Funds and
who have no direct or indirect financial interest in the Plans, by vote cast in
person at a meeting duly called for the purpose of voting on the Plans and such
Agreements. Continuation of the Plans and the Distribution Agreements, as
amended, must be approved annually by the Board of Trustees in the same manner
as specified above.
Each year, the trustees must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of each Fund and that there is a reasonable
likelihood of the Plan relating to a Fund Class providing a benefit to that
Class. The Plans and the Distribution Agreements may be terminated with respect
to a Class at any time without penalty by a majority of those trustees who are
not "interested persons" or by a majority vote of the outstanding voting
securities of the relevant Fund Class. Any amendment materially increasing the
percentage payable under the Plans must likewise be approved by a majority vote
of the outstanding voting securities of the relevant Fund Class, as well as by a
majority vote of those trustees who are not "interested persons." With respect
to each Class A Shares' Plan, any material increase in the maximum percentage
payable thereunder must also be approved by a majority of the outstanding voting
securities of Class B of the same Fund. Also, any other material amendment to
the Plans must be approved by a majority vote of the trustees including a
majority of the noninterested trustees of Income Funds having no interest in the
Plans. In addition, in order for the Plans to remain effective, the selection
and nomination of trustees who are not "interested persons" of Income Funds must
be effected by the trustees who themselves are not "interested persons" and who
have no direct or indirect financial interest in the Plans. Persons authorized
to make payments under the Plans must provide written reports at least quarterly
to the Board of Trustees for their review.
37
<PAGE>
For the fiscal year ended July 31, 1999, payments from Class A Shares,
Class B Shares and Class C Shares of each Fund were as follows:
<TABLE>
<CAPTION>
- ----------------- ------------------------------------- -------------------------------------- -------------------------------------
Delchester Fund Strategic Income Fund High-Yield Opportunities Fund
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advertising
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Annual/Semi
Annual Reports
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Broker Trails
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Broker Sales
Charges
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Dealer Service
Expenses
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Interest on
Broker Sales
Charges
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Commissions to
Wholesalers
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Promotional-
Broker Meetings
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Promotional-Other
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Prospectus
Printing
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Telephone
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Other
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Total
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- ----------------- ------------------------------------- --------------------------------------
Corporate Bond Fund Extended Duration Bond Fund
----------- ------------ ------------ ------------ ------------ ------------
Class A Class B Class C Class A Class B Class C
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Advertising
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Annual/Semi
Annual Reports
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Broker Trails
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Broker Sales
Charges
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Dealer Service
Expenses
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Interest on
Broker Sales
Charges
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Commissions to
Wholesalers
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Promotional-
Broker Meetings
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Promotional-Other
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Prospectus
Printing
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Telephone
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Other
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
Total
- ----------------- ----------- ------------ ------------ ------------ ------------ ------------
</TABLE>
39
<PAGE>
Other Payments to Dealers - Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Investments family of funds. In some instances, these
incentives or payments may be offered only to certain dealers who maintain, have
sold or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Investments fund shares.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value under the
Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege.
Purchases of Class A Shares may be made at net asset value by current
and former officers, trustees and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Investments family,
certain of their agents and registered representatives and employees of
authorized investment dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts, must be for
accounts in the name of the individual or a qualifying family member. Class A
Shares may also be purchased at net asset value by current and former officers,
trustees and employees (and members of their families) of the Dougherty
Financial Group LLC.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of funds in the
Delaware Investments family. Officers, trustees and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Investors may be charged a fee when effecting transactions in Class A
Shares through a broker or agent that offers these special investment products.
Purchases of Class A Shares of each Fund at net asset value may also be
made by the following: financial institutions investing for the account of their
trust customers if they are not eligible to purchase shares of the Institutional
Class of a Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Retirement Financial Services, Inc. (formerly known as
Delaware Investment & Retirement Services, Inc.) proprietary record keeping
system that (i) has in excess of $500,000 of plan assets invested in Class A
Shares of funds in the Delaware Investments family and any stable value account
available to investment advisory clients of the Manager or its affiliates; or
(ii) is sponsored by an employer that has at any point after May 1, 1997 had
more than 100 employees while such plan has held Class A Shares of a fund in the
Delaware Investments family and such employer has properly represented in
writing to Retirement Financial Services, Inc. that it has the requisite number
of employees and received written confirmation back from Retirement Financial
Services, Inc. See Group Investment Plans for information regarding the
applicability of the Limited CDSC.
40
<PAGE>
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a fund account
in connection with loans originated from accounts previously maintained by
another investment firm will also be invested at net asset value.
Income Funds must be notified in advance that the trade qualifies for
purchase at net asset value.
Allied Plans
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Investments funds ("eligible Delaware Investments
fund shares"), as well as shares of designated classes of non-Delaware
Investments funds ("eligible non-Delaware Investments fund shares"). Class B
Shares and Class C Shares are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware Investments
fund shares held by the Allied Plan may be combined with the dollar amount of
new purchases by that Allied Plan to obtain a reduced front-end sales charge on
additional purchases of eligible Delaware Investments fund shares. See Combined
Purchases Privilege, below.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments fund
shares or for eligible non-Delaware Investments fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible fund
shares, both Delaware Investments and non-Delaware Investments, which were not
subject to a front end sales charge, will be subject to the applicable sales
charge if exchanged for eligible Delaware Investments fund shares to which a
sales charge applies. No sales charge will apply if the eligible fund shares
were previously acquired through the exchange of eligible shares on which a
sales charge was already paid or through the reinvestment of dividends. See
Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
adviser's eligibility for a dealer's commission on net asset value purchases of
eligible Delaware Investments fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated. See Class A Shares,
above.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Investments and non-Delaware Investments fund shares.
When eligible Delaware Investments fund shares are exchanged into eligible
non-Delaware Investments fund shares, the Limited CDSC will be imposed at the
time of the exchange, unless the joint venture agreement specifies that the
amount of the Limited CDSC will be paid by the financial adviser or selling
dealer. See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange.
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Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Income Funds, which provides for the holding in escrow by the Transfer
Agent of 5% of the total amount of Class A Shares intended to be purchased until
such purchase is completed within the 13-month period. A Letter of Intention may
be dated to include shares purchased up to 90 days prior to the date the Letter
is signed. The 13-month period begins on the date of the earliest purchase. If
the intended investment is not completed, except as noted below, the purchaser
will be asked to pay an amount equal to the difference between the front-end
sales charge on Class A Shares purchased at the reduced rate and the front-end
sales charge otherwise applicable to the total shares purchased. If such payment
is not made within 20 days following the expiration of the 13-month period, the
Transfer Agent will surrender an appropriate number of the escrowed shares for
redemption in order to realize the difference. Such purchasers may include the
value (at offering price at the level designated in their Letter of Intention)
of all their shares of the Funds and of any class of any of the other mutual
funds in the Delaware Investments family (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC) previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter.
Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge on
investments of Class A Shares made by the plan. The aggregate investment level
of the Letter of Intention will be determined and accepted by the Transfer Agent
at the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in Delaware Investments funds that are offered with a front-end
sales charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent
reserves the right to adjust the signed Letter of Intention based on this
acceptance criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments exceed the
anticipated level and equal an amount that would qualify the plan for further
discounts, any front-end sales charges will be automatically adjusted. In the
event this Letter of Intention is not fulfilled within the 13-month period, the
plan level will be adjusted (without completing another Letter of Intention) and
the employer will be billed for the difference in front-end sales charges due,
based on the plan's assets under management at that time. Employers may also
include the value (at offering price at the level designated in their Letter of
Intention) of all their shares intended for purchase that are offered with a
front-end sales charge, CDSC or Limited CDSC of any class. Class B Shares and
Class C Shares of a Fund and other funds in the Delaware Investments family
which offer corresponding classes of shares may also be aggregated for this
purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Funds, as well as shares of any other class of any of the other
funds in the Delaware Investments family (except shares of any Delaware
Investments fund which do not carry a front-end sales charge, CDSC or Limited
CDSC, other than shares of Delaware Group Premium Fund, Inc. beneficially owned
in connection with the ownership of variable insurance products, unless they
were acquired through an exchange from a Delaware Investments fund which carried
a front-end sales charge, CDSC or Limited CDSC). In addition, assets held in any
stable value product available through Delaware Investments may be combined with
other Delaware Investments fund holdings.
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The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund, as
well as shares of any other class of any of the other funds in the Delaware
Investments funds which offer such classes (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a Delaware
Investments fund which carried a front-end sales charge, CDSC or Limited CDSC).
If, for example, any such purchaser has previously purchased and still holds
Class A Shares and/or shares of any other of the classes described in the
previous sentence with a value of $60,000 and subsequently purchases $40,000 at
offering price of additional shares of Class A Shares, the charge applicable to
the $40,000 purchase would currently be 3.75%. For the purpose of this
calculation, the shares presently held shall be valued at the public offering
price that would have been in effect were the shares purchased simultaneously
with the current purchase. Investors should refer to the table of sales charges
for Class A Shares to determine the applicability of the Right of Accumulation
to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund (and of the Institutional Classes
holding shares which were acquired through an exchange from one of the other
mutual funds in the Delaware Investments family offered with a front-end sales
charge) who redeem such shares have one year from the date of redemption to
reinvest all or part of their redemption proceeds in Class A Shares of that Fund
or in Class A Shares of any of the other funds in the Delaware Investments
family, subject to applicable eligibility and minimum purchase requirements, in
states where shares of such other funds may be sold, at net asset value without
the payment of a front-end sales charge. This privilege does not extend to Class
A Shares where the redemption of the shares triggered the payment of a Limited
CDSC. Persons investing redemption proceeds from direct investments in mutual
funds in the Delaware Investments family offered without a front-end sales
charge will be required to pay the applicable sales charge when purchasing Class
A Shares. The reinvestment privilege does not extend to a redemption of either
Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) in connection with the features described above.
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Group Investment Plans
Group Investment Plans that are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares, based on total plan assets. If a company has
more than one plan investing in the Delaware Investments family of funds, then
the total amount invested in all plans would be used in determining the
applicable front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to the Fund in which the investment is being made
at the time of each such purchase. Employees participating in such Group
Investment Plans may also combine the investments made in their plan account
when determining the applicable front-end sales charge on purchases to
non-retirement investment accounts of Delaware Investments if they so notify the
Fund in connection with each purchase. For other retirement plans and special
services, see Retirement Plans for the Fund Classes under Investment Plans.
The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from a fund in the Delaware Investments family.
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
The Institutional Classes
The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager, the Sub-Adviser or their affiliates and securities
dealer firms with a selling agreement with the Distributor; (c) institutional
advisory accounts of the Manager, the Sub-Adviser or their affiliates and those
having client relationships with Delaware Investment Advisers, a division of the
Manager, or its affiliates and their corporate sponsors, as well as subsidiaries
and related employee benefit plans and rollover individual retirement accounts
from such institutional advisory accounts; (d) a bank, trust company and similar
financial institution investing for its own account or for the account of its
trust customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment to the financial institution of a Rule
12b-1 fee; and (e) registered investment advisers investing on behalf of clients
that consist solely of institutions and high net-worth individuals having at
least $1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and derives
compensation for its services exclusively from its clients for such advisory
services.
The Institutional Class of each of Corporate Bond Fund and Extended
Duration Bond Fund is also available for purchase by clients of brokers or
dealers affiliated with a broker or dealer, if such broker or dealer has entered
into an agreement with the Distributor providing specifically for the purchase
of shares of the Classes in connection with special investment products, such as
wrap accounts or similar fee based programs. Investors may be charged a fee when
effecting transactions in shares of the Classes through a broker or agent that
offers these special products.
Shares of the Institutional Classes are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Fund Class in which an investor has an account (based on the net asset value in
effect on the reinvestment date) and will be credited to the shareholder's
account on that date. All dividends and distributions of the Institutional
Classes are reinvested in the accounts of the holders of such shares (based on
the net asset value in effect on the reinvestment date). A confirmation of each
distribution from realized securities profits, if any, will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectuses
and this Part B, are made, for Class A Shares at the public offering price, and
for Class B Shares, Class C Shares and Institutional Class shares at the net
asset value, at the end of the day of receipt. A reinvestment plan may be
terminated at any time. This plan does not assure a profit nor protect against
depreciation in a declining market.
Reinvestment of Dividends in Other Funds in the Delaware Investments Family
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest dividends and/or distributions in
any of the mutual funds in the Delaware Investments family, including the Funds,
in states where their shares may be sold. Such investments will be at net asset
value at the close of business on the reinvestment date without any front-end
sales charge or service fee. The shareholder must notify the Transfer Agent in
writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account will be treated like
all other initial purchases of a fund's shares. Consequently, an investor should
obtain and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Investments family may be invested in shares of
the Funds, provided an account has been established. Dividends from Class A
Shares may not be directed to Class B Shares or Class C Shares. Dividends from
Class B Shares may only be directed to other Class B Shares and dividends from
Class C Shares may only be directed to other Class C Shares.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same Delaware
Investments fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE
IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, or 403(b)(7) or 457 Deferred Compensation Plans.
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Investing by Electronic Fund Transfer
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Direct Deposit Purchase Plan -- Investors may arrange for a Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan -- Shareholders of Class A, Class B and Class
C Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Income Funds for proper
instructions.
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MoneyLine (SM) On Demand
You or your investment dealer may request purchases of Fund Class shares
by phone using MoneyLine (SM) On Demand. When you authorize a Fund to accept
such requests from you or your investment dealer, funds will be withdrawn from
(for share purchases) your predesignated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine (SM) On Demand transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this service by completing an Account Services form.
If your name and address are not identical to the name and address on your Fund
account, you must have your signature guaranteed. The Funds do not charge a fee
for this service; however, your bank may charge a fee.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Investments family. Shareholders of the Fund Classes may
elect to invest in one or more of the other mutual funds in the Delaware
Investments family through the Wealth Builder Option. See Wealth Builder Option
and Redemption and Exchange in the Prospectuses for the Fund Classes.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Fund Classes' Prospectuses. The investment will be made on the 20th day of each
month (or, if the fund selected is not open that day, the next business day) at
the public offering price or net asset value, as applicable, of the fund
selected on the date of investment. No investment will be made for any month if
the value of the shareholder's account is less than the amount specified for
investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Redemption and Exchange for a brief summary of the tax consequences
of exchanges. Shareholders can terminate their participation at any time by
giving written notice to their Fund.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Classes.
Asset Planner
To invest in the funds in the Delaware Investments family using the
Asset Planner asset allocation service, you should complete a Asset Planner
Account Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial adviser, you may also design a customized asset allocation
strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing
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Delaware Investments accounts into the Asset Planner service may be made at net
asset value under the circumstances described under Exchanges in the Prospectus.
Also see Buying Class A Shares at Net Asset Value. The minimum initial
investment per Strategy is $2,000; subsequent investments must be at least $100.
Individual fund minimums do not apply to investments made using the Asset
Planner service. Class A, Class B and Class C Shares are available through the
Asset Planner service. Generally, only shares within the same class may be used
within the same Strategy. However, Class A Shares of the Fund and of other funds
in the Delaware Investments family may be used in the same Strategy with
consultant class shares that are offered by certain other Delaware Investments
funds.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number.
Investors will receive a customized quarterly Strategy Report
summarizing all Asset Planner investment performance and account activity during
the prior period. Confirmation statements will be sent following all
transactions other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
Retirement Plans for the Fund Classes
An investment in a Fund may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including the 401(k) deferred compensation plan, Individual Retirement Account
("IRA") and the new Roth IRA and Education IRA.
Among the retirement plans that Delaware Investments offers, Class B
Shares are available for investment only by Individual Retirement Accounts,
SIMPLE IRAs, Roth IRAs, Education IRAs, Simplified Employee Pension Plans,
Salary Reduction Simplified Employee Pension Plans and 403(b) and 457 Deferred
Compensation Plans. The CDSC may be waived on certain redemptions of Class B
Shares and Class C Shares. See Waiver of Contingent Deferred Sales Charge under
Redemption and Exchange for a list of the instances in which the CDSC is waived.
Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C Shares must be
in an amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25 regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such plans.
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Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase Institutional Class Shares. See
Institutional Classes, above. For additional information on any of the Plans and
Delaware's retirement services, call the Shareholder Service Center telephone
number.
It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these plans, contact your investment dealer or the Distributor.
Taxable distributions from the retirement plans described below may be
subject to withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the plans described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations. These
plans can be maintained as Section 401(k), profit sharing or money purchase
pension plans. Contributions may be invested only in Class A Shares and Class C
Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year; however, participation
may be restricted based on certain income limits.
IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that can be
utilized depending on the individual's circumstances. A new Roth IRA and
Education IRA are available in addition to the existing deductible IRA and
non-deductible IRA.
Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income ("AGI") and whether the taxpayer is an active participant
in an employer sponsored retirement plan. Even if a taxpayer is an active
participant in an employer sponsored retirement plan, the full $2,000 is still
available if the taxpayer's AGI is below $30,000 ($50,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $50,000 and $60,000, and for
single individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available for
contributions to IRAs by taxpayers whose AGI after IRA deductions exceeds the
maximum income limit established for each year and who are active participants
in an employer sponsored retirement plan.
Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as $2,000 for each working
spouse and defer taxes on interest or other earnings from the IRAs.
Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI is
below $150,000. The maximum deductible IRA contribution for a married individual
who is not an active participant, but whose spouse is, is phased out for
combined AGI between $150,000 and $160,000.
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Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or another IRA
may rollover the distribution tax-free to a Conduit IRA. The rollover of the
eligible distribution must be completed by the 60th day after receipt of the
distribution; however, if the rollover is in the form of a direct
trustee-to-trustee transfer without going through the distributee's hand, the
60-day limit does not apply.
A distribution qualifies as an "eligible rollover distribution" if it
is made from a qualified retirement plan, a 403(b) plan or another IRA and does
not constitute one of the following:
(1) Substantially equal periodic payments over the employee's life or
life expectancy or the joint lives or life expectancies of the employee and
his/her designated beneficiary;
(2) Substantially equal installment payments for a period certain of 10
or more years;
(3) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;
(4) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the employee; and
(5) A distribution of after-tax contributions which is not includable
in income.
Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA. The $2,000
annual limit is reduced by any contributions to a deductible or nondeductible
IRA for the same year. The maximum contribution that can be made to a Roth IRA
is phased out for single filers with AGI between $95,000 and $110,000, and for
couples filing jointly with AGI between $150,000 and $160,000. Qualified
distributions from a Roth IRA would be exempt from federal taxes. Qualified
distributions are distributions (1) made after the five-taxable year period
beginning with the first taxable year for which a contribution was made to a
Roth IRA and (2) that are (a) made on or after the date on which the individual
attains age 59 1/2, (b) made to a beneficiary on or after the death of the
individual, (c) attributed to the individual being disabled, or (d) for a
qualified special purpose (e.g., first time homebuyer expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the conversion
is done prior to January 1, 1999, then the income from the conversion can be
included in income ratably over a four-year period beginning with the year of
conversion.
Education IRAs
For taxable years beginning after December 31, 1997, an Education IRA
has been created exclusively for the purpose of paying qualified higher
education expenses. Taxpayers can make non-deductible contributions up to $500
per year per beneficiary. The $500 annual limit is in addition to the $2,000
annual contribution limit applicable to IRAs and Roth IRAs. Eligible
contributions must be in cash and made prior to the date the beneficiary reaches
age 18. Similar to the Roth IRA, earnings would accumulate tax-free. There is no
requirement that the contributor be related to the beneficiary, and there is no
limit on the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can be created for the same
beneficiaries, however, the contribution limit of all contributions for a single
beneficiary cannot exceed $500 annually.
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This $500 annual contribution limit for Education IRAs is phased out
ratably for single contributors with modified AGI between $95,000 and $110,000,
and for couples filing jointly with modified AGI of between $150,000 and
$160,000. Individuals with modified AGI above the phase-out range are not
allowed to make contributions to an Education IRA established on behalf of any
other individual.
Distributions from an Education IRA are excludable from gross income to
the extent that the distribution does not exceed qualified higher education
expenses incurred by the beneficiary during the year the distribution is made
regardless of whether the beneficiary is enrolled at an eligible educational
institution on a full-time, half-time, or less than half-time basis.
Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of such a
distribution will be includible in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
educations expenses. Tax-free (and penalty-free) transfers and rollovers of
account balances from one Education IRA benefiting one beneficiary to another
Education IRA benefiting a different beneficiary (as well as redesignations of
the named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or rollover is
made before the time the old beneficiary reaches age 30 and the new beneficiary
reaches age 18.
A company or association may establish a Group IRA or Group Roth IRA
for employees or members who want to purchase shares of a Fund.
Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. For information concerning the applicability of a CDSC upon
redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectus for Class B Shares and Class C Shares.
Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks. In addition, effective January 1, 1998, the new law allows for premature
distribution without a 10% penalty if (i) the amounts are used to pay qualified
higher education expenses (including graduate level courses) of the taxpayer,
the taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer, taxpayer's
spouse or any child or grandchild of the taxpayer or the taxpayer's spouse. A
qualified first-time homebuyer is someone who has had no ownership interest in a
residence during the past two years. The aggregate amount of distribution for
first-time home purchases cannot exceed a lifetime cap of $10,000.
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Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may continue to be maintained by employers having 25 or
fewer employees. An employer may elect to make additional contributions to such
existing plans.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans. Plan
documents are available to enable employers to establish a plan. An employer may
also elect to make profit sharing contributions and/or matching contributions
with investments in only Class A Shares and Class C Shares or certain other
funds in the Delaware Investments family. Purchases under the Plan may be
combined for purposes of computing the reduced front-end sales charge applicable
to Class A Shares as set forth in the table the Prospectuses for the Fund
Classes.
Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase shares
of any of the Classes in conjunction with such an arrangement. Purchases under
the Plan may be combined for purposes of computing the reduced front-end sales
charge applicable to Class A Shares as set forth in the table the Prospectuses
for the Fund Classes.
Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of the Fund. Although investors may use their
own plan, there is available a Delaware Investments 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Purchases under the Plan may be combined
for purposes of computing the reduced front-end sales charge applicable to Class
A Shares as set forth in the table the Prospectuses for the Fund Classes.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or
fewer employees.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is available
only to plan sponsors with 100 or fewer employees and, in exchange for mandatory
plan sponsor contributions, discrimination testing is not required.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund or its agent or certain other authorized
persons. See Distribution and Service under Investment Management Agreements and
Sub-Advisory Agreements. Orders for purchases of Class B Shares, Class C Shares
and the Institutional Classes are effected at the net asset value per share next
calculated by the Fund in which shares are being purchased after receipt of the
order by the Fund, its agent or certain other authorized persons. Selling
dealers are responsible for transmitting orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for days on which the following holidays are
observed: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Funds will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, will be included in
the Fund's financial statements which are incorporated by reference into this
Part B.
Each Fund's net asset value per share is computed by adding the value
of all the securities and other assets in the portfolio, deducting any
liabilities and dividing by the number of shares outstanding. Expenses and fees
are accrued daily. In determining a Fund's total net assets, portfolio
securities listed or traded on a national securities exchange, except for bonds,
are valued at the last sale price on the exchange upon which such securities are
primarily traded. Securities not traded on a particular day, over-the-counter
securities and government and agency securities are valued at the mean value
between bid and asked prices. Money market instruments having a maturity of less
than 60 days are valued at amortized cost. Debt securities (other than
short-term obligations) are valued on the basis of valuations provided by a
pricing service when such prices are believed to reflect the fair value of such
securities. Foreign currencies and the prices of foreign securities denominated
in foreign currencies are translated to U.S. Dollars at the mean between the bid
and offer quotations of such securities based on rates in effect as of the close
of the London Stock Exchange. Use of a pricing service has been approved by the
Board of Trustees. Prices provided by a pricing service take into account
appropriate factors such as institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. If no quotations are available, all other
securities and assets are valued at fair value as determined in good faith and
in a method approved by the Board of Trustees.
Each Class of a Fund will bear, pro-rata, all of the common expenses of
that Fund. The net asset values of all outstanding shares of each Class of a
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in that Fund represented by the value of shares
of that Class. All income earned and expenses incurred by a Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes,
except that Institutional Classes will not incur any of the expenses under
Income Funds' 12b-1 Plans and Class A, Class B and Class C Shares alone will
bear the 12b-1 Plan expenses payable under their respective Plans. Due to the
specific distribution expenses and other costs that may be allocable to each
Class of a Fund, the dividends paid to each Class of the Fund may vary. The net
asset value per share of each Class of a Fund is expected to be equivalent.
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REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, tax-advantaged funds, bond
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund and all exchanges of shares constitute taxable events. Further, in
order for an exchange to be processed, shares of the fund being acquired must be
registered in the state where the acquiring shareholder resides. You may want to
consult your financial adviser or investment dealer to discuss which funds in
Delaware Investments will best meet your changing objectives, and the
consequences of any exchange transaction. You may also call the Delaware
Investments directly for fund information.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. A shareholder submitting a redemption
request may indicate that he or she wishes to receive redemption proceeds of a
specific dollar amount. In the case of such a request, and in the case of
certain redemptions from retirement plan accounts, a Fund will redeem the number
of shares necessary to deduct the applicable CDSC in the case of Class B Shares
and Class C Shares, and, if applicable, the Limited CDSC in the case of Class A
Shares and tender to the shareholder the requested amount, assuming the
shareholder holds enough shares in his or her account for the redemption to be
processed in this manner. Otherwise, the amount tendered to the shareholder upon
redemption will be reduced by the amount of the applicable CDSC or Limited CDSC.
Redemption proceeds will be distributed promptly, as described below, but not
later than seven days after receipt of a redemption request.
Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. Each Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund,
its agent, or certain authorized persons, subject to applicable CDSC or Limited
CDSC. This is computed and effective at the time the offering price and net
asset value are determined. See Determining Offering Price and Net Asset Value.
The Funds and the Distributor end their business days at 5 p.m., Eastern time.
This offer is discretionary and may be completely withdrawn without further
notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
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Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by the Fund or certain other authorized persons (see Distribution
and Service under Investment Management Agreements and Sub-Advisory Agreement);
provided, however, that each commitment to mail or wire redemption proceeds by a
certain time, as described below, is modified by the qualifications described in
the next paragraph.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the purchase check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to a Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the SEC has provided for such suspension for the protection of
shareholders, a Fund may postpone payment or suspend the right of redemption or
repurchase. In such case, the shareholder may withdraw the request for
redemption or leave it standing as a request for redemption at the net asset
value next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash or
kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Income Funds
has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which
each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of such Fund during any 90-day period for
any one shareholder.
The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value, below.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed during
the first two years following purchase; (ii) 3% if shares are redeemed during
the third or fourth year following purchase; (iii) 2% if shares are redeemed
during the fifth year following purchase; (iv) 1% if shares are redeemed during
the sixth year following purchase; (v) and 0% thereafter. Class C Shares are
subject to a CDSC of 1% if shares are redeemed within 12 months following
purchase. See Contingent Deferred Sales Charge - Class B Shares and Class C
Shares under Purchasing Shares. Except for the applicable CDSC or Limited CDSC
and, with respect to the expedited payment by wire described below for which, in
the case of the Fund Classes, there is currently a $7.50 bank wiring cost,
neither the Funds nor the Distributor charges a fee for redemptions or
repurchases, but such fees could be charged at any time in the future.
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Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments (in
each case, "New Shares") in a permitted exchange, will not be subject to a CDSC
that might otherwise be due upon redemption of the Original Shares. However,
such shareholders will continue to be subject to the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the Original Shares as
described in this Part B and any CDSC assessed upon redemption will be charged
by the fund from which the Original Shares were exchanged. In an exchange of
Class B Shares from a Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. With respect to Class B
Shares, the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to Class B
Shares of a Fund for a longer period of time than if the investment in New
Shares were made directly.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares. The request must be signed by all owners
of the account or your investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s) at the address
of record, the Funds require a signature by all owners of the account and a
signature guarantee for each owner. A signature guarantee can be obtained from a
commercial bank, a trust company or a member of a Securities Transfer
Association Medallion Program ("STAMP"). Each Fund reserves the right to reject
a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request. Certificates are not issued for Class B Shares or Class C
Shares.
Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund in Delaware Investments, subject to the same conditions and limitations as
other exchanges noted above and in the Prospectuses.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes are generally tape recorded, and a written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.
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Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. If the
proceeds are wired to the shareholder's account at a bank which is not a member
of the Federal Reserve System, there could be a delay in the crediting of the
funds to the shareholder's bank account. First Union National Bank's fee
(currently $7.50) will be deducted from Fund Class redemption proceeds. If you
ask for a check, it will normally be mailed the next business day after receipt
of your redemption request to your predesignated bank account. There are no
separate fees for this redemption method, but the mail time may delay getting
funds into your bank account. Simply call the Shareholder Service Center prior
to the time the offering price and net asset value are determined, as noted
above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in Delaware Investments under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above and in the Prospectuses. Telephone
exchanges may be subject to limitations as to amounts or frequency.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Investments family. Telephone exchanges may be subject to
limitations as to amounts or frequency. The Transfer Agent and each Fund reserve
the right to record exchange instructions received by telephone and to reject
exchange requests at any time in the future.
MoneyLine (SM) On Demand
You or your investment dealer may request redemptions of your Fund
shares by phone using MoneyLine (SM) On Demand. When you authorize a Fund to
accept such requests from you or your investment dealer, funds will be deposited
to (for share redemptions) your predesignated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine (SM) On Demand transactions. See
MoneyLine (SM) On Demand under Investment Plans.
Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), the Funds will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Investments funds from Timing Firms. A Fund reserves the right to temporarily or
permanently terminate the exchange privilege or reject any specific purchase
order for any person whose transactions seem to follow a timing pattern who: (i)
makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of the Fund's net assets. Accounts
under common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.
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Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Investments funds: (1)
Decatur Equity Income Fund, (2) Growth and Income Fund, (3) Delaware Fund, (4)
Limited-Term Government Fund, (5) USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware
Investments funds are available for timed exchanges. Assets redeemed or
exchanged out of Timing Accounts in Delaware Investments funds not listed above
may not be reinvested back into that Timing Account. Each Fund reserves the
right to apply these same restrictions to the account(s) of any person whose
transactions seem to follow a time pattern (as described above).
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized brokers of
record will be permitted to make exchanges or redemptions.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who
own or purchase $5,000 or more of shares at the offering price, or net asset
value, as applicable, for which certificates have not been issued may establish
a Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or
quarterly withdrawals of $75 or more, although the Funds do not recommend any
specific amount of withdrawal. This is particularly useful to shareholders
living on fixed incomes, since it can provide them with a stable supplemental
amount. This $5,000 minimum does not apply for a Fund's prototype retirement
plans. Shares purchased with the initial investment and through reinvestment of
cash dividends and realized securities profits distributions will be credited to
the shareholder's account and sufficient full and fractional shares will be
redeemed at the net asset value calculated on the third business day preceding
the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected by
the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital, and the share
balance may in time be depleted, particularly in a declining market.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
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The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in Delaware Investments funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net
asset value and a dealer's commission has been paid on that purchase. The
applicable CDSC for Class B Shares and Class C Shares redeemed via a Systematic
Withdrawal Plan will be waived if, on the date that the Plan is established, the
annual amount selected to be withdrawn is less than 12% of the account balance.
If the annual amount selected to be withdrawn exceeds 12% of the account balance
on the date that the Systematic Withdrawal Plan is established, all redemptions
under the Plan will be subject to the applicable CDSC. Whether a waiver of the
CDSC is available or not, the first shares to be redeemed for each Systematic
Withdrawal Plan payment will be those not subject to a CDSC because they have
either satisfied the required holding period or were acquired through the
reinvestment of distributions. The 12% annual limit will be reset on the date
that any Systematic Withdrawal Plan is modified (for example, a change in the
amount selected to be withdrawn or the frequency or date of withdrawals), based
on the balance in the account on that date. See Waiver of Contingent Deferred
Sales Charge - Class B Shares and Class C Shares, below.
An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Funds reserve the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
Systematic Withdrawal Plan payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine (SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. It may take up to four business days for the transactions to
be completed. You can initiate this service by completing an Account Services
form. If your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Funds do not charge a
fee for any this service; however, your bank may charge a fee. This service is
not available for retirement plans.
The Systematic Withdrawal Plan is not available to the Institutional
Classes. Shareholders should consult with their financial advisers to determine
whether a Systematic Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value For purchases of $1,000,000 or more made on
or after July 1, 1998, a Limited CDSC will be imposed on certain redemptions of
Class A Shares (or shares into which such Class A Shares are exchanged)
according to the following schedule: (1) 1.00% if shares are redeemed during the
first year after the purchase; and (2) 0.50% if such shares are redeemed during
the second year after the purchase, if such purchases were made at net asset
value and triggered the payment by the Distributor of the dealer's commission as
described in the Prospectus.
60
<PAGE>
The Limited CDSC will be paid to the Distributor and will be assessed on
an amount equal to the lesser of : (1) the net asset value at the time of
purchase of the Class A Shares being redeemed or (2) the net asset value of such
Class A Shares at the time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset value at purchase of
the Class A Shares even if those shares are later exchanged for shares of
another Delaware Investments fund and, in the event of an exchange of Class A
Shares, the "net asset value of such shares at the time of redemption" will be
the net asset value of the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than two years will not
be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the two-year
holding period. The Limited CDSC is assessed if such two year period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the Internal Revenue Code; (v) returns of excess contributions to an IRA;
(vi) distributions by other employee benefit plans to pay benefits; (vii)
distributions described in (ii), (iv), and (vi) above pursuant to a systematic
withdrawal plan; and (viii) redemptions by the classes of shareholders who are
permitted to purchase shares at net asset value, regardless of the size of the
purchase (see Buying Class A Shares at Net Asset Value under Purchasing Shares).
Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic
distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, or 403(b)(7) or 457
Deferred Compensation Plan due to death, disability or attainment of age 59 1/2,
and IRA distributions qualifying under Section 72(t) of the Internal Revenue
Code; and (iv) distributions from an account if the redemption results from the
death of all registered owners of the account (in the case of accounts
established under the Uniform Gifts to Minors or Uniform Transfers to Minors
Acts or trust accounts, the waiver applies upon the death of all beneficial
owners) or a total and permanent disability (as defined in Section 72 of the
Code) of all registered owners occurring after the purchase of the shares being
redeemed.
61
<PAGE>
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from a Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Internal
Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred Compensation
Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or a 401(k)
Defined Contribution Plan upon attainment of normal retirement age under the
plan or upon separation from service; (vi) periodic distributions from an IRA or
SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of all registered owners of the
account (in the case of accounts established under the Uniform Gifts to Minors
or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon
the death of all beneficial owners) or a total and permanent disability (as
defined in Section 72 of the Code) of all registered owners occurring after the
purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B Shares and Class C
Shares redeemed in accordance with a Systematic Withdrawal Plan if the annual
amount selected to be withdrawn under the Plan does not exceed 12% of the value
of the account on the date that the Systematic Withdrawal Plan was established
or modified.
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
Each Fund declares a dividend to shareholders of each Class of the
respective Fund's shares from net investment income on a daily basis. Dividends
are declared each day the respective Fund is open and paid monthly. Net
investment income earned on days when the respective Fund is not open will be
declared as a dividend on the next business day. Purchases of shares of the
respective Fund by wire begin earning dividends when converted into Federal
Funds and are available for investment, normally the next business day after
receipt. However, if the respective Fund is given prior notice of Federal Funds
wire and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Investors desiring to guarantee wire payments
must have an acceptable financial condition and credit history in the sole
discretion of the respective Fund. Income Funds reserves the right to terminate
this option at any time. Purchases by check earn dividends upon conversion to
Federal Funds, normally one business day after receipt.
Each Class of shares of a Fund will share proportionately in the
investment income and expenses of that Fund, except that Class A Shares, Class B
Shares and Class C Shares alone will incur distribution fees under their
respective 12b-1 Plans.
Dividends and any realized securities profits distributions are
automatically reinvested in additional shares of the same Class of the
respective Fund at net asset value, unless, in the case of shareholders of the
Fund Classes, an election to receive dividends in cash has been made. Payment by
check of cash dividends will ordinarily be mailed within three business days
after the payable date. Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to receive dividends in
cash. If such a shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to begin receiving
dividends in cash again. If a shareholder redeems an entire account, all
dividends accrued to the time of the withdrawal will be paid by separate check
at the end of that particular monthly dividend period, consistent with the
payment and mailing schedule described above. Any check in payment of dividends
or other distributions which cannot be delivered by the United States Post
Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. A Fund may deduct from
a shareholder's account the costs of the Fund's effort to locate a shareholder
if a shareholder's mail is returned by the United States Post Office or the Fund
is otherwise unable to locate the shareholder or verify the shareholder's
mailing address. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for their location services.
62
<PAGE>
Any distributions from net realized securities profits will be made
twice a year. The first payment would be made during the first quarter of the
next fiscal year. The second payment would be made near the end of the calendar
year to comply with certain requirements of the Code. Such distributions will be
reinvested in shares, unless the shareholders of the Fund Classes elect to
receive them in cash. The Funds will mail a quarterly statement showing the
dividends paid and all the transactions made during the period.
TAXES
It is each Fund's policy to pay out substantially all net investment
income and net realized gains to relieve each Fund of federal income tax
liability on that portion of its income paid to shareholders under Subchapter M
of the Code. The Funds intend to meet the requirements each year. The Funds also
intend to meet the calendar year distribution requirements imposed by the Code
to avoid the imposition of a 4% excise tax.
The Funds have no fixed policy with regard to distributions of realized
securities profits when such realized securities profits may be offset by
capital losses carried forward. Presently, however, the Funds intend to offset
realized securities profits to the extent of the capital losses carried forward.
Delchester Fund had an accumulated capital loss carryforward of approximately
$000,000,000 at July 31, 1999 which for federal income tax purposes may be
carried forward and applied against future capital gains. The capital loss
carryforward expires as follows: 1999--$53,787,833, 2002--$3,628,131 and
2003--$87,593,579.
Distributions of net investment income and short-term realized
securities profits are taxable as ordinary income to shareholders. Since the
major portion of Delchester Fund's and High-Yield Opportunities Fund's
investment income is derived from interest rather than dividends, no portion of
such distributions will be eligible for the dividends-received deduction
available to corporations. It is expected that either none or a nominal portion
of Strategic Income Fund's dividends will be eligible for the dividends-received
deduction. Distributions of long-term capital gains, if any, are taxable as
long-term capital gains, for federal income tax purposes, regardless of the
length of time an investor has held such shares, and these gains are currently
taxed at long-term capital gain rates. The tax status of dividends and
distributions paid to shareholders will not be affected by whether they are paid
in cash or in additional shares. Long-term capital gains distributions are not
eligible for the dividends-received exclusion. Advice as to the tax status of
each year's dividends and distributions, when paid, will be mailed annually.
Shares of the Funds are exempt from Pennsylvania county personal property taxes.
Net long-term gain from the sale of securities when realized and
distributed (actually or constructively) is taxable as capital gain. If the net
asset value of shares were reduced below a shareholder's cost by distribution of
gain realized on sale of securities, such distribution would be a return of
investment though taxable as stated above. Delchester Fund's portfolio
securities had an unrealized net appreciation for tax purposes of $00,000,000 as
of July 31, 1999.
Under the 1997 Act, as revised by the 1998 Act and the Omnibus
Consolidated and Emergency Supplemental Appropriations Act, a Fund is required
to track its sales of portfolio securities and to report any capital gain
distributions to you according to the following categories of holding periods:
"Mid-term capital gains" or "28 percent rate gain": securities sold by a
Fund after July 28, 1997 that were held more than one year but not more
than 18 months. These gains will be taxable to individual investors at a
maximum rate of 28%. This category of gains applied only to gains and
distributions in 1997.
63
<PAGE>
"1997 Act long-term capital gains" or "20 percent rate gain": securities
sold by a Fund between May 7, 1997 and July 28, 1997 that were held for
more than 12 months, and securities sold by the Fund after July 28, 1997
that were held for more than 18 months. As revised by the 1998 Act, this
rate applies to securities held for more than 12 months and sold in tax
years beginning after December 1, 1997. These gains will be taxable to
individual investors at a maximum rate of 20% for investors in the 28%
or higher federal income tax brackets, and at a maximum rate of 10% for
investors in the 15% federal income tax bracket. The Omnibus
Consolidated and Emergency Supplemental Appropriations Act passed in
October of 1998 included technical corrections to the 1998 Act. The
effect of this correction is that essentially all capital gain
distributions paid to shareholders during 1998 will be taxed at a
maximum rate of 20%.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individual who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as
qualified 5-year property. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket when sold after the five year
holding period.
64
<PAGE>
INVESTMENT MANAGEMENT AGREEMENTS AND SUB-ADVISORY AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to each Fund, subject to the
supervision and direction of the Board of Trustees of Income Funds.
The Manager and its predecessors have been managing the funds in
Delaware Investments since 1938. On July 31, 1999, the Manager and its
affiliates within Delaware Investments, including the Delaware International
Advisers Ltd., were managing in the aggregate more than $00 billion in assets in
the various institutional or separately managed (approximately $00,000,000,000)
and investment company (approximately $00,000,000,000) accounts.
The Investment Management Agreement for the Funds is dated September
29, 1999 and was approved by Shareholders March 17, 1999. The Agreement provides
for an initial term of two years and may be renewed each year only so long as
such renewal and continuance are specifically approved at least annually by the
Board of Trustees or by vote of a majority of the outstanding voting securities
of the Fund to which the Agreement relates, and only if the terms and the
renewal thereof have been approved by the vote of a majority of the trustees of
Income Funds or by the Manager. The Agreement will terminate automatically in
the event of its assignment.
The management fee rate schedule for each Fund is as follows:
------------------------------- -----------------------------------
Fund Name Management Fee Schedule
(as a percentage of
average daily net assets)
Annual Rate
------------------------------- -----------------------------------
Corporate Bond Fund 0.50% on first $500 million
0.475% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
------------------------------- -----------------------------------
Delchester Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
------------------------------- -----------------------------------
Extended Duration Bond Fund 0.55% on first $500 million
0.50% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
------------------------------- -----------------------------------
High-Yield Opportunities Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
------------------------------- -----------------------------------
Strategic Income Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
------------------------------- -----------------------------------
65
<PAGE>
Subject to the overall supervision of the Manager, the Sub-Adviser
manages the international sector of Strategic Income Fund's portfolio and
furnishes the Manager with investment recommendations, asset allocation advice,
research and other investment services with respect to foreign securities. For
the services provided to the Manager, the Manager pays the Sub-Adviser a fee
equal to one-third of the investment management fees paid to the Manager under
the terms of the Investment Management Agreement. For the fiscal year ended July
31, 1999, [no fees were paid] to Delaware International as a result of the
waiver of fees by the Manager.
The Manager has elected voluntarily to waive that portion, if any, of
the annual management fees payable by Strategic Income Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the total operating
expenses of each Class do not exceed 0.75% (exclusive of taxes, interest,
brokerage commissions, extraordinary expenses and 12b-1 expenses) during the
commencement of the public offering of the Fund through June 30, 2000. The
Manager has elected voluntarily to waive that portion, if any, of the annual
management fees payable by High-Yield Opportunities Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the total operating
expenses of each Class do not exceed 1.00% (exclusive of taxes, interest,
brokerage commissions, extraordinary expenses and 12b-1 expenses) from April 12,
1999 through September 30, 1999. The Manager has elected voluntarily to waive
that portion, if any, of the annual management fees payable by Corporate Bond
Fund and Extended Duration Bond Fund and to pay certain expenses of the Fund to
the extent necessary to ensure that the total operating expenses of each Class
do not exceed 0.55% (exclusive of taxes, interest, brokerage commissions,
extraordinary expenses and 12b-1 expenses) during the commencement of the public
offering of the Fund through September 30, 1999.
On July 31, 1999, the total net assets of Income Funds were
$000,000,000, broken down as follows:
Delchester Fund $000,000,000
Strategic Income Fund $0,000,000
High-Yield Opportunities Fund $0,000,000
Corporate Bond Fund $0,000,000
Extended Duration Bond Fund $0,000,000
On July 31, 1999, the total net assets for each Fund and investment
management fees paid for each Fund for the past three fiscal years were as
follows:
<TABLE>
<CAPTION>
Fund July 31, 1999 July 31, 1998 July 31, 1997
- ---- ------------- ------------- -------------
<S> <C> <C> <C>
Delchester Fund $0,000,000 paid $8,245,496 paid $7,362,089 paid
Strategic Income Fund(1) $00,000 earned $212,472 earned $73,164 earned
$0,000 paid $-0- paid $-0- paid
$00,000 waived $212,472 waived $73,164 waived
High-Yield Opportunities $0,000 earned $70,555 earned $30,869 earned
Fund(2) $0,000 paid $28,057 paid $6,031 paid
$0,000 waived $42,498 waived $24,838 waived
Corporate Bond Fund(3) $0,000 earned N/A N/A
$0,000 paid N/A N/A
$0,000 waived N/A N/A
Extended Duration Bond $0,000 earned N/A N/A
Fund(3) $0,000 paid N/A N/A
$0,000 waived N/A N/A
</TABLE>
(1) Commenced operations on October 1, 1996.
(2) Commenced operations on December 30, 1996.
(3) Commenced operations on September 15, 1998.
66
<PAGE>
Under the general supervision of the Board of Trustees, the Manager
makes all investment decisions which are implemented by the Funds. The Manager
pays the salaries of all trustees, officers and employees of each Fund who are
affiliated with the Manager. Each Fund pays all of its other expenses, including
its proportionate share of rent and certain other administrative expenses. The
Manager is a series of Delaware Management Business Trust. The Manager changed
its form of organization from a corporation to a business trust on March 1,
1998.
Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor for the Funds under a
Distribution Agreement dated September 29, 1999. The Distributor is an affiliate
of the Manager and bears all of the costs of promotion and distribution, except
for payments by each Fund on behalf of the Class A Shares, Class B Shares and
Class C Shares under their respective 12b-1 Plans. Delaware Distributors, Inc.
("DDI") is the corporate general partner of Delaware Distributors, L.P. and both
DDI and Delaware Distributors, L.P. are indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
each Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to an agreement dated September 29, 1999. The Transfer Agent also
provides accounting services to each Fund pursuant to the terms of a separate
Fund Accounting Agreement. The Transfer Agent is also an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
The Funds have authorized one or more brokers to accept on their behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Funds. For purposes of pricing, the Funds
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Investors may be charged a fee effecting transactions through a broker or
agent.
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<PAGE>
OFFICERS AND TRUSTEES
The business and affairs of Income Funds are managed under the
direction of its Board of Trustees.
Certain officers and trustees of Income Funds hold identical positions
in each of the other funds available from the Delaware Investments family. As of
August 31, 1999, the Trust's officers and trustees, as a group, owned less than
1% of each of the Institutional Class, Class A Shares, B Shares and C Shares of
Delchester Fund, Strategic Opportunities Fund, High-Yield Opportunities Fund,
Corporate Bond Fund and Extended Duration Bond Fund.
As of August 31, 1999, management believes the following accounts held
5% or more of the outstanding shares of Class A Shares, Class B Shares, Class C
Shares, and Institutional Class Shares of each Fund. Management does not have
knowledge of beneficial owners.
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C>
Delchester
Fund Class A Shares
Delchester Merrill Lynch, Pierce, Fenner & Smith
Fund Class B Shares For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 2nd Floor
Jacksonville, FL 32246
Delchester Merrill Lynch, Pierce, Fenner & Smith
Fund Class C Shares For the Sole Benefit of its Customers
SEC #97HO2
Attn: Fund Administration
4800 Dear Lake Drive East, 2nd Floor
Jacksonville, FL 32246
Delchester Fund Nationwide Life Insurance Co.
Institutional Class National QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH
Bear Stearns
For the Exclusive Benefit of
Raymond G. Perelman
Charitable Remainder Unitrust
One Metrotech Center North
Brooklyn, NY 11201
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- -------------------------------- ------------------------------------------------- ----------------- ---------------
<S> <C>
Strategic Income
Fund Class A Shares
Strategic Income Merrill Lynch, Pierce, Fenner & Smith
Fund Class B Shares For the Sole Benefit of its Customers
SEC #97LM7
Attn: Fund Administration
4800 Dear Lake Drive East, 2nd Floor
Jacksonville, FL 32246
Strategic Income Merrill Lynch Pierce Fenner & Smith
Fund Class C Shares For the sole benefit of its customers
SEC #97LM8
Attn: Fund Administration
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246
Strategic Income Fund Jacksonville, FL 32246
Institutional Class Shares Chicago Trust Company
FBO Lincoln National Corporation
Employees Retirement Trust
1000 N. Water Street TR 14
Milwaukee, WI 53202
RS DMC Employee Profit Sharing Plan
Delaware Management Company
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103
- -------------------------------- ------------------------------------------------- ----------------- ---------------
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- -------------------------------- ------------------------------------------------- ----------------- ---------------
<S> <C>
High-Yield Opportunities Fund Wayne A. Stork
Class A Shares 5727 Twin Silo Road
Doylestown, PA 18901
Merrill Lynch Pierce Fenner & Smith
For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246
Millerbernd Manufacturing Co.
Retirement Account
P.O. Box 98
Winsted, MN 55395
Jack R. Gasaway and
Charlotte J. Gasaway JR WROS
454 S. Beechgrove Road
Wilmington, OH 45177
- -------------------------------- ------------------------------------------------- ----------------- ---------------
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
High-Yield Opportunities Fund Merrill Lynch Pierce Fenner & Smith
Class B Shares For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246
DMTC C/F The Rollover
IRA of Donald H. Cook
P.O. Box 182
Birchrunville, PA 19421
High-Yield Opportunities Merrill Lynch Pierce Fenner & Smith
Fund Class C Shares For the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246
Painewebber for the Benefit of
Painewebber CDN FBO
Eugene B. Buerke
P.O. Box 3321
Weehawken, NJ 07087
DMTC C/F the Rollover
IRA of Audrey K. Steiner
4639 Gilbert Grade
Orfino, ID 83544
Dain Rauscher Incorporated FBO
St. Peter's Episcopal Church
Maintenance Fund
320 St. Peter Street
Kerrville, TX 78028
High-Yield Opportunities Chicago Trust Company
Fund Institutional Class FBO Lincoln National Corp.
Employee Retirement Plan
c/o Marshall & Ilsley Trust Company
P.O. Box 2977
Milwaukee, WI 53201
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Management Company, Inc., Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Management Trust Company,
Delaware International Holdings Ltd., Founders Holdings, Inc., Delaware
International Advisers Ltd., Delaware Capital Management, Inc. and Retirement
Financial Services, Inc. are direct or indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.
Trustees and principal officers of the Funds are noted below along with
their ages and their business experience for the past five years. Unless
otherwise noted, the address of each officer and trustee is One Commerce Square,
Philadelphia, PA 19103.
<TABLE>
<CAPTION>
- ------------------------------------------- -------------------------------------------------------------------------------
Trustee/Officer Business Experience
- ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
*Wayne A. Stork (62) Chairman, Trustee and/or Director of Income Funds and each of the other 32
investment companies in the Delaware Investments family.
Chairman and Director of Delaware Management Holdings, Inc.
Prior to January 1, 1999, Mr. Stork was Director of Delaware Capital
Management, Inc.; Chairman, President and Chief Executive Officer and
Director/Trustee of DMH Corp., Delaware Distributors, Inc. and
Founders Holdings, Inc.; Chairman, President, Chief Executive Officer,
Chief Investment Officer and Director/Trustee of Delaware
Management Company, Inc. and Delaware Management Business Trust;
Chairman, President, Chief Executive Officer and Chief Investment Officer
of Delaware Management Company (a series of Delaware Management
Business Trust); Chairman, Chief Executive Officer and Chief Investment Officer
of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Chairman and Chief Executive Officer of
Delaware International Advisers Ltd.; Chairman, Chief Executive Officer
and Director of Delaware International Holdings Ltd.; Chief Executive Officer
of Delaware Management Holdings, Inc.; President and Chief
Executive Officer of Delvoy, Inc.; Chairman of Delaware Distributors,
L.P.; Director of Delaware Service Company, Inc. and Retirement
Financial Services, Inc.
In addition, during the five years prior to January 1, 1999, Mr.
Stork has served in various executive capacities at different times within
the Delaware organization.
- --------------------------------------------------------------------------------------------------------------------------------
- ----------------------
* Trustee affiliated with Income Funds' investment manager and considered an "interested person" as defined in the 1940 Act.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Richard G. Unruh, Jr. (59) Executive Vice President and Chief Investment Officer, Equities of Income
Funds, each of the other 32 investment companies in the Delaware Investments
family Delaware Management Holdings, Inc., Delaware Management Company (a
series of Delaware Management Business Trust) and Delaware Capital
Management, Inc.
Chief Executive Officer/Chief Investment Officer/DIA Equity of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management Company,
Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive capacities
at different times within the Delaware organization.
- ------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
*David K. Downes (59) President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and Trustee and/or Director of Income Funds and each of the other 32
investment companies in the Delaware Investments family.
President and Director of Delaware Management Company, Inc.
President of Delaware Management Company (a series of Delaware Management
Business Trust)
President, Chief Executive Officer and Director of Delaware Capital
Management, Inc.
Chairman, President, Chief Executive Officer and Director of Delaware
Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware International Holdings Ltd.
Chairman and Director of Delaware Management Trust Company and Retirement
Financial Services, Inc.
Executive Vice President, Chief Operating Officer, Chief Financial Officer
of Delaware Management Holdings, Inc., Founders CBO Corporation, Delaware
Investment Advisers (a series of Delaware Management Business Trust) and
Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial Officer
and Director of DMH Corp., Delaware Distributors, Inc., Founders Holdings,
Inc. and Delvoy, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various executive
capacities at different times within the Delaware organization.
- ------------------------------------------- -----------------------------------------------------------------------------------
* Trustee affiliated with the Income Funds' investment manager and considered an "interested person" as defined in the 1940 Act.
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Richard J. Flannery (41) Executive Vice President/General Counsel of Income Funds and each of the
other 32 investment companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Delaware Distributors, L.P., Delaware Management
Company (a series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and Founders CBO
Corporation.
Executive Vice President/General Counsel and Director of Delaware
International Holdings Ltd., Founders Holdings, Inc., Delvoy, Inc., DMH
Corp., Delaware Management Company, Inc., Delaware Service
Company, Inc., Delaware Capital Management, Inc., Retirement
Financial Services, Inc., Delaware Distributors, Inc. and Delaware
Management Business Trust.
Executive Vice President and Trustee of Delaware Management Business Trust.
Director of Delaware International Advisers Ltd.
Director of HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various executive capacities
at different times within the Delaware organization.
- ------------------------------------------- -------------------------------------------------------------------------------
Walter P. Babich (71) Trustee and/or Director of Income Funds and each of the other 32 investment
companies in the Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from
1988 to 1991, he was a partner of I&L Investors.
- ------------------------------------------- -------------------------------------------------------------------------------
Anthony D. Knerr (60) Trustee and/or Director of Income Funds and each of the 32 other investment
companies in the Delaware Investments family.
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to 1989, he was also a
lecturer in English at the University. In addition, Mr. Knerr was Chairman
of The Publishing Group, Inc., New York, from 1988 to 1990. Mr. Knerr
founded The Publishing Group, Inc. in 1988.
- ------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Ann R. Leven (58) Trustee and/or Director of Income Funds and each of the other 32 other
investment companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of the
Smithsonian Institution, Washington, DC, and from 1975 to 1992, she was
Adjunct Professor of Columbia Business School.
- ------------------------------------------- -------------------------------------------------------------------------------
Thomas F. Madison (63) Trustee and/or Director of Income Funds and each of the other 32 investment
companies in the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications Holdings,
Inc. since 1996. From February to September 1994, Mr. Madison served as Vice
Chairman--Office of the CEO of The Minnesota Mutual Life Insurance Company
and from 1988 to 1993, he was President of U.S. WEST Communications--Markets.
- ------------------------------------------- -------------------------------------------------------------------------------
Charles E. Peck (73) Trustee and/or Director of Income Funds and each of the other 32 investment
companies in the Delaware Investments family
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of
The Ryland Group, Inc., Columbia, MD.
- ------------------------------------------- -------------------------------------------------------------------------------
Jan L. Yeomans (50) Trustee and/or Director of Income Funds and 32 other investment companies in
the Delaware Investments family.
Building 220-13W-37, St. Paul, MN 55144
Vice President and Treasurer, 3M Corporation.
From 1987-1994, Ms. Yeomans was Director of Benefit Funds and
Financial Markets for the 3M Corporation; Manager of Benefit Fund
Investments for the 3M Corporation, 1985-1987; Manager of Pension
Funds for the 3M Corporation, 1983-1985; Consultant--Investment
Technology Group of Chase Econometrics, 1982-1983; Consultant for
Data Resources, 1980-1982; Programmer for the Federal Reserve Bank
of Chicago, 1970-1974.
- ------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Joseph H. Hastings (49) Senior Vice President/Corporate Controller of Income Funds and each of the
other 32 investment companies in the Delaware Investments family.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust),
Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Capital Management, Inc., Delaware International
Holdings Ltd., Delvoy, Inc., Retirement Financial Services, Inc., Founders
Holdings, Inc. and Delaware Management Business Trust
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
During the past five years, Mr. Hastings has served in various executive
capacities at different times within the Delaware organization.
- ------------------------------------------- -------------------------------------------------------------------------------
Michael P. Bishof (36) Senior Vice President and Treasurer of Income Funds and each of the other 32
investment companies in the Delaware Investments family.
Senior Vice President/Investment Accounting of Delaware Service Company,
Inc. and Delaware Capital Management, Inc.
Senior Vice President and Treasurer/ Investment Accounting of Delaware
Distributors, L.P. , Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) Delaware International Holdings, Inc. and
Founders Holdings, Inc.
Senior Vice President and Assistant Treasurer of Founders CBO Corporation
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a Vice
President for CS First Boston Investment Management, New York, NY from
1993 to 1994 and an Assistant Vice President for Equitable Capital
Management Corporation, New York, NY from 1987 to 1993.
- ------------------------------------------- -------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from Income Funds
and the total compensation received from all investment companies in the
Delaware Investments family for which he or she serves as a director or trustee
for the fiscal year ended July 31, 1999 and an estimate of annual benefits to be
received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of July 31, 1999. Only the independent trustees of Income
Funds receive compensation from Income Funds.
<TABLE>
<CAPTION>
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Pension Retirement
Aggregate Benefits Accrued as Estimated Annual Total Compensation from
Compensation from Part of Trust Benefits Upon Delaware Investments
the Trust Expenses Retirement(1) Investment Companies(2)
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
<S> <C> <C> <C>
Walter B. Babich $0,000 None $38,500 $00,000
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
John H. Durham $0,000 None $31,180 $00,000
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Anthony D. Knerr $0,000 None $38,500 $00,000
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Ann R. Leven $0,000 None $38,500 $00,000
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
W. Thacher Longstreth(3) $0,000 None $38,500 $00,000
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Thomas F. Madison $0,000 None $38,500 $00,000
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Charles E. Peck $0,000 None $38,500 $00,000
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
Jan L. Yeomans(4) $0,000 None $38,500 $00,000
- ------------------------------- ------------------- ---------------------- ----------------------- ------------------------------
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the
time of his or her retirement from the Board, has attained the age of
70 and served on the Board for at least five continuous years, is
entitled to receive payments from each investment company in the
Delaware Investments family for which he or she serves as a director or
trustee for a period equal to the lesser of the number of years that
such person served as a director or trustee or the remainder of such
person's life. The amount of such payments will be equal, on an annual
basis, to the amount of the annual retainer that is paid to
directors/trustees of each investment company at the time of such
person's retirement. If an eligible director/trustee retired as of July
31, 1999, he or she would be entitled to annual payments totaling the
amount noted above, in the aggregate, from all of the investment
companies in the Delaware Investments family for which he or she served
as director or trustee, based on the number of investment companies in
the Delaware Investments family as of that date.
(2) Each independent director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,000 for serving as a
director or trustee for all 33 investment companies in Delaware
Investments, plus $3,145 for each Board Meeting attended. John H.
Durham currently receives a total annual retainer fee of $32,180 for
serving as a director or trustee for 19 investment companies in
Delaware Investments, plus $1,810 for each Board Meeting attended. Ann
R. Leven, Anthony D. Knerr, Thomas F. Madison and Charles E. Peck serve
on the Fund's audit committee; Ms. Leven is the chairperson. Members of
the audit committee currently receive additional annual compensation of
$5,000 from all investment companies, in the aggregate, with the
exception of the chairperson, who receives $6,000.
(3) W. Thacher Longstreth retired from the Board of Trustees of Income
Funds on March 17, 1999. The compensation shown in the table is the
amount Mr. Longstreth received from May 1, 1998 through March 17, 1999.
(4) Jan L. Yeomans joined the Board of Trustees of Income Funds on March
17, 1999. The compensation shown is the amount Ms. Yeomans received
from March 17, 1999 through April 30, 1999.
78
<PAGE>
GENERAL INFORMATION
The Trust is an open-end management investment company. Each Fund's
portfolio of assets is diversified as defined by the 1940 Act. Income Funds was
originally organized as a Delaware corporation in 1970. It was subsequently
reorganized as a Maryland corporation, Delaware Group Income Funds, Inc. on
March 4, 1983 and as a Delaware business trust on _______________________.
The Manager is the investment manager of Income Funds. The Manager also
provides investment management services to certain of the other funds in the
Delaware Investments family. An affiliate of the Manager also manages private
investment accounts. While investment decisions of the Funds are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for the Funds.
The Manager and its affiliate Delaware International Advisers Ltd.,
manage the investment options for Delaware-Lincoln Choice Plus and Delaware
Medallion (SM) III Variable Annuities. Choice Plus is issued and distributed by
Lincoln National Life Insurance Company. Choice Plus offers a variety of
different investment styles managed by leading money managers. Medallion is
issued by Allmerica Financial Life Insurance and Annuity Company (First
Allmerica Financial Life Insurance Company in New York and Hawaii). Delaware
Medallion offers various investment series ranging from domestic equity funds,
international equity and bond funds and domestic fixed income funds. Each
investment series available through Choice Plus and Medallion utilizes an
investment strategy and discipline the same as or similar to one of the Delaware
Investments mutual funds available outside the annuity. The Manager or Delaware
International Advisers also manage many of the investment options for the
Delaware-Lincoln Choice Plus Variable Annuity. Choice Plus is issued and
distributed by Lincoln National Life Insurance Company. Choice Plus offers a
variety of different investment styles managed by ten leading money managers.
See Delaware Group Premium Fund, in Appendix B.
Access persons and advisory persons of the Delaware Investments family
of funds, as those terms are defined in SEC Rule 17j-1 under the 1940 Act, who
provide services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for the Funds and for the
other mutual funds in the Delaware Investments family. The Distributor received
net commissions from each Fund on behalf of Class A Shares, after reallowances
to dealers, as follows:
<TABLE>
<CAPTION>
Delchester Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
7/31/99 $000,000 $000,000 $000,000
7/31/98 $3,072,617 $2,540,252 $532,365
7/31/97 $2,938,512 $2,431,253 $507,259
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
Strategic Income Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
7/31/99 $000,000 $000,000 $00,000
7/31/98 $288,045 $257,495 $30,551
7/31/97* $281,015 $266,705 $14,310
</TABLE>
*Date of initial public offering of Strategic Income Fund Class A Shares was
October 1, 1996.
<TABLE>
<CAPTION>
High-Yield Opportunities Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
7/31/99 $0,000 $0,000 $000
7/31/98 $43,825 $40,025 $3,799
7/31/97* -0- -0- -0-
</TABLE>
*Date of initial public offering of High-Yield Opportunities Fund Class A Shares
was December 30, 1996.
<TABLE>
<CAPTION>
Corporate Bond Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
7/31/99 * $0,000 $0,000 $000
</TABLE>
*Date of initial public offering of Corporate Bond Fund Class A Shares was
September 15, 1998.
<TABLE>
<CAPTION>
Extended Duration Bond Fund Class A Shares
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
7/31/99* $0,000 $0,000 $000
</TABLE>
*Date of initial public offering of Extended Duration Bond Fund Class A Shares
was September 15, 1998.
80
<PAGE>
The Distributor and, in its capacity as such, DDI received in the
aggregate Limited CDSC payments with respect to Class A Shares of each Fund as
follows:
<TABLE>
<CAPTION>
Strategic Income High-Yield Corporate Bond Extended
Fiscal Year Delchester Fund Opportunities Fund Fund Class A Duration Bond
Ended Class A Shares Class A Shares Class A Shares Shares Fund Class A
Shares
<S> <C> <C> <C> <C> <C> <C> <C>
7/31/99* $-0- $-0- $-0- $-0- $-0-
7/31/98 $2,671 $-0- $-0- N/A N/A
7/31/97** $563 $-0- $-0- N/A N/A
</TABLE>
*Date of initial public offering of Corporate Bond Fund and Extended Duration
Bond Fund Class A Shares was September 15, 1998.
**Date of initial public offering of Strategic Income Fund Class A Shares was
October 1, 1996. Date of initial public offering of High-Yield Opportunities
Fund Class A Shares was December 30, 1996.
The Distributor and, in its capacity as such, DDI received in the
aggregate CDSC payments with respect to Class B Shares of each Fund as follows:
<TABLE>
<CAPTION>
Strategic Income High-Yield Corporate Bond Extended
Fiscal Year Delchester Fund Opportunities Fund Fund Class A Duration Bond
Ended Class A Shares Class A Shares Class A Shares Shares Fund Class A
Shares
<S> <C> <C> <C> <C> <C> <C> <C>
7/31/99* $00,000 $00,000 00,000 $-0- $-0-
7/31/98 $818,163 $34,503 $ N/A N/A
7/31/97** $596,357 $2,376 $2,376 N/A N/A
</TABLE>
*Date of initial public offering of Corporate Bond Fund and Extended Duration
Bond Fund Class A Shares was September 15, 1998.
**Date of initial public offering of Strategic Income Fund Class A Shares was
October 1, 1996. Date of initial public offering of High-Yield Opportunities
Fund Class A Shares was December 30, 1996.
The Distributor received CDSC payments with respect to each Fund as
follows:
<TABLE>
<CAPTION>
Strategic Income High-Yield Corporate Bond Extended
Fiscal Year Delchester Fund Opportunities Fund Fund Class A Duration Bond
Ended Class A Shares Class A Shares Class A Shares Shares Fund Class A
Shares
<S> > <C> <C> <C> <C> <C>
7/31/99* $0,000 $0,000 $0,000 $-0- $-0-
7/31/98 $22,000 $3,440 $0 N/A N/A
7/31/97** $9,434 $384 N/A N/A
</TABLE>
*Date of initial public offering of Corporate Bond Fund and Extended Duration
Bond Fund Class A Shares was September 15, 1998.
**Date of initial public offering of Strategic Income Fund Class A Shares was
October 1, 1996. Date of initial public offering of High-Yield Opportunities
Fund Class A Shares was December 30, 1996.
81
<PAGE>
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Funds and for the
other mutual funds in the Delaware Investments family. The Transfer Agent is
paid a fee by the Funds for providing these services consisting of an annual per
account charge of $11.00 plus transaction charges for particular services
according to a schedule. Compensation is fixed each year and approved by the
Board of Trustees, including a majority of the unaffiliated trustees. The
Transfer Agent also provides accounting services to the Funds. Those services
include performing all functions related to calculating a Fund's net asset value
and providing all financial reporting services, regulatory compliance testing
and other related accounting services. For its services, the Transfer Agent is
paid a fee based on total assets of all funds in the Delaware Investments family
for which it provides such accounting services. Such fee is equal to 0.25%
multiplied by the total amount of assets in the complex for which the Transfer
Agent furnishes accounting services, where such aggregate complex assets are $10
billion or less, and 0.20% of assets if such aggregate complex assets exceed $10
billion. The fees are charged to each fund, including the Funds, on an aggregate
pro-rata basis. The asset-based fee payable to the Transfer Agent is subject to
a minimum fee calculated by determining the total number of investment
portfolios and associated classes.
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of the Trust's advisory
relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Income Funds to delete
the words "Delaware Group" from a Fund's name.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn,
NY 11245 is custodian of each Fund's securities and cash. As custodian for a
Fund, Chase maintains a separate account or accounts for the Fund; receives,
holds and releases portfolio securities on account of the Fund; receives and
disburses money on behalf of the Fund; and collects and receives income and
other payments and distributions on account of the Fund's portfolio securities.
Capitalization
Income Funds has an unlimited authorized number of shares of beneficial
interest with no par value allocated to each Class. Each fund offers four
classes of shares, each representing a proportionate interest in the assets of
that Fund, and each having the same voting and other rights and preferences as
the other classes, except that shares of a fund's Institutional Class may not
vote on matters affecting that fund's Distribution Plans under Rule 12b-1.
Similarly, as a general matter, shareholders of Class A Shares, Class B Shares
and Class C Shares of a fund may vote only on matters affecting the 12b-1 Plan
that relates to the class of shares that they hold. However, Class B Shares of a
fund may vote on any proposal to increase materially the fees to be paid by the
Fund under the Rule 12b-1 Plans relating to its Class A Shares. General expenses
of a fund will be allocated on a pro-rata basis to the classes according to
asset size, except that expenses of the Rule 12b-1 Plans of each Fund's Class A,
Class B and Class C Shares will be allocated solely to those classes.
All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.
Until September 30, 1996, Income Funds operated as Delaware Group
Delchester High-Yield Bond Fund, Inc., and offered one series of shares, the
Delchester Fund series. Beginning September 30, 1996, Income Funds offered
Strategic Income Fund series, beginning December 27, 1996 offered the High-Yield
Opportunities Fund series and beginning September 14, 1998 offered Corporate
Bond Fund series and Extended Duration Bond Fund series. Beginning August 16,
1999, Delchester Fund changed its name and its classes' names to Delaware
Delchester Fund; Strategic Income Fund changed it name and its classes' names to
Delaware Strategic Income Fund; High-Yield Opportunities Fund changed it name
and its classes' names to Delaware High-Yield Opportunities Fund; Corporate Bond
Fund changed it name and its classes' names to Delaware Corporate Bond Fund; and
Extended Duration Bond Fund changed it name and its classes' names to Delaware
Extended Duration Bond Fund. Beginning September , 1999, Delaware Group Income
Funds, Inc. changed its name to Delaware Group Income Funds.
82
<PAGE>
Noncumulative Voting
Income Funds' shares have noncumulative voting rights which means that
the holders of more than 50% of the shares of Income Funds voting for the
election of trustees can elect all the trustees if they choose to do so, and, in
such event, the holders of the remaining shares will not be able to elect any
trustees.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
83
<PAGE>
APPENDIX A--RATINGS
General Rating Information
Bonds
The ratings list below can be further described as follows. For all
categories lower than Aaa, Moody's Investors Service, Inc. includes a "1", "2"
or "3" following the rating to designate a high, medium or low rating,
respectively. Similarly, for all categories lower than AAA, Standard & Poor's
Ratings Group and Fitch IBCA, Inc. may add a "+" or "-" following the rating to
characterize a higher or lower rating, respectively.
<TABLE>
<CAPTION>
<S> <C> <C>
Moody's Investors Aaa Highest quality, smallest degree of investment risk.
Service, Inc. Aa High quality; together with Aaa bonds, they compose the high-grade bond group
A Upper-medium-grade obligations; many favorable investment attributes.
Baa Medium-grade obligations; neither highly protected nor poorly secured.
Interest and principal appear adequate for the present, but certain
protective elements may be lacking or may be unreliable over any great length
of time.
Ba More uncertain with speculative elements. Protective of interest and
principal payments not well safeguarded in good and bad times.
B Lack characteristics of desirable investment; potentially low assurance of
timely interest and principal payments or maintenance of other contract terms
over time.
Caa Poor standing, may be in default; elements of danger with respect to
principal or interest payments.
Ca Speculative in high degree; could be in default or have other marked
shortcomings.
C Lowest rated. Extremely poor prospects of ever attaining investment standing.
Standard & Poor's AAA Highest rating; extremely strong capacity to pay principal and
Ratings Group interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more susceptible to
the adverse effects of changing circumstances and economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit adequate
protection parameters, but adverse economic conditions or changing
circumstances more likely to lead to weakened capacity to pay principal and
interest than for higher-rated bonds.
BB, B, Predominantly speculative with respect to the issuer's capacity to
CCC, CC meet required interest and principal payments. BB-lowest degree of
speculation; CC-the highest degree of speculation. Quality and protective
characteristics outweighed by large uncertainties or major risk exposure to
adverse conditions.
D In default.
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fitch IBCA, Inc. AAA Highest quality; obligor has exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Very high quality; obligor's ability to pay interest and repay principal is
very strong. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated F-1+.
A High quality; obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than higher-rated bonds.
BBB Satisfactory credit quality; obligor's ability to pay interest and repay
principal is considered adequate. Unfavorable changes in economic conditions
and circumstances are more likely to adversely affect these bonds and impair
timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for higher-rated bonds.
BB, Not investment grade; predominantly speculative with respect to the
CCC, issuer's capacity to repay interest and repay principal in accordance
CC,C with the terms of the obligation for bond issues not in default. BB is
the least speculative. C is the most speculative.
Commercial Paper
Moody's S&P Fitch
P-1 Superior quality A-1+ Extremely strong quality F-1+ Exceptionally strong quality
A-1 Strong quality F-1 Very strong quality
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
P-3 Acceptable quality A-3 Adequate quality F-3 Fair quality
B Speculative quality F-S Weak credit quality
C Doubtful quality
</TABLE>
85
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State and Municipal Notes
<TABLE>
<CAPTION>
Moody's S&P Fitch
<S> <C> <C> <C>
MIG1/
VMIG1 Best quality SP1+ Very strong quality F-1+ Exceptionally strong quality
SP1 Strong grade F-1 Very strong quality
MIG2/
VMIG2 High quality SP2 Satisfactory grade F-2 Good credit quality
MIG3/
VMIG3 Favorable quality F-3 Fair credit quality
MIG4/
VMIG4 Adequate quality
SG Speculative quality SP3 Speculative grade F-S Weak credit quality
</TABLE>
Earnings and Dividend Rankings for Common Stocks
- ------------------------------------------------
Standard & Poor's Ratings Group. The investment process involves
assessment of various factors -- such as product and industry position,
corporate resources and financial policy -- with results that make some common
stocks more highly esteemed than others. In this assessment, Standard & Poor's
believes that earnings and dividend performance is the end result of the
interplay of these factors and that, over the long run, the record of this
performance has a considerable bearing on relative quality. The rankings,
however, do not pretend to reflect all of the factors, tangible or intangible,
that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of
protection for principal and interest, called creditworthiness, cannot be
applied to common stocks, and therefore rankings are not to be confused with
bond quality ratings which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key
elements in establishing Standard & Poor's earnings and dividend rankings for
common stocks, which are designed to capsulize the nature of this record in a
single symbol. It should be noted, however, that the process also takes into
consideration certain adjustments and modifications deemed desirable in
establishing such rankings.
The point of departure in arriving at these rankings is a
computerized scoring system based on per-share earnings and dividend records of
the most recent ten years -- a period deemed long enough to measure significant
time segments of secular growth, to capture indications of basic change in trend
as they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
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NR signifies no ranking because of insufficient data or because the
stock is not amenable to the ranking process.
The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and
non-recurring accounting adjustments.
A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and dividend
record, public relations standing, recent competitive shifts, and a host of
other factors that may be relevant to investment status and decision.
Preferred Stock Rating
- ----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Moody's Investors Service, Aaa Considered to be a top-quality preferred stock. This rating indicates good asset
Inc. protection and the least risk of dividend impairment within the universe of
preferred stocks.
Aa Considered a high-grade preferred stock. This rating indicates that there is
reasonable assurance that earnings and asset protection will remain relatively
well maintained in the foreseeable future.
A Considered to be an upper-medium grade preferred stock. While risks are judged to
be somewhat greater than in the "aaa" and "aa" classifications, earnings and
asset protection are, nevertheless, expected to be maintained at adequate levels.
Baa Considered to be medium-grade, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be questionable
over any great length of time.
Ba Considered to have speculative elements and its future cannot be considered well
assured. Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
B Generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long
period of time may be small.
Caa Likely to be in arrears on dividend payments. This rating designation does not
purport to indicate the future status of payments.
Ca Speculative in a high degree and is likely to be in arrears on dividends with
little likelihood of eventual payment.
C The lowest rated class of preferred or preference stock. Issues so rated can be
regarded as having extremely poor prospects of ever attaining any real investment
standing.
Standard& Poor's AAA Has the highest rating that may be assigned by Standard& Poor's to a preferred
Ratings Group stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA Qualifies as a high-quality fixed income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as for issues
rated "AAA."
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
A Backed by a sound capacity to pay the preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB Regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to make payments for a preferred stock in this category than
for issues in the "A" category.
BB,B, Regarded, on balance, as predominantly speculative with respect to
CCC the issuer's capacity to pay preferred stock obligations. "BB" indicates the
lowest degree of speculation and "CCC" the highest degree of speculation. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC Reserved for a preferred stock issue in arrears on dividends or sinking fund
payments but that is currently paying.
C A non-paying issue.
D A non-paying issue with the issuer in default on debt instruments.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
</TABLE>
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APPENDIX B--INVESTMENT OBJECTIVES OF THE OTHER FUNDS IN THE DELAWARE
INVESTMENTS FAMILY
Following is a summary of the investment objectives of the funds in the
Delaware Investments family:
Delaware Balanced Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Delaware Devon
Fund seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
Delaware Trend Fund seeks long-term growth by investing in common
stocks issued by emerging growth companies exhibiting strong capital
appreciation potential.
Delaware Small Cap Value Fund seeks capital appreciation by investing
primarily in common stocks whose market values appear low relative to their
underlying value or future potential.
Delaware DelCap Fund seeks long-term capital growth by investing in
common stocks and securities convertible into common stocks of companies that
have a demonstrated history of growth and have the potential to support
continued growth.
Delaware Decatur Equity Income Fund seeks the highest possible current
income by investing primarily in common stocks that provide the potential for
income and capital appreciation without undue risk to principal. Delaware Growth
and Income Fund seeks long-term growth by investing primarily in securities that
provide the potential for income and capital appreciation without undue risk to
principal. Delaware Blue Chip Fund seeks to achieve long-term capital
appreciation. Current income is a secondary objective. It seeks to achieve these
objectives by investing primarily in equity securities and any securities that
are convertible into equity securities. Delaware Social Awareness Fund seeks to
achieve long-term capital appreciation. It seeks to achieve this objective by
investing primarily in equity securities of medium- to large-sized companies
expected to grow over time that meet the Fund's "Social Criteria" strategy.
Delaware Delchester Fund seeks as high a current income as possible by
investing principally in high yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Delaware Strategic Income Fund seeks
to provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities. Delaware High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Delaware Corporate Bond Fund seeks to provide investors with total return by
investing primarily in corporate bonds. Delaware Extended Duration Bond Fund
seeks to provide investors with total return by investing primarily in corporate
bonds.
Delaware Limited-Term Government Fund seeks high, stable income by
investing primarily in a portfolio of short- and intermediate-term securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
and instruments secured by such securities.
Delaware American Government Bond Fund seeks high current income by
investing primarily in long-term debt obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
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<PAGE>
Delaware Cash Reserve Fund seeks the highest level of income consistent
with the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
Delaware REIT Fund seeks to achieve maximum long-term total return with
capital appreciation as a secondary objective. It seeks to achieve its
objectives by investing in securities of companies primarily engaged in the real
estate industry.
Delaware Tax-Free USA Fund seeks high current income exempt from
federal income tax by investing in municipal bonds of geographically-diverse
issuers. Delaware Tax-Free Insured Fund invests in these same types of
securities but with an emphasis on municipal bonds protected by insurance
guaranteeing principal and interest are paid when due. Delaware Tax-Free USA
Intermediate Fund seeks a high level of current interest income exempt from
federal income tax, consistent with the preservation of capital by investing
primarily in municipal bonds.
Delaware Tax-Free Money Fund seeks high current income, exempt from
federal income tax, by investing in short-term municipal obligations, while
maintaining a stable net asset value.
Delaware Tax-Free New Jersey Fund seeks a high level of current
interest income exempt from federal income tax and New Jersey state and local
taxes, consistent with preservation of capital. Delaware Tax-Free Ohio Fund
seeks a high level of current interest income exempt from federal income tax and
Ohio state and local taxes, consistent with preservation of capital. Delaware
Tax-Free Pennsylvania Fund seeks a high level of current interest income exempt
from federal income tax and Pennsylvania state and local taxes, consistent with
the preservation of capital.
Delaware Foundation Funds are "fund of funds" which invest in other
funds in the Delaware Investments family (referred to as "Underlying Funds").
Delaware Foundation Funds Income Portfolio seeks a combination of current income
and preservation of capital with capital appreciation by investing primarily in
a mix of fixed income and domestic equity securities, including fixed income and
domestic equity Underlying Funds. Delaware Foundation Funds Balanced Portfolio
seeks capital appreciation with current income as a secondary objective by
investing primarily in domestic equity and fixed income securities, including
domestic equity and fixed income Underlying Funds. Delaware Foundation Funds
Growth Portfolio seeks long term capital growth by investing primarily in equity
securities, including equity Underlying Funds, and, to a lesser extent, in fixed
income securities, including fixed-income Underlying Funds.
Delaware International Equity Fund seeks to achieve long-term growth
without undue risk to principal by investing primarily in international
securities that provide the potential for capital appreciation and income.
Delaware Global Bond Fund seeks to achieve current income consistent with the
preservation of principal by investing primarily in global fixed-income
securities that may also provide the potential for capital appreciation.
Delaware Global Equity Fund seeks to achieve long-term total return by investing
in global securities that provide the potential for capital appreciation and
income. Delaware Emerging Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries.
Delaware U.S. Growth Fund seeks to maximize capital appreciation by
investing in companies of all sizes which have low dividend yields, strong
balance sheets and high expected earnings growth rates relative to their
industry. Delaware Overseas Equity Fund seeks to maximize total return (capital
appreciation and income), principally through investments in an internationally
diversified portfolio of equity securities. Delaware New Pacific Fund seeks
long-term capital appreciation by investing primarily in companies which are
domiciled in or have their principal business activities in the Pacific Basin.
90
<PAGE>
Delaware Group Premium Fund, Inc. offers 17 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Growth and
Income Series seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. Delchester Series seeks as high a current
income as possible by investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves Series seeks a high
stable level of current income while minimizing fluctuations in principal by
investing in a diversified portfolio of short- and intermediate-term securities.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Balanced Series seeks a balance of
capital appreciation, income and preservation of capital. It uses a
dividend-oriented valuation strategy to select securities issued by established
companies that are believed to demonstrate potential for income and capital
growth. International Equity Series seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers that
provide the potential for capital appreciation and income. Small Cap Value
Series seeks capital appreciation by investing primarily in small-cap common
stocks whose market values appear low relative to their underlying value or
future earnings and growth potential. Emphasis will also be placed on securities
of companies that may be temporarily out of favor or whose value is not yet
recognized by the market. Trend Series seeks long-term capital appreciation by
investing primarily in small-cap common stocks and convertible securities of
emerging and other growth-oriented companies. These securities will have been
judged to be responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective. Global Bond
Series seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed-income securities that may also
provide the potential for capital appreciation. Strategic Income Series seeks
high current income and total return by using a multi-sector investment
approach, investing primarily in three sectors of the fixed-income securities
markets: high-yield, higher risk securities; investment grade fixed-income
securities; and foreign government and other foreign fixed-income securities.
Devon Series seeks current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on common stocks that
the investment manager believes have the potential for above-average dividend
increases over time. Emerging Markets Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of issuers located or
operating in emerging countries. Convertible Securities Series seeks a high
level of total return on its assets through a combination of capital
appreciation and current income by investing primarily in convertible
securities. Social Awareness Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in securities
of companies primarily engaged in the real estate industry. Aggressive Growth
Series seeks long-term capital appreciation. The Series attempts to achieve its
investment objective by investing primarily in equity securities of companies
which the manager believes have the potential for high earnings growth.
Delaware US Government Securities Fund seeks to provide a high level of
current income consistent with the prudent investment risk by investing in U.S.
Treasury bills, notes, bonds, and other obligations issued or unconditionally
guaranteed by the full faith and credit of the U.S. Treasury, and repurchase
agreements fully secured by such obligations.
Delaware Tax-Free Arizona Insured Fund seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware Minnesota Insured
Fund seeks to provide a high level of current income exempt from federal income
tax and the Minnesota personal income tax, consistent with the preservation of
capital.
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<PAGE>
Delaware Tax-Free Minnesota Intermediate Fund seeks to provide a high
level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
Delaware Tax-Free California Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the California personal
income tax, consistent with the preservation of capital. Delaware Tax-Free
Florida Insured Fund seeks to provide a high level of current income exempt from
federal income tax, consistent with the preservation of capital. The Fund will
seek to select investments that will enable its shares to be exempt from the
Florida intangible personal property tax. Delaware Tax-Free Florida Fund seeks
to provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital. The Fund will seek to select
investments that will enable its shares to be exempt from the Florida intangible
personal property tax. Delaware Tax-Free Kansas Fund seeks to provide a high
level of current income exempt from federal income tax, the Kansas personal
income tax and the Kansas intangible personal property tax, consistent with the
preservation of capital. Delaware Tax-Free Missouri Insured Fund seeks to
provide a high level of current income exempt from federal income tax and the
Missouri personal income tax, consistent with the preservation of capital.
Delaware Tax-Free New Mexico Fund seeks to provide a high level of current
income exempt from federal income tax and the New Mexico personal income tax,
consistent with the preservation of capital. Delaware Tax-Free Oregon Insured
Fund seeks to provide a high level of current income exempt from federal income
tax and the Oregon personal income tax, consistent with the preservation of
capital.
Delaware Tax-Free Arizona Fund seeks to provide a high level of current
income exempt from federal income tax and the Arizona personal income tax,
consistent with the preservation of capital. Delaware Tax-Free California Fund
seeks to provide a high level of current income exempt from federal income tax
and the California personal income tax, consistent with the preservation of
capital. Delaware Tax-Free Iowa Fund seeks to provide a high level of current
income exempt from federal income tax and the Iowa personal income tax,
consistent with the preservation of capital. Delaware Tax-Free Idaho Fund seeks
to provide a high level of current income exempt from federal income tax and the
Idaho personal income tax, consistent with the preservation of capital. Delaware
Minnesota High Yield Municipal Bond Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax primarily through investment in medium and lower grade municipal
obligations. Delaware National High Yield Municipal Fund seeks to provide a high
level of income exempt from federal income tax, primarily through investment in
medium and lower grade municipal obligations. Delaware Tax-Free New York Fund
seeks to provide a high level of current income exempt from federal income tax
and the personal income tax of the state of New York and the city of New York,
consistent with the preservation of capital. Delaware Tax-Free Wisconsin Fund
seeks to provide a high level of current income exempt from federal income tax
and the Wisconsin personal income tax, consistent with the preservation of
capital.
Delaware Tax-Free Colorado Fund seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal income
tax, consistent with the preservation of capital.
Delaware Tax-Free Minnesota Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax, consistent with the preservation of capital. Delaware Tax-Free North Dakota
Fund seeks to provide a high level of current income exempt from federal income
tax and the North Dakota personal income tax, consistent with the preservation
of capital.
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Delaware Aggressive Growth Fund seeks long-term capital appreciation,
which the Fund attempts to achieve by investing primarily in equity securities
believed to have the potential for high earnings growth. Although the Fund, in
seeking its objective, may receive current income from dividends and interest,
income is only an incidental consideration in the selection of the Fund's
investments. Delaware Growth Stock Fund has an objective of long-term capital
appreciation. The Fund seeks to achieve its objective from equity securities
diversified among individual companies and industries. Delaware Tax-Efficient
Equity Fund seeks to obtain for taxable investors a high total return on an
after-tax basis. The Fund will attempt to achieve this objective by seeking to
provide a high long-term after-tax total return through managing its portfolio
in a manner that will defer the realization of accrued capital gains and
minimize dividend income.
For more complete information about any of the funds in the Delaware
Investments family, including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
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FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditor for Income Funds
and, in its capacity as such, audits the annual financial statements contained
in the Funds' Annual Reports. Each Fund's Statement of Net Assets, Statement of
Operations, Statements of Changes in Net Assets, Financial Highlights and Notes
to Financial Statements, as well as the report of Ernst & Young LLP, independent
auditors, for the fiscal year ended July 31, 1999, are included in the Funds'
Annual Report to shareholders. The financial statements and financial
highlights, the notes relating thereto and the report of Ernst & Young LLP
listed above are incorporated by reference from the Annual Reports into this
Part B.
<PAGE>
Delaware Investments includes funds with a wide
range of investment objectives. Stock funds, income
funds, national and state-specific tax-exempt funds, money
market funds, global and international funds and
closed-end funds give investors the ability to create a
portfolio that fits their personal financial goals. For
more information, shareholders of the Funds' Classes
should contact their financial adviser or call Delaware
Investments at 800-523-1918.
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Strategic Income Fund:
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
<PAGE>
- ---------------------------------------------------------------
DELAWARE GROUP INCOME FUNDS
- ---------------------------------------------------------------
DELCHESTER FUND
STRATEGIC INCOME FUND
HIGH-YIELD OPPORTUNITIES FUND
CORPORATE BOND FUND
EXTENDED DURATION BOND FUND
- ---------------------------------------------------------------
DELAWARE GROUP INCOME FUNDS
- ---------------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- ---------------------------------------------------------------
SEPTEMBER 29, 1999
DELAWARE
INVESTMENTS
-----------
<PAGE>
PART C
Other Information
Item 23. Exhibits
(a) Agreement and Declaration of Trust.
(1) Agreement and Declaration of Trust (December 17, 1998)
attached as Exhibit.
(2) Certificate of Trust (December 17, 1998) attached as Exhibit.
(b) By-Laws. By-Laws (December 17, 1998) attached as Exhibit.
(c) Copies of All Instruments Defining the Rights of Holders.
(1) Agreement and Declaration of Trust. Articles III, V and VI
of Agreement and Declaration of Trust attached as Exhibit
(a)(1).
(2) By-Laws. Article II of By-Laws attached as Exhibit (b).
(d) Investment Management Agreement and Sub-Advisory Agreement.
(1) Form of Investment Management Agreement (September 1999)
between Delaware Management Company and the Registrant
attached as Exhibit.
(2) Form of Sub-Advisory Agreement (September 1999) between
Delaware International Advisers Ltd. and Delaware Management
Company on behalf of Strategic Income Fund attached as
Exhibit.
(e) (1) Distribution Agreement.
(i) Form of Distribution Agreement incorporated into this
filing by reference to Post-Effective Amendment No. 53
filed July 17, 1996.
(ii) Form of Amendment No. 1 to Distribution Agreement
incorporated into this filing by reference to
Post-Effective Amendment No. 53 filed July 17, 1996.
<PAGE>
PART C - Other Information
(Continued)
(2) Administration and Service Agreement. Form of Administration
and Service Agreement (as amended November 1995) incorporated
into this filing by reference to Post-Effective Amendment No.
52 filed November 22, 1995.
(3) Dealer's Agreement. Dealer's Agreement (as amended November
1995) incorporated into this filing by reference to
Post-Effective Amendment No. 52 filed November 22, 1995.
(4) Mutual Fund Agreement for the Delaware Group of Funds (as
amended November 1995) (Module) incorporated into this filing
by reference to Post-Effective Amendment No. 53 filed July 17,
1996.
(f) Inapplicable.
(g) Custodian Agreement.
(1) Form of Custodian Agreement with The Chase Manhattan Bank
attached as Exhibit.
(2) Form of Securities Lending Agreement with The Chase Manhattan
Bank attached as Exhibit.
<PAGE>
PART C - Other Information
(Continued)
(h) Other Material Contracts.
(1) Form of Shareholders Services Agreement incorporated into this
filing by reference to Post-Effective Amendment No. 59 filed
July 2, 1998.
(2) Form of Delaware Group of Funds Fund Accounting Agreement
incorporated into this filing by reference to Post-Effective
Amendment No. 54 filed September 27, 1996 and Post-Effective
Amendment No. 59 filed July 2, 1998.
(i) Opinion of Counsel. Attached as Exhibit.
(j) Consent of Auditors. To be filed by Amendment.
k-l) Inapplicable.
(m) Plans under Rule 12b-1.
(1) Form of Plan under Rule 12b-1 for Class A incorporated into
this filing by reference to Post-Effective Amendment No. 53
filed July 17, 1996.
(2) Form of Plan under Rule 12b-1 for Class B incorporated into
this filing by reference to Post-Effective Amendment No. 53
filed July 17, 1996.
(3) Form of Plan under Rule 12b-1 for Class C incorporated into
this filing by reference to Post-Effective Amendment No. 53
filed July 17, 1996.
<PAGE>
PART C - Other Information
(Continued)
(n) Plan under Rule 18f-3. Form of Plan under Rule 18f-3 incorporated
into this filing by reference to Post-Effective Amendment No. 55
filed August 28, 1996.
(o) Powers of Attorney. Attached as Exhibit.
Item 24. Persons Controlled by or under Common Control with Registrant. None.
Item 25. Indemnification. Article VI of the By-Laws attached as Exhibit (b).
<PAGE>
Item 26. Business and Other Connections of Investment Adviser.
(a) Delaware Management Company (the "Manager"), a series of Delaware
Management Business Trust, serves as investment manager to the Registrant and
also serves as investment manager or sub-adviser to certain of the other funds
in the Delaware Investments family (Delaware Group Equity Funds I, Inc.,
Delaware Group Equity Funds II, Inc., Delaware Group Equity Funds III, Inc.,
Delaware Group Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc.,
Delaware Group Government Fund, Inc., Delaware Group Limited-Term Government
Funds, Inc., Delaware Group Cash Reserve, Inc., Delaware Group Tax-Free Fund,
Inc., Delaware Group State Tax-Free Income Trust, Delaware Group Tax-Free Money
Fund, Inc., Delaware Group Premium Fund, Inc., Delaware Group Global &
International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group Adviser
Funds, Inc., Delaware Group Dividend and Income Fund, Inc., Delaware Group
Global Dividend and Income Fund, Inc., Delaware Group Foundation Funds, Inc.,
Voyageur Intermediate Tax-Free Funds, Inc., Voyageur Tax-Free Funds, Inc.,
Voyageur Funds, Inc., Voyageur Insured Funds, Inc., Voyageur Investment Trust,
Voyageur Investment Trust II, Voyageur Mutual Funds, Inc., Voyageur Mutual Funds
II, Inc., Voyageur Mutual Funds III, Inc., Voyageur Arizona Municipal Income
Fund, Inc., Voyageur Colorado Insured Municipal Income Fund, Inc., Voyageur
Florida Insured Municipal Income Fund, Voyageur Minnesota Municipal Fund, Inc.,
Voyageur Minnesota Municipal Fund II, Inc. and Voyageur Minnesota Municipal Fund
III, Inc.). In addition, certain officers of the Manager also serve as
directors/trustees of the other funds in the Delaware Investments family, and
certain officers are also officers of these other funds. A company indirectly
owned by the Manager's indirect parent company acts as principal underwriter to
the mutual funds in the Delaware Investments family (see Item 29 below) and
another such company acts as the shareholder services, dividend disbursing,
accounting servicing and transfer agent for all of the mutual funds in the
Delaware Investments family.
<PAGE>
The following persons serving as directors or officers of the Manager
have held the following positions during the past two years:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates and other Positions and
Principal Business Offices Held
Address*
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
David K. Downes President of Delaware Management Company (a series of Delaware Management Business Trust); Executive Vice
President, Chief Operating Officer and Chief Financial Officer of Delaware Management Holdings, Inc.;
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of DMH Corp.;
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of Delvoy, Inc.;
President and Director of Delaware Management Company, Inc.; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Trustee of Delaware Management Business Trust; Executive Vice
President, Chief Operating Officer and Chief Financial Officer of Delaware Investment Advisers (a series
of Delaware Management Business Trust); Chairman, President, Chief Executive Officer and Director of
Delaware Service Company, Inc.; President, Chief Executive Officer and Director of Delaware Capital
Management, Inc.; Chairman and Director of Retirement Financial Services, Inc.; Chairman and Director of
Delaware Management Trust Company; Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Distributors, Inc.; Executive Vice President, Chief Operating Officer
and Chief Financial Officer of Delaware Distributors, L.P.; President, Chief Operating Officer, Chief
Financial Officer and Director of Delaware International Holdings Ltd.; Director of Delaware
International Advisers Ltd.; Executive Vice President, Chief Operating Officer, Chief Financial Officer
and Director of Founders Holdings, Inc.; Executive Vice President, Chief Operating Officer and Chief
Financial Officer of Founders CBO Corporation; President, Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer and Director/Trustee of each fund in the Delaware Investments family.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place, Newtown Square, PA
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Flannery Executive Vice President and General Counsel of Delaware Management Company (a series of Delaware
Management Business Trust); Executive Vice President and General Counsel of Delaware Management Holdings,
Inc.; Executive Vice President, General Counsel and Director of DMH Corp.; Executive Vice President,
General Counsel and Director of Delvoy, Inc.; Executive Vice President, General Counsel and Director of
Delaware Management Company, Inc.; Executive Vice President, General Counsel and Trustee of Delaware
Management Business Trust; Executive Vice President and General Counsel of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Executive Vice President, General Counsel and Director
of Delaware Service Company, Inc.; Executive Vice President, General Counsel and Director of Delaware
Capital Management, Inc.; Executive Vice President, General Counsel and Director of Retirement Financial
Services, Inc.; Executive Vice President, General Counsel and Director of Delaware Management Trust
Company; Executive Vice President, General Counsel and Director of Delaware Distributors, Inc.; Executive
Vice President and General Counsel of Delaware Distributors, L.P.; Executive Vice President, General
Counsel and Director of Delaware International Holdings Ltd.; Director of Delaware International Advisers
Ltd.; Executive Vice President, General Counsel and Director of Founders Holdings, Inc.; Executive Vice
President and General Counsel of Founders CBO Corporation; Executive Vice President and General Counsel
of each fund in the Delaware Investments family.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA; Director and Member of
Executive Committee of Stonewall Links, Inc. since 1991, Bulltown Rd., Elverton, PA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates and other Positions and
Principal Business Offices Held
Address*
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Richard G. Unruh Executive Vice President, Chief Investment Officer/ DMC Equity of Delaware Management Company (a series
of Delaware Management Business Trust); Executive Vice President of Delaware Management Holdings, Inc.;
Executive Vice President and Trustee of Delaware Management Business Trust; Chief Executive Office, Chief
Investment Officer/DIA Equity of Delaware Investment Advisers (a series of Delaware Management Business
Trust; Executive Vice President of Delaware Capital Management, Inc.; Director of Delaware Investment
Advisers Ltd.; Executive Vice President, Chief Investment Officer/Equity of each fund in the Delaware
Investments family.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors, Chairman of Finance Committee, AAA Mid Atlantic, Inc. since
1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Metron, Inc. since 1995, 11911 Freedom
Drive, Reston, VA
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company (a series of Delaware Management Business
Trust; Senior Vice President/Operations of Delaware Service Company, Inc.; Senior Vice
President/Operations of Retirement Financial Services, Inc.; Senior Vice President/Operations of Delaware
Management Trust Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President, Treasurer/Investment Accounting of Delaware Management Company (a series of
Delaware Management Business Trust); Senior Vice President, Treasurer/Investment Accounting of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Investment
Accounting of Delaware Service Company, Inc.; Senior Vice President/Investment Accounting of Delaware
Capital Management, Inc.; Senior Vice President, Treasurer/Investment Accounting of Delaware
Distributors, L.P.; Senior Vice President, Manager of Investment Accounting of Delaware International
Holdings Ltd.; Senior Vice President, Treasurer/Investment Accounting of Founders Holdings, Inc.; Senior
Vice President and Assistant Treasurer of Founders CBO Corporation; Senior Vice President and Treasurer
of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. DiBraccio Senior Vice President/Head of Equity Trading of Delaware Management Company (a series of Delaware
Management Business Trust); Senior Vice President/Head of Equity Trading of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Senior Vice President/Head of Equity Trading of
Delaware Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
John B. Fields Senior Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware
Management Business Trust); Trustee of Delaware Management Business Trust; Senior Vice President/Senior
Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust);
Senior Vice President/Senior Portfolio Manager of Delaware Capital Management, Inc.; Senior Vice
President/Senior Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Susan L. Hanson Senior Vice President/Global Marketing and Client Services of Delaware Management Company (a series of
Delaware Management Business Trust); Senior Vice President/Global Marketing and Client Services of
Delaware Investment Advisers (a series of Delaware Management Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings Senior Vice President/Treasurer/Corporate Controller of Delaware Management Company (a series of Delaware
Management Business Trust); Senior Vice President/Treasurer/Corporate Controller of Delaware Management
Holdings, Inc.; Senior Vice President/Treasurer/Corporate Controller of DMH Corp; Senior Vice
President/Treasurer/Corporate Controller of Delvoy, Inc.; Senior Vice President/Treasurer/Corporate
Controller of Delaware Management Company, Inc.; Senior Vice President/Treasurer/Corporate Controller of
Delaware Management Business Trust; Senior Vice President/Treasurer/Corporate Controller of Delaware
Service Company, Inc.; Senior Vice President/Treasurer/Corporate Controller of Delaware Capital
Management, Inc.; Senior Vice President/Treasurer/Corporate Controller of Retirement Financial Services,
Inc.; Executive Vice President/Corporate Controller/Treasurer of Delaware Management Trust Company;
Senior Vice President/Treasurer/Corporate Controller of Delaware Distributors, L.P.; Senior Vice
President/Treasurer/Corporate Controller of Delaware International Holdings; Senior Vice
President/Treasurer/Corporate Controller of Founders Holdings, Inc.; Senior Vice President/ Assistant
Treasurer Founders CBO Corporation; Senior Vice President/Corporate Controller of each fund in the
Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates and other Positions and
Principal Business Offices Held
Address*
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Joanne O. Hutcheson Senior Vice President/Human Resources of Delaware Management Company (a series of Delaware Management
Business Trust); Senior Vice President/Human Resources of Delaware Management Holdings, Inc.; Senior Vice
President/Human Resources of DMH Corp.; Senior Vice President/Human Resources of Delvoy, Inc.; Senior
Vice President/Human Resources of Delaware Management Company, Inc.; Senior Vice President/Human
Resources of Delaware Management Business Trust; Senior Vice President/Human Resources of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Senior Vice President/Human
Resources of Delaware Service Company, Inc.; Senior Vice President/Human Resources of Delaware Capital
Management, Inc.; Senior Vice President/Human Resources of Delaware Retirement Financial Services, Inc.;
Senior Vice President/Human Resources of Delaware Management Trust Company; Senior Vice President/Human
Resources of Delaware Distributors, Inc.; Senior Vice President/Human Resources of Delaware Distributors,
L.P.; Senior Vice President/Human Resources of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy
General Counsel of Delaware Management Holdings, Inc.; Senior Vice President, Assistant Secretary and
Deputy General Counsel of DMH Corp.; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delvoy, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of
Delaware Management Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel
of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice
President, Assistant Secretary and Deputy General Counsel of Delaware Service Company, Inc.; Senior Vice
President, Assistant Secretary and Deputy General Counsel of Delaware Capital Management, Inc.; Senior
Vice President, Assistant Secretary and Deputy General Counsel of Retirement Financial Services, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, L.P.;
Senior Vice President, Secretary and Deputy General Counsel of Delaware International Holdings Ltd.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Founders Holdings, Inc.;
Secretary of Founders CBO Corporation; Senior Vice President, Assistant Secretary and Deputy General
Counsel of each fund in the Delaware Investments family.
General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane, Philadelphia, PA.
- ------------------------------------------------------------------------------------------------------------------------------------
Eric E. Miller Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Senior Vice President, Assistant Secretary and Deputy
General Counsel of Delaware Management Holdings, Inc.; Senior Vice President, Assistant Secretary and
Deputy General Counsel of DMH Corp.; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delvoy, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel of
Delaware Management Company, Inc.; Senior Vice President, Assistant Secretary and Deputy General Counsel
of Delaware Management Business Trust; Senior Vice President, Assistant Secretary and Deputy General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Senior Vice
President, Assistant Secretary and Deputy General Counsel of Delaware Service Company, Inc.; Senior Vice
President, Assistant Secretary and Deputy General Counsel of Delaware Capital Management, Inc.; Senior
Vice President, Assistant Secretary and Deputy General Counsel of Retirement Financial Services, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, Inc.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Delaware Distributors, L.P.;
Senior Vice President, Assistant Secretary and Deputy General Counsel of Founders Holdings, Inc.; Senior
Vice President, Secretary and Deputy General Counsel of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
James L. Shields Senior Vice President, Chief Information Officer of Delaware Management Company (a series of Delaware
Management Business Trust); Senior Vice President, Chief Information Officer of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Senior Vice President, Chief Information
Officer of Delaware Service Company, Inc.; Senior Vice President, Chief Information Officer of Delaware
Capital Management Company, Inc.; Senior Vice President, Chief Information Officer of Retirement
Financial Services, Inc.; Senior Vice President, Chief Information Officer of Delaware Distributors, L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher S. Adams Vice President/Business Manager, Equity of Delaware Management Company (a series of Delaware
Management Business Trust); Vice President/Business Manager, Equity of Delaware Investment Advisers (a
series of Delaware Management Business Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates and other Positions and
Principal Business Offices Held
Address*
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Robert L. Arnold Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of Delaware Capital Management, Inc., Vice
President/Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Marshall T. Bassett(1) Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher S. Beck(2) Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
Trustee of New Castle County Pension Board since October 1992, Wilmington DE.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard E. Beister Vice President/Trading Operations of Delaware Management Company (a series of Delaware Management
Business Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley Vice President/Compliance Director of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Compliance Director of Delaware Management Holdings, Inc.;Vice
President/Compliance Director of DMH Corp.;Vice President/Compliance Director of Delvoy, Inc.;Vice
President/Compliance Director of Delaware Management Company, Inc.;Vice President/Compliance Director of
Delaware Management Business Trust; Vice President/Compliance Director of Delaware Investment Advisers (a
series of Delaware Management Business Trust);Vice President/Compliance Director of Delaware Service
Company, Inc.;Vice President/Compliance Director of Delaware Capital Management, Inc.; Vice
President/Compliance Director of Retirement Financial Services, Inc.; Vice President/Compliance
Director/Assistant Secretary of Delaware Management Business Trust; Vice President/Compliance Director of
Delaware Distributors, Inc.;Vice President/Compliance Director of Delaware Distributors, L.P.;Vice
President/Compliance Director of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
MaryEllen M. Carrozza Vice President/Client Services of Delaware Management Company (a series of Delaware Management Business
Trust);Vice President/Client Services of Delaware Investment Advisers (a series of Delaware Management
Business Trust);Vice President/Client Services of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen R. Cianci Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell L. Conery(3) Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy G. Connors Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Delaware Capital
Management, Inc.; Vice President/Senior Portfolio Manager of each fund in the Delaware Investments
family.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy M. Crouse Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates and other Positions and
Principal Business Offices Held
Address*
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
George E. Deming Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
James P. Dokas(4) Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/ Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Dugan Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Joel A. Ettinger(5) Vice President/Taxation of Delaware Management Company (a series of Delaware Management Business Trust);
Vice President/Taxation of Delaware Management Holdings, Inc.; Vice President/Taxation of DMH Corp.; Vice
President/Taxation of Delvoy, Inc.; Vice President/Taxation of Delaware Management Company, Inc.; Vice
President/Taxation of Delaware Management Business Trust; Vice President/Taxation of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Vice President/Taxation of Delaware Service
Company, Inc.; Vice President/Taxation of Delaware Capital Management, Inc.; Vice President/Taxation of
Retirement Financial Services, Inc.; Vice President/Taxation of Delaware Distributors, Inc.; Vice
President/Taxation of Delaware Distributors, L.P.; Vice President/Taxation of Founders Holdings, Inc.;
Vice President/Taxation of Founders CBO Corporation; Vice President/Taxation of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald S. Frey Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
James A. Furgele Vice President/Investment Accounting of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Investment Accounting of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Investment Accounting of Delaware Service Company,
Inc.; Vice President/Investment Accounting of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Stuart M. George Vice President/Equity Trading of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Equity Trading of Delaware Investment Advisers (a series of Delaware Management
Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Paul Grillo Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Brian T. Hannon Vice President of Delaware Management Company (a series of Delaware Management Business Trust); Vice
President of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice
President/Senior Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
John A. Heffern(6) Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Elizabeth H. Howell(7) Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates and other Positions and
Principal Business Offices Held
Address*
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey Hynoski Vice President/Analyst of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Analyst of Delaware Investment Advisers (a series of Delaware Management Business
Trust); Vice President/Analyst of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Cynthia Isom Vice President/Portfolio Manager of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Karina J. Ivstan Vice President/Strategic Planning of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Strategic Planning of Delaware Management Holdings, Inc.;Vice
President/Strategic Planning of Delaware Management Business Trust; Senior Vice President, Assistant
Secretary and Deputy General Counsel of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Strategic Planning of Delaware Service Company, Inc.;Vice
President/Strategic Planning of Delaware Capital Management, Inc.; Vice President/Strategic Planning of
Retirement Financial Services, Inc.; Vice President/Strategic Planning of Delaware Management Trust
Company; Vice President/Strategic of Delaware Distributors, L.P.; Vice President/Strategic Planning of
each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Audrey E. Kohart Vice President/Assistant Controller/Corporate Accounting of Delaware Management Company (a series of
Delaware Management Business Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
Steven T. Lampe Vice President/Research Analyst of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Portfolio Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Philip Y. Lin Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Management Trust Company; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice President,
Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael D. Mabry Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice President,
Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings, Inc.,
President and Director of Founders CBO Corporation; Vice President/Senior Portfolio Manager of each fund
in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew M. McCullagh, Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Jr(8) Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Francis X. Morris Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Positions and Offices with Delaware Management Company and its affiliates and other Positions and
Principal Business Offices Held
Address*
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings, Inc.,
Treasurer, Assistant Secretary and Director of Founders CBO Corporation; Vice President/Senior Portfolio
Manager of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert A Norton, Jr. Vice President/Research Analyst of Delaware Management Company (a series of Delaware Management Business
Trust); Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
David P. O'Connor Vice President, Assistant Secretary and Associate General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President, Assistant Secretary and Associate General
Counsel of Delaware Investment Advisers (a series of Delaware Management Business Trust); Vice President,
Assistant Secretary and Associate General Counsel of Delaware Service Company, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital Management, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial Services, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice President,
Assistant Secretary and Associate General Counsel of each fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Salus Vice President/Assistant Controller of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Assistant Controller of Delaware Management Trust
Company; Vice President/Assistant Controller of Delaware International Holdings Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard D. Seidel Vice President/Assistant Controller/Manager Payroll of Delaware Management Company (a series of Delaware
Management Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Alan R. Stuart Vice President/Trading of Delaware Management Company (a series of Delaware Management Business Trust);
Vice President/Trading of Delaware Investment Advisers (a series of Delaware Management Business Trust).
- ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Taggart Vice President/Facilities and Administration Services of Delaware Management Company (a series of
Delaware Management Business Trust);Vice President/Facilities and Administration Services of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Vice President/Facilities and
Administration Services of Delaware Service Company, Inc.;Vice President/Facilities and Administration
Services of Delaware Distributors, L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas J. Trottman Vice President/Senior Corporate Bond Analyst of Delaware Management Company (a series of Delaware
Management Business Trust); Vice President/Senior Corporate Bond Analyst of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Vice President/Senior Corporate Bond Analyst of each
fund in the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
Lori P. Wachs Vice President/Assistant Portfolio Manager of Delaware Management Company (a series of Delaware
Management Business Trust);Vice President/Assistant Portfolio Manager of Delaware Investment Advisers (a
series of Delaware Management Business Trust);Vice President/Assistant Portfolio Manager of each fund in
the Delaware Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Business Address is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
- --------------------------------------------------------------------------------
1 VICE PRESIDENT, Morgan Stanley Asset Management prior to March 1997.
2 SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997.
3 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
4 DIRECTOR OF TRUST INVESTMENTS, Bell Atlantic Corporation prior to February
1997.
5 TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
6 SENIOR VICE PRESIDENT, EQUITY RESEARCH, NatWest Securities Corporation prior
to March 1997.
7 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.
8 SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset Management
LLC prior to May 1997.
- --------------------------------------------------------------------------------
(b) Delaware International Advisers Ltd. ("Delaware International") serves as
sub-investment adviser to Strategic Income Fund of the Registrant and also
serves as investment manager or sub-investment adviser to certain of the other
funds in the Delaware Group (Delaware Group Global Dividend and Income Fund,
Inc., Delaware Group Global & International Funds, Inc., Delaware Pooled Trust,
Inc., Delaware Group Premium Fund, Inc. and Delaware Group Adviser Funds, Inc.)
and other institutional accounts.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Positions and Offices with Delaware International and its affiliates and other
Business Address Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
*David K. Downes Director of Delaware International Advisers Ltd.; President of Delaware Management Company (a series of
Delaware Management Business Trust); Executive Vice President, Chief Operating Officer and Chief
Financial Officer of Delaware Management Holdings, Inc.; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director of DMH Corp.; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director of Delvoy, Inc.; President and Director of Delaware
Management Company, Inc.; Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Trustee of Delaware Management Business Trust; Executive Vice President, Chief Operating Officer and
Chief Financial Officer of Delaware Investment Advisers (a series of Delaware Management Business Trust);
Chairman, President, Chief Executive Officer and Director of Delaware Service Company, Inc.; President,
Chief Executive Officer and Director of Delaware Capital Management, Inc.; Chairman and Director of
Retirement Financial Services, Inc.; Chairman and Director of Delaware Management Trust Company;
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of Delaware
Distributors, Inc.; Executive Vice President, Chief Operating Officer and Chief Financial Officer of
Delaware Distributors, L.P.; President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware International Holdings Ltd.; Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Founders Holdings, Inc.; Executive Vice President, Chief Operating Officer and
Chief Financial Officer of Founders CBO Corporation; President, Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer and Director/Trustee of each fund in the Delaware Investments family.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place, Newtown Square, PA
- ------------------------------------------------------------------------------------------------------------------------------------
**G Roger H. Kitson Vice Chairman and Director of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**David G. Tilles Managing Director, Chief Investment Officer and Director of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Timothy W. Chief Investment Officer, Equities and Director of Delaware International Advisers Ltd.
Sanderson
- ------------------------------------------------------------------------------------------------------------------------------------
**Elizabeth A. Senior Portfolio Manager of Delaware International Advisers Ltd.
Desmond
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Positions and Offices with Delaware International and its affiliates and other
Business Address Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
**John Emerson Finance Director, Company Secretary and Director of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Clive A. Gillmore Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Nigel G. May Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Hamish O. Parker Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Robert Akester Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Fiona Barwick Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Joanna Bates Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Joshua Brooks Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Gavin A. Hall Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**John Kirk Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**W. Hywel Morgan Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Christopher A. Moth Senior Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Richard J. Ginty Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**R. Emma Lewis Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
**Hugh A. Serjeant Portfolio Manager of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
James S. Beveridge Senior Trading Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Paul J. Fournel IT Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Christine A. Newell Personnel Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Dionne A. Protheroe Manager, Investment Administration
- ------------------------------------------------------------------------------------------------------------------------------------
Adrian L. Rowe Finance/Compliance Manager
- ------------------------------------------------------------------------------------------------------------------------------------
Arthur Van Hoogstraten IT Projects Manager
- ------------------------------------------------------------------------------------------------------------------------------------
*John C.E. Campbell Director of Delaware International Advisers Ltd.; Executive Vice President/Global Marketing and Client
Services of Delaware Investment Advisers (a series of Delaware Management Business Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
*George E. Deming Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Positions and Offices with Delaware International and its affiliates and other
Business Address Positions and Offices Held
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
*Richard J. Flannery Executive Vice President and General Counsel of Delaware Management Company (a series of Delaware
Management Business Trust); Executive Vice President and General Counsel of Delaware Management Holdings,
Inc.; Executive Vice President, General Counsel and Director of DMH Corp.; Executive Vice President,
General Counsel and Director of Delvoy, Inc.; Executive Vice President, General Counsel and Director of
Delaware Management Company, Inc.; Executive Vice President, General Counsel and Trustee of Delaware
Management Business Trust; Executive Vice President and General Counsel of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Executive Vice President, General Counsel and Director
of Delaware Service Company, Inc.; Executive Vice President, General Counsel and Director of Delaware
Capital Management, Inc.; Executive Vice President, General Counsel and Director of Retirement Financial
Services, Inc.; Executive Vice President, General Counsel and Director of Delaware Management Trust
Company; Executive Vice President, General Counsel and Director of Delaware Distributors, Inc.; Executive
Vice President and General Counsel of Delaware Distributors, L.P.; Executive Vice President, General
Counsel and Director of Delaware International Holdings Ltd.; Director of Delaware International Advisers
Ltd.; Executive Vice President, General Counsel and Director of Founders Holdings, Inc.; Executive Vice
President and General Counsel of Founders CBO Corporation; Executive Vice President of each fund in the
Delaware Investments family.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA; Director and Member of
Executive Committee of Stonewall Links, Inc. since 1991, Bulltown Rd., Elverton, PA
- ------------------------------------------------------------------------------------------------------------------------------------
*Wayne A. Stork Director of Delaware International Advisers Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
*Richard G. Unruh Executive Vice President, Chief Investment Officer/ DMC Equity of Delaware Management Company (a series
of Delaware Management Business Trust); Executive Vice President of Delaware Management Holdings, Inc.;
Executive Vice President and Trustee of Delaware Management Business Trust; Chief Executive Office, Chief
Investment Officer/DIA Equity of Delaware Investment Advisers (a series of Delaware Management Business
Trust; Executive Vice President of Delaware Capital Management, Inc.; Director of Delaware Investment
Advisers Ltd.; Executive Vice President, Chief Investment Officer/Equity of each fund in the Delaware
Investments family.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors, Chairman of Finance Committee, AAA Mid Atlantic, Inc. since
1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Metron, Inc. since 1995, 11911 Freedom
Drive, Reston, VA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
**Business address of each is Third Floor, 80 Cheapside, London, England EC2V
6EE.
<PAGE>
Item 27. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter for all
the mutual funds in the Delaware Investments family.
(b) Information with respect to each director, officer or partner of
principal underwriter:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Distributors, Inc. General Partner None
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Investment Advisers Limited Partner None
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Capital Management, Inc. Limited Partner None
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce D. Barton President and Chief Executive Officer None
- ------------------------------------------------------------------------------------------------------------------------------------
David K. Downes Executive Vice President/Chief Operating President/Chief Executive Officer/Chief
Officer/Chief Financial Officer Operating Officer/Chief Financial
Officer/Director/Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Richard J. Flannery Executive Vice President/General Counsel Executive Vice President/General Counsel
- ------------------------------------------------------------------------------------------------------------------------------------
Diane M. Anderson Senior Vice President/Retirement None
Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President/Treasurer/Investment Senior Vice President/Treasurer
Accounting
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. Brooks III Senior Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Terrence P. Cunningham Senior Vice President/National Sales None
Director, Financial Institutions
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen J. DeAngelis Senior Vice President/National Sales, None
Managed Account Services
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings Senior Vice President/Treasurer/Corporate Senior Vice President/Corporate Controller
Controller
- ------------------------------------------------------------------------------------------------------------------------------------
Joanne O. Hutcheson Senior Vice President/Human Resources Senior Vice President/Human Resources
- ------------------------------------------------------------------------------------------------------------------------------------
Bradley L. Kolstoe Senior Vice President/Western Division None
Sales, IPI Channel
- ------------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice President/Deputy General Senior Vice President/Deputy General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Mac MacAuliffe Senior Vice President/Divisional Sales None
Manager
- ------------------------------------------------------------------------------------------------------------------------------------
J Chris Meyer Senior Vice President/Director, Product None
Management
- ------------------------------------------------------------------------------------------------------------------------------------
Eric E. Miller Senior Vice President/Deputy General Senior Vice President/Deputy General
Counsel/Assistant Secretary Counsel/Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen C. Nell Senior Vice President/National Retirement None
Sales
- ------------------------------------------------------------------------------------------------------------------------------------
Henry W. Orvin Senior Vice President/Eastern Division None
Sales
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher H. Price Senior Vice President/Channel Manager None
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas E. Sawyer Senior Vice President/Director, National None
Sales
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
James L. Shields Senior Vice President/Chief Information None
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Richard P. Allen Vice President/Wholesaler, Midwest None
- ------------------------------------------------------------------------------------------------------------------------------------
David P. Anderson, Jr. Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey H. Arcy Vice President/Wholesaler, South East None
Region
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick A. Bearss Vice President/Wholesaler - Midwest None
- ------------------------------------------------------------------------------------------------------------------------------------
Gabriella Bercze Vice President/Wholesaler, Financial None
Institution
- ------------------------------------------------------------------------------------------------------------------------------------
Denise D. Bradley Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Larry Bridwell Vice President/Financial Institutions None
Wholesaler
- ------------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley Vice President/Compliance Director Vice President/Compliance Director
- ------------------------------------------------------------------------------------------------------------------------------------
Terrance L. Bussard Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel H. Carlson Vice President/Marketing Services None
- ------------------------------------------------------------------------------------------------------------------------------------
Larry Carr Vice President/VA Sales Manager None
- ------------------------------------------------------------------------------------------------------------------------------------
William S. Carroll Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Matthew Coldren Vice President/National Accounts None
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick A Connelly Vice President/RIA Sales None
- ------------------------------------------------------------------------------------------------------------------------------------
Jessie V. Emery Vice President/Marketing Communications None
- ------------------------------------------------------------------------------------------------------------------------------------
Joel A. Ettinger Vice President/Taxation Vice President/Taxation
- ------------------------------------------------------------------------------------------------------------------------------------
Susan T. Friestedt Vice President/Retirement Services None
- ------------------------------------------------------------------------------------------------------------------------------------
Douglan R. Glennon Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Darryl S. Grayson Vice President/Director, Internal Sales None
- ------------------------------------------------------------------------------------------------------------------------------------
Rhonda J. Guido Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald A. Haimowitz Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Edward J. Hecker Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Herron Vice President/VA Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Dinah J. Huntoon Vice President/Product Manager, Equities None
- ------------------------------------------------------------------------------------------------------------------------------------
Karina J. Istvan Vice President/Strategic Planning None
- ------------------------------------------------------------------------------------------------------------------------------------
Chirstopher L. Johnston Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Jordan Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Carolyn Kelly Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Richard M. Koerner Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Ellen M. Krott Vice President/Marketing None
- ------------------------------------------------------------------------------------------------------------------------------------
John Leboeuf Vice President/VA Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SooHee Lee Vice President/Fixed Income & None
International Product Management
- ------------------------------------------------------------------------------------------------------------------------------------
Philip Y. Lin Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Logan Vice President/Wholesaler, Financial None
Institutions
- ------------------------------------------------------------------------------------------------------------------------------------
Michael D. Mabry Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Thoedore T. Malone Vice President/IPI Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Debbie Marler Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Gregory J. McMillan Vice President/National Accounts None
- ------------------------------------------------------------------------------------------------------------------------------------
Nathan W. Medin Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Scott L. Metzger Vice President/Business Development None
- ------------------------------------------------------------------------------------------------------------------------------------
Roger J. Miller Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher W. Moore Vice President/VA Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew F. Morris Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick L. Murphy Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Scott E. Naughton Vice President/IPI Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Julie Nusbaum Vice President/Wholesaler, Financial None
Institutions
- ------------------------------------------------------------------------------------------------------------------------------------
Julie A. Nye Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel J. O'Brien Vice President/Insurance Products None
- ------------------------------------------------------------------------------------------------------------------------------------
David P. O'Connor Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph T. Owczarek Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Otis S. Page Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Mark A. Pletts Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Philip G. Rickards Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Laura E. Roman Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Rovert A. Rosso Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Linda D. Shulz Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon E. Searles Vice President/Client Services None
- ------------------------------------------------------------------------------------------------------------------------------------
James R. Searles Vice President/VA Sales Manager None
- ------------------------------------------------------------------------------------------------------------------------------------
Catherine A. Seklecki Vice President/Retirement Sales None
- ------------------------------------------------------------------------------------------------------------------------------------
John C. Shalloe Vice President/Wrap Fee Wholesaler, None
Western Region
- ------------------------------------------------------------------------------------------------------------------------------------
Edward B. Sheridan Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address* Underwriter Registrant
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Stansbury Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Taggart Vice President/Facilities and None
Administration Services
- ------------------------------------------------------------------------------------------------------------------------------------
Julia R. Vander-Els Vice President/Retirement Plan None
Communications
- ------------------------------------------------------------------------------------------------------------------------------------
Wayne W. Wagner Vice President/Wholesaler None
- ------------------------------------------------------------------------------------------------------------------------------------
John A. Wells Vice President/Marketing Technology None
- ------------------------------------------------------------------------------------------------------------------------------------
Courtney S. West Vice President/Institutional Sales None
- ------------------------------------------------------------------------------------------------------------------------------------
Andrew J. Whitaker Vice President/Wholesaler, Financial None
Institutions
- ------------------------------------------------------------------------------------------------------------------------------------
Theodore V. Wood Vice President/Technical Systems Officer None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Inapplicable.
Item 28. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818 Market
Street, Philadelphia, PA 19103 or One Commerce Square, Philadelphia, PA
19103.
Item 29. Management Services. None.
Item 30. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
(d) Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
this City of Philadelphia, Commonwealth of Pennsylvania on this 22nd day of
July, 1999.
DELAWARE GROUP INCOME FUNDS
By /s/David K. Downes
----------------------------
David K. Downes
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------- ----------------------------------------- -------------
<S> <C> <C>
/s/David K. Downes President/Chief Executive Officer/ July 22, 1999
- ---------------------- Chief Operating Officer/Chief Financial
David K. Downes Officer (Principal Executive Officer,
Principal Financial Officer and Principal
Accounting Officer) and Trustee
/s/Wayne A. Stork Trustee July 22, 1999
- ----------------------
Wayne A. Stork
/s/John H. Durham Trustee July 22, 1999
- ----------------------
John H. Durham
/s/ Anthony D. Knerr Trustee July 22, 1999
- ----------------------
Anthony D. Knerr
/s/ Ann R. Leven Trustee July 22, 1999
- ----------------------
Ann R. Leven
/s/Thomas F. Madison Trustee July 22, 1999
- ----------------------
Thomas F. Madison
/s/Charles E. Peck Trustee July 22, 1999
- ----------------------
Charles E. Peck
/s/Walter P. Babich Trustee July 22, 1999
- ----------------------
Walter P. Babich
/s/Jan L. Yeomans Trustee July 22, 1999
- ----------------------
Jan L. Yeomans
*By /s/Wayne A. Stork
-----------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.A1 Agreement and Declaration of Trust
EX-99.A2 Certificate of Trust
EX-99.B By-Laws
EX-99.D1 Form of Investment Management Agreement (September 1999)
between Delaware Management Company and the Registrant
EX-99.D2 Form of Sub-Advisory Agreement (September 1999) between
Delaware International Advisers Ltd. and Delaware
Management Company on behalf of Strategic Income Fund
EX-99.G1 Form of Custodian Agreement with The Chase Manhattan Bank
EX-99.G2 Form of Securities Lending Agreement with The Chase
Manhattan Bank
EX-99.I Opinion of Counsel
EX-99.O Powers of Attorney
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
of
DELAWARE GROUP INCOME FUNDS
a Delaware Business Trust
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. Name and Definitions..................................................................................1
Section 1. Name.........................................................................................1
Section 2. Registered Agent and Registered Office; Principal Place of Business..........................2
(a) Registered Agent and Registered Office.......................................................2
(b) Principal Place of Business..................................................................2
Section 3. Definitions..................................................................................2
(a) "1940 Act"...................................................................................2
(b) "Affiliate"..................................................................................2
(c) "Board of Trustees"..........................................................................2
(d) "By-Laws"....................................................................................2
(e) "Certificate of Trust".......................................................................2
(f) "Code".......................................................................................2
(g) "Commission".................................................................................2
(h) "DBTA".......................................................................................3
(i) "Declaration of Trust".......................................................................3
(j) "General Liabilities"........................................................................3
(k) "Interested Person"..........................................................................3
(l) "Investment Adviser" or "Adviser"............................................................3
(m) "National Financial Emergency"...............................................................3
(n) "Person".....................................................................................3
(o) "Principal Underwriter"......................................................................3
(p) "Series".....................................................................................3
(q) "Shares".....................................................................................3
(r) "Shareholder"................................................................................3
(s) "Trust"......................................................................................4
(t) "Trust Property".............................................................................4
(u) "Trustee" or "Trustees"......................................................................4
ARTICLE II. Purpose of Trust.....................................................................................4
ARTICLE III. Shares..............................................................................................8
Section 1. Division of Beneficial Interest..............................................................8
Section 2. Ownership of Shares..........................................................................9
Section 3. Investments in the Trust.....................................................................9
Section 4. Status of Shares and Limitation of Personal Liability.......................................10
Section 5. Power of Board of Trustees to Change Provisions Relating to Shares..........................10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 6. Establishment and Designation of Series.....................................................11
(a) Assets Held with Respect to a Particular Series.............................................11
(b) Liabilities Held with Respect to a Particular Series........................................12
(c) Dividends, Distributions, Redemptions and Repurchases.......................................13
(d) Voting......................................................................................13
(e) Equality....................................................................................13
(f) Fractions...................................................................................14
(g) Exchange Privilege..........................................................................14
(h) Combination of Series.......................................................................14
(i) Elimination of Series.......................................................................14
Section 7. Indemnification of Shareholders.............................................................14
ARTICLE IV. The Board of Trustees................................................................................15
Section 1. Number, Election and Tenure.................................................................15
Section 2. Effect of Death, Resignation, Removal, etc. of a Trustee...................................15
Section 3. Powers......................................................................................16
Section 4. Payment of Expenses by the Trust............................................................17
Section 5. Payment of Expenses by Shareholders.........................................................18
Section 6. Ownership of Trust Property.................................................................18
Section 7. Service Contracts...........................................................................18
ARTICLE V. Shareholders' Voting Powers and Meetings.............................................................20
Section 1. Voting Powers...............................................................................20
Section 2. Meetings....................................................................................20
Section 3. Quorum and Required Vote....................................................................21
Section 4. Shareholder Action by Written Consent without a Meeting.....................................21
Section 5. Record Dates................................................................................21
Section 6. Additional Provisions.......................................................................22
ARTICLE VI. Net Asset Value, Distributions and Redemptions......................................................22
Section 1. Determination of Net Asset Value, Net Income and Distributions..............................22
Section 2. Redemptions at the Option of a Shareholder..................................................23
Section 3. Redemptions at the Option of the Trust......................................................24
ARTICLE VII. Compensation and Limitation of Liability of Officers and Trustees..................................24
Section 1. Compensation................................................................................24
Section 2. Indemnification and Limitation of Liability.................................................25
Section 3. Officers and Trustees' Good Faith Action, Expert Advice, No Bond or Surety..................25
Section 4. Insurance...................................................................................26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII. Miscellaneous.....................................................................................26
Section 1. Liability of Third Persons Dealing with Trustees............................................26
Section 2. Dissolution of Trust or Series..............................................................26
Section 3. Merger and Consolidation; Conversion........................................................27
(a) Merger and Consolidation....................................................................27
(b) Conversion..................................................................................27
Section 4. Reorganization..............................................................................28
Section 5. Amendments..................................................................................29
Section 6. Filing of Copies, References, Headings......................................................29
Section 7. Applicable Law..............................................................................29
Section 8. Provisions in Conflict with Law or Regulations..............................................30
Section 9. Business Trust Only.........................................................................30
Section 10. Use of the Names "Delaware Group" and "Delaware Investments"...............................30
</TABLE>
iii
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
DELAWARE GROUP INCOME FUNDS
AGREEMENT AND DECLARATION OF TRUST made as of this 17th day of
December, 1998, by the Trustees hereunder, and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided. This
Declaration of Trust shall be effective upon the filing of the Certificate of
Trust in the office of the Secretary of State of the State of Delaware.
W I T N E S S E T H:
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial
interest in separate Series, and to issue classes of Shares of any Series or
divide Shares of any Series into two or more classes, all in accordance with the
provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Delaware business trust in accordance with the
provisions of the Delaware Business Trust Act (12 Del. C. ss.3801, et seq.), as
from time to time amended and including any successor statute of similar import
(the "DBTA"), and the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of shares of beneficial interest in this Trust and the Series created
hereunder as hereinafter set forth.
ARTICLE I.
Name and Definitions
Section 1. Name. This trust shall be known as "Delaware Group Income
Funds" and the Trustees shall conduct the business of the Trust under that name,
or any other name as they may from time to time determine.
<PAGE>
Section 2. Registered Agent and Registered Office; Principal Place of
Business.
(a) Registered Agent and Registered Office. The name of the registered
agent of the Trust and the address of the registered office of the Trust are as
set forth on the Certificate of Trust.
(b) Principal Place of Business. The principal place of business of the
Trust is One Commerce Square, Philadelphia, Pennsylvania, 19103 or such other
location within or outside of the State of Delaware as the Board of Trustees may
determine from time to time.
Section 3. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) "1940 Act" shall mean the Investment Company Act of 1940 and the
rules and regulations thereunder, all as adopted or amended from time to time;
(b) "Affiliate" shall have the meaning given to it in Section 2(a)(3)
of the 1940 Act when used with reference to a specified Person.
(c) "Board of Trustees" shall mean the governing body of the Trust,
which is comprised of the Trustees of the Trust;
(d) "By-Laws" shall mean the By-Laws of the Trust, as amended from time
to time in accordance with Article X of the By-Laws, and incorporated herein by
reference;
(e) "Certificate of Trust" shall mean the certificate of trust filed
with the Office of the Secretary of State of the State of Delaware as required
under the DBTA to form the Trust;
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder;
(g) "Commission" shall have the meaning given it in Section 2(a)(7) of
the 1940 Act;
2
<PAGE>
(h) "DBTA" shall mean the Delaware Business Trust Act, (12 Del.
C.ss.3801, et seq.), as amended from time to time;
(i) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(j) "General Liabilities" shall have the meaning given it in Article
III, Section 6(b) of this Declaration Trust;
(k) "Interested Person" shall have the meaning given it in Section
2(a)(19) of the 1940 Act;
(l) "Investment Adviser" or "Adviser" shall mean a party furnishing
services to the Trust pursuant to any contract described in Article IV, Section
7(a) hereof;
(m) "National Financial Emergency" shall mean the whole or any part of
any period set forth in Section 22(e) of the 1940 Act. The Board of Trustees
may, in its discretion, declare that the suspension relating to a national
financial emergency shall terminate, as the case may be, on the first business
day on which the New York Stock Exchange shall have reopened or the period
specified in Section 22(e) of the 1940 Act shall have expired (as to which, in
the absence of an official ruling by the Commission, the determination of the
Board of Trustees shall be conclusive);
(n) "Person" shall include a natural person, partnership, limited
partnership, trust, estate, association, corporation, custodian, nominee or any
other individual or entity in its own or any representative capacity;
(o) "Principal Underwriter" shall have the meaning given to it in
Section 2(a)(29) of the 1940 Act;
(p) "Series" shall refer to each Series of Shares established and
designated under or in accordance with the provisions of Article III and shall
mean an entity such as that described in Section 18(f)(2) of the 1940 Act, and
subject to Rule 18f-2 thereunder;
(q) "Shares" shall mean the outstanding shares of beneficial interest
into which the beneficial interest in the Trust shall be divided from time to
time, and shall include fractional and whole shares;
(r) "Shareholder" shall mean a record owner of Shares;
3
<PAGE>
(s) "Trust" shall refer to the Delaware business trust established by
this Declaration of Trust, as amended from time to time;
(t) "Trust Property" shall mean any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or one or more of any Series, including, without limitation, the rights
referenced in Article VIII, Section 2 hereof;
(u) "Trustee" or "Trustees" shall refer to each signatory to this
Declaration of Trust as a trustee, so long as such signatory continues in office
in accordance with the terms hereof, and all other Persons who may, from time to
time, be duly elected or appointed, qualified and serving on the Board of
Trustees in accordance with the provisions hereof. Reference herein to a Trustee
or the Trustees shall refer to such Person or Persons in their capacity as
trustees hereunder.
ARTICLE II.
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of a registered management investment company registered under the 1940
Act through one or more Series investing primarily in securities and, in
addition to any authority given by law, to exercise all of the powers and to do
any and all of the things as fully and to the same extent as any private
corporation organized for profit under the general corporation law of the State
of Delaware, now or hereafter in force, including, without limitation, the
following powers:
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, mortgage, transfer, exchange, distribute, write options
on, lend or otherwise deal in or dispose of contracts for the future acquisition
or delivery of fixed income or other securities, and securities or property of
every nature and kind, including, without limitation, all types of bonds,
debentures, stocks, preferred stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed, or sponsored by any and all
Persons, including, without limitation, states, territories, and possessions of
the United States and the District of Columbia and any political subdivision,
agency, or instrumentality thereof, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the United States or of
any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts for
any such securities, to change the investments of the assets of the Trust;
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(b) To exercise any and all rights, powers and privileges with
reference to or incident to ownership or interest, use and enjoyment of any of
such securities and other instruments or property of every kind and description,
including, but without limitation, the right, power and privilege to own, vote,
hold, purchase, sell, negotiate, assign, exchange, lend, transfer, mortgage,
hypothecate, lease, pledge or write options with respect to or otherwise deal
with, dispose of, use, exercise or enjoy any rights, title, interest, powers or
privileges under or with reference to any of such securities and other
instruments or property, the right to consent and otherwise act with respect
thereto, with power to designate one or more Persons, to exercise any of said
rights, powers, and privileges in respect of any of said instruments, and to do
any and all acts and things for the preservation, protection, improvement and
enhancement in value of any of such securities and other instruments or
property;
(c) To sell, exchange, lend, pledge, mortgage, hypothecate, lease or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust or any Series, subject to any
requirements of the 1940 Act;
(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(e) To exercise powers and right of subscription or otherwise which in
any manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating that it
is trust property, whether in bearer, unregistered or other negotiable form, or
in its own name or in the name of a custodian or subcustodian or a nominee or
nominees or otherwise or to authorize the custodian or a subcustodian or a
nominee or nominees to deposit the same in a securities depository, subject in
each case to proper safeguards according to the usual practice of investment
companies or any rules or regulations applicable thereto;
(g) To consent to, or participate in, any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
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(h) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, Investment Advisers, Principal Underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding Shares, holding, being
or having held any such office or position, or by reason of any action alleged
to have been taken or omitted by any such Person as Trustee, officer, employee,
agent, Investment Adviser, Principal Underwriter, or independent contractor, to
the fullest extent permitted by this Declaration of Trust, the Bylaws and by
applicable law; and
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust.
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(n) To purchase or otherwise acquire, own, hold, sell, negotiate,
exchange, assign, transfer, mortgage, pledge or otherwise deal with, dispose of,
use, exercise or enjoy, property of all kinds.
(o) To buy, sell, mortgage, encumber, hold, own, exchange, rent or
otherwise acquire and dispose of, and to develop, improve, manage, subdivide,
and generally to deal and trade in real property, improved and unimproved, and
wheresoever situated; and to build, erect, construct, alter and maintain
buildings, structures, and other improvements on real property.
(p) To borrow or raise moneys for any of the purposes of the Trust, and
to mortgage or pledge the whole or any part of the property and franchises of
the Trust, real, personal, and mixed, tangible or intangible, and wheresoever
situated.
(q) To enter into, make and perform contracts and undertakings of every
kind for any lawful purpose, without limit as to amount.
(r) To issue, purchase, sell and transfer, reacquire, hold, trade and
deal in Shares, bonds, debentures and other securities, instruments or other
property of the Trust, from time to time, to such extent as the Board of
Trustees shall, consistent with the provisions of this Declaration of Trust,
determine; and to repurchase, re-acquire and redeem, from time to time, its
Shares or, if any, its bonds, debentures and other securities.
The Trust shall not be limited to investing in obligations maturing
before the possible dissolution of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. Neither the Trust nor the
Trustees shall be required to obtain any court order to deal with any assets of
the Trust or take any other action hereunder.
The foregoing clauses shall each be construed as purposes, objects and
powers, and it is hereby expressly provided that the foregoing enumeration of
specific purposes, objects and powers shall not be held to limit or restrict in
any manner the powers of the Trust, and that they are in furtherance of, and in
addition to, and not in limitation of, the general powers conferred upon the
Trust by the DBTA and the other laws of the State of Delaware or otherwise; nor
shall the enumeration of one thing be deemed to exclude another, although it be
of like nature, not expressed.
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ARTICLE III.
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into Shares, all without par value. The
number of Shares authorized hereunder is unlimited. The Board of Trustees may
authorize the division of Shares into separate and distinct Series and the
division of any Series into separate classes of Shares. The different Series and
classes shall be established and designated, and the variations in the relative
rights and preferences as between the different Series and classes shall be
fixed and determined by the Board of Trustees without the requirement of
Shareholder approval. If no separate Series or classes shall be established, the
Shares shall have the rights and preferences provided for herein and in Article
III, Section 6 hereof to the extent relevant and not otherwise provided for
herein, and all references to Series and classes shall be construed (as the
context may require) to refer to the Trust. The fact that a Series shall have
initially been established and designated without any specific establishment or
designation of classes (i.e., that all Shares of such Series are initially of a
single class) shall not limit the authority of the Board of Trustees to
establish and designate separate classes of said Series. The fact that a Series
shall have more than one established and designated class, shall not limit the
authority of the Board of Trustees to establish and designate additional classes
of said Series, or to establish and designate separate classes of the previously
established and designated classes.
The Board of Trustees shall have the power to issue Shares of the
Trust, or any Series or class thereof, from time to time for such consideration
(but not less than the net asset value thereof) and in such form as may be fixed
from time to time pursuant to the direction of the Board of Trustees.
The Board of Trustees may hold as treasury shares, reissue for such
consideration and on such terms as they may determine, or cancel, at their
discretion from time to time, any Shares of any Series reacquired by the Trust.
The Board of Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and reacquired of any Series or class into one or more
Series or classes that may be established and designated from time to time.
Notwithstanding the foregoing, the Trust and any Series thereof may acquire,
hold, sell and otherwise deal in, for purposes of investment or otherwise, the
Shares of any other Series of the Trust or Shares of the Trust, and such Shares
shall not be deemed treasury shares or cancelled.
Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and the Shareholders
of any Series shall be entitled to receive dividends and distributions, when, if
and as declared with respect thereto in the manner provided in Article IV,
Section 3 hereof. No Share shall have any priority or preference over any other
Share of the same Series or class with respect to dividends or distributions
paid in the ordinary course of business or distributions upon dissolution of the
Trust or of such Series or class made pursuant to Article VIII, Section 2
hereof. All dividends and distributions shall be made ratably among all
Shareholders of a particular class of Series from the Trust Property held with
respect to such Series according to the number of Shares of such class of such
Series held of record by such Shareholders on the record date for any dividend
or distribution. Shareholders shall have no preemptive or other right to
subscribe to new or additional Shares or other securities issued by the Trust or
any Series. The Trustees may from time to time divide or combine the Shares of
any particular Series into a greater or lesser number of Shares of that Series.
Such division or combination may not materially change the proportionate
beneficial interests of the Shares of that Series in the Trust Property held
with respect to that Series or materially affect the rights of Shares of any
other Series.
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Any Trustee, officer or other agent of the Trust, and any organization
in which any such Person is interested, may acquire, own, hold and dispose of
Shares of the Trust to the same extent as if such Person were not a Trustee,
officer or other agent of the Trust; and the Trust may issue and sell or cause
to be issued and sold and may purchase Shares from any such Person or any such
organization subject only to the general limitations, restrictions or other
provisions applicable to the sale or purchase of such Shares generally.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust kept by the Trust or by a transfer or similar
agent for the Trust, which books shall be maintained separately for the Shares
of each Series and class thereof that has been established and designated. No
certificates certifying the ownership of Shares shall be issued except as the
Board of Trustees may otherwise determine from time to time. The Board of
Trustees may make such rules not inconsistent with the provisions of the 1940
Act as they consider appropriate for the issuance of Share certificates, the
transfer of Shares of each Series or class and similar matters. The record books
of the Trust as kept by the Trust or any transfer or similar agent, as the case
may be, shall be conclusive as to who are the Shareholders of each Series or
class thereof and as to the number of Shares of each Series or class thereof
held from time to time by each such Shareholder.
Section 3. Investments in the Trust. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Board of Trustees may, from time to time, authorize. Each
investment shall be credited to the individual Shareholder's account in the form
of full and fractional Shares of the Trust, in such Series or class as the
purchaser may select, at the net asset value per Share next determined for such
Series or class after receipt of the investment; provided, however, that the
Principal Underwriter may, in its sole discretion, impose a sales charge upon
investments in the Trust.
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Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving to Shareholders only the
rights provided in this Declaration of Trust and under applicable law. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have become a party
hereto. The death of a Shareholder during the existence of the Trust shall not
operate to dissolve the Trust or any Series, nor entitle the representative of
any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees or any Series, but entitles such
representative only to the rights of said deceased Shareholder under this
Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust Property or right to call
for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders as partners. Neither the Trust
nor the Trustees, nor any officer, employee or agent of the Trust, shall have
any power to bind personally any Shareholder, nor, except as specifically
provided herein, to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay. All Shares when issued on the terms determined by
the Board of Trustees, shall be fully paid and nonassessable. As provided in the
DBTA, Shareholders of the Trust shall be entitled to the same limitation of
personal liability extended to stockholders of a private corporation organized
for profit under the general corporation law of the State of Delaware.
Section 5. Power of Board of Trustees to Change Provisions Relating to
Shares. Notwithstanding any other provisions of this Declaration of Trust and
without limiting the power of the Board of Trustees to amend this Declaration of
Trust or the Certificate of Trust as provided elsewhere herein, the Board of
Trustees shall have the power to amend this Declaration of Trust, or the
Certificate of Trust, at any time and from time to time, in such manner as the
Board of Trustees may determine in its sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust,
provided that before adopting any such amendment without Shareholder approval,
the Board of Trustees shall determine that it is consistent with the fair and
equitable treatment of all Shareholders and that Shareholder approval is not
otherwise required by the 1940 Act or other applicable law. If Shares have been
issued, Shareholder approval shall be required to adopt any amendments to this
Declaration of Trust which would adversely affect to a material degree the
rights and preferences of the Shares of any Series or class already issued;
provided, however, that in the event that the Board of Trustees determines that
the Trust shall no longer be operated as an investment company in accordance
with the provisions of the 1940 Act, the Board of Trustees may adopt such
amendments to this Declaration of Trust to delete those terms the Board of
Trustees identifies as being required by the 1940 Act.
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Subject to the foregoing Paragraph, the Board of Trustees may amend the
Declaration of Trust to amend any of the provisions set forth in paragraphs (a)
through (i) of Section 6 of this Article III.
The Board of Trustees shall have the power, in its discretion, to make
such elections as to the tax status of the Trust as may be permitted or required
under the Code as presently in effect or as amended, without the vote of any
Shareholder.
Section 6. Establishment and Designation of Series. The establishment
and designation of any Series or class of Shares shall be effective upon the
resolution by a majority of the then Board of Trustees, adopting a resolution
which sets forth such establishment and designation and the relative rights and
preferences of such Series or class. Each such resolution shall be incorporated
herein by reference upon adoption.
Each Series shall be separate and distinct from any other Series and
shall maintain separate and distinct records on the books of the Trust, and the
assets and liabilities belonging to any such Series shall be held and accounted
for separately from the assets and liabilities of the Trust or any other Series.
Shares of each Series or class established pursuant to this Section 6,
unless otherwise provided in the resolution establishing such Series, shall have
the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably be held with respect to that Series for all purposes, subject only
to the rights of creditors with respect to that Series, and shall be so recorded
upon the books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived, including,
without limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
held with respect to" that Series. In the event that there are any assets,
income, earnings, profits and proceeds thereof, funds or payments which are not
readily identifiable as assets held with respect to any particular Series
(collectively "General Assets"), the Board of Trustees shall allocate such
General Assets to, between or among any one or more of the Series in such manner
and on such basis as the Board of Trustees, in its sole discretion, deems fair
and equitable, and any General Asset so allocated to a particular Series shall
be held with respect to that Series. Each such allocation by the Board of
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
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(b) Liabilities Held with Respect to a Particular Series. The assets of
the Trust held with respect to each particular Series shall be charged against
the liabilities of the Trust held with respect to that Series and all expenses,
costs, charges and reserves attributable to that Series, and any liabilities,
expenses, costs, charges and reserves of the Trust which are not readily
identifiable as being held with respect to any particular Series (collectively
"General Liabilities") shall be allocated and charged by the Board of Trustees
to and among any one or more of the Series in such manner and on such basis as
the Board of Trustees in its sole discretion deems fair and equitable. The
liabilities, expenses, costs, charges, and reserves so charged to a Series are
herein referred to as "liabilities held with respect to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Board of
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes. All Persons who have extended credit which has been allocated to a
particular Series, or who have a claim or contract which has been allocated to
any particular Series, shall look, and shall be required by contract to look
exclusively, to the assets of that particular Series for payment of such credit,
claim, or contract. In the absence of an express contractual agreement so
limiting the claims of such creditors, claimants and contract providers, each
creditor, claimant and contract provider will be deemed nevertheless to have
impliedly agreed to such limitation unless an express provision to the contrary
has been incorporated in the written contract or other document establishing the
claimant relationship.
Subject to the right of the Board of Trustees in its discretion to
allocate General Liabilities as provided herein, the debts, liabilities,
obligations and expenses incurred, contracted for or otherwise existing with
respect to a particular Series, whether such Series is now authorized and
existing pursuant to this Declaration of Trust or is hereafter authorized and
existing pursuant to this Declaration of Trust, shall be enforceable against the
assets held with respect to that Series only, and not against the assets of any
other Series or the Trust generally and none of the debts, liabilities,
obligations and expenses incurred, contracted for or otherwise existing with
respect to the Trust generally or any other Series thereof shall be enforceable
against the assets held with respect to such Series. Notice of this limitation
on liabilities between and among Series shall be set forth in the Certificate of
Trust of the Trust (whether originally or by amendment) as filed or to be filed
in the Office of the Secretary of State of the State of Delaware pursuant to the
DBTA, and upon the giving of such notice in the Certificate of Trust, the
statutory provisions of Section 3804 of the DBTA relating to limitations on
liabilities between and among Series (and the statutory effect under Section
3804 of setting forth such notice in the Certificate of Trust) shall become
applicable to the Trust and each Series.
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(c) Dividends, Distributions, Redemptions and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution including, without
limitation, any distribution paid upon dissolution of the Trust or of any Series
with respect to, nor any redemption or repurchase of, the Shares of any Series
or class shall be effected by the Trust other than from the assets held with
respect to such Series, nor, except as specifically provided in Section 7 of
this Article III, shall any Shareholder of any particular Series otherwise have
any right or claim against the assets held with respect to any other Series or
the Trust generally except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series. The Board of Trustees
shall have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a matter shall
vote on the matter, separately by Series and, if applicable, by class, subject
to: (1) where the 1940 Act requires all Shares of the Trust to be voted in the
aggregate without differentiation between the separate Series or classes, then
all of the Trust's Shares shall vote in the aggregate; and (2) if any matter
affects only the interests of some but not all Series or classes, then only the
Shareholders of such affected Series or classes shall be entitled to vote on the
matter.
(e) Equality. All Shares of each particular Series shall represent an
equal proportionate undivided beneficial interest in the assets held with
respect to that Series (subject to the liabilities held with respect to that
Series and such rights and preferences as may have been established and
designated with respect to classes of Shares within such Series), and each Share
of any particular Series shall be equal to each other Share of that Series
(subject to the rights and preferences with respect to separate classes of such
Series).
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(f) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole Share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and dissolution of the Trust or that Series.
(g) Exchange Privilege. The Board of Trustees shall have the authority
to provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series in accordance with
such requirements and procedures as may be established by the Board of Trustees,
and in accordance with the 1940 Act and the rules and regulations thereunder.
(h) Combination of Series. The Board of Trustees shall have the
authority, without the approval of the Shareholders of any Series unless
otherwise required by applicable law, to combine the assets and liabilities held
with respect to any two or more Series into assets and liabilities held with
respect to a single Series.
(i) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series or class previously established and
designated, the Board of Trustees may by resolution of a majority of the then
Board of Trustees abolish that Series or class and rescind the establishment and
designation thereof.
Section 7. Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be exposed to liability by reason of a claim or demand
relating solely to his or her being or having been a Shareholder of the Trust
(or by having been a Shareholder of a particular Series), and not because of
such Person's acts or omissions, the Shareholder or former Shareholder (or, in
the case of a natural person, his or her heirs, executors, administrators, or
other legal representatives or, in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled to be held harmless
from and indemnified out of the assets of the Trust or out of the assets of the
applicable Series (as the case may be) against all loss and expense arising from
such claim or demand; provided, however, there shall be no liability or
obligation of the Trust (or any particular Series) arising hereunder to
reimburse any Shareholder for taxes paid by reason of such Shareholder's
ownership of any Shares.
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ARTICLE IV.
The Board of Trustees
Section 1. Number, Election and Tenure. The number of Trustees
constituting the Board of Trustees may be fixed from time to time by a written
instrument signed, or by resolution approved at a duly constituted meeting, by a
majority of the Board of Trustees, provided, however, that the number of
Trustees shall in no event be less than one (1) nor more than fifteen (15). The
Board of Trustees, by action of a majority of the then Trustees at a duly
constituted meeting, may fill vacancies in the Board of Trustees or remove any
Trustee with or without cause. The Shareholders may elect Trustees, including
filling any vacancies in the Board of Trustees, at any meeting of Shareholders
called by the Board of Trustees for that purpose. A meeting of Shareholders for
the purpose of electing one or more Trustees may be called by the Board of
Trustees or, to the extent provided by the 1940 Act and the rules and
regulations thereunder, by the Shareholders. Shareholders shall have the power
to remove a Trustee only to the extent provided by the 1940 Act and the rules
and regulations thereunder.
Each Trustee shall serve during the continued lifetime of the Trust
until he or she dies, resigns, is declared bankrupt or incompetent by a court of
appropriate jurisdiction, or is removed, or, if sooner than any of such events,
until the next meeting of Shareholders called for the purpose of electing
Trustees and until the election and qualification of his or her successor. Any
Trustee may resign at any time by written instrument signed by him or her and
delivered to any officer of the Trust or to a meeting of the Board of Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some later time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following any such event
or any right to damages on account of such events or any actions taken in
connection therewith following his or her resignation or removal.
Section 2. Effect of Death, Resignation, Removal, etc. of a Trustee.
The death, declination, resignation, retirement, removal, declaration as
bankrupt or incapacity of one or more Trustees, or of all of them, shall not
operate to dissolve the Trust or any Series or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust. Whenever a vacancy
in the Board of Trustees shall occur, until such vacancy is filled as provided
in this Article IV, Section 1, the Trustee(s) in office, regardless of the
number, shall have all the powers granted to the Board of Trustees and shall
discharge all the duties imposed upon the Board of Trustees by this Declaration
of Trust. In the event of the death, declination, resignation, retirement,
removal, declaration as bankrupt or incapacity of all of the then Trustees, the
Trust's Investment Adviser(s) is (are) empowered to appoint new Trustees subject
to the provisions of Section 16(a) of the 1940 Act.
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Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Board of Trustees, and
such Board of Trustees shall have all powers necessary or convenient to carry
out that responsibility, including, without limitation, the power to engage in
securities or other transactions of all kinds on behalf of the Trust. The Board
of Trustees shall have full power and authority to do any and all acts and to
make and execute any and all contracts and instruments that it may consider
necessary or appropriate in connection with the administration of the Trust. The
Trustees shall not be bound or limited by present or future laws or customs with
regard to investment by trustees or fiduciaries, but shall have full authority
and absolute power and control over the assets of the Trust and the business of
the Trust to the same extent as if the Trustees were the sole owners of the
assets of the Trust and the business in their own right, including such
authority, power and control to do all acts and things as they, in their sole
discretion, shall deem proper to accomplish the purposes of this Trust. Without
limiting the foregoing, the Trustees may: (1) adopt, amend and repeal By-Laws
not inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust; (2) fill vacancies in or remove from
their number in accordance with this Declaration of Trust or the By-Laws, and
may elect and remove such officers and appoint and terminate such agents as they
consider appropriate; (3) appoint from their own number and establish and
terminate one or more committees consisting of two or more Trustees which may
exercise the powers and authority of the Board of Trustees to the extent that
the Board of Trustees determine; (4) employ one or more custodians of the Trust
Property and may authorize such custodians to employ subcustodians and to
deposit all or any part of such Trust Property in a system or systems for the
central handling of securities or with a Federal Reserve Bank; (5) retain a
transfer agent, dividend disbursing agent, a shareholder servicing agent or
administrative services agent, or all of them; (6) provide for the issuance and
distribution of Shares by the Trust directly or through one or more Principal
Underwriters or otherwise; (7) retain one or more Investment Adviser(s); (8)
redeem, repurchase and transfer Shares pursuant to applicable law; (9) set
record dates for the determination of Shareholders with respect to various
matters, in the manner provided in Article V, Section 5 of this Declaration of
Trust; (10) declare and pay dividends and distributions to Shareholders from the
Trust Property; (11) establish from time to time, in accordance with the
provisions of Article III, Section 6 hereof, any Series or class of Shares, each
such Series to operate as a separate and distinct investment medium and with
separately defined investment objectives and policies and distinct investment
purposes; and (12) in general delegate such authority as they consider desirable
to any officer of the Trust, to any committee of the Board of Trustees and to
any agent or employee of the Trust or to any such custodian, transfer, dividend
disbursing or shareholder servicing agent, Principal Underwriter or Investment
Adviser. Any determination as to what is in the best interests of the Trust made
by the Board of Trustees in good faith shall be conclusive.
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In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified herein or required by law, any action by the Board of
Trustees shall be deemed effective if approved or taken by a majority of the
Trustees then in office.
Any action required or permitted to be taken by the Board of Trustees,
or a committee thereof, may be taken without a meeting if a majority of the
members of the Board of Trustees, or committee thereof, as the case may be,
shall individually or collectively consent in writing to that action. Such
action by written consent shall have the same force and effect as a majority
vote of the Board of Trustees, or committee thereof, as the case may be. Such
written consent or consents shall be filed with the minutes of the proceedings
of the Board of Trustees, or committee thereof, as the case may be.
The Trustees shall devote to the affairs of the Trust such time as may
be necessary for the proper performance of their duties hereunder, but neither
the Trustees nor the officers, directors, shareholders or partners of the
Trustees, shall be expected to devote their full time to the performance of such
duties. The Trustees, or any Affiliate shareholder, officer, director, partner
or employee thereof, or any Person owning a legal or beneficial interest
therein, may engage in or possess an interest in any other business or venture
of any nature and description, independently or with or for the account of
others.
Section 4. Payment of Expenses by the Trust. The Board of Trustees is
authorized to pay or cause to be paid out of the principal or income of the
Trust or any particular Series or class, or partly out of the principal and
partly out of the income of the Trust or any particular Series or class, and to
charge or allocate the same to, between or among such one or more of the Series
or classes that may be established or designated pursuant to Article III,
Section 6, as it deems fair, all expenses, fees, charges, taxes and liabilities
incurred by or arising in connection with the maintenance or operation of the
Trust or a particular Series or class, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses, fees, charges, taxes and liabilities for the services of the Trust's
officers, employees, Investment Adviser, Principal Underwriter, auditors,
counsel, custodian, sub-custodian (if any), transfer agent, dividend disbursing
agent, shareholder servicing agent, and such other agents or independent
contractors and such other expenses, fees, charges, taxes and liabilities as the
Board of Trustees may deem necessary or proper to incur.
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Section 5. Payment of Expenses by Shareholders. The Board of Trustees
shall have the power, as frequently as it may determine, to cause each
Shareholder of the Trust, or each Shareholder of any particular Series, to pay
directly, in advance or arrears, for charges of the Trust's custodian or
transfer, dividend disbursing, shareholder servicing or similar agent, an amount
fixed from time to time by the Board of Trustees, by setting off such charges
due from such Shareholder from declared but unpaid dividends or distributions
owed such Shareholder and/or by reducing the number of Shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.
Section 6. Ownership of Trust Property. Legal title to all of the Trust
Property shall at all times be considered to be vested in the Trust, except that
the Board of Trustees shall have the power to cause legal title to any Trust
Property to be held by or in the name of any Person as nominee, on such terms as
the Board of Trustees may determine, in accordance with applicable law.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth
in the By-Laws and/or the 1940 Act, the Board of Trustees may, at any time and
from time to time, contract for exclusive or nonexclusive advisory, management
and/or administrative services for the Trust or for any Series with any
corporation, trust, association or other organization, including any Affiliate;
and any such contract may contain such other terms as the Board of Trustees may
determine, including without limitation, authority for the Investment Adviser or
administrator to determine from time to time without prior consultation with the
Board of Trustees what securities and other instruments or property shall be
purchased or otherwise acquired, owned, held, invested or reinvested in, sold,
exchanged, transferred, mortgaged, pledged, assigned, negotiated, or otherwise
dealt with or disposed of, and what portion, if any, of the Trust Property shall
be held uninvested and to make changes in the Trust's or a particular Series'
investments, or such other activities as may specifically be delegated to such
party.
(b) The Board of Trustees may also, at any time and from time to time,
contract with any corporation, trust, association or other organization,
including any Affiliate, appointing it or them as the exclusive or nonexclusive
distributor or Principal Underwriter for the Shares of the Trust or one or more
of the Series or classes thereof or for other securities to be issued by the
Trust, or appointing it or them to act as the custodian, transfer agent,
dividend disbursing agent and/or shareholder servicing agent for the Trust or
one or more of the Series or classes thereof.
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(c) The Board of Trustees is further empowered, at any time and from
time to time, to contract with any Persons to provide such other services to the
Trust or one or more of its Series, as the Board of Trustees determines to be in
the best interests of the Trust or one or more of its Series.
(d) The fact that:
(i) any of the Shareholders, Trustees, employees or
officers of the Trust is a shareholder, director, officer,
partner, trustee, employee, manager, Adviser, Principal
Underwriter, distributor, or Affiliate or agent of or for any
corporation, trust, association, or other organization, or for
any parent or Affiliate of any organization with which an
Adviser's, management or administration contract, or Principal
Underwriter's or distributor's contract, or custodian,
transfer, dividend disbursing, shareholder servicing or other
type of service contract may have been or may hereafter be
made, or that any such organization, or any parent or
Affiliate thereof, is a Shareholder or has an interest in the
Trust, or that
(ii) any corporation, trust, association or other
organization with which an Adviser's, management or
administration contract or Principal Underwriter's or
distributor's contract, or custodian, transfer, dividend
disbursing, shareholder servicing or other type of service
contract may have been or may hereafter be made also has an
Adviser's, management or administration contract, or Principal
Underwriter's or distributor's contract, or custodian,
transfer, dividend disbursing, shareholder servicing or other
service contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee, employee or officer of the Trust from voting upon or
executing the same, or create any liability or accountability to the Trust or
its Shareholders, provided that the establishment of and performance under each
such contract is permissible under the provisions of the 1940 Act.
(e) Every contract referred to in this Section 7 shall comply with such
requirements and restrictions as may be set forth in the By-Laws, the 1940 Act
or stipulated by resolution of the Board of Trustees; and any such contract may
contain such other terms as the Board of Trustees may determine.
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ARTICLE V.
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of Article III,
Section 6(d), the Shareholders shall have power to vote only (i) for the
election of Trustees, including the filling of any vacancies in the Board of
Trustees, as provided in Article IV, Section 1; (ii) with respect to such
additional matters relating to the Trust as may be required by this Declaration
of Trust, the By-Laws, the 1940 Act or any registration statement of the Trust
filed with the Commission; and (iii) on such other matters as the Board of
Trustees may consider necessary or desirable. The Shareholder of record (as of
the record date established pursuant to Section 5 of this Article V) of each
Share shall be entitled to one vote for each full Share, and a fractional vote
for each fractional Share. Shareholders shall not be entitled to cumulative
voting in the election of Trustees or on any other matter. Shares may be voted
in person or by proxy.
Section 2. Meetings. Meetings of the Shareholders may be called by the
Board of Trustees for the purpose of electing Trustees as provided in Article
IV, Section 1 and for such other purposes as may be prescribed by law, by this
Declaration of Trust or by the By-Laws. Meetings of the Shareholders may also be
called by the Board of Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Board of Trustees to be necessary or
desirable.
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Section 3. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
thirty-three and one-third percent (33-1/3%) of the Shares present in person or
represented by proxy and entitled to vote at a Shareholders' meeting shall
constitute a quorum at such meeting. When a separate vote by one or more Series
or classes is required, thirty-three and one-third percent (33-1/3%) of the
Shares of each such Series or class present in person or represented by proxy
and entitled to vote shall constitute a quorum at a Shareholders' meeting of
such Series or class. Subject to the provisions of Article III, Section 6(d),
Article VIII, Section 4 and any other provision of this Declaration of Trust,
the By-Laws or applicable law which requires a different vote: (1) in all
matters other than the election of Trustees, the affirmative vote of the
majority of votes cast at a Shareholders' meeting at which a quorum is present
shall be the act of the Shareholders; (2) Trustees shall be elected by a
plurality of the votes cast at a Shareholders' meeting at which a quorum is
present.
Section 4. Shareholder Action by Written Consent without a Meeting. Any
action which may be taken at any meeting of Shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of Shares having not less than the
minimum number of votes that would be necessary to authorize or take that action
at a meeting at which all Shares entitled to vote on that action were present
and voted. All such consents shall be filed with the secretary of the Trust and
shall be maintained in the Trust's records. Any Shareholder giving a written
consent or the Shareholder's proxy holders or a transferee of the Shares or a
personal representative of the Shareholder or its respective proxy-holder may
revoke the consent by a writing received by the secretary of the Trust before
written consents of the number of Shares required to authorize the proposed
action have been filed with the secretary.
If the consents of all Shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
Shareholders shall not have been received, the secretary shall give prompt
notice of the action taken without a meeting to such Shareholders. This notice
shall be given in the manner specified in the By-Laws.
Section 5. Record Dates. For purposes of determining the Shareholders
entitled to notice of any meeting or to vote or entitled to give consent to
action without a meeting, the Board of Trustees may fix in advance a record date
which shall not be more than one hundred eighty (180) days nor less than seven
(7) days before the date of any such meeting.
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If the Board of Trustees does not so fix a record date:
(a) The record date for determining Shareholders entitled to notice of
or to vote at a meeting of Shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day which is five (5) business
days next preceding to the day on which the meeting is held.
(b) The record date for determining Shareholders entitled to give
consent to action in writing without a meeting, (i) when no prior action by the
Board of Trustees has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the Board of Trustees has been
taken, shall be at the close of business on the day on which the Board of
Trustees adopts the resolution taking such prior action or the seventy-fifth
(75th) day before the date of such other action, whichever is later.
For the purpose of determining the Shareholders of any Series or class
who are entitled to receive payment of any dividend or of any other
distribution, the Board of Trustees may from time to time fix a date, which
shall be before the date for the payment of such dividend or such other
distribution, as the record date for determining the Shareholders of such Series
or class having the right to receive such dividend or distribution. Nothing in
this Section shall be construed as precluding the Board of Trustees from setting
different record dates for different Series or classes.
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes, meetings and related matters.
ARTICLE VI.
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income and
Distributions. Subject to Article III, Section 6 hereof, the Board of Trustees
shall have the power to fix an initial offering price for the Shares of any
Series or class thereof which shall yield to such Series or class not less than
the net asset value thereof, at which price the Shares of such Series or class
shall be offered initially for sale, and to determine from time to time
thereafter the offering price which shall yield to such Series or class not less
than the net asset value thereof from sales of the Shares of such Series or
class; provided, however, that no Shares of a Series or class thereof shall be
issued or sold for consideration which shall yield to such Series or class less
than the net asset value of the Shares of such Series or class next determined
after the receipt of the order (or at such other times set by the Board of
Trustees), except in the case of Shares of such Series or class issued in
payment of a dividend properly declared and payable.
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Subject to Article III, Section 6 hereof, the Board of Trustees, in
their absolute discretion, may prescribe and shall set forth in the By-laws or
in a duly adopted vote of the Board of Trustees such bases and time for
determining the per Share or net asset value of the Shares of any Series or net
income attributable to the Shares of any Series, or the declaration and payment
of dividends and distributions on the Shares of any Series, as they may deem
necessary or desirable.
Section 2. Redemptions at the Option of a Shareholder. Unless otherwise
provided in the prospectus of the Trust relating to the Shares, as such
prospectus may be amended from time to time ("Prospectus"):
(a) The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust or a Person designated by
the Trust that the Trust purchase such Shares or in accordance with such other
procedures for redemption as the Board of Trustees may from time to time
authorize; and the Trust will pay therefor the net asset value thereof, in
accordance with the By-Laws and applicable law. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the date on which
the request is received in proper form. The obligation set forth in this Section
2 is subject to the provision that in the event that any time the New York Stock
Exchange (the "Exchange") is closed for other than weekends or holidays, or if
permitted by the Rules of the Commission during periods when trading on the
Exchange is restricted or during any National Financial Emergency which makes it
impracticable for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets held with respect to
such Series or during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or postponed by
the Board of Trustees. If certificates have been issued to a Shareholder, any
such request by such Shareholder must be accompanied by surrender of any
outstanding certificate or certificates for such Shares in form for transfer,
together with such proof of the authenticity of signatures as may reasonably be
required on such Shares and accompanied by proper stock transfer stamps, if
applicable.
(b) Payments for Shares so redeemed by the Trust shall be made in cash,
except payment for such Shares may, at the option of the Board of Trustees, or
such officer or officers as it may duly authorize in its complete discretion, be
made in kind or partially in cash and partially in kind. In case of any payment
in kind, the Board of Trustees, or its delegate, shall have absolute discretion
as to what security or securities of the Trust shall be distributed in kind and
the amount of the same; and the securities shall be valued for purposes of
distribution at the value at which they were appraised in computing the then
current net asset value of the Shares, provided that any Shareholder who cannot
legally acquire securities so distributed in kind by reason of the prohibitions
of the 1940 Act or the provisions of the Employee Retirement Income Security Act
("ERISA") shall receive cash. Shareholders shall bear the expenses of in-kind
transactions, including, but not limited to, transfer agency fees, custodian
fees and costs of disposition of such securities.
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(c) Payment for Shares so redeemed by the Trust shall be made by the
Trust as provided above within seven days after the date on which the redemption
request is received in good order; provided, however, that if payment shall be
made other than exclusively in cash, any securities to be delivered as part of
such payment shall be delivered as promptly as any necessary transfers of such
securities on the books of the several corporations whose securities are to be
delivered practicably can be made, which may not necessarily occur within such
seven day period. Moreover, redemptions may be suspended in the event of a
National Financial Emergency. In no case shall the Trust be liable for any delay
of any corporation or other Person in transferring securities selected for
delivery as all or part of any payment in kind.
(d) The right of Shareholders to receive dividends or other
distributions on Shares may be set forth in a Plan adopted by the Board of
Trustees and amended from time to time pursuant to Rule 18f-3 of the 1940 Act.
The right of any Shareholder of the Trust to receive dividends or other
distributions on Shares redeemed and all other rights of such Shareholder with
respect to the Shares so redeemed by the Trust, except the right of such
Shareholder to receive payment for such Shares, shall cease at the time as of
which the purchase price of such Shares shall have been fixed, as provided
above.
Section 3. Redemptions at the Option of the Trust. The Board of
Trustees may, from time to time, without the vote or consent of the
Shareholders, and subject to the 1940 Act, redeem Shares or authorize the
closing of any Shareholder account, subject to such conditions as may be
established by the Board of Trustees.
ARTICLE VII.
Compensation and Limitation of Liability of
Officers and Trustees
Section 1. Compensation. Except as set forth in the last sentence of
this Section 1, the Board of Trustees may, from time to time, fix a reasonable
amount of compensation to be paid by the Trust to the Trustees and officers of
the Trust. Nothing herein shall in any way prevent the employment of any Trustee
for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
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Section 2. Indemnification and Limitation of Liability.
(a) To the fullest extent that limitations on the liability of Trustees
and officers are permitted by the DBTA, the officers and Trustees shall not be
responsible or liable in any event for any act or omission of: any agent or
employee of the Trust; any Investment Adviser or Principal Underwriter of the
Trust; or with respect to each Trustee and officer, the act or omission of any
other Trustee or officer, respectively. The Trust, out of the Trust Property,
shall indemnify and hold harmless each and every officer and Trustee from and
against any and all claims and demands whatsoever arising out of or related to
such officer's or Trustee's performance of his or her duties as an officer or
Trustee of the Trust. This limitation on liability applies to events occurring
at the time a Person serves as a Trustee or officer of the Trust whether or not
such Person is a Trustee or officer at the time of any proceeding in which
liability is asserted. Nothing herein contained shall indemnify, hold harmless
or protect any officer or Trustee from or against any liability to the Trust or
any Shareholder to which such Person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Person's office.
(b) Every note, bond, contract, instrument, certificate or undertaking
and every other act or document whatsoever issued, executed or done by or on
behalf of the Trust, the officers or the Trustees or any of them in connection
with the Trust shall be conclusively deemed to have been issued, executed or
done only in such Person's capacity as Trustee and/or as officer, and such
Trustee or officer, as applicable, shall not be personally liable therefore,
except as described in the last sentence of the first paragraph of this Section
2 of this Article VII.
Section 3. Officers and Trustees' Good Faith Action, Expert Advice, No
Bond or Surety. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. An officer or Trustee shall
be liable to the Trust and to any Shareholder solely for such officer's or
Trustee's own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of such officer or
Trustee, and for nothing else, and shall not be liable for errors of judgment or
mistakes of fact or law. The officers and Trustees may obtain the advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust and their duties as officers or Trustees. No such officer
or Trustee shall be liable for any act or omission in accordance with such
advice and no inference concerning liability shall arise from a failure to
follow such advice. The officers and Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
Section 4. Insurance. To the fullest extent permitted by applicable
law, the officers and Trustees shall be entitled and have the authority to
purchase with Trust Property, insurance for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit or proceeding in which such Person
becomes involved by virtue of such Person's capacity or former capacity with the
Trust, whether or not the Trust would have the power to indemnify such Person
against such liability under the provisions of this Article.
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ARTICLE VIII.
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any actions made or to be made by the Trustees.
Section 2. Dissolution of Trust or Series. Unless dissolved as provided
herein, the Trust shall have perpetual existence. The Trust may be dissolved at
any time by vote of a majority of the Shares of the Trust entitled to vote or by
the Board of Trustees by written notice to the Shareholders. Any Series may be
dissolved at any time by vote of a majority of the Shares of that Series or by
the Board of Trustees by written notice to the Shareholders of that Series.
Upon dissolution of the Trust (or a particular Series, as the case may
be), the Trustees shall (in accordance with ss. 3808 of the DBTA) pay or make
reasonable provision to pay all claims and obligations of each Series (or the
particular Series, as the case may be), including all contingent, conditional or
unmatured claims and obligations known to the Trust, and all claims and
obligations which are known to the Trust but for which the identity of the
claimant is unknown. If there are sufficient assets held with respect to each
Series of the Trust (or the particular Series, as the case may be), such claims
and obligations shall be paid in full and any such provisions for payment shall
be made in full. If there are insufficient assets held with respect to each
Series of the Trust (or the particular Series, as the case may be), such claims
and obligations shall be paid or provided for according to their priority and,
among claims and obligations of equal priority, ratably to the extent of assets
available therefor. Any remaining assets (including without limitation, cash,
securities or any combination thereof) held with respect to each Series of the
Trust (or the particular Series, as the case may be) shall be distributed to the
Shareholders of such Series, ratably according to the number of Shares of such
Series held by the several Shareholders on the record date for such dissolution
distribution.
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Section 3. Merger and Consolidation; Conversion.
(a) Merger and Consolidation. Pursuant to an agreement of merger or
consolidation, the Trust, or any one or more Series, may, by act of a majority
of the Board of Trustees, merge or consolidate with or into one or more business
trusts or other business entities formed or organized or existing under the laws
of the State of Delaware or any other state or the United States or any foreign
country or other foreign jurisdiction. Any such merger or consolidation shall
not require the vote of the Shareholders affected thereby, unless such vote is
required by the 1940 Act, or unless such merger or consolidation would result in
an amendment of this Declaration of Trust which would otherwise require the
approval of such Shareholders. In accordance with Section 3815(f) of the DBTA,
an agreement of merger or consolidation may effect any amendment to this
Declaration of Trust or the By-Laws or effect the adoption of a new declaration
of trust or by-laws of the Trust if the Trust is the surviving or resulting
business trust. Upon completion of the merger or consolidation, the Trustees
shall file a certificate of merger or consolidation in accordance with Section
3810 of the DBTA.
(b) Conversion. A majority of the Board of Trustees may, without the
vote or consent of the Shareholders, cause (i) the Trust to convert to a
common-law trust, a general partnership, limited partnership or a limited
liability company organized, formed or created under the laws of the State of
Delaware as permitted pursuant to Section 3821 of the DBTA; (ii) the Shares of
the Trust or any Series to be converted into beneficial interests in another
business trust (or series thereof) created pursuant to this Section 3 of this
Article VIII, or (iii) the Shares to be exchanged under or pursuant to any state
or federal statute to the extent permitted by law; provided, however, that if
required by the 1940 Act, no such statutory conversion, Share conversion or
Share exchange shall be effective unless the terms of such transaction shall
first have been approved at a meeting called for that purpose by the "vote of a
majority of the outstanding voting securities," as such phrase is defined in the
1940 Act, of the Trust or Series, as applicable; provided, further, that in all
respects not governed by statute or applicable law, the Board of Trustees shall
have the power to prescribe the procedure necessary or appropriate to accomplish
a sale of assets, merger or consolidation including the power to create one or
more separate business trusts to which all or any part of the assets,
liabilities, profits or losses of the Trust may be transferred and to provide
for the conversion of Shares of the Trust or any Series into beneficial
interests in such separate business trust or trusts (or series thereof).
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Section 4. Reorganization.
A majority of the Board of Trustees may cause the Trust to sell, convey
and transfer all or substantially all of the assets of the Trust, or all or
substantially all of the assets associated with any one or more Series, to
another trust, business trust, partnership, limited partnership, limited
liability company, association or corporation organized under the laws of any
state, or to one or more separate series thereof, or to the Trust to be held as
assets associated with one or more other Series of the Trust, in exchange for
cash, shares or other securities (including, without limitation, in the case of
a transfer to another Series of the Trust, Shares of such other Series) with
such transfer either (a) being made subject to, or with the assumption by the
transferee of, the liabilities associated with each Series the assets of which
are so transferred, or (b) not being made subject to, or not with the assumption
of, such liabilities; provided, however, that, if required by the 1940 Act, no
assets associated with any particular Series shall be so sold, conveyed or
transferred unless the terms of such transaction shall first have been approved
at a meeting called for that purpose by the "vote of a majority of the
outstanding voting securities," as such phrase is defined in the 1940 Act, of
that Series. Following such sale, conveyance and transfer, the Board of Trustees
shall distribute such cash, shares or other securities (giving due effect to the
assets and liabilities associated with and any other differences among the
various Series the assets associated with which have so been sold, conveyed and
transferred) ratably among the Shareholders of the Series the assets associated
with which have been so sold, conveyed and transferred (giving due effect to the
differences among the various classes within each such Series); and if all of
the assets of the Trust have been so sold, conveyed and transferred, the Trust
shall be dissolved.
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Section 5. Amendments.
Subject to the provisions of the second paragraph of this Section 5 of
this Article VIII, this Declaration of Trust may be restated and/or amended at
any time by an instrument in writing signed by a majority of the then Board of
Trustees and, if required, by approval of such amendment by Shareholders in
accordance with Article V, Section 3 hereof. Any such restatement and/or
amendment hereto shall be effective immediately upon execution and approval or
upon such future date and time as may be stated therein. The Certificate of
Trust of the Trust may be restated and/or amended by a similar procedure, and
any such restatement and/or amendment shall be effective immediately upon filing
with the Office of the Secretary of State of the State of Delaware or upon such
future date as may be stated therein.
Notwithstanding the above, the Board of Trustees expressly reserves the
right to amend or repeal any provisions contained in this Declaration of Trust
or the Certificate of Trust, in accordance with the provisions of Section 5 of
Article III hereof, and all rights, contractual and otherwise, conferred upon
Shareholders are granted subject to such reservation. The Board of Trustees
further expressly reserves the right to amend or repeal any provision of the
By-Laws pursuant to Article X of the By-Laws.
Section 6. Filing of Copies, References, Headings. The original or a
copy of this Declaration of Trust and of each restatement and/or amendment
hereto shall be kept at the principal executive office of the Trust where it may
be inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any such
restatements and/or amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such restatements and/or amendments. In this
Declaration of Trust and in any such restatements and/or amendments, references
to this instrument, and all expressions of similar effect to "herein," "hereof"
and "hereunder," shall be deemed to refer to this instrument as amended or
affected by any such restatements and/or amendments. Headings are placed herein
for convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the plural;
and the neuter, masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of counterparts, each
of which shall be deemed an original.
Section 7. Applicable Law. This Declaration of Trust is created under
and is to be governed by and construed and administered according to the laws of
the State of Delaware and the applicable provisions of the 1940 Act and the
Code. The Trust shall be a Delaware business trust pursuant to the DBTA, and
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a business trust.
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Section 8. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable, and if
the Board of Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, the Code, the DBTA, or with
other applicable laws and regulations, the conflicting provision shall be deemed
not to have constituted a part of this Declaration of Trust from the time when
such provisions became inconsistent with such laws or regulations; provided,
however, that such determination shall not affect any of the remaining
provisions of this Declaration of Trust or render invalid or improper any action
taken or omitted prior to such determination.
(b) If any provision of this Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.
Section 9. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the DBTA, and thereby to create the
relationship of trustee and beneficial owners within the meaning of the DBTA
between the Trustees and each Shareholder. It is not the intention of the
Trustees to create a general or limited partnership, limited liability company,
joint stock association, corporation, bailment, or any form of legal
relationship other than a business trust pursuant to the DBTA. Nothing in this
Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
Section 10. Use of the Names "Delaware Group" and "Delaware
Investments". The Trust expressly agrees and acknowledges that the names
"Delaware Group" and "Delaware Investments" are the sole property of Delaware
Management Holdings, Inc. ("DMH"), and, with respect to such names, that similar
names are used by funds in the investment business which are affiliated with
DMH. DMH has consented to the use by the Trust of the identifying words
"Delaware Group" and "Delaware Investments" and has granted to the Trust a
nonexclusive license to use the names "Delaware Group" and "Delaware
Investments" as part of the name of the Trust and the name of any Series of
Shares. The Trust further expressly agrees and acknowledges that the
non-exclusive license granted herein may be terminated by DMH if the Trust
ceases to use an Affiliate of DMH as Investment Adviser or Delaware
Distributors, L.P. ("DDLP") as Principal Underwriter (or to use other Affiliates
or successors of DMH and DDLP for such purposes). In such event, the
non-exclusive license granted herein may be revoked by DMH and the Trust shall
cease using the names "Delaware Group" and "Delaware Investments" as part of its
name or the name of any Series of Shares, unless otherwise consented to by DMH
or any successor to its interests in such names.
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The Trust further understands and agrees that so long as DMH and/or its
advisory Affiliates shall continue to serve as the Trust's Investment Adviser,
other mutual funds as may be sponsored or advised by DMH or its Affiliates shall
have the right permanently to adopt and to use the words "Delaware" in their
names and in the names of any Series or class of Shares of such funds.
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter
into this Declaration of Trust as of the 17th day of December, 1998.
- ------------------------------------ ------------------------------------
Wayne A. Stork Jeffrey J. Nick
Trustee Trustee
- ------------------------------------ ------------------------------------
Walter P. Babich John H. Durham
Trustee Trustee
- ------------------------------------ ------------------------------------
Anthony D. Knerr Ann R. Leven
Trustee Trustee
- ------------------------------------ ------------------------------------
W. Thacher Longstreth Thomas F. Madison
Trustee Trustee
- ------------------------------------
Charles E. Peck
Trustee
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CERTIFICATE OF TRUST OF
Delaware Group Income Funds
This Certificate of Trust of Delaware Group Income Funds, a business
trust (the "Trust"), executed by the undersigned trustees, and filed under and
in accordance with the provisions of the Delaware Business Trust Act (12 Del. C.
ss. 3801 et seq.) (the "Act"), sets forth the following:
FIRST: The name of the business trust formed hereby is Delaware Group
Income Funds.
SECOND: The address of the registered office of the Trust in the State
of Delaware is at 1209 Orange Street, Wilmington, Delaware 19801 and
the name and address of the registered agent for service of process on
the Trust in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The Trust formed hereby is or will become an investment company
registered under the Investment Company Act of 1940, as amended
(15 U.S.C. ss.ss.80a-1 et seq.).
FOURTH: Pursuant to Section 3804 of the Act, the debts, liabilities,
obligations and expenses incurred, contracted for or otherwise existing
with respect to a particular series, whether such series is now
authorized and existing pursuant to the governing instrument of the
Trust or is hereafter authorized and existing pursuant to said
governing instrument, shall be enforceable against the assets
associated with such series only, and not against the assets of the
Trust generally or any other series thereof, and, except as otherwise
provided in the governing instrument of the Trust, none of the debts,
liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to the Trust generally or any other
series thereof shall be enforceable against the assets of such series.
In witness whereof, the undersigned, being all of the trustees of
Delaware Group Income Funds, have duly executed this Certificate of Trust as of
the 17th day of December, 1998.
By: _______________________________ By: ______________________________
Wayne A. Stork Jeffrey J. Nick
Trustee Trustee
By: _______________________________ By: ______________________________
Walter P. Babich John H. Durham
Trustee Trustee
By: _______________________________ By: ______________________________
Anthony D. Knerr Ann R. Leven
Trustee Trustee
By: _______________________________ By: ______________________________
W. Thacher Longstreth Thomas F. Madison
Trustee Trustee
By: _______________________________
Charles E. Peck
Trustee
<PAGE>
BY-LAWS
OF
DELAWARE GROUP INCOME FUNDS
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal executive office of Delaware
Group Income Funds (the "Trust") shall be One Commerce Square, Philadelphia,
Pennsylvania, 19103. The board of trustees (the "Board of Trustees") may, from
time to time, change the location of the principal executive office of the Trust
to any place within or outside the State of Delaware.
Section 2. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the Trust
intends to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Trustees. In the absence of any such designation by the Board of Trustees,
shareholders' meetings shall be held at the principal executive office of the
Trust. For purposes of these By-Laws, the term "shareholder" shall mean a record
owner of shares of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders may be called
at any time by the Board of Trustees or by the chairperson of the board or by
the president. If the Trust is required under the Investment Company Act of
1940, as amended (the "1940 Act"), to hold a shareholders' meeting to elect
trustees, the meeting shall be deemed an "annual meeting" for that year for
purposes of the 1940 Act.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than ninety-three (93) days
before the date of the meeting. The notice shall specify (i) the place, date and
hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election. Except with respect to adjournments
as provided herein, no business shall be transacted at such meeting other than
that specified in the notice.
<PAGE>
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail,
courier or telegraphic, facsimile, electronic mail or other written
communication, charges prepaid, addressed to the shareholder at the address of
that shareholder appearing on the books of the Trust or its transfer agent or
given by the shareholder to the Trust for the purpose of notice. If no such
address appears on the Trust's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail, courier, or
telegraphic, facsimile, electronic mail or other written communication to the
Trust's principal executive office. Notice shall be deemed to have been given at
the time when delivered personally or deposited in the mail, with a courier or
sent by telegram, facsimile, electronic mail or other means of written
communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the Trust is returned to the Trust marked
to indicate that the notice to the shareholder cannot be delivered at that
address, all future notices or reports shall be deemed to have been duly given
without further mailing, or substantial equivalent thereof, if such notices
shall be available to the shareholder on written demand of the shareholder at
the principal executive office of the Trust for a period of one year from the
date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the records of the Trust. Such affidavit shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time (and at
any time during the course of the meeting) by a majority of the votes cast by
those shareholders present in person or by proxy, or by the chairperson of the
meeting. Any adjournment may be with respect to one or more proposals, but not
necessarily all proposals, to be voted or acted upon at such meeting and any
adjournment will not delay or otherwise affect the effectiveness and validity of
a vote or other action taken at a shareholders' meeting prior to adjournment.
When any shareholders' meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than one hundred eighty (180) days from the record date
set for the original meeting, in which case the Board of Trustees shall set a
new record date. If notice of any such adjourned meeting is required pursuant to
the preceding sentence, it shall be given to each shareholder of record entitled
to vote at the adjourned meeting in accordance with the provisions of Sections 3
and 4 of this Article II. At any adjourned meeting, the Trust may transact any
business which might have been transacted at the original meeting.
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Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Declaration of Trust, as in effect at such time. The shareholders' vote may be
by voice vote or by ballot, provided, however, that any election for trustees
must be by ballot if demanded by any shareholder before the voting has begun. On
any matter other than elections of trustees, any shareholder may vote part of
the shares in favor of the proposal and refrain from voting the remaining shares
or vote them against the proposal, but if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
the total shares that the shareholder is entitled to vote on such proposal.
Abstentions and broker non-votes will be included for purposes of
determining whether a quorum is present at a shareholders' meeting. Abstentions
and broker non-votes will be treated as votes present at a shareholders'
meeting, but will not be treated as votes cast. Abstentions and broker
non-votes, therefore, will have no effect on proposals which require a plurality
or majority of votes cast for approval, but will have the same effect as a vote
"against" on proposals requiring a majority of outstanding voting securities for
approval.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of a meeting of shareholders, however called and noticed and
wherever held, shall be valid as though transacted at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy.
Attendance by a person at a meeting shall also constitute a waiver of notice
with respect to that person of that meeting, except when the person objects at
the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened and except that such attendance is
not a waiver of any right to object to the consideration of matters not included
in the notice of the meeting if that objection is expressly made at the
beginning of the meeting. Whenever notice of a meeting is required to be given
to a shareholder under the Declaration of Trust or these By-Laws, a written
waiver thereof, executed before or after the meeting by such shareholder or his
or her attorney thereunto authorized and filed with the records of the meeting,
shall be deemed equivalent to such notice.
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Section 8. PROXIES. Every shareholder entitled to vote for trustees or
on any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the shareholder and filed
with the secretary of the Trust. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the shareholder executing it by a written notice delivered to the
Trust prior to the exercise of the proxy or by the shareholder's execution of a
subsequent proxy or attendance and vote in person at the meeting; or (ii)
written notice of the death or incapacity of the shareholder is received by the
Trust before the proxy's vote is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of the
General Corporation Law of the State of Delaware.
With respect to any shareholders' meeting, the Board of Trustees may
act to permit the Trust to accept proxies by any electronic, telephonic,
computerized, telecommunications or other reasonable alternative to the
execution of a written instrument authorizing the proxy to act, provided the
shareholder's authorization is received within eleven (11) months before the
meeting. A proxy with respect to shares held in the name of two or more Persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest with the challenger.
Section 9. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Trustees may appoint any person other than nominees for office to
act as inspector of election at the meeting or its adjournment. If no inspector
of election is so appointed, the chairperson of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall, appoint an inspector
of election at the meeting. If any person appointed as inspector fails to appear
or fails or refuses to act, the chairperson of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall, appoint a person to
fill the vacancy.
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The inspector shall:
(a) determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of the
Declaration of Trust and these By-Laws relating to action required to be
approved by the shareholders, the business and affairs of the Trust shall be
managed and all powers shall be exercised by or under the direction of the Board
of Trustees.
Section 2. NUMBER OF TRUSTEES. The number of trustees constituting the
Board of Trustees shall be determined as set forth in the Declaration of Trust.
Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled
by a majority of the remaining trustees, though less than a quorum, or by a sole
remaining trustee, unless the Board of Trustees calls a meeting of shareholders
for the purpose of filling such vacancies. Notwithstanding the above, whenever
and for so long as the Trust is a participant in or otherwise has in effect a
plan under which the Trust may be deemed to bear expenses of distributing its
shares as that practice is described in Rule 12b- 1 under the 1940 Act, then the
selection and nomination of the trustees who are not "interested persons" of the
Trust (as that term is defined in the 1940 Act) shall be, and is, committed to
the discretion of such disinterested trustees.
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Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Board of Trustees may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the Board
of Trustees. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the Trust. Any meeting, regular or
special, may be held by conference telephone or similar communication equipment,
so long as all trustees participating in the meeting can hear one another, and
all such trustees shall be deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees
for any purpose or purposes may be called at any time by the chairperson of the
board or the president or any vice president or the secretary or any two (2)
trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each trustee or sent by first-class mail, courier
or telegram, charges prepaid, or by facsimile or electronic mail, addressed to
each trustee at that trustee's address as it is shown on the records of the
Trust. In case the notice is mailed, it shall be deposited in the United States
mail at least seven (7) days before the time of the holding of the meeting. In
case the notice is delivered personally, by telephone, by courier, to the
telegraph company, or by express mail, facsimile, electronic mail or similar
service, it shall be delivered at least forty-eight (48) hours before the time
of the holding of the meeting. Any oral notice given personally or by telephone
may be communicated either to the trustee or to a person at the office of the
trustee who the person giving the notice has reason to believe will promptly
communicate it to the trustee. The notice need not specify the purpose of the
meeting or the place if the meeting is to be held at the principal executive
office of the Trust.
Section 7. QUORUM. A majority of the authorized number of trustees
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
trustees if any action taken is approved by at least a majority of the required
quorum for that meeting.
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Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to
any trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any trustee who attends the meeting without protesting
before or at its commencement about the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees present, whether or
not constituting a quorum, may adjourn any matter at any meeting to another time
and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than seven (7) days, in which case notice of the time and place shall
be given before the time of the adjourned meeting to the trustees who were
present at the time of the adjournment.
Section 11. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 11 shall not be construed to preclude any
trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 12. TRUSTEE EMERITUS. Upon retirement of a trustee, the Board
of Trustees may elect him or her to the position of Trustee Emeritus. Said
Trustee Emeritus shall serve for one year and may be reelected by the Board of
Trustees from year to year thereafter. Said Trustee Emeritus shall not vote at
meetings of trustees and shall not be held responsible for actions of the Board
of Trustees but shall receive fees paid to trustees for serving as such.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may, by
resolution adopted by a majority of the authorized number of trustees, designate
one or more committees, each consisting of two (2) or more trustees, to serve at
the pleasure of the Board of Trustees. The Board of Trustees may designate one
or more trustees as alternate members of any committee who may replace any
absent member at any meeting of the committee. Any committee to the extent
provided in the resolution of the Board of Trustees, shall have the authority of
the Board of Trustees, except with respect to:
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(a) the approval of any action which under the Declaration of Trust or
applicable law also requires shareholders' approval or requires approval by a
majority of the entire Board of Trustees or certain members of said Board of
Trustees;
(b) the filling of vacancies on the Board of Trustees or in any
committee;
(c) the fixing of compensation of the trustees for serving on the Board
of Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or of the
By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of Trustees
which by its express terms is not so amendable or repealable; or
(f) the appointment of any other committees of the Board of Trustees or
the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
any committee shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
any committee may be determined either by resolution of the Board of Trustees or
by resolution of the committee. Special meetings of any committee may also be
called by resolution of the Board of Trustees, and notice of special meetings of
any committee shall also be given to all alternate members who shall have the
right to attend all meetings of the committee. The Board of Trustees may adopt
rules for the government of any committee not inconsistent with the provisions
of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a chairperson
of the board, a president and chief executive officer, a secretary, and a
treasurer. The Trust may also have, at the discretion of the Board of Trustees,
one or more vice presidents, one or more assistant vice presidents, one or more
assistant secretaries, one or more assistant treasurers, and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article V. Any number of offices may be held by the same person, except the
offices of president and vice president.
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Section 2. ELECTION OF OFFICERS. The officers of the Trust shall be
chosen by the Board of Trustees, and each shall serve at the pleasure of the
Board of Trustees, subject to the rights, if any, of an officer under any
contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and
may empower the president to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Trustees at any regular
or special meeting of the Board of Trustees, or by an officer upon whom such
power of removal may be conferred by the Board of Trustees.
Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled in
the manner prescribed in these By-Laws for regular appointment to that office.
Section 6. CHAIRPERSON OF THE BOARD. The chairperson of the board
shall, if present, preside at meetings of the Board of Trustees and exercise and
perform such other powers and duties as may be from time to time assigned to the
chairperson by the Board of Trustees or prescribed by the By-Laws. The
chairperson of the board shall be a member ex officio of all standing
committees. In the absence, resignation, disability or death of the president,
the chairperson shall exercise all the powers and perform all the duties of the
president until his or her return, or until such disability shall be removed or
until a new president shall have been elected.
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Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Trustees to the chairperson of the board, the
president shall be the chief executive officer of the Trust and shall, subject
to the control of the Board of Trustees, have general supervision, direction and
control of the business and the officers of the Trust. In the absence of the
chairperson of the board, he shall preside at all meetings of the shareholders
and at all meetings of the Board of Trustees. He shall have the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the Board of Trustees or these By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Trustees or if not ranked, a vice president designated by the Board of
Trustees, shall perform all the duties of the president and when so acting shall
have all powers of and be subject to all the restrictions upon the president.
The vice presidents shall have such other powers and perform such other duties
as from time to time may be prescribed for them respectively by the Board of
Trustees or by these By-Laws and the president or the chairperson of the board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept at
the principal executive office of the Trust or such other place as the Board of
Trustees may direct a book of minutes of all meetings and actions of trustees,
committees of trustees and shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at trustees' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The secretary shall cause to be kept at the principal executive office
of the Trust or at the office of the Trust's transfer agent or registrar, as
determined by resolution of the Board of Trustees, a share register or a
duplicate share register showing the names of all shareholders and their
addresses, the number, series and classes of shares held by each, the number and
date of certificates issued for the same and the number and date of cancellation
of every certificate surrendered for cancellation.
The secretary shall give or cause to be given notice of all meetings of
the shareholders and of the Board of Trustees required by these By-Laws or by
applicable law to be given and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The treasurer shall keep and maintain or cause
to be kept and maintained adequate and correct books and records of accounts of
the properties and business transactions of the Trust, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all reasonable times be open
to inspection by any trustee.
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The treasurer shall deposit all monies and other valuables in the name
and to the credit of the Trust with such depositories as may be designated by
the Board of Trustees. He shall disburse the funds of the Trust as may be
ordered by the Board of Trustees, shall render to the president and trustees,
whenever they request it, an account of all of his transactions and of the
financial condition of the Trust and shall have other powers and perform such
other duties as may be prescribed by the Board of Trustees or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a trustee, officer, employee or
other agent of this Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorneys' fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. The Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the Trust) by reason of
the fact that such person is or was an agent of the Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding if such person acted in good faith and in a
manner that such person reasonably believed to be in the best interests of the
Trust and in the case of a criminal proceeding, had no reasonable cause to
believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or plea of nolo contendere
or its equivalent shall not of itself create a presumption that the person did
not act in good faith or in a manner which the person reasonably believed to be
in the best interests of the Trust or that the person had reasonable cause to
believe that the person's conduct was unlawful.
11
<PAGE>
Section 3. ACTIONS BY TRUST. The Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of the Trust to procure a judgment in its
favor by reason of the fact that the person is or was an agent of the Trust,
against expenses actually and reasonably incurred by that person in connection
with the defense or settlement of that action if that person acted in good
faith, in a manner that person believed to be in the best interests of the Trust
and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with the Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable in the performance of that person's duty
to the Trust, unless and only to the extent that the court in which that action
was brought shall determine upon application that in view of all the
circumstances of the case, that person was not liable by reason of the disabling
conduct set forth in the preceding paragraph and is fairly and reasonably
entitled to indemnity for the expenses which the court shall determine; or
(b) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity; or
(c) Of amounts paid in settling or otherwise disposing of a threatened
or pending action, with or without court approval, or of expenses incurred in
defending a threatened or pending action which is settled or otherwise disposed
of without court approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
the Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
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Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by the Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of trustees who are not
parties to the proceeding and are not "interested persons" of the Trust (as
defined in the 1940 Act); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCEMENT OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided the
agent provides a security for his undertaking, or a majority of a quorum of the
disinterested, non-party trustees, or an independent legal counsel in a written
opinion, determine that based on a review of readily available facts, there is
reason to believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than trustees
and officers of the Trust or any subsidiary thereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6, in any circumstances
where it appears:
(a) That it would be inconsistent with a provision of the Declaration
of Trust, a resolution of the shareholders, or an agreement which prohibits or
otherwise limits indemnification which was in effect at the time of accrual of
the alleged cause of action asserted in the proceeding in which the expenses
were incurred or other amounts were paid; or
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<PAGE>
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees to purchase such insurance, the Trust shall purchase and
maintain insurance on behalf of any agent of the Trust against any liability
asserted against or incurred by the agent in such capacity or arising out of the
agent's status as such, but only to the extent that the Trust would have the
power to indemnify the agent against that liability under the provisions of this
Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of the Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar a record of its shareholders, providing the names and
addresses of all shareholders and the number, series and classes of shares held
by each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep
at its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. The
minutes shall be kept in written form and the accounting books and records shall
be kept either in written form or in any other form capable of being converted
into written form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts.
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Section 4. INSPECTION BY TRUSTEES. Every trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Trust. This
inspection by a trustee may be made in person or by an agent or attorney and the
right of inspection includes the right to copy and make extracts of documents.
ARTICLE VIII
DIVIDENDS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the shares of
beneficial interest of the Trust may, subject to the provisions of the
Declaration of Trust, if any, be declared by the Board of Trustees at any
regular or special meeting, pursuant to applicable law. Dividends may be paid in
cash, in property, or in shares of the Trust.
Section 2. RESERVES. Before payment of any dividend there may be set
aside out of any funds of the Trust available for dividends such sum or sums as
the Board of Trustees may, from time to time, in its absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Trust, or for such other
purpose as the Board of Trustees shall deem to be in the best interests of the
Trust, and the Board of Trustees may abolish any such reserve in the manner in
which it was created.
ARTICLE IX
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed by such person or persons and in such manner as from time to time shall
be determined by resolution of the Board of Trustees.
15
<PAGE>
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Trustees, except as otherwise provided in these By-Laws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Trust and this authority may be
general or confined to specific instances; and unless so authorized or ratified
by the Board of Trustees or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the Trust by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the chairperson of the board or the
president or vice president and by the treasurer or an assistant treasurer or
the secretary or any assistant secretary, certifying the number of shares and
the series and class of shares owned by the shareholders. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
on a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the Trust with
the same effect as if such person were an officer, transfer agent or registrar
at the date of issue. Notwithstanding the foregoing, the Trust may adopt and use
a system of issuance, recordation and transfer of its shares by electronic or
other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the Trust and cancelled at the same time. The Board
of Trustees may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board of Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST.
The chairperson of the board, the president or any vice president or any other
person authorized by resolution of the Board of Trustees or by any of the
foregoing designated officers, is authorized to vote or represent on behalf of
the Trust any and all shares of any corporation, partnership, trust, or other
entity, foreign or domestic, standing in the name of the Trust. The authority
granted may be exercised in person or by a proxy duly executed by such
designated person.
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<PAGE>
Section 6. TRANSFER OF SHARES. Shares of the Trust shall be
transferable only on the record books of the Trust by the Person in whose name
such Shares are registered, or by his or her duly authorized attorney or
representative. In all cases of transfer by an attorney-in-fact, the original
power of attorney, or an official copy thereof duly certified, shall be
deposited and remain with the Trust, its transfer agent or other duly authorized
agent. In case of transfers by executors, administrators, guardians or other
legal representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Trust, its
transfer agent or other duly authorized agent. No transfer shall be made unless
and until the certificate issued to the transferor, if any, shall be delivered
to the Trust, its transfer agent or other duly authorized agent, properly
endorsed.
Section 7. HOLDERS OF RECORD. The Trust shall be entitled to treat the
holder of record of any share or shares as the owner thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not the Trust
shall have express or other notice thereof.
Section 8. FISCAL YEAR. The fiscal year of the Trust and each series
thereof shall end on the last day of July each year. The fiscal year of the
Trust or any series thereof may be refixed or changed from time to time by
resolution of the Board of Trustees. The fiscal year of the Trust shall be the
taxable year of each series of the Trust.
ARTICLE X
AMENDMENTS
Section 1. AMENDMENT. These By-laws may be restated and/or amended at
any time, without the approval of the shareholders, by an instrument in writing
signed by, or a resolution of, a majority of the then Board of Trustees.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, made by and between DELAWARE GROUP INCOME FUNDS, a Delaware
business trust (the "Trust") severally on behalf of each series of shares of
beneficial interest of the Trust that is listed on Exhibit A to this Agreement,
as that Exhibit may be amended from time to time (each such series of shares is
hereinafter referred to as a "Fund" and, together with other series of shares
listed on such Exhibit, the "Funds"), and DELAWARE MANAGEMENT COMPANY, a series
of Delaware Management Business Trust, a Maryland corporation (the "Investment
Manager").
W I T N E S S E T H:
WHEREAS, the Trust has been organized and operates as an investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, each Fund engages in the business of investing and reinvesting
its assets in securities; and
WHEREAS, the Investment Manager is registered under the Investment
Advisers Act of 1940 as an investment adviser and engages in the business of
providing investment management services; and
WHEREAS, the Trust, severally on behalf of each Fund, and the
Investment Manager desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Trust hereby employs the Investment Manager to manage the
investment and reinvestment of each Fund's assets and to administer the Trust's
affairs, subject to the direction of the Trust's Board of Trustees and officers
for the period and on the terms hereinafter set forth. The Investment Manager
hereby accepts such employment and agrees during such period to render the
services and assume the obligations herein set forth for the compensation herein
provided. The Investment Manager shall for all purposes herein be deemed to be
an independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Trust in any way, or
in any way be deemed an agent of the Trust. The Investment Manager shall
regularly make decisions as to what securities and other instruments to purchase
and sell on behalf of each Fund and shall effect the purchase and sale of such
investments in furtherance of each Fund's objectives and policies and shall
furnish the Board of Trustees of the Trust with such information and reports
regarding each Fund's investments as the Investment Manager deems appropriate or
as the Trustees of the Trust may reasonably request.
2. The Trust shall conduct its own business and affairs and shall bear
the expenses and salaries necessary and incidental thereto, including, but not
in limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of shares,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders' and Trustees' meetings; miscellaneous office expenses; brokerage
commissions; custodian fees; legal and accounting fees; taxes; and federal and
state registration fees. Directors, trustees, officers and employees of the
Investment Manager may be directors, trustees, officers and employees of any of
the investment companies within the Delaware Investments family (including the
Trust). Directors, trustees, officers and employees of the Investment Manager
who are directors, trustees, officers and/or employees of these investment
companies shall not receive any compensation from such companies for acting in
such dual capacity.
<PAGE>
In the conduct of the respective businesses of the parties hereto and
in the performance of this Agreement, the Trust and Investment Manager may share
facilities common to each, which may include legal and accounting personnel,
with appropriate proration of expenses between them.
3. (a) Subject to the primary objective of obtaining the best
execution, the Investment Manager will place orders for the purchase and sale of
portfolio securities and other instruments with such broker/dealers selected who
provide statistical, factual and financial information and services to the
Trust, to the Investment Manager, to any sub-adviser (as defined in Paragraph 5
hereof, a "Sub-Adviser") or to any other fund for which the Investment Manager
or any Sub-Adviser provides investment advisory services and/or with
broker/dealers who sell shares of the Trust or who sell shares of any other
investment company (or series thereof) for which the Investment Manager or any
Sub-Adviser provides investment advisory services. Broker/dealers who sell
shares of any investment companies or series thereof for which the Investment
Manager or Sub-Adviser provide investment advisory services shall only receive
orders for the purchase or sale of portfolio securities to the extent that the
placing of such orders is in compliance with the Rules of the Securities and
Exchange Commission and NASD Regulation, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Investment Manager may cause a Fund to
pay a member of an exchange, broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of an exchange, broker or dealer would have charged for effecting that
transaction, in such instances where the Investment Manager has determined in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the Investment
Manager's overall responsibilities with respect to the Trust on behalf of the
Funds and to other investment companies (or series thereof) and other advisory
accounts for which the Investment Manager or any Sub-Adviser exercises
investment discretion.
4. As compensation for the services to be rendered to a particular Fund
by the Investment Manager under the provisions of this Agreement, that Fund
shall pay monthly to the Investment Manager exclusively from that Fund's assets,
a fee based on the average daily net assets of that Fund during the month. Such
fee shall be calculated in accordance with the fee schedule applicable to that
Fund as set forth in Exhibit A hereto, which Exhibit may be amended from time to
time as provided in Paragraphs 10(b) and (c) of this Agreement.
If this Agreement is terminated prior to the end of any calendar month
with respect to a particular Fund, the management fee for such Fund shall be
prorated for the portion of any month in which this Agreement is in effect with
respect to such Fund according to the proportion which the number of calendar
days during which the Agreement is in effect bears to the number of calendar
days in the month, and shall be payable within 10 calendar days after the date
of termination.
5. The Investment Manager may, at its expense, select and contract with
one or more investment advisers registered under the Investment Advisers Act of
1940 ("Sub-Advisers") to perform some or all of the services for a Fund for
which it is responsible under this Agreement. The Investment Manager will
compensate any Sub-Adviser for its services to the Fund. The Investment Manager
may terminate the services of any Sub-Adviser at any time in its sole
discretion, and shall at such time assume the responsibilities of such
Sub-Adviser unless and until a successor Sub-Adviser is selected and the
requisite approval of the Fund's shareholders is obtained. The Investment
Manager will continue to have responsibility for all advisory services furnished
by any Sub-Adviser.
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<PAGE>
6. The services to be rendered by the Investment Manager to the Trust
on behalf of each Fund under the provisions of this Agreement are not to be
deemed to be exclusive, and the Investment Manager shall be free to render
similar or different services to others so long as its ability to render the
services provided for in this Agreement shall not be impaired thereby.
7. The Investment Manager, its directors, officers, employees, agents
and shareholders may engage in other businesses, may render investment advisory
services to other investment companies, or to any other corporation,
association, firm or individual, and may render underwriting services to the
Trust or to any other investment company, corporation, association, firm or
individual.
8. It is understood and agreed that so long as the Investment Manager
and/or its advisory affiliates shall continue to serve as the investment adviser
to any of the Trust's Funds, other investment companies as may be sponsored or
advised by the Investment Manager or its affiliates shall have the right
permanently to adopt and to use the words "Delaware," "Delaware Investments" or
"Delaware Group" in their names and in the names of any series or class of
shares of such funds.
9. In the absence of willful misfeasance, bad faith, gross negligence,
or a reckless disregard of the performance of its duties as the Investment
Manager to the Trust on behalf of any Fund, the Investment Manager shall not be
subject to liability to the Trust or to any Fund or to any shareholder of the
Trust for any action or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security, or otherwise.
10. (a) This Agreement shall be executed and become effective as of the
date written below, and shall become effective with respect to a particular Fund
as of the effective date set forth in Exhibit A for that Fund, only if approved
by the vote of a majority of the outstanding voting securities of that Fund. It
shall continue in effect for an initial period of two years for each Fund and
may be renewed thereafter only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by the vote
of a majority of the outstanding voting securities of that Fund and only if the
terms and the renewal hereof have been approved by the vote of a majority of the
Trustees of the Trust who are not parties hereto or interested persons of any
such party ("Independent Trustees"), cast in person at a meeting called for the
purpose of voting on such approval.
(b) Except as provided in Paragraph 10(c) below, no amendment to
this Agreement (or to Exhibit A hereto) shall be effective with respect to any
Fund unless approved by: (i) a majority of the Trustees of the Trust, including
a majority of Independent Trustees; and (ii) a majority of the outstanding
voting securities of the particular Fund. Any such amendment that pertains to a
Fund will not change, or otherwise affect the applicability of, this Agreement
with respect to other Funds.
(c) The Agreement (and Exhibit A hereto) may be amended with respect
to a Fund without the approval of a majority of the outstanding voting
securities of that Fund if the amendment relates solely to a management fee
reduction or other change that is permitted or not prohibited under federal law,
rule, regulation or SEC staff interpretation thereof to be made without
shareholder approval. This Agreement may be amended from time to time to add or
remove one or more Funds, or to reflect changes in management fees, by an
amendment to Exhibit A hereto executed by the Trust and the Investment Manager.
Any such amendment that pertains to a Fund will not change, or otherwise affect
the applicability of, this Agreement with respect to other Funds.
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<PAGE>
(d) This Agreement may be terminated as to any Fund by the Trust at
any time, without the payment of a penalty, on sixty days' written notice to the
Investment Manager of the Trust's intention to do so, pursuant to action by the
Board of Trustees of the Trust or pursuant to the vote of a majority of the
outstanding voting securities of the affected Fund. The Investment Manager may
terminate this Agreement at any time, without the payment of a penalty, on sixty
days' written notice to the Fund of its intention to do so. Upon termination of
this Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Trust on behalf of a Fund to pay to the
Investment Manager the fee provided in Paragraph 4 hereof, prorated to the date
of termination. This Agreement shall automatically terminate in the event of its
assignment.
11. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
12. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities"; "interested persons"; and "assignment"
shall have the meaning defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized officers and duly attested as of
the _____ day of _______________ , ___ .
DELAWARE MANAGEMENT COMPANY, DELAWARE GROUP
a series of Delaware Management INCOME FUNDS on behalf
Business Trust of the Funds listed on Exhibit A
By: _________________________ By: ____________________________
Name: _______________________ Name: __________________________
Title: ______________________ Title: _________________________
Attest: _____________________ Attest: ________________________
Name: _______________________ Name: __________________________
Title: ______________________ Title: _________________________
-4-
<PAGE>
EXHIBIT A
THIS EXHIBIT to the Investment Management Agreement between DELAWARE
GROUP INCOME FUNDS and DELAWARE MANAGEMENT COMPANY, a series of Delaware
Management Business Trust entered into as of the _________ day of __________ ,
__________ (the "Agreement") lists the Funds for which the Investment Manager
provides investment management services pursuant to this Agreement, along with
the management fee rate schedule for each Fund and the date on which the
Agreement became effective for each Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Fund Name Effective Date Management Fee Schedule
--------- -------------- (as a percentage of
average daily net assets)
Annual Rate
-----------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delaware Corporate Bond Fund 0.50% on first $500 million
0.475% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
- --------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
- --------------------------------------------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund 0.55% on first $500 million
0.50% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of
$2,500 million
- --------------------------------------------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
- --------------------------------------------------------------------------------------------------------------------
Delaware Strategic Income Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of
$2,500 million
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
SUB-ADVISORY AGREEMENT
AGREEMENT, made by and between DELAWARE MANAGEMENT COMPANY, a series of
Delaware Management Business Trust ("Investment Manager"), and DELAWARE
INTERNATIONAL ADVISERS LTD. ("Sub-Adviser").
WITNESSETH:
WHEREAS, DELAWARE GROUP INCOME FUNDS, a Delaware business trust
("Trust"), has been organized and operates as an investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Investment Manager and the Trust on behalf of the
DELAWARE STRATEGIC INCOME FUND ("Fund") have entered into an agreement
("Investment Management Agreement") whereby the Investment Manager will provide
investment advisory services to the Trust on behalf of the Fund; and
WHEREAS, the Investment Management Agreement permits the Investment
Manager to hire one or more sub-advisers to assist the Investment Manager in
providing investment advisory services to the Trust on behalf of the Fund; and
WHEREAS, the Investment Manager and the Sub-Adviser are registered
investment advisers under the Investment Advisers Act of 1940, as amended, and
engage in the business of providing investment management services.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Investment Manager hereby employs the Sub-Adviser, subject
always to the Investment Manager's control and supervision, to manage the
investment and reinvestment of that portion of the Fund's assets as the
Investment Manager shall designate from time to time and to furnish the
Investment Manager with investment recommendations, asset allocation advice,
research, economic analysis and other investment services with respect to
securities in which the Fund may invest, subject to the direction of the Board
and officers of the Trust for the period and on the terms hereinafter set forth.
The Sub-Adviser hereby accepts such employment and agrees during such period to
render the services and assume the obligations herein set forth for the
compensation herein provided. The Sub-Adviser shall for all purposes herein be
deemed to be an independent contractor, and shall, unless otherwise expressly
provided and authorized, have no authority to act for or represent the Trust in
any way, or in any way be deemed an agent of the Trust. The Sub-Adviser shall
regularly make decisions as to what securities to purchase and sell on behalf of
the Fund with respect to that portion of the Fund's assets designated by the
Investment Manager, shall effect the purchase and sale of such investments in
furtherance of the Fund's objectives and policies and shall furnish the Board of
Trustees of the Trust with such information and reports regarding its activities
as the Investment Manager deems appropriate or as the Trustees of the Trust may
reasonably request in the performance of its duties and obligations under this
Agreement. The Sub-Adviser shall act in conformity with the Articles of
Incorporation, By-Laws and Prospectus of the Trust and with the instructions and
directions of the Investment Manager and of the Board of Trustees of the Trust
and will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986 and all other applicable federal and state laws
and regulations consistent with the provisions of Section 15(c) of the 1940 Act.
<PAGE>
2. Under the terms of the Investment Management Agreement, the Trust
shall conduct its own business and affairs and shall bear the expenses and
salaries necessary and incidental thereto including, but not in limitation of
the foregoing, the costs incurred in: the maintenance of its corporate
existence; the maintenance of its own books, records and procedures; dealing
with its own shareholders; the payment of dividends; transfer of stock,
including issuance and repurchase of shares; preparation of share certificates;
reports and notices to shareholders; calling and holding of shareholders'
meetings; miscellaneous office expenses; brokerage commissions; custodian fees;
legal and accounting fees; taxes; and federal and state registration fees.
Without limiting the foregoing, except as the Investment Manager and the
Sub-Adviser may agree in writing from time to time, the Sub-Adviser shall have
no responsibility for record maintenance and preservation obligations under
Section 31 of the 1940 Act.
Directors, officers and employees of the Sub-Adviser may be
directors, officers and employees of other funds which have employed the
Sub-Adviser as sub-adviser or investment manager. Directors, officers and
employees of the Sub-Adviser who are Trustees, officers and/or employees of the
Trust, shall not receive any compensation from the Trust for acting in such dual
capacity.
In the conduct of the respective business of the parties
hereto and in the performance of this Agreement, the Trust, the Investment
Manager and the Sub-Adviser may share facilities common to each, which may
include legal and accounting personnel, with appropriate proration of expenses
between and among them.
3. (a) Subject to the primary objective of obtaining the best
execution, the Sub-Adviser may place orders for the purchase and sale of
portfolio securities and other instruments with such broker/dealers who provide
statistical, factual and financial information and services to the Trust, to the
Investment Manager, to the Sub-Adviser or to any other fund for which the
Investment Manager or Sub-Adviser provides investment advisory services and/or
with broker/dealers who sell shares of the Trust or who sell shares of any other
fund for which the Investment Manager or Sub-Adviser provides investment
advisory services. Broker/dealers who sell shares of the funds for which the
Investment Manager or Sub-Adviser provides advisory services shall only receive
orders for the purchase or sale of portfolio securities to the extent that the
placing of such orders is in compliance with the rules of the Securities and
Exchange Commission and NASD Regulation, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above and
subject to such policies and procedures as may be adopted by the Board of
Trustees and officers of the Trust, the Sub-Adviser may cause the Trust to pay a
member of an exchange, broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
in such instances where the Sub-Adviser has determined in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such member, broker or dealer, viewed in terms
of either that particular transaction or the Sub-Adviser's overall
responsibilities with respect to the Trust on behalf of the Fund and to other
funds and other advisory accounts for which the Investment Manager or the
Sub-Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Trust for the
benefit of the Fund by the Sub-Adviser under the provisions of this Agreement,
the Investment Manager shall pay to the Sub-Adviser:
A fee equal to one-third of the fees paid to the Investment Manager
under the Investment Management Agreement.
-2-
<PAGE>
If this Agreement is terminated prior to the end of any calendar
month, the Sub-Advisory fee shall be prorated for the portion of any month in
which this Agreement is in effect according to the proportion which the number
of calendar days during which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within 10 days after the date
of termination.
5. The services to be rendered by the Sub-Adviser to the Trust for the
benefit of the Fund under the provisions of this Agreement are not to be deemed
to be exclusive, and the Sub-Adviser shall be free to render similar or
different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby; provided, however,
except for advisory arrangements implemented prior to the date of this
Agreement, during the term of this Agreement the Sub-Adviser will not, without
the written consent of the Investment Manager, which consent will not be
unreasonably withheld, render such services to an investment company (or
portfolio thereof) which the Investment Manager reasonably determines would be
in competition with and which has investment policies similar to those of the
Trust.
6. Subject to the limitation set forth in Paragraph 5, the Sub-Adviser,
its directors, officers, employees, agents and shareholders may engage in other
businesses, may render investment advisory services to other investment
companies, or to any other corporation, association, firm or individual, and may
render underwriting services to the Trust or to any other investment company,
corporation, association, firm or individual.
The Investment Manager agrees that it shall not use the Sub-
Adviser's name or otherwise refer to the Sub-Adviser in any materials
distributed to third parties, including the Fund's shareholders, without the
prior written consent of the Sub-Adviser.
7. In the absence of willful misfeasance, bad faith, gross negligence,
or a reckless disregard of the performance of its duties as Sub-Adviser to the
Trust on behalf of the Fund, the Sub-Adviser shall not be subject to liability
to the Trust or to the Fund, to the Investment Manager or to any shareholder of
the Trust for any action or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security, or otherwise.
8. (a) This Agreement shall be executed and become effective as of the
date written below if approved by the vote of a majority of the outstanding
voting securities of the Fund. It shall continue in effect for a period of two
years and may be renewed thereafter only so long as such renewal and continuance
is specifically approved at least annually by the Board of Trustees or by the
vote of a majority of the outstanding voting securities of the Fund and only if
the terms and the renewal hereof have been approved by the vote of a majority of
the Trustees of the Trust who are not parties hereto or interested persons of
any such party ("Independent Trustees"), cast in person at a meeting called for
the purpose of voting on such approval.
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<PAGE>
(b) No amendment to this Agreement shall be effective unless
approved by: (i) a majority of the Trustees of the Trust, including a majority
of Independent Trustees; and (ii) a majority of the outstanding voting
securities of the Fund. Notwithstanding the foregoing, the Agreement may be
amended without the approval of a majority of the outstanding voting securities
of the Fund if the amendment relates solely to a management fee reduction or
other change that is permitted or not prohibited under federal law, rule,
regulation or SEC staff interpretation thereof to be made without shareholder
approval.
(c) This Agreement may be terminated by the Investment Manager or
the Trust at any time, without the payment of a penalty, on sixty days' written
notice to the Sub-Adviser, of the Investment Manager's or the Trust's intention
to do so, in the case of the Trust pursuant to action by the Board of Trustees
of the Trust or pursuant to the vote of a majority of the outstanding voting
securities of the Fund. The Sub-Adviser may terminate this Agreement at any
time, without the payment of a penalty on sixty days' written notice to the
Investment Manager and the Trust of its intention to do so. Upon termination of
this Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Investment Manager to pay to the Sub-Adviser
the fee provided in Paragraph 4 hereof, prorated to the date of termination.
This Agreement shall automatically terminate in the event of its assignment.
This Agreement shall automatically terminate upon the termination of the
Investment Management Agreement.
9. This Agreement shall extend to and bind the successors of the
parties hereto.
10. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities"; "interested person"; and "assignment"
shall have the meaning defined in the Investment Company Act of 1940.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their duly authorized officers and duly attested as of the _____
day of ___________________, _____.
DELAWARE INTERNATIONAL DELAWARE MANAGEMENT COMPANY,
ADVISERS LTD. a series of Delaware Management
Business Trust
By:________________________________ By:____________________________________
Name: Name:
Title: Title:
Attest:____________________________ Attest:________________________________
Agreed to and accepted as of the day and year first above written:
DELAWARE GROUP INCOME FUNDS on
behalf of DELAWARE STRATEGIC INCOME
FUND
By:____________________________________
Attest:________________________________
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<PAGE>
CHASE FORM OF AGREEMENT
GLOBAL CUSTODY AGREEMENT
AGREEMENT, effective May 1, 1996, between THE CHASE MANHATTAN BANK,
N.A. (the "Bank") and those registered investment companies listed on Schedule A
hereto (each a "Customer") on behalf of certain of their respective series, as
listed on Schedule A (individually and collectively the "Series").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer on behalf of each
Series ("Custody Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of money, bullion, coin
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by the Bank or its
Subcustodian (as defined in Section 3) for the account of the Customer
("Securities"); and
(b) A deposit account in the name of the Customer on behalf of each
Series ("Deposit Account") for any and all cash in any currency received by the
Bank or its Subcustodian for the account of the Customer, which cash shall not
be subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11) concerning the Accounts. Such Instructions shall
specifically indicate to which Series such Assets belong or, if such Assets
belong to more than one Series, shall allocate such Assets to the appropriate
Series. The Bank may deliver securities of the same class in place of those
deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
<PAGE>
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
To the extent available and permissible under applicable law and
regulation, Cash held pursuant to Instructions shall be held in interest bearing
accounts. If interest bearing accounts are not available, such cash may be held
in non-interest bearing accounts. The Bank is authorized to maintain cash
balances on deposit for the Customer with itself or one of its affiliates.
Interest bearing accounts shall bear interest at such reasonable rates of
interest as may from time to time be paid on such accounts by the Bank or its
affiliates.
(iii) For each Series that is exclusively a domestic Series, the following
additional provisions shall apply:
(x) In the event that during a given calendar month a Series has maintained an
average daily cash balance greater than zero, the Bank shall provide an earnings
credit against custody fees otherwise owing hereunder by such Series during such
calendar month in an amount equal to the product of (A) 75% of the 90 day U.S.
government Treasury bill rate as quoted in the Wall Street Journal for the last
"Business Day" (being a day on which the Bank is open for the transaction of all
its ordinary business) of such calendar month, (B) the average daily cash
balance for such month, and (C) the number of days in such calendar month
divided by 365.
(y) In the event that during a given calendar month a Series has maintained an
average daily cash balance less than or equal to zero, the Bank shall be paid
interest on such amount by such Series in an amount equal to the product of (A)
the "Overnight Fed Funds Rate" (as defined below) plus 25 basis points for the
last Business Day of such calendar month, (B) the average daily cash balance for
such month, and (C) the number of days in such calendar month divided by 365.
(z) For purposes of (y) above, the term "Overnight Fed Funds Rate" shall mean
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published by the Federal Reserve Bank of New York (with the rate for the last
Business Day of a given calendar month being the rate so published on the
Business Day immediately following such Day), or, if such rate is note so
published, the average quotations, for the last Business Day of a given calendar
month, of such transactions received by the Bank from three Federal funds
brokers of recognized standing selected by the Bank.
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<PAGE>
If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians as defined in Section 3
(or their securities depositories), such arrangement must be authorized by a
written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed
in Schedule B of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank to
hold Assets in the Accounts in accounts which the Bank has established with one
or more of its branches or Subcustodians. The Bank and Subcustodians are
authorized to hold any of the Securities in their account with any securities
depository in which they participate.
The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer will be given reasonable notice by the Bank of any
amendment to Schedule B. Upon request by the Customer, the Bank will identify
the name, address and principal place of business of any Subcustodian of the
Customer's Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
Upon receipt of Instructions, the Bank shall cease using any
Subcustodian with respect to the customer, and arrange for delivery of
Securities held with such Subcustodian to another entity as designated by the
Customer; provided that, the Bank shall have no responsibility for the
performance of such other entity.
4. Use of Subcustodian.
(a) The Bank will identify the Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging
to other customers of the Bank in accounts identified on such Subcustodian's
books as special custody accounts for the exclusive benefit of customers of the
Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding
its customer's assets shall provide that: (i) such assets will not be subject to
3
<PAGE>
any right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, (ii) the beneficial
ownership of such assets will be freely transferable without the payment of
money or value other than for safe custody or administration; (iii) adequate
records will be maintained identifying the assets held pursuant to such
agreement as belonging to the customers of the Bank; (iv) subject to applicable
law, Subcustodian shall permit independent public accountants for Bank and
customers of the Bank reasonable access to Subcustodian's books and records as
they pertain to the subcustody account in connection with such accountants'
examination of the books and records of such account; and (v) the Bank will
receive periodic reports with respect to the safekeeping of assets in the
subcustody account, including advices and/or notifications of any transfers to
or from such subcustody account. The foregoing shall not apply to the extent of
any special agreement or arrangement made by the Customer with any particular
Subcustodian.
(e) Upon request of the Customer, the Bank shall deliver to the
Customer annually a report stating: (i) the identity of each Subcustodian then
acting on behalf of the Bank and the name and address of the governmental agency
or other regulatory authority that supervises or regulates such Subcustodian;
(ii) the countries in which each Subcustodian is located; and (iii) as long as
Securities and Exchange Commission ("SEC") Rule 17f-5 under the Investment
Company Act of 1940, as amended ("1940 Act"), requires the Customer's Board of
Directors/Trustees directly to approve its foreign custody arrangements, such
other information relating to such Subcustodians as may reasonably be requested
by the Customer to ensure compliance with Rule 17f-5. As long as Rule 17f-5
requires the Customer's Board of Directors/Trustees directly to approve its
foreign custody arrangements, the Bank shall also furnish annually to the
Customer information concerning such Subcustodians similar in kind and scope as
that furnished to the Customer in connection with the initial approval hereof.
The Bank shall timely advise the Customer of any material adverse change in the
facts or circumstances upon which such information is based where such changes
would affect the eligibility of the Subcustodian under Rule 17f-5 as soon as
practicable after it becomes aware of any such material adverse change in the
normal course of its custodial activities.
5. Deposit Account Transactions
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its discretion,
may advance the Customer such excess amount which shall be deemed a loan payable
on demand, bearing interest at the rate customarily charged by the Bank on
similar loans.
4
<PAGE>
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit Account,
with interest, dividends, redemptions or any other amount due, the Customer will
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If the Customer does not promptly return
any amount upon such notification, the Bank shall be entitled, upon oral or
written notification to the Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. The Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings, file a claim or
a proof of claim in any insolvency proceeding or take any other action with
respect to the collection of such amount, but may act for the Customer upon
Instructions after consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.
(b) The Bank shall credit or debit the Accounts on a contractual
settlement date with cash or Securities with respect to any sale, exchange or
purchase of Securities in those countries set forth in Appendix A hereto;
provided that, the Bank may amend Appendix A from time to time in its sole
discretion and shall advise the Customer of such amendments. Otherwise,
transactions will be credited or debited to the Accounts on the date cash or
Securities are actually received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction; provided that, the Bank shall give
Customer prior notification of any such reversal. Where the foregoing
notification is oral, the Bank shall promptly provide written confirmation of
the same (which confirmation may be electronic).
5
<PAGE>
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the credits and debits
of the particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian, subject to applicable SEC rules and regulations under the Act.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer advises the Bank orally and then promptly sends the
Bank a written exception or objection to any Bank statement within 180 days of
receipt, the Customer shall be deemed to have approved such statement.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. Subject to the standard of care in Section 12 hereof, the Bank shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Bank or by its Subcustodians of any payment, redemption or other
transaction regarding Securities in the Custody Account in respect of which the
Bank has agreed to take any action under this Agreement.
6
<PAGE>
8. Corporate Actions; Proxies; Tax Reclaims.
a. Corporate Actions. Whenever the Bank receives information concerning
the Securities which requires discretionary action by the beneficial owner of
the Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the Bank
will give the Customer written notice (which may be electronic) of such
Corporate Actions to the extent that the Bank's central corporate actions
department has actual knowledge of a Corporate Action in time to notify its
customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person (as defined in ss.10
hereof), but if Instructions are not received in time for the Bank to take
timely action, or actual notice of such Corporate Action was received too late
to seek Instructions, the Bank is authorized to sell such rights entitlement or
fractional interest and to credit the Deposit Account with the proceeds or take
any other action it deems, in good faith, to be appropriate in which case it
shall be held harmless for any such action.
b. Proxy Voting. With respect to domestic U.S. and Canadian Securities
(the latter if held in DTC), the Bank will send to the Customer or the
Authorized Person (as defined in Section 10) for a Custody Account, such proxies
(signed in blank, if issued in the name of the Bank's nominee or the nominee of
a central depository) and communications with respect to Securities in the
Custody Account as call for voting or relate to legal proceedings within a
reasonable time after sufficient copies are received by the Bank for forwarding
to its customers. In addition, the Bank will follow coupon payments,
redemptions, exchanges or similar matters with respect to Securities in the
Custody Account and advise the Customer or the Authorized Person for such
Account of rights issued, tender offers or any other discretionary rights with
respect to such Securities, in each case, of which the Bank has received notice
from the issuer of the Securities, or as to which notice is published in
publications routinely utilized by the Bank for this purpose.
With respect to Securities other than the foregoing, proxy voting
services shall be provided in accordance with separate proxy voting agreement
annexed hereto a Appendix B.
The foregoing proxy voting services may be provided by Bank, in whole
or in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank), provided that the Bank shall be liable for the
performance of any such third parties to the same extent as the Bank would have
been if it performed such services itself.
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<PAGE>
c. Tax Reclaims. (i) Subject to the provisions hereof, the Bank will
apply for a reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income payments on
Securities for the benefit of the Customer which the Bank believes may be
available to such Customer. Where such reports are available, the Bank shall
periodically report to Customer concerning the making of applications for a
reduction of withholding tax and refund of any tax paid or tax credits which
apply in each applicable market in respect of income payments on Securities for
the benefit of the Customer.
(ii) The provision of tax reclaim services by the Bank is conditional
upon the Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from the Bank). The Bank
shall use reasonable means to advise the Customer of the declarations,
documentation and information which the Customer is to provide to the Bank in
order for the Bank to provide the tax reclaim services described herein. The
Customer acknowledges that, if the Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation will be
deducted from all income received in respect of Securities issued outside the
United Kingdom and that U.S. non-resident alien tax or U.S. backup withholding
tax will be deducted from U.S. source income. The Customer shall provide to the
Bank such documentation and information as it may require in connection with
taxation, and warrants that, when given, this information shall be true and
correct in every respect, not misleading in any way, and contain all material
information. The Customer undertakes to notify the Bank immediately if any such
information requires updating or amendment.
(iii) Subject to subsection (vii) hereof, the Bank shall not be liable
to the Customer or any third party for any tax, fines or penalties payable by
the Bank or the Customer, and shall be indemnified accordingly, whether these
result from the inaccurate completion of documents by the Customer or any third
party, or as a result of the provision to the Bank or any third party of
inaccurate or misleading information or the withholding of material information
by the Customer or any other third party, or as a result of any delay of any
revenue authority or any other matter beyond the control of the Bank.
(iv) The Customer confirms that the Bank is authorized to deduct from
any cash received or credited to the Cash Account any taxes or levies required
by any revenue or governmental authority for whatever reason in respect of the
Securities or Cash Accounts.
(v) The Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to the
Customer from time to time and the Bank may, by notification in writing, at its
absolute discretion, supplement or amend the markets in which the tax reclaim
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<PAGE>
services are offered. Other than as expressly provided in this sub-clause, the
Bank shall have no responsibility with regard to the Customer's tax position or
status in any jurisdiction. Except as provided in Section 8(c)(ii) and pursuant
to Instructions, the Bank shall take no action in the servicing of the
Customer's Securities which, in and of itself, creates a taxable nexus for the
Customer in any jurisdiction other than with respect to interest, dividends and
capital gains that may otherwise be subject to tax by such jurisdiction with
respect to a foreign investor not otherwise engaged in a trade or business in
such jurisdiction in a given taxable year. Bank shall not be liable for any tax
liability caused, directly or indirectly, by Customer's actions or status in any
jurisdiction.
(vi) In connection with obtaining tax relief, the Customer confirms
that the Bank is authorized to disclose any information requested by any revenue
authority or any governmental body in relation to the Customer or the Securities
and/or Cash held for the Customer. This provision does not authorize any other
voluntary disclosure to any revenue authority or any governmental body without
the prior written consent of Customer.
(vii) Tax reclaim services may be provided by the Bank or, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would have
been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities depository,
as the case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly or indirectly from their
status as a mere record holder of Securities in the Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
9
<PAGE>
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer or
its designated agent that any such employee or agent is no longer an Authorized
Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank reasonably believes in good faith to have
been given by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded. For purposes hereof,
reasonableness shall mean compliance with applicable procedures.
Any Instructions delivered to the Bank by telephone (including cash
transfer instructions as described below) shall promptly thereafter be confirmed
in writing by any two Authorized Persons (which confirmation may bear the
facsimile signature of such Persons), but the Customer will hold the Bank
harmless for the failure of such Authorized Persons to send such confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or the Bank's failure to produce such confirmation at any
subsequent time; provided that, where the Bank receives a telephone Instruction
from an Authorized Person requiring the transfer of cash, prior to executing
such Instruction the Bank will, to confirm such Instruction, call back any one
of the individuals on a list of persons authorized to confirm such oral transfer
Instructions (which Person shall be a person other than the initiator of the
transfer Instruction) and the Bank shall not execute the Instruction until it
has received such confirmation. Either party may electronically record any
Instructions given by telephone, and any other telephone discussions with
respect to the Custody Account. The Customer shall be responsible for
safeguarding any testkeys, identification codes or other security devices which
the Bank shall make available to the Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in Instructions
which are consistent with the provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be liable to
10
<PAGE>
the Customer for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping of such
Assets to the same extent that the Bank would be liable to the Customer if the
Bank were holding such Assets in New York. In the event that Securities are lost
by reason of the failure of the Bank or its Subcustodian to use reasonable care,
the Bank shall be liable to the Customer based on the market value of the
property which is the subject of the loss on the date it is replaced by the Bank
and without reference to any special conditions or circumstances, it being
understood that for purposes of measuring damages hereunder, the value of
Securities which are sold by the Customer prior to the replacement thereof shall
be equal to the sale price thereof less the expenses of such sale incurred by
the Customer. The Bank shall act with reasonable promptness in making such
replacements. In no event shall the Bank be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Bank has been advised of the likelihood of such
loss or damage and regardless of the form of action. Subject to the Bank's
obligations pursuant to ss.4(e) hereof, the Bank will not be responsible for the
insolvency of any Subcustodian which is not a branch or affiliate of Bank.
(ii) The Bank will not be responsible for any act, omission, default or
the solvency of any broker or agent which it or a Subcustodian appoints unless
such appointment was made negligently or in bad faith.
(iii) (a) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise pursuant to this Agreement if such act or omission was
in good faith, without negligence. In performing its obligations under this
Agreement, the Bank may rely on the genuineness of any Customer document which
it reasonably believes in good faith to have been validly executed. (b) The Bank
shall hold Customer harmless from, and shall indemnify Customer for, any loss,
liability, claim or expense incurred by Customer (including, but not limited to,
Customer's reasonable legal fees) to the extent that such loss, liability, claim
or expense arises from the negligence or willful misconduct on the part of the
Bank or a Subcustodian; provided that, in no event shall the Bank be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Bank has been advised
of the likelihood of such loss or damage and regardless of the form of action.
Subject to the Bank's obligations pursuant to ss.4(e) hereof, the Bank will not
be responsible for the insolvency of any Subcustodian which is not a branch or
affiliate of Bank.
(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes or
other governmental charges, and any related expenses with respect to income from
or Assets in the Accounts.
11
<PAGE>
(v) The Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for the Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
(vi) The Bank need not maintain any insurance for the benefit of the
Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2) investing
or holding Assets in a particular country including, but not limited to, losses
resulting from nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to the Customer or an
Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any default
in the payment of principal or income of any security other than a Security.
(iv) except as may be otherwise provided in any securities lending
agreement between the Customer and the Bank, evaluate or report to the Customer
or an Authorized Person regarding the financial condition of any broker, agent
or other party to which Securities are delivered or payments are made pursuant
to this Agreement;
(v) except for trades settled at DTC where the broker provides to the
Bank the trade confirmation and the Customer provides for the Bank to receive
the trade instruction, review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined in Section 10)
issuing Instructions shall bear any responsibility to review such confirmations
against Instructions issued to and statements issued by the Bank.
12
<PAGE>
(c) The Customer authorizes the Bank to act, hereunder, in its capacity
as a custodian notwithstanding that the Bank or any of its divisions or
affiliates may have a material interest in a transaction, or circumstances are
such that the Bank may have a potential conflict of duty or interest including
the fact that the Bank or any of its affiliates may provide brokerage services
to other customers, act as financial advisor to the issuer of Securities, act as
a lender to the issuer of Securities, act in the same transaction as agent for
more than one customer, have a material interest in the issue of Securities, or
earn profits from any of the activities listed herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing ("Fee Schedule"),
together with the Bank's reasonable out-of-pocket or incidental expenses (as
further defined in the Fee Schedule), including, but not limited to, legal fees.
The Bank shall have a lien on and is authorized to charge any Accounts of the
Customer for any amount owing to the Bank under any provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
the Customer's trading and investment activity, the Bank is authorized to enter
into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange through
its subsidiaries, affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but the Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of the Bank,
its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent,
this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is
a resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
13
<PAGE>
(c) Access to Records. Applicable accounts, books and records of the
Bank shall be open to inspection and audit at all reasonable times during normal
business hours upon reasonable advance notice by Customer's independent public
accountants and by employees of Customer designated to the Bank. All such
materials shall, to the extent applicable, be maintained and preserved in
conformity with the Act and the rules and regulations thereunder, including
without limitation, SEC Rules 31a-1 and 31a-2. Subject to restrictions under
applicable law, the Bank shall also obtain an undertaking to permit the
Customer's independent public accountants reasonable access to the records of
any Subcustodian which has physical possession of any Assets as may be required
in connection with the examination of the Customer's books and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are Mutual Fund assets subject to certain
Securities and Exchange Commission ("SEC") rules and regulations.
This Agreement consists exclusively of this document together with
Schedules A and B, Appendices 1 and 2, Exhibits I - _______ and the following
Rider(s) [Check applicable rider(s)]:
X MUTUAL FUND
-----
X SPECIAL TERMS AND CONDITIONS
-----
There are no other provisions of this Agreement, and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure
or delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise of any
14
<PAGE>
other power or right. No waiver by a party of any provision of this Agreement,
or waiver of any breach or default, is effective unless in writing and signed by
the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such other addresses as may subsequently be given to the other party in writing:
Bank: The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:
-------------------------------------
Customer: Delaware Group of Funds
1818 Market St.
Philadelphia, PA 19103
att: Messrs. Bishof and O'Conner
or telex:
--------------------------------------
(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the Bank
shall deliver the Assets in the Accounts. If notice of termination is given by
the Bank, the Customer shall, within sixty (60) days following receipt of the
notice, deliver to the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case the Bank will deliver the
Assets to the persons so specified, after deducting any amounts which the Bank
determines in good faith to be owed to it under Section 13. If within sixty (60)
days following receipt of a notice of termination by the Bank, the Bank does not
receive Instructions from the Customer specifying the names of the persons to
whom the Bank shall deliver the Assets, the Bank, at its election, may deliver
the Assets to a bank or trust company doing business in the State of New York to
be held and disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold the Assets until Instructions are
provided to the Bank; provided that, where the Bank is the terminating party and
the Bank had not notified the Customer that termination was for breach of this
Agreement by the Customer, such 60 day period shall be extended for an
additional period as requested by Customer of up to 120 days.
15
<PAGE>
Termination as to One or More Series. This Agreement may be terminated
as to one or more Series (but less than all the Series) by delivery of an
amended Schedule A deleting such Series, in which case termination as to the
deleted Series shall take effect sixty (60) days after the date of such
delivery. The execution and delivery of an amended Schedule A which deletes one
or more Series, shall constitute a termination hereof only with respect to such
deleted Series, shall be governed by the preceding provisions of Section 14 as
to the identification of a successor custodian and the delivery of the Assets of
the Series so deleted to such successor custodian, and shall not affect the
obligations of the Bank and the Customer hereunder with respect to the other
Series set forth in Schedule A, as amended from time to time.
(j) Several Obligations of the Series. With respect to any obligations
of the Customer on behalf of the Series and their related Accounts arising
hereunder, the Custodian shall look for payment or satisfaction of any such
obligation solely to the assets and property of the Series and such Accounts to
which such obligation relates as though the Customer had separately contracted
with the Custodian by separate written instrument with respect to each Series
and its Accounts.
CUSTOMER
By:
---------------------
Title Vice President and Treasurer
THE CHASE MANHATTAN BANK, N.A.
By:
-----------------------
Title Vice President
STATE OF )
: ss.
COUNTY OF )
On this day of , , before me personally came , to me
known, who being by me duly sworn, did depose and say that he/she resides in New
Providence, NJ at 31 Sagamore Drive; that he/she is Vice President of THE CHASE
MANHATTAN BANK, the entity described in and which executed the foregoing
instrument; that she knows the seal of said entity, that the seal affixed to
said instrument is such seal, that it was so affixed by order of said entity,
and that she signed his/her name thereto by like order.
16
<PAGE>
Sworn to before me this
day of .
- --------------
Notary
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of
,19 , before me personally came , to me known, who
being by me duly sworn, did depose and say that he/she resides in
at ; that he/she is a Vice President
of THE CHASE MANHATTAN BANK, (National Association), the corporation described
in and which executed the foregoing instrument; that he/she knows the seal of
said corporation, that the seal affixed to said instrument is such corporate
seal, that it was so affixed by order of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like order.
Sworn to before me this ________________________________
day of ________________, 19________.
___________________________________________________________
Notary
17
<PAGE>
Schedule A
Delaware Group Equity Funds I
Delaware Balanced Fund
Delaware Devon Fund
Delaware Group Equity Funds II
Delaware Decatur Equity Income Fund
Delaware Growth and Income Fund
Delaware Blue Chip Fund
Delaware Social Awareness Fund
Delaware Diversified Value Fund
Delaware Group Equity Funds III
Delaware Trend Fund
Delaware Group Equity Funds IV
Delaware DelCap Fund series
Delaware Diversified Growth Fund
Delaware Group Equity Funds V
Delaware Small Cap Value Fund series
Delaware Retirement Income Fund
Delaware Mid-Cap Value Fund
Delaware Small Cap Contrarian Fund
Delaware Group Income Funds
Delaware Delchester Fund
Delaware Strategic Income Fund
Delaware High-Yield Opportunities Fund
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Delaware Group Government Fund, Inc.
Delaware American Government Bond Fund
18
<PAGE>
Delaware Group Limited-Term Government Fund
Delaware Limited-Term Government Fund
Delaware Group Cash Reserve
Delaware Cash Reserve
Delaware Group Tax-Free Money Fund
Delaware Tax-Free Money Fund
Delaware Group State Tax-Free Income Trust
Delaware Tax-Free Pennsylvania Fund
Delaware Tax-Free New Jersey Fund
Delaware Tax-Free Ohio Fund
Delaware Group Tax-Free Fund
Delaware Tax-Free USA Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Intermediate Fund
Delaware Pooled Trust
The Large-Cap Value Equity Portfolio
The Core Equity Portfolio
The Balanced Portfolio
The Equity Income Portfolio
The Select Equity Porfolio
The Mid-Cap Growth Equity Portfolio
The Mid-Cap Value Equity Portfolio
The Small-Cap Value Equity Portfolio
The Small-Cap Growth Equity Porfolio
The Real Estate Investment Trust Portfolio
The Real Estate Investment Trust Portfolio II
The Global Equity Portfolio
The International Equity Portfolio
The Labor Select International Equity Portfolio
The Emerging Markets Portfolio
The International Small-Cap Portfolio
The Intermediate Fixed Income Portfolio
The Aggregate Fixed Income Portfolio
The High-Yield Bond Portfolio
The Diversified Core Fixed Income Portfolio
The Global Fixed Income Portfolio
The International Fixed Income Portfolio
The International Mid-Cap Sub Portfolio
19
<PAGE>
Delaware Group Premium Fund
Growth and Income Series
Delaware Balanced Series
Delchester Series
Capital Reserves Series
DelCap Series
International Equity Series
Cash Reserve Series
Trend Series
Small Cap Value Series
Global Bond Series
Devon Series
Convertible Securities Series
Emerging Markets Series
Strategic Income Series
Social Awareness Series
REIT Series
Aggressive Growth Series
Delaware Group Global & International Funds
Delaware International Equity Fund
Delaware Global Equity Fund
Delaware Global Bond Fund
Delaware Emerging Markets Fund
Delaware International Small Cap Fund
Delaware Global Opportunities Fund
Delaware New Europe Fund
Delaware Latin America Fund
20
<PAGE>
Delaware Group Adviser Funds
Delaware U.S. Growth Fund
Delaware Overseas Equity Fund
Delaware New Pacific Fund
Delaware Group Foundation Funds
Income Portfolio
Growth Portfolio
Balanced Portfolio
The Asset Allocation Portfolio
21
<PAGE>
March, 1996 Schedule B
SUB-CUSTODIANS EMPLOYED BY
THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY
<TABLE>
<CAPTION>
<S> <C> <C>
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK
ARGENTINA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- --------- Arenales 707, 5th Floor Buenos Aires
De Mayo 130/140
1061Buenos Aires
ARGENTINA
AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank
- --------- Australia Limited Australia Limited
36th Floor Sydney
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA
AUSTRIA Creditanstalt - Bankverein Credit Lyonnais
- ------- Schottengasse 6 Vienna
A - 1011, Vienna
AUSTRIA
BANGLADESH Standard Chartered Bank Standard Chartered Bank
- ---------- 18-20 Motijheel C.A. Dhaka
Box 536,
Dhaka-1000
BANGLADESH
BELGIUM Generale Bank Credit Lyonnais Bank
- ------- 3 Montagne Du Parc Brussels
1000 Bruxelles
BELGIUM
BOTSWANA Barclays Bank of Botswana Limited Barclays Bank of Botswana
- -------- Barclays House Gaborone
Khama Crescent
Gaborone
BOTSWANA
BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A.
- ------ Chase Manhattan Center Sao Paulo
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL
CANADA The Royal Bank of Canada Royal Bank of Canada
- ------ Royal Bank Plaza Toronto
Toronto
Ontario M5J 2J5
CANADA
Canada Trust Royal Bank of Canada
Canada Trust Tower Toronto
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA
CHILE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- ----- Agustinas 1235 Santiago
Casilla 9192
Santiago
CHILE
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A.
- -------- Sociedad Fiduciaria Sociedad Fiduciaria
Carrera 9a No 99-02 Santafe de Bogota
Santafe de Bogota, DC
COLOMBIA
CZECH REPUBLIC Ceskoslovenska Obchodni Banka, A.S. Komercni Banka, A.S.,
- -------------- Na Prikope 14 Praha
115 20 Praha 1
CZECH REPUBLIC
DENMARK Den Danske Bank Den Danske Bank
- ------- 2 Holmens Kanala DK 1091 Cop0nhagen
Copenhagen
DENMARK
EGYPT National Bank of Egypt National Bank of Egypt
- ----- 24 Sherif Street Cairo
Cairo
EGYPT
EUROBONDS Cedel S.A. ECU:Lloyds Bank PLC
- --------- 67 Boulevard Grande Duchesse Charlotte International Banking Division
LUXEMBOURG London
A/c The Chase Manhattan Bank, N.A. For all other currencies: see
London relevant country
A/c No. 17817
EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC
- -------- 27 Leadenhall Street Banking Division London
London EC3A 1AA For all other currencies: see
UNITED KINGDOM relevant country
FINLAND Merita Bank KOP Merita Bank KOP
- ------- Aleksis Kiven 3-5 Helsinki
00500 Helsinki
FINLAND
FRANCE Banque Paribas Societe Generale
- ------ Ref 256 Paris
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE
GERMANY Chase Bank A.G. Chase Bank A.G.
- ------- Alexanderstrasse 59 Frankfurt
Postfach 90 01 09
60441 Frankfurt/Main
GERMANY
GHANA Barclays Bank of Ghana Barclays Bank
- ----- Barclays House Accra
High Street
Accra
GHANA
GREECE Barclays Bank Plc National Bank of Greece S.A.
- ------ 1 Kolokotroni Street Athens
10562 Athens A/c Chase Manhattan Bank, N.A.,
GREECE London
A/c No. 040/7/921578-68
HONG KONG The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- --------- 40/F One Exchange Square Hong Kong
8, Connaught Place
Central, Hong Kong
HONG KONG
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
HUNGARY Citibank Budapest Rt. Citibank Budapest Rt.
- ------- Vaci Utca 19-21 Budapest
1052 Budapest V
HUNGARY
INDIA The Hongkong and Shanghai The Hongkong and Shanghai
- ----- Banking Corporation Limited Banking Corporation Limited
52/60 Mahatma Gandhi Road Bombay
Bombay 400 001
INDIA
Deutsche Bank AG, Bombay Branch Deutsche Bank
Securities & Custody Services Bombay
Kodak House
222 D.N. Road, Fort
Bombay 400 001
INDIA
INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
- --------- Banking Corporation Limited Jakarta
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA
IRELAND Bank of Ireland Allied Irish Bank
- ------- International Financial Services Centre Dublin
1 Harbourmaster Place
Dublin 1
IRELAND
ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M.
- ------ 19 Herzl Street Tel Aviv
61000 Tel Aviv
ISRAEL
ITALY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- ----- Piazza Meda 1 Milan
20121 Milan
ITALY
JAPAN The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- ----- 1-3 Marunouchi 1-Chome Tokyo
Chiyoda-Ku
Tokyo 100
JAPAN
JORDAN Arab Bank Limited Arab Bank Limited
- ----- P O Box 950544-5 Amman
Amman
Shmeisani
JORDAN
KENYA Barclays Bank of Kenya Barclays Bank of Kenya
- ----- Third Floor Nairobi
Queensway House
Nairobi
Kenya
LUXEMBOURG Banque Generale du Luxembourg S.A. Banque Generale du Luxembourg
- ---------- 50 Avenue J.F. Kennedy S.A.
L-2951 LUXEMBOURG Luxembourg
MALAYSIA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- -------- Pernas International Kuala Lumpur
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA
MAURITIUS Hongkong and Shanghai Banking The Hongkong and Shanghai Banking
- --------- Corporation Ltd Corporation Ltd.
Curepipe Road Curepipe
Curepipe
MAURITIUS
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
MEXICO The Chase Manhattan Bank, S.A. No correspondent Bank
- ------ Montes Urales no. 470, 4th Floor
(Equities) Col. Lomas de Chapultepec
11000 Mexico D.F.
(Government Banco Nacional de Mexico, No correspondent Bank
Bonds) Avenida Juarez No. 104 - 11 Piso
06040 Mexico D.F.
MEXICO
MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc
- ------- 2 Boulevard Moulay Youssef Casablanca
Casablanca 20000
MOROCCO
NETHERLANDS ABN AMRO N.V. Generale Bank
- ----------- Securities Centre Nederland N.V.
P O Box 3200 Rotterdam
4800 De Breda
NETHERLANDS
NEW ZEALAND National Nominees Limited National Bank of New Zealand
- ----------- Level 2 BNZ Tower Wellington
125 Queen Street
Auckland
NEW ZEALAND
NORWAY Den Norske Bank Den Norske Bank
- ------ Kirkegaten 21 Oslo
Oslo 1
NORWAY
PAKISTAN Citibank N.A. Citibank N.A.
- -------- I.I. Chundrigar Road Karachi
AWT Plaza
Karachi
PAKISTAN
Deutsche Bank Deutsche Bank
Unitowers Karachi
I.I. Chundrigar Road
Karachi
PAKISTAN
PERU Citibank, N.A. Citibank N.A.
- ---- Camino Real 457 Lima
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU
PHILIPPINES The Hongkong and Shanghai The Hongkong and Shanghai
- ---------- Banking Corporation Limited Banking Corporation Limited
Hong Kong Bank Centre 3/F Manila
San Miguel Avenue
Ortigas Commercial Centre
Pasig Metro Manila
PHILIPPINES
POLAND Bank Polska Kasa Opieki S.A. Bank Polska Kasa Opieki S.A.
- ------ Curtis Plaza Warsaw
Woloska 18
02-675 Warsaw
POLAND
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
For Mutual Funds:
Bank Handlowy W. Warsawie. S.A. Bank Polska Kasa Opieki S.A.
Custody Dept. Warsaw
Capital Markets Centre
Ul, Nowy Swiat 6/12
00-920 Warsaw
POLAND
PORTUGAL Banco Espirito Santo & Comercial de Lisboa Banco Nacional Ultra Marino
- -------- Servico de Gestaode Titulos Lisbon
R. Mouzinho da Silveira, 36 r/c
1200 Lisbon
PORTUGAL
SHANGHAI The Hongkong and Shanghai Citibank
- -------- Banking Corporation Limited New York
(CHINA) Shanghai Branch
Corporate Banking Centre
Unit 504, 5/F Shanghai Centre
1376 Nanjing Xi Lu
Shanghai
THE PEOPLE'S REPUBLIC OF CHINA
SHENZHEN The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
- -------- Banking Corporation Limited Hong Kong
(CHINA) 1st Floor
Central Plaza Hotel
No.1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF CHINA
SINGAPORE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- --------- Shell Tower Singapore
50 Raffles Place
Singapore 0104
SINGAPORE
SLOVAK REPUBLIC Ceskoslovenska Obchodni Banka, A.S. Ceskoslovenska Obchodni Banka
- --------------- Michalska 18 Slovak Republic
815 63 Bratislava
SLOVAK REPUBLIC
SOUTH AFRICA Standard Bank of South Africa Standard Bank of South Africa
- ------------ Standard Bank Chambers South Africa
46 Marshall Street
Johannesburg 2001
SOUTH AFRICA
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SOUTH KOREA The Hongkong & Shanghai The Hongkong & Shanghai
- ----------- Banking Corporation Limited Banking Corporation Limited
6/F Kyobo Building Seoul
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUTH KOREA
SPAIN The Chase Manhattan Bank, N.A. Banco Bilbao Vizcaya,
- ----- Calle Peonias 2 Madrid
7th Floor
La Piovera
28042 Madrid
SPAIN
SRI LANKA The Hongkong & Shanghai The Hongkong & Shangai
- --------- Banking Corporation Limited Banking Corporation Limited
Unit #02-02 West Block, Colombo
World Trade Center
Colombo 1,
SRI LANKA
SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken
- ------ Kungstradgardsgatan 8 Stockholm
Stockholm S-106 40
SWEDEN
SWITZERLAND Union Bank of Switzerland Union Bank of Switzerland
- ----------- 45 Bahnhofstrasse Zurich
8021 Zurich
SWITZERLAND
TAIWAN The Chase Manhattan Bank, N.A. No correspondent Bank
- ------ 115 Min Sheng East Road - Sec 3,
9th Floor
Taipei
TAIWAN
Republic of China
THAILAND The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- -------- Bubhajit Building Bangkok
20 North Sathorn Road
Silom, Bangrak
Bangkok 10500
THAILAND
TUNISIA Banque Internationale Arabe de Tunisie Banque Internationale Arabe de
- ------- 70-72 Avenue Habib Bourguiba Tunisie, Tunisia
P.O. Box 520
1080 Tunis Cedex
Tunisia
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TURKEY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- ------ Emirhan Cad. No: 145 Istanbul
Atakule, A Blok Kat:11
80700-Dikilitas/Besiktas
Istanbul
Turkey
U.K. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- --- Woolgate House London
Coleman Street
London EC2P 2HD
UNITED KINGDOM
URUGUAY The First National Bank of Boston The First National Bank of Boston
- ------- Zabala 1463 Montevideo
Montevideo
URUGUAY
U.S.A. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
- ------ 1 Chase Manhattan Plaza New York
New York
NY 10081
U.S.A.
VENEZUELA Citibank N.A. Citibank N.A.
- --------- Carmelitas a Altagracia Caracas
Edificio Citibank
Caracas 1010
VENEZUELA
ZAMBIA Barclays Bank of Zambia Barclays Bank of Zambia
- ------ Kafue House Lusaka
Cairo Road
P.O.Box 31936
Lusaka
ZAMBIA
ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe
- -------- Ground Floor Harare
Tanganyika House
Corner of 3rd Street & Union Avenue
Harare
ZIMBABWE
</TABLE>
28
<PAGE>
AMENDMENT, dated November 20, 1997 to the May 1, 1996 custody agreement
("Agreement"), between those registered investment companies listed on Schedule
A to the Agreement (each a "Customer"), having a place of business at 1818
Market Street, Philadelphia, PA 19103 and The Chase Manhattan Bank ("Bank"),
having a place of business at 270 Park Ave., New York, N.Y. 10017-2070.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed in all
respects. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Agreement.
Section 2. The Agreement is amended by deleting the mutual fund rider
thereto and inserting, in lieu thereof, the following mutual fund rider:
1. Add a new Section 15 to the Agreement as follows:
15. Compliance with SEC rule 17f-5 ("Rule 17f-5").
(a) Customer's board of directors (or equivalent body) (hereinafter
"Board") hereby delegates to Bank, and Bank hereby accepts the delegation to it,
of the obligation to perform as Customer's "Foreign Custody Manager" (as that
term is defined in Rule 17f-5(a)(2)) adopted under the Investment Company Act of
1940 ("Act"), as amended ("1940 Act"), the following responsibilities in a
manner consistent with Rule 17f-5, to: (i) select Eligible Foreign Custodians
(as that term is defined in Rule 17f-5(a)(1), and as the same may be amended
from time to time, or that have otherwise been made exempt pursuant to an SEC
exemptive order); (ii) enter into written contracts with such Eligible Foreign
Custodians that are banks or trust companies and with Eligible Foreign
Custodians that are "Securities Depositories" (as defined in Rule 17f-5(a)(6))
and that are not Compulsory Depositories (as defined below) where the Depository
has such a contract; and (iii) to monitor the appropriateness of maintaining
Assets of the series of the Customer with such Eligible Foreign Custodians;
provided that, Bank shall not be responsible for these duties with respect to
any compulsory Securities Depository ("Compulsory Depository"). A Compulsory
Depository shall mean a Securities Depository or clearing agency the use of
which is compulsory because: (1) its use is required by law or regulation or (2)
maintaining securities outside the depository is not consistent with prevailing
custodial practices in the country which the Depository serves. Compulsory
Depositories used by Chase as of the date hereof are set forth in Appendix 1-A
hereto. Appendix 1-A may be amended on notice to Customer from time to time. In
that connection, Bank shall notify Customer promptly of pending changes to
Appendix 1-A.
29
<PAGE>
(b) In connection with the foregoing, Bank shall:
(i) provide written reports to Customer's Board upon the placement of
Assets with a particular Eligible Foreign Custodian and of any Material
Change (as defined below) in the arrangements with such Eligible
Foreign Custodians, with such reports to be provided to Customer's
Board at such times as the Board deems reasonable and appropriate based
on the circumstances of Customer's foreign custody arrangements (and
until further notice from Customer such reports shall be provided
within 30 days after Bank becomes aware of any such Material Change.
For purposes of the foregoing, a Material Change shall include, but
shall not be limited to, Bank's decision to remove Customer's Assets
from a particular Eligible Foreign Custodian, an event that has a
material adverse affect on an Eligible Foreign Custodian's financial or
operational strength, any non-compliance by an Eligible Foreign
Custodian with a "Material Term" of Bank's subcustodian agreement with
such Eligible Foreign Custodian (as defined below) or any failure by an
Eligible Foreign Custodian to meet the requirements for its status as
such under Rule 17f-5. A Material Term shall mean a term which provides
that (a) the Customer will be adequately indemnified or its Assets
adequately insured, or an adequate combination thereof, in the event of
loss; (b) the Assets of the Series will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of an
Eligible Foreign Custodian or such Eligible Foreign Custodian's
creditors, except a claim of payment for their safe custody or
administration, or in the case of cash deposits, liens or rights in
favor of creditors of the Eligible Foreign Custodian arising under
bankruptcy, insolvency or similar laws; (c) beneficial ownership for
the Assets of the Series will be freely transferable without the
payment of money or value other than for safe custody or administration
of the Assets of the Series; (d) adequate records will be maintained
identifying the Assets as belonging to the Customer or the Series or as
being held by a third party for the benefit of the Customer or the
Series; (e) the independent auditors for the Customer will be given
access to those records or confirmation of the contents of those
records; and (f) the Customer will receive periodic reports with
respect to the safekeeping of the Series' Assets, including, but not
necessarily limited to, notification of any transfer to or from the
Customer's account or a third party account containing Assets held for
the benefit of the Customer. In addition, in the event that a contract
with an Eligible Foreign Custodian does not include any or all of the
terms described in (a) through (f) of this paragraph 15(b)(i), a
Material Term shall mean a term which, in the Bank's judgment, if not
complied with, would cause the contract not to provide the same or
greater level of care and protection for Customer's Assets than if the
contract contained the provisions described in (a) through (f) of this
paragraph 15(b)(i).
30
<PAGE>
(ii) exercise such reasonable care, prudence and diligence in
performing as Customer's Foreign Custody Manager as a person having
responsibility for the safekeeping of Assets would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Assets placed and maintained in the safekeeping of such Eligible
Foreign Custodian shall be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, after having
considered all factors relevant to the safekeeping of such Assets,
including, without limitation, those factors set forth in Rule
17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodian that is a
Securities Depository or clearing agency, such contract, the rules or
established practices or procedures of the depository, or any
combination of the foregoing) requires that the Eligible Foreign
Custodian will provide reasonable care for Assets based on the
standards applicable to custodians in the relevant market.
(v) have established a system to monitor the continued appropriateness
of maintaining Assets with particular Eligible Foreign Custodians based
on the standards set forth herein and of the governing contractual
arrangements based on the standards set forth in Rule 17f-5(c)(2), as
it may be amended from time to time.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of Customer with Eligible Foreign Custodians pursuant to a
written contract which either contains the terms described in Rule
17f-5(c)(2)(i) or which, in lieu of any or all of the terms described in Rule
17f-5(c)(2)(i), contains such other provisions which the Bank determines will
provide in their entirety, the same or a greater level of care and protection
for the Customer's Assets as the provisions of Rule 17f-5(c)(2)(i) in their
entirety. The written contract shall be in such form as deemed appropriate by
Bank. In addition, with respect to Eligible Foreign Custodians that are
non-compulsory Securities Depositories, reliance may be had on such a contract,
the rules or established practices and procedures of such Depository or any
combination thereof.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
31
<PAGE>
the authority of the SEC which are applicable to Fund's business or which have
been granted to Fund. Bank shall advise Customer of any exemptive orders which
it obtains which may have an impact on Bank's relationship with Customer.
(d) Bank represents to Customer that it is a U.S. Bank as defined in
Rule 17f-5(a)(7). Customer represents to Bank that: (1) the Assets being placed
and maintained in Bank's custody are subject to the 1940 Act, as the same may be
amended from time to time; (2) its Board has determined that it is reasonable to
rely on Bank to perform as Customer's Foreign Custody Manager. Nothing contained
herein shall require Bank, on Customer's behalf, to make any selection regarding
countries in which Customer invests or to engage in any monitoring of Customer's
decision to invest in any particular country in which Bank selects , contracts
and monitors Eligible Foreign Custodians, as Customer's Foreign Custody Manager
pursuant to the Agreement.
(e) Bank shall provide to Customer such information as is specified in
Appendix 1-B hereto. Customer hereby acknowledges that: (i) such information is
solely designed to inform Customer of market conditions and procedures, but is
not intended to influence Customer's investment decisions; and (ii) Bank has
gathered the information from sources it considers reliable, but that Bank shall
have no responsibility for inaccuracies or incomplete information except to the
extent that Bank was negligent in selecting the sources of such information.
2. Add the following after the first sentence of Section 3 of the
Agreement:
At the request of Customer, Bank may, but need not, add to Schedule A
an Eligible Foreign Custodian that is either a bank or a non-Compulsory
Depository where Bank has not acted as Foreign Custody Manager with
respect to the selection thereof. Bank shall notify Customer in the
event that it elects not to add any such entity.
3. Add the following language to the end of Section 3 of the Agreement:
The term Subcustodian as used herein shall mean the following:
(a) a "U.S. Bank," which shall mean a U.S. bank as defined in Rule
17f-5(a)(7); and
(b) with respect to Securities for which the primary market is outside
the U.S. an "Eligible Foreign Custodian," shall mean (i) a banking
institution or trust company, incorporated or organized under the laws
32
<PAGE>
of a country other than the United States, that is regulated as such by
that country's government or an agency thereof, (ii) a majority-owned
direct or indirect subsidiary of a U.S. Bank or bank holding company
which subsidiary is incorporated or organized under the laws of a
country other than the United States; (iii) a Securities Depository or
clearing agency (other than a Compulsory Depository), incorporated or
organized under the laws of a country other than the United States,
that acts as a system for the central handling of securities or
equivalent book-entries in that country and that is regulated by a
foreign financial regulatory authority as defined under section
2(a)(50) of the 1940 Act, (iv) a Securities Depository or clearing
agency organized under the laws of a country other than the United
States that acts as a transnational system ("Transnational Depository")
for the central handling of securities or equivalent book-entries, and
(v) any other entity that shall have been so qualified by exemptive
order, rule or other appropriate action of the SEC.
The term Subcustodian as used in Section 12(a)(i) (except the last
sentence thereof) shall not include any Eligible Foreign Custodians as
to which Bank has not acted as Foreign Custody Manager, any Compulsory
Depository and any Transnational Depository.
4. Add the following after the word "administration" at the end of
Subsection 4(d)(i): "or, in the case of cash deposits, liens or rights in favor
of creditors of Subcustodian arising under bankruptcy, insolvency, or similar
laws".
5. Delete all of Subsection 4(e) after the word "located" in (ii)
thereof and add the word "and" between "Subcustodian" and "(ii)".
*********************
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
Customer THE CHASE MANHATTAN BANK
By: /s/ Michael P. Bishof By: /s/ Rosemary M. Stidmon
Name: Michael P. Bishof Name: Rosemary M. Stidmon
Title: Senior Vice President/ Title: Vice President
Treasurer
Date: Nov. 20, 1997 Date: Nov. 20, 1997
33
<PAGE>
APPENDIX A
Delaware Group Equity Funds I
Delaware Balanced Fund
Delaware Devon Fund
Delaware Group Equity Funds II
Delaware Decatur Equity Income Fund
Delaware Growth and Income Fund
Delaware Blue Chip Fund
Delaware Social Awareness Fund
Delaware Diversified Value Fund
Delaware Group Equity Funds III
Delaware Trend Fund
Delaware Group Equity Funds IV
Delaware DelCap Fund series
Delaware Diversified Growth Fund
Delaware Group Equity Funds V
Delaware Small Cap Value Fund series
Delaware Retirement Income Fund
Delaware Mid-Cap Value Fund
Delaware Small Cap Contrarian Fund
Delaware Group Income Funds
Delaware Delchester Fund
Delaware Strategic Income Fund
Delaware High-Yield Opportunities Fund
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Delaware Group Government Fund, Inc.
Delaware American Government Bond Fund
34
<PAGE>
Delaware Group Limited-Term Government Fund
Delaware Limited-Term Government Fund
Delaware Group Cash Reserve
Delaware Cash Reserve
Delaware Group Tax-Free Money Fund
Delaware Tax-Free Money Fund
Delaware Group State Tax-Free Income Trust
Delaware Tax-Free Pennsylvania Fund
Delaware Tax-Free New Jersey Fund
Delaware Tax-Free Ohio Fund
Delaware Group Tax-Free Fund
Delaware Tax-Free USA Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Intermediate Fund
Delaware Pooled Trust
The Large-Cap Value Equity Portfolio
The Core Equity Portfolio
The Balanced Portfolio
The Equity Income Portfolio
The Select Equity Porfolio
The Mid-Cap Growth Equity Portfolio
The Mid-Cap Value Equity Portfolio
The Small-Cap Value Equity Portfolio
The Small-Cap Growth Equity Porfolio
The Real Estate Investment Trust Portfolio
The Real Estate Investment Trust Portfolio II
The Global Equity Portfolio
The International Equity Portfolio
The Labor Select International Equity Portfolio
The Emerging Markets Portfolio
The International Small-Cap Portfolio
The Intermediate Fixed Income Portfolio
The Aggregate Fixed Income Portfolio
The High-Yield Bond Portfolio
The Diversified Core Fixed Income Portfolio
The Global Fixed Income Portfolio
The International Fixed Income Portfolio
The International Mid-Cap Sub Portfolio
35
<PAGE>
Delaware Group Premium Fund
Growth and Income Series
Delaware Balanced Series
Delchester Series
Capital Reserves Series
DelCap Series
International Equity Series
Cash Reserve Series
Trend Series
Small Cap Value Series
Global Bond Series
Devon Series
Convertible Securities Series
Emerging Markets Series
Strategic Income Series
Social Awareness Series
REIT Series
Aggressive Growth Series
Delaware Group Global & International Funds
Delaware International Equity Fund
Delaware Global Equity Fund
Delaware Global Bond Fund
Delaware Emerging Markets Fund
Delaware International Small Cap Fund
Delaware Global Opportunities Fund
Delaware New Europe Fund
Delaware Latin America Fund
36
<PAGE>
Delaware Group Adviser Funds
Delaware U.S. Growth Fund
Delaware Overseas Equity Fund
Delaware New Pacific Fund
Delaware Group Foundation Funds
Income Portfolio
Growth Portfolio
Balanced Portfolio
The Asset Allocation Portfolio
37
<PAGE>
Appendix 1-A
<TABLE>
<CAPTION>
COMPULSORY DEPOSITORIES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina Caja de Valores Equity, Corporate & Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Australia Austraclear Ltd. Corporate Debt, Money Market & Semi-Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
CHESS Equity
(Clearing House Electronic Sub-register
System)
- ----------------------------------------------------------------------------------------------------------------------------------
RITS Government Debt
(Reserve Bank Information and Transfer System)
- ----------------------------------------------------------------------------------------------------------------------------------
Austria Oesterreichische Kontrolbank AG Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Belgium CIK Equity + Corporate Debt
(Caisse Interprofessionnelle de Depots et de
Virements de Titres)
- ----------------------------------------------------------------------------------------------------------------------------------
Banque Nationale de Belgique Treasury Bills + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Brazil BOVESPA Equity
(Bolsa de Valores de Sao Paolo)
- ----------------------------------------------------------------------------------------------------------------------------------
BVRJ Equity
(Bolsa de Valores de Rio de Janeiro)
- ----------------------------------------------------------------------------------------------------------------------------------
Canada CDS
(Canadian Depository for Securities) Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
China, SSCCRC Equity
Shanghai (Shanghai Securities Central Clearing and
Registration Corp.)
- ----------------------------------------------------------------------------------------------------------------------------------
China, SSCC Equity
Shenzhen (Shenzhen Securities Registration Co., Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Czech SCP Equity + Long-Term Government Debt
Republic (Securities Center)
- ----------------------------------------------------------------------------------------------------------------------------------
TKD Treasury Bills + Money Market
(Trh Kratkododich Dlluhopisu or Short-Term
Bond Market)
- ----------------------------------------------------------------------------------------------------------------------------------
Denmark VP Equity, Corporate + Government Debt
(Vaerdipapircentralen)
- ----------------------------------------------------------------------------------------------------------------------------------
Egypt Misr Clearing & Sec. Dep. Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Estonia EVK Equity
(Estonian Central Depository for Securities
Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Euromarket Cedel & Euroclear Euro-Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Finland CSR Equity + Government Debt
(Central Share Registry Finland)
- ----------------------------------------------------------------------------------------------------------------------------------
Helsinki Money Market Center Ltd. Money Market
- ----------------------------------------------------------------------------------------------------------------------------------
France SICOVAM Equity + Corporate Debt.
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
France SATURNE Government Debt.
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------------------
Germany DKV Equity, Corporate + Government Debt
(Deutscher Kassenverein)
- ----------------------------------------------------------------------------------------------------------------------------------
Greece Apothetirio Titlon A.E. Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Bank of Greece Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Hong Kong CCASS Equity
(Central Clearing and Settlement System)
- ----------------------------------------------------------------------------------------------------------------------------------
CMU Corporate + Government Debt
(Central Moneymarkets Unit)
- ----------------------------------------------------------------------------------------------------------------------------------
Hungary Keler Ltd. Equity + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Ireland CREST Equity
- ----------------------------------------------------------------------------------------------------------------------------------
GSO Government Debt
(Gilt Settlement Office)
- ----------------------------------------------------------------------------------------------------------------------------------
Israel TASE Clearing House Equity, Corporate + Government Debt
(Tel Aviv Stock Exchange Clearing House)
- ----------------------------------------------------------------------------------------------------------------------------------
Italy Monte Titoli Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Bank of Italy Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Japan Bank of Japan Registered Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Latvia LCD Equity + Government Debt
(Latvian Central Depository)
- ----------------------------------------------------------------------------------------------------------------------------------
Lebanon Midclear Equity
(Custodian and Clearing Center of Lebanon and
the Middle East)
- ----------------------------------------------------------------------------------------------------------------------------------
Luxembourg Cedel Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Malaysia MCD Equity
(Malaysian Central Depository Snd Bhd)
- ----------------------------------------------------------------------------------------------------------------------------------
Mauritius CDS Equity
(Central Depository System)
- ----------------------------------------------------------------------------------------------------------------------------------
Mexico Indeval Equity, Corporate + Government Debt.
(Institucion para el Deposito de Valores)
- ----------------------------------------------------------------------------------------------------------------------------------
Morocco Maroclear Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Bank Al'Maghrib Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Netherlands NECIGEF/KAS Associate NV Equity, Corp. + Govt. D
- ----------------------------------------------------------------------------------------------------------------------------------
De Nederlandsche Bank N.V. Money Market
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Netherlands NIEC Premium Bonds
(Nederlands Interpforessioneel Effectencentrum
B.V.)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
New Zealand Austraclear New Zealand Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Norway VPS Equity, Corporate + Government Debt
(Verdipapirsentralen)
- ----------------------------------------------------------------------------------------------------------------------------------
Oman NONE
- ----------------------------------------------------------------------------------------------------------------------------------
Pakistan CDC Equity
(Central Depository Company of Pakistan Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Peru CAVALI Equity
(Caja de Valores)
- ----------------------------------------------------------------------------------------------------------------------------------
Philippines PCD Equity
(Philippine Central Depository)
- ----------------------------------------------------------------------------------------------------------------------------------
Poland NDS Equity, Long-Term Government Debt + Vouchers
(National Securities Depository)
- ----------------------------------------------------------------------------------------------------------------------------------
CRT Treasury-Bills
(Central Registry of Treasury-Bills)
- ----------------------------------------------------------------------------------------------------------------------------------
Portugal Interbolsa Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Romania SNCDD - RASDAQ Equity
(National Company for Clearing, Settlement and
Depository for Securities)
- ----------------------------------------------------------------------------------------------------------------------------------
Budapest Stock Exchange Registry Equity
- ----------------------------------------------------------------------------------------------------------------------------------
National Bank of Romania Treasury-Bills
- ----------------------------------------------------------------------------------------------------------------------------------
Russia MICEX GKO's
(Moscow Interbank Currency Exchange) (Gosudarstvennye Kratkosrochnye Obyazatelstva
[T-Bills])
OFZ's
(Obligatsyi Federalnogo Zaima [Federal Loan Bonds])s
- ----------------------------------------------------------------------------------------------------------------------------------
Singapore CDP Equity + Corporate Debt and Malaysian equities
(Central Depository Pte. Ltd.) traded on CLOB
- ----------------------------------------------------------------------------------------------------------------------------------
Monetary Authority of Singapore Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Slovak SCP Equity + Government Debt
Republic (Stredisko Cennych Papiru)
- ----------------------------------------------------------------------------------------------------------------------------------
National Bank of Slovakia Treasury-Bills
- ----------------------------------------------------------------------------------------------------------------------------------
So. Africa CD Corporate + Government Debt
(Central Depository)
- ----------------------------------------------------------------------------------------------------------------------------------
So. Korea KSD Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Spain SCLV Equity + Corporate Debt.
(Servicio de Compensacion y Liquidacion de
Valores)
- ----------------------------------------------------------------------------------------------------------------------------------
CBEO Government Debt
(Central Book Entry Office)
- ----------------------------------------------------------------------------------------------------------------------------------
Sri Lanka CDS Equity
(Central Depository System (Private) Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sweden VPC Equity, Corporate + Government Debt
(Vardepapperscentralen AB)
- ----------------------------------------------------------------------------------------------------------------------------------
Switzerland SEGA Equity, Corporate + Government Debt
(Schweizerische Effekten-Giro AG)
- ----------------------------------------------------------------------------------------------------------------------------------
Taiwan TSCD Equity + Government Debt
(Taiwan Securities Central Depository Co., Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Thailand TSDC Equity, Corporate + Government Debt
(Thailand Securities Depository Company Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
Tunisia STICODEVAM Equity
(Societe Tunisienne Interprofessionnelle pour
la Compensation et le Depot des Valeurs
Mobilieres)
- ----------------------------------------------------------------------------------------------------------------------------------
Ministry of Finance Government Debt tradable on the stock exchange
(BTNBs)
- ----------------------------------------------------------------------------------------------------------------------------------
Central Bank of Tunisia Government Debt not tradable on the stock exchange
(BTCs)
- ----------------------------------------------------------------------------------------------------------------------------------
Turkey Takas Bank Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------------------
Central Bank of Turkey Government Debt
- ----------------------------------------------------------------------------------------------------------------------------------
United Kingdom CREST Equity + Corp. Debt
- ----------------------------------------------------------------------------------------------------------------------------------
CMO Sterling CDs & CP
(Central Moneymarket Office)
- ----------------------------------------------------------------------------------------------------------------------------------
CGO Gilts
(Central Gilts Office)
- ----------------------------------------------------------------------------------------------------------------------------------
United States DTC Equity + Corporate Debt
(Depository Trust Company)
- ----------------------------------------------------------------------------------------------------------------------------------
PTC Mortgage Back Debt
(Participants Trust Company)
- ----------------------------------------------------------------------------------------------------------------------------------
Fed Book-Entry Government Debt.
- ----------------------------------------------------------------------------------------------------------------------------------
Zambia LuSE Equity + Government Debt
(LuSE Central Shares Depository Ltd.)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Appendix 1-B
Information Regarding Country Risk
1. To aid Customer's board in its determinations regarding Country
Risk, Bank shall furnish board annually and upon the initial placing of Assets
into a country the following information (check items applicable):
A Opinions of local counsel concerning:
___ i. Whether applicable foreign law would restrict the access afforded
Customer's independent public accountants to books and records
kept by an eligible foreign custodian located in that country.
___ ii. Whether applicable foreign law would restrict the Customer's
ability to recover its assets in the event of the bankruptcy of an
Eligible Foreign Custodian located in that country.
___ iii. Whether applicable foreign law would restrict the Customer's
ability to recover assets that are lost while under the control of
an Eligible Foreign Custodian located in the country.
B. Written information concerning:
___ i. The likelihood of expropriation, nationalization, freezes, or
confiscation of Customer's assets.
___ ii. Whether difficulties in converting Customer's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.]
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
1
<PAGE>
2. To aid Customer's board in monitoring Country Risk, Bank shall
furnish board the following additional information:
Market flashes, including with respect to changes in the information in
market reports.
2
<PAGE>
SECURITIES LENDING AGREEMENT ("Lending Agreement"), dated as of ,
1996 between ("Lender"), having its principal place of business
at , and The Chase Manhattan Bank, N.A. ("Chase"), having its principal
place of business at One Chase Manhattan Plaza, New York, New York 10081.
It is hereby agreed as follows:
Section 1 - Definitions
Unless the context clearly requires otherwise, the following words
shall have the meanings set forth below when used herein:
a. "Account" shall mean the securities account established and
maintained by Chase on behalf of Lender pursuant to, as the case may be, a
separate custody agreement or a separate directed trust agreement ("Agreement")
between Chase and Lender, which Agreement provides, inter alia, for the
safekeeping of Securities received by Chase from time to time on behalf of
Lender.
b. "Agreement" shall have the meaning assigned thereto in Section 1(a)
hereof.
c. "Authorized Investment" shall mean any type of instrument, security,
participation or other property in which Cash Collateral may be invested or
reinvested, as described in Section 5(f) hereof and Appendix 4 hereto (and as
such Appendix may be amended from time to time by written agreement of the
parties).
d. "Authorized Person" shall mean, except to the extent that Chase is
advised to the contrary by Proper Instruction, any person who is authorized to
give instructions to Chase pursuant to the Agreement and any mandates given to
Chase in connection with such Agreement. An Authorized Person shall continue to
be so until such time as Chase receives Proper Instructions that nay such person
is no longer an Authorized Person.
e. "Borrower" shall mean an entity listed on Appendix 1 hereto, other
than an entity which Chase shall have been instructed to delete from list
pursuant to Written Instructions and as such Appendix may be amended in
accordance with Section 4(b) hereof.
f. "Business Day" shall have the meaning assigned thereto in the
applicable MSLA.
g. "Buy-in" shall have the meaning assigned thereto in Section 7(c)
hereof.
<PAGE>
h. "Cash Collateral" shall mean fed funds, New York Clearing House
Association funds and such non-U.S. currencies as may be pledged by a Borrower
in connection with a particular Loan.
i. "Collateral" shall have the meaning assigned thereto in the
applicable MSLA, together with Cash Collateral.
j. "Collateral Account" shall mean, as the case may be, an account
maintained by Chase with itself, with any Depository or with any Triparty
Institution and designated as a Collateral Account for the purpose of holding
any one or more of Collateral, Authorized Investments, and Proceeds in
connection with Loans hereunder.
k. "Collateral Amount" shall have the meaning assigned thereto in
Section 5(c) hereof.
l. "Collateral Criterion" shall have the meaning assigned thereto in
Section 5(c) hereof.
m. "Depository" shall mean: (1) the Depository Trust Company, the
Participants' Trust Company and any other securities depository or clearing
agency (and each of their respective successors and nominees) registered with
the U.S. Securities and Exchange Commission or registered with or regulated by
the applicable foreign equivalent thereof or otherwise able to act as a
securities depository or clearing agency, (ii) any transnational depository,
(iii) the Federal Reserve book-entry system for the receiving and delivering of
U.S. Government Securities, and (iv) any other national system for the receiving
and delivering of that country's government securities.
n. "Difference" shall have the meaning assigned thereto in Section 7(c)
hereof.
o. "Distributions" shall have the meaning assigned thereto in Section
3(b)(v) hereof.
p. "Dollars" shall have the meaning assigned thereto in Section 7(b)
hereof.
q. "Due Date" shall have the meaning assigned thereto in Section 7(b)
hereof.
r. "Insolvency Event" shall have the meaning assigned thereto in
Section 7(b) hereof.
s. "Letter of Credit" shall have the meaning assigned thereto in the
applicable MSLA and be issued by a bank listed on Appendix 2 hereto (as such
list may be amended by Chase from time to time on notice to Lender), other than
a bank deleted from such list pursuant to Written Instruction.
<PAGE>
t. "Loan" shall mean a loan of Securities hereunder and under the
applicable MSLA.
u. "Loan Fee" shall mean the amount payable by a Borrower to Chase
pursuant to the applicable MSLA in connection with Loans collateralized other
than by Cash Collateral.
v. "Market Value" shall have the meaning assigned thereto in the
applicable MSLA.
w. "MSLA" shall mean a master securities lending agreement between
Chase and a Borrower, pursuant to which Chase as agent lends securities on
behalf of its customers (including Lender) from time to time. A copy of Chase's
standard form of MSLA, including the international addendum thereto, is annexed
as Appendix 3.
x. "Net Assets" shall have the meaning assigned thereto in Section 8
hereof.
y. "Net Realized Income" shall have the meaning thereto in Section 8
hereof.
z. "Oral Instructions" shall have the meaning assigned thereto in
Section 10 hereof.
aa. "Proceeds" shall mean interest, dividends and other payments and
Distributions received by Chase in connection with Authorized Investments.
bb. "Proper Instructions" shall mean Oral Instructions and Written
Instructions.
cc. "Rebate" shall mean the amount payable by Chase on behalf of Lender
to a Borrower in connection with Loans collateralized by Cash Collateral.
dd. "Return Date" shall have the meaning assigned thereto in Section
7(c) hereof.
ee. "Securities" shall mean government securities (including U.S.
Government Securities), equity securities, bonds, debentures, other corporate
debt securities, notes, mortgages or other obligations, and any certificates,
warrants or other instruments representing rights to receive, purchase, or
subscribe for the same, or evidencing or representing any other rights or
interests therein and held pursuant to the Agreement.
ff. "Term Loan" shall have the meaning assigned thereto in Section 5(i)
hereof.
<PAGE>
gg. "Triparty Institution" shall mean a financial institution with
which Chase shall have previously entered a triparty agreement among itself,
such Triparty Institution and a particular Borrower providing, among other
things, for the holding of Collateral in a Collateral Account at such Triparty
Institution in Chase's name on behalf of Chase's lending customers and for the
substitution of Collateral; provided, however, that any substituted Collateral
shall meet the then standards for acceptable Collateral set by Chase.
hh. "U.S. Government Security" shall mean book-entry securities issued
by the U.S. Treasury defined in Subpart 0 of Treasury Department Circular No.
300 and any successor provisions) and any other securities issued or fully
guaranteed by the United States government or any agency, instrumentality or
establishment of the U.S. government, including, without limitation, securities
commonly known as "Ginnie Maes," Sally Maes," "Fannie Maes" and "Freddie Maes".
ii. "Written Instructions" shall have the meaning assigned thereto in
Section 10 hereof.
Section 2 - Appointment, Authority
(a) Appointment. Lender hereby appoints Chase as its agent to lend
Securities in the Account on Lender's behalf on a fully disclosed basis to
Borrowers from time to time in accordance with the terms hereof and on such
terms and conditions and at such times as Chase shall determine and Chase may
exercise all rights and powers provided under any MSLA as may be incidental
thereto, and Chase hereby accepts appointment as such agent and agrees to so
act.
(b) Authority. Lender hereby authorizes and empowers Chase to execute
in Lender's name on its behalf and at its risk all agreements and documents as
may be necessary to carry out any of the powers herein granted to Chase. Lender
grants Chase the authority set forth herein notwithstanding its awareness that
Chase, in its individual capacity or acting in a fiduciary capacity for other
accounts, may have transactions with the same institutions to which Chase may be
lending Securities hereunder, which transactions may give rise to actual or
potential conflict of interest situations. Chase shall not be bound to: (i)
account to Lender for any sum received or profit made by Chase for its own
account or the account of any other person or (ii) disclose or refuse to
disclose any information or take any other action if the same would or might in
Chase's judgment, made in good faith, constitute a breach of any law or
regulation or be otherwise actionable with respect to Chase; provided that, in
circumstances mentioned in (ii) above, Chase shall promptly inform Lender of the
relevant facts (except where doing so would, or might in Chase's judgment, made
in good faith, constitute a breach of any law or regulation or be otherwise
actionable as aforesaid).
<PAGE>
Section 3 - Representation and Warranties
(a) Representations of each party. Each party hereto represents and
warrants to the other that: (i) it has the power to execute and deliver this
Lending Agreement, to enter into the transactions contemplated hereby, and to
perform its obligations hereunder; (ii) it has taken all necessary action to
authorize such execution, delivery, and performance; (iii) this Lending
Agreement constitutes a legal, valid, and binding obligation enforceable against
it; and (iv) the execution, delivery, and performance by it of this Lending
Agreement shall at all times comply with all applicable laws and regulations.
(b) Representations of Lender. Lender represents and warrants to Chase
that: (i) this Lending Agreement is, and each Loan shall be, legally and validly
entered into, and does not and shall not violate any statute, regulation, rule,
order or judgment binding on Lender, or any provision of Lender's charter or
by-laws, or any agreement binding on Lender or affecting its property, and is
enforceable against Lender in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency or similar laws, or by equitable
principles relating to or limiting creditors' rights generally; (ii) the person
executing this Lending Agreement and all Authorized Persons acting on behalf of
Lender has and have been duly and properly authorized to do so; (iii) it is
lending Securities as principal and shall not transfer, assign or encumber its
interest in, or rights with respect to, any Securities available for Loan
hereunder; (iv) it is the beneficial owner of all Securities or otherwise has
the right to lend Securities; and (v) it is entitled to receive all interest,
dividends and other distributions ("Distributions") made by the issuer with
respect thereto. Lender shall promptly identify to Chase by notice, which notice
may be oral, any Securities that are no longer subject to the representations
contained in (b).
Section 4 - Borrowers
(a) MSLA. Lender hereby acknowledges receipt of the form of MSLA and
authorizes Chase to lend Securities in the Account to Borrowers thereunder
pursuant to an agreement substantially in the form thereof.
(b) Borrowers. Securities may be lent to any Borrower selected by Chase
in Chase's sole discretion, in accordance with the terms hereof. In that
connection, Appendix 1 may be amended from time to time by Chase on notice to
Lender.
<PAGE>
Section 5 - Loans
(a) Securities to be lent, Lending opportunities, Loan initiation. All
Securities of Lender held by Chase that are issued, settled or traded in the
markets that have been approved by Chase from time to time for purposes of
Chase's discretionary securities lending program shall be subject to the terms
hereof. Chase shall seek to assure that Lender receives a fair allocation of
lending opportunities vis-a-vis other lenders, taking into account the demand
for and availability of Securities, types of Collateral, eligibility of
Borrowers, limitations on investments of Cash Collateral, tax treatment, and
similar commercial factors. From time to time, Chase may lend to Borrowers
Securities held in the Account (except Securities that are no longer subject to
the representations set forth in Section 3) and shall deliver such Securities
against receipt of Collateral in accordance with the applicable MSLA. Chase
shall have the right to decline to make any Loans to any Borrower and to
discontinue lending to any Borrower in its sole discretion and without notice to
Lender.
(b) Receipt of Collateral, Collateral substitution. For each Loan,
Chase shall receive and hold Letters of Credit received as Collateral and Chase
or a Triparty Institution shall receive and hold all other Collateral required
by the applicable MSLA in a Collateral Account, and Chase is hereby authorized
and directed, without obtaining any further approval from Lender, to invest and
reinvest all or substantially all Cash Collateral. Chase shall credit, or where
applicable shall have a Triparty Institution credit, all Collateral, Authorized
Investments and Proceeds to a Collateral Account and Chase shall not mark its
books and records to identify Lender's interest therein, it being understood,
however, that all monies credited to a Collateral Account may for purposes of
investment be commingled with cash collateral held for other lenders of
securities on whose behalf Chase may act. Chase may, in its sole discretion,
liquidate any Authorized Investment and credit the net proceeds in a Collateral
Account. Chase shall accept substitutions of Collateral in accordance with the
applicable MSLA and shall credit, or where applicable shall have a Triparty
Institution credit, all such substitutions to a Collateral Account.
(c) Mark to market procedures. (i) Chase shall require initial
Collateral for a Loan in an amount determined by applying the then applicable
"Collateral Criterion" (as defined below) to the Market Value of the Security
that is the subject of the Loan. The Collateral Criterion with respect to a
given Security shall be an amount equal to the then applicable percentage
(currently 102% for securities issued in the U.S. and 105% for securities issued
outside of the U.S.) of the Market Value of the Security (plus accrued interest,
if any, with respect to debt securities) which is the subject of a Loan as
determined as of the close of trading on the preceding Business Day. (ii) Each
Business Day Chase shall determine if the Market Value of all Collateral
received by Chase from a given Borrower in connection with all loans to such
Borrower from all lenders is at least equal to the aggregate amount ("Collateral
Amount") determined by applying the applicable Collateral Criterion to each
security on loan to such Borrower from all lenders. (iii) In accordance with
general market practice, the Market Value of certain securities (including,
without limitation, U.S. Government Securities) whether on Loan or received as
Collateral, may be determined on a same day basis by reference to recognized
pricing services.
<PAGE>
(d) Demand for additional Collateral. If the determination made in
Section 5(c)(ii) above demonstrates that the Market Value of all Collateral
received from a given Borrower is not at least equal to the Collateral Amount,
Chase shall demand additional Collateral from such Borrower in accordance with
the applicable MSLA so as to meet the Collateral Amount by making specific
Loans; provided that, Chase may from time to time establish de minimis
guidelines pursuant to which a mark would not be made even where the aggregate
Collateral Amount has not been met.
(e) Changes in procedures applicable to Collateral. The Collateral
procedures set forth in Sections 5(b)-(d) above reflect Chase's current practice
and may be changed by Chase from time to time based on general market conditions
(including volatility of Securities on Loan and of securities Collateral), the
Market Value of Securities on Loan to a given Borrower, and in accordance with
general market practice and regulatory requirements. Chase shall notify Lender
of material revisions to the foregoing procedures.
(f) Investment of Cash Collateral. (i) Chase is hereby authorized to
invest and reinvest cash Collateral in accordance with the investment guidelines
(and the interpretations, procedures and definitions included therewith) annexed
hereto as Appendix 4. (ii) Authorized Investments are made for the account of,
and at the sole risk of, Lender. In that connection, Lender shall pay to Chase
on demand in cash an amount equal to any deficiency in the amount of Collateral
available for return to a Borrower pursuant to an applicable MSLA.
(g) Lender's rights with respect to Securities on Loan; Distribution
and voting rights. (i) An amount equal to the amount of all Distributions paid
with respect to Securities on Loan that Lender would have received had such
Securities not been on Loan shall be credited to Lender's account on the date
such Distributions are delivered by Borrower to Chase. Any non-cash Distribution
on Securities on Loan which is in the nature of a stock split or a stock
dividend, shall be added to the Loan (and shall be considered to constitute
Securities on Loan) as of the date such non-cash Distribution is received by the
Borrower and shall be subject to the provisions of this Lending Agreement;
provided that the Lender may, by giving chase ten (10) Business Days' notice
prior to the date of such non-cash Distribution (or such different amount of
time as Chase may from time to time require on advice to Lender), direct Chase
to request that the Borrower deliver such non-cash Distribution to Chase
pursuant to the applicable MSLA, in which case Chase shall credit such non-cash
Distribution to Lender's account on the date it is delivered to Chase. Without
regard to the reference to "delivered" in the foregoing, the "AutoCredit"
provisions of the Agreement shall apply where a Borrower fails to make a
Distribution payment to Chase, the effect of which would be for Chase to credit
Lender's account with Distributions on the payable date. (ii) During the term of
any Loan, Chase will permit the Securities on Loan to be transferred into the
name of and be voted by the Borrower or others. Lender shall not be entitled to
participate in any dividend reinvestment program or to vote proxies with respect
to Securities that are eligible for Loan (whether or not actually on Loan) as of
the applicable record date for such Securities.
<PAGE>
(h) Advances, overdrafts and indebtedness, Security Interest. Chase
may, in its sole discretion, advance funds on behalf of Lender in order to pay
to Borrowers any Rebates or to return to Borrowers Cash Collateral to which they
are entitled pursuant to the applicable MSLA. Lender shall repay Chase on demand
the amount of any advance or any other amount owned by Lender hereunder plus
accrued interest at a rate per annum not to exceed the rate customarily charged
by Chase for such loans at the time such loan is made and shall otherwise be on
such terms and conditions as Chase customarily makes such loans available. In
order to secure repayment of any advance or other indebtedness of Lender to
Chase arising hereunder, Chase shall have a continuing lien and security
interest in and to all assets now or hereafter held in the Account and any
Collateral Account (to which Lender is entitled hereunder) and any other
property at any time held by it for the benefit of Lender or in which Lender may
have an interest which is then in Chase's possession or control or in the
possession or control of any third party acting on Chase's behalf. In this
regard, Chase shall be entitled to all the rights and remedies of a pledgee
under common law and a secured party under the New York Uniform Commercial Code
and/or any other applicable laws and/or regulations as then in effect.
(i) Termination of a Loan. (i) Loans shall generally be terminable on
demand. With the prior approval of Lender, however, Loans may be made on the
basis of a reasonably anticipated termination date ("Term Loan") and without
providing for the right of substitution of equivalent Securities. Termination of
a Term Loan prior to its anticipated termination date by either Lender or
Borrower may result in the terminating party having to pay non-terminating party
damages based on the cost of obtaining a replacement loan. (ii) Chase shall
terminate any Loan of Securities to a Borrower as soon as practicable after (a)
receipt by Chase of a notice of termination of the respective MSLA; (b) receipt
by Chase of Written Instructions directing it to terminate a Loan; (c) receipt
by Chase of Written Instructions instructing it to delete from Appendix 2 the
Borrower to whom such Loans was made; (d) receipt by Chase of Written
Instructions advising that the Security subject to a Loan is no longer subject
to the representation contained in Section 3 hereof; (e) receipt by Chase of
notice advising that an Event of Default (as defined in the applicable MSLA) has
occurred and is continuing beyond any applicable grace period; (f) whenever
Chase, in its sole discretion, elects to terminate such Loan other than a Term
Loan; or (g) termination of this Lending Agreement. (iii) If Securities which
are the subject of a Loan being terminated are to be sold by Lender, Written
Instructions shall in no event be given to Chase later than the trade date
established by Lender for such sale or such earlier date of which Chase may
advise Lender from time to time with respect to particular markets. Chase shall
not be liable for any failure of a Borrower to return Securities on Loans in a
time fashion.
(j) Recordkeeping and Reports. Chase shall establish and maintain such
records as are reasonably necessary to account for Loans that are made and the
income derived therefrom. Chase shall provide Lender with a monthly statement
describing the Loans made during the preceding month, and the income derived
from Loans, during the period covered by such statement. A party shall comply
with the reasonable requests of the other party for information necessary to the
requester's performance of its duties hereunder.
<PAGE>
Section 6 - Default by Borrower
(1) Chase may assume (unless it has actual knowledge to the contrary)
that any representations made by a Borrower in connection with any Loan are
true, that no event which is or may become an Event of Default (as defined in
the applicable MSLA) has occurred and that a Borrower has complied with its
obligations under the applicable MSLA. Subject to Sections 7(b)-(d), Chase shall
have no responsibility for the accuracy or completeness of any information
supplied, or for any breach of any obligation, by any Borrower under or in
connection with any MSLA or Loan. Chase shall not be liable as a result of
taking or omitting to take any action provided that Chase shall have carried out
its responsibilities hereunder in good faith. (ii) If any Borrower with respect
to any Loan affected pursuant hereto and pursuant to the applicable MSLA fails
to return any loaned Securities when due thereunder for reasons other than
relating to the solvency of the Borrower, Chase shall then take whatever action
its deems appropriate in accordance with general market practice and Chase's
reasonable judgment, including, but no necessarily limited to, claiming
compensation from such Borrower on behalf of Lender in the event a trade
executed by Lender fails on account of such Borrower's failure timely to have
returned Securities on Loan or, where Chase deems it necessary, such other
action as may be permitted by the applicable MSLA, including collecting any
applicable MSLA fails to return any Securities on Loan when due thereunder for
reasons relating to the solvency of the Borrower, Chase shall take such action
as its deems appropriate in accordance with Chase's reasonable judgment under
the applicable MSLA.
Section 7 - Standard of Care, Liabilities, Indemnification
(a) Standard of care, Liabilities. Except as provided in paragraphs (b)
and (c) hereof, Chase shall be liable for any costs, expenses, damages,
liabilities or claims (including attorneys' and accountants' fees) incurred by
Lender, except those costs, expenses, damages, liabilities and claims arising
out of the negligence, bad faith or willful misconduct of Chase. Chase shall
have no obligation hereunder for: (i) costs, expenses, damages, liabilities or
claims (including attorneys' and accountants' fees), which are sustained or
incurred by Lender by reason of any action or inaction by any pricing service,
any Depository or a Triparty Institution or their respective successors or
nominees; and (ii) any failure to perform any obligation due to any matters
beyond the control of Chase. In no event shall Chase be liable for indirect or
consequential damages or lost profits or loss of business, arising hereunder or
in connection herewith, even if previously informed of the possibility of such
damages and regardless of the form of action.
<PAGE>
Except for any costs or expenses incurred by Chase in performing its
obligations pursuant to paragraphs (b) and (c) hereof any ordinary operating
expenses incurred by Chase in providing services hereunder, Lender shall
indemnify Chase and hold it harmless from and against any and all costs,
expenses, damages, liabilities or claims, including reasonable fees and expenses
of counsel, which Chase may sustain or incur or which may be asserted against
Chase by reason of or as a result of any action taken or omitted by Chase in
connection with operating under this Lending Agreement or enforcing Lender's
rights under the applicable MSLA, other than those costs, expenses, damages,
liabilities or claims arising out of the negligence, bad faith or willful
misconduct of Chase. The foregoing indemnity shall be a continuing obligation of
the Lender, its successors and assigns, notwithstanding the termination of any
Loans hereunder or of this Lending Agreement. Chase may charge any amounts to
which it is entitled hereunder against the Account, and Lender shall be entitled
to an accounting of all amounts so charged. Actions taken or omitted in reliance
upon Proper Instructions, or upon any information, order, indenture, stock
certificate, power of attorney, assignment, affidavit or other instrument
reasonably believed by Chase, in good faith, to be genuine or bearing the
signature of a person or persons believed, in good faith, to be authorized to
sign, countersign or execute the same, shall be conclusively presumed to have
been taken or omitted in good faith.
(b) Indemnification of Lender in respect to Distributions. If the
Borrower in respect of any Loan effected pursuant hereto and pursuant to the
applicable MSLA fails, as a result of its bankruptcy, insolvency,
reorganization, liquidation, receivership or similar event (each an "Insolvency
Event"), to remit to Chase for Lender's account any Distributions on or with
respect to Securities on Loan when due (the "Due Date") in accordance with such
MSLA and such Due Date occurs at least one day prior to an Insolvency Event then
Chase shall at its expense (subject to paragraph (d) hereof) and within one (1)
Business Day of the Due Date, undertake the following: (i) with respect to
Distributions in the form of cash, Chase shall credit Lender's account with the
full amount of such Distributions and (ii) with respect to Distributions in the
form of securities, Chase shall, at its option, either purchase replacement
securities (of an equal amount of the same issue, class, type or series as the
Distributions) on the principal market in which such securities are traded or
credit Lender's account with the market value in United States dollars
("Dollars") of such Distributions on the Due Date as determined by Chase in good
faith. Market value shall be determined by Chase in accordance with the
applicable MSLA, including the computation of Dollar equivalents where
Securities on Loan and/or Collateral (and Proceeds) are denominated in a
currency other than Dollars.
<PAGE>
(c) Indemnification of Lender in respect of Securities. If the Borrower
in respect of any Loan effected pursuant hereto and pursuant to the applicable
MSLA fails to return any Securities on Loan to Chase for Lender's account when
due thereunder (the "Return Date") which is the date of default, then Chase
shall, at its expense (subject to paragraph (d) hereof) and within one (1)
Business Day of the Return Date, credit Lender's account in Dollars with the
difference ("Difference") (where a positive number), if any, between (x) the
market value of such lent Securities on the Return Date (including, in the case
of debt Securities, accrued but unpaid interest), and (y) in the case of Loans
collateralized by (i) Cash Collateral, the greater of (A) the Market Value of
the Cash Collateral on the date of initial pledge as adjusted for any subsequent
marks-to-market through the Return Date and (B) the Market Value of Cash
Collateral investments on the Return Date, (ii) non-Cash Collateral comprising
securities Collateral, the greater of the Market Value of such Collateral on the
(A) Business Day immediately preceding the Return Date and (B) Return Date, or
(iii) non-Cash Collateral comprising Letter of Credit Collateral, the Market
Value of the Letter of Credit Collateral on the date of initial pledge as
adjusted for any subsequent marks-to-market through the Return Date. Market
Value shall be determined by Chase in accordance with the applicable MSLA,
including the computation of Dollar equivalents where Securities on Loan and/or
Collateral (and Proceeds) are denominated in a currency other than Dollars.
Where Cash Collateral and non-Cash Collateral have each been allocated to a Loan
as of the Return Date, the Difference payable by Chase shall be computed in
accordance with the foregoing as if there had been two Loans in effect on the
Return Date, one collateralized by Cash Collateral and the other collateralized
by non-Cash Collateral. In lieu of paying Lender the Difference, Chase may, at
its sole option and expense, purchase for Lender's account ("Buy-in")
replacement securities of the same issue, type, class, and series as that of the
Securities on Loan.
(d) Subrogation. If Chase makes a payment or a purchase pursuant to
Section 7(b) or effects a Buy-in pursuant to Section 7(c), or if Chase effects a
Difference payment pursuant to Section 7(c) on account of a failure to return
Securities on Loan not arising from an Insolvency Event, Chase shall, to the
extent of such payment, purchase, Difference payment or Buy-in, be subrogated
to, and Lender shall assign and be deemed to have assigned to Chase, all of its
rights in, to and against the Borrower (and any guarantor thereof) in respect of
such Loan, any Collateral pledged by the Borrower in respect of such Loan, and
all proceeds of such Collateral. In the event that Lender receives or is
credited with any payment, benefit or value from or on behalf of the Borrower in
respect of rights to which Chase is subrogated as provided herein, Lender shall
promptly remit or pay to Chase the same (or its Dollar equivalent) but only to
the extent that Lender has been paid all amounts owed to it by Borrower.
Section 8 - Chase Compensation
(a) In connection with each Loan hereunder, Lender shall pay to Chase a
fee equal to ___% of (i) earnings (less any Rebate paid by Chase to a Borrower)
derived from Authorized Investments in connection with Loans collateralized by
cash, and (ii) any Securities Loan Fee paid or payable by the Borrower on Loans
not collateralized by cash. (b) The fee payable to Chase for services performed
pursuant to Section 5(f) hereof shall be equal to one tenth of the one percent
(0.1%) of the Fund's average daily Assets (with "Fund" being as defined in
Appendix 4 hereto). All securities in the Fund shall be valued based on their
amortized cost. Fees shall be accrued and charged daily against the Fund's yield
or assets, as appropriate, and shall be payable monthly in arrears on the first
business day of the month following the month in which earned. (c) Chase is
authorized, on a monthly basis, to charge all the foregoing fees (together with
reasonable expenses incurred by Chase hereunder) and any other amounts owed by
Lender hereunder against the Account and/or a Collateral Account.
Section 9 - Taxes
Lender shall be responsible for all filings, tax returns and reports on
any Loans undertaken by Chase on Lender's behalf which are to be made to any
authority whether governmental or otherwise and for the payment of all unpaid
calls, taxes (including, without limitations, any value added tax), imposts,
levies or duties due on any principal or interest, or any other liability or
payments arising out of or in connection with any Securities or any Collateral,
and in so far as Chase is under obligation (whether of a governmental nature or
otherwise) to pay the same on Lender's behalf Chase may do so out of any monies
or assets held by it pursuant to the terms of the Agreement or hereunder.
<PAGE>
Section 10 - Instructions
(a)(i) Written Instructions. "Written Instructions" shall mean written
communications actually received by Chase from an Authorized Person or from a
person reasonably believed by Chase to be an Authorized Person by letter,
memorandum, telegram, cable, telex, telecopy facsimile, computer, video (CRT)
terminal or other on-line system, or any other method reasonably acceptable to
Chase and whereby Chase is able to verify with a reasonable degree of certainty
the identity of the sender of such communications or with communications are
transmitted with proper testing or authentication pursuant to terms and
conditions which Chase may specify. (ii) Oral Instructions. "Oral Instructions"
shall mean oral communications actually received by Chase from an Authorized
Person or from a person reasonably believed by Chase to be an Authorized Person.
Oral Instructions shall promptly thereafter be confirmed in writing by an
Authorized Person (which confirmation may bear the facsimile signature of such
Person), but Lender will hold Chase harmless for the failure of an Authorized
Person to send such confirmation in writing, the failure of such confirmation to
conform to the Oral Instructions received, or Chase's failure to produce such
confirmation at any subsequent time. Lender shall be responsible for
safeguarding any testkeys, identification codes or other security devices which
Chase may make available to Lender or its Authorized Persons.
(b) Unless otherwise expressly provided, all Proper Instructions shall
continue in full force and effect until canceled or superseded.
Section 11 - Pricing Services
Chase may use any pricing service referred to in an applicable MSLA and
any other recognized pricing service (including itself and any of its
affiliates) in order to perform its valuation responsibilities with respect to
Securities, Collateral and Authorized Investments, and Lender shall hold Chase
harmless from and against any loss or damage suffered or incurred as a result of
errors or omissions of any such pricing service.
Section 12 - Termination
This Lending Agreement may be terminated at any time by either party
upon delivery to the other party of notice specifying the date of such
termination, which shall be not less than 30 days after the date of receipt of
such notice. Notwithstanding any such notice, this Lending Agreement shall
continue in full force and effect with respect to all Loans outstanding on the
termination date, which Loans shall, however, be terminated as soon as
reasonably practicable.
Section 13 - Miscellaneous
(a) Legal proceedings. Chase may refrain from bringing any legal action
or proceeding arising out of or in connection with any Loan until it shall have
received such security as it may require for all costs, expenses (including
legal fees) and liabilities which it will or may expend or incur in relation
thereto.
<PAGE>
(b) Integration, Lending Agreement to Govern. This Lending Agreement
and the Agreement contain the complete agreement of the parties with respect to
the subject matter hereof and supersede and replace any previously made
proposals, representations, warranties or agreements with respect thereto by the
parties. In the event of any conflict between this Lending Agreement, and the
Agreement, this Lending Agreement shall govern.
(c) Notice. Unless expressly provided herein to the contrary, notices
hereunder shall be in writing, and delivered by telecopier, overnight express
mail, first-class postage prepaid, delivered personally or by receipt courier
service. All such notices which are mailed shall be deemed delivered upon
receipt. Notices shall be addresses as follows (or to such other address as a
party may from time to time designate on notice duly given in accordance with
this paragraph): notices to Chase shall be addressed to it at 2 Chase Manhattan
Plaza, 19th Floor, New York, New York 10081, Attention: Securities Lending
Division; notices to be given to Lender shall be addressed to it at its offices
at Attention:
(d) Amendments, Waiver. This Lending Agreement may be modified only by
a written amendment signed by both parties, and no waiver of any provisions
hereof shall be effective unless expressed in a writing signed by the party to
be charged.
(e) Government Law, Consent to Jurisdiction, Waiver of Immunity. This
Lending Agreement shall be construed in accordance with laws of the State of New
York, without regard to the conflict of laws principles thereof. Chase and
Lender each hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and Lender hereby waives any claim of forum non conveniens to the
extent that it may lawfully do so. To the extent that in any jurisdiction Lender
may now or hereafter be entitled to claim, for itself or its assets, immunity
from suit, execution, attachment (before or after judgment) or other legal
process, Lender irrevocably shall not claim, and it hereby waives, such
immunity.
<PAGE>
(f) Counterparts, Headings. This Lending Agreement may be executed in
several counterparts, each one of which shall constitute an original, and all
collectively shall constitute but one instrument. The headings of the sections
hereof are included for convenience of reference only and do not form part of
this Lending Agreement.
(g) Severability. Any provisions of this Lending Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceably in any jurisdiction
shall not invalidate or render unenforceable such provisions in any other
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Lending Agreement as
of the date first above-written.
[Insert name of LENDER] THE CHASE MANHATTAN BANK, N.A.
By: By:
Title: Title:
<PAGE>
Law Office
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Direct Dial: (215) 564-8115
July 28, 1999
Delaware Group Income Funds
1818 Market Street
Philadelphia, PA 19103
Re: Legal Opinion-Securities Act of 1933
------------------------------------
Ladies and Gentlemen:
We have examined the Agreement and Declaration of Trust, (the
"Agreement"), of Delaware Group Income Funds (the "Fund"), a series business
trust organized under Delaware law, the By-Laws of the Fund, and its proposed
form of Share Certificates (if any), and the various pertinent corporate
proceedings we deem material. We have also examined the Notification of
Registration and the Registration Statements filed under the Investment Company
Act of 1940 as amended, (the "Investment Company Act") and the Securities Act of
1933 as amended, (the "Securities Act"), all as amended to date, as well as
other items we deem material to this opinion.
The Fund is authorized by the Agreement to issue an unlimited
number of shares with no par value and, like its predecessor, has authorized
shares of the Corporate Bond Fund, the Delchester Fund, the Extended Duration
Bond Fund, the High-Yield Opportunities Fund and the Strategic Income Fund
series of shares. The Agreement also empowers the Board to designate any
additional series or classes and allocate shares to such series or classes.
The Fund has filed with the U.S. Securities and Exchange
Commission, a registration statement under the Securities Act, which
registration statement is deemed to register an indefinite number of shares of
the Fund pursuant to the provisions of Section 24(f) of the Investment Company
Act. You have further advised us that the Fund, and/or its predecessor, has
filed, and each year hereafter will timely file, a Notice pursuant to Rule 24f-2
under the Investment Company Act perfecting the registration of the shares sold
by the Fund during each fiscal year during which such registration of an
indefinite number of shares remains in effect.
You have also informed us that the shares of the Fund's
predecessor, have been, and will continue to be sold and the shares of the Fund
will be sold in accordance with the Fund's usual method of distributing its
registered shares, under which prospectuses are made available for delivery to
offerees and purchasers of such shares in accordance with Section 5(b) of the
Securities Act.
<PAGE>
Delaware Group Income Funds
July 28, 1999
Page 2
Based upon the foregoing information and examination, so long
as the Fund remains a valid and subsisting entity under the laws of its state of
organization, and the registration of an indefinite number of shares of the Fund
remains effective, the authorized shares of the Fund when issued for the
consideration set by the Board of Trustees pursuant to the Agreement, and
subject to compliance with Rule 24f-2, will be legally outstanding, fully-paid,
and non-assessable shares, and the holders of such shares will have all the
rights provided for with respect to such holding by the Agreement and the laws
of the State of Delaware.
We hereby consent to the use of this opinion, in lieu of any
other, as an exhibit to the Registration Statement of the Fund, along with any
amendments thereto, covering the registration of the shares of the Fund under
the Securities Act and the applications, registration statements or notice
filings, and amendments thereto, filed in accordance with the securities laws of
the several states in which shares of the Fund are offered, and we further
consent to reference in the registration statement of the Fund to the fact that
this opinion concerning the legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
BY: /s/ Bruce G. Leto
--------------------------
Bruce G. Leto
<PAGE>
POWER OF ATTORNEY
Each of the undersigned, a member of the Boards of Directors/Trustees
of the Delaware Investments Funds listed on Exhibit A to this Power of Attorney,
hereby constitutes and appoints on behalf of each of the Funds listed on Exhibit
A, David K. Downes, Wayne A. Stork and Walter P. Babich and any one of them
acting singly, his or her true and lawful attorneys-in-fact, in his or her name,
place, and stead, to execute and cause to be filed with the Securities and
Exchange Commission and other federal or state government agency or body, such
registration statements, and any and all amendments thereto as any of such
designees may deem to be appropriate under the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
this 16th day of July, 1999.
/s/Walter P. Babich /s/Thomas F. Madison
- ---------------------- -----------------------
Walter P. Babich Thomas F. Madison
/s/David K. Downes /s/Charles E. Peck
- ---------------------- -----------------------
David K. Downes Charles E. Peck
/s/Anthony D. Knerr Wayne A. Stork
- ---------------------- -----------------------
Anthony D. Knerr Wayne A. Stork
Ann R. Leven Jan L. Yeomans
- ---------------------- -----------------------
Ann R. Leven Jan L. Yeomans
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE INVESTMENTS FUNDS
DELAWARE GROUP EQUITY FUNDS I
DELAWARE GROUP EQUITY FUNDS II
DELAWARE GROUP EQUITY FUNDS III
DELAWARE GROUP EQUITY FUNDS IV
DELAWARE GROUP EQUITY FUNDS V
DELAWARE GROUP INCOME FUNDS
DELAWARE GROUP GOVERNMENT FUND
DELAWARE GROUP CASH RESERVE
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS
DELAWARE GROUP TAX-FREE FUND
DELAWARE GROUP TAX-FREE MONEY FUND
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS
DELAWARE GROUP ADVISER FUNDS
DELAWARE POOLED TRUST
DELAWARE GROUP PREMIUM FUND
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP FOUNDATION FUNDS
VOYAGEUR FUNDS
VOYAGEUR INSURED FUNDS
VOYAGEUR INTERMEDIATE TAX FREE FUNDS
VOYAGEUR INVESTMENT TRUST
VOYAGEUR MUTUAL FUNDS
VOYAGEUR MUTUAL FUNDS II
VOYAGEUR MUTUAL FUNDS III
VOYAGEUR TAX FREE FUNDS
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
<PAGE>
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Investments Funds listed on Exhibit A to this Power of Attorney, hereby
constitutes and appoints on behalf of each of the Funds listed on Exhibit A,
David K. Downes, Wayne A. Stork and Walter P. Babich and any one of them acting
singly, his true and lawful attorneys-in-fact, in his name, place, and stead, to
execute and cause to be filed with the Securities and Exchange Commission and
other federal or state government agency or body, such registration statements,
and any and all amendments thereto as any of such designees may deem to be
appropriate under the Securities Act of 1933, as amended, the Investment Company
Act of 1940, as amended, and all other applicable federal and state securities
laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 16th day of July, 1999.
John H. Durham
- ----------------------
John H. Durham
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I
DELAWARE GROUP EQUITY FUNDS II
DELAWARE GROUP EQUITY FUNDS III
DELAWARE GROUP EQUITY FUNDS IV
DELAWARE GROUP EQUITY FUNDS V
DELAWARE GROUP INCOME FUNDS
DELAWARE GROUP GOVERNMENT FUND
DELAWARE GROUP CASH RESERVE
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS
DELAWARE GROUP TAX-FREE FUND
DELAWARE GROUP TAX-FREE MONEY FUND
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS
DELAWARE GROUP ADVISER FUNDS
DELAWARE POOLED TRUST
DELAWARE GROUP PREMIUM FUND
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP FOUNDATION FUNDS
