<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 Classes A, B and C
Shares should contact their financial adviser or call Delaware Investments at
800-523-1918 and shareholders of the Institutional Classes should contact
Delaware Investments at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
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
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DELAWARE GROUP EQUITY FUNDS III
---------------------------------------
Delaware American Services Fund
Delaware Large Cap Growth Fund
Delaware Research Fund
Delaware Technology and Innovation Fund
Delaware Trend Fund
A CLASS
B CLASS
C CLASS
INSTITUTIONAL CLASS
---------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
AUGUST 29, 2000
DELAWARE(SM)
INVESTMENTS
============
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 29, 2000
DELAWARE GROUP EQUITY FUNDS III
Delaware American Services
Delaware Large Cap Growth Fund
Delaware Research Fund
Delaware Technology and Innovation Fund
Delaware Trend Fund
1818 Market Street
Philadelphia, PA 19103
For more information about the Institutional Class: 800-510-4015
For Prospectus, Performance and Information on Existing Accounts of
Class A Shares, Class B Shares and Class C Shares: Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
Delaware Group Equity Funds III ("Equity Funds III") is a
professionally-managed mutual fund of the series type. This Statement of
Additional Information ("Part B" of the registration statement) describes shares
of Delaware American Services Fund, Delaware Large Cap Growth Fund, Delaware
Research Fund, Delaware Technology and Innovation Fund and Delaware Trend Fund
(individually a "Fund" and collectively the "Funds"). Each Fund offers Class A
Shares, Class B Shares and Class C Shares (together referred to as the "Fund
Classes") and an Institutional Class (together referred to as the "Institutional
Classes").
This Part B supplements the information contained in the current
Prospectuses for the Fund Classes dated August 29, 2000 and the current
Prospectuses for the Institutional Classes dated August 29, 2000, as they may
be amended from time to time. Part B should be read in conjunction with the
respective Class' Prospectus. Part B is not itself a prospectus but is, in its
entirety, incorporated by reference into each Class' Prospectus. A prospectus
relating to the Fund Classes and a prospectus relating to the Institutional
Classes may be obtained by writing or calling your investment dealer or by
contacting a Fund's national distributor, Delaware Distributors, L.P. (the
"Distributor"), at the above address or by calling the above phone numbers. Each
Fund's financial statements, the notes relating thereto, the financial
highlights and the report of independent auditors will be incorporated by
reference from the Annual Report into this Part B. The Annual Reports will
accompany any request for Part B. The Annual Reports will be able to be
obtained, without charge, by calling 800-523-1918.
<TABLE>
<CAPTION>
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TABLE OF CONTENTS Page Page
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<S> <C> <C> <C>
Cover Page Dividends and Realized Securities Profits Distributions
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Investment Policies Taxes
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Performance Information Investment Management Agreement
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Trading Practices and Brokerage Officers and Trustees
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Purchasing Shares General Information
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Investment Plans Financial Statements
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Determining Offering Price and Appendix A--Investment Objectives of the Funds in the
Net Asset Value Delaware Investments Family
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Redemption and Exchange
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</TABLE>
2
<PAGE>
INVESTMENT POLICIES
Investment Restrictions
Fundamental Investment Restrictions--Each Fund has adopted the following
restrictions which cannot be changed without approval by the holders of a
"majority" of the Fund's outstanding shares, which is a vote by the holders of
the lesser of a) 67% or more of the voting securities present in person or by
proxy at a meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or b) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities.
A Fund shall not:
1. Make investments that will result in the concentration (as that term may
be defined in the Investment Company Act of 1940 ("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 the Fund from investing in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or in tax-exempt securities or
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 (the "1933 Act").
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.
Non-fundamental Investment Restrictions--In addition to the fundamental
policies and investment restrictions described above, and the various general
investment policies described in the Prospectuses, each Fund will be subject to
the following investment restrictions, which are considered non-fundamental and
may be changed by the Board of Trustees without shareholder approval.
1. Each Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, a Fund may not operate as a "fund of funds" which
invests primarily in the shares of other investment companies as permitted by
Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
3
<PAGE>
2. A Fund may not invest more than 15% of its net assets in securities
which it cannot sell or dispose of in the ordinary course of business within
seven days at approximately the value at which the Fund has valued the
investment.
The following are additional non-fundamental investment restrictions for
the Delaware Trend Fund:
The Delaware Trend Fund shall not:
1. 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. Acquire control of any company.
3. Purchase or retain securities of any company which has an officer or
director who is an officer or director of the Fund, or an officer, director or
partner of its investment manager if, to the knowledge of the Fund, one or more
of such persons own beneficially more than 1/2 of 1% of the shares of the
company, and in the aggregate more than 5% thereof.
4. Invest in securities of other investment companies except at customary
brokerage commissions rates or in connection with mergers, consolidations or
offers of exchange.
5. Purchase any security issued by any other investment company if after
such purchase it would: (a) own more than 3% of the voting stock of such
company, (b) own securities of such company having a value in excess of 5% of
the Fund's assets or (c) own securities of investment companies having an
aggregate value in excess of 10% of the Fund's assets.
6. Make any investment in real estate unless necessary for office space or
the protection of investments already made. (This restriction does not preclude
the Fund's purchase of securities issued by real estate investment trusts.) Any
investment in real estate together with any investment in illiquid assets cannot
exceed 10% of the value of the Fund's assets.
7. Sell short any security or property.
8. Deal in commodities.
9. Borrow money in excess of 10% of the value of its assets, and then only
as a temporary measure for extraordinary or emergency purposes. Any borrowing
will be done from a bank and to the extent that such borrowing exceeds 5% of the
value of the Fund's assets, asset coverage of at least 300% is required. In the
event that such asset coverage shall at any time fall below 300%, the Fund
shall, within three days thereafter (not including Sunday and holidays) or such
longer period as the 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.
10. Make loans. However, the purchase of a portion of an issue of publicly
distributed bonds, debentures or other securities, 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 the Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.
11. Invest more than 5% of the value of its total assets in securities of
companies less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.
12. Act as an underwriter of securities of other issuers.
4
<PAGE>
13. Permit long or short positions on shares of the Fund to be taken by its
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.
14. Invest more than 25% of its assets in any one particular industry.
Although it is not a matter of fundamental policy, the Fund has also made a
commitment that it will not invest in warrants valued at the lower of cost or
market exceeding 5% of the Fund's net assets. Included within that amount, but
not to exceed 2% of the Fund's net assets, may be warrants not listed on the New
York Stock Exchange or American Stock Exchange. In addition, although not a
fundamental investment restriction, the Fund currently does not invest its
assets in real estate limited partnerships or oil, gas and other mineral leases.
The Funds may make the following investments consistent with their
respective investment objective.
Equity Securities
Equity securities represent ownership interests in a company and consist of
common stocks, preferred stocks, warrants to acquire common stock and securities
convertible into common stock. Investments in equity securities in general are
subject to market risks that may cause their prices to fluctuate over time. The
value of convertible equity securities is also affected by prevailing interest
rates, the credit quality of the issuer and any call provisions. Fluctuations in
the value of equity securities in which a Fund invests will cause the net asset
value of the Fund to fluctuate.
Warrants
Each Fund may purchase warrants and similar rights, which are privileges
issued by corporations enabling the owners to subscribe to and purchase a
specified number of shares of the corporation at a specified price during a
specified period of time. The purchase of warrants involves the risk that a Fund
could lose the purchase value of a warrant if the right to subscribe to
additional shares is not exercised prior to the warrant's expiration. Also, the
purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security.
Foreign Securities
Each Fund may invest up to 25% (not more than 5% for the Delaware Trend
Fund) of its net assets in foreign securities, although none of the Funds
presently intends to invest in these securities. Investors should recognize that
investing in foreign corporations involves certain considerations, including
those set forth below, which are not typically associated with investing in
United States corporations.
Foreign corporations are not generally subject to uniform accounting,
auditing and financial standards and requirements comparable to those applicable
to United States corporations. There may also be less supervision and regulation
of foreign stock exchanges, brokers and listed corporations than exist in the
United States. The Funds may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange as between the currencies of
different nations and control regulations. Furthermore, there may be the
possibility of expropriation or confiscatory taxation, political, economic or
social instability or diplomatic developments which could affect assets of the
Funds held in foreign countries.
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 the Funds. Payment of
such interest equalization tax, if imposed, would reduce a 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 Funds by United States
corporations.
5
<PAGE>
ADRs
Each Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs") that are actively traded in the United States. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. "Sponsored"
ADRs are issued jointly by the issuer of the underlying security and a
depository, and "unsponsored" ADRs are issued without the participation of the
issuer of the deposited security. Holders of unsponsored ADRs generally bear all
the costs of such facilities and the depository of an unsponsored ADR facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Therefore, there may not be a correlation between information concerning the
issuer of the security and the market value of an unsponsored ADR.
Repurchase Agreements
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
Delaware Management Company (the "Manager") under the guidelines of the Board of
Trustees determines to present minimal credit risks and which are of high
quality. In addition, a 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. While a Fund is permitted to do
so, it normally does not invest in repurchase agreements, except to invest
excess cash balances.
The funds available from the Delaware Investments family have obtained an
exemption from the joint-transaction prohibitions of Section 17(d) of the 1940
Act to allow certain funds in the Delaware Investments family 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.
Restricted and Illiquid Securities
Each Fund may purchase privately placed securities the resale of which is
restricted under applicable securities laws. Such securities may offer a higher
return than comparably registered securities but involve some additional risk as
they can be resold only in privately negotiated transactions in accordance with
an exemption from the registration requirements under applicable securities laws
or after registration. The Funds will not purchase illiquid assets, including
such restricted securities, if more than 15% (10% for the Delaware Trend Fund)
of the value of their respective assets would then consist of illiquid
securities.
Certain of the privately placed securities acquired by a Fund will be
eligible for resale by the Fund pursuant to Rule 144A under the 1933 Act
("Rule 144A Securities"). Rule 144A permits many privately placed or legally
restricted securities to be freely traded without restriction among certain
institutional buyers such as the fund.
While maintaining oversight, the Board of Trustees of Equity Funds III has
delegated to the Manager the day-to-day function of determining whether or not
individual Rule 144A Securities are liquid for purposes of each Fund's
limitation in investments in illiquid securities. The Board has instructed the
Manager to consider the following factors in determining the liquidity of a Rule
144A Security: (i) the frequency of trades and trading volume for the security;
(ii) whether at least three dealers are willing to purchase or sell the security
and then number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed a limit on investments in such securities, the
Manager will determine what action to take to ensure that the Fund continues to
adhere to such limitation.
6
<PAGE>
Borrowings
Although each Fund is permitted under certain circumstances to borrow money
and invest in investment company securities, it does not normally do so.
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 SEC 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 a Fund from the
borrower; 2) this collateral must be valued daily and should the market value of
the loaned securities increase, the borrower must furnish additional collateral
to the Fund; 3) a Fund must be able to terminate the loan after notice, at any
time; 4) a 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) a Fund may pay reasonable
custodian fees in connection with the loan; and 6) the voting rights on the lent
securities may pass to the borrower; however, if the trustees of the Equity
Funds III 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 portfolio loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, the Funds will only enter into loan
arrangements after a review of all pertinent facts by the Manager, under the
supervision of the Board of Trustees, including the creditworthiness of the
borrowing broker, dealer or institution and then only if the consideration to be
received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.
Options on Securities
Delaware American Services Fund, Delaware Large Cap Growth Fund, Delaware
Research Fund and Delaware Technology and Innovation Fund may write call
options and purchase put options on a covered basis only, and will not engage in
option writing strategies for speculative purposes. The Funds may invest in
options that are either Exchange-listed 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 a Fund's ability to
effectively hedge their securities. Each Fund will not invest more than 15% of
its assets in illiquid securities.
A. Covered Call Writing--Each Fund may write covered call options from time
to time on such portion of its portfolio, without limit, as the Manager
determines is appropriate in seeking to obtain a Fund's investment objective. A
call option gives the purchaser of such option the right to buy, and the writer,
in this case a Fund, has the obligation to sell the underlying security at the
exercise price during the option period. The advantage to a Fund of writing
covered calls is that it receives a premium which is additional income. However,
if the security rises in value, the Fund may not fully participate in the market
appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
7
<PAGE>
With respect to options on actual portfolio securities owned by a Fund, the
Fund may enter into closing purchase transactions. A closing purchase
transaction is one in which a Fund, when obligated as a writer of an option,
terminates its obligation by purchasing an option of the same series as the
option previously written.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable a Fund
to write another call option on the underlying security with either a different
exercise price or expiration date or both. A Fund may realize a net gain or loss
from a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
a Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security, and the
proceeds of the sale of the security plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
A Fund will write call options only on a covered basis, which means that the
Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Fund would be required to continue to hold a security which it might otherwise
wish to sell, or deliver a security it would want to hold. Options written by a
Fund will normally have expiration dates between one and nine months from the
date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security at the time the option
is written.
B. Purchasing Put Options--Each Fund may invest up to 2% of its total
assets in the purchase of put options. Each Fund will, at all times during which
it holds a put option, own the security covered by such option.
Each 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 a 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, a Fund will lose the value of the premium
paid. A Fund may sell a put option which it has previously purchased prior to
the sale of the securities underlying such option. Such sales 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.
A Fund may sell a put option purchased on individual portfolio securities.
Additionally, a Fund may enter into closing sale transactions. A closing sale
transaction is one in which a Fund, when it is the holder of an outstanding
option, liquidates its position by selling an option of the same series as the
option previously purchased.
Options on Stock Indices
Each Fund (except the Delaware Trend Fund) may also engage in transactions
involving options on stock indices. A stock index assigns relative values to the
common stocks included in the index with the index fluctuating with changes in
the market values of the underlying common stock.
8
<PAGE>
Options on stock indices are similar to options on stocks but have different
delivery requirements. Stock options provide the right to take or make delivery
of the underlying stock at a specified price. A stock index option gives the
holder the right to receive a cash "exercise settlement amount" equal to (i) the
amount by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (ii) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than (in the case of a call)
or less than (in the case of a put) the exercise price of the option. The amount
of cash received will be equal to such difference between the closing price of
the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Gain or loss to the Fund on
transactions in stock index options will depend on price movements in the stock
market generally (or in a particular industry or segment of the market) rather
than price movements of individual securities.
As with stock options, a Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an Exchange or it
may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock so
included. Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on the following Exchanges among others: The Chicago Board Options
Exchange, New York Stock Exchange and American Stock Exchange.
A Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indices depends on the degree to which
price movements in the underlying index correlate with price movements in the
Funds portfolio securities. Since a Fund's portfolio will not duplicate the
components of an index, the correlation will not be exact. Consequently, a Fund
bears the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. It is also possible that there may be
a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument.
Positions in stock index options may be closed out only on an Exchange which
provides a secondary market. There can be no assurance that a liquid secondary
market will exist for any particular stock index option. Thus, it may not be
possible to close such an option. The inability to close options positions could
have an adverse impact on a Fund's ability to effectively hedge its securities.
A Fund will enter into an option position only if there appears to be a liquid
secondary market for such options.
A Fund will not engage in transactions in options on stock indices for
speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets.
Futures Contracts and Options on Futures Contracts
Delaware American Services Fund, Delaware Large Cap Growth, Delaware
Research Fund and Delaware Technology and Innovation Fund may enter into
futures contracts on stocks and stock indices, and purchase or sell options on
such futures contracts. These activities will not be entered into for
speculative purposes, but rather for hedging purposes and to facilitate the
ability to quickly deploy into the stock market a Fund's positions in cash,
short-term debt securities and other money market instruments, at times when the
Fund's assets are not fully invested in equity securities. Such positions will
generally be eliminated when it becomes possible to invest in securities that
are appropriate for a Fund.
9
<PAGE>
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument, or for the making
and acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a futures contract provides for a specified settlement date
on which the securities underlying the contract are delivered, or in the case of
securities index futures contracts, the difference between the price at which
the contract was entered into and the contract's closing value is settled
between the purchaser and seller in cash. Futures contracts differ from options
in that they are bilateral agreements, with both the purchaser and the seller
equally obligated to complete the transaction. In addition, futures contracts
call for settlement only on the expiration date, and cannot be "exercised" at
any other time during their term.
The purchase or sale of a futures contract also differs from the purchase or
sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin" as a good faith deposit. Subsequent payments
to and from the broker, referred to as "variation margin," are made on a daily
basis as the value of the index or instrument underlying the futures contract
fluctuates, making positions in the futures contracts more or less valuable, a
process known as "marking to the market." A Fund will designate cash or
securities in amounts sufficient to cover its obligations, and will value the
designated assets daily.
Purchases or sales of stock index futures contracts are used for hedging
purposes to attempt to protect a Fund's current or intended investments from
broad fluctuations in stock prices. For example, a Fund may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When a Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures contracts
will be closed out.
Each Fund may also purchase and write options on the types of futures
contracts in which a Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by a Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial position.
Likewise, a position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to availability of a secondary market, which is the
purchase or sale of an option of the same series (i.e., the same exercise price
and expiration date) as the option previously purchased or sold. The Fund may
realize a profit or a loss when closing out a futures contract or an option on a
futures contract.
To the extent that interest or exchange rates or securities prices move in
an unexpected direction, a Fund may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that a Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a secondary market could prevent a
Fund from closing out its positions relating to futures.
10
<PAGE>
REITs
Delaware American Services Fund, Delaware Large Cap Growth, Delaware
Research Fund and Delaware Technology and Innovation Fund may invest in REITs.
REITs are pooled investment vehicles which invest primarily in income-producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Like
investment companies, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements in the Internal Revenue Code.
REITs are subject to substantial cash flow dependency, defaults by borrowers,
self-liquidation, and the risk of failing to qualify for tax-free pass-through
of income under the Code, and/or to maintain exemptions from the 1940 Act.
A Fund's investments in REITs present certain further risks that are
unique and in addition to the risks associated with investing in the real estate
industry in general. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs, while mortgage REITs may be affected by
the quality of any credit extended. REITs are dependent on management skills,
are not diversified, and are subject to the risks of financing projects. REITs
whose underlying assets include long-term health care properties, such as
nursing, retirement and assisted living homes, may be impacted by federal
regulations concerning the health care industry.
REITs (especially mortgage REITs) are also subject to interest rate risks --
when interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
REITs may have limited financial resources, may trade less frequently and in
a limited volume, and may be subject to more abrupt or erratic price movements
than other securities.
Securities of Companies in the Financial Services Industry
Certain provisions of the federal securities laws permit investment
portfolios to invest in companies engaged in securities-related activities only
if certain conditions are met. Purchases of securities of a company that derived
15% or less of gross revenues during its most recent fiscal year from
securities-related activities (i.e., broker, dealer, underwriting, or investment
advisory activities) are subject only to the same percentage limitations as
would apply to any other securities a Fund may purchase.
Each Fund may also purchase securities (not limited to equity or debt
individually) of an issuer that derived more than 15% of its gross revenues in
its most recent fiscal year from securities-related activities if the following
conditions are met: (1) immediately after the purchase of any securities
issuer's equity and debt securities, the purchase cannot cause more than 5% of
the Fund's total assets to be invested in securities of that securities
issuer; (2) immediately after a purchase of equity securities of a securities
issuer, a Fund may not own more than 5% of the outstanding securities of that
class of the securities issuer's equity securities; and (3) immediately after
a purchase of debt securities of a securities issuer, a Fund may not own more
than 10% of the outstanding principal amount of the securities issuer's debt
securities.
In applying the gross revenue test, an issuer's gross revenues from its
own securities-related activities should be combined with its ratable share of
the securities-related activities of enterprises of which its owns a 20% or
greater voting or equity interest. All of the above percentage limitations are
applicable at the time of purchase as well as the issuer's gross revenue test.
With respect to warrants, rights, and convertible securities, a determination of
compliance with the above limitations must be made as though such warrant,
right, or conversion privilege had been exercised.
The following transactions would not be deemed to be an acquisition of
securities of a securities-related business: (i) receipt of stock dividends on
securities acquired in compliance with the conditions described above; (ii)
receipt of securities arising from a stock-for-stock split on securities
acquired in compliance with the conditions described above; (iii) exercise of
options, warrants, or rights acquired in compliance with the federal securities
laws; (iv) conversion of convertible securities acquired in compliance with the
conditions described above; (v) the acquisition of demand features or guarantees
(puts) under certain circumstances.
11
<PAGE>
In addition, Delaware American Services Fund is generally prohibited from
purchasing or otherwise acquiring any security (not limited to equity or debt
individually) issued by any insurance company if the Fund and any company
controlled by the Fund own in the aggregate or, as a result of the purchase,
will own in the aggregate more than 10% of the insurance company. Certain state
insurance laws impose similar limitations.
Concentration
In applying a Fund's fundamental policy concerning concentration that is
described above, it is a matter of non-fundamental policy that: (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.
PERFORMANCE INFORMATION
From time to time, each Fund may state each Class' 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 of each
Class over additional periods of time.
The average annual total rate of return for each Class will be 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.
In presenting performance information for Class A Shares, the contingent
deferred sales charge applicable only to certain redemptions of those shares
("Limited CDSC") will not be deducted from any computation of total return.
See the Prospectuses for the Fund Classes 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.
Total return performance for each Class will be computed by adding all
reinvested income and realized securities profits distributions plus the change
in net asset value during a specific period and dividing by the offering price
at the beginning of the period. It will also reflect, as applicable, the
maximum sales charge, or CDSC, paid with respect to the illustrated investment
amount, but not any income taxes payable by shareholders on the reinvested
distributions included in the calculation. Because securities prices fluctuate,
past performance should not be considered as a representative of the results
which may be realized from an investment in a Fund in the future.
12
<PAGE>
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, a Fund may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC.
The performance of each Class of the Delaware Trend Fund as shown below is
the average annual total return quotations through June 30, 2000, computed as
described above. The average annual total return for Class A Shares at offer
reflects the maximum front-end sales charge of 5.75% paid on the purchase of
shares. The average annual total return for the Class A Shares at net asset
value (NAV) does not reflect the payment of any front-end sales charge. Pursuant
to applicable regulation, total return shown for the Institutional Class for the
periods prior to the commencement of operations of such Class is calculated by
taking the performance of Class A Shares and adjusting it to reflect the
elimination of all sales charges. However, for those periods, no adjustment has
been made to eliminate the impact of 12b-1 payments, and performance would have
been affected had such an adjustment been made. The average annual total return
for Class B and C Shares including deferred sales charge reflects the deduction
of the applicable CDSC that would be paid if the shares were redeemed at June
30, 2000. The average annual total return for Class B and C Shares excluding
deferred sales charge assumes the shares were not redeemed at June 30, 2000, and
therefore does not reflect the deduction of a CDSC. Stock prices fluctuated
during the periods covered and past results should not be considered as
representative of future performance.
13
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns
Delaware Trend Fund
------------------------------------------------------------------------------------------------------------------------------------
Trend Fund
Trend Fund Trend Fund Class C Trend Fund
Trend Fund Trend Fund Class B Shares Class B Shares Shares Class C Shares
Class A Class A Trend Fund (Including) (Excluding (Including (Excluding
Shares (1,2) Shares(1) International Deferred Sales Deferred Sales Deferred Sales Deferred Sales
(at Offer) (at NAV) Class Charge)(3) Charge) Charge) Charge)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended 6/30/00 54.43% 63.86% 64.37% 57.74% 62.74% 61.72% 62.72%
------------------------------------------------------------------------------------------------------------------------------------
3 years ended 6/30/00 33.68% 36.34% 36.73% 34.82% 35.37% 35.36% 35.36%
------------------------------------------------------------------------------------------------------------------------------------
5 years ended 6/30/00 26.91% 28.43% 28.77% 27.35% 27.50% N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
10 years ended 6/30/00 21.23% 21.96% 22.19% N/A N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
15 years ended 6/30/00 19.29% 19.76% 19.91% N/A N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
Life of Fund(4) 11.41% 11.62% 11.68% 26.48% 26.54% 27.02% 27.02%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A Shares began paying 12b-1 payments on June 1, 1992 and performance
prior to that date does not reflect such payments.
(2) Prior to November 2, 1998, the maximum front-end sales charge was 4.75%.
Effective November 2, 1998, the maximum front-end sales charge was increased
to 5.75% and the above performance numbers are calculated using 5.75% as the
applicable sales charge.
(3) Effective November 2, 1998, the CDSC schedule for Class B Shares increased
as follows: (i) 5% if shares are redeemed within one year of purchase (ii)
4% if shares are redeemed with two years of purchase; (iii) 3% if shares are
redeemed during the third or fourth year following purchase; (iv) 2% if
shares are redeemed during the fifth year following purchase; (v) 1% if
shares are redeemed during the sixth year following purchase; and (vi) 0%
thereafter. The above figures have been calculated using this new schedule.
(4) Date of initial public offering of Class A Shares was October 3, 1968; date
of initial public offering of Class B Shares was September 6, 1994; date of
initial public offering of Class C Shares was November 29, 1995; date of
initial public offering of Institutional Class shares was November 23, 1992.
From time to time, a Fund may also quote its Classes' actual total return
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 Fund Class) may be compared to data
prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or to the S&P
500 Index , the Dow Jones Industrial Average or the Russell 2000 Growth
Index.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare a Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The S&P 500
Stock Index and the Dow Jones Industrial Average are industry-accepted unmanaged
indices of generally-conservative securities used for measuring general market
performance. The Russell 2000 Growth Index measures the performance of those
Russell 2000 companies with higher price-to-book ratios and higher forecast
growth values. These stocks are selected from the 2,000 smallest companies in
the Russell 3000 Index which represent approximately 10% of the total market
capitalization of the Russell 3000 Index. The NASDAQ Composite Index is a market
capitalization price only index that tracks the performance of domestic common
stock traded on the regular NASDAQ market as well as National Market System
traded foreign common stocks and American Depositary Receipts. 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.
In addition, the performance of multiple indices compiled and maintained by
statistical research firms, such as Salomon Brothers and Lehman Brothers, may be
combined to create a blended performance result for comparative performances.
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.
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
14
<PAGE>
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. A Fund
may also compare performance to that of other compilations or indices that may
be developed and made available in the future.
Each 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), 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, stocks, bonds, Treasury bills and shares of a 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 and retirement planning (such as information on Roth IRAs and
Education IRAs) and investment alternative to certificates of deposit and other
financial instruments. Such sales literature, communications to shareholders or
other materials may include symbols, headlines or other material which highlight
or summarize the information discussed in more detail therein.
Materials may refer to the CUSIP numbers of a Fund and may illustrate how to
find the listings of the Fund in newspapers and periodicals. Materials may also
include discussions of other funds, 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.
A 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.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for each Fund and other mutual funds available from
the Delaware Investments family, 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 investment disciplines
employed in seeking the objectives of a Fund and the other funds in the Delaware
Investments family. The Distributor may also from time to time cite general or
specific information about the institutional clients of Delaware Investment
Advisers ("DIA"), an affiliate of the Manager, including the number of such
clients serviced by DIA.
15
<PAGE>
The following tables present examples, for purposes of illustration only,
of cumulative total return performance for each Fund through June 30, 2000. For
these purposes, the calculations 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 reflects the maximum front-end sales charge paid on the purchase of
shares but is also shown without reflecting the impact of 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. Past performance is not a
guarantee of future results. Pursuant to applicable regulation, total return
shown for the Delaware Trend Fund Institutional Class for the periods prior to
the commencement of operations of such Class is calculated by taking the
performance of Class A Shares and adjusting it to reflect the elimination of all
sales charges. However, for those periods, no adjustment has been made to
eliminate the impact of 12b-1 payments, and performance would have been affected
had such an adjustment been made. Returns for the Class B Shares and Class C
Shares of Delaware American Services Fund, Delaware Large Cap Growth Fund and
Delaware Research Fund are not provided because these shares have not commenced
operations as of the close of the fiscal year.
<TABLE>
<CAPTION>
Cumulative Total Returns(1)
------------------------------------------------------------------------------------------------------------------------------------
Delaware Delaware Delaware Delaware
American American Delaware Large Cap Large Cap Delaware Delaware Delaware
Services Services American Growth Growth Large Cap Research Research Delaware
Fund Fund Services Fund Fund Growth Fund Fund Research
Class A Class A Fund Class A Class A Fund Class A Class A Fund
Shares Shares Institutional Shares Shares Institutional Shares Shares Institutional
(at Offer) (at NAV) Class (at Offer) (at NAV) Class (at Offer) (at NAV) Class
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 months -14.38% -9.14% -9.14% -8.17% -2.61% -2.61% -17.65% -12.59% -12.59%
ended
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
6 months 14.57% 21.57% 21.57% 15.60% 22.65% 22.65% -9.03% -3.51% -3.51%
ended
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
Life of 16.85% 24.00% 24.00% 15.84% 22.94% 22.94% -8.43% -2.82% -2.82%
Fund(2)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Returns reflect fee waivers by the Manager and Distributor. See Investment
Management Agreement and Plans Under Rule 12b-1 for the Fund Classes.
(2) Commenced operations on December 29, 1999.
16
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Returns(1)
------------------------------------------------------------------------------------------------------------------------------------
Delaware Delaware
Technology Technology Delaware
and and Technology Delaware
Delaware Delaware Innovation Innovation and Technology
Technology Technology Delaware Fund Fund Innovation and
and and Technology Class B Class B Fund Innovation
Innovation Innovation and Shares Shares Class C Fund
Fund Fund Innovation (Including (Excluding Shares Class C Shares
Class A Class A Fund Deferred Deferred (Including (Excluding
Shares Shares Institutional Sales Sales Deferred Deferred Sales
(at Offer) (at NAV) Class Charge) Charge) Sales Charge) Charge)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months -11.82% -6.46% -6.46% -11.32% -6.65% -7.59% -6.65%
ended
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
6 months 7.30% 13.85% 13.85% 8.62% 13.62% 12.62% 13.62%
ended
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
Life of 7.54% 14.12% 14.12% 8.88% 13.88% 12.88% 13.88%
Fund(2)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Returns reflect fee waivers by the Manager. See Investment Management
Agreement.
(2) Commenced operations on December 29, 1999.
Cumulative Total Returns
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Delaware Delaware Delaware Delaware
Trend Trend Trend Trend
Fund Fund Fund Fund
Class B Class B Class C Class C
Delaware Delaware Delaware Shares Shares Shares Shares
Trend Fund Trend Fund Trend (Including (Excluding (Including (Excluding
Class A Class A Fund Deferred Deferred Deferred Deferred
Shares(1) Shares(1) Institutional Sales Sales Sales Sales
(at Offer)(2) (at NAV) Class Charge)(3) Charge) Charge) Charge)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 months ended -11.63% -6.24% -6.19% -11.11% -6.43% -7.37% -6.44%
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
6 months ended 8.63% 15.25% 15.44% 9.83% 14.83% 13.85% 14.85%
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
9 months ended 46.61% 55.59% 55.94% 49.71% 54.71% 53.72% 54.72%
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
1 year ended 54.43% 63.86% 64.37% 57.74% 62.74% 61.72% 62.72%
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
3 years ended 138.88% 153.44% 155.62% 145.04% 148.04% 148.01% 148.01%
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
5 years ended 229.25% 249.42% 254.09% 234.95% 236.95% N/A N/A
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
10 years ended 585.81% 627.77 641.83% N/A N/A N/A N/A
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
15 years ended 309.24% 394.69% 423.57% N/A N/A N/A N/A
6/30/00
------------------------------------------------------------------------------------------------------------------------------------
Life of Fund(3) 2984.52% 3173.10% 3236.36% 292.15% 293.15% 199.58% 199.58%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
(1) Class A Shares began paying 12b-1 payments on June 1, 1992 and performance
prior to that date does not reflect such payments.
(2) Prior to November 2, 1998, the maximum front-end sales charge was 4.75%.
Effective November 2, 1998, the maximum front-end sales charge was increased
to 5.75% and the above performance numbers are calculated using 5.75% as the
applicable sales charge.
(3) Effective November 2, 1998, the CDSC schedule for Class B Shares increased
as follows: (i) 5% if shares are redeemed within one year of purchase (ii)
4% if shares are redeemed with two years of purchase; (iii) 3% if shares are
redeemed during the third or fourth year following purchase; (iv) 2% if
shares are redeemed during the fifth year following purchase; (v) 1% if
shares are redeemed during the sixth year following purchase; and (vi) 0%
thereafter. The above figures have been calculated using this new schedule.
(4) Date of initial public offering of Class A Shares was October 3, 1968; date
of initial public offering of Class B Shares was September 6, 1994; date of
initial public offering of Class C Shares was November 29, 1995; date of
initial public offering of Institutional Class shares was November 23, 1992.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick
the highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.
Dollar-cost averaging works best over longer time periods, and it doesn't
guarantee a profit or protect against losses in declining markets. If you need
to sell your investment when prices are low, you may not realize a profit no
matter what investment strategy you utilize. That's why dollar-cost averaging
can make sense for long-term goals. Since the potential success of a dollar-cost
averaging program depends on continuous investing, even through periods of
fluctuating prices, you should consider your dollar-cost averaging program a
long-term commitment and invest an amount you can afford and probably won't need
to withdraw. Investors also should consider their 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 Wealth Builder Option -- that can help to keep your regular
investment program on track. See Direct Deposit Purchase Plan, Automatic
Investing Plan and Wealth Builder Option under Investment Plans -- Investing by
Electronic Fund Transfer 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 of a stock or bond fund over a
period of time will be lower than the average price per share of a Fund for the
same time period.
Number
Investment Price Per of Shares
Amount Share Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $5.00 20
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 a Fund or any stock or bond fund in the
Delaware Investments family. Dollar-cost averaging can be appropriate for
investments in shares of funds that tend to fluctuate in value. Please obtain
the prospectus of any fund in the Delaware Investments family in which you plan
18
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to invest through a dollar-cost averaging program. The prospectus contains
additional information, including charges and expenses. Please read it carefully
before you invest or send money.
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. A Fund may include illustrations showing the power of
compounding in advertisements and other types of literature.
TRADING PRACTICES AND BROKERAGE
Each Fund selects brokers, dealers and banks to execute transactions for the
purchase or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have 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. 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. A number of trades are made on a net
basis where a Fund either buys the securities directly from the dealer or sells
them to the dealer. In these instances, there is no direct commission charged
but there is a spread (the difference between the buy and sell price) which is
the equivalent of a commission.
During the past three fiscal years, the aggregate dollar amounts of
brokerage commissions were paid by the following Funds:
--------------------------------------------------------------------------------
Fiscal Year Ended June 30,
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
Delaware American Services Fund(1) $8,758 N/A N/A
--------------------------------------------------------------------------------
Delaware Large Cap Fund(1) $1,096 N/A N/A
--------------------------------------------------------------------------------
Delaware Research Fund(1) $10,314 N/A N/A
--------------------------------------------------------------------------------
Delaware Technology and Innovation Fund(1) $7,745 N/A N/A
--------------------------------------------------------------------------------
Delaware Trend Fund $496,441 $801,769 $1,104,062
--------------------------------------------------------------------------------
(1)Commenced operations on December 29, 1999.
The Manager may allocate out of all commission business generated by all of
the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These services include
advice, either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities;
furnishing of analyses and reports concerning issuers, securities or industries;
providing information on economic factors and trends; assisting in determining
portfolio strategy; providing computer software and hardware used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
During their last fiscal year, portfolio transactions of the Funds, in the
amounts listed below, resulting in brokerage commissions in the amounts listed
below, were directed to brokers for brokerage and research services provided:
19
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--------------------------------------------------------------------------------
Portfolio
Transactions Brokerage
Amounts Commissions
--------------------------------------------------------------------------------
Delaware American Services Fund(1) $13,054 $30
--------------------------------------------------------------------------------
Delaware Large Cap Fund(1) $10,370 $12
--------------------------------------------------------------------------------
Delaware Research Fund(1) $28,845,581 $16,926
--------------------------------------------------------------------------------
Delaware Technology and Innovation Fund(1) $943,200 $864
--------------------------------------------------------------------------------
Delaware Trend Fund $20,829,001 $33,914
--------------------------------------------------------------------------------
(1)Commenced operations on December 29, 1999.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") and the
Funds' 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, each 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 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
execution. Transactions involving commingled orders are allocated in a manner
deemed equitable to each account or fund. When a combined order is executed in a
series of transactions at different prices, each account participating in the
order may be allocated an average price obtained from the executing broker. It
is believed that the ability of the accounts to participate in volume
transactions will generally be beneficial to the accounts and funds. Although it
is recognized that, in some cases, the joint execution of orders could adversely
affect the price or volume of the security that a particular account or fund may
obtain, it is the opinion of the Manager and Equity Funds III's Board of
Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Conduct Rules of NASD Regulation, Inc. (the "NASD"), and
subject to seeking best execution, a Fund 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 shares of the funds in the Delaware
Investments family as a factor in the selection of brokers and dealers to
execute Fund portfolio transactions.
20
<PAGE>
Portfolio Turnover
In investing for capital appreciation, a Fund may hold securities for any period
of time. It is anticipated that, given each Fund's investment objective, its
annual portfolio turnover [will exceed 100%. The Delaware American Services
Fund's and] Delaware Research Fund's portfolio turnover rate may [exceed] 300%.
A turnover rate of 100% would occur, for example, if all the investments in a
Fund's portfolio at the beginning of the year were replaced by the end of the
year. The degree of portfolio activity will affect brokerage costs of a Fund and
may affect taxes payable by the Fund's shareholders. Total brokerage costs
generally increase with higher portfolio turnover rates. To the extent a Fund
realizes gains on securities held for less than six months, such gains are
taxable to the shareholder or to the Fund at ordinary income tax rates. The
turnover rate also may be affected by cash requirements from redemptions and
repurchases of Fund shares.
The portfolio turnover rate of a Fund 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.
During the past two fiscal years, the portfolio turnover rates for the Funds
were as follows:
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Delaware American Services Fund(1) 988%* N/A
Delaware Large Cap Fund(1) 304%* N/A
Delaware Research Fund(1) 435%* N/A
Delaware Technology and Innovation Fund(1) 177%* N/A
Delaware Trend Fund 77%* 86%
--------------------------------------------------------------------------------
* Annualized
(1)Commenced operations on December 29, 1999.
PURCHASING SHARES
The Distributor serves as the national distributor for each [Fund's] shares
and has agreed to use its best efforts to sell shares of [each] Fund. See the
Prospectuses for 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 Equity Funds III 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 investment minimums for Class A
Shares will be waived for purchases by officers, directors and employees of any
Delaware Investments fund, the Manager or any of the Manager's 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 Delaware Investments 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 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. Equity Funds III 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. In doing so, an investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $50,000 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.
21
<PAGE>
Selling dealers are responsible for transmitting orders promptly. Equity
Funds III reserves the right to reject any order for the purchase of its shares
of any Fund if in the opinion of management such rejection is in the Fund's best
interest. 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.
A 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.
A Fund 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, a 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.
A 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.
The NASD has adopted amendments to its Conduct Rules, as amended, relating
to investment company sales charges. Equity Funds III 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 5.75%; however, lower front-end sales charges apply
for larger purchases. See the table in the Fund Classes' [Prospectuses]. Absent
applicable fees waivers, Class A Shares are also subject to annual 12b-1 Plan
expenses for the life of the investment.
Class B Shares are purchased at net asset value and are subject to a CDSC
of: (i) 5% if shares are redeemed within one year of purchase; (ii) 4% if shares
are redeemed during the second year after purchase; (iii) 3% if shares are
redeemed during the third or fourth year following purchase; (iv) 2% if shares
are redeemed during the fifth year following purchase; and (v) 1% if shares are
redeemed during the sixth year following purchase. Absent applicable fee
waivers, Class B Shares are also subject to annual 12b-1 Plan expenses which are
higher than those to which Class A Shares are subject and are assessed against
Class B Shares 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. Absent applicable
fee waivers, 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.
22
<PAGE>
See Plans Under Rule 12b-1 for the Fund Classes under Purchasing Shares, and
Determining Offering Price and Net Asset Value 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.
The Distributor has voluntarily elected to waive the payment of 12b-1 Plan
expenses by Delaware American Services Fund, Delaware Research Fund and Delaware
Large Cap Growth Fund from the commencement of the public offering through
February 28, 2001.
The Board of Trustees of Equity Funds III has set the 12b-1 Plan fee payable
by Class A Shares of Delaware Technology and Innovation Fund at 0.25% of average
daily net assets.
Certificates representing shares purchased are not ordinarily issued unless,
in the case of Class A Shares or Institutional Class shares, 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
Equity Funds III 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 a Fund 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, Class B and Class 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% 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 a Fund with the
investment thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class B
Shares are subject to a CDSC if the shares are redeemed within six years of
purchase, and Class C Shares are subject to a CDSC if the shares are redeemed
within 12 months of purchase. Class B and Class C Shares are each subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
the respective Class. Class B Shares will automatically convert to Class A
Shares at the end of approximately eight years after purchase and, thereafter,
be subject to annual 12b-1 Plan expenses of up to a maximum of 0.30% of average
daily net assets of such shares. Unlike Class B Shares, Class C Shares do not
convert to another Class.
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.
23
<PAGE>
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 $50,000 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'
Prospectuses, 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 Prospectuses, for initial purchases of Class A Shares of
$1,000,000 or more, a dealer's commission may be paid by the Distributor to
financial advisers through whom such purchases are effected.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other Delaware Investments
funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) may be aggregated with those of the Class A Shares of a
Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Investments funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
24
<PAGE>
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 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 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% 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.
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 5% 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.
25
<PAGE>
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 same Fund (or, in the case of
Delaware Group Cash Reserve, the Delaware Cash Reserve Fund Consultant Class)
pro-rata with Class B Shares of the Fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end sales
charge and, as a result, the full amount of the investor's purchase payment will
be invested in Fund shares. The Distributor currently compensates dealers or
brokers for selling Class C Shares at the time of purchase from its own assets
in an amount equal to no more than 1% of the dollar amount purchased. As
discussed below, Class C Shares are subject to annual 12b-1 Plan expenses and,
if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
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 Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, Equity Funds III has adopted a
separate 12b-1 Plan for each of Class A Shares, Class B Shares and Class C
Shares of the Funds (the "Plans"). Each Plan permits the Funds 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 Class of shares. Such shares are not included in calculating the
[Plans]' fees, and the Plans are not used to assist in the distribution and
marketing of shares of Institutional Classes. Shareholders of 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,
holding special promotions for specified periods of time and paying distribution
and maintenance fees to brokers, dealers and others. In connection with the
promotion of shares of the Classes, the Distributor may, from time to time, pay
to participate in dealer-sponsored seminars and conferences, and reimburse
dealers for expenses incurred in connection with preapproved seminars,
conferences and advertising. The Distributor may pay or allow additional
promotional incentives to dealers as part of preapproved sales contests and/or
to dealers who provide extra training and information concerning a Class and
increase sales of the Class. In addition, a Fund may make payments from the
12b-1 Plan fees of its respective Classes directly to others, such as banks, who
aid in the distribution of Class shares or provide services in respect of a
Class, pursuant to service agreements with Equity Funds III. The Plan expenses
relating to Class B Shares 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.
26
<PAGE>
The maximum aggregate fee payable by a Fund under the Plans, and a Fund's
Distribution Agreement, is on an annual basis, up to 0.30% of average daily net
assets of Class A Shares, 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. Equity Funds III's Board
of Trustees may reduce these amounts at any time. The Distributor has elected
voluntarily to waive all payments under the 12b-1 Plan for each Class of
Delaware American Services Fund, Delaware Research Fund and Delaware Large Cap
Growth Fund [through February 28, 2001]. The Board of Trustees of Equity Funds
III has set the 12b-1 Plan fee for Class A Shares of Delaware Technology and
Innovation Fund at 0.25% of average daily net assets.
As for the Delaware Trend Fund, effective June 1, 1992, the Board of
Trustees has determined that the annual fee, payable on a monthly basis, for
Class A Shares under its Plan will be equal to the sum of: (i) the amount
obtained by multiplying 0.30% by the average daily net assets represented by
Class A Shares that were acquired by shareholders on or after June 1, 1992, and
(ii) the amount obtained by multiplying 0.10% by the average daily net assets
represented by Class A Shares that were acquired before June 1, 1992. While this
is the method for calculating 12b-1 fees to be paid by Class A Shares, the fee
is a Class expense so that all shareholders of that Class, regardless of when
they purchased their shares, will bear 12b-1 expenses at the same per share
rate. As Class A Shares are sold on or after June 1, 1992, the initial rate of
at least 0.10% will increase over time. Thus, as the proportion of Class A
Shares purchased on or after June 1, 1992 to Class A Shares outstanding prior to
June 1, 1992 increases, the expenses attributable to payments under the Plan
will also increase (but will not exceed 0.30% of average daily net assets).
While this describes the current formula for calculating the fees which will be
payable under the Plan, such Plan permits the Delaware Trend Fund to pay a full
0.30% on all the Delaware Trend Fund's Class A Shares' assets at any time.
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
Shares, Class B Shares and Class C Shares would be borne by such persons without
any reimbursement from such Fund Classes. Subject to seeking best 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.
The Plans and the Distribution Agreement have all been approved by the Board
of Trustees of Equity Funds III, including a majority of the trustees who are
not "interested persons" (as defined in the 1940 Act) of Equity Funds III 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
Agreement. Continuation of the Plans and the Distribution Agreement, 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 a Fund and that there is a reasonable likelihood of
the Plan relating to a Class providing a benefit to that Class. The Plans and
the Distribution Agreement, as amended, 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 relevant Class' outstanding
voting securities. Any amendment materially increasing the percentage payable
under the Plans must likewise be approved by a majority vote of the relevant
Class' outstanding voting securities, 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 the Fund's B Class. 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 Equity Funds III 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 Equity Funds III
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.
27
<PAGE>
For the fiscal year ended June 30, 2000, 12b-1 Plan payments from Class A
Shares, Class B Shares and Class C Shares of the Delaware Technology and
Innovation Fund and Delaware Trend Fund were as follow:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Delaware Delaware Delaware
Technology and Technology and Technology and Delaware Delaware Delaware
Innovation Innovation Innovation Trend Fund Trend Fund Trend Fund
Fund A Class(1) Fund B Class(1) Fund C Class(1) A Class B Class C Class
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advertising -- -- -- $ 81 -- --
Annual/Semi Annual Reports -- -- -- $10,621 -- --
Broker Trails $23,413 $20,760 $1,220 $1,473,613 $350,154 $161,035
Broker Sales Charge -- $7,651 $31,670 -- $684,938 $183,717
Dealer Service Expenses -- -- -- -- -- --
Interest on Broker Sales Charge -- $51,568 $4,797 -- $284,934 $8,986
Commissions to Wholesalers $1,996 $3,175 -- $323,654 $65,513 $21,144
Promotional-Broker Meetings -- -- -- -- -- --
Promotion-Other -- -- -- $33,652 -- --
Prospectus Printing -- -- -- $1,651 -- --
Telephone -- -- -- -- -- --
Wholesaler Expenses -- -- -- $30,219 -- --
Other -- -- -- -- -- --
Total $25,409 $83,154 $37,687 $1,873,491 $1,385,539 $374,882
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Commenced operations on December 29, 1999.
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.
28
<PAGE>
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of a 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.
Current and former officers, [trustees/directors and employees of Equity
Funds III, any other fund] in the Delaware Investments family, [the Manager, or
any of the Manager's current affiliates and those that may in the future be
created, legal counsel to the funds and registered representatives and
employees of [broker/dealers who have entered into Dealer's Agreements with the
Distributor may purchase Class A Shares and any such class of shares of any of
the other funds in the Delaware Investments family, including any fund that may
be created, at the net asset value per share. Family members (regardless of age)
of such persons at their direction, and any employee benefit plan established by
any of the foregoing funds, corporations, counsel or broker/dealers may also
purchase Class A Shares at net asset value]. Class A Shares may also be
purchased at net asset value by current and former officers, directors 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, directors 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. Such purchasers are required to sign a letter stating that the
purchase is for investment only and that the securities may not be resold except
to the issuer. Such purchasers may also be required to sign or deliver such
other documents as a Fund may reasonably require to establish eligibility for
purchase at net asset value. 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 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 a fund 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.
Purchases of Class A Shares at net asset value may also be made by any
group retirement plan (excluding defined benefit pension plans) that purchases
shares through a retirement plan alliance program that requires shares to be
available at net asset value, provided Retirement Financial Services, Inc. has a
product participation agreement with the sponsor of the alliance program.
29
<PAGE>
Purchases of Class A Shares at net asset value may also be made by bank
sponsored retirement plans that are no longer eligible to purchase Institutional
Class Shares or purchase interests in a collective trust as a result of a change
in distribution arrangements.
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.
Equity Funds III 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.
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.
30
<PAGE>
Letter of Intention
The reduced front-end sales charges described above with respect to Class A
Shares are also applicable to the aggregate amount of purchases made by any such
purchaser previously enumerated within a 13-month period pursuant to a written
Letter of Intention provided by the Distributor and signed by the purchaser, and
not legally binding on the signer or Equity Funds III 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 a Fund and of any class of any of the other mutual funds in Delaware
Investments (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 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) previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter. For purposes of satisfying an
investor's obligation under a Letter of Intention, Class B Shares and Class C
Shares of a Fund and the corresponding classes of shares of other funds in the
Delaware Investments family which offer such shares may be aggregated with Class
A Shares of the Fund and the corresponding class of shares of the other funds in
the Delaware Investments family.
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
Delaware Investments funds 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
Delaware Investments funds (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 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 by investment advisory
clients of Delaware Investment Advisers, the Manager's affiliate, or any of the
Manager's other affiliates in a stable value account may be combined with other
Delaware Investments fund holdings.
31
<PAGE>
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 the 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 Delaware Investments funds
which offer such classes (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 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 $10,000 and
subsequently purchases $40,000 at offering price of additional shares of Class A
Shares, the charge applicable to the $10,000 purchase would currently be 4.75%.
For the purpose of this calculation, the shares presently held shall be valued
at the public offering price that would have been in effect were the shares
purchased simultaneously with the current purchase. Investors should refer to
the table of sales charges for Class A Shares to determine the applicability of
the Right of Accumulation to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares and Class B Shares of a Fund (and of the
Institutional Class holding shares which were acquired through an exchange from
one of the other mutual funds in the Delaware Investments family offered with a
front-end sales charge) who redeem such shares have one year from the date of
redemption to reinvest all or part of their redemption proceeds in the same
Class of the Fund or in the same Class of any of the other funds in the Delaware
Investments family. In the case of Class A Shares, the reinvestment will not be
assessed a front-end sales charge and in the case of Class B Shares, the amount
of the CDSC previously charged on the redemption will be reimbursed by the
Distributor. The reinvestment will be subject to applicable eligibility and
minimum purchase requirements and must be in states where shares of such other
funds may be sold. This reinvestment privilege does not extend to Class A Shares
where the redemption of the shares triggered the payment of a Limited CDSC.
Persons investing redemption proceeds from direct investments in mutual funds in
the Delaware Investments family, offered without a front-end sales charge will
be required to pay the applicable sales charge when purchasing Class A Shares.
The reinvestment privilege does not extend to a redemption of Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any amount
necessary to purchase a full share). The reinvestment will be made at the net
asset value next determined after receipt of remittance. In the case of Class B
Shares, the time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions as well as the automatic
conversion into Class A Shares.
A redemption and reinvestment of Class B Shares could have income tax
consequences. Shareholders will receive from the Distributor the amount of the
CDSC paid at the time of redemption as part of the reinvested shares, which may
be treated as a capital gain to the shareholder for tax purposes. It is
recommended that a tax adviser be consulted with respect to such transactions.
Any reinvestment directed to a fund in which the investor does not then have
an account will be treated like all other initial purchases of the fund's
shares. Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is intended to be made before
investing or sending money. 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 each Fund's shareholder servicing agent, about the
applicability of the Class A Limited CDSC in connection with the features
described above.
32
<PAGE>
Group Investment Plans
Group Investment Plans which 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 Delaware Investments investment accounts if they so notify the
Fund in which they are investing in connection with each purchase. See
Retirement Plans for the Fund Classes under Investment Plans for information
about Retirement Plans.
The Limited CDSC is generally applicable to any redemptions of net asset
value purchases made on behalf of a 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. Notwithstanding the
foregoing, the Limited CDSC for Class A Shares on which a dealer's commission
has been paid will be waived in connection with redemptions by certain group
defined contribution retirement plans that purchase shares through a retirement
plan alliance program which requires that shares will be available at net asset
value, provided that Retirement Financial Services, Inc. has a product
participation agreement with the sponsor of the alliance program that specifies
that the Limited CDSC will be waived.
Institutional Class
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 or its affiliates and securities dealer firms with a
selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment Advisers, an affiliate of the Manager, or its other
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 of the financial institution of a Rule
12b-1 Plan 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.
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.
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by Fund Class shareholders of Delaware
Technology and Innovation Fund and Delaware Trend Fund, dividends from net
investment income and distributions from realized securities profits, if any,
will be automatically reinvested in additional shares of the respective 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 Fund Classes of Delaware American
Services, Delaware Large Cap Growth Fund and Delaware Research Fund and the
Institutional Classes of each Fund are reinvested in the accounts of the holders
of such shares (based on net asset value in effect on the reinvestment date). A
confirmation of each dividend payment from net investment income and of
distributions from realized securities profits, if any, will be mailed to
shareholders in the first quarter of the fiscal year.
33
<PAGE>
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 Classes at the net asset
value, at the end of the day of receipt. A reinvestment plan may be terminated
at any time. This plan does not assure a profit nor protect against depreciation
in a declining market.
Reinvestment of Dividends in Other Delaware Investments Family of Funds
Subject to applicable eligibility and minimum initial purchase requirements
and the limitations set forth below, holders of Class A Shares, Class B Shares
and Class C Shares may automatically reinvest dividends and/or distributions in
any of the mutual funds in Delaware Investments, including a Fund, in states
where their shares may be sold. Such investments will be at net asset value at
the close of business on the reinvestment date without any front-end sales
charge or service fee. The shareholder must notify the Transfer Agent in writing
and must have established an account in the fund into which the dividends and/or
distributions are to be invested. Any reinvestment directed to a fund in which
the investor does not then have an account will be treated like all other
initial purchases of the fund's shares. Consequently, an investor should obtain
and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. 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 Delaware Investments 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.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Investments
family, you may write and authorize an exchange of part or all of your
investment into shares of a Fund. If you wish to open an account by exchange,
call the Shareholder Service Center for more information. All exchanges are
subject to the eligibility and minimum purchase requirements set forth in a
fund's prospectus. See Redemption and Exchange for more complete information
concerning your exchange privileges.
Holders of Class A Shares of a Fund may exchange all or part of their shares
for certain of the shares of other funds in the Delaware Investments family,
including other Class A Shares, but may not exchange their Class A Shares for
Class B Shares or Class C Shares of the Fund or of any other fund in the
Delaware Investments family. Holders of Class B Shares of a Fund are permitted
to exchange all or part of their Class B Shares only into Class B Shares of
other Delaware Investments funds. Similarly, holders of Class C Shares of a Fund
are permitted to exchange all or part of their Class C Shares only into Class C
Shares of other Delaware Investments funds. Class B Shares of a Fund and Class C
Shares of a Fund acquired by exchange will continue to carry the CDSC and, in
the case of Class B Shares, the automatic conversion schedule of the fund from
which the exchange is made. The holding period of Class B Shares of a Fund
acquired by exchange will be added to that of the shares that were exchanged for
purposes of determining the time of the automatic conversion into Class A Shares
of the same Fund.
Permissible exchanges into Class A Shares of a Fund will be made without a
front-end sales charge, except for exchanges of shares that were not previously
subject to a front-end sales charge (unless such shares were acquired through
the reinvestment of dividends). Permissible exchanges into Class B Shares or
Class C Shares of a Fund will be made without the imposition of a CDSC by the
fund from which the exchange is being made at the time of the exchange.
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Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for any Fund to accept
for investment in Class A Shares, Class B Shares 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 Shares, Class B Shares and
Class C Shares may make automatic investments by authorizing, in advance,
monthly or quarterly 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 account. 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 Equity Funds III for proper
instructions.
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MoneyLine (SM) On Demand
You or your investment dealer may request purchases of the Delaware
Technology and Innovation and Delaware Trend Fund shares by phone using
MoneyLine (SM) On Demand. When you authorize the 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 Fund does 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 Delaware Investments
family through the Wealth Builder Option. If in connection with the election of
the Wealth Builder Option, you wish to open a new account to receive the
automatic investment, such new account must meet the minimum initial purchase
requirements described in the prospectus of the fund that you select. All
investments under this option are exchanges and are therefore subject to the
same conditions and limitations as other exchanges noted above.
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 in Wealth Builder
at any time by giving written notice to the fund from which exchanges are made.
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 Class.
Asset Planner
To invest in Delaware Investments funds using the Asset Planner asset
allocation service, you should complete an 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 Delaware Investments funds. With the help of a financial adviser,
you may also design a customized asset allocation strategy.
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The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange. 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 a 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) Defined Contribution 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 only by Individual Retirement Accounts, SIMPLE IRAs, Roth IRAs,
Education IRAs, Simplified Employee Pension Plans, Salary Reduction Simplified
Employee Pension Plans, and 403(b)(7) 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 - Class B Shares and Class C
Shares 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 shares of the 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 $32,000 ($52,000 for taxpayers
filing joint returns) for years beginning after December 31, 1997. A partial
deduction is allowed for married couples with income between $52,000 and
$62,000, and for single individuals with incomes between $32,000 and
$42,000. 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. As a
result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Act"), the $2,000 annual limit will not be 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 includable in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
education 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.
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 are 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 a 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 in 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 100 or fewer employees and, in exchange for mandatory plan sponsor
contributions, discrimination testing is no longer required. Class B Shares are
not available for purchase by such plans.
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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 after receipt of the order by a Fund, its agent or certain other
authorized persons. See Distribution and Service under Investment Management
Agreement. Orders for purchases of Class B Shares, Class C Shares and
Institutional Class shares are effected at the net asset value per share next
calculated after receipt of the order by a 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 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 when 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, are included in a
Fund's financial statements which are incorporated by reference into this Part
B.
A Fund's net asset value per share is computed by adding the value of all the
securities and other assets in a Fund's portfolio, deducting any liabilities of
the Fund, and dividing by the number of Fund shares outstanding. Expenses and
fees are accrued daily. In determining a Fund's total net assets, portfolio
securities primarily listed or traded on a national or foreign securities
exchange, except for bonds, are valued at the last sale price on that exchange.
Exchange traded options are valued at the last reported sale price or, if no
sales are reported, at the mean between bid and asked prices. Non-exchange
traded options are valued at fair value using a mathematical model. Futures
contracts are valued at their daily quoted settlement price. 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 securities,
currencies and other assets denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of these currencies against the U.S.
dollar, as provided by an independent pricing service. 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. For all other securities, we use
methods approved by the Board of Trustees that are designed to price securities
at their fair market value.
Each Class of a Fund will bear, pro-rata, all of the common expenses of the
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 the 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 Class will not incur any of the expenses under Equity
Funds III's 12b-1 Plans and Class A Shares, Class B Shares 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 will be allocable
to each Class, the net asset value of each Class of a Fund will vary.
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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. 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. An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve a capital gain or loss to the
shareholder for federal income tax purposes. 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. See the Prospectuses. 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 a 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.
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 a Fund or certain other authorized persons (see Distribution and
Service under Investment Management Agreement); provided, however, that each
commitment to
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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. A Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the 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 the Fund or to the Distributor.
In case of a suspension of the determination of the net asset value because
the New York Stock Exchange is closed for other than weekends or holidays, or
trading thereon is restricted or an emergency exists as a result of which
disposal by 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, the Fund may postpone payment or suspend the right of redemption
or repurchase. In such case, the shareholder may withdraw the request for
redemption or leave it standing as a request for redemption at the net asset
value next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash or
kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Equity Funds
III has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which a 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) 5% if shares are redeemed within
one year of purchase; (ii) 4% if shares are redeemed during the second year
after purchase (iii) 3% if shares are redeemed during the third or fourth year
following purchase; (iv) 2% if shares are redeemed during the fifth year
following purchase; and (v) 1% if shares are redeemed during the sixth year
following purchase. 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 may be
a bank wiring cost, neither the Funds nor the Distributor charge a fee for
redemptions or repurchases, but such fees could be charged at any time in the
future.
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.
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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 a 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"). A Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. A Fund 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 or Institutional Class 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 and Institutional Class
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 a 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.
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 or Institutional Class 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 a Fund 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 are 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, a Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes are generally tape recorded, and a written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of
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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. A bank wire fee may 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. 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 the Funds 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 the Delaware
Technology and Innovation and Delaware Trend Fund shares by phone using
MoneyLine (SM) On Demand. When you authorize the 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.
Timing Accounts
Redemptions of Timing Accounts--Redemption requests made from Timing
Accounts will be made only by check. Redemption proceeds from these accounts
will not be wired to shareholder bank accounts. Such checks will be sent no
later than seven days after receipt of a redemption request in good order.
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
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redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges--Timing Accounts operating under existing
timing agreements may only execute exchanges between the following eight
Delaware Investments funds: (1) Delaware Decatur Equity Income Fund, (2)
Delaware Growth and Income Fund, (3) Delaware Balanced Fund, (4) Delaware
Limited-Term Government Fund, (5) Delaware Tax-Free USA Fund, (6) Delaware Cash
Reserve Fund, (7) Delaware Delchester Fund and (8) Delaware 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 of the
Delaware Technology and Innovation Fund and Delaware Trend Fund 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 Fund does not recommend any specific
amount of withdrawal. This is particularly useful to shareholders living on
fixed incomes, since it can provide them with a stable supplemental amount. This
$5,000 minimum does not apply for the Fund's prototype retirement plans. Shares
purchased with the initial investment and through reinvestment of cash dividends
and realized securities profits distributions will be credited to the
shareholder's account and sufficient full and fractional shares will be redeemed
at the net asset value calculated on the third business day preceding the
mailing date.
Checks are dated either the 1st or the 15th of the month, as selected by
the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital, and the share
balance may in time be depleted, particularly in a declining market.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
The sale of shares for withdrawal payments constitutes a taxable event and
a shareholder may incur a capital gain or loss for federal income tax purposes.
This gain or loss may be long-term or short-term depending on the holding period
for the specific shares liquidated. Premature withdrawals from retirement plans
may have adverse tax consequences.
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 the Fund managed by the
Manager must be terminated before a Systematic Withdrawal Plan with respect to
such shares
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can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in Delaware Investments funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net
asset value and a dealer's commission has been paid on that purchase. The
applicable Limited CDSC for Class A Shares and CDSC for Class B and C Shares
redeemed via a Systematic Withdrawal Plan will be waived if the annual amount
withdrawn in each year is less than 12% of the account balance on the date that
the Plan is established. If the annual amount withdrawn in any year exceeds 12%
of the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subjected to the applicable
contingent deferred sales charge, including an assessment for previously
redeemed amounts under the Plan. Whether a waiver of the contingent deferred
sales charge is available or not, the first shares to be redeemed for each
Systematic Withdrawal Plan payment will be those not subject to a contingent
deferred sales charge because they have either satisfied the required holding
period or were acquired through the reinvestment of distributions. See Waiver of
Contingent Deferred Sales Charges, below.
An investor wishing to start a Systematic Withdrawal Plan must complete an
authorization form. If the recipient of Systematic Withdrawal Plan payments is
other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
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 Fund does not charge
a fee for any this service; however, your bank may charge a fee. This service is
not available for retirement plans.
The Systematic Withdrawal Plan is not available for the Institutional
Classes of the Funds or the Fund Classes of the Delaware American Services Fund,
Delaware Large Cap Growth Fund and Delaware Research Fund. Shareholders should
consult with their financial advisers to determine whether a Systematic
Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000 or more made on or after July 1, 1998, a Limited
CDSC will be imposed on certain redemptions of Class A Shares (or shares into
which such Class A Shares are exchanged) according to the following schedule:
(1) 1.00% if shares are redeemed during the first year after the purchase; and
(2) 0.50% if such shares are redeemed during the second year after the purchase,
if such purchases were made at net asset value and triggered the payment by the
Distributor of the dealer's commission described above.
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
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two year period is not satisfied irrespective of whether the redemption
triggering its payment is of Class A Shares of a Fund or Class A Shares acquired
in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed that
shares not subject to the Limited CDSC are the first redeemed followed by other
shares held for the longest period of time. The Limited CDSC will not be imposed
upon shares representing reinvested dividends or capital gains distributions, or
upon amounts representing share appreciation. All investments made during a
calendar month, regardless of what day of the month the investment occurred,
will age one month on the last day of that month and each subsequent month.
Waivers of Contingent Deferred Sales Charges
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has been
paid will be waived in the following instances: (i) redemptions that result from
a Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the Internal Revenue Code; (v) returns of excess contributions to an IRA;
(vi) distributions by other employee benefit plans to pay benefits; (vii)
distributions described in (ii), (iv), and (vi) above pursuant to a systematic
withdrawal plan; (viii) distributions from an account if the redemption
results from a death of a registered owner, or a registered joint owner, of the
account (in the case of accounts established under the Uniform Gifts to Minors
or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon
the death of all beneficial owners) or a total disability (as defined in Section
72 of the Code) of all registered owners occurring after the purchase of the
shares being redeemed; (ix) redemptions by certain group defined contribution
retirement plans that purchase shares through a retirement plan alliance program
which requires that shares will be available at net asset value, provided that,
Retirement Financial Services, Inc. has a product participation agreement with
the sponsor of the alliance program that specifies that the Limited CDSC will be
waived; and (x) redemptions by the classes of shareholders who are permitted to
purchase shares at net asset value, regardless of the size of the purchase (see
Buying Class A Shares at Net Asset Value under Purchasing Shares).
Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in connection
with the following redemptions: (i) redemptions that result from a Fund's right
to liquidate a shareholder's account if the aggregate net asset value of the
shares held in the account is less than the then-effective minimum account size;
(ii) returns of excess contributions to an IRA, SIMPLE IRA, SEP/IRA, or
403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic distributions from
an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, or 403(b)(7) or 457 Deferred Compensation
Plan due to death, disability or attainment of age 59 1/2, and IRA distributions
qualifying under Section 72(t) of the Internal Revenue Code; and (iv)
distributions from an account if the redemption results from the death of a
registered owner, or a registered joint owner, of the account (in the case of
accounts established under the Uniform Gifts to Minors or Uniform Transfers to
Minors Acts or trust accounts, the waiver applies upon the death of all
beneficial owners) or a total and permanent disability (as defined in Section 72
of the Code) of all registered owners occurring after the purchase of the shares
being redeemed.
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)
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distributions from a 403(b)(7) or 457 Deferred Compensation Plan, Profit Sharing
Plan, or 401(k) Defined Contribution Plan, under hardship provisions of the
plan; (v) distributions from a 403(b)(7) or 457 Deferred Compensation Plan,
Profit Sharing Plan, Money Purchase Pension Plan or a 401(k) Defined
Contribution Plan upon attainment of normal retirement age under the plan or
upon separation from service; (vi) periodic distributions from an IRA or SIMPLE
IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of a registered owner, or a
registered joint owner, of the account (in the case of accounts established
under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners) or a total
and permanent disability (as defined in Section 72 of the Code) of all
registered owners occurring after the purchase of the shares being redeemed.
* * *
In addition, the CDSC will be waived on the Delaware Technology and
Innovation and Delaware Trend Fund's Class A Shares, Class B Shares and Class C
Shares redeemed in accordance with a Systematic Withdrawal Plan if the annual
amount withdrawn under the Plan does not exceed 12% of the value of the account
on the date that the Systematic Withdrawal Plan was established.
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
Delaware American Services, Delaware Large Cap Growth Fund, Delaware
Research Fund and Delaware Technology and Innovation] Fund will make payments
from its net investment income and net realized securities profits, if any, once
a year.
Delaware Trend Fund will make payments from its net investment income and
net realized securities profits, if any 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.
All dividends and any capital gains distributions will be automatically
reinvested for the shareholder in additional shares of the same Class at net
asset value, unless in the case of the Fund Classes of the Delaware Technology
and Innovation Fund and Delaware Trend Fund a shareholder requests in writing
that such dividends and/or distributions be paid in cash. Dividend payments of
$1.00 or less will 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 file a new election
in order begin receiving dividends in cash again. If you elect to take your
dividends and distributions in cash and such dividends and distributions are in
an amount of $25 or more, you may choose the MoneyLine (SM) Direct Deposit
Service and have such payments transferred from your Fund account to your
predesignated bank account. This service is not available for certain retirement
plans. It may take up to four business days for the transactions to be
completed. You can initiate either service by completing an Account Services
form. If your name and address on your designated bank account 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 MoneyLine (SM) Service;
however, your bank may charge a fee. Please call the Shareholder Service Center
for additional information about these services.
Each Class of shares of a Fund will share proportionately in the investment
income and expenses of the Fund, except that Class A Shares, Class B Shares and
Class C Shares alone will incur distribution fees under their respective 12b-1
Plans.
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
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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.
TAXES
It is each Fund's policy to pay out substantially all net investment income
and net realized gains to shareholders to relieve itself of federal income tax
liability on that portion of its income paid to shareholders under Subchapter M
of the Code. Such distributions are taxable as ordinary income or capital gain
to those shareholders who are liable for federal income tax. Each Fund also
intends to meet the calendar year distribution requirements imposed by the Code
to avoid the imposition of a 4% excise tax.
Distributions may also be subject to state and local taxes; shareholders are
advised to consult with their tax advisers in this regard. Shares of each Fund
will be exempt from Pennsylvania personal property taxes. The automatic
conversion of Class B Shares into Class A Shares at the end of approximately
eight years after purchase will be tax-fee for federal tax purposes.
Dividends representing net investment income or short-term capital gains are
taxable to shareholders as ordinary income. Distributions of long-term capital
gains, if any, are taxable as long-term capital gain 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 will
not be affected by whether they are paid in cash or in additional shares. A
portion of these distributions may be eligible for the dividends-received
deduction for corporations. The portion of dividends, if any, paid by a Fund
that so qualifies will be designated each year in a notice mailed to the
Fund's shareholders, and cannot exceed the gross amount of dividends received
by the Fund from domestic (U.S.) corporations that would have qualified for the
dividends-received deduction in the hands of the Fund if the Fund was a regular
corporation. The availability of the dividends-received deduction is subject to
certain holding period and debt financing restrictions imposed under the Code on
the corporation claiming the deduction. Under the 1997 Act, the amount that a
Fund may designate as eligible for the dividends-received deduction will be
reduced or eliminated if the shares on which the dividends earned by the Fund
were debt-financed or held by the Fund for less than a 46-day period during a
90-day period beginning 45 days before the ex-dividend date and ending 45 days
after the ex-dividend date. Similarly, if your Fund shares are debt-financed or
held by you for less than a 46-day period during a 90-day period beginning 45
days before the ex-dividend date and ending 45 days after the ex-dividend date,
then the dividends-received deduction for Fund dividends on your shares may also
be reduced or eliminated. Even if designated as dividends eligible for the
dividends-received deduction, all dividends (including any deducted portion)
must be included in your alternative minimum taxable income calculation. Advice
as to the tax status of each year's dividends and distributions, when paid, will
be mailed annually. For the fiscal year ended June 30, 2000, none of the Funds
had dividends from net investment income that qualified for the
dividends-received deduction for corporations.
If the net asset value of shares were reduced below a shareholder's cost by
distribution of gain realized on sale of securities, such distribution would be
a return of investment though taxable as stated above. The Funds' portfolio
securities had an unrealized or unrealized depreciation for tax purposes for the
fiscal year ended June 30, 2000 as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 2000
Unrealized Appreciation/Depreciation for Tax Purposes
<S> <C>
Delaware American Services Fund $38,322 unrealized depreciation
Delaware Large Cap Growth Fund $97,548 unrealized appreciation
Delaware Research Fund $171,735 unrealized depreciation
Delaware Technology and Innovation Fund $3,341,411 unrealized appreciation
Delaware Trend Fund $543,573,941 unrealized appreciation
</TABLE>
51
<PAGE>
Prior to purchasing shares of a Fund, you should carefully consider the
impact of dividends or realized securities profits distributions which have been
declared but not paid. Any such dividends or realized securities profits
distributions paid shortly after a purchase of shares by an investor will have
the effect of reducing the per share net asset value of such shares by the
amount of the dividends or realized securities profits distributions. All or a
portion of such dividends or realized securities profits distributions, although
in effect a return of capital, are subject to taxes which may be at ordinary
income tax rates. The purchase of shares just prior to the ex-dividend date has
an adverse effect for income tax purposes.
Under the Taxpayer Relief Act of 1997, 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 its capital
gain distributions to you according to the following categories of holding
periods:
"Long-term capital gains": gains on securities sold after December 31, 1997
and held for more than 12 months as capital assets in the hands of the holders
are taxed at the 20% rate when distributed to shareholders (10% for individual
investors in the 15% bracket).
"Short-term capital gains": gains on securities sold by a Fund that do not
meet the long-term holding period are considered short-term capital gains and
are taxed as ordinary income.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
five-year gains are net gains on securities held for more than 5 years which are
sold after December 31, 2000. For individuals who are subject to tax at higher
rate brackets, qualified five-year gains are net gains on securities which are
purchased after December 31, 2000 and are held for more than five 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 five-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.
If you redeem some or all of your shares in a Fund, and then reinvest the
sales proceeds in such Fund or in another Delaware Investments fund within 90
days of buying the original shares, the sales charge that would otherwise apply
to your reinvestment may be reduced or eliminated. The IRS will require you to
report gain or loss on the redemption of your original shares in a Fund. In
doing so, all or a portion of the sales charge that you paid for your original
shares in a Fund will be excluded from your tax basis in the shares sold (for
the purpose of determining gain or loss upon the sale of such shares). The
portion of the sales charge excluded will equal the amount that the sales charge
is reduced on your reinvestment. Any portion of the sales charge excluded from
your tax basis in the shares sold will be added to the tax basis of the shares
you acquire from your reinvestment.
Each Fund has qualified, and intends to continue to qualify, as a regulated
investment company under Subchapter M of the Code. As such, a Fund will not be
subject to federal income tax, or to any excise tax, to the extent its earnings
are distributed as provided in the Code and it satisfies other requirements
relating to the sources of its income and diversification of its assets. In
order to qualify as a regulated investment company for federal income tax
purposes, a Fund must meet certain specific requirements, including:
(i) A Fund must maintain a diversified portfolio of securities, wherein
no security (other than U.S. government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets, and,
with respect to 50% of the Fund's total assets, no investment (other than cash
and cash items, U.S. government securities and securities of other regulated
investment companies) can exceed 5% of the Fund's total assets;
(ii) A Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
disposition of stock and securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities, or
currencies;
52
<PAGE>
(iii) A Fund must distribute to its shareholders at least 90% of its
investment company taxable income and net tax-exempt income for each of its
fiscal years, and
(iv) A Fund must realize less than 30% of its gross income for each
fiscal year from gains from the sale of securities and certain other assets that
have been held by the Fund for less than three months ("short-short income").
The Taxpayer Relief Act of 1997 (the "1997 Act") repealed the 30% short-short
income test for tax years of regulated investment companies beginning after
August 5, 1997; however, this rule may have continuing effect in some states for
purposes of classifying the Fund as a regulated investment company.
The Code requires a Fund to distribute at least 98% of its taxable ordinary
income earned during the calendar year and 98% of its capital gain net income
earned during the 12 month period ending October 31 (in addition to amounts from
the prior year that were neither distributed nor taxed to the Fund) to
shareholders by December 31 of each year in order to avoid federal excise taxes.
Each Fund intends as a matter of policy to declare and pay sufficient dividends
in December or January (which are treated by shareholders as received in
December) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the year that unrealized losses exceed unrealized gains or when
the offsetting position is sold.
The 1997 Act has also added new provisions for dealing with transactions
that are generally called "Constructive Sale Transactions." Under these rules, a
Fund must recognize gain (but not loss) on any constructive sale of an
appreciated financial position in stock, a partnership interest or certain debt
instruments. A Fund will generally be treated as making a constructive sale when
it: 1) enters into a short sale on the same or substantially identical property;
2) enters into an offsetting notional principal contract; or 3) enters into a
futures or forward contract to deliver the same or substantially identical
property. Other transactions (including certain financial instruments called
collars) will be treated as constructive sales as provided in Treasury
regulations to be published. There are also certain exceptions that apply for
transactions that are closed before the end of the 30th day after the close of
the taxable year.
Investment in Foreign Currencies and Foreign Securities--Each Fund is
authorized to invest certain limited amounts in foreign securities. Such
investments, if made, will have the following additional tax consequences to a
Fund:
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time the Fund actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of its disposition are
also treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of a Fund's net investment company taxable income, which, in turn, will affect
the amount of income to be distributed to you by the Fund.
If a Fund's Section 988 losses exceed the Fund's other investment company
taxable income during a taxable year, the Fund generally will not be able to
make ordinary dividend distributions to you for that year, or distributions made
before the losses were realized will be recharacterized as return of capital
distributions for federal income tax purposes, rather than as an ordinary
dividend or capital gain distribution. If a distribution is treated as a return
of capital, your tax basis in your Fund shares will be reduced by a like amount
(to the extent of such basis), and any excess of the distribution over your tax
basis in your Fund shares will be treated as capital gain to you.
53
<PAGE>
The 1997 Act generally requires that foreign income be translated into U.S.
dollars at the average exchange rate for the tax year in which the transactions
are conducted. Certain exceptions apply to taxes paid more than two years after
the taxable year to which they relate. This new law may require a Fund to track
and record adjustments to foreign taxes paid on foreign securities in which it
invests. A Fund will be required to record at fiscal year end (and at calendar
year end for excise tax purposes) an adjustment that reflects the difference
between the spot rates recorded for each transaction and the year-end average
exchange rate for all of the Fund's foreign securities transactions. There is a
possibility that the mutual fund industry will be given relief from this new
provision, in which case no year-end adjustments will be required.
A Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the total assets of the Fund at the
end of its fiscal year are invested in securities of foreign corporations, the
Fund may elect to pass-through to you your pro rata share of foreign taxes paid
by the Fund. If this election is made, you will be: (i) required to include in
your gross income your pro rata share of foreign source income (including any
foreign taxes paid by the Fund); and (ii) entitled to either deduct your share
of such foreign taxes in computing your taxable income or to claim a credit for
such taxes against your U.S. income tax, subject to certain limitations under
the Code. You will be informed by a Fund at the end of each calendar year
regarding the availability of any such foreign tax credits and the amount of
foreign source income (including any foreign taxes paid by the Fund). If a Fund
elects to pass-through to you the foreign income taxes that it has paid, you
will be informed at the end of the calendar year of the amount of foreign taxes
paid and foreign source income that must be included on your federal income tax
return. If the Fund invests 50% or less of its total assets in securities of
foreign corporations, it will not be entitled to pass-through to you your
pro-rata share of foreign taxes paid by the Fund. In this case, these taxes
will be taken as a deduction by a Fund, and the income reported to you will be
the net amount after these deductions. The 1997 Act also simplifies the
procedures by which investors in funds that invest in foreign securities can
claim tax credits on their individual income tax returns for the foreign taxes
paid by a Fund. These provisions will allow investors who pay foreign taxes of
$300 or less on a single return or $600 or less on a joint return during any
year (all of which must be reported on IRS Form 1099-DIV from a Fund to the
investor) to claim a tax credit against their U.S. federal income tax for the
amount of foreign taxes paid by the Fund. This process will allow you, if you
qualify, to bypass the burdensome and detailed reporting requirements on the
foreign tax credit schedule (Form 1116) and report your foreign taxes paid
directly on page 2 of Form 1040.
Investment in Passive Foreign Investment Company Securities--Each Fund
may invest in shares of foreign corporations which may be classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. If a Fund receives an "excess distribution" with respect
to PFIC stock, a Fund itself may be subject to U.S. federal income tax on a
portion of the distribution, whether or not the corresponding income is
distributed by the Fund to you. In general, under the PFIC rules, an excess
distribution is treated as having been realized ratably over the period during
which the Fund held the PFIC shares. A Fund itself will be subject to tax on the
portion, if any, of an excess distribution that is so allocated to prior Fund
taxable years, and an interest factor will be added to the tax, as if the tax
had been payable in such prior taxable years. In this case, you would not be
permitted to claim a credit on your own tax return for the tax paid by the Fund.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
distribution might have been classified as capital gain. This may have the
effect of increasing Fund distributions to you that are treated as ordinary
dividends rather than long-term capital gain dividends.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC during such period. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, the 1997 Act provides for
another election that would involve marking-to-market the Fund's PFIC shares at
the end of each taxable year (and on certain other dates as prescribed in the
Code), with the result that unrealized gains would be treated as though they
were realized. A Fund would also be allowed an ordinary deduction for the
excess, if any, of the adjusted basis of its investment in the PFIC stock over
54
<PAGE>
its fair market value at the end of the taxable year. This deduction would be
limited to the amount of any net mark-to-market gains previously included with
respect to that particular PFIC security. If a Fund were to make this second
PFIC election, tax at the Fund level under the PFIC rules would generally be
eliminated.
The application of the PFIC rules may affect, among other things, the amount
of tax payable by a Fund (if any), the amounts distributable to you by the Fund,
the time at which these distributions must be made, and whether these
distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares of a
foreign corporation are acquired to ascertain that the foreign corporation is a
PFIC, and that there is always a possibility that a foreign corporation will
become a PFIC after the Fund acquires shares in that corporation. While a Fund
will generally seek to avoid investing in PFIC shares to avoid the tax
consequences detailed above, there are no guarantees that it will do so and it
reserves the right to make such investments as a matter of its fundamental
investment policy.
Most foreign exchange gains are classified as ordinary income which will be
taxable to you as such when distributed. Similarly, you should be aware that any
foreign exchange losses realized by a Fund, including any losses realized on the
sale of foreign debt securities, are generally treated as ordinary losses for
federal income tax purposes. This treatment could increase or reduce a Fund's
income available for distribution to you, and may cause some or all of a Fund's
previously distributed income to be classified as a return of capital.
55
<PAGE>
INVESTMENT MANAGEMENT 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 Equity Funds III's Board of Trustees.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On June 30, 2000, the Manager and
its affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $44 billion in assets
in various institutional or separately managed (approximately $25,511,940,000)
and investment company (approximately $19,472,230,000) accounts.
The Investment Management Agreement for Delaware Trend Fund is dated
August 27, 1999 and was approved by the initial shareholder of the Fund on
that date. The Agreement was amended on December 22, 1999 to add Delaware
American Services Fund, Delaware Large Cap Growth Fund, Delaware Research Fund
and Delaware Technology and Innovation Fund. The amendment adding Delaware
American Services Fund, Delaware Large Cap Growth Fund, Delaware Research Fund
and Delaware Technology and Innovation Fund was approved by the initial
shareholder of those Funds on December 22, 1999 and will remain in effect for
an initial term of two years. The Agreement may be renewed 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 a Fund, and only if the terms and the renewal thereof have been approved by
the vote of a majority of the trustees of Equity Funds III who are not parties
thereto or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement is terminable
without penalty on 60 days' notice by the trustees of Equity Funds III or by the
Manager. The Agreement will terminate automatically in the event of its
assignment.
The annual compensation paid by each Fund for investment management services
is equal to the following fee rate which is based on the average daily net
assets of a Fund:
<TABLE>
<CAPTION>
<S> <C>
Delaware Large Cap Growth Fund 0.65% on the first $500 million;
0.60% on the next $500 million;
0.55% on the next $1.5 billion;
0.50% on assets in excess of $2.5 billion
Delaware Technology and Innovation Fund 0.75% on the first $500 million;
Delaware American Services Fund 0.70% on the next $500 million;
Delaware Trend Fund 0.65% on the next $1.5 billion;
0.60% on assets in excess of $2.5 billion
Delaware Research Fund 1.00% on the first $500 million;
0.95% on the next $500 million;
0.90% on the next $1.5 billion;
0.85% on assets in excess of $2.5 billion
</TABLE>
The total net assets of each Fund as of June 30, 2000 follows:
<TABLE>
<CAPTION>
Total Net Assets for the
Fiscal Year Ended
June 30, 2000
<S> <C>
Delaware American Services Fund $3,253,220
Delaware Large Cap Growth Fund $2,498,236
Delaware Research Fund $5,818,889
Delaware Technology and Innovation Fund $120,071,182
Delaware Trend Fund $1,487,011,595
</TABLE>
The Manager received compensation from each Fund for the past three fiscal years
as follows:
56
<PAGE>
<TABLE>
<CAPTION>
Investment Management Fees
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 1998
<S> <C> <C> <C> <C>
Delaware American Services Fund(1) $11,189 earned N/A N/A
$8,142 paid
$3,047 waived
Delaware Large Cap Growth Fund(1) $7,665 earned N/A N/A
$4,809 paid
$2,856 waived
Delaware Research Fund(1) $27,463 earned N/A N/A
$15,131 paid
$12,332 waived
Delaware Technology and Innovation Fund(1) $248,315 earned N/A N/A
$140,646 paid
$107,669 waived
Delaware Trend Fund $7,405,992 paid $4,225,029 $4,849,948
</TABLE>
(1) Commenced operations on December 29, 1999.
Under the general supervision of the Board of Trustees, the Manager makes
all investment decisions which are implemented by a Fund. The Manager pays the
salaries of all trustees, officers and employees who are affiliated with both
the Manager and each Fund.
The investment manager had agreed to waive fees and pay expenses through
August 31, 2000 with respect to Delaware American Services Fund, Delaware Large
Cap Growth Fund and Delaware Research Fund in order to prevent total operating
expenses (excluding 12b-1 Plan expenses, taxes, interest, brokerage fees and
extraordinary expenses) from exceeding 0.75% of average daily net assets. This
commitment for Delaware American Services Fund and Delaware Large Cap Growth
Fund has been extended through February 28, 2001. The commitment for Delaware
Research Fund is modified effective September 1, 2000 to provide that the
investment manager will waive fees and pay expenses to the extent necessary to
prevent such expenses of the Fund from exceeding, on an annual basis, 1.00% of
the Fund's average daily net assets through February 28, 2001.
The investment manager has contracted to waive fees and pay expenses for
Delaware Technology and Innovation Fund through August 31, 2001 in order to
prevent total operating expenses (excluding any 12b-1 Plan expenses, taxes,
interest, brokerage fees, and extraordinary expenses) from exceeding 1.20% of
average daily net assets.
Except for those expenses borne by the Manager under the Investment
Management Agreement and the Distributor under the Distribution Agreements, each
Fund is responsible for all of its own expenses. Among others, these include a
Fund's proportionate share of rent and certain other administrative expenses;
the investment management fees; transfer and dividend disbursing agent fees and
costs; custodian expenses; federal and state securities registration fees; proxy
costs; and the costs of preparing prospectuses and reports sent to shareholders.
J. Paul Dokas and the other members of the Manager's Structured Products
team are also officers of, and serve as investment personnel for, Vantage
Investment Advisors, a registered investment adviser and affiliate of the
Manager. The Manager will utilize Vantage's investment personnel, research,
trading capabilities and other services in connection with the management of
Delaware Research Fund. The Fund will not incur any additional fees as a result
of the services provided by Vantage.
57
<PAGE>
Distribution and Service
The Distributor, Delaware Distributors, L.P., located at 1818 Market
Street, Philadelphia, PA 19103, serves as the national distributor of each
Fund's shares under a Distribution Agreement dated as of August 27, 1999, as
amended December 22, 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 Class A Shares, Class B Shares and Class C Shares under
their respective 12b-1 Plans. Delaware Distributors, L.P. is an indirect, wholly
owned subsidiary 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 Amended and Restated Shareholders Services Agreement dated as of
December 22, 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.
Each Fund has authorized one or more brokers to accept on its 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 a Fund. For purposes of pricing, each Fund
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 when effecting transactions through a
broker or agent.
58
<PAGE>
OFFICERS AND TRUSTEES
The business and affairs of Equity Funds III are managed under the
direction of its Board of Trustees.
Certain officers and trustees of Equity Funds III hold identical
positions in each of the other funds in the Delaware Investments family. On
July 31, 2000, Equity Funds III's officers and trustees owned less than 1% of
the outstanding shares of Class A Shares, Class B Shares, Class C Shares and the
Institutional Class of each Fund.
As of July 31, 2000, management believes the following accounts held
5% or more of the outstanding shares of each Class of Equity Funds III. Equity
Funds III has no knowledge of beneficial ownership.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Class Name and Address of Account Share Amount Percentage
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delaware Lori P. Wachs 13,328.470 16.43%
American Services 549 Foxglove Lane
Fund A Class Wyneewood, PA 19096-1659
--------------------------------------------------------------------------------------------------------------------------------
John A. Heffern 13,241.720 16.32%
7 Toftrees Court
Princeton, NJ 08540-4218
--------------------------------------------------------------------------------------------------------------------------------
DMTC Custodian for the IRA of 12,919.600 15.93%
Francis T. Fadden
321 Steeplechase Drive
Media, PA 19063-1958
--------------------------------------------------------------------------------------------------------------------------------
John S. Connors 8,776.550 10.82%
467 Belrose Lane
Radnor, PA 19087-4418
--------------------------------------------------------------------------------------------------------------------------------
William S. Carroll 6,256.480 7.71%
2438 134th Avenue NE
Bellevue, WA 98005-1868
--------------------------------------------------------------------------------------------------------------------------------
Delaware American Services Lincoln National Life Insurance Company 235,294.120 99.99%
Fund Institutional Class 1300 South Clinton Street
Fort Wayne, IN 46802-3518
--------------------------------------------------------------------------------------------------------------------------------
Delaware Large Cap Growth Richard D. Seidel 973.710 25.12%
Fund A Class 3205 Charles Griffin Drive
Boothwyn, PA 19061-2203
--------------------------------------------------------------------------------------------------------------------------------
Thomas C. Gariepy 703.400 18.15%
One Marlyn Circle
Wayne, PA 19087-3217
--------------------------------------------------------------------------------------------------------------------------------
Tim Scanlan 657.710 16.97%
7 Hanover Lane
Norristown, PA 19401-1724
--------------------------------------------------------------------------------------------------------------------------------
Dinah J. Huntoon 563.060 14.53%
2031 Locust Street
Apartment 1001
Phildelphia, PA 19103-5610
--------------------------------------------------------------------------------------------------------------------------------
Michael Z. Baer and Jane E. Baer JT WROS 243.430 6.28%
5 Long Lane
Berwyn, PA 19312-1211
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delaware Large Cap Growth Lincoln National Life Insurance Company 235,294.120 99.99%
Fund Institutional Class 1300 South Clinton Street
Fort Wayne, IN 46802-3518
--------------------------------------------------------------------------------------------------------------------------------
Delaware Research Fund DMTC Custodian for the IRA of 29,103.610 69.88%
A Class Richard G. Unruh, Jr.
201 South 25th Street
Apartment 416
Philadelphia, PA 19103-6006
--------------------------------------------------------------------------------------------------------------------------------
DMTC C/F the Rollover IRA of 3,105.500 7.45%
Albert H. Burchfield
470 Bair Road
Berwyn, PA 19312-1410
--------------------------------------------------------------------------------------------------------------------------------
Delaware Research Fund Lincoln National Life Insurance Company 235,294.120 35.49%
Institutional Class 1300 South Clinton Street
Fort Wayne, IN 46802-3518
--------------------------------------------------------------------------------------------------------------------------------
Chase Manhattan C/F 181,047.810 27.03%
Delaware Group Foundation FD Growth Portfolio
Attn: Marisol Gordon
Global Investment Service
3 Metrotech Center, 8th Floor
Brooklyn, NY 11201-3800
--------------------------------------------------------------------------------------------------------------------------------
Chase Manhattan C/F 180,966.780 27.29%
Delaware Group Foundation FD Balanced Portfolio
Attn: Marisol Gordon
Global Investment Service
3 Metrotech Center, 8th Floor
Brooklyn, NY 11201-3800
--------------------------------------------------------------------------------------------------------------------------------
Chase Manhattan C/F 65,656.220 9.90%
Delaware Group Foundation FD Income Portfolio
Attn: Marisol Gordon
Global Investment Service
3 Metrotech Center, 8th Floor
Brooklyn, NY 11201-3800
--------------------------------------------------------------------------------------------------------------------------------
Delaware Technology and Merrill Lynch, Pierce, Fenner & Smith 597,334.720 11.41%
Innovation Fund A Class Attn: Fund Administration SEC#97D44
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
--------------------------------------------------------------------------------------------------------------------------------
Delaware Technology and Merrill Lynch, Pierce, Fenner & Smith 623,870.230 11.92%
Innovation Fund B Class Attn: Fund Administration SEC#97D44
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
--------------------------------------------------------------------------------------------------------------------------------
Delaware Technology and Merrill Lynch, Pierce, Fenner & Smith 612,015.490 31.78%
Innovation Fund C Class Attn: Fund Administration SEC#97D44
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delaware Technology and RS DMC Profit Sharing Plan 358,483.930 95.49%
Innovation Fund Institutional Delaware Management Company P/S Trust
Class C/O Rock Seidel
1818 Market Street
Philadelphia, PA 19103-3638
--------------------------------------------------------------------------------------------------------------------------------
Delaware Trend Fund Merrill Lynch, Pierce, Fenner & Smith 1,917,347.050 5.67%
A Class Attn: Fund Administration SEC#974N5
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
--------------------------------------------------------------------------------------------------------------------------------
Delaware Trend Fund Merrill Lynch, Pierce, Fenner & Smith 1,040,213.050 11.14%
B Class Attn: Fund Administration SEC#97FA1
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
--------------------------------------------------------------------------------------------------------------------------------
Delaware Trend Fund Merrill Lynch, Pierce, Fenner & Smith 684,457.520 23.60%
C Class Attn: Fund Administration SEC#97HY3
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
--------------------------------------------------------------------------------------------------------------------------------
Delaware Trend Fund Fidelity Investments - 1,545,924.230 16.43%
Institutional Class Institutional Operations
CO FIICO as Agent
For Certain Employee Benefit Plans
100 Magellan Way KW1C
Covington, KY 41015-1987
--------------------------------------------------------------------------------------------------------------------------------
La Crosse and Co. 1,274,023.690 13.54%
311 Main Street
La Crosse WI 54601-3251
--------------------------------------------------------------------------------------------------------------------------------
Marquette Trust Co. 1,088,934.440 11.57%
Custodian State of Hawaii Defined
Compensation Plan
C/O Stanton Group
Attn: Stacey DeBoer
3405 Annapolis Lane North, Suite 100
Plymouth, MN 55447-5326
--------------------------------------------------------------------------------------------------------------------------------
Fifth Third Bank Trustee 1,010,358.480 10.73%
Benefits & PPA SEC Registered
A/C# 34-3-7540479
Attn: Tammy Garin
5434 Corporate Drive, Suite 150
Troy, MI 48098-2609
--------------------------------------------------------------------------------------------------------------------------------
Bank of New York 737,774.080 7.84%
TRST First Hospital Corp.
Retirement Plan
Attn: Michael Polis
1 Wall Street
New York, NY 10005-2500
--------------------------------------------------------------------------------------------------------------------------------
State of Maryland Savings and 618,37.730 6.57%
Investment Plan
Maryland 457 Plan
C/O IPO Portfolio Accounting
PO Box 182029
Columbus, OH 43218-2029
--------------------------------------------------------------------------------------------------------------------------------
Harrah's Entertainment Inc. 543,932.260 5.78%
Savings and Retirement Plan
Date to Date 2/28/2000
105 Rosemont Avenue
Westwood, MA 02090-2318
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust), 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., Delaware General
Management, Inc. and Retirement Financial Services, Inc. are direct or indirect,
wholly owned subsidiaries of Delaware Management Holdings, Inc. ("DMH"). DMH and
the Manager are indirect, wholly owned subsidiaries, and subject to the ultimate
control, of Lincoln National Corporation. Lincoln National Corporation, with
headquarters in Philadelphia, PA, 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 Equity Funds III 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 (63) Chairman, Trustee/Director of Equity Funds III and each of the other 32 investment
companies in the Delaware Investments family.
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.
Prior to January 1, 2000, Mr. Stork was Chairman and Director of Delaware Management
Holdings, Inc. and a Director of Delaware International Advisers Ltd.
In addition, during the five years prior to January 1, 2000, Mr. Stork has served in
various executive capacities at different times within Delaware Investments.
--------------------------------------------------------------------------------------------------------------------------------
----------------------
*Trustee affiliated with Equity Funds III's investment manager and considered an "interested person" as defined in
the 1940 Act.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
*David K. Downes (60) President, Chief Executive Officer, Chief Financial Officer and Trustee/Director of
Equity Funds III 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.
President, Chief Operating Officer, and Director of Delaware General Management, Inc.
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 Distributors, L.P. and
Delaware Investment Advisers (a series of Delaware Management Business Trust)
Executive Vice President, Chief Financial Officer, Chief Operating 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 Delaware Investments.
--------------------------------------------------------------------------------------------------------------------------------
----------------------
*Trustee affiliated with Equity Funds III's investment manager and considered an "interested person" as defined in
the 1940 Act.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Walter P. Babich (72) Trustee/Director of Equity Funds III and each of the other 32 investment companies in
the Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from 1988 to 1991,
he was a partner of I&L Investors.
--------------------------------------------------------------------------------------------------------------------------------
John H. Durham (63) Trustee/Director of Equity Funds III and each of the other 32 investment companies in
the Delaware Investments family
Private Investor.
P.O. Box 819, Gwynedd Valley, PA 19437
Mr. Durham served as Chairman of the Board of each fund in the Delaware Investments
family from 1986 to 1991; President of each fund from 1977 to 1990; and Chief
Executive Officer of each fund from 1984 to 1990. Prior to 1992, with respect to
Delaware Management Holdings, Inc., Delaware Management Company, Delaware
Distributors, Inc. and Delaware Service Company, Inc., Mr. Durham served as a director
and in various executive capacities at different times. He was also a Partner of
Complete Care Services from 1995 to 1999.
--------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr (61) Trustee/Director of Equity Funds III 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>
64
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Ann R. Leven (59) Trustee/Director of Equity Funds III and each of the other 32 other investment
companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Retired Treasurer, National Gallery of Art
From 1994 to 1999, Ms. Leven was the Treasurer of the National Gallery of Art and from
1990 to 1994, Ms. Leven was Deputy Treasurer of the National Gallery of Art. In
addition, 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 (64) Trustee/Director of Equity Funds III 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 (74) Trustee/Director of Equity Funds III and each of the other 32 investment companies in
the Delaware Investments family
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of The Ryland
Group, Inc., Columbia, MD.
--------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans (52) Trustee/Director of Equity Funds III and each of the other 32 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>
65
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard G. Unruh, Jr. (60) Executive Vice President and Chief Investment Officer, Fixed-Income of Equity Funds
III and each of the other 32 investment companies in the Delaware Investments family.
Executive Vice President/Chief Investment Officer of Delaware Management Company (a
series of Delaware Management Business Trust)
Executive Vice President of Delaware Management Holdings, Inc. and Delaware Capital
Management, Inc.
Chief Executive Officer/Chief Investment Officer 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 Delaware Investments.
--------------------------------------------------------------------------------------------------------------------------------
William E. Dodge (51) Executive Vice President and Chief Investment Officer, Equity of Equity Funds III and
each of the other 32 investment companies in the Delaware Investments family [and
Delaware Management Company (a series of Delaware Management Business Trust)
Executive Vice President of Delaware Management Business Trust and Delaware Capital
Management, Inc.
President and Chief Investment Officer, Equity of Delaware Investment Advisers (a
series of Delaware Management Business Trust)
Prior to joining Delaware Investments in 1999 [, Mr. Dodge was President, Director of
Marketing, and Senior Portfolio Manager for Marvin & Palmer Associates.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Officer Business Experience
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Richard J. Flannery (42) Executive Vice President/General Counsel of Equity Funds III and 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),
Delaware Investment Advisers (a series of Delaware Management Business Trust),
Delaware Distributors, L.P. 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., Delaware General
Management, Inc. and Delaware Management Business Trust Company.
Executive Vice President/General Counsel 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 Delaware Investments.
--------------------------------------------------------------------------------------------------------------------------------
Joseph H. Hastings (50) Senior Vice President/Corporate Controller of Equity Funds III and each of the other 32
investment companies in the Delaware Investments family and Delaware Investment Advisers
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., Founders
Holdings, Inc., Delaware General Management, Inc. and Delaware Management Business Trust
Chief Financial Officer of Retirement Financial Services, Inc.
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 Delaware Investments.
--------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof (38) Senior Vice President and Treasurer of Equity Funds III 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., Delaware Distributors, L.P., Delaware Management
Company (a series of Delaware Management Business Trust) and Founders Holdings, Inc.
Senior Vice President and Treasurer/Investment Accounting of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Senior Vice President/Manager of Investment Accounting of Delaware International
Holdings, Inc.
Senior Vice President and Assistant Treasurer of Founders CBO Corporation
Managing Director of Vantage Investment Advisors.
Prior to 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.
--------------------------------------------------------------------------------------------------------------------------------
Gerald S. Frey (54) Senior Vice President/Senior Portfolio Manager of Equity Funds III and each of the
other 32 investment companies in the Delaware Investments family, Delaware Management
Company (a series of Delaware Management Business Trust) and Delaware Investment
Advisers (a series of Delaware Management Business Trust).
Prior to joining Delaware Investments in 1996, Mr. Frey was a Senior Trustee with
Morgan Grenfell Capital Management, New York, NY from 1986 to 1995.
--------------------------------------------------------------------------------------------------------------------------------
J. Paul Dokas (40) Vice President/Senior Portfolio Manager of Equity Funds III and each of the other 32
investment companies in the Delaware Investments family, Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware Investment Advisers (a
series of Delaware Management Business Trust)
Managing Director of Vantage Investment Advisors.
Prior to joining Delaware Investments in 1997, Mr. Dokas was a Director of Trust
Investments for Bell Atlantic Corporation in Philadelphia.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Officer Business Experience
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Timothy G. Connors (46) Vice President/Portfolio Manager of Equity Funds III and each of the other 32
investment companies in the Delaware Investments family, Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware Investment Advisers (a
series of series of Delaware Management Business Trust).
Managing Director of Vantage Investment Advisors.
Prior to joining Delaware Investments in 1997, Mr.Connors was a Principal at Miller,
Anderson & Sherrerd, where he managed equity accounts, conducted sector analysis, and
directed research. He previously held positions at CoreStates Investment Advisers and
Fauquier National Bank.
--------------------------------------------------------------------------------------------------------------------------------
Marshall T. Bassett (46) Vice President/Portfolio Manager of Equity Funds III and each of the other 32
investment companies in the Delaware Investments family, Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware Investment Advisers (a
series of series of Delaware Management Business Trust).
Prior to joining Delaware Investments in 1997, Mr. Basset served as Vice President in
Morgan Stanley Asset Management's Emerging Growth Group, where he analyzed small
growth companies. Prior to that, he was a trust officer at Sovran Bank and Trust
Company.
--------------------------------------------------------------------------------------------------------------------------------
John A. Heffern (38) Vice President/Portfolio Manager of Equity Funds III and each of the other 32
investment companies in the Delaware Investments family, Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware Investment Advisers (a
series of series of Delaware Management Business Trust).
Prior to joining Delaware Investments in 1997, Mr. Heffern was a Senior Vice
President, Equity Research at NatWest Securities Corporation's Specialty Finance
Services unit. Prior to that, he was a Principal and Senior Regional Bank Analyst at
Alex. Brown & Sons.
--------------------------------------------------------------------------------------------------------------------------------
Jeffrey W. Hynoski (37) Vice President/Portfolio Manager of Equity Funds III and each of the other 32
investment companies in the Delaware Investments family, Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware Investment Advisers (a
series of series of Delaware Management Business Trust).
Prior to joining Delaware Investments in 1998, Mr. Hynoski served as a Vice President
at Bessemer Trust Company in the mid and large capitalization growth group, where he
specialized in the areas of science, technology, and telecommunications. Prior to
that, Mr. Hynoski held positions at Lord Abbett & Co. and Cowen Asset Management.
--------------------------------------------------------------------------------------------------------------------------------
Lori P. Wachs (31) Vice President/Portfolio Manager of Equity Funds III and each of the other 32
investment companies in the Delaware Investments family, Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware Investment Advisers (a
series of series of Delaware Management Business Trust).
During the past five years, Ms. Wachs has served in various capacities at different
times within the Delaware organization.
--------------------------------------------------------------------------------------------------------------------------------
Steven T. Lampe (31) Vice President/Portfolio Manager of Equity Funds III and each of the other 32
investment companies in the Delaware Investments family, Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware Investment Advisers (a
series of Delaware Management Business Trust).
Prior to joining Delaware Investments in 1995, Mr. Lampe served as a manager at Price
Waterhouse.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
The following is a compensation table listing for each trustee entitled to
receive compensation, the aggregate compensation received from Equity Funds III
and the total compensation received from all investment companies in the
Delaware Investments family for which he or she serves as a trustee/director or
trustee for the Funds' fiscal year ended June 30, 2000 and an estimate of
annual benefits to be received upon retirement under the Delaware Group
Retirement Plan for Trustees/Directors as of June 30, 2000. Only the
independent trustees of Equity Funds III receive compensation from Equity Funds
III.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Total
Compensation
Pension or Estimated from the
Aggregate Retirement Annual Investment
Compensation Benefits Accrued Benefits Companies in
from as Part of Upon Delaware
Name Equity Funds III Fund Expenses Retirement(1) Investments(2)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Walter P. Babich $2,481 None $38,000 $63,144
----------------------------------------------------------------------------------------------------
John H. Durham $2,481 None $38,000 $55,787
----------------------------------------------------------------------------------------------------
Anthony D. Knerr $2,707 None $38,000 $68,144
----------------------------------------------------------------------------------------------------
Ann R. Leven $2,752 None $38,000 $69,144
----------------------------------------------------------------------------------------------------
Thomas F. Madison $2,707 None $38,000 $68,144
----------------------------------------------------------------------------------------------------
Charles E. Peck $2,707 None $38,000 $68,144
----------------------------------------------------------------------------------------------------
Janet L. Yeomans $2,481 None $38,000 $63,144
----------------------------------------------------------------------------------------------------
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Trustees/Directors, each disinterested trustee/director 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 trustee or director for a period equal to
the lesser of the number of years that such person served as a trustee or
director 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 trustees/directors of each investment company at
the time of such person's retirement. If an eligible trustee/director
retired as of June 30, 2000, he or she would be entitled to annual payments
totaling the amounts noted above, in the aggregate, from all of the
investment companies in the Delaware Investments family for which he or she
serves as a trustee or director, based on the number of investment
companies in the Delaware Investments family as of that date.
(2) Each independent trustee/director currently receives a total annual
retainer fee of $38,000 for serving as a trustee/director for all 33
investment companies in Delaware Investments, plus $3,143 for each Board
Meeting attended. Prior to May 1, 2000, John H. Durham served as a
trustee/director for 19 Delaware Investments funds and as such received a
total annual retainer fee of $32,180, plus $1,810 for each Board Meeting
attended. Ann R. Leven, Charles E. Peck, Anthony D. Knerr and Thomas F.
Madison serve on Equity Funds III'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.
69
<PAGE>
GENERAL INFORMATION
Equity Funds III is an open-end management investment company. Delaware
Large Cap Growth and Delaware Trend Fund will be diversified as defined by the
1940 Act. Delaware Technology and Innovation Fund, Delaware American Services
Fund and Delaware Research Fund will not be diversified under the 1940 Act.
Equity Funds III originally was organized as a Delaware corporation in 1966. It
was subsequently reorganized as a Maryland corporation on March 4, 1983 and as a
Delaware business trust on August 27, 1999.
The Manager is the investment manager of each Fund. The Manager also
provides investment management services to certain of the other funds available
from the Delaware Investments family. An affiliate of the Manager manages
private investment accounts. While investment decisions of a Fund 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 Fund.
The Delaware Investments Family of Funds, the Manager and the Distributor,
in compliance with SEC Rule 17j-1 under the 1940 Act, have adopted Codes of
Ethics which govern personal securities transactions. Under the Codes of Ethics,
persons subject to the Codes are permitted to engage in personal securities
transactions, including securities that may be purchased or held by the Funds,
subject to the requirements set forth in Rule 17j-1 and certain other procedures
set forth in the applicable Code of Ethics. The Codes of Ethics for the Delaware
Investments Family of Funds, the Manager and Distributor are on public file
with, and are available from, the SEC.
Delaware or Delaware International Advisers Ltd. also manages 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. See Delaware Group
Premium Fund in Appendix A.
The Distributor acts as national distributor for each Fund and for the other
mutual funds in the Delaware Investments family. The Distributor ("DDLP")
received net commissions from the Funds on behalf of the Class A Shares, after
allowances to dealers, as follows:
70
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Fiscal Year Ended June 30, 2000
-------------------------------------------------------
Total Amount of Amounts
Underwriting Reallowed to Net Commission to
Commission Dealers DDLP
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delaware American Services Fund(1) $94 none $94
------------------------------------------------------------------------------------------------------
Delaware Large Cap Growth Fund(1) none none none
------------------------------------------------------------------------------------------------------
Delaware Research Fund(1) none none none
------------------------------------------------------------------------------------------------------
Delaware Technology and Innovation Fund(1) $1,355,469 $1,199,105 $156,364
------------------------------------------------------------------------------------------------------
Delaware Trend Fund $1,972,188 $1,706,877 $265,311
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commenced operations on December 29, 1999.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Fiscal Year Ended June 30, 1999
-------------------------------------------------------
Total Amount of Amounts
Underwriting Reallowed to Net Commission to
Commission Dealers DDLP
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delaware Trend Fund $860,057 $727,174 $132,883
------------------------------------------------------------------------------------------------------
Fiscal Year Ended June 30, 1998
------------------------------------------------------------------------------------------------------
Delaware Trend Fund $872,998 $722,205 $150,793
------------------------------------------------------------------------------------------------------
</TABLE>
The Distributor received in the aggregate Limited CDSC payments with
respect to the Fund's Class A Shares as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Limited CDSC Payments
-----------------------------------------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delaware American Services Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Large Cap Growth Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Research Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Technology and Innovation Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Trend Fund $15,382 $466 $9,869
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commenced operations on December 29, 1999.
The Distributor received in the aggregate CDSC payments with respect to
the Fund's Class B Shares as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
CDSC Payments
-----------------------------------------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delaware American Services Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Large Cap Growth Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Research Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Technology and Innovation Fund(1) $20,531 N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Trend Fund $231,739 $234,625 $190,555
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commenced operations on December 29, 1999.
71
<PAGE>
The Distributor received CDSC payments with respect to the Fund's Class
C Shares as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
CDSC Payments
-----------------------------------------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delaware American Services Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Large Cap Growth Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Research Fund(1) none N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Technology and Innovation Fund(1) $10,007 N/A N/A
------------------------------------------------------------------------------------------------------
Delaware Trend Fund $12,297 $2,986 $9,374
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commenced operations on December 29, 1999.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for each Fund and for the
other mutual funds in the Delaware Investments family. The Transfer Agent is
paid a fee by each Fund for providing these services consisting of an annual per
account charge of $5.50 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 disinterested trustees. The
Transfer Agent also provides accounting services to each Fund. Those services
include performing all functions related to calculating each 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 a Fund, including each Fund,
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 Equity Funds III's advisory
relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Equity Funds III to
delete the words "Delaware Group" from Equity Funds III's name.
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
Equity Funds III has a present unlimited authorized number of shares of
beneficial interest with no par value allocated to each Class. Each Class
represents a proportionate interest in the assets of a Fund, and each has the
same voting and other rights and preferences as the other classes of the Fund,
except that shares of the Institutional Class may not vote on any matter that
affects a Fund Classes' Distribution Plans under Rule 12b-1. Similarly, as a
general matter, shareholders of Class A Shares, Class B Shares and Class C
Shares may vote only on matters affecting the 12b-1 Plan that relates to the
class of shares that they hold. However, Class B Shares may vote on any proposal
to increase materially the fees to be paid by a Fund under the Rule 12b-1 Plan
relating to 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 Plans of Class A Shares, Class B Shares 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.
Prior to September 6, 1994, Trend Fund A Class was known as Trend Fund
class and Trend Fund Institutional Class was known as Trend Fund (Institutional)
class. Effective August 16, 1999, the name of Trend Fund was changed to Delaware
Trend Fund. Also effective on that date, corresponding changes were made to the
names of the Fund's Classes.
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Effective as of August 29, 1997, the name of Delaware Group Trend Fund,
Inc. was changed to Delaware Group Equity Funds III, Inc. and effective August
27, 1999, the name of Delaware Group Equity Funds III, Inc. was changed to
Delaware Group Equity Funds III.
Noncumulative Voting
Equity Funds III shares have noncumulative voting rights which means
that the holders of more than 50% of the shares of Equity Funds III 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.
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware Group
Equity Funds III and, in its capacity as such, audits the annual financial
statements of the Funds. Each Fund's Statement of Net Assets, Statement of
Operations, Statement 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 June 30, 2000 are included in the Fund's
Annual Report to shareholders. The financial statements and financial
highlights, the notes relating thereto and the reports of Ernst & Young LLP
listed above are incorporated by reference from the Annual Reports into this
Part B.
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APPENDIX A--INVESTMENT OBJECTIVES OF THE 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. As a balanced fund, the fund
invests at least 25% of its assets in fixed-income securities and the remaining
in equity securities. 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 capital appreciation by investing in common
stocks issued by emerging growth companies exhibiting strong capital
appreciation potential. Delaware Technology and Innovation Fund seeks to provide
long-term capital growth by investing primarily in stocks the investment adviser
believes will benefit from technological advances and improvements.
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 Growth Opportunities 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 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.
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.
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Delaware Cash Reserve Fund seeks the highest level of income consistent
with the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
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 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 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 Pennsylvania Fund seeks a high level of current
interest income exempt from federal and, to the extent possible, certain
Pennsylvania state and local taxes, consistent with the preservation of capital.
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.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Delaware 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. Foundation Funds Delaware 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. Foundation Funds Delaware
Growth Portfolio seeks long-term capital growth by investing primarily in equity
securities, including equity Underlying Funds, and, to a lesser extent, in fixed
income securities, including fixed-income Underlying Funds.
Delaware International Equity Fund seeks to achieve long-term growth
without undue risk to principal by investing primarily in international
securities that provide the potential for capital appreciation and income.
Delaware Global Bond Fund seeks to achieve current income consistent with the
preservation of principal by investing primarily in global fixed-income
securities that may also provide the potential for capital appreciation.
Delaware Global Equity Fund seeks to achieve long-term total return by investing
in global securities that provide the potential for capital appreciation and
income. Delaware Emerging Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries.
Delaware U.S. Growth Fund seeks to maximize capital appreciation by
investing in companies of all sizes which have low dividend yields, strong
balance sheets and high expected earnings growth rates relative to their
industry. Delaware Overseas Equity Fund seeks to maximize total return (capital
appreciation and income), principally through investments in an internationally
diversified portfolio of equity securities. Delaware New Pacific Fund seeks
long-term capital appreciation by investing primarily in companies which are
domiciled in or have their principal business activities in the Pacific Basin.
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Delaware Group Premium Fund offers various funds available exclusively
as funding vehicles for certain insurance company separate accounts. Balanced
Series seeks a balance of capital appreciation, income and preservation of
capital. As a "balanced" fund, the Series invests at least 25% of its assets in
fixed-income securities and the remainder primarily in equity securities.
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 is a money market
fund which seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. Convertible Securities Series--seeks a high level of total return
on its assets through a combination of capital appreciation and current income.
The Series intends to pursue its investment objective by investing primarily in
convertible securities. Devon Series seeks current income and capital
appreciation. The Series will seek to achieve its objective 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. The Series seeks to achieve its objective by investing primarily
in equity securities of issuers located or operating in emerging countries.
Global Bond Series seeks current income consistent with preservation of
principal by investing primarily in fixed-income securities that may also
provide the potential for capital appreciation. The Series will invest in
fixed-income securities of issuers from at least three different countries, one
of which may be the United States. 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. Growth
Opportunities Series seeks long-term capital appreciation by investing its
assets in a diversified portfolio of securities exhibiting the potential for
significant growth. High Yield Series seeks total return and, as a secondary
objective, high current income. It seeks to achieve its objective by investing
primarily in high-yield corporate bonds. International Equity Series seeks
long-term growth without undue risk to principal by investing primarily in
equity securities of foreign issuers providing the potential for capital
appreciation and income. REIT Series seeks to achieve maximum long-term total
return. Capital appreciation is a secondary objective. It seeks to achieve its
objectives by investing in securities of companies primarily engaged in the real
estate industry. Select Growth Series seeks long-term capital appreciation. The
Series attempts to achieve its investment objective by investing primarily in
equity securities of companies of all sizes which the manager believes have the
potential for high earnings growth. Small Cap Value Series seeks capital
appreciation by investing primarily in small cap common stocks whose market
value appears low relative to their underlying value or future earnings and
growth potential. Social Awareness Series seeks to achieve long-term capital
appreciation. The Series seeks to achieve its objective by investing primarily
in equity securities of medium- to large-sized companies expected to grow over
time that meet the Series' "Social Criteria" strategy. Strategic Income Series
seeks high current income and total return. The Series seeks to achieve its
objective 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. Technology and Innovation Series seeks to
provide long-term capital growth. The Series invest primarily in stocks that the
manager believes will benefit from technological advances and improvements.
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. U.S. Growth Series seeks to maximize capital
appreciation. The Series seeks to achieve its objective by investing primarily
in stocks of companies of all sizes . We look for stocks with low dividend
yields, strong balance sheets and high expected earnings growth rates as
compared to other companies in the same industry.
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Delaware U.S. 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.
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.
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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 Montana Municipal Bond Fund seeks as high a
level of current income exempt from federal income tax and from the Montana
personal income tax, as is consistent with 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 Select 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.
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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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 the funds' prospectus(es).
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