<PAGE>
- ------------------------------------
U.S. GOVERNMENT FUND
- ------------------------------------
A CLASS
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B CLASS
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C CLASS
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INSTITUTIONAL CLASS
- ------------------------------------
CLASSES OF DELAWARE GROUP
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GOVERNMENT FUND, INC.
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PART B
STATEMENT OF
ADDITIONAL INFORMATION
- ------------------------------------
NOVEMBER 29, 1995
DELAWARE
GROUP
--------
The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, tax-free funds, money market funds, global and
international funds and closed-end equity funds give investors the ability to
create a portfolio that fits their personal financial goals. For more
information, shareholders of the Fund Classes should contact their financial
adviser or call Delaware Group at 800-523-4640, and shareholders of the
Institutional Class should contact Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, Pa 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce square
Philadelphia, PA 19103
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260
<PAGE>
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PART B--STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 29, 1995
- --------------------------------------------------------------------------------
DELAWARE GROUP
GOVERNMENT FUND, INC.
- --------------------------------------------------------------------------------
1818 MARKET STREET
PHILADELPHIA, PA 19103
- --------------------------------------------------------------------------------
FOR MORE INFORMATION ABOUT THE
U.S. GOVERNMENT FUND INSTITUTIONAL
CLASS: 800-828-5052
FOR PROSPECTUS AND PERFORMANCE OF THE
U.S. GOVERNMENT FUND A CLASS, THE
U.S. GOVERNMENT FUND B CLASS AND THE
U.S. GOVERNMENT FUND C CLASS:
NATIONWIDE 800-523-4640
INFORMATION ON EXISTING ACCOUNTS OF THE
U.S. GOVERNMENT FUND A CLASS, THE
U.S. GOVERNMENT FUND B CLASS AND THE
U.S. GOVERNMENT FUND C CLASS:
(SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918
DEALER SERVICES:
(BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500
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TABLE OF CONTENTS
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COVER PAGE
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INVESTMENT POLICIES
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ACCOUNTING AND TAX ISSUES
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PERFORMANCE INFORMATION
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TRADING PRACTICES AND BROKERAGE
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PURCHASING SHARES
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INVESTMENT PLANS
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DETERMINING OFFERING PRICE AND
NET ASSET VALUE
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REDEMPTION AND REPURCHASE
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DIVIDENDS AND REALIZED SECURITIES
PROFITS DISTRIBUTIONS
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TAXES
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INVESTMENT MANAGEMENT AGREEMENT
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OFFICERS AND DIRECTORS
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EXCHANGE PRIVILEGE
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GENERAL INFORMATION
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APPENDIX A -- IRA INFORMATION
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FINANCIAL STATEMENTS
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<PAGE>
Delaware Group Government Fund, Inc. (the "Fund") is a professionally-
managed mutual fund of the series type, which currently offers one series, the
Government Income Series (the "Series"). The Series offers four classes
(individually, a "Class" and collectively, the "Classes") of shares -- U.S.
Government Fund A Class (the "Class A Shares"), U.S. Government Fund B Class
(the "Class B Shares") and the U.S. Government Fund C Class (the "Class C
Shares") (together, the "Fund Classes") and U.S. Government Fund Institutional
Class (the "Institutional Class"). Class B Shares, Class C Shares and
Institutional Class shares may be purchased at a price equal to the next
determined net asset value per share. Class A Shares may be purchased at the
public offering price, which is equal to the next determined net asset value per
share, plus a front-end sales charge. Class A Shares are subject to a maximum
front-end sales charge of 4.75% and annual 12b-1 Plan expenses of up to .30%.
Class B Shares are subject to a contingent deferred sales charge ("CDSC") which
may be imposed on redemptions made within six years of purchase and 12b-1 Plan
expenses of up to 1%, which are assessed against Class B Shares for
approximately eight years after purchase. See Automatic Conversion of Class B
Shares under Buying Shares in the Fund Classes' Prospectus. Class C Shares are
subject to a CDSC which may be imposed on redemptions made within twelve months
of purchase and annual 12b-1 Plan expenses of up to 1%, which are assessed
against the Class C Shares for the life of the investment. All references to
"shares" in this Statement of Additional Information ("Part B" of the
registration statement) refer to all Classes of shares of the Series, except
where noted.
This Part B supplements the information contained in the current Prospectus
for the Fund Classes dated November 29, 1995 and the current Prospectus for the
Institutional Class dated November 29, 1995, as they may be amended from time to
time. It 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. Each Class' Prospectus may be obtained
by writing or calling your investment dealer or by contacting the Fund's
national distributor, Delaware Distributors, L.P. (the "Distributor"), 1818
Market Street, Philadelphia, PA 19103.
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<PAGE>
INVESTMENT POLICIES
INVESTMENT RESTRICTIONS--The Fund has adopted the following restrictions
for the Series which, along with its investment objectives, cannot be changed
without approval by the holders of a "majority" of the Series' 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.
The Government Income Series shall not:
1. Invest more than 5% of the market or other fair value of its assets in
the securities of any one issuer (other than obligations of, or guaranteed by,
the U.S. Government, its agencies or instrumentalities).
2. Invest in securities of other investment companies except as part of a
merger, consolidation or other acquisition, and except to the extent that an
issuer of mortgage-backed securities may be deemed to be an investment company,
provided that any such investment in securities of an issuer of a mortgage-
backed security which is deemed to be an investment company will be subject to
the limits set forth in Section 12(d)(1)(A) of the Investment Company Act of
1940, as amended (the "1940 Act").
The Fund has been advised by the staff of the Securities and Exchange
Commission (the "Commission") that it is the staff's position that, under the
1940 Act, the Series may invest (a) no more than 10% of its assets in the
aggregate in certain CMOs and REMICs which are deemed to be investment companies
under the 1940 Act and issue their securities pursuant to an exemptive order
from the Commission, and (b) no more than 5% of its assets in any single issue
of such CMOs or REMICs.
3. Make loans, except to the extent the purchases of debt obligations
(including repurchase agreements) in accordance with the Series' investment
objective and policies are considered loans and except that the Series 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.
4. Purchase or sell real estate but this shall not prevent the Series
from investing in securities secured by real estate or interests therein.
5. Purchase more than 10% of the voting securities of any issuer, or
invest in companies for the purpose of exercising control or management.
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<PAGE>
6. Engage in the underwriting of securities of other issuers, except that
in connection with the disposition of a security, the Series may be deemed to be
an "underwriter" as that term is defined in the Securities Act of 1933.
7. Make any investment which would cause more than 25% of the market or
other fair value of its total assets to be invested in the securities of issuers
all of which conduct their principal business activities in the same industry.
This restriction does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
8. Write, purchase or sell options, puts, calls or combinations thereof,
except that the Series may: (a) write covered call options with respect to any
part or all of its portfolio securities; (b) purchase call options to the extent
that the premiums paid on all outstanding call options do not exceed 2% of the
Series' total assets; (c) write secured put options; (d) purchase put options to
the extent that the premiums paid on all outstanding put options do not exceed
2% of the Series' total assets and only if the Series owns the security covered
by the put option at the time of purchase. The Series may sell put options or
call options previously purchased or enter into closing transactions with
respect to such options.
9. Enter into futures contracts or options thereon, except that the
Series may enter into futures contracts to the extent that not more than 5% of
the Series' assets are required as futures contract margin deposits and only to
the extent that obligations under such contracts or transactions represent not
more than 20% of the Series' assets.
10. Purchase securities on margin, make short sales of
securities or maintain a net short position.
11. Invest in warrants or rights except where acquired in units or
attached to other securities.
12. Purchase or retain the securities of any issuer any of whose officers,
directors or security holders is a director or officer of the Series or of its
investment manager if or so long as the directors and officers of the Series and
of its investment manager together own beneficially more than 5% of any class of
securities of such issuer.
13. Invest in interests in oil, gas or other mineral exploration or
development programs.
14. Invest more than 10% of the Series' net assets in repurchase
agreements maturing in more than seven days or in other illiquid assets.
15. Borrow money in excess of one-third of the value of its net assets and
then only as a temporary measure for extraordinary purposes or to facilitate
redemptions. The
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<PAGE>
Series has no intention of increasing its net income through borrowing. Any
borrowing will be done from a bank and to the extent that such borrowing exceeds
5% of the value of the Series' net assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall below
300%, the Series shall, within three days thereafter (not including Sunday or
holidays) or such longer period as the Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Series will not
pledge more than 10% of its net assets. The Series will not issue senior
securities as defined in the 1940 Act, except for notes to banks. No investment
securities will be purchased while the Series has an outstanding borrowing.
Although not a fundamental investment restriction, the Series currently
does not invest its assets in real estate limited partnerships.
CORPORATE DEBT--The Series may invest in corporate notes and bonds rated A
or above. Excerpts from Moody's Investors Service, Inc.'s ("Moody's")
description of those categories of bond ratings: AAA--judged to be the best
quality. They carry the smallest degree of investment risk; AA--judged to be of
high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations.
Excerpts from Standard & Poor's Rating Group's ("Standard & Poor's")
description of those categories of bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances.
COMMERCIAL PAPER--The Series may invest in short-term promissory notes
issued by corporations which at the time of purchase are rated P-1 and/or A-1.
Commercial paper ratings P-1 by Moody's and A-1 by Standard & Poor's are the
highest investment grade category.
BANK OBLIGATIONS--The Series may invest in certificates of deposit,
bankers' acceptances and other short-term obligations of U.S. commercial banks
and their overseas branches and foreign banks of comparable quality, provided
each such bank combined with its branches has total assets of at least one
billion dollars. Any obligations of foreign banks shall be denominated in U.S.
dollars. Obligations of foreign banks and obligations of overseas branches of
U.S. banks are subject to somewhat different regulations and risks than those of
U.S. domestic banks. In particular, a foreign country could impose exchange
controls which might delay the
-6-
<PAGE>
release of proceeds from that country. Such deposits are not covered by the
Federal Deposit Insurance Corporation. Because of conflicting laws and
regulations, an issuing bank could maintain that liability for an investment is
solely that of the overseas branch which could expose the Series to a greater
risk of loss. The Series will only buy short-term instruments in nations where
risks are minimal. The Series will consider these factors along with other
appropriate factors in making an investment decision to acquire such obligations
and will only acquire those which, in the opinion of management, are of an
investment quality comparable to other debt securities bought by the Series.
MORTGAGE-BACKED SECURITIES--In addition to mortgage-backed securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
the Series may also invest its assets in securities issued by certain private,
nongovernment corporations, such as financial institutions, if the securities
are fully collateralized at the time of issuance by securities or certificates
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Two principal types of mortgage-backed securities are collateralized mortgage
obligations (CMOs) and real estate mortgage investment conduits (REMICs).
CMOs are debt securities issued by U.S. Government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive
all of the interest (the "interest-only" class), while the other class will
receive all of the principal (the "principal-only" class). The yield to
maturity on an interest-only class is extremely sensitive not only to changes in
prevailing interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal
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<PAGE>
payments may have a material adverse effect on the Series' yield to maturity.
If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Series may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating categories.
Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet been fully developed and, accordingly,
these securities are generally illiquid and to such extent, together with any
other illiquid investments, will not exceed 10% of the Series' net assets.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
CMOs and REMICs issued by private entities are not government securities
and are not directly guaranteed by any government agency. They are secured by
the underlying collateral of the private issuer. The Series will invest in such
private-backed securities only if they are 100% collateralized at the time of
issuance by securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. The Series currently invests in privately-issued CMOs and
REMICs only if they are rated at the time of purchase in the two highest grades
by a nationally-recognized rating agency.
ASSET-BACKED SECURITIES--The Series may invest a portion of its assets in
asset-backed securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets. Such rate of payments may be affected by economic and
various other factors such as changes in interest rates. Therefore, the yield
may be difficult to predict and actual yield to maturity may be more or less
than the anticipated yield to maturity. The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets underlying such
securities, how well the entities issuing the securities are insulated from the
credit risk of the originator or affiliated entities, and the amount of credit
support provided to the securities.
Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, such securities may
contain elements of credit support. Such credit support falls into two
categories: (i) liquidity protection, and
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<PAGE>
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provisions of
advances, generally by the entity administering the pool of assets, to ensure
that the receipt of payments due on the underlying pool is timely. Protection
against losses resulting from ultimate default enhances the likelihood of
payments of the obligations on at least some of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches. The Series will not pay any additional fees for such credit
support, although the existence of credit support may increase the price of a
security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payments of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in such issue.
PORTFOLIO LOAN TRANSACTIONS
The Series 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 Delaware Management Company, Inc. (the
"Manager") that the staff of the Commission permits portfolio lending by
registered investment companies if certain conditions are met. These conditions
are as follows: 1) each transaction must have 100% collateral in the form of
cash, short-term U.S. Government securities, or irrevocable letters of credit
payable by banks acceptable to the Fund from the borrower; 2) this collateral
must be valued daily and should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund; 3) the
Fund must be able to terminate the loan
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<PAGE>
after notice, at any time; 4) the Fund must receive reasonable interest on any
loan, and any dividends, interest or other distributions on the lent securities,
and any increase in the market value of such securities; 5) the Fund may pay
reasonable custodian fees in connection with the loan; 6) the voting rights on
the lent securities may pass to the borrower; however, if the directors of the
Fund 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 directors to vote the
proxy.
The major risk to which the Series would be exposed on a loan transaction
is the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, the Series will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Directors, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.
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<PAGE>
ACCOUNTING AND TAX ISSUES
The following supplements the information supplied in the Classes'
Prospectuses under Taxes.
When the Series writes a call or a put option, an amount equal to the
premium received by it is included in the Series' Statement of Assets and
Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently "marked to market" to reflect the current market value
of the option written. If an option which the Series has written either expires
on its stipulated expiration date, or if the Series enters into a closing
purchase transaction, the Series realizes a gain (or loss if the cost of the
closing transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. Any such gain or loss is
a short-term capital gain or loss for federal income tax purposes. If a call
option which the Series has written is exercised, the Series realizes a capital
gain or loss (long-term or short-term, depending on the holding period of the
underlying security) from the sale of the underlying security and the proceeds
from such sale are increased by the premium originally received. If a put
option which the Series has written is exercised, the amount of the premium
originally received will reduce the cost of the security which the Series
purchases upon exercise of the option.
The premium paid by the Series for the purchase of a put option is included
in the section of the Series' Statement of Assets and Liabilities as an
investment and subsequently adjusted daily to the current market value of the
option. For example, if the current market value of the option exceeds the
premium paid, the excess would be unrealized appreciation and, conversely, if
the premium exceeds the current market value, such excess would be unrealized
depreciation. If a put option which the Series has purchased expires on the
stipulated expiration date, the Series realizes a short-term or long-term
(depending on the holding period of the underlying security) capital loss for
federal income tax purposes in the amount of the cost of the option. If the
Series sells the put option, it realizes a short-term or long-term (depending on
the holding period of the underlying security) capital gain or loss, depending
on whether the proceeds from the sale are greater or less than the cost of the
option. If the Series exercises a put option, it realizes a capital gain or
loss (long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and proceeds from such sale
will be decreased by the premium originally paid. However, since the purchase
of a put option
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<PAGE>
is treated as a short sale for federal income tax purposes, the holding period
of the underlying security will be affected by such a purchase.
The Internal Revenue Code includes special rules applicable to regulated
futures contracts and non-equity related listed options which the Series may
write, and listed options which the Series may write, purchase or sell. Such
regulated futures contracts and options are classified as Section 1256 contracts
under the Code. The character of gain or loss under a Section 1256 contract is
generally treated as 60% long-term gain or loss and 40% short-term gain or loss.
When held by the Series at the end of a fiscal year, these options are required
to be treated as sold at market value on the last day of the fiscal year for
federal income tax purposes ("marked to market").
Over-the-counter options are not classified as Section 1256 contracts and
are not subject to the 60/40 gain or loss treatment or the marked to market
rule. Any gains or losses recognized by the Series from over-the-counter option
transactions generally constitute short-term capital gains or losses.
The initial margin deposits made when entering into futures contracts are
recognized as assets due from the broker. During the period the futures
contract is open, changes in the value of the contract will be reflected at the
end of each day.
The Series has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. The Series must meet several requirements to maintain its
status as a regulated investment company. Among these requirements are that at
least 90% of its investment company taxable income be derived from dividends,
interest, payment with respect to securities loans and gains from the sale or
disposition of securities; that at the close of each quarter of its taxable year
at least 50% of the value of its assets consist of cash and cash items,
government securities, securities of other regulated investment companies and,
subject to certain diversification requirements, other securities; and that less
than 30% of its gross income be derived from sales of securities held for less
than three months.
The Internal Revenue Service has ruled publicly that an Exchange-traded
call option is a security for purposes of the 50% of assets tests and that its
issuer is the issuer of the underlying security, not the writer of the option,
for purposes of the diversification requirements.
The requirement that not more than 30% of the Series' gross income be
derived from gains from the sale or other disposition of securities held for
less than three months may restrict the Series in its ability to write covered
call
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<PAGE>
options on securities which it has held less than three months, to write options
which expire in less than three months, to sell securities which have been held
less than three months, and to effect closing purchase transactions with respect
to options which have been written less than three months prior to such
transactions. Consequently, in order to avoid realizing a gain within the
three-month period, the Series may be required to defer the closing out of a
contract beyond the time when it might otherwise be advantageous to do so. The
Series may also be restricted in the sale of purchased put options and the
purchase of put options for the purpose of hedging underlying securities because
of the application of the short sale holding period rules with respect to such
underlying securities.
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<PAGE>
PERFORMANCE INFORMATION*
From time to time, the Series may state each Class' total return in
advertisements and other types of literature. Any statements 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 the most recent one-, five-
and ten-year (or life of fund, if applicable) periods, as relevant. The Series
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 is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV
[C]
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, if
any, 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 the case of Class A Shares, the Limited CDSC applicable to only certain
redemptions of those shares, will not be deducted from any computations of
total return. See the Prospectus for the Fund Classes for a description of
the Limited CDSC and the instances in which it applies. All references to
contingent deferred sales charges or a CDSC will apply to Class B Shares or
Class C Shares.
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<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, the Series 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 Class A Shares and the Institutional Class, as shown
below, is the average annual total return quotations for the one-, three- and
five-year periods ended July 31, 1995 and for the life of these Classes,
computed as described above. The average annual total return for Class A Shares
at offer reflects the maximum front-end sales charges paid on the purchase of
shares. The average annual total return for Class A Shares at net asset value
(NAV) does not reflect the payment of the maximum front-end sales charge.
Securities prices fluctuated during the periods covered and past results should
not be considered as representative of future performance. 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 may have
been affected had such an adjustment been made. The performance of the Class B
Shares, as shown below, is the average annual total return quotation for the
one-year period ended July 31, 1995 and for the life of this Class. The average
annual total return for Class B Shares including deferred sales charge reflects
the deduction of the applicable CDSC that would be paid if the shares were
redeemed at July 31, 1995. The average annual total return for Class B Shares
excluding deferred sales charge assumes the shares were not redeemed at July 31,
1995 and therefore does not reflect the deduction of a CDSC.
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<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
CLASS A CLASS A
SHARES SHARES INSTITUTIONAL
(AT OFFER) (AT NAV) CLASS (1)
<S> <C> <C> <C>
1 year ended
7/31/95 1.74% 6.82% 7.14%
3 years ended
7/31/95 2.19% 3.86% 4.17%
5 years ended
7/31/95 5.90% 6.94% 7.24%
Period 8/16/85(2)
through 7/31/95 7.02% 7.55% 7.75%
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES CLASS B SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE)
<S> <C> <C>
1 year ended
7/31/95 2.15% 6.08%
Period 5/2/94(3)
through 7/31/95 1.40% 4.45%
</TABLE>
(1) Date of initial public offering of the Institutional Class was June 1,
1992.
(2) Date of initial public offering of the Class A Shares.
(3) Date of initial public offering of the Class B Shares.
Information regarding the performance of Class C Shares is not shown
because such shares were not offered to the public prior to the date of this
Part B.
As stated in the Fund's Prospectuses, the Fund may also quote each Class'
current yield in advertisements and investor communications.
-16-
<PAGE>
The yield computation is determined by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period and annualizing the resulting figure, according to
the following formula:
a -- b
------ 6
YIELD = 2[(cd + 1) -- 1]
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends;
d = the maximum offering price per share on the last day
of the period.
The above formula will be used in calculating quotations of yield of each
Class, based on specific 30-day periods identified in advertising by the Fund.
The yields of the Class A Shares, the Class B Shares and the Institutional Class
as of July 31, 1995 using this formula were 6.20%, 5.77% and 6.82%,
respectively. Yield calculation assumes the maximum front-end sales charge, if
any, and does not reflect the deduction of any contingent deferred sales charge.
Actual yield on Class A Shares may be affected by variations in sales charges on
investments. Information regarding the performance of Class C Shares is not
shown because such shares were not offered to the public prior to the date of
this Part B.
Past performance, such as is reflected in quoted yields, should not be
considered as a representation of the results which may be realized from an
investment in any class of the Series in the future.
Investors should note that the income earned and dividends paid by the
Series will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of the Series may change. Unlike money market
funds, the Series invests in longer-term securities that fluctuate in value and
do so in a manner inversely correlated with changing interest rates. The
Series' net asset value will tend to rise when interest rates fall. Conversely,
the Series' net asset value will tend to fall as interest rates
-17-
<PAGE>
rise. Normally, fluctuations in interest rates have a greater effect on the
prices of longer-term bonds. The value of the securities held in the Series
will vary from day to day and investors should consider the volatility of the
Series' net asset value as well as its yield before making a decision to invest.
The Series' average weighted portfolio maturity at July 31, 1995 was 16
years for the Class A Shares, the Class B Shares and the Institutional Class of
the Series.
Statistical and performance information and various indices compiled and
maintained by organizations such as the following may also be used in preparing
exhibits comparing certain industry trends and competitive mutual fund
performance to comparable Fund activity and performance and in illustrating
general financial planning principles. From time to time, certain mutual fund
performance ranking information, calculated and provided by these organizations,
may also be used in the promotion of sales of the Series. Any indices used are
not managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services, Inc. and Morningstar,
Inc. are performance evaluation services that maintain statistical
performance databases, as reported by a diverse universe of independently-
managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that provides a variety of
historical data including total return, capital appreciation and income on
the stock market as well as other investment asset classes, and inflation.
With their permission, this information will be used primarily for
comparative purposes and to illustrate general financial planning
principles.
Interactive Data Corporation is a statistical access service that maintains
a database of various international industry indicators, such as historical
and current price/earning information, individual equity and fixed income
price and return information.
Compustat Industrial Databases, a service of Standard & Poor's, may also be
used in preparing performance and historical stock and bond market
exhibits. This firm maintains fundamental databases that provide
financial, statistical and market information covering more than 7,000
industrial and non-industrial companies.
-18-
<PAGE>
Salomon Brothers and Lehman Brothers are statistical research firms that
maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as
well as unmanaged indices compiled and maintained by these firms, will be
used in preparing comparative illustrations.
Current interest rate and yield information on government debt obligations
of various durations, as reported weekly by the Federal Reserve (Bulletin H.15),
may also be used. In addition, current rate information on municipal debt
obligations of various durations, as reported daily by the Bond Buyer, may also
be used. The Bond Buyer is published daily and is an industry-accepted source
for current municipal bond market information.
From time to time, the Series may also quote actual yield and/or total
return performance for each Class in advertising and other types of literature
compared to indices or averages of alternative financial products available to
prospective investors. For example, the performance comparisons may include the
average return of various bank instruments, some of which may carry certain
return guarantees offered by leading banks and thrifts as monitored by Bank Rate
Monitor, and those of generally-accepted corporate bond and government security
price indices of various durations prepared by Lehman Brothers and Salomon
Brothers, Inc. These indices are not managed for any investment goal.
Comparative information on the Consumer Price Index may also be included. The
Consumer Price Index, as prepared by the U.S. Bureau of Labor Statistics, is the
most commonly used measure of inflation. It indicates the cost fluctuations of
a representative group of consumer goods. It does not represent a return from
an investment.
The total return performance for each Class of the Series will reflect the
appreciation or depreciation of principal, reinvestment of income and any
capital gains distributions paid during any indicated period and the impact of
the maximum front-end or contingent deferred sales charge, if any, paid on the
illustrated investment amount, annualized. The performance of Class B Shares
may also be calculated without taking into account the impact of any applicable
CDSC. The results will not reflect any income taxes, if applicable, payable by
shareholders on the reinvested distributions included in the calculations. The
net asset value of the Series fluctuates so shares, when redeemed, may be worth
more or less than the original investment, and past performance should not be
considered as representative of future results.
-19-
<PAGE>
The following table is an example, for purposes of illustration only, of
cumulative total return performance for the Class A Shares and the Institutional
Class for the three-, six- and nine-month periods ended July 31, 1995, for the
one-, three-and five-year periods ended July 31, 1995 and for the life of these
Classes, and for the Class B Shares for the three-, six- and nine month periods
ended July 31, 1995, for the one-year period ended July 31, 1995 and for the
life of this Class. Information regarding the performance of Class C Shares is
not shown because such shares were not offered to the public prior to the date
of this Part B.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
CLASS A CONSUMER
SHARES INSTITUTIONAL PRICE
(AT OFFER) CLASS (1) INDEX (2)
<S> <C> <C> <C>
3 months ended
7/31/95 (2.04%) 2.94% 0.40%
6 months ended
7/31/95 1.68% 6.86% 1.46%
9 months ended
7/31/95 2.46% 7.83% 2.01%
1 year ended
7/31/95 1.74% 7.14% 2.76%
3 years ended
7/31/95 6.72% 13.05% 8.54%
5 years ended
7/31/95 33.19% 41.83% 16.95%
Period 8/16/85(3)
through 7/31/95 96.51% 110.34% 41.52%
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES CLASS B SHARES
(INCLUDING (EXCLUDING CONSUMER
DEFERRED DEFERRED PRICE
SALES CHARGE) SALES CHARGE) INDEX (2)
<S> <C> <C> <C>
3 months ended
7/31/95 (1.32%) 2.68% 0.40%
6 months ended
7/31/95 2.34% 6.34% 1.46%
9 months ended
7/31/95 3.04% 7.04% 2.01%
1 year ended
7/31/95 2.15% 6.08% 2.76%
Period 5/2/94(4)
through 7/31/95 1.75% 5.59% 3.46%
</TABLE>
(1) Date of initial public offering was June 1, 1992. 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 may have been affected had such an adjustment been made.
(2) Source--Department of Labor
(3) Date of initial public offering of the Class A Shares.
(4) Date of initial public offering of the Class B Shares.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and other mutual funds in the Delaware
Group, 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 Fund's, and other Delaware Group
funds', investment disciplines employed in seeking their objectives. The
Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager, including the number of such
clients serviced by the Manager.
-21-
<PAGE>
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Series shares,
your investment is given yet another opportunity to grow. It's called the Power
of Compounding and the following chart illustrates just how powerful it can be.
COMPOUNDED RETURNS
Results of various assumed fixed rates of return on a $10,000 investment
compounded monthly for 10 years:
<TABLE>
<CAPTION>
7% Rate of Return 8% Rate of Return 9% Rate of Return
<S> <C> <C> <C>
12-'85 $10,723 $10,830 $10,938
12-'86 $11,498 $11,729 $11,964
12-'87 $12,330 $12,702 $13,086
12-'88 $13,221 $13,757 $14,314
12-'89 $14,177 $14,898 $15,657
12-'90 $15,201 $16,135 $17,126
12-'91 $16,300 $17,474 $18,732
12-'92 $17,479 $18,924 $20,489
12-'93 $18,743 $20,495 $22,411
12-'94 $20,098 $22,196 $24,514
</TABLE>
These figures are calculated assuming a fixed constant investment return
and assume no fluctuation in the value of principal. These figures do not
reflect payment of applicable taxes or sales charges, are not intended to be a
projection of investment results and do not reflect the actual performance
results of any of the Classes.
-22-
<PAGE>
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers or dealers 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 or dealers execute transactions at best price and execution. Best
price and 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. Trades are generally made on a net basis where the 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. When a commission is paid, the Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout the
securities industry.
During the fiscal years ended July 31, 1993, 1994 and 1995, no brokerage
commissions were paid by the Fund.
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 the fiscal year ended July 31, 1995, there were no portfolio
transactions of the Fund resulting in brokerage commissions directed to brokers
for brokerage and research services.
-23-
<PAGE>
As provided in the Securities Exchange Act of 1934 and the Fund's
Investment Management Agreement, higher commissions are permitted to be paid to
broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the 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 the Fund and to other funds in the Delaware
Group. Subject to best price and execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.
The Manager may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in
a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to
participate in volume transactions will generally be beneficial to the accounts
and funds. Although it is recognized that, in some cases, the joint execution
of orders could adversely affect the price or volume of the security that a
particular account or fund may obtain, it is the opinion of the Manager and the
Fund's Board of Directors that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.
-24-
<PAGE>
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Fund may place orders with broker/dealers that have agreed to
defray certain Series expenses such as custodian fees, and may, at the request
of the Distributor, give consideration to sales of shares of the Series as a
factor in the selection of brokers and dealers to execute Fund portfolio
transactions.
PORTFOLIO TURNOVER
Portfolio trading will be undertaken principally to accomplish the Series'
objective in relation to anticipated movements in the general level of interest
rates. The Series is free to dispose of portfolio securities at any time,
subject to complying with the Internal Revenue Code and the 1940 Act, when
changes in circumstances or conditions make such a move desirable in light of
the investment objective. The Fund will not attempt to achieve or be limited to
a predetermined rate of portfolio turnover for the Series, such a turnover
always being incidental to transactions undertaken with a view to achieving the
Series' investment objective.
The Series may experience a high rate of portfolio turnover, which is not
expected to exceed 400%. High portfolio turnover rates may occur, for example,
if the Series writes a large number of call options which are subsequently
exercised. To the extent the Series realizes gains on securities held for less
than six months, such gains are taxable to the shareholder or to the Series at
ordinary income tax rates. This would result in higher than normal brokerage
commissions. The portfolio turnover rate of the Series 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 Series during the particular fiscal year, exclusive of
securities whose maturities at the time of acquisition are one year or less.
The turnover rate may also be affected by cash requirements from redemptions and
repurchases of Series shares.
During the fiscal years ended July 31, 1994 and 1995, the portfolio
turnover rates for the Series were 309% and 70%, respectively.
-25-
<PAGE>
PURCHASING SHARES
The Distributor serves as the national distributor for the Series' four
classes of shares -- Class A Shares, Class B Shares, Class C Shares and the
Institutional Class, and has agreed to use its best efforts to sell shares of
the Fund. See the Prospectuses for additional information on how to invest.
Shares of the Fund are offered on a continuous basis, and may be purchased
through authorized investment dealers or directly by contacting the Fund or its
agent.
The minimum investment generally is $1,000 for each of the Fund Classes.
Subsequent purchases generally must be at least $100 for each of the Class A,
Class B and Class C Shares. The initial and subsequent minimum investment with
respect to the Class A Shares will be waived for purchases by officers,
directors and employees of any Delaware Group fund, the Manager or any of the
Manager's affiliates if the purchases are made pursuant to a payroll deduction
program. Accounts opened under the Delaware Group Asset Planner service are
subject to a minimum initial investment of $2,000 per Asset Planner strategy
selected.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares; 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 each of the Fund's master retirement plans.) The Fund will reject any order
for purchase of more than $250,000 of Class B Shares and $1,000,000 or more for
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 $100,000
of more of Class A Shares, which 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.
There are no minimum purchase requirements for the Institutional Class, but
certain eligibility requirements must be satisfied.
Selling dealers have the responsibility of transmitting orders promptly.
The Fund reserves the right to reject any order for the purchase of Series
shares if in the opinion of management such rejection is in the Series' best
interest.
The NASD has adopted amendments to its Rules of Fair Practice relating to
investment company sales charges. The Fund and the Distributor intend to
operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a maximum
front-end sales charge of 4.75%; however, lower front-end sales charges apply
for larger purchases. See the following table. Class A Shares are also subject
to annual 12b-1 Plan expenses.
Class B Shares are purchased at net asset value and are subject to a CDSC
of: (i) 4% if shares are redeemed within
-26-
<PAGE>
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class B Shares are 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.
Class C Shares are purchased at net asset value and are subject to a CDSC of 1%
if shares are redeemed within twelve months following purchase. Class C Shares
are also subject to annual 12b-1 Plan expenses for the life of the investment
which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per share
without the imposition of a front-end or contingent deferred sales charge or
12b-1 Plan expenses.
Institutional Class shares, Class A Shares, Class B Shares and Class C
Shares represent a proportionate interest in the Series' assets and will receive
a proportionate interest in the Series' income, before application, as to the
Class A, Class B and Class C Shares, of any expenses under the Series' 12b-1
Plans.
See Automatic Conversion of Class B Shares under Buying Shares in the Fund
Classes' Prospectus, and Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Certificates representing shares purchased are not ordinarily issued unless
a shareholder submits a specific request. Certificates are not issued in the
case of Class B Shares or Class C Shares. 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
shares purchased by sending a letter to the Transfer Agent requesting the
certificate. No charge is made for any certificate issued. 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
The alternative purchase arrangements of Class A, Class B and Class C
Shares permit investors to choose the method of purchasing shares that is most
suitable to his or her needs
-27-
<PAGE>
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 .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 the Series 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 twelve 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% (.25% of which are service fees to be paid by the Series 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 .30% of average daily net assets of
such shares. Unlike Class B Shares, Class C Shares do not convert into another
class.
CLASS A SHARES
Purchases of $100,000 or more of Class A Shares at the offering price carry
reduced front-end sales charges as shown in the accompanying table, 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.
-28-
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES
- --------------------------------------------------------------------------------
DEALER'S
FRONT-END SALES CHARGE CONCESSION***
AS % OF AS % OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED** PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.96% 4.00%
$100,000 but
under $250,000 3.75 3.94 3.00
$250,000 but
under $500,000 2.50 2.54 2.00
$500,000 but
under $1,000,000* 2.00 2.04 1.60
</TABLE>
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% contingent
deferred sales charge may apply upon redemption of such shares. The
contingent deferred sales charge ("Limited CDSC") that may be applicable
arises only in the case of certain net asset value purchases which have
triggered the payment of a dealer's commission.
** Based on the net asset value per share of the Class A Shares as of the end
of the Fund's most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund. Such reduced
front-end sales charges are not retroactive.
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 front-end
sales charge shown above. Dealers who receive 90% or more of the sales
charge may be deemed to be underwriters under the Securities Act of
1933.
- --------------------------------------------------------------------------------
-29-
<PAGE>
Certain dealers who enter into an agreement to provide extra training and
information on Delaware Group products and services and who increase sales of
Delaware Group funds may receive an additional concession of up to .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 concession will be paid. Participating dealers may be
deemed to have additional responsibilities under the securities laws.
DEALER'S COMMISSION
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 in accordance with the following schedule:
<TABLE>
<CAPTION>
DEALER'S COMMISSION
-------------------
(as a percentage
AMOUNT PURCHASE of amount of purchased)
- ---------------
<S> <C>
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
</TABLE>
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies (see Redemption and Repurchase) may be aggregated
with those of Class A Shares of the Series. 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 Group funds will not qualify for payment of
the dealer's commission, unless such exchange is from a Delaware Group fund with
assets as to which a dealer's commission or similar payment has not been
previously paid. The schedule and program for payment of the dealer's
commission are subject to change or termination at any time by the Distributor
in its discretion.
-30-
<PAGE>
CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES
Class B Shares and Class C Shares are purchased without the imposition of 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 below and Class C Shares
redeemed within twelve months of purchase may be subject to a CDSC of 1%. CDSC
fees 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. In addition, no CDSC will be
assessed on redemption of shares received through reinvestment of dividends or
capital gains distributions. See the Prospectus for the Fund Classes under
Redemption and
Exchange - Waiver of CDSC - Class B and Class C Shares for a list of the
instances in which the CDSC is waived. In addition to the waivers described in
the Prospectus, the CDSC on Class B Shares is waived on redemptions from an
account if the redemption results from the death of all registered owners of the
account (in the case of accounts established under the Uniform Gift 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 Internal Revenue Code) of all registered owners occurring
after the purchase of the shares being redeemed.
The following table sets forth the rates of the CDSC for Class B Shares of
the Series:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER PURCHASE MADE SUBJECT TO CHARGE)
- ------------------------ ---------------------
<S> <C>
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
</TABLE>
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares of the Series, the Class B Shares will still
be subject to the annual 12b-1 Plan expenses of up to 1% of average daily net
assets of those shares. At the end of approximately eight years after purchase,
the investor's Class B Shares will be automatically converted into Class A
Shares of the Series. See Automatic Conversion of Class B Shares under Buying
Shares in the Fund Classes' Prospectus. Such conversion will constitute a tax-
free exchange for federal income tax purposes. See Taxes under the Prospectus
for the Fund Classes.
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<PAGE>
PLANS UNDER RULE 12B-1 FOR THE FUND CLASSES
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a separate
plan for each of the Class A Shares, the Class B Shares and Class C Shares of
the Series (the "Plans"). Each Plan permits the Series to pay for certain
distribution, promotional and related expenses involved in the marketing of only
the Class to which the Plan applies. The Plans do not apply to the
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 Institutional Class shares. Shareholders of the Institutional
Class may not vote on matters affecting the Plans.
The Plans permit the Series, pursuant to the Distribution Agreement, to pay
out of the assets of the Class A Shares, the Class B Shares and the Class C
Shares monthly fees to the Distributor for its services and expenses in
distributing and promoting sales of shares of such classes. These expenses
include, among other things, preparing and distributing advertisements, sales
literature and prospectuses and reports used for sales purposes, compensating
sales and marketing personnel, and paying distribution and maintenance fees to
securities brokers and dealers who enter into agreements with the Distributor.
The Plan expenses relating to Class B and Class C Shares are also used to pay
the Distributor for advancing the commission costs to dealers with respect to
the initial sale of such shares.
In addition, the Series may make payments out of the assets of the Class A,
Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares, or provide services to,
such classes.
The maximum aggregate fee payable by the Series under the Plans, and the
Series' Distribution Agreement, is on an annual basis up to .30% of the Class A
Shares' average daily net assets for the year, and up to 1% (.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. The Fund's
Board of Directors may reduce these amounts at any time. The Distributor has
agreed to waive these distribution fees to the extent such fee for any day
exceeds the net investment income realized by the Class A, Class B and Class C
Shares for such day.
On July 21, 1988, the Board of Directors set the fee for the Class A Shares
pursuant to the Plan relating to that class, at .25% of average daily net
assets. This fee was
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<PAGE>
effective until May 31, 1992. Effective June 1, 1992, the Board of Directors
has determined that the annual fee, payable on a monthly basis, under the Plan
relating to the Class A Shares, will be equal to the sum of: (i) the amount
obtained by multiplying .10% by the average daily net assets represented by the
Class A Shares which were originally purchased prior to June 1, 1992 in the
Government Income Series I class (which was converted into what is now referred
to as the Class A Shares) on June 1, 1992 pursuant to a Plan of Recapitalization
approved by shareholders of the Government Income Series I class), and (ii) the
amount obtained by multiplying .30% by the average daily net assets represented
by all other Class A Shares. While this is the method to be used to calculate
the 12b-1 fees to be paid by the Class A Shares under its Plan, the fee is a
Class A Shares' expense so that all shareholders of the Class A Shares
regardless of whether they originally purchased or received shares in the
Government Income Series I class, or in one of the other Classes that is now
known as Class A Shares will bear 12b-1 expenses at the same rate. While this
describes the current formula for calculating the fees which will be payable
under the Class A Shares' Plan, the Plan permits a full .30% on all Class A
Shares' assets to be paid at any time following appropriate Board approval.
All of the distribution expenses incurred by the Distributor and others,
such as broker/dealers, in excess of the amount paid on behalf of Class A, Class
B and Class C Shares would be borne by such persons without any reimbursement
from such Classes. Subject to seeking best price and execution, the Series 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, as amended, have been approved by
the Board of Directors of the Fund, including a majority of the directors who
are not "interested persons" (as defined in the 1940 Act) of the Fund and who
have no direct or indirect financial interest in the Plans by vote cast in
person at a meeting duly called for the purpose of voting on the Plans and such
Agreements. Continuation of the Plans and the Distribution Agreement, as
amended, must be approved annually by the Board of Directors in the same manner
as specified above.
Each year, the directors must determine whether continuation of the Plans
is in the best interest of the shareholders of, respectively, Class A Shares,
Class B Shares
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<PAGE>
and Class C Shares and that there is a reasonable likelihood of the Plan
relating to a Fund Class providing a benefit to that Class. The Plans and the
Distribution Agreement, as amended, may be terminated at any time without
penalty by a majority of those directors who are not "interested persons" or by
a majority vote of the outstanding voting securities of the relevant Fund Class.
Any amendment materially increasing the maximum percentage payable under the
Plans must likewise be approved by a majority vote of the relevant Fund Class'
outstanding voting securities, as well as by a majority vote of those directors
who are not "interested persons." With respect to the Class A Share Plan, any
material increase in the maximum percentage payable thereunder must be approved
by a majority of the outstanding voting Class B Shares. Also, any other
material amendment to the Plans must be approved by a majority vote of the
directors including a majority of the noninterested directors of the Fund having
no interest in the Plans. In addition, in order for the Plans to remain
effective, the selection and nomination of directors who are not "interested
persons" of the Fund must be effected by the directors 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 Directors for their
review.
For the fiscal year ended July 31, 1995, payments from the Class A Shares
pursuant to its Plan amounted to $622,143 and such amount was used for the
following purposes: Advertising - $573; Annual and Semi-Annual Reports -
$18,539; Broker Trails - $490,138; Commissions to Wholesalers -$30,068; Dealer
Service Expenses - $13,031; Promotional-Broker Meetings - $8,889; Promotional-
Other - $940; Prospectus Printing - $1,513; Telephone Expenses - $4,315;
Wholesaler Expenses - $54,137.
For the fiscal year ended July 31, 1995, payments from the Class B Shares
to its Plan amounted to $48,843 and such amount was used for the following
purposes: Broker Sales Charges - $16,861; Broker Trails - $12,113; Commissions
to Wholesalers - $2,212; Interest on Broker Sales Charges -$17,327; Promotional-
Broker Meetings - $165; Telephone Expenses - $52; Wholesaler Expenses -
$113.
The Staff of the Securities and Exchange Commission ("SEC") has proposed
amendments to Rule 12b-1 and other related regulations that could impact Rule
12b-1 Distribution Plans. The Fund intends to amend the Plans, if necessary, to
comply with any new rules or regulations the SEC may adopt with respect to Rule
12b-1.
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<PAGE>
OTHER PAYMENTS TO DEALERS -- CLASS A, CLASS B 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 .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 Group 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.
Payments to dealers made in connection with seminars, conferences or
contests relating to the promotion of fund shares may be in an amount up to 100%
of the expenses incurred or awards made.
SPECIAL PURCHASE FEATURES -- CLASS A SHARES
BUYING AT NET ASSET VALUE
Class A Shares may be purchased without a front-end sales charge under the
Dividend Reinvestment Plan and, under certain circumstances, the 12-Month
Reinvestment Privilege and the Exchange Privilege.
Current and former officers, directors and employees of the Fund, any other
fund in the Delaware Group, the Manager or any of the Manager's affiliates 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 funds in the Delaware Group, including any fund that may
be created, at the net asset value per share. Spouses, parents, brothers,
sisters and children (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 shares at net
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<PAGE>
asset value. Purchases of Class A Shares may also be made by clients of
registered representatives of an authorized investment dealer at net asset value
within six months of a change of the registered representative's employment, if
the purchase is funded by proceeds from an investment where a front-end sales
charge has been assessed and the redemption of the investment did not result in
the imposition of a contingent deferred sales charge or other redemption
charges. Purchases of Class A Shares also may 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 Class A Shares.
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 the Fund may reasonably require to
establish eligibility for purchase at net asset value. The Fund must be
notified in advance that the trade qualifies for purchase at net asset
value.
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 Delaware
Group account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.
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 the Fund, which provides for the holding in
escrow by the Transfer Agent, of 5% of the total amount of the 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
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<PAGE>
on the date of the earliest purchase. If the intended investment is not
completed, except as noted below, the purchaser will be asked to pay an amount
equal to the difference between the front-end sales charge on Class A Shares
purchased at the reduced rate and the front-end sales charge otherwise
applicable to the total shares purchased. If such payment is not made within 20
days following the expiration of the 13-month period, the Transfer Agent will
surrender an appropriate number of the escrowed shares for redemption in order
to realize the difference. Such purchasers may include the value (at offering
price at the level designated in their Letter of Intention) of all their shares
of the Series and of any class of any of the other mutual funds in the Delaware
Group (except shares of any Delaware Group fund which do not carry a front-end
sales charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium
Fund, Inc. beneficially owned in connection with the ownership of variable
insurance products, unless they were acquired through an exchange from a
Delaware Group 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 the Series and the corresponding classes of shares of other Delaware
Group funds which offer such shares may be aggregated with Class A Shares of the
Series and the corresponding class of shares of the other Delaware Group funds.
Employers offering a Delaware Group 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 Group 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
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<PAGE>
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 the Series and other Delaware Group 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 the Class A Shares, Class B Shares and/or
Class C Shares of the Series, as well as shares of any other class of any of the
other Delaware Group funds (except shares of any Delaware Group fund which do
not carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC).
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 the age
21; or a trustee or other fiduciary of trust estates or fiduciary accounts for
the benefit of such family members (including certain employee benefit
programs).
RIGHT OF ACCUMULATION
In determining the availability of the reduced front-end sales charge with
respect to Class A Shares, purchasers may also combine any subsequent purchases
of Class A Shares, Class B Shares and Class C Shares of the Series, as well as
shares of any other class of any of the other Delaware Group funds which offer
such classes (except shares of any Delaware Group fund which do carry a front-
end sales charge, CDSC or Limited CDSC, other than shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a Delaware Group 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 $40,000 and subsequently purchases $60,000 at
offering price of additional shares of Class A Shares, the charge applicable to
the $60,000 purchase would be 3.75%. For the purpose of this calculation, the
shares presently held shall be valued at the public offering price that
would
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<PAGE>
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 of the Institutional Class holding shares
which were acquired through an exchange of one of the other mutual funds in the
Delaware Group offered with a front-end sales charge) who redeem such shares of
the Series have one year from the date of redemption to reinvest all or part of
their redemption proceeds in Class A Shares of the Series or in Class A Shares
of any of the other funds in the Delaware Group, subject to applicable
eligibility and minimum purchase requirements, in states where shares of such
other funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds in the
Delaware Group offered without a front-end sales charge will be required to pay
the applicable sales charge when purchasing Class A Shares. The reinvestment
privilege does not extend to a redemption of either Class B or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at
the net asset value next determined after receipt of remittance. A redemption
and reinvestment could have income tax consequences. It is recommended that a
tax adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is proposed to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer Agent,
which also serves as the Fund's shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Purchases of Class A Shares Made at Net Asset Value under Redemption and
Exchange in the Fund Classes' Prospectus) in connection with the features
described above.
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<PAGE>
GROUP INVESTMENT PLANS
Group Investment Plans that are not eligible to purchase shares of the
Institutional Class may also benefit from the reduced front-end sales charges
for investments in Class A Shares set forth in the table on page _____, based on
total plan assets. If a company has more than one plan investing in the
Delaware Group 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 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 Group
investment accounts if they so notify the Fund in connection with each purchase.
For other retirement plans and special services, see Retirement Plans for the
Fund Classes under Investment Plans.
U.S. GOVERNMENT FUND INSTITUTIONAL CLASS
The Institutional Class 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, a division of the Manager, or its affiliates and their
corporate sponsors, as well as subsidiaries and related employee benefit plans
and rollover individual retirement account from such institutional advisory
accounts; (d) banks, trust companies and similar financial institutions
investing for their own account or for the account of their trust customers for
whom such financial institution is exercising investment discretion in
purchasing shares of the class; and (e) registered investment advisers investing
on behalf of clients that consist solely of institutions and high net-worth
individuals having at least $1,000,000 entrusted to the adviser for investment
purposes, but only if the adviser is not affiliated or associated with a broker
or dealer and derives compensation for its services exclusively from its clients
for such advisory services.
Shares of the Institutional Class are available for purchase at net asset
value, without the imposition of a front-end or contingent deferred sales charge
and are not subject to Rule 12b-1 expenses.
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INVESTMENT PLANS
REINVESTMENT PLAN/OPEN ACCOUNT
Unless otherwise designated by shareholders in writing, dividends from net
investment income and distributions from realized securities profits, if any,
will be automatically reinvested in additional shares of the Fund Class (based
on the net asset value in effect on the reinvestment date) and credited to the
shareholder's account on that date. All dividends and distributions of the
Institutional Class are reinvested in the account of the holders of such shares
(based on the net asset value of the Series in effect on the reinvestment date).
A confirmation of each distribution from realized securities profits, if any,
will be mailed to shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and add
full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the Fund. Such
purchases, which must meet the minimum subsequent purchase requirements set
forth in the Prospectus and this Part B, are made, for Class A Shares at the
public offering price, and for Class B Shares, Class C Shares and Institutional
Class 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 GROUP FUNDS
Subject to applicable eligibility and minimum initial purchase requirements
and the limitations set forth below, holders of Class A, Class B and Class C
Shares may automatically reinvest dividends and/or distributions from the Fund
in any of the other mutual funds in the Delaware Group, including the Series, in
states where their shares may be sold. Such investments will be at net asset
value at the close of business on the reinvestment date without any front-end
sales charge or service fee. The shareholder must notify the Transfer Agent in
writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account will be treated like
all other initial purchases of a fund's shares. Consequently, an investor
should obtain and read carefully the prospectus for the fund in which the
investment is proposed to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
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<PAGE>
Subject to the following limitations, dividends and/or distributions from
other funds in the Delaware Group may be invested in shares of the Series,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares or Class C Shares of another fund in the Delaware
Group. Dividends from Class B Shares may only be directed to Class B Shares of
another fund in the Delaware Group that offers such class of shares. Dividends
from Class C Shares may only be directed to Class C Shares of another fund in
the Delaware Group that offers such class of shares. See Class B Funds and
Class C Funds under Buying Shares in the Fund Classes' Prospectus for the funds
in the Delaware Group that are eligible for investment by holders of Series
shares.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
INVESTING BY ELECTRONIC FUND TRANSFER
Direct Deposit Purchase Plan -- Investors may arrange for the Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and
delayed checks.
Automatic Investing Plan -- Shareholders of Class A, Class B and Class C
Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Series
account. This type of investment will be handled in either of the two ways
noted below. (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.
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This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
* * *
Investments under the Direct Deposit Purchase Plan and the Automatic
Investing Plan must be for $25 or more for Class A Shares and $100 or more for
Class B and Class C Shares. 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 the Series 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,
the 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 Series.
DIRECT DEPOSIT PURCHASES BY MAIL
Shareholders may authorize a third party, such as a bank or employer, to
make investments directly to their Series accounts. The Series 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 the Fund
for proper instructions.
RETIREMENT PLANS FOR THE FUND CLASSES
An investment in the Series may be suitable for tax-deferred retirement
plans. Among the retirement plans noted below, Class B Shares are available for
investment only by Individual Retirement Accounts, Simplified Employee Pension
Plans, 457 Deferred Compensation Plans and 403(b)(7) Deferred Compensation
Plans. The CDSC may be waived on certain redemptions of Class B Shares and
Class C Shares. See the Prospectus for the Fund Classes under Redemption and
Exchange - Waiver of CDSC - Class B and Class C Shares for a list of the
instances in which the CDSC is waived.
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Each purchase of Class B Shares is subject to a maximum purchase limitation
of $250,000 for retirement plans. Each purchase 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
("IRAs") for which there is a minimum initial purchase of $250, and a minimum
subsequent purchase of $25 regardless of which class is selected. Retirement
plans may be subject to plan establishment fees, annual maintenance fees and/or
other administrative or trustee fees. Fees are based upon the number of
participants in the plan as well as the services selected. Additional
information about fees is included in retirement plan materials. Fees are
quoted upon request. Annual maintenance fees may be shared by Delaware
Management Trust Company, the Transfer Agent, other affiliates of the Manager
and others that provide services to such plans.
Certain shareholder investment services available to non-retirement plan
shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Class. See
U.S. Government Fund Institutional Class 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
and corporations which replace the former Keogh and corporate retirement plans.
These plans contain profit sharing or money purchase pension plan provisions.
Contributions may be invested only in Class A and Class C Shares.
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INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A document is available for an individual who wants to establish an IRA by
making 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 or elects to be treated
as having no compensation for the year. Investments in each of the Fund Classes
are permissible.
The Tax Reform Act of 1986 ("the Act") restructured, and in some cases
eliminated, the tax deductibility of IRA contributions. Under the Act, the full
deduction for IRAs ($2,000 for each working spouse and $2,250 for one-income
couples) was retained for all taxpayers who are not covered by an employer-
sponsored retirement plan. Even if a taxpayer (or his or her spouse) is covered
by an employer-sponsored retirement plan, the full deduction is still available
if the taxpayer's adjusted gross income is below $25,000 ($40,000 for taxpayers
filing joint returns). A partial deduction is allowed for married couples with
incomes between $40,000 and $50,000, and for single individuals with incomes
between $25,000 and $35,000. The Act does not permit deductions for
contributions to IRAs by taxpayers whose adjusted gross income before IRA
deductions exceeds $50,000 ($35,000 for singles) and who are active participants
in an employer-sponsored retirement plan. Taxpayers who are not allowed
deductions on IRA contributions still can make nondeductible IRA contributions
of as much as $2,000 for each working spouse ($2,250 for one-income couples),
and defer taxes on interest or other earnings from the IRAs. Special rules
apply for determining the deductibility of contributions made by married
individuals filing separate returns.
A company or association may establish a Group IRA for employees or members
who want to purchase shares of the Series. Purchases of $1 million or more of
Class A Shares qualify for purchase at net asset value but may, under certain
circumstances, be subject to a Limited CDSC. See Purchasing Shares concerning
reduced front-end sales charges applicable to Class A Shares.
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
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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. See Class B Shares and Class
C Shares under Alternative Purchase Arrangements in the Fund Classes' Prospectus
concerning the applicability of a CDSC upon redemption.
See Appendix A for additional IRA information.
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 Fund Classes is available for investment by a SEP/IRA.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")
Employers with 25 or fewer eligible employees can establish this plan which
permits employer contributions and salary deferral contributions in Class A
Shares and Class C Shares only.
PROTOTYPE 401(K) DEFINED CONTRIBUTION PLAN
Section 401(k) of the Code permits employers to establish qualified plans
based on salary deferral contributions. 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 Group.
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 on
page _____.
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
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account agreement is available for those employers who wish to purchase any of
the Fund Classes in conjunction with such an arrangement. Applicable front-end
sales charges with respect to Class A Shares for such purchases are set forth in
the table on page _____.
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 any of the Fund Classes. Although investors may use
their own plan, there is available a Delaware Group 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Applicable front-end sales charges for
such purchases of Class A Shares are set forth in the table on page _____.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering price
next calculated by the Fund after receipt of the order by the Fund or its agent.
Orders for purchases of Class B Shares, Class C Shares and the Institutional
Class are effected at the net asset value per share next calculated after
receipt of the order by the Fund or its agent. Selling dealers have the
responsibility of 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 New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. When the New York
Stock Exchange is closed, the Fund 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, is included in the
Fund's financial statements which are incorporated by reference into this Part
B.
The Series' net asset value per share is computed by adding the value of
all of the securities and other assets in the portfolio, deducting any
liabilities and dividing by the number of shares outstanding. Expenses and fees
are accrued daily. In determining the Series' total net assets, U.S. Government
and other debt securities are valued at the mean between the last reported bid
and asked prices. Options are valued at the last reported sales price or, if no
sales are reported, at the mean between bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost. Non-Exchange-traded options are valued at fair value using a
mathematical model. All other securities and assets are valued at fair value as
determined in good faith and in a method approved by the Board of Directors of
the Fund.
Each Class of the Series will bear, pro-rata, all of the common expenses of
the Series. The net asset values of all outstanding shares of each Class of the
Series will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Series represented by the value of shares
of that Class. All income earned and expenses incurred by the Series will be
borne on a pro-rata basis by each outstanding share of a Class, based on each
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Class' percentage in the Fund represented by the value of shares of such
Classes, except that the Institutional Class will not incur any of the expenses
under the Fund's 12b-1 Plans and the Class A, Class B and Class C Shares alone
will bear the 12b-1 Plan expenses payable under their respective Plans. Due to
the specific distribution expenses and other costs that will be allocable to
each Class, the dividends paid to each Class of the Fund may vary. However, the
net asset value per share of each Class is expected to be equivalent.
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REDEMPTION AND REPURCHASE
Any shareholder may require the Fund to redeem Series shares by sending a
WRITTEN REQUEST, signed by the record owner or owners exactly as the shares are
registered, to the Fund, 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. The Fund does not issue
certificates for Class A Shares or Institutional Class shares, unless a
shareholder specifically requests them. The Fund does not issue certificates
for Class B Shares or Class C Shares. If stock certificates have been issued
for shares being redeemed, they must accompany the written request. For
redemptions of $50,000 or less paid to the shareholder at the address of record,
the Fund requires a request signed by all owners of the shares or the investment
dealer of record, but does not require signature guarantees. When the
redemption is for more than $50,000, or if payment is made to someone else or to
another address, signatures of all record owners are required and a signature
guarantee may be required. Each signature guarantee must be supplied by an
eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Fund may request further documentation from corporations,
retirement plans, executors, administrators, trustees or guardians.
In addition to redemption of shares by the Fund, the Distributor, acting as
agent of the Fund, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be
more or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the Fund or its agent,
less any 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 Fund and the Distributor end their
business day 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 Series 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 any 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
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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.
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 Purchases of Class A Shares Made at Net Asset Value under
Redemption and Exchange in the Series' Prospectus for the Fund Classes. Class B
Shares are subject to a CDSC of: (i) 4% if shares are redeemed within two years
of purchase; (ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within twelve months following purchase. See Contingent Deferred Sales
Charge under Buying Shares in the Series' Prospectus for the Fund Classes.
Except for the applicable CDSC or Limited CDSC and, with respect to the
expedited payment by wire described below, for which there is currently a $7.50
bank wiring cost, neither the Fund nor the Distributor charges a fee for
redemptions or repurchases, but such fees could be charged at any time in the
future.
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.
If a shareholder who recently purchased shares by check seeks to redeem all
or a portion of those shares in a written request, the Fund will honor the
redemption request but will not mail the proceeds until it is reasonably
satisfied of the collection of the investment check. This potential delay can
be avoided by making investments by wiring Federal Funds.
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 will automatically redeem from the shareholder's account the Series shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Series 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 the Series of securities owned by it is not reasonably practical, or
it is not reasonably practical for the Series fairly to value its assets, or in
the event that the Commission 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
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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, the Fund
has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which
the Series is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Series during any 90-day period for
any one shareholder.
The value of the Series' investments is subject to changing market prices.
Thus, a shareholder reselling shares to the Series may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
SMALL ACCOUNTS
Before the Fund involuntarily redeems shares from an account that, under
the circumstances listed in the relevant Prospectus, has remained below the
minimum amounts required by the Series' Prospectus and sends the proceeds to the
shareholder, the shareholder will be notified in writing that the value of the
shares in the account is less than the minimum required and will be allowed 60
days from the date of notice to make an additional investment to meet the
required minimum. See The Conditions of Your Purchase under Buying Shares in
the Series' Prospectuses. Any redemption in an inactive account established
with a minimum investment may trigger mandatory redemption. No CDSC or Limited
CDSC will apply to the redemptions described in this paragraph.
CHECKWRITING FEATURE
Shareholders of the Class A Shares and the Institutional Class holding
shares for which certificates have not been issued may request on the investment
application that they be provided with special forms of checks which may be
issued to redeem their shares by drawing on the Delaware Group Government Fund
account with CoreStates Bank, N.A. Normally, it takes two weeks from the date
the shareholder's initial purchase check clears to receive the first order of
checks. The use of any form of check other than the Fund's check will not be
permitted unless approved by the Fund. The Checkwriting Feature is not
available for Retirement Plans, Class B Shares and Class C Shares.
(1) Redemption checks must be made payable in an amount of $500 OR MORE.
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(2) Checks must be signed by the shareholder(s) of record, or in the case
of an organization, by the authorized person(s). If registration is in more
than one name, unless otherwise indicated on the investment application or your
checkwriting authorization form, these checks must be signed by ALL OWNERS
before the Fund will honor them. Through this procedure the shareholder will
continue to be entitled to distributions paid on these shares up to the time the
check is presented for payment.
(3) If a shareholder who recently purchased shares by check seeks to redeem
all or a portion of those shares through the Checkwriting Feature, the Fund will
not honor the redemption request unless it is reasonably satisfied of the
collection of the investment check. The hold period against a recent purchase
may be up to but not in excess of 15 business days, depending upon the origin of
the investment check.
(4) If the amount of the check is greater than the value of the shares held
in the shareholder's account, the check will be returned and the shareholder may
be subject to extra charges.
(5) Checks may not be used to close accounts.
The Fund reserves the right to revoke the Checkwriting Feature of
shareholders who overdraw their accounts or, if in the opinion of management,
such revocation is in the Fund's best interest.
Shareholders will be subject to CoreStates Bank, N.A.'s rules and
regulations governing similar accounts. This service may be terminated or
suspended at any time by CoreStates Bank, N.A., the Fund or the Transfer Agent.
As the Fund must redeem shares at their net asset value next determined
(subject, in the case of Class A Shares, to any Limited CDSC), it will not be
able to redeem all shares held in a shareholder's account by means of a check
presented directly to the bank. The Fund and the Transfer Agent will not be
responsible for the inadvertent processing of post-dated checks or checks more
than six months old.
Stop-Payment Requests--Investors may request a stop payment on checks by
providing the Fund with a written authorization to do so. Oral requests will be
accepted provided that the Fund promptly receives a written authorization. Such
requests will remain in effect for six months unless renewed or cancelled. The
Fund will use its best efforts to effect stop-payment instructions, but does not
promise or guarantee that such instructions will be effective. Shareholders
requesting a stop payment will be charged a $5 service fee per check for each
six-month period which will be deducted from their accounts.
* * *
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The Series has available certain redemption privileges, as described below.
The Fund reserves the right to suspend or terminate these expedited payment
procedures upon 60 days' written notice to shareholders.
EXPEDITED TELEPHONE REDEMPTIONS
Shareholders of the Fund Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which certificates
have not been issued may call the Fund at 800-523-1918 or, in the case of
shareholders of the Institutional Class, their Client Services Representative at
800-828-5052 prior to the time the offering price and net asset value are
determined, as noted above, and have the proceeds mailed to them at the record
address. Checks payable to the shareholder(s) of record will normally be mailed
the next business day, but no later than seven days, after the receipt of the
redemption request. This option is only available to individual, joint and
individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred to
your predesignated bank account by wire or by check by calling the Fund, as
described above. An authorization form must have been completed by the
shareholder and filed with the Fund before the request is received. Payment
will be made by wire or check to the bank account designated on the
authorization form as follows:
1. PAYMENT BY WIRE: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. 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.
2. PAYMENT BY CHECK: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, after the date of
the telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
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REDEMPTION REQUIREMENTS: In order to change the name of the bank and the
account number it will be necessary to send a written request to the Fund and a
signature guarantee may be required. 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.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.
The Fund will not honor telephone redemptions for Series shares recently
purchased by check unless it is reasonably satisfied that the purchase check has
cleared.
If expedited payment under these procedures could adversely affect the
Series, the Fund may take up to seven days to pay the shareholder.
Neither the Fund nor the Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Series shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders of Class A, Class B and Class C Shares who own or purchase
$5,000 or more of shares at the offering price, or net asset value, as
applicable, for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Fund does not recommend any specific
amount of withdrawal. 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.
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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.
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 by the holders of Class A Shares or any similar
plan of any other investment company charging a front-end sales charge made
concurrently with the purchases of Class A Shares of this or any other
investment company will ordinarily be disadvantageous to the shareholder because
of the payment of duplicative sales charges. Shareholders should not purchase
Class A Shares while participating in a Systematic Withdrawal Plan and a
periodic investment program in a fund managed by the Manager must be terminated
before a Systematic Withdrawal Plan can take effect, except if the shareholder
is a participant in one of our retirement plans or is investing in Delaware
Group funds which do not carry a sales charge. Also, 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. Redemptions of Class B Shares or Class C Shares pursuant
to a Systematic Withdrawal Plan may be subject to a CDSC, unless the annual
amount selected to be withdrawn is less than 12% of the account balance on the
date that the Systematic Withdrawal Plan was established. See Waiver of CDSC -
Class B and Class C Shares and Waiver of Limited CDSC - Class A Shares under
Redemption and Exchange in the Prospectus for the Fund Classes.
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
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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.
The Systematic Withdrawal Plan is not available for the Institutional
Class.
WEALTH BUILDER OPTION
Shareholders of the Fund Classes may elect to invest in one or more of the
other mutual funds in the Delaware Group through our Wealth Builder Option.
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
Group, subject to the conditions and limitations set forth in the Fund Classes'
Prospectus. See Wealth Builder Option and Redemption and Exchange in the
Prospectus for the Fund Classes.
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 Exchange Privilege for a brief summary of the tax consequences of
exchanges.
Shareholders can also 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 Group, subject to the conditions and limitations described
in the Fund Classes' Prospectus. Shareholders can terminate their participation
at any time by written notice to the Fund.
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This option is not available to participant's in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans. This option also is not available to shareholders
of the Institutional Class.
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DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
In determining daily dividends, the amount of net investment income for the
Series will be determined as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when such exchange is
open, and shall include investment income accrued by the Series, less the
estimated expenses of the Series incurred since the last determination of net
asset value. Gross investment income consists principally of interest accrued
and, where applicable, net pro-rata amortization of premiums and discounts since
the last determination. The dividend declared, as noted above, will be deducted
immediately before the net asset value calculation is made. Net investment
income earned on days when the Fund is not open will be declared as a dividend
on the next business day.
Purchases of Series shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if the Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Investors desiring to guarantee wire payments
must have an acceptable financial condition and credit history in the sole
discretion of the Fund. The Fund reserves the right to terminate this option at
any time. Purchases by check earn dividends upon conversion to Federal Funds,
normally one business day after receipt.
Each Class of shares of the Fund will share proportionately in the
investment income and expenses of the Series, except that the Class A, Class B
and Class C Shares alone will incur distribution fees under their respective
12b-1 Plans.
Dividends and any realized securities profits distributions are
automatically reinvested in additional shares of the Series at the net asset
value in effect on the first business day after month end which provides the
effect of compounding dividends, unless the election to receive dividends in
cash has been made. Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to receive dividends in
cash. If such a shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to begin receiving
dividends in cash again. Payment by check of cash dividends will ordinarily be
mailed within three business days after the payable date. If a shareholder
redeems an entire account, all dividends accrued to the time of the withdrawal
will be paid by separate check at the end of that particular monthly dividend
period, consistent with
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the payment and mailing schedule described above. Any check in payment of
dividends or other distributions which cannot be delivered by the United States
Post Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. The Series may deduct
from a shareholder's account the costs of the Series' effort to locate a
shareholder if a shareholder's mail is returned by the Post Office or the Series
is otherwise unable to locate the shareholder or verify the shareholder's
mailing address. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for their location services.
Any distributions from net realized securities profits will be made twice a
year. The first payment would be made during the first quarter of the next
fiscal year. The second payment would be made near the end of the calendar year
to comply with certain requirements of the Internal Revenue Code. Such
distributions will be reinvested in shares at the net asset value in effect on
the first business day after month end, unless the shareholder elects to receive
it in cash. The Fund will mail a quarterly statement showing the dividends paid
and all the transactions made during the previous period. During the fiscal
year ended July 31, 1995, dividends totaling $0.656, $0.601 and $0.679 per share
of the Class A Shares, the Class B Shares and the Institutional Class,
respectively, were paid from net investment income.
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TAXES
The Series has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As such, the Series will not be subject to federal income tax
to the extent its earnings are distributed. The Fund intends to meet the
calendar year distribution requirements imposed by the Code to avoid the
imposition of a 4% excise tax.
Persons not subject to tax will not be required to pay taxes on
distributions.
Dividends paid by the Series from its ordinary income and distributions of
net realized short-term capital gains are taxable to shareholders as ordinary
income for federal income tax purposes. Distributions made from the Series' net
realized long-term capital gains, if any, are taxable to shareholders as long-
term capital gains, regardless of the length of time an investor has held such
shares, and these gains are currently taxed at long-term capital gain rates.
The tax status of dividends and distributions paid to shareholders will not be
affected by whether they are paid in cash or in additional shares.
The Fund intends to offset the Series' realized securities profits to the
extent of the Series' capital losses carried forward. For the fiscal year ended
July 31, 1995, the Series had a capital loss of $9,205,797. The Series had
accumulated capital losses at July 31, 1995 of $38,309,234, which may be carried
forward and applied against future capital gains. The capital loss carryforward
expires as follows: 1996 -- $5,736,818, 1997 -- $2,596,096, 1998 --$1,746,916,
2001 -- $1,622,896, 2002 -- $17,400,711 and 2003 -- $9,205,797.
Distributions may also be subject to state and local taxes; shareholders
are advised to consult with their tax advisers in this regard.
Shares of the Series will be exempt from Pennsylvania county personal
property taxes. Shareholders will be notified annually as to the federal income
tax status of dividends and distributions paid by the Series.
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INVESTMENT MANAGEMENT AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Fund, subject to the supervision
and direction of the Fund's Board of Directors.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. The aggregate assets of these funds on July 31, 1995
were approximately $9,964,548,000. Investment advisory services are also
provided to institutional accounts with assets on July 31, 1995 of approximately
$17,356,716,000.
The Investment Management Agreement for the Series is dated April 3, 1995
and was approved by shareholders on March 29, 1995.
The Agreement has an initial term of two years and may be renewed each year
only so long as such renewal and continuance are specifically approved at least
annually by the Board of Directors or by vote of a majority of the outstanding
voting securities of the Series, and only if the terms and the renewal thereof
have been approved by the vote of a majority of the directors of the Fund 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 directors of the Fund or
by the Manager. The Agreement will terminate automatically in the event of its
assignment.
The Investment Management Agreement provides that the Series shall pay the
Manager a management fee equal to (on an annual basis) .60% of its average daily
net assets, less all directors' fees paid to the unaffiliated directors by the
Series. On July 31, 1995, the total net assets of the Series were $221,792,573.
Under the general supervision of the Board of Directors, the Manager makes all
investment decisions which are implemented by the Fund. The Manager pays the
salaries of all directors, officers and employees who are affiliated with both
the Manager and the Fund. The investment management fees paid by the Series for
the fiscal years ended July 31, 1993, 1994 and 1995 were $1,307,628, $1,476,723
and $1,338,755, respectively.
Except for those expenses borne by the Manager under the Investment
Management Agreement and the Distributor under the Distribution Agreement, the
Series is responsible for all of its own expenses. Among others, these include
the 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
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shareholders. The ratios of expenses to average daily net assets for the fiscal
year ended July 31, 1995 for Class A Shares, Class B Shares and the
Institutional Class were 1.24%, 1.94% and 0.94%, respectively. The ratios for
the Class A Shares and the Class B Shares reflect the impact of their respective
12b-1 Plans. The Fund anticipates that the ratio of expenses to average daily
net assets of Class C Shares will be identical to that of the Class B Shares.
By California regulation, the Manager is required to waive certain fees and
reimburse the Fund for certain expenses to the extent that the Fund's annual
operating expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, exceed 2 1/2% of its first $30 million of average daily
net assets, 2% of the next $70 million of average daily net assets and 1 1/2% of
any additional average daily net assets. For the fiscal year ended July 31,
1995, no such reimbursement was necessary or paid.
DISTRIBUTION AND SERVICE
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of Series shares
under a Distribution Agreement dated April 3, 1995, as amended on November 29,
1995. The Distributor is an affiliate of the Manager and bears all of the costs
of promotion and distribution, except for payments by the Series on behalf of
Class A Shares, Class B Shares and Class C Shares under their respective 12b-1
Plans. Prior to January 3, 1995, Delaware Distributors, Inc. ("DDI") served as
the national distributor of the Series' shares. On that date Delaware
Distributors, L.P., a newly formed limited partnership, succeeded to the
business of DDI. All officers and employees of DDI became officers and
employees of Delaware Distributors, L.P. DDI is the corporate general partner
of Delaware Distributors, L.P. and both DDI and Delaware Distributors, L.P. are
indirect, wholly-owned subsidiaries of Delaware Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another affiliate of
the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as the
Series' shareholder servicing, dividend disbursing and transfer agent pursuant
to a Shareholders Services Agreement dated June 29, 1988. The Transfer Agent is
also an indirect, wholly-owned subsidiary of Delaware Management Holdings, Inc.
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OFFICERS AND DIRECTORS
The business and affairs of the Fund are managed under the direction of its
Board of Directors.
Certain officers and directors of the Fund hold identical positions in each
of the other funds in the Delaware Group. On October 31, 1995, the Fund's
officers and directors owned less than 1% of the outstanding shares of the
Class A Shares and the Class B Shares approximately 2.51% of the outstanding
shares of, the Institutional Class.
As of October 31, 1995, the Fund believes the following accounts held 5% or
more of the outstanding shares of, respectively, the Class A Shares,
Institutional Class and Class B Shares: Merrill, Lynch, Pierce, Fenner & Smith
Inc., Mutual Fund Operations, P.O. Box 41621, Jacksonville, FL 32203 held of
record for the benefit of others 1,259,736 shares (5.10%) of the outstanding
shares of the Class A Shares. Amalgamated Bank of New York, Cust. TWU-NYC PVT
Bus Lines Pension Fund, Amivest Corp. Discretionary Investment Manager, P.O. Box
370 Coopers Station, New York, NY 10276 held 556,202 shares (51.57%); The City
of Groton, 295 Meridian Street, Groton, CT 06340 held 248,654 shares (23.05%);
Delaware Management Company, Inc. Employee Profit Sharing Trust, 1818 Market
Street, Philadelphia, PA 19103 held 82,406 shares (7.64%); and Amalgamated Bank
of New York, Cust. Local Union 154 Roofers, Waterproofers & Allied Workers
Pension Fund, Amivest Corp. Discretionary Investment Manager, P.O. Box 370
Cooper Station, New York, NY 10276 held 57,821 (5.36%) of the outstanding shares
of the Institutional Class. Shares held by Delaware Management Company, Inc.
Employee Profit Sharing Trust are beneficially owned by the participants in the
plan. Merrill, Lynch, Pierce, Fenner & Smith Inc., Mutual Fund Operations,
Attention Book Entry, 4800 Deer Lake Drive East, 3rd Fl., Jacksonville, FL 32246
held of record for the benefit of others 146,414 shares (13.24%) of the
outstanding shares of the Class B Shares.
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DMH Corp., Delaware Management Company, Inc., 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. and Delaware Investment Counselors, Inc.
are direct or indirect, wholly-owned subsidiaries of Delaware Management
Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a wholly-
owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. In connection with the merger, a new Investment Management Agreement
between the Fund on behalf of the Series and the Manager was executed following
shareholder approval. DMH and the Manager are now wholly-owned subsidiaries,
and subject to the ultimate control, of Lincoln National. Lincoln National,
with headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
Directors and principal officers of the Fund 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 director is One Commerce
Square, Philadelphia, PA 19103.
*WAYNE A. STORK (58)
Chairman, President, Chief Executive Officer, Director and/or Trustee
of the Fund, 15 other funds in
the Delaware Group (which excludes Delaware Pooled Trust, Inc.) and
Delaware Management Holdings, Inc.
Chairman and Director of Delaware Investment Counselors,
Inc. and Delaware Pooled Trust, Inc.
Chairman, Chief Executive Officer, Chief Investment
Officer and Director of Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of
DMH Corp., Delaware International Advisers Ltd., Delaware
International Holdings Ltd. and Founders Holdings, Inc.
Director of Delaware Distributors, Inc. and Delaware
Service Company, Inc.
During the past five years, Mr. Stork has served in
various executive capacities at different times
within the Delaware organization.
______________________________
*Director affiliated with the investment manager of the Fund
and considered an "interested person" as defined in the
Investment Company Act of 1940.
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WINTHROP S. JESSUP (50)
Executive Vice President of the Fund, 15 other funds in
the Delaware Group (which excludes Delaware Pooled Trust, Inc.) and
Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled
Trust, Inc.
President and Director of Delaware Investment
Counselors, Inc.
Executive Vice President and Director of DMH Corp.,
Delaware Management Company, Inc., Delaware International Holdings
Ltd. and Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors,
Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Management Trust Company, Delaware
Service Company, Inc. and Delaware International Advisers Ltd.
During the past five years, Mr. Jessup has served in
various executive capacities at different times within the Delaware
organization.
RICHARD G. UNRUH, JR. (56)
Executive Vice President of the Fund and each of the
other 16 funds in the Delaware Group.
Executive Vice President and Director of Delaware
Management Company, Inc.
Senior Vice President of Delaware Management Holdings,
Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in
various executive capacities at different times
within the Delaware organization.
WALTER P. BABICH (68)
Director and/or Trustee of the Fund and each of the
other 16 funds in the Delaware Group.
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.
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ANTHONY D. KNERR (56)
Director and/or Trustee of the Fund and each of the
other 16 funds in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Consultant, 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.
ANN R. LEVEN (55)
Director and/or Trustee of the Fund and each of the
other 16 funds in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief
Fiscal Officer of the Smithsonian Institution, Washington, DC, and
from 1975 to 1994, she was Adjunct Professor of Columbia Business
School.
W. THACHER LONGSTRETH (75)
Director and/or Trustee of the Fund and each of the
other 16 funds in the Delaware Group.
1617 John F. Kennedy Boulevard, Philadelphia, PA 19103.
Vice Chairman, Packquisition Corp., a financial
printing, commercial printing and information
processing firm.
Philadelphia City Councilman.
President, MLW, Associates.
Director, Tasty Baking Company.
Director, Healthcare Services Group.
CHARLES E. PECK (69)
Director and/or Trustee of the Fund and each of the
other 16 funds in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief
Executive Officer of The Ryland Group, Inc., Columbia, MD.
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DAVID K. DOWNES (55)
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer of the Fund, each of the other 16 funds in the
Delaware Group and Delaware Management Company, Inc.
Chairman and Director of Delaware Management Trust
Company.
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer/Treasurer of Delaware Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer
and Director of DMH Corp.
Senior Vice President/Chief Administrative Officer/Chief
Financial Officer and Director of Delaware Service
Company, Inc.
Senior Vice President/Chief Administrative Officer of
Delaware Distributors, L.P.
Senior Vice President/Chief Administrative Officer
and Director of Delaware Distributors, Inc.
Chief Financial Officer and Director of Delaware
International Holdings Ltd.
Senior Vice President/Chief Financial Officer/Treasurer
of Delaware Investment Counselors, Inc.
Senior Vice President and Director of Founders Holdings,
Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes
was Chief Administrative Officer, Chief Financial Officer and
Treasurer of Equitable Capital Management Corporation, New York, from
December 1985 through August 1992, Executive Vice President from
December 1985 through March 1992, and Vice Chairman from March 1992
through August 1992.
GEORGE M. CHAMBERLAIN, JR. (48)
Senior Vice President and Secretary of the Fund, each of
the other 16 funds in the Delaware Group, Delaware Management
Holdings, Inc., Delaware Distributors, L.P. and Delaware Investment
Counselors, Inc.
Executive Vice President and Secretary of Delaware
Management Trust Company.
Senior Vice President, Secretary and Director of DMH
Corp., Delaware Management Company, Inc., Delaware Distributors, Inc.
and Delaware Service Company, Inc.
Corporate Vice President and Secretary of Founders
Holdings, Inc.
Secretary and Director of Delaware International
Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served
in various capacities at different times within the Delaware
organization.
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ROGER A. EARLY (41)
Vice President/Senior Portfolio Manager of the Fund, of
nine other income funds in the Delaware Group and of Delaware
Management Company, Inc.
Before joining the Delaware Group in 1994, Mr. Early was
Senior Vice President/Portfolio Manager for Federated Investors,
Pittsburgh, PA from 1984 to 1994.
JOSEPH H. HASTINGS (45)
Vice President/Corporate Controller of the Fund, each of
the other 16 funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Investment Counselors, Inc. and Founders
Holdings, Inc.
Executive Vice President/Treasurer/Chief Financial
Officer of Delaware Management Trust Company.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings
was Chief Financial Officer for Prudential Residential Services, L.P.,
New York, NY from 1989 to 1992. Prior to that, Mr. Hastings served as
Controller and Treasurer for Fine Homes International, L.P., Stamford,
CT from 1987 to 1989.
MICHAEL P. BISHOF (33)
Vice President/Treasurer of the Fund, each of the other
16 funds in the Delaware Group, Delaware Management Company, Inc.,
Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware
Service Company, Inc., Founders Holdings, Inc. and Founders CBO
Corporation.
Prior to joining the Delaware Group 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.
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The following is a compensation table listing for each director entitled to
receive compensation, the aggregate compensation received from the Fund and the
total compensation received from all Delaware Group funds for the fiscal year
ended July 31, 1995 and an estimate of annual benefits to be received upon
retirement under the Delaware Group Retirement Plan for Directors/Trustees as of
July 31, 1995.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED TOTAL
AGGREGATE ACCRUED ANNUAL COMPENSATION
COMPEN- AS PART BENEFITS FROM ALL 17
SATION OF FUND UPON DELAWARE
NAME FROM FUND EXPENSES RETIREMENT* GROUP FUNDS
<S> <C> <C> <C> <C>
W. Thacher Longstreth $2,273.50 None $18,100 $51,187.97
Ann R. Leven $2,625.01 None $18,100 $59,323.96
Walter P. Babich $2,663.61 None $18,100 $60,323.88
Anthony D. Knerr $1,756.10 None $18,100 $41,974.22
Charles E. Peck $2,115.50 None $18,100 $48,052.01
</TABLE>
* Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested 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 fund in the Delaware Group for a period equal to the lesser of
the number of years that such person served as a 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
directors of each fund at the time of such person's retirement. If an
eligible director retired as of July 31, 1995, he or she would be entitled
to annual payments totaling $18,100, in the aggregate, from all of the
funds in the Delaware Group, based on the number of funds in the Delaware
Group as of that date.
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EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and for
shareholders of classes of other funds in the Delaware Group are set forth in
the relevant prospectuses for such classes. The following supplements that
information. The Fund may modify, terminate or suspend the exchange privilege
upon 60 days' notice to shareholders.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting such an exchange will be sent a current
prospectus and an authorization form for any of the other mutual funds in the
Delaware Group. Exchange instructions must be signed by the record owner(s)
exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund or series
and the purchase of another. The sale may involve either a capital gain or loss
to the shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Group on behalf of their clients by telephone or other
expedited means. This service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it is determined that
a particular request or the total requests at any time could have an adverse
effect on any of the funds. Requests for expedited exchanges may be submitted
with a properly completed exchange authorization form, as described above.
TELEPHONE EXCHANGE PRIVILEGE
Shareholders owning shares for which certificates have not been issued or
their investment dealers of record may exchange shares by telephone for shares
in other mutual funds in the Delaware Group. This service is automatically
provided unless the Fund receives written notice from the shareholder to the
contrary.
Shareholders or their investment dealers of record may contact the Transfer
Agent at 800-523-1918 or, in the case of shareholders of the Institutional
Class, their Client Services Representative at 800-828-5052 to effect an
exchange. The shareholder's current Series account number must be identified, as
well as the registration of the account, the share or dollar amount to be
exchanged and the fund into which the exchange is to be
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made. Requests received on any day after the time the offering price and net
asset value are determined will be processed the following day. See Determining
Offering Price and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration, shareholder information
and dividend option as the account from which the shares were exchanged. The
exchange requirements of the fund into which the exchange is being made, such as
sales charges, eligibility and investment minimums, must be met. (See the
prospectus of the fund desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds are not available
for Retirement Plans.
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 Group. Telephone exchanges may be subject to limitations
as to amounts or frequency. The Transfer Agent and the Fund reserve the right
to record exchange instructions received by telephone and to reject exchange
requests at any time in the future.
As described in the Fund's Prospectuses, neither the Fund nor the Transfer
Agent is responsible for any shareholder loss incurred in acting upon written or
telephone instructions for redemption or exchange of Series shares which are
reasonably believed to be genuine.
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 Fund will refuse any new Timing
Arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Group funds from Timing Firms. The Fund reserves the right to temporarily or
permanently terminate the exchange privilege or reject any specific purchase
order for any person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of the Fund's net assets. Accounts
under common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.
RESTRICTIONS ON TIMED EXCHANGES
Timing Accounts operating under existing Timing Agreements may only execute
exchanges between the following eight Delaware Group funds: (1) Decatur Income
Fund, (2)
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Decatur Total Return Fund, (3) Delaware Fund, (4) Limited-Term Government Fund,
(5) Tax-Free USA Fund, (6) Delaware Cash Reserve, (7) Delchester Fund and (8)
Tax-Free Pennsylvania Fund. No other Delaware Group funds will be available for
Timed Exchanges. Assets redeemed or exchanged out of Timing Accounts in
Delaware Group funds not listed above may not be reinvested back into that
Timing Account. The Fund reserves the right to apply these same restrictions to
the account(s) of any person whose transactions seem to follow a timing pattern
(as described above).
The 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 the 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 the 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.
Following is a summary of the investment objectives of the other Delaware
Group funds:
DELAWARE FUND seeks long-term growth by a balance of capital appreciation,
income and preservation of capital. It uses a dividend-oriented valuation
strategy to select securities issued by established companies that are believed
to demonstrate potential for income and capital growth. 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.
TREND FUND seeks long-term growth by investing in common stock issued by
emerging growth companies exhibiting strong capital appreciation potential.
VALUE FUND seeks capital appreciation by investing primarily in common
stocks whose market values appear low relative to their underlying value or
future potential.
DELCAP FUND seeks long-term capital growth by investing in common stocks
and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
DECATUR 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. DECATUR TOTAL RETURN FUND seeks
long-term growth by investing primarily in securities that
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provide the potential for income and capital appreciation without undue risk to
principal.
DELCHESTER FUND seeks as high a current income as possible by investing
principally in corporate bonds, and also in U.S. Government securities and
commercial paper.
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. U.S. GOVERNMENT MONEY FUND seeks
maximum current income with preservation of principal and maintenance of
liquidity by investing only in short-term securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements collateralized by such securities,
while maintaining a stable net asset value.
DELAWARE CASH RESERVE 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.
TAX-FREE USA FUND seeks high current income exempt from federal income tax
by investing in municipal bonds of geographically-diverse issuers. 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. 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.
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.
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.
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. 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. GLOBAL ASSETS FUND seeks to achieve long-
term total return by investing in global securities which will provide higher
current income than a portfolio comprised exclusively of equity securities,
along with the potential for capital growth.
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DELAWARE GROUP PREMIUM FUND offers nine series available exclusively as
funding vehicles for certain insurance company separate accounts. EQUITY/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. HIGH YIELD SERIES seeks as high a current income as
possible by investing in rated and unrated corporate bonds, U.S. Government
securities and commercial paper. CAPITAL RESERVES SERIES seeks a high stable
level of current income while minimizing fluctuations in principal by investing
in a diversified portfolio of short- and intermediate-term securities. MONEY
MARKET SERIES seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. GROWTH SERIES seeks long-term capital appreciation by investing
its assets in a diversified portfolio of securities exhibiting the potential for
significant growth. MULTIPLE STRATEGY SERIES seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. INTERNATIONAL
EQUITY SERIES seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. VALUE SERIES seeks capital
appreciation by investing in small- to mid-cap common stocks whose market value
appears low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
EMERGING GROWTH SERIES seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective.
For more complete information about any of these funds, including charges
and expenses, you can obtain a prospectus from the Distributor. Read it
carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the information
contained in each fund's prospectus(es).
-75-
<PAGE>
GENERAL INFORMATION
The Manager is the investment manager of the Series. The Manager or its
affiliate, Delaware International Advisers Ltd., also manages the other funds in
the Delaware Group. The Manager, through a separate division, also manages
private investment accounts. While investment decisions of the Series are made
independently from those of the other funds and accounts, they may make
investment decisions at the same time.
Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for the Fund and for the other
mutual funds in the Delaware Group. As previously described, prior to January
3, 1995, DDI served as the national distributor for the Fund. The Distributor
and, in its capacity as such, DDI received net commissions from the Fund on
behalf of Class A Shares after reallowances to dealers, as follows:
<TABLE>
<CAPTION>
CLASS A SHARES
TOTAL
AMOUNT OF AMOUNTS NET
FISCAL UNDERWRITING REALLOWED COMMISSION
YEAR ENDING COMMISSION TO DEALERS TO DISTRIBUTOR
----------- ------------ -------------- --------------
<S> <C> <C> <C>
July 31, 1995 $ 421,205 $ 352,504 $ 68,701
July 31, 1994 1,460,993 1,218,796 242,197
July 31, 1993 2,086,401 1,740,241 346,160
</TABLE>
For the fiscal years ended July 31, 1994 and 1995, the Distributor and, in
its capacity as the Fund's national distributor, DDI received Limited CDSC
payments in the amounts of $2,781 and $5,405, respectively, with respect to
Class A Shares. No payments were received during the fiscal year ended July 31,
1993 with respect to the Class A Shares.
-76-
<PAGE>
During the period from inception on May 2, 1994 through July 31, 1994 and
the fiscal year ended July 31, 1995, the Distributor and, in its capacity as the
Fund's national distributor, DDI received CDSC payments in the amounts of $354
and $21,099, respectively, with respect to Class B Shares.
Effective as of January 3, 1995, all such payments described above have
been paid to the Distributor.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Group. The Transfer Agent is paid a fee by the
Fund for providing these services consisting of an annual per account charge of
$11.00 plus transaction charges for particular services according to a schedule.
Compensation is fixed each year and approved by the Board of Directors,
including a majority of the unaffiliated directors.
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of the Fund's advisory
relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause the Fund to delete the
words "Delaware Group" from the Fund's name.
Morgan Guaranty Trust Company of New York ("Morgan"), 60 Wall Street, New
York, NY 10260, is custodian of the Fund's securities and cash. As custodian
for the Fund, Morgan 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.
The legality of the issuance of the shares offered hereby, registered
pursuant to Rule 24f-2 under the Investment Company Act of 1940, has been passed
upon for the Fund by Stradley, Ronon, Stevens & Young, Philadelphia,
Pennsylvania.
CAPITALIZATION
The Fund has a present authorized capitalization of five hundred million
shares of capital stock with a $.01 par value per share. The Series offers four
classes of shares, each representing a proportionate interest in the assets of
the Series, and each having the same voting and other rights and preferences as
the other classes, except that shares of the Institutional Class may not vote on
matters affecting the Fund's Distribution Plans under Rule 12b-1. Similarly, as
a general matter, the shareholders of the Class A Shares, Class B Shares and
Class C Shares may only vote on matters affecting the 12b-1 Plan that relates to
the class of shares that they hold. However, Class B Shares may vote on
-77-
<PAGE>
any proposal to increase materially the fees to be paid by the Series under the
Rule 12b-1 Plan relating to Class A Shares. General expenses of the Fund will be
allocated on a pro-rata basis to the classes according to asset size, except
that expenses of the Rule 12b-1 Plans of Class A, Class B and Class C Shares
will be allocated solely to those classes. The Board of Directors has allocated
eighty million shares to each of the Class A Shares and Class B Shares, fifty
million shares to the Class C Shares and twenty million shares to the
Institutional Class.
Shares have no preemptive rights, are fully transferable and, when issued,
are fully paid and nonassessable.
Until May 31, 1992, the Fund offered two retail classes of shares,
Government Income Series I class and Government Income Series II class (now,
Class A Shares). Shares of the Government Income Series I class were offered
with a higher sales charge than that applicable to the Government Income Series
II class, but without the imposition of a Rule 12b-1 fee. Effective June 1,
1992, following shareholder approval of a plan of recapitalization on May 8,
1992, shareholders of the Government Income Series I class had their shares
converted into shares of the Government Income Series II class and became
subject to the latter class' Rule 12b-1 charges. Effective at the same time,
following approval by shareholders, the name of the Government Income Series II
class was changed to U.S. Government Fund class. Effective May 2, 1994, the
U.S. Government Fund class is known as the U.S. Government Fund A Class and the
U.S. Government Fund (Institutional) class is known as the U.S. Government Fund
Institutional Class.
NONCUMULATIVE VOTING
THESE SHARES HAVE NONCUMULATIVE VOTING RIGHTS WHICH MEANS THAT THE HOLDERS
OF MORE THAN 50% OF THE SHARES OF THE FUND VOTING FOR THE ELECTION OF DIRECTORS
CAN ELECT ALL THE DIRECTORS IF THEY CHOOSE TO DO SO, AND, IN SUCH EVENT, THE
HOLDERS OF THE REMAINING SHARES WILL NOT BE ABLE TO ELECT ANY DIRECTORS.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission.
-78-
<PAGE>
APPENDIX A -- IRA INFORMATION
The Tax Reform Act of 1986 restructured, and in some cases eliminated, the
tax deductibility of IRA contributions. Under the Act, the full deduction for
IRAs ($2,000 for each working spouse and $2,250 for one-income couples) was
retained for all taxpayers who are not covered by an employer-sponsored
retirement plan. Even if a taxpayer (or his or her spouse) is covered by an
employer-sponsored retirement plan, the full deduction is still available if the
taxpayer's adjusted gross income is below $25,000 ($40,000 for taxpayers filing
joint returns). A partial deduction is allowed for married couples with incomes
between $40,000 and $50,000, and for single individuals with incomes between
$25,000 and $35,000. The Act does not permit deductions for contributions to
IRAs by taxpayers whose adjusted gross income before IRA deductions exceeds
$50,000 ($35,000 for singles) and who are active participants in an employer-
sponsored retirement plan. Taxpayers who were not allowed deductions on IRA
contributions still can make nondeductible IRA contributions of as much as
$2,000 for each working spouse ($2,250 for one-income couples), and defer taxes
on interest or other earnings from the IRAs. Special rules apply for
determining the deductibility of contributions made by married individuals
filing separate returns.
As illustrated in the following tables, maintaining an Individual
Retirement Account remains a valuable opportunity.
For many, an IRA will continue to offer both an up-front tax break with its
tax deduction each year and the real benefit that comes with tax-deferred
compounding. For others, losing the tax deduction will impact their taxable
income status each year. Over the long term, however, being able to defer taxes
on earnings still provides an impressive investment opportunity--a way to have
money grow faster due to tax-deferred compounding.
-79-
<PAGE>
Even if your IRA contribution is no longer deductible, the benefits of
saving on a tax-deferred basis can be substantial. The following tables
illustrate the benefits of tax-deferred versus taxable compounding. Each
reflects a constant 9% rate of return, compounded annually, with the
reinvestment of all proceeds. The tables do not take into account any sales
charges or fees. Of course, earnings accumulated in your IRA will be subject to
tax upon withdrawal. If you choose a mutual fund with a fluctuating net asset
value, like the Fund, your bottom line at retirement could be lower--it could
also be much higher.
$2,000 INVESTED ANNUALLY ASSUMING A 9% ANNUALIZED RETURN
15% Tax Bracket Single -- $0 - $22,750
--------------- Joint -- $0 - $38,000
<TABLE>
<CAPTION>
HOW MUCH
CUMULATIVE HOW MUCH YOU HAVE
END OF INVESTMENT YOU HAVE WITH FULL
YEAR AMOUNT WITHOUT IRA IRA DEDUCTION
<S> <C> <C> <C>
1 $ 2,000 $ 1,830 $ 2,180
5 10,000 10,661 13,047
10 20,000 26,075 33,121
15 30,000 48,357 64,007
20 40,000 80,570 111,529
25 50,000 127,139 184,648
30 60,000 194,463 297,150
35 70,000 291,791 470,249
40 80,000 432,496 736,584
</TABLE>
[Without IRA-investment of $1,700 ($2,000 less 15%) earning 7.65% (9% less
15%)]
-80-
<PAGE>
28% Tax Bracket Single -- $22,751 - $55,100
--------------- Joint -- $38,001 - $91,850
<TABLE>
<CAPTION>
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,533 $ 1,570 $ 2,180
5 10,000 8,727 9,394 13,047
10 20,000 20,672 23,847 33,121
15 30,000 37,022 46,085 64,007
20 40,000 59,402 80,301 111,529
25 50,000 90,037 132,947 184,648
30 60,000 131,969 213,948 297,150
35 70,000 189,366 338,580 470,249
40 80,000 267,931 530,340 736,584
</TABLE>
[Without IRA--investment of $1,440 ($2,000 less 28%)
earning 6.48% (9% less 28%)]
[With IRA--No Deduction--investment of $1,440 ($2,000
less 28%) earning 9%]
31% Tax Bracket Single -- $55,101 - $115,000
--------------- Joint -- $91,851 - $140,000
<TABLE>
<CAPTION>
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,466 $ 1,504 $ 2,180
5 10,000 8,297 9,002 13,047
10 20,000 19,511 22,853 33,121
15 30,000 34,666 44,165 64,007
20 40,000 55,150 76,955 111,529
25 50,000 82,834 127,407 184,648
30 60,000 120,250 205,034 297,150
35 70,000 170,818 324,472 470,249
40 80,000 239,164 508,243 736,584
</TABLE>
[Without IRA--investment of $1,380 ($2,000 less 31%)
earning 6.21% (9% less 31%)]
[With IRA--No Deduction--investment of $1,380 ($2,000
less 31%) earning 9%]
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<PAGE>
36% Tax Bracket* Single -- $115,001 - $250,000
--------------- Joint -- $140,001 - $250,000
<TABLE>
<CAPTION>
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,354 $ 1,395 $ 2,180
5 10,000 7,595 8,350 13,047
10 20,000 17,643 21,197 33,121
15 30,000 30,939 40,964 64,007
20 40,000 48,532 71,379 111,529
25 50,000 71,809 118,175 184,648
30 60,000 102,609 190,176 297,150
35 70,000 143,361 300,960 470,249
40 80,000 197,281 471,414 736,584
</TABLE>
[Without IRA--investment of $1,280 ($2,000 less 36%)
earning 5.76% (9% less 36%)]
[With IRA--No Deduction--investment of $1,280 ($2,000
less 36%) earning 9%]
39.6% Tax Bracket* Single -- over $250,000
----------------- Joint -- over $250,000
<TABLE>
<CAPTION>
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION
<S> <C> <C> <C>
1 $ 2,000 $ 1,274 $ 1,317 $ 2,180
5 10,000 7,100 7,880 13,047
10 20,000 16,350 20,005 33,121
15 30,000 28,403 38,660 64,007
20 40,000 44,108 67,364 111,529
25 50,000 64,573 111,527 184,648
30 60,000 91,238 179,479 297,150
35 70,000 125,983 284,031 470,249
40 80,000 171,255 444,897 736,584
</TABLE>
[Without IRA--investment of $1,208 ($2,000 less 39.6%)
earning 5.436% (9% less 39.6%)]
[With IRA--No Deduction--investment of $1,208 ($2,000
less 39.6%) earning 9%]
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<PAGE>
$2,000 SINGLE INVESTMENT AT A RETURN OF 9%
COMPOUNDED MONTHLY
<TABLE>
<CAPTION>
TAXABLE-- TAXABLE-- TAXABLE--
YEARS 39.6%* 36%* 31%
- ------------------------------------------------------------------------
<S> <C> <C> <C>
10 $ 3,440 $ 3,553 $ 3,716
15 4,512 4,735 5,064
20 5,917 6,312 6,903
30 10,178 11,212 12,824
40 17,508 19,918 23,825
<CAPTION>
TAXABLE-- TAXABLE-- TAX
YEARS 28% 15% DEFERRED
- ------------------------------------------------------------------------
<S> <C> <C> <C>
10 $ 3,817 $ 4,288 $ 4,903
15 5,273 6,278 7,676
20 7,284 9,192 12,018
30 13,900 19,705 29,461
40 26,527 42,243 72,220
</TABLE>
$2,000 INVESTED ANNUALLY AT A RETURN OF 9%
COMPOUNDED MONTHLY
<TABLE>
<CAPTION>
TAXABLE-- TAXABLE-- TAXABLE--
YEARS 39.6%* 36%* 31%
- ------------------------------------------------------------------------
<S> <C> <C> <C>
10 $ 27,280 $ 27,809 $ 28,565
15 47,579 48,985 51,023
20 74,203 77,210 81,633
30 154,915 164,970 180,223
40 293,746 320,871 363,386
<CAPTION>
TAXABLE-- TAXABLE-- TAX
YEARS 28% 15% DEFERRED
- ------------------------------------------------------------------------
<S> <C> <C> <C>
10 $ 29,030 $ 31,156 $ 33,846
15 52,294 58,262 66,184
20 84,431 97,949 116,815
30 190,158 241,137 320,202
40 391,924 548,102 818,777
</TABLE>
- -----------------------
* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $250,000. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
-83-
<PAGE>
THE VALUE OF STARTING YOUR IRA EARLY
The following illustrates how much more you would have contributing $2,000
each January--the earliest opportunity--compared to contributing on April 15th
of the following year--the latest, for each tax year.
<TABLE>
<S> <C>
After 5 years $3,528 more
10 years $6,113
20 years $17,228
30 years $47,295
</TABLE>
Compounded returns for the longest period of time is the key. The above
illustration assumes a 10% rate of return and the reinvestment of all proceeds.
And it pays to shop around. If you get just 2% more per year, it can make
a big difference when you retire. A constant 8% versus 10% return, compounded
monthly, illustrates the point. This chart is based on a yearly investment of
$2,000 on January 1. After 30 years the difference can mean as much as 50%
more!
<TABLE>
<CAPTION>
8% 10%
<S> <C> <C>
10 years $ 31,828 $ 36,018
30 years 259,288 397,466
</TABLE>
The statistical exhibits above are for illustration purposes only and do
not reflect the actual performance for the Fund either in the past or in the
future.
-84-
<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for the Fund and, in
its capacity as such, audits the financial statements contained in the Fund's
Annual Report. The Series' Statement of Net Assets, Statement of Operations,
Statement of Changes in Net Assets and Notes to Financial Statements, as well as
the report of Ernst & Young LLP, independent auditors, for the fiscal year ended
July 31, 1995, are included in the Fund's Annual Report to shareholders. The
financial statements, the notes relating thereto and the report of Ernst & Young
LLP listed above are incorporated by reference from the Annual Report into this
Part B.
-85-
