<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Small Cap Value Fund
Class A * Class B * Class C
Prospectus
March 30, 1999
Growth of Capital Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
[inside front cover]
Table of Contents
Fund profile page
Small Cap Value Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio manager
Fund administration (Who's who)
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares
Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial information page
<PAGE>
Profile: Small Cap Value Fund
What are the Fund's goals?
Small Cap Value Fund seeks capital appreciation. Although the Fund will strive
to meet its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of small companies whose stock prices appear low
relative to their underlying value or future potential. Among other factors, we
consider the financial strength of a company, its management, the prospects for
its industry and any anticipated changes within the company that might suggest
a more favorable outlook going forward.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the Fund's investments. This Fund
will be affected by declines in stock prices. In addition, the companies that
Small Cap Value Fund invests in may involve greater risk due to their size,
narrow product lines and limited financial resources. For a more complete
discussion of risk, please turn to page 7.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o ------Investors with long-term financial goals.
o ------Investors seeking an investment primarily in common stocks.
o ------Investors seeking exposure to the capital appreciation opportunities
of small companies.
Who should not invest in the Fund
o ------Investors with short-term financial goals.
o ------Investors whose primary goal is current income.
o ------Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
-1-
<PAGE>
How has the Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past ten calendar years as well as the average annual returns of all shares
for one-, five-, and ten-year periods, if applicable. The Fund's past
performance does not necessarily indicate how it will perform in the future.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A) ]
Year-by-year total return
Small Cap Value Fund Class A
1989 31.87%
1990 -13.15%
1991 50.97%
1992 14.78%
1993 18.82%
1994 -6.98%
1995 23.51%
1996 22.12%
1997 33.03%
1998 -5.10%
The Fund's Class A had a -10.08% year-to-date return as of February 28, 1999.
During the periods illustrated in this bar chart, Class A's highest return was
18.18% for the quarter ended March 31, 1995 and its lowest return was -16.40%
for the quarter ended March 31, 1994.
The maximum Class A sales charge of 5.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above. If this fee were
included, the returns would be less than those shown in the table on page 3. The
average annual returns shown below do include the sales charge.
Average annual returns for the period ending 12/31/98
CLASS A B (if redeemed)* C (if redeemed)* Russell 2000
(Inception (Inception 9/6/94) (Inception 11/29/95) Index
6/24/87)
1 year -10.55% -10.46% -6.69% -2.55%
5 years 10.80% N/A N/A 11.87%
10 years or
Lifetime** 14.07% 13.65% 15.54% 12.92%
The Fund's returns are compared to the performance of the Russell 2000 Index.
You should remember that unlike the Fund, the index is unmanaged and doesn't
include the costs of operating a mutual fund, such as the costs of buying,
selling and holding the securities.
*If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be -5.75% and 13.95%, respectively, for the one-year and
lifetime periods. Returns for Class C would be -5.75% and 15.54%, respectively,
for the one-year and lifetime periods.
**Lifetime returns are shown if the Fund or Class existed for less than 10
years. Russell 2000 return is for 10 years. Index returns for Class B and
Class C lifetime periods were 14.10% and 12.19%, respectively. Maximum sales
charges are included in the returns shown in the table above.
-2-
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund. The Fund may waive or reduce sales charges; please see the
Statement of Additional Information for details.
<TABLE>
<CAPTION>
- ------------------------------------------------------ ----------- ---------- ----------
CLASS A B C
- ------------------------------------------------------ ----------- ---------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on purchases as 5.75% none none
a percentage of offering price
- ------------------------------------------------------ ----------- ---------- ----------
Maximum contingent deferred sales charge (load) as a none(1) 5%(2) 1%(3)
percentage of original purchase price or redemption
price, whichever is lower
- ------------------------------------------------------ ----------- ---------- ----------
Maximum sales charge (load) imposed on reinvested none none none
dividends
- ------------------------------------------------------ ----------- ---------- ----------
Redemption fees none none none
- ------------------------------------------------------ ----------- ---------- ----------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
<TABLE>
<CAPTION>
- ------------------------------------------------------ ----------- ---------- ----------
<S> <C> <C> <C>
Management fees 0.75% 0.75% 0.75%
- ------------------------------------------------------ ----------- ---------- ----------
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
- ------------------------------------------------------ ----------- ---------- ----------
Other expenses 0.34% 0.34% 0.34%
- ------------------------------------------------------ ----------- ---------- ----------
Total operating expenses 1.39% 2.09% 2.09%
- ------------------------------------------------------ ----------- ---------- ----------
</TABLE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(4) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- -------------- ------------- -------------- -------------------- ------------ ---------------------
CLASS(5) A B B C C
(if redeemed) (if redeemed)
- -------------- ------------- -------------- -------------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
1 year $708 $212 $712 $212 $312
- --------------- ------------ -------------- -------------------- ------------ ---------------------
3 years $990 $655 $955 $655 $655
- --------------- ------------ -------------- -------------------- ------------ ---------------------
5 years $1,292 $1,124 $1,324 $1,124 $1,124
- --------------- ------------ -------------- -------------------- ------------ ---------------------
10 years $2,148 $2,242 $2,242 $2,421 $2,421
- --------------- ------------ -------------- -------------------- ------------ ---------------------
</TABLE>
<PAGE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is
paid a commission, a contingent deferred sales charge will be imposed on
certain redemptions. Additional Class A purchase options that involve a
contingent deferred sales charge may be permitted from time to time and
will be disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first year after you buy them, you
will pay a contingent deferred sales charge of 5%, which declines to 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
(5) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and
tenth years reflects expenses of the Class A shares.
-3-
<PAGE>
How we manage the Fund
Our investment strategies
We research individual companies and analyze economic and market conditions,
seeking to identify the securities or market sectors that we think are the best
investments for Small Cap Value Fund. Following is a description of how the
portfolio manager pursues the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We strive to identify small companies that offer above-average opportunities for
long-term price appreciation because their current stock price does not
accurately reflect the companies' underlying value or future earning potential.
Under normal conditions, at least 65% of the Fund's net assets will be invested
in the common stock of small cap companies, those having a market capitalization
generally less than $1.5 billion. Our focus will be on value stocks, defined as
stocks whose price is historically low based on a given financial measure such
as profits, book value or cashflow.
Companies may be undervalued for many reasons. They may be unknown to stock
analysts, they may have experienced poor earnings or their industry may be in
the midst of a period of weak growth.
We will carefully evaluate the financial strength of the company, the nature of
its management, any developments affecting the company or its industry,
anticipated new products or services, possible management changes, projected
takeovers or technological breakthroughs. Using this extensive analysis, our
goal is to pinpoint the companies within the universe of undervalued stocks,
whose true value is likely to be recognized and rewarded with a rising stock
price in the future.
Because there is added risk when investing in smaller companies, which may still
be in their early developmental stages, we maintain a well-diversified
portfolio, typically holding 75 to 100 different stocks, representing a wide
array of industries.
-4-
<PAGE>
<TABLE>
<CAPTION>
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may pay dividends as well.
- --------------------------------------------------- -----------------------------------------------------------------------
Securities How we use them
- --------------------------------------------------- -----------------------------------------------------------------------
Small Cap Value Fund
- --------------------------------------------------- -----------------------------------------------------------------------
<S> <C>
Common stocks: Securities that represent Generally, we invest 90% to 100% of net assets in common
shares of ownership in a corporation. stock of small companies that we believe are selling for less
Stockholders participate in the corporation's than their true value. Under normal conditions, we will hold at
profits and losses, proportionate to the least 65% of the Fund's net assets in these stocks.
number of shares they own.
- --------------------------------------------------- -----------------------------------------------------------------------
Real estate investment trusts: A The Fund is permitted to invest in REITs and would typically do
company, usually traded publicly, that so when this sector or specific companies within the sector
manages a portfolio of real estate to earn appeared to offer opportunities for price appreciation.
profits for shareholders.
- --------------------------------------------------- -----------------------------------------------------------------------
Foreign securities and American Although the Fund may invest up to 25% of its net assets in
Depositary Receipts foreign securities or depositary receipts, the manager has no
Securities of foreign entities issued directly present intention of doing so. We may hold ADRs when we believe
or, in the case of American Depositary they offer greater value and greater appreciation potential than
Receipts, through a U.S. bank. ADRs are issued U.S. securities.
by a U.S. bank and represent the bank's holding
of a stated number of shares of a foreign
corporation. An ADR entitles the holder to all
dividends and capital gains earned by the
underlying foreign shares. ADRs are bought and
sold the same as U.S. securities.
- --------------------------------------------------- -----------------------------------------------------------------------
Repurchase agreements: An agreement Typically, we use repurchase agreements as a short-term
between a buyer and seller of securities in investment for the Fund's cash position. In order to enter into
which the seller agrees to buy the securities these repurchase agreements, the Fund must have collateral of
back within a specified time at the same at least 102% of the repurchase price. The Fund may not have
price the buyer paid for them, plus an more than 10% of its total assets in repurchase agreements with
amount equal to an agreed upon interest maturities of over seven days.
rate. Repurchase agreements are often
viewed as equivalent to cash.
- --------------------------------------------------- -----------------------------------------------------------------------
Restricted securities: Privately placed We may invest without limitation in privately placed securities
securities whose resale is restricted under that are eligible for resale only among certain institutional
securities law. buyers without registration. These are commonly known as
Rule 144A Securities. Other restricted securities must be
limited to 10% of total Fund assets.
- --------------------------------------------------- -----------------------------------------------------------------------
Illiquid Securities: Securities that do not We may invest up to 10% of net assets in illiquid securities.
have a ready market, and cannot be easily
sold, if at all, at approximately the price
that the Fund has valued them.
- --------------------------------------------------- -----------------------------------------------------------------------
</TABLE>
The Fund may also invest in other securities including convertible securities,
warrants, preferred stocks, and bonds. Please see the Statement of Additional
Information for additional descriptions and risk information on these securities
as well as those listed in the table on page 5. You can find additional
information about the investments in the Fund's portfolio in the annual or
semi-annual shareholder report.
Lending securities
The Fund may lend up to 25% of its assets to qualified dealers and investors for
their use in security transactions.
Purchasing securities on a when-issued or delayed delivery basis
The Fund may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if a Fund sold and replaced securities
valued at 100% of its net assets within one year.
-5-
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Fund, you should
consider an investment in it to be a long-term investment that typically
provides the best results when held for a number of years. The following are the
chief risks you assume when investing in the Fund. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- ---------------------------------------------- -------------------------------------------------------------------------------------
Risks How we strive to manage them
- ---------------------------------------------- -------------------------------------------------------------------------------------
Small Cap Value Fund
- ---------------------------------------------- -------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a We maintain a long-term investment approach and focus on stocks we believe
majority of the securities in a certain can appreciate over an extended time frame regardless of interim market
market -- like the stock or bond market fluctuations. We do not try to predict overall stock market movements and do
- -- will decline in value because of not trade for short-term purposes.
factors such as economic conditions,
future expectations or investor We may hold a substantial part of the Fund's assets in cash or cash equivalents
confidence. as a temporary, defensive strategy.
- ---------------------------------------------- -------------------------------------------------------------------------------------
Industry and security risk is the risk We limit the amount of the Fund's assets invested in any one industry and in any
that the value of securities in a individual security. We also follow a rigorous selection process before choosing
particular industry or the value of an securities and continuously monitor them while they remain in the portfolio.
individual stock or bond will decline
because of changing expectations for
the performance of that industry or for
the individual company issuing the
stock.
- ---------------------------------------------- -------------------------------------------------------------------------------------
Small company risk is the risk that The Fund maintains a well-diversified portfolio, selects stocks carefully and
prices of smaller companies may be monitors them continuously. And, because we focus on stocks that are already
more volatile than larger companies selling at relatively low prices, we believe we may experience less price volatility
because of limited financial resources than small-cap funds that do not use a value-oriented strategy.
or dependence on narrow product
lines.
- ---------------------------------------------- -------------------------------------------------------------------------------------
Interest rate risk is the risk that We analyze each company's financial situation and its cashflow to determine
securities will decrease in value if the company's ability to finance future expansion and operations. The
interest rates rise. The risk is generally potential affect that rising interest rates might have on a stock is taken into
associated with bonds; however, consideration before the stock is purchased.
because smaller companies often
borrow money to finance their
operations, they may be adversely
affected by rising interest rates.
- ---------------------------------------------- -------------------------------------------------------------------------------------
Foreign risk is the risk that foreign We typically invest only a small portion of the Fund's portfolio in foreign
securities may be adversely affected securities. When we do purchase foreign securities, they are often denominated
by political instability, changes in in U.S. dollars. To the extent we invest in foreign securities, we invest
currency exchange rates, foreign primarily in issuers of developed countries, which are less likely to encounter
economic conditions or inadequate these foreign risks than issuers in developing countries. The Fund may use
regulatory and accounting standards. hedging techniques to help offset potential foreign currency losses.
- ---------------------------------------------- -------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, or
can only be sold, if at all, at approximately
the price that the Fund values them.
- ---------------------------------------------- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Who manages the Fund
Investment Manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. For these services, the manager was paid 0.75% as a
percentage of average daily net assets for the last fiscal year.
Portfolio Manager
Christopher S. Beck, Vice President/Senior Portfolio Manager of the Fund,
assumed primary responsibility for making day-to-day investment decisions for
the Fund in May 1997. Mr. Beck has been in the investment business for 18 years,
starting with Wilmington Trust in 1981. Later, he became Director of Research at
Cypress Capital Management in Wilmington and Chief Investment Officer of the
University of Delaware Endowment Fund. Prior to joining Delaware Investments in
May 1997, he managed the Small Cap Fund for two years at Pitcairn Trust Company.
He holds a BS from the University of Delaware, an MBA from Lehigh University and
is a CFA charterholder. When making investment decisions for the Fund, Mr. Beck
regularly consults with Andrea Giles.
Andrea Giles, Research Analyst for the Fund, holds a BSAD from the Massachusetts
Institute of Technology and an MBA in Finance from Columbia University. Prior to
joining Delaware Investments in 1996, she was an account officer in the
Leveraged Capital Group with Citibank.
-6-
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio manager Distributor Service agent
(see page 8 for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager or
sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
-7-
<PAGE>
About your account
Investing in the Fund
You can choose from a number of share classes for the Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 5.75% that you pay
when you buy the shares. The offering price for Class A shares includes the
front-end sales charge.
o If you invest $50,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information.
o Class A shares are also subject to an annual 12b-1 fee no greater than
0.30% of average daily net assets, which is lower than the 12b-1 fee for
Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge.
-8-
<PAGE>
<TABLE>
<CAPTION>
Class A Sales Charges
- -------------------------- ----------------------- ----------------------------------- ---------------------------------
Amount of purchase Sales charge as % Sales charge as % of amount Dealer's commission as %
of offering price invested of offering price
- -------------------------- ----------------------- ----------------------------------- ---------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.08% 5.00%
$50,000 but 4.75% 4.98% 4.00%
under $100,000
$100,000 but 3.75% 3.89% 3.00%
under $250,000
$250,000 but 2.50% 2.55% 2.00%
under $500,000
$500,000 but 2.00% 2.04% 1.60%
under $1 million
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year and 0.50% if
you redeem them within the second year.
<TABLE>
<CAPTION>
- -------------------------- ----------------------- ----------------------------------- ---------------------------------
Amount of purchase Sales charge as % Sales charge as % of amount Dealer's commission as %
of offering price invested of offering price
- -------------------------- ----------------------- ----------------------------------- ---------------------------------
<S> <C> <C> <C>
$1 million up to $5 none none 1.00%
million
- -------------------------- ----------------------- ----------------------------------- ---------------------------------
Next $20 million none none 0.50%
Up to $25 million
- -------------------------- ----------------------- ----------------------------------- ---------------------------------
Amount over $25 million none none 0.25%
- -------------------------- ----------------------- ----------------------------------- ---------------------------------
</TABLE>
-9-
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within six years after you
buy them.
o If you redeem Class B shares during the first year after you buy them, the
shares will be subject to a contingent deferred sales charge of 5%. The
contingent deferred sales charge is 4% during the second year, 3% during
the third and fourth years, 2% during the fifth year, 1% during the sixth
year, and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1% of average daily net
assets, of which 0.25% are service fees paid to the distributor, dealers or
others for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and
any dividends paid on these shares are lower than dividends on Class A
shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%.
Conversion may occur as late as three months after the eighth anniversary
of purchase, during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within 12 months after you
buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o Class C shares are subject to an annual 12b-1 fee which may not be greater
than 1% of average daily net assets, of which 0.25% are service fees paid
to the distributor, dealers or others for providing services and
maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any
one time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
-10-
<PAGE>
About your account
(continued)
How to reduce your sales charge We offer a number of ways to reduce or eliminate
the sales charge on shares. Please refer to the Statement of Additional
Information for detailed information and eligibility requirements. You can also
get additional information from your financial adviser. You or your financial
adviser must notify us at the time you purchase shares if you are eligible for
any of these programs.
<TABLE>
<CAPTION>
- --------------------------------------------- ------------------------------------- ------------------------------------------
Program How it works Share class
A B C
- --------------------------------------------- ------------------------------------- ------------------------------------------
<S> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of B and C
- --------------------------------------------- ------------------------------------- -------------- shares to fulfill your
Rights of Accumulation You can combine your holdings X Letter of Intent or
or purchases of all funds in the qualify for Rights of
Delaware Investments family Accumulation.
(except money market funds with
no sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
- --------------------------------------------- ------------------------------------- -------------- ---------------------------
Reinvestment of redeemed shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- --------------------------------------------- ------------------------------------- -------------- ---------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X Not available.
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales
401(k), 403(b)(7), and 457 Retirement charges by combining the
Plans purchases of all members of the
group. Members of these groups
may also qualify to purchase
shares without a front-end sales
charge and a waiver of any
contingent deferred sales
charges.
- --------------------------------------------- ------------------------------------- -------------- ---------------------------
</TABLE>
-11-
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
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By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
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By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
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Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service, or through our web site, www.delawarefunds.com. For more information
about how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
-12-
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an initial
investment of $1,000--and make additional investments at any time for as little
as $100. If you are buying shares in an IRA or Roth IRA, under the Uniform Gifts
to Minors Act or the Uniform Transfers to Minors Act; or through an Automatic
Investing Plan, the minimum purchase is $250, and you can make additional
investments of only $25. The minimum for an Education IRA is $500. The minimums
vary for retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Fund may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in the Fund can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
-13-
<PAGE>
How to redeem shares
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Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
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By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
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By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
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By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawarefunds.com. For more information about how to
sign up for these services, call our Shareholder Service Center at 800.523.1918.
-14-
<PAGE>
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), you will receive the net asset value as determined on the
business day we receive your request. We will deduct any applicable contingent
deferred sales charges. You may also have to pay taxes on the proceeds from your
sale of shares. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares--not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $500 for Education IRAs) for three or
more consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at the
minimum by the required time, you will be charged a $9 fee for that quarter and
each quarter after that until your account reaches the minimum balance. If your
account does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
-15-
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred sales
charge as the shares you originally purchased. The holding period for the CDSC
will also remain the same, with the amount of time you held your original shares
being credited toward the holding period of your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of dividends. You
may have to pay taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to get a copy of the
fund's prospectus and read it carefully before buying shares through an
exchange.
-16-
<PAGE>
About your account (continued)
Special services (continued)
MoneyLineSM On Demand Service
Through our MoneyLineSM On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine Direct Deposit Service
Through our MoneyLine Direct Deposit Service you can have $25 or more in
dividends and distributions deposited directly to your bank account. Delaware
Investments does not charge a fee for this service; however, your bank may
assess one. This service is not available for retirement plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly or
quarterly payment from your account made to you or someone you designate. If the
value of your account is $5,000 or more, you can make withdrawals of at least
$25 monthly, or $75 quarterly. You may also have your withdrawals deposited
directly to your bank account through our MoneyLine Direct Deposit Service.
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains, unless you tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
-17-
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The portfolio manager and
investment professionals of the Fund consider Year 2000 compliance in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
Investments by Fund of Funds
Small Cap Value Fund accepts investments from the series portfolios of Delaware
Group Foundation Funds, a fund of funds. From time to time, the Fund may
experience large investments or redemptions due to allocations or rebalancings
by Foundation Funds. While it is impossible to predict the overall impact of
these transactions over time, there could be adverse effects on portfolio
management. For example, the Fund may be required to sell securities or invest
cash at times when it would not otherwise do so. These transactions could also
have tax consequences if sales of securities result in gains, and could also
increase transactions costs or portfolio turnover. The manager will monitor
transactions by Foundation Funds and will attempt to minimize any adverse
effects on both Small Cap Value Fund and Foundation Funds as a result of these
transactions.
-18-
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
Class A Shares
Year Ended 11/30
------------------------------------------------------------
Small Cap Value Fund 1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $29.790 $25.780 $22.760 $19.320 $20.070
Income (loss) from investment operations
Net investment income(1) 0.215 0.131 0.122 0.253 0.142
Net realized and unrealized gain (loss) on investments (2.285) 7.914 4.028 3.597 (0.687)
------- ----- ----- ----- -------
Total from investment operations (2.070) 8.045 4.150 3.850 (0.545)
------- ----- ----- ----- -------
Less dividends and distributions
Dividends from net investment income (0.140) (0.135) (0.240) (0.160) (0.035)
Distributions from net realized gain on investments (2.100) (3.900) (0.890) (0.250) (0.170)
------- ------- ------- ------- -------
Total dividends and distributions (2.240) (4.035) (1.130) (0.410) (0.205)
------- ------- ------- ------- -------
Net asset value, end of period $25.480 $29.790 $25.780 $22.760 $19.320
======= ======= ======= ======= =======
Total return(2) (7.47%) 36.38% 19.08% 20.39% (2.78%)
Ratios and supplemental data
Net assets, end of period (000 omitted) $271,192 $268,266 $192,297 $177,011 $179,498
Ratio of expenses to average net assets 1.39% 1.39% 1.45% 1.48% 1.46%
Ratio of net investment income to average net assets 0.81% 0.51% 0.51% 1.18% 0.75%
Portfolio turnover 38% 53% 87% 65% 14%
----------- ---------- ---------- ---------- ----------
Volatility
Volatility, as indicated by year-by-year total return(2) 1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------
Volatility chart is not part of the Financial highlights and has (7.47%) 36.38% 19.08% 20.39% (2.78%)
not been audited by Ernst & Young LLP.
</TABLE>
(1) Per share information for the years ended November 30, 1996 and 1997 was
based on the average shares outstanding method.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
-19-
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Period
Small Cap Value Fund Year Ended 11/30 9/6/94(3)
----------------------------------------------- through
1998 1997 1996 1995 11/30/94
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $29.460 $25.570 $22.590 $19.300 $20.280
Income (loss) from investment operations
Net investment income (loss)(1) 0.052 (0.042) (0.041) 0.141 0.011
Net realized and unrealized gain (loss) on investments (2.272) 7.832 4.006 3.549 (0.991)
------- ----- ----- ----- -------
Total from investment operations (2.220) 7.790 3.965 3.690 (0.980)
------- ----- ----- ----- -------
Less dividends and distributions
Dividends from net investment income none none (0.095) (0.150) none
Distributions from net realized gain on investments (2.100) (3.900) (0.890) (0.250) none
------- ------- ------- ------- ----
Total dividends and distributions (2.100) (3.900) (0.985) (0.400) none
------- ------- ------- ------- ----
Net asset value, end of period $25.140 $29.460 $25.570 $22.590 $19.300
======= ======= ======= ======= =======
Total return(2) (8.08%) 35.36% 18.26% 19.55% (4.83%)
Ratios and supplemental data
Net assets, end of period (000 omitted) $83,899 $39,733 $12,730 $5,788 $1,455
Ratio of expenses to average net assets 2.09% 2.09% 2.15% 2.18% 2.16%
Ratio of net investment income (loss) to average net assets 0.11% (0.19%) (0.19%) 0.48% 0.05%
Portfolio turnover 38% 53% 87% 65% 14%
Volatility
Volatility, as indicated by year-by-year total return(2)
Volatility chart is not part of the Financial highlights and has
not been audited by Ernst & Young LLP. (8.08%) 35.36% 18.26% 19.55% (4.83%)
</TABLE>
(1) Per share information for the years ended November 30, 1996 and 1997 was
based on the average shares outstanding method.
(2) Total investment return is based on the change in net asset value and does
not reflect the impact of a sales charge.
(3) Date of initial public offering; ratios have been annualized but total
return has not been annualized.
-20-
<PAGE>
<TABLE>
<CAPTION>
Class C Shares Period
Small Cap Value Fund Year Ended 11/30 11/29/95(3)
----------------------------------- through
1998 1997 1996 11/30/95
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $29.440 $25.550 $22.760 $22.510
Income (loss) from investment operations
Net investment income (loss)(1) 0.036 (0.033) (0.043) none
Net realized and unrealized gain (loss) on investments (2.256) 7.823 4.003 0.250
------- ----- ----- -----
Total from investment operations (2.220) 7.790 3.960 0.250
------- ----- ----- -----
Less dividends and distributions
Dividends from net investment income none none (0.280) none
Distributions from realized gain on investments (2.100) (3.900) (0.890) none
------- ------- ------- ----
Total dividends and distributions (2.100) (3.900) (1.170) none
------- ------- ------- ----
Net asset value, end of period $25.120 $29.440 $25.550 $22.760
======= ======= ======= =======
Total return(2) (8.08%) 35.40% 18.23% (4)
Ratios and supplemental data
Net assets, end of period (000 omitted) $31,041 $12,547 $3,360 $5
Ratio of expenses to average net assets 2.09% 2.09% 2.15% (4)
Ratio of net investment income (loss) to average net assets 0.11% (0.19%) (0.19%) (4)
Portfolio turnover 38% 53% 87% (4)
Volatility
Volatility, as indicated by year-by-year total return(2)
Volatility chart is not part of the Financial highlights and has (8.08%) 35.40% 18.23%
not been audited by Ernst & Young LLP.
</TABLE>
(1) Per share information for the years ended November 30, 1996 and 1997 was
based on the average shares outstanding method.
(2) Total investment return is based on the change in net asset value and does
not reflect the impact of a sales charge.
(3) Date of initial public offering.
(4) The ratios of expenses and net investment income to average net assets,
portfolio turnover and total return have been omitted as management
believes that such ratios and returns for this relatively short period are
not meaningful.
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<PAGE>
How to read the Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain occurs when we sell an investment at a profit, while a realized
loss occurs when we sell an investment at a loss. When an investment increases
or decreases in value but we do not sell it, we record an unrealized gain or
loss. The amount of realized gain per share that we pay to shareholders is
listed under "Less dividends and distributions-Distributions from net realized
gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
-22-
<PAGE>
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Cost basis
The original purchase price of an investment, used in determining capital gains
and losses.
Currency exchange rates
The price at which one country's currency can be converted into another's. The
exchange rate varies almost daily according to a wide range of political,
economic and other factors.
-23-
<PAGE>
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch IBCA, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
-24-
<PAGE>
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stock also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price-to-earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Russell 2000 Index
Russell 2000 Index, an unmanaged index that measures the performance of the 2000
smallest companies in the Russell 3000 Index.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
-25-
<PAGE>
Small Cap Value Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA 19103,
or call toll-free 800.523.1918. You may also obtain additional information about
the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
o For fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone
redemptions and telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R) service.
Investment Company Act file number: 811-4997
CUSIP Number NASDAQ Symbol
Small Cap Value Fund A Class 246097109 DEVLX
Small Cap Value Fund B Class 246097307 DEVBX
Small Cap Value Fund C Class 246097406 DEVCX
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 3/99
<PAGE>
DELAWARE
INVESTMENTS
\ -----------
Philadelphia * London
Small Cap Value Fund
Institutional Class
Prospectus
March 30, 1998
Growth of Capital Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
[inside front cover]
Table of Contents
Fund profile page
Small Cap Value Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio manager
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations page
Financial information page
2
<PAGE>
Profile: Small Cap Value Fund
What are the Fund's goals?
Small Cap Value Fund seeks capital appreciation. Although the Fund will strive
to meet its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of small companies whose stock prices appear low
relative to their underlying value or future potential. Among other factors, we
consider the financial strength of a company, its management, the prospects for
its industry and any anticipated changes within the company that might suggest
a more favorable outlook going forward.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the Fund's investments. This Fund
will be affected by declines in stock prices. In addition, the companies that
Small Cap Value Fund invests in may involve greater risk due to their size,
narrow product lines and limited financial resources. For a more complete
discussion of risk, please turn to page 6.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities of
small companies.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
3
<PAGE>
How has the Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Institutional Class shares have
varied over the past ten calendar years, as well as the average annual returns
for one, five and ten years. Small Cap Value Fund's Institutional Class
commenced operations on November 9, 1992. Return information for the Class for
the periods prior to the time the Class commenced operations is calculated by
taking the performance of Small Cap Value Fund A Class and eliminating all sales
charges that apply to Class A shares. However, for those periods, Class A 12b-1
payments were not eliminated, and performance would have been affected if this
adjustment had been made. The Fund's past performance does not necessarily
indicate how it will perform in the future.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (INSTITUTIONAL
CLASS)]
Year-by-year total return (Institutional Class)
Small Cap Value Fund
1989 31.87%
1990 -13.15%
1991 50.97%
1992 14.85%
1993 19.18%
1994 -6.70%
1995 23.84%
1996 22.49%
1997 33.48%
1998 -4.82%
The Institutional Class had a -10.04% year-to-date return as of February 28,
1999. During the ten years illustrated in this bar chart, the Institutional
Class' highest return was 18.18% for the quarter ended March 31, 1995 and its
lowest return was -16.40% for the quarter ended March 31, 1994.
Average annual return as of 12/31/98
Institutional Class Russell 2000 Index
1 year -4.82% -2.55%
5 years 12.45% 11.87%
10 years 15.58% 12.92%
The Fund's returns are compared to the performance of the Russell 2000 Index.
You should remember that unlike the Fund, the index is unmanaged and doesn't
include the costs of operating a mutual fund, such as the costs of buying,
selling and holding the securities.
4
<PAGE>
What are the Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
- ----------------------------------------------------------------
Maximum sales charge (load) imposed on purchases as none
a percentage of offering price
- -----------------------------------------------------------------
Maximum contingent deferred sales charge (load) as none
a percentage of original purchase price or
redemption price, whichever is lower
- ----------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested none
dividends
- ----------------------------------------------------------------
Redemption fees none
- ----------------------------------------------------------------
Exchange Fees(1) none
- ----------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
- -----------------------------------------------------------------
Management fees 0.75%
- -----------------------------------------------------------------
Distribution and service (12b-1) fees none
- -----------------------------------------------------------------
Other expenses 0.34%
- -----------------------------------------------------------------
Total operating expenses 1.09%
- -----------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(2) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
- ---------------------------
1 year $111
- ---------------------------
3 years $347
- ---------------------------
5 years $601
- ---------------------------
10 years $1,329
- ---------------------------
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(2) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the Fund's
total operating expenses remain unchanged in each of the periods we show.
5
<PAGE>
How we manage the Fund
Our investment strategies
We research individual companies and analyze economic and market conditions,
seeking to identify the securities or market sectors that we think are the best
investments for Small Cap Value Fund. Following is a description of how the
portfolio manager pursues the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We strive to identify small companies that offer above-average opportunities for
long-term price appreciation because their current stock price does not
accurately reflect the companies' underlying value or future earning potential.
Under normal conditions, at least 65% of the Fund's net assets will be invested
in the common stock of small cap companies, those having a market capitalization
generally less than $1.5 billion. Our focus will be on value stocks, defined as
stocks whose price is historically low based on a given financial measure such
as profits, book value or cashflow.
Companies may be undervalued for many reasons. They may be unknown to stock
analysts, they may have experienced poor earnings or their industry may be in
the midst of a period of weak growth.
We will carefully evaluate the financial strength of the company, the nature of
its management, any developments affecting the company or its industry,
anticipated new products or services, possible management changes, projected
takeovers or technological breakthroughs. Using this extensive analysis, our
goal is to pinpoint the companies within the universe of undervalued stocks,
whose true value is likely to be recognized and rewarded with a rising stock
price in the future.
Because there is added risk when investing in smaller companies, which may still
be in their early developmental stages, we maintain a well-diversified
portfolio, typically holding 75 to 100 different stocks, representing a wide
array of industries.
6
<PAGE>
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -----------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stocks: Securities that represent shares of Generally, we invest 90% to 100% of net assets in
ownership in a corporation. Stockholders participate common stock of small companies that we believe are
in the corporation's profits and losses, selling for less than their true value. Under normal
proportionate to the number of shares they own. conditions, we will hold at least 65% of Fund's net
assets in these stocks.
- -----------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts: A company, usually The Fund is permitted to invest in REITs and would
traded publicly, that manages a portfolio of real typically do so when this sector or specific
estate to earn profits for shareholders. companies within the sector appeared to offer
opportunities for price appreciation.
- -----------------------------------------------------------------------------------------------------------------------------
Foreign Securities and American Depositary Receipts: Although the Fund may invest up to 25% of its net
Securities of foreign entities issued directly or, in assets in foreign securities or depositary receipts,
the case of American Depositary Receipts, through a the manager has no present intention of doing so. We
U.S. bank. ADRs are issued by a U.S. bank and may hold ADRs when we believe they offer greater value
represent the bank's holding of a stated number of and greater appreciation potential than U.S.
shares of a foreign corporation. An ADR entitles the securities.
holder to all dividends and capital gains earned by
the underlying foreign shares. ADRs are bought and
sold the same as U.S. securities.
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a
and seller of securities in which the seller agrees short-term investment for the Fund's cash position. In
to buy the securities back within a specified time at order to enter into these repurchase agreements, the
the same price the buyer paid for them, plus an Fund must have collateral of at least 102% of the
amount equal to an agreed upon interest rate. repurchase price. The Fund may not have more than 10%
Repurchase agreements are often viewed as equivalent of its total assets in repurchase agreements with
to cash. maturities of over seven days.
- -----------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest without limitation in privately placed
whose resale is restricted under securities law. securities that are eligible for resale only among
certain institutional buyers without registration.
These are commonly known as Rule 144A Securities.
Other restricted securities must be limited to 10% of
total Fund assets.
- -----------------------------------------------------------------------------------------------------------------------------
Illiquid Securities: Securities that do not have a We may invest up to 10% of net assets in illiquid
ready market, and cannot be easily sold, if at all, securities.
at approximately the price the Fund has valued
them.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also invest in other securities including convertible securities,
warrants, preferred stocks, and bonds. Please see the Statement of Additional
Information for additional descriptions and risk information on these securities
as well as those listed in the table above. You can find additional information
about the investments in the Fund's portfolio in the annual or semi-annual
shareholder report.
7
<PAGE>
Lending securities
The Fund may lend up to 25% of its assets to qualified dealers and investors for
their use in security transactions.
Purchasing securities on a when-issued or delayed delivery basis The Fund may
buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if a Fund sold and replaced securities
valued at 100% of its net assets within one year.
8
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Fund, you should
consider an investment in it to be a long-term investment that typically
provides the best results when held for a number of years. The following are the
chief risks you assume when investing in the Fund. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus
securities in a certain market -- like the stock or on stocks we believe can appreciate over an extended
bond market -- will decline in value because of time frame regardless of interim market fluctuations.
factors such as economic conditions, future We do not try to predict overall stock market
expectations or investor confidence. movements and do not trade for short-term purposes.
We may hold a substantial part of the Fund's assets in
cash or cash equivalents as a temporary, defensive
strategy.
- -----------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the value We limit the amount of the Fund's assets invested in
of securities in a particular industry or the value any one industry and in any individual security.
of an individual stock or bond will decline because We also follow a rigorous selection process before
of changing expectations for the performance of that choosing securities and continuously monitor them
industry or for the individual company issuing the while they remain in the portfolio.
stock.
- -----------------------------------------------------------------------------------------------------------------------------
Small company risk is the risk that prices of smaller The Fund maintains a well-diversified portfolio,
companies may be more volatile than larger companies selects stocks carefully and monitors them
because of limited financial resources or dependence continuously. And, because we focus on stocks that
on narrow product lines. are already selling at relatively low prices, we
believe we may experience less price volatility than
small-cap funds that do not use a value-oriented
strategy.
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities will We analyze each company's financial situation and its
decrease in value if interest rates rise. The risk is cashflow to determine the company's ability to
generally associated with bonds; however, because finance future expansion and operations. The
smaller companies often borrow money to finance their potential affect that rising interest rates might
operations, they may be adversely affected by rising have on a stock is taken into consideration before
interest rates. the stock is purchased.
- -----------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign securities may We typically invest only a small portion of the
be adversely affected by political instability, Fund's portfolio in foreign securities. When we
changes in currency exchange rates, foreign economic do purchase foreign securities, they are often
conditions or inadequate regulatory and accounting denominated in U.S. dollars. To the extent we invest
standards. in foreign securities, we invest primarily in issuers
of developed countries, which are less likely to
encounter these foreign risks than issuers in
developing countries. The Fund may use hedging
techniques to help offset potential foreign currency
losses.
- -----------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, if at all, at
approximately the price that the Fund values them.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Who manages the Fund
Investment Manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. For these services, the manager was paid 0.75% as a
percentage of average daily net assets for the last fiscal year.
Portfolio Manager
Christopher S. Beck, Vice President/Senior Portfolio Manager of the Fund,
assumed primary responsibility for making day-to-day investment decisions for
the Fund in May 1997. Mr. Beck has been in the investment business for 18 years,
starting with Wilmington Trust in 1981. Later, he became Director of Research at
Cypress Capital Management in Wilmington and Chief Investment Officer of the
University of Delaware Endowment Fund. Prior to joining Delaware Investments in
May 1997, he managed the Small Cap Fund for two years at Pitcairn Trust Company.
He holds a BS from the University of Delaware, an MBA from Lehigh University and
is a CFA charterholder. When making investment decisions for the Fund, Mr. Beck
regularly consults with and Andrea Giles.
Andrea Giles, Research Analyst for the Fund, holds a BSAD from the Massachusetts
Institute of Technology and an MBA in Finance from Columbia University. Prior to
joining Delaware Investments in 1996, she was an account officer in the
Leveraged Capital Group with Citibank.
10
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
Board of Directors
Investment Manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio manager Distributor Service agent
(see page 7 for details) Delaware Distributors, L.P. Delaware Service
1818 Market Street Company, Inc.
Philadelphia, PA 19103 1818 Market Street
Philadelphia, PA 19103
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
11
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate
of the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts
o a bank, trust company and similar financial institution investing for its
own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee
o registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least
$1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services
12
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable
to the fund and class of shares you wish to purchase, to Delaware Investments,
1818 Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800.510.4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800.510.4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
13
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently, the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
14
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215.255.8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
15
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), you will receive the net asset value as determined on the
business day we receive your request. We will send you a check, normally the
next business day, but no later than seven days after we receive your request to
sell your shares. If you purchased your shares by check, we will wait until your
check has cleared, which can take up to 15 days, before we send your redemption
proceeds.
Account minimum
If you redeem shares and your account balance falls below $250, the Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from this Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
16
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The portfolio manager and
investment professionals of the Fund consider Year 2000 compliance in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
Investments by Fund of Funds
Small Cap Value Fund accepts investments from the series portfolios of Delaware
Group Foundation Funds, a fund of funds. From time to time, the Fund may
experience large investments or redemptions due to allocations or rebalancings
by Foundation Funds. While it is impossible to predict the overall impact of
these transactions over time, there could be adverse effects on portfolio
management. For example, the Fund may be required to sell securities or invest
cash at times when it would not otherwise do so. These transactions could also
have tax consequences if sales of securities result in gains, and could also
increase transactions costs or portfolio turnover. The manager will monitor
transactions by Foundation Funds and will attempt to minimize any adverse
effects on both Small Cap Value Fund and Foundation Funds as a result of these
transactions.
17
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class
Year Ended 11/30
----------------------------------------------------------
Small Cap Value Fund 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 29.950 $25.910 $22.860 $19.400 $20.140
Income (loss) from investment operations
Net investment income(1) 0.160 0.209 0.193 0.297 0.195
Net realized and net unrealized gain (loss) on investments (2.150) 7.936 4.047 3.628 (0.685)
-------- ------- ------- ------- -------
Total from investment operations (1.990) 8.145 4.240 3.925 (0.490)
-------- ------- ------- ------- -------
Less dividends and distributions
Dividends from net investment income (0.220) (0.205) (0.300) (0.215) (0.080)
Distributions from realized gain on investments (2.100) (3.900) (0.890) (0.250) (0.170)
-------- ------- ------- ------- -------
Total dividends and distributions (2.320) (4.105) (1.190) (0.465) (0.250)
-------- ------- ------- ------- -------
Net asset value, end of period $ 25.640 $29.950 $25.910 $22.860 $19.400
======== ======= ======= ======= =======
Total return (7.16%) 36.73% 19.45% 20.76% (2.51%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $113,930 $14,878 $16,373 $ 7,294 $ 6,385
Ratio of expenses to average net assets 1.09% 1.09% 1.15% 1.18% 1.16%
Ratio of net investment income to average net assets 1.11% 0.81% 0.81% 1.48% 1.05%
Portfolio turnover 38% 53% 87% 65% 14%
- ---------------------------------------------------------------------------------------------------------------------------------
Volatility
Volatility, as indicated by year-by-year total return 1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
Volatility chart is not part of Financial highlights and has not (7.16%) 36.73% 19.45% 20.76% (2.51%)
been audited by Ernst & Young LLP
</TABLE>
(1) Per share for the years ended November 30, 1996 and 1997 was based on
the average shares outstanding method.
18
<PAGE>
How to read the financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain occurs when we sell an investment at a profit, while a realized
loss occurs when we sell an investment at a loss. When an investment increases
or decreases in value but we do not sell it, we record an unrealized gain or
loss. The amount of realized gain per share that we pay to shareholders is
listed under "Less dividends and distributions-Distributions from net realized
gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers and assume the shareholder has
reinvested all dividends and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover rate
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
19
<PAGE>
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
20
<PAGE>
Corporate bond
A debt security issued by a corporation. See bond.
Cost basis
The original purchase price of an investment, used in determining capital gains
and losses.
Currency exchange rates
The price at which one country's currency can be converted into another's. The
exchange rate varies almost daily according to a wide range of political,
economic and other factors.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
21
<PAGE>
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
22
<PAGE>
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Russell 2000 Index
Russell 2000 Index, an unmanaged index that measures the performance of the 2000
smallest companies in the Russell 3000 Index.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
23
<PAGE>
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
24
<PAGE>
[back cover]
Small Cap Value Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in this Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Client Services Representative
800.510.4015
Delaphone Service
800.362.FUND (800.362.3863)
For convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
Investment Company Act file number: 811-4997
DELAWARE
INVESTMENTS
Philadelphia * London
P-002 [--] PP 3/99
Small Cap Value Fund
Institutional Class CUSIP Number NASDAQ Symbol
246097208 DEVIX
25
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Small Cap Contrarian Fund
Class A * Class B* Class C
Prospectus
March 30, 1999
Growth of Capital Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
Fund profile page
Small Cap Contrarian Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares
Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
Glossary page
2
<PAGE>
Profile: Small Cap Contrarian Fund
What are the Fund's goals?
Small Cap Contrarian Fund seeks long-term capital appreciation. Although the
Fund will strive to meet its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of small companies whose stock prices appear low
relative to their underlying value or future potential. Among other factors, we
consider the financial strength of a company, its management, the prospects for
its industry and any anticipated changes within the company, which might suggest
a more favorable outlook going forward.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the Fund's investments. This Fund
will be affected by declines in stock prices. The companies that Small Cap
Contrarian Fund invests in may involve greater risk due to their size, narrow
product lines and limited financial resources. In addition, the Small Cap
Contrarian Fund may be concentrated in certain industries at any given time, a
strategy that may increase volatility. For a more complete discussion of risk,
please turn to page 9.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities of small
companies.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
3
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund. The Fund may waive or reduce sales charges; please see the
Statement of Additional Information for details.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 5.75% none none
- ---------------------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
Redemption price, whichever is lower none(1) 5%(2) 1%(3)
- ---------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends None none none
- ---------------------------------------------------------------------------------------------
Redemption fees None none none
- ---------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses.
- -----------------------------------------------------------------------------
Management fees 0.75% 0.75% 0.75%
- -----------------------------------------------------------------------------
Distribution and service (12b-1) fees(4) 0.30% 1.00% 1.00%
- -----------------------------------------------------------------------------
Other expenses(5) 0.65% 0.65% 0.65%
- -----------------------------------------------------------------------------
Total operating expenses(6) 1.70% 2.40% 2.40%
- -----------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown. 7 This is an
example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS(8) A B B (if redeemed) C C (if redeemed)
- ---------------------------------------------------------------------------------------------
1 year $738 $243 $743 $243 $343
- ---------------------------------------------------------------------------------------------
3 years $1,080 $748 $1,048 $748 $748
- ---------------------------------------------------------------------------------------------
</TABLE>
1. A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is paid
a commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be
disclosed in the prospectus if they are available.
2. If you redeem Class B shares during the first year after you buy them, you
will pay a contingent deferred sales charge of 5%, which declines to 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year, and 0% thereafter.
3. Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
4. The Class A shares are subject to a 12b-1 fee of 0.30% of average daily net
assets and Class B and C shares are each subject to a 12b-1 fee of 1.00% of
average daily net assets. The distributor has agreed to waive these 12b-1
fees through May 31, 1999.
4
<PAGE>
5. Other expenses are based on estimated amounts for the current fiscal year.
6. The investment manager has agreed to waive fees and pay expenses from the
commencement of the Fund's operations through May 31, 1999 in order to
prevent total operating expenses (excluding any taxes, interest, brokerage
fees, extraordinary expenses and 12b-1 fees) from exceeding 0.75% of average
daily net assets.
7. The Fund's actual rate of return may be greater or less than the hypothetical
5% return we use here. Also, this example assumes that the Fund's total
operating expenses remain unchanged in each of the periods we show. This
example does not reflect the voluntary expense cap described in footnotes 4
and 6.
8. Class B shares automatically convert to Class A shares at the end of the
eighth year. The example does not assume this conversion since it only
reflects expenses for one and three years.
5
<PAGE>
How we manage the Fund
Our investment strategies
We research individual companies and analyze economic and market conditions,
seeking to identify the securities or market sectors that we think are the best
investments for Small Cap Contrarian Fund. Following is a description of how the
portfolio manager pursues the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We strive to identify small companies that offer above-average opportunities for
long-term price appreciation because their current stock price does not
accurately reflect the companies' underlying value or future earning potential.
Under normal conditions, at least 65% of the Fund's net assets will be invested
in the common stock of small cap companies, those having a market capitalization
generally less than $1.5 billion. Our focus will be on value stocks, defined as
stocks whose price is historically low based on a given financial measure such
as profits, book value or cashflow.
Companies may be undervalued for many reasons. They may be unknown to stock
analysts, they may have experienced poor earnings or their industry may be in
the midst of a period of weak growth.
We will use a selection model which we developed ourselves, to help identify
companies that meet our investment guidelines. Our initial search will focus on
several key characteristics including price-to-sales ratio, price-to-cash flow
ratio and price-to-earnings ratio.
We will then carefully evaluate the financial strength of the company, the
nature of its management, any developments affecting the company or its
industry, anticipated new products or services, possible management changes,
projected takeovers or technological breakthroughs. Using this extensive
analysis, our goal is to pinpoint the companies within the universe of
undervalued stocks, whose true value is likely to be recognized and rewarded
with a rising stock price in the future.
Because there is added risk when investing in smaller companies, which may still
be in their early developmental stages, we maintain a well-diversified
portfolio, typically holding 55 to 80 different stocks, representing a wide
array of industries.
6
<PAGE>
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ---------------------------------------------------------------------------------------------------------------------------------
Small Cap Contrarian Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common stocks: Securities that represent shares of Generally, we invest 90% to 100% of net assets in common stock of
ownership in a corporation. Stockholders participate small companies that we believe are selling for less than their
in the corporation's profits and losses, true value. Under normal conditions, we will hold at least 65% of
proportionate to the number of shares they own. the net assets in these stocks.
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts: A company, usually The Fund is permitted to invest in REITs and would typically do so
traded publicly, that manages a portfolio of real when this sector or specific companies within the sector appeared to
estate to earn profits for shareholders. offer opportunities for price appreciation.
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Securities and American Depositary Receipts The Fund may invest up to 25% of its net assets in foreign
Securities of foreign entities issued directly or, securities or depositary receipts. We have no present intention of
in the case of American Depositary Receipts, through investing directly in foreign securities; however, we may hold ADRs
a U.S. bank. ADRs are issued by a U.S. bank and when we believe they offer greater value and greater appreciation
represent the bank's holding of a stated number of potential than U.S. securities.
shares of a foreign corporation. An ADR entitles the
holder to all dividends and capital gains earned by
the underlying foreign shares. ADRs are bought and
sold the same as U.S. securities.
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term investment
and seller of securities in which the seller agrees for the Fund's cash position. In order to enter into these repurchase
to buy the securities back within a specified time agreements, the Fund must have collateral of at least 102% of the
at the same price the buyer paid for them, plus an repurchase price. The Fund may not have more than 15% of its
amount equal to an agreed upon interest rate. total assets in repurchase agreements with maturities of over
Repurchase agreements are often viewed as equivalent seven days.
to cash.
- ---------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest without limitation in privately placed securities that
whose resale is restricted under securities law. are eligible for resale only among certain institutional buyers
without registration. These are commonly known as Rule 144A
Securities. Other restricted securities must be limited to 15% of
total Fund assets.
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities: Securities that do not have a We may invest up to 15% of net assets in illiquid securities.
ready market, and cannot be easily sold, if at all,
at approximately the price that the Fund has valued
them.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also invest in other securities including convertible securities,
warrants, preferred stocks, and bonds. Please see the Statement of Additional
Information for additional descriptions and risk information on these securities
as well as those listed in the table above. You can find additional information
about the investments in the Fund's portfolio in the annual or semi-annual
shareholder report.
7
<PAGE>
Lending securities
The Fund may lend up to 25% of its assets to qualified dealers and investors for
their use in security transactions.
Purchasing securities on a when-issued or delayed delivery basis the Fund may
buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if the Fund sold and replaced securities
valued at 100% of its net assets within one year.
8
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Fund, you should
consider an investment in it to be a long-term investment that typically
provides the best results when held for a number of years. The following are the
chief risks you assume when investing in the Fund. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Contrarian Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority We maintain a long-term investment approach and focus on stocks we believe can
of the securities in a certain market -- like appreciate over an extended time frame regardless of interim market fluctuations.
the stock or bond market -- will decline in We do not try to predict overall stock market movements and do not trade for
value because of factors such as economic short-term purposes.
conditions, future expectations or investor
confidence. We may hold a substantial part of the Fund's assets in cash or cash equivalents
as a temporary, defensive strategy.
- ------------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the We follow a rigorous selection process before choosing securities and
value of securities in a particular industry or continuously monitor them while they remain in the portfolio.
the value of an individual stock or bond will
decline because of changing expectations for The Fund is a diversified portfolio with investments in companies representing
the performance of that industry or for the many different industries. We do not make additional investments in a stock if
individual company issuing the stock. that stock represents 5% of net assets, nor in an industry if that industry
represents 25% of net assets. However, it is likely that our holdings will be more
concentrated in certain industries if the industry as a whole has strong value
characteristics. This could increase volatility.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Contrarian Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Small company risk is the risk that prices of The Fund maintains a well-diversified portfolio, selects stocks carefully and
smaller companies may be more volatile than monitors them continuously. And, because we focus on stocks that are already
larger companies because of limited financial selling at relatively low prices, we believe we may experience less price
resources or dependence on narrow product lines. volatility than small-cap funds that do not use a value-oriented strategy.
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities We analyze each company's financial situation and its cashflow to determine the
will decrease in value if interest rates rise. company's ability to finance future expansion and operations. The potential
The risk is generally associated with bonds; affect that rising interest rates might have on a stock is taken into
however, because smaller companies often borrow consideration before the stock is purchased.
money to finance their operations, they may be
adversely affected by rising interest rates.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign We typically invest only a small portion of the Fund's portfolio in foreign
securities may be adversely affected by securities. When we do purchase foreign securities, they are often denominated in
political instability, changes in currency U.S. dollars. To the extent we invest in foreign securities, we invest primarily
exchange rates, foreign economic conditions or in issuers of developed countries, which are less likely to encounter these
inadequate regulatory and accounting standards. foreign risks than issuers in developing countries. The Fund may use hedging
techniques to help offset potential foreign currency losses.
- ------------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, or can only
be sold, if at all, at approximately the price
that the Fund values them.
- ------------------------------------------------- ----------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Who manages the Fund
Investment Manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. For these services, the Manager is paid an annual fee
equal to on an annual basis: 0.75% on the first $500 million of average daily
net assets; 0.70% on the next $500 million; 0.65% on the next $1.5 billion; and
0.60% on the average daily net assets in excess of $2.5 billion.
Portfolio Managers
Christopher S. Beck, Vice President/Senior Portfolio Manager of the Fund,
assumed primary responsibility for making day-to-day investment decisions for
the Fund in May 1997. Mr. Beck has been in the investment business for 18 years,
starting with Wilmington Trust in 1981. Later, he became Director of Research at
Cypress Capital Management in Wilmington and Chief Investment Officer of the
University of Delaware Endowment Fund. Prior to joining Delaware Investments in
May 1997, he managed the Small Cap Fund for two years at Pitcairn Trust Company.
He holds a BS from the University of Delaware, an MBA from Lehigh University and
is a CFA charterholder.
Andrea Giles, Assistant Vice President/Portfolio Manager of the Fund, holds a
BSAD from the Massachusetts Institute of Technology and an MBA in Finance from
Columbia University. Prior to joining Delaware Investments in 1996, she was an
account officer in the Leveraged Capital Group with Citibank.
11
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
<TABLE>
<CAPTION>
Board of Directors
<S> <C> <C>
Investment manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page 11 for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Financial advisers
Shareholders
</TABLE>
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
12
<PAGE>
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
13
<PAGE>
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 5.75% that you pay when
you buy the shares. The offering price for Class A shares includes the
front-end sales charge.
o If you invest $50,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information.
o Absent 12b-1 fee waivers, Class A shares are also subject to an annual 12b-1
fee no greater than 0.30% of average daily net assets, which is lower than
the 12b-1 fee for Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge.
<TABLE>
<CAPTION>
Class A Sales Charges
- ----------------------------------------------------------------------------------------------------------------------------
Amount of purchase Sales charge Sales charge as % of amount Dealer's commission as %
as % invested Of offering price
of offering price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.12% 5.00%
- ----------------------------------------------------------------------------------------------------------------------------
$50,000 but under $100,000 4.75% 4.94% 4.00%
- ----------------------------------------------------------------------------------------------------------------------------
$100,000 but under $250,000 3.75% 3.88% 3.00%
- ----------------------------------------------------------------------------------------------------------------------------
$250,000 but under $500,000 2.50% 2.59% 2.00%
- ----------------------------------------------------------------------------------------------------------------------------
$500,000 but under $1 million 2.00% 2.00% 1.60%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year and 0.50% if
you redeem them within the second year.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Amount of purchase Sales charge Sales charge as % of amount Dealer's commission as %
as % invested Of offering price
of offering price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,000,000 up to $5 million none none 1.00%
- ----------------------------------------------------------------------------------------------------------------------------
next $20 million
up to $25 million none none 0.50%
- ----------------------------------------------------------------------------------------------------------------------------
amount over $25 million none none 0.25%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent deferred
sales charge if you redeem your shares within six years after you buy them.
o If you redeem Class B shares during the first year after you buy them, the
shares will be subject to a contingent deferred sales charge of 5%. The
contingent deferred sales charge is 4% during the second year, 3% during the
third and fourth years, 2% during the fifth year, 1% during the sixth year,
and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o For approximately eight years after you buy your Class B shares, absent 12b-1
fee waivers, they are subject to annual 12b-1 fees no greater than 1% of
average daily net assets, of which 0.25% are service fees paid to the
distributor, dealers or others for providing services and maintaining
accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and any
dividends paid on these shares are lower than dividends on Class A shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%, which is
currently being waived. Conversion may occur as late as three months after
the eighth anniversary of purchase, during which time Class B's higher 12b-1
fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
15
<PAGE>
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent deferred
sales charge if you redeem your shares within 12 months after you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o Absent 12b-1 fee waivers, Class C shares are subject to an annual 12b-1 fee
which may not be greater than 1% of average daily net assets, of which 0.25%
are service fees paid to the distributor, dealers or others for providing
services and maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and pay
lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any one
time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
16
<PAGE>
About your account continued
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of B and C
- ---------------------------------------------------------------------------------------------- shares to fulfill your
Rights of Accumulation You can combine your holdings X Letter of Intent or
or purchases of all funds in the qualify for Rights of
Delaware Investments family Accumulation.
(except money market funds with
no sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
- ---------------------------------------------------------------------------------------------------------------------------
Reinvestment of redeemed shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ---------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X Not available.
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales
401(k), 403(b)(7), and 457 Retirement charges by combining the
Plans purchases of all members of the
group. Members of these groups
may also qualify to purchase
shares without a front-end sales
charge and a waiver of any
contingent deferred sales
charges.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
How to buy shares
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service. For more information about how to sign up for this service, call our
Shareholder Service Center at 800.523.1918.
18
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an initial
investment of $1,000--and make additional investments at any time for as little
as $100. If you are buying shares in an IRA or Roth IRA, under the Uniform Gifts
to Minors Act or the Uniform Transfers to Minors Act; or through an Automatic
Investing Plan, the minimum purchase is $250, and you can make additional
investments of only $25. The minimum for an Education IRA is $500. The minimums
vary for retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Fund may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in the Fund can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800o523o1918.
19
<PAGE>
How to redeem shares
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service. For
more information about how to sign up for this service, call our Shareholder
Service Center at 800o523o1918.
20
<PAGE>
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), you will receive the net asset value as determined on the
business day we receive your request. We will deduct any applicable contingent
deferred sales charges. You may also have to pay taxes on the proceeds from your
sale of shares. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares--not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $500 for Education IRAs) for three or
more consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at the
minimum by the required time, you will be charged a $9 fee for that quarter and
each quarter after that until your account reaches the minimum balance. If your
account does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
21
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred sales
charge as the shares you originally purchased. The holding period for the CDSC
will also remain the same, with the amount of time you held your original shares
being credited toward the holding period of your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of dividends. You
may have to pay taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to get a copy of the
fund's prospectus and read it carefully before buying shares through an
exchange.
22
<PAGE>
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
23
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The portfolio managers and
investment professionals of the Fund consider Year 2000 compliance in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
24
<PAGE>
Financial highlights
Financial highlights are not shown for the Fund since it commenced operations
after the close of the fiscal year end.
25
<PAGE>
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
26
<PAGE>
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
27
<PAGE>
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
28
<PAGE>
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
29
<PAGE>
Small Cap Contrarian Fund
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA 19103,
or call toll-free 800.523.1918. You may also obtain additional information about
the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
o For fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions and
telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a day,
use this Touch-Tone(R) service.
Investment Company Act file number: 811-4997
Class A CUSIP Number: 24610B883
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 3/99
<PAGE>
DELAWARE
INVESTMENTS
Philadelphia * London
Small Cap Contrarian Fund
Institutional Class
Prospectus
March 30, 1999
Growth of Capital Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
[inside front cover]
Table of Contents
Fund profile page
Small Cap Contrarian Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
Glossary page
2
<PAGE>
Profile: Small Cap Contrarian Fund
What are the Fund's goals?
Small Cap Contrarian Fund seeks long-term capital appreciation. Although the
Fund will strive to meet its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of small companies whose stock prices appear low
relative to their underlying value or future potential. Among other factors, we
consider the financial strength of a company, its management, the prospects for
its industry and any anticipated changes within the company, which might suggest
a more favorable outlook going forward.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the Fund's investments. This Fund
will be affected by declines in stock prices. The companies that Small Cap
Contrarian Fund invests in may involve greater risk due to their size, narrow
product lines and limited financial resources. In addition, the Small Cap
Contrarian Fund may be concentrated in certain industries at any given time, a
strategy that may increase volatility. For a more complete discussion of risk,
please turn to page 8.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities of
small companies.
Who should not invest in the Fund Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
3
<PAGE>
What are the Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
------------------------------------------------------ ----------
Maximum sales charge (load) imposed on purchases as none
a percentage of offering price
------------------------------------------------------ ----------
Maximum contingent deferred sales charge none
(load) as a percentage of original purchase
price or redemption price, whichever is lower
------------------------------------------------------ ----------
Maximum sales charge (load) imposed on reinvested none
dividends
------------------------------------------------------ ----------
Redemption fees none
------------------------------------------------------ ----------
Exchange Fees(1) none
------------------------------------------------------ ----------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses.
------------------------------------------------------ -----------
Management fees 0.75%
------------------------------------------------------ -----------
Distribution and service (12b-1) fees none
------------------------------------------------------ -----------
Other expense(2) 0.65%
------------------------------------------------------ -----------
Total operating expenses(3) 1.40%
------------------------------------------------------ -----------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(4) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
--------------- ------------
1 year $143
--------------- ------------
3 years $443
--------------- ------------
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange
your shares into a fund that has a front-end sales charge.
(2) Other expenses are based on estimated amounts for the current fiscal
year.
(3) The investment manager has agreed to waive fees and pay expenses from
the commencement of the Fund's operations through May 31, 1999, in
order to prevent total operating expenses (excluding any taxes,
interest, brokerage fees and extraordinary expenses) from exceeding
0.75% of average daily net assets.
(4) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods
we show. This example does not reflect the voluntary expense cap
described in footnote 3.
4
<PAGE>
How we manage the Fund
Our investment strategies
We research individual companies and analyze economic and market conditions,
seeking to identify the securities or market sectors that we think are the best
investments for Small Cap Contrarian Fund. Following is a description of how the
portfolio manager pursues the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We strive to identify small companies that offer above-average opportunities for
long-term price appreciation because their current stock price does not
accurately reflect the companies' underlying value or future earning potential.
Under normal conditions, at least 65% of the Fund's net assets will be invested
in the common stock of small cap companies, those having a market capitalization
generally less than $1.5 billion. Our focus will be on value stocks, defined as
stocks whose price is historically low based on a given financial measure such
as profits, book value or cashflow.
Companies may be undervalued for many reasons. They may be unknown to stock
analysts, they may have experienced poor earnings or their industry may be in
the midst of a period of weak growth.
We will use a selection model which we developed ourselves, to help identify
companies that meet our investment guidelines. Our initial search will focus on
several key characteristics including price-to-sales ratio, price-to-cash flow
ratio and price-to-earnings ratio.
We will then carefully evaluate the financial strength of the company, the
nature of its management, any developments affecting the company or its
industry, anticipated new products or services, possible management changes,
projected takeovers or technological breakthroughs. Using this extensive
analysis, our goal is to pinpoint the companies within the universe of
undervalued stocks, whose true value is likely to be recognized and rewarded
with a rising stock price in the future.
Because there is added risk when investing in smaller companies, which may still
be in their early developmental stages, we maintain a well-diversified
portfolio, typically holding 55 to 80 different stocks, representing a wide
array of industries.
5
<PAGE>
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well.
<TABLE>
<CAPTION>
--------------------------------------------------- -----------------------------------------------------------------------
Securities How we use them
--------------------------------------------------- -----------------------------------------------------------------------
Small Cap Contrarian Fund
--------------------------------------------------- -----------------------------------------------------------------------
<S> <C>
Common stocks: Securities that represent shares Generally, we invest 90% to 100% of net assets in common stock of
of ownership in a corporation. Stockholders small companies that we believe are selling for less than their
participate in the corporation's profits and true value. Under normal conditions, we will hold at least 65% of
losses, proportionate to the number of shares the Fund's net assets in these stocks.
they own.
--------------------------------------------------- -----------------------------------------------------------------------
Real Estate Investment Trusts: A company, usually The Fund is permitted to invest in REITs and would typically do so
traded publicly, that manages a portfolio of real when this sector or specific companies within the sector appeared to
estate to earn profits for shareholders. offer opportunities for price appreciation.
--------------------------------------------------- -----------------------------------------------------------------------
Foreign Securities and American Depositary The Fund may invest up to 25% of its net assets in foreign
Receipts securities or depositary receipts. We have no present intention of
Securities of foreign entities issued directly investing directly in foreign securities; however, we may hold ADRs
or, in the case of American Depositary Receipts, when we believe they offer greater value and greater appreciation
through a U.S. bank. ADRs are issued by a U.S. potential than U.S. securities.
bank and represent the bank's holding of a stated
number of shares of a foreign corporation. An ADR
entitles the holder to all dividends and capital
gains earned by the underlying foreign shares.
ADRs are bought and sold the same as U.S.
securities.
--------------------------------------------------- -----------------------------------------------------------------------
Repurchase agreements: An agreement between a Typically, we use repurchase agreements as a short-term investment
buyer and seller of securities in which the for the Fund's cash position. In order to enter into these repurchase
seller agrees to buy the securities back within a agreements, the Fund must have collateral of at least 102% of the
specified time at the same price the buyer paid repurchase price. The Fund may not have more than 15% of its total
for them, plus an amount equal to an agreed upon assets in repurchase agreements with maturities of over seven days.
interest rate. Repurchase agreements are often
viewed as equivalent to cash.
--------------------------------------------------- -----------------------------------------------------------------------
Restricted securities: Privately placed We may invest without limitation in privately placed securities that
securities whose resale is restricted under are eligible for resale only among certain institutional buyers
securities law. without registration. These are commonly known as Rule 144A
Securities. Other restricted securities must be limited to 15% of
total Fund assets.
--------------------------------------------------- -----------------------------------------------------------------------
Illiquid Securities: Securities that do not have We may invest up to 15% of net assets in illiquid securities.
a ready market, and cannot be easily sold, if at
all, at approximately the price that the Fund has
valued them.
--------------------------------------------------- -----------------------------------------------------------------------
</TABLE>
The Fund may also invest in other securities including convertible securities,
warrants, preferred stocks, and bonds. Please see the Statement of Additional
Information for additional descriptions and risk information on these securities
as well as those listed in the table above. You can find additional information
about the investments in the Fund's portfolio in the annual or semi-annual
shareholder report.
Lending securities
The Fund may lend up to 25% of its assets to qualified dealers and investors for
their use in security transactions.
6
<PAGE>
Purchasing securities on a when-issued or delayed delivery basis the Fund may
buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if the Fund sold and replaced securities
valued at 100% of its net assets within one year.
7
<PAGE>
The risks of investing in the Fund Investing in any mutual fund involves risk,
including the risk that you may receive little or no return on your investment,
and the risk that you may lose part or all of the money you invest. Before you
invest in the Fund you should carefully evaluate the risks. Because of the
nature of the Fund, you should consider an investment in it to be a long-term
investment that typically provides the best results when held for a number of
years. The following are the chief risks you assume when investing in the Fund.
Please see the Statement of Additional Information for further discussion of
these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------- ----------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------- ----------------------------------------------------------------------------------
Small Cap Contrarian Fund
- ------------------------------------------------- ----------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority We maintain a long-term investment approach and focus on stocks we believe can
of the securities in a certain market -- like appreciate over an extended time frame regardless of interim market fluctuations.
the stock or bond market -- will decline in We do not try to predict overall stock market movements and do not trade for
value because of factors such as economic short-term purposes.
conditions, future expectations or investor
confidence. We may hold a substantial part of the Fund's assets in cash or cash equivalents
as a temporary, defensive strategy.
- ------------------------------------------------ -----------------------------------------------------------------------------------
Industry and security risk is the risk that the We follow a rigorous selection process before choosing securities and
value of securities in a particular industry or continuously monitor them while they remain in the portfolio.
the value of an individual stock or bond will
decline because of changing expectations for The the Fund is a diversified portfolio with investments in companies
the performance of that industry or for the representing many different industries. We do not make additional investments
individual company issuing the stock. in a stock if that stock represents 5% of net assets, nor in an industry if
that industry represents 25% of net assets. However, it is likely that our
holdings will be more concentrated in certain industries if the industry as a
whole has strong value characteristics. This could increase volatility.
- ------------------------------------------------ -----------------------------------------------------------------------------------
Small company risk is the risk that prices of The Fund maintains a well-diversified portfolio, selects stocks carefully and
smaller companies may be more volatile than monitors them continuously. And, because we focus on stocks that are already
larger companies because of limited financial selling at relatively low prices, we believe we may experience less price
resources or dependence on narrow product lines. volatility than small-cap funds that do not use a value-oriented strategy.
- ------------------------------------------------ -----------------------------------------------------------------------------------
Interest rate risk is the risk that securities We analyze each company's financial situation and its cashflow to determine the
will decrease in value if interest rates rise. company's ability to finance future expansion and operations. The potential
The risk is generally associated with bonds; affect that rising interest rates might have on a stock is taken into
however, because smaller companies often borrow consideration before the stock is purchased.
money to finance their operations, they may be
adversely affected by rising interest rates.
- ------------------------------------------------ -----------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------ -----------------------------------------------------------------------------------
Foreign risk is the risk that foreign We typically invest only a small portion of the Fund's portfolio in foreign
securities may be adversely affected by securities. When we do purchase foreign securities, they are often denominated
political instability, changes in currency in U.S. dollars. To the extent we invest in foreign securities, we invest
exchange rates, foreign economic conditions or primarily in issuers of developed countries, which are less likely to
inadequate regulatory and accounting standards. encounter these foreign risks than issuers in developing countries. The Fund
may use hedging techniques to help offset potential foreign currency losses.
- ------------------------------------------------ -----------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, or can only
be sold, if at all, at approximately the price
that the Fund values them.
- ------------------------------------------------- ----------------------------------------------------------------------------------
</TABLE>
Who manages the Fund
Investment Manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. For these services, the Manager is paid an annual fee
equal to on an annual basis: 0.75% on the first $500 million of average daily
net assets; 0.70% on the next $500 million; 0.65% on the next $1.5 billion; and
0.60% on the average daily net assets in excess of $2.5 billion.
Portfolio Managers
Christopher S. Beck, Vice President/Senior Portfolio Manager of the Fund,
assumed primary responsibility for making day-to-day investment decisions for
the Fund in May 1997. Mr. Beck has been in the investment business for 18 years,
starting with Wilmington Trust in 1981. Later, he became Director of Research at
Cypress Capital Management in Wilmington and Chief Investment Officer of the
University of Delaware Endowment Fund. Prior to joining Delaware Investments in
May 1997, he managed the Small Cap Fund for two years at Pitcairn Trust Company.
He holds a BS from the University of Delaware, an MBA from Lehigh University and
is a CFA charterholder.
Andrea Giles, Assistant Vice President/Portfolio Manager of the Fund, holds a
BSAD from the Massachusetts Institute of Technology and an MBA in Finance from
Columbia University. Prior to joining Delaware Investments in 1996, she was an
account officer in the Leveraged Capital Group with Citibank.
9
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment Manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
<TABLE>
<CAPTION>
<S> <C> <C>
Portfolio managers Distributor Service agent
(see page 9 for details) Delaware Distributors, L.P.. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
10
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate
of the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts
o a bank, trust company and similar financial institution investing for its
own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee
o registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least
$1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services
11
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800.510.4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800.510.4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
12
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently, the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
13
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
14
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), you will receive the net asset value as determined on the
business day we receive your request. We will send you a check, normally the
next business day, but no later than seven days after we receive your request to
sell your shares. If you purchased your shares by check, we will wait until your
check has cleared, which can take up to 15 days, before we send your redemption
proceeds.
Account minimum
If you redeem shares and your account balance falls below $250, the Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from this Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
15
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The portfolio managers and
investment professionals of the Fund consider Year 2000 compliance in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
16
<PAGE>
Financial highlights
Financial highlights are not shown for the Fund since it commenced operations
after the close of the fiscal year end.
17
<PAGE>
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Amortized cost
Amortized cost is a method used to value a fixed income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Corporate bond
A debt security issued by a corporation. See bond.
Cost basis
The original purchase price of an investment, used in determining capital gains
and losses.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
18
<PAGE>
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
19
<PAGE>
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
20
<PAGE>
Small Cap Contrarian Fund
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in this Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
- ---------------------
E-mail
[email protected]
Client Services Representative
800.510.4015
Delaphone Service
800.362.FUND (800.362.3863)
For convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
Investment Company Act file number: 811-4997
Institutional Class CUSIP Number: 24610B859
DELAWARE
INVESTMENTS
Philadelphia * London
P-002 [--] PP 3/99
<PAGE>
DELAWARE
INVESTMENTS
Philadelphia * London
Mid-Cap Value Fund
Class A * Class B* Class C
Prospectus
March 30, 1999
Growth of Capital Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
[inside front cover]
Table of Contents
Fund profile page
Mid-Cap Value Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio manager
Fund administration (Who's who)
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares
Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
Glossary page
2
<PAGE>
Profile: Mid-Cap Value Fund
- ----------------------------
What are the Fund's goals?
Mid-Cap Value Fund seeks to provide long-term capital growth. Although the Fund
will strive to meet its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of medium size companies, typically those with
market capitalizations between $1 billion and $9 billion at the time of
purchase. We look for stocks whose stock prices appear low relative to their
underlying value or future potential. Among other factors, we consider the
financial strength of a company, its management, the prospects for its industry
and any anticipated changes within the company, which might suggest a more
favorable outlook going forward.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the Fund's investments. This Fund
will be affected by declines in stock prices. In addition, the companies that
Mid-Cap Value Fund invests in may involve slightly more risk than large
companies due to their size, narrow product lines and limited financial
resources. For a more complete discussion of risk, please turn to page 9.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities of
medium size companies.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
3
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund. The Fund may waive or reduce sales charges; please see the
Statement of Additional Information for details.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
CLASS A B C
- -------------------------------------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 5.75% none none
- -------------------------------------------------------------------------------------------------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
Redemption price, whichever is lower none(1) 5%(2) 1%(3)
- -------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
Reinvested dividends None none none
- -------------------------------------------------------------------------------------------------
Redemption fees None none none
- -------------------------------------------------------------------------------------------------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses.
- --------------------------------------------------------------------------------
Management fees 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees(4) 0.30% 1.00% 1.00%
- --------------------------------------------------------------------------------
Other expenses(5) 0.57% 0.57% 0.57%
- --------------------------------------------------------------------------------
Total operating expenses(6) 1.62% 2.32% 2.32%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown. 7 This is an
example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CLASS(8) A B B (if redeemed) C C (if redeemed)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $730 $235 $735 $235 $335
- ---------------------------------------------------------------------------------------------
3 years $1,057 $724 $1,024 $724 $724
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) A purchase of Class A shares of $1 million or more may be made at net
asset value. However, if you buy the shares through a financial adviser
who is paid a commission, a contingent deferred sales charge will apply
to certain redemptions. Additional Class A purchase options that
involve a contingent deferred sales charge may be permitted from time
to time and will be disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first year after you buy them,
you will pay a contingent deferred sales charge of 5%, which declines
to 4% during the second year, 3% during the third and fourth years, 2%
during the fifth year, 1% during the sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Class A shares are subject to a 12b-1 fee of 0.30% of average daily
net assets and Class B and C shares are each subject to a 12b-1 fee of
1.00% of average daily net assets. The distributor has agreed to waive
these 12b-1 fees through May 31, 1999.
(5) Other expenses are based on estimated amounts for the current fiscal
year.
4
<PAGE>
(6) The investment manager has agreed to waive fees and pay expenses from
the commencement of the Fund's operations through May 31, 1999 in order
to prevent total operating expenses (excluding any taxes, interest,
brokerage fees, extraordinary expenses and 12b-1 fees) from exceeding
0.75% of average daily net assets.
(7) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods
we show. This example does not reflect the voluntary expense cap
described in footnotes 4 and 6.
(8) Class B shares automatically convert to Class A shares at the end of
the eighth year. The example does not assume this conversion since it
only reflects expenses for one and three years.
5
<PAGE>
How we manage the Fund
Our investment strategies
We research individual companies and analyze economic and market conditions,
seeking to identify the securities or market sectors that we think are the best
investments for Mid Cap Value Fund. Following is a description of how the
portfolio manager pursues the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We strive to identify medium size companies that offer above-average
opportunities for long-term price appreciation because their current stock price
does not accurately reflect the companies' underlying value or future earning
potential.
We will use a selection model which we developed ourselves, to help identify
companies that meet our investment guidelines. Our search will focus on several
key characteristics including price-to-sales ratio, price-to-cash flow ratio and
price-to-earnings ratio.
Companies may be undervalued for many reasons. They may be unknown to stock
analysts, they may have experienced poor earnings or their industry may be in
the midst of a period of weak growth.
We will carefully evaluate the financial strength of the company, the nature of
its management, any developments affecting the company or its industry,
anticipated new products or services, possible management changes, projected
takeovers or technological breakthroughs. Using this extensive analysis, our
goal is to pinpoint the companies within the universe of undervalued stocks,
whose true value is likely to be recognized and rewarded with a rising stock
price in the future.
Because there is added risk when investing in medium size companies, which may
not have fully matured, we maintain a well-diversified portfolio, typically
holding 55 to 80 different stocks, representing a wide array of industries.
6
<PAGE>
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ---------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common stocks: Securities that represent shares of Generally, we invest 90% to 100% of net assets in
ownership in a corporation. Stockholders participate common stock of medium size companies that we believe
in the corporation's profits and losses, are selling for less than their true value.
proportionate to the number of shares they own.
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts: A company, usually The Fund is permitted to invest in REITs and would
traded publicly, that manages a portfolio of real typically do so when this sector or specific
estate to earn profits for shareholders. companies within the sector appeared to offer
opportunities for price appreciation.
- ---------------------------------------------------------------------------------------------------------------------------
Foreign Securities and American Depositary Receipts: Although the Fund may invest up to 5% of its net
Securities of foreign entities issued directly or, in assets in foreign securities, the manager has no
the case of American Depositary Receipts, through a present intention of doing so. We may invest without
U.S. bank. ADRs are issued by a U.S. bank and limit in ADRs and will do so when we believe they
represent the bank's holding of a stated number of offer greater value and greater appreciation
shares of a foreign corporation. An ADR entitles the potential than U.S. securities.
holder to all dividends and capital gains earned by
the underlying foreign shares. ADRs are bought and
sold the same as U.S. securities.
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a
and seller of securities in which the seller agrees short-term investment for the Fund's cash position.
to buy the securities back within a specified time at In order to enter into these repurchase agreements,
the same price the buyer paid for them, plus an the Fund must have collateral of at least 102% of the
amount equal to an agreed upon interest rate. repurchase price. The Fund may not have more than 15%
Repurchase agreements are often viewed as equivalent of its total assets in repurchase agreements with
to cash. maturities of over seven days.
- ---------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest without limitation in privately placed
whose resale is restricted under securities law. securities that are eligible for resale only among
certain institutional buyers without registration.
These are commonly known as Rule 144A Securities.
Other restricted securities must be limited to 15% of
total Fund assets.
- ---------------------------------------------------------------------------------------------------------------------------
Illiquid Securities: Securities that do not have a We may invest up to 15% of net assets in illiquid
ready market, and cannot be easily sold, if at all, securities.
at approximately the price the Fund has valued
them.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also invest in other securities including convertible securities,
warrants, preferred stocks, and bonds. Please see the Statement of Additional
Information for additional descriptions and risk information on these securities
as well as those listed in the table above. You can find additional information
about the investments in the Fund's portfolio in the annual or semi-annual
shareholder report.
Lending securities
The Fund may lend up to 25% of its assets to qualified dealers and investors for
their use in security transactions.
7
<PAGE>
Purchasing securities on a when-issued or delayed delivery basis the Fund may
buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if a Fund sold and replaced securities
valued at 100% of its net assets within one year.
8
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Fund, you should
consider an investment in it to be a long-term investment that typically
provides the best results when held for a number of years. The following are the
chief risks you assume when investing in the Fund. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- -----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of the We maintain a long-term investment approach and focus
securities in a certain market -- like the stock or on stocks we believe can appreciate over an extended
bond market -- will decline in value because of time frame regardless of interim market fluctuations.
factors such as economic conditions, future We do not try to predict overall stock market
expectations or investor confidence. movements and do not trade for short-term purposes.
We may hold a substantial part of the Fund's assets
in cash or cash equivalents as a temporary, defensive
strategy.
- -----------------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that the value We limit the amount of the Fund's assets invested
of securities in a particular industry or the value in any one industry and in any individual security.
of an individual stock or bond will decline because We also follow a rigorous selection process before
of changing expectations for the performance of that choosing securities and continuously monitor them
industry or for the individual company issuing the while they remain in the portfolio.
stock.
- -----------------------------------------------------------------------------------------------------------------------------------
Smaller company risk is the risk that prices of The Fund maintains a well-diversified portfolio,
medium size or smaller companies may be more volatile selects stocks carefully and monitors them
than larger companies because of limited financial continuously. And, because we focus on stocks that
resources or dependence on narrow product lines. are already selling at relatively low prices, we
believe we may experience less price volatility than
small or mid-cap funds that do not use a
value-oriented strategy.
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities will We analyze each company's financial situation and its
decrease in value if interest rates rise. The risk is cashflow to determine the company's ability to
generally associated with bonds; however, because finance future expansion and operations. The
smaller companies often borrow money to finance their potential affect that rising interest rates might
operations, they may be adversely affected by rising have on a stock is taken into consideration before
interest rates. the stock is purchased.
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign securities may We typically invest only a small portion of the
be adversely affected by political instability, Fund's portfolio in foreign securities. When we do
changes in currency exchange rates, foreign economic purchase foreign securities, they are often
conditions or inadequate regulatory and accounting denominated in U.S. dollars. To the extent we invest
standards. in foreign securities, we invest primarily in issuers
of developed countries, which are less likely to
encounter these foreign risks than issuers in
developing countries. The Fund may use hedging
techniques to help offset potential foreign currency
losses.
- -----------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that securities We limit exposure to illiquid securities.
cannot be readily sold, or can only be sold, if at all,
at approximately the price that the Fund values them.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Who manages the Fund
Investment Manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. For these services, the Manager is paid an annual fee
equal to on an annual basis: 0.75% on the first $500 million of average daily
net assets; 0.70% on the next $500 million; 0.65% on the next $1.5 billion; and
0.60% on the average daily net assets in excess of $2.5 billion.
Portfolio manager
Christopher S. Beck, Vice President/Senior Portfolio Manager, assumed primary
responsibility for making day-to-day investment decisions for the Fund in May
1997. Mr. Beck has been in the investment business for 18 years, starting with
Wilmington Trust in 1981. Later, he became Director of Research at Cypress
Capital Management in Wilmington and Chief Investment Officer of the University
of Delaware Endowment Fund. Prior to joining Delaware Investments in May 1997,
he managed the Small Cap Fund for two years at Pitcairn Trust Company. He holds
a BS from the University of Delaware, an MBA from Lehigh University and is a CFA
Charterholder.
Andrea Giles, Research Analyst for the Fund, holds a BSAD from the Massachusetts
Institute of Technology and an MBA in Finance from Columbia University. Prior to
joining Delaware Investments in 1996, she was an account officer in the
Leveraged Capital Group with Citibank.
Christopher Driver, Research Analyst for the Fund, holds a BS in Finance from
the University of Delaware. Prior to joining Delaware Investments in 1998, he
was a Research Analyst in the Equity Value group at Blackrock, Inc. Prior to
Blackrock, he was a partner at Cashman Farrell & Associates. Mr. Driver is a CFA
charterholder.
10
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED
WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS
FUNDS]
Board of Directors
Investment manager The Fund Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio manager Distributor Service agent
(see page 10 for details) Delaware Distributors, L.P. Delaware Service
1818 Market Street Company, Inc.
Philadelphia, PA 19103 1818 Market Street
Philadelphia, PA 19103
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
11
<PAGE>
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
12
<PAGE>
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 5.75% that you
pay when you buy the shares. The offering price for Class A shares
includes the front-end sales charge.
o If you invest $50,000 or more, your front-end sales charge will be
reduced.
o You may qualify for other reduced sales charges, as described in "How
to reduce your sales charge," and under certain circumstances the sales
charge may be waived; please see the Statement of Additional
Information.
o Absent 12b-1 fee waivers, Class A shares are also subject to an annual
12b-1 fee no greater than 0.30% of average daily net assets, which is
lower than the 12b-1 fee for Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge.
Class A Sales Charges
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of purchase Sales charge Sales charge as % of amount Dealer's commission as %
as % invested Of offering price
of offering price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 6.12% 5.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$50,000 but under $100,000
4.75% 4.94% 4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 but under $250,000
3.75% 3.88% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000 but under $500,000
2.50% 2.59% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000 but under $1 million
2.00% 2.00% 1.60%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year and 0.50% if
you redeem them within the second year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of purchase Sales charge as % Sales charge as % Dealer's commission as %
of offering price of amount invested of offering price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$1,000,000 up to $5 million none none 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
next $20 million
up to $25 million none none 0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
amount over $25 million none none 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of
your purchase is invested in the Fund. However, you will pay a
contingent deferred sales charge if you redeem your shares within six
years after you buy them.
o If you redeem Class B shares during the first year after you buy them,
the shares will be subject to a contingent deferred sales charge of 5%.
The contingent deferred sales charge is 4% during the second year, 3%
during the third and fourth years, 2% during the fifth year, 1% during
the sixth year, and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o For approximately eight years after you buy your Class B shares, absent
12b-1 fee waivers, they are subject to annual 12b-1 fees no greater
than 1% of average daily net assets, of which 0.25% are service fees
paid to the distributor, dealers or others for providing services and
maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses
and any dividends paid on these shares are lower than dividends on
Class A shares.
o Approximately eight years after you buy them, Class B shares
automatically convert into Class A shares with a 12b-1 fee of no more
than 0.30%, which is currently being waived. Conversion may occur as
late as three months after the eighth anniversary of purchase, during
which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
14
<PAGE>
Class C
o Class C shares have no up-front sales charge, so the full amount of
your purchase is invested in the Fund. However, you will pay a
contingent deferred sales charge if you redeem your shares within 12
months after you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o Absent 12b-1 fee waivers, Class C shares are subject to an annual 12b-1
fee which may not be greater than 1% of average daily net assets, of
which 0.25% are service fees paid to the distributor, dealers or others
for providing services and maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses
and pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at
any one time. The limitation on maximum purchases varies for retirement
plans.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
15
<PAGE>
About your account
continued
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of B and C
shares to fulfill your
Letter of Intent or
qualify for Rights of
Accumulation.
- ----------------------------------------------------------------------------------------------------------------------------
Rights of Accumulation You can combine your holdings X
or purchases of all funds in the
Delaware Investments family
(except money market funds with
no sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
- ----------------------------------------------------------------------------------------------------------------------------
Reinvestment of redeemed shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ----------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X Not available.
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales
401(k), 403(b)(7), and 457 Retirement charges by combining the
Plans purchases of all members of the
group. Members of these groups
may also qualify to purchase
shares without a front-end sales
charge and a waiver of any
contingent deferred sales
charges.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
How to buy shares
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service. For more information about how to sign up for this service, call our
Shareholder Service Center at 800.523.1918.
17
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an initial
investment of $1,000--and make additional investments at any time for as little
as $100. If you are buying shares in an IRA or Roth IRA, under the Uniform Gifts
to Minors Act or the Uniform Transfers to Minors Act; or through an Automatic
Investing Plan, the minimum purchase is $250, and you can make additional
investments of only $25. The minimum for an Education IRA is $500. The minimums
vary for retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Fund may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in the Fund can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800o523o1918.
18
<PAGE>
How to redeem shares
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service. For
more information about how to sign up for this service, call our Shareholder
Service Center at 800.523.1918.
19
<PAGE>
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), you will receive the net asset value as determined on the
business day we receive your request. We will deduct any applicable contingent
deferred sales charges. You may also have to pay taxes on the proceeds from your
sale of shares. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares--not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $500 for Education IRAs) for three or
more consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at the
minimum by the required time, you will be charged a $9 fee for that quarter and
each quarter after that until your account reaches the minimum balance. If your
account does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
20
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred sales
charge as the shares you originally purchased. The holding period for the CDSC
will also remain the same, with the amount of time you held your original shares
being credited toward the holding period of your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of dividends. You
may have to pay taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to get a copy of the
fund's prospectus and read it carefully before buying shares through an
exchange.
21
<PAGE>
Dividends, distributions and taxes
Dividends and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
22
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The portfolio manager and
investment professionals of the Fund consider Year 2000 compliance in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
23
<PAGE>
Financial highlights
Financial highlights are not shown for the Fund since it commenced operations
after the close of the fiscal year end.
24
<PAGE>
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
25
<PAGE>
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
26
<PAGE>
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
27
<PAGE>
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
28
<PAGE>
Mid-Cap Value Fund
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA 19103,
or call toll-free 800.523.1918. You may also obtain additional information about
the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
- ---------------------
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
o For fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions
and telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R) service.
Investment Company Act file number: 811-4997
Class A CUSIP Number: 24610B503
DELAWARE
INVESTMENTS
Philadelphia * London
P-002 [--] PP 3/99
<PAGE>
DELAWARE
INVESTMENTS
Philadelphia * London
Mid-Cap Value Fund
Institutional Class
Prospectus
March 30, 1999
Growth of Capital Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
[inside front cover]
Table of Contents
Fund profile page
Mid-Cap Value Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Certain management considerations
Financial highlights page
Glossary page
2
<PAGE>
Profile: Mid-Cap Value Fund
What are the Fund's goals?
Mid-Cap Value Fund seeks to provide long-term capital growth. Although the Fund
will strive to meet its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in stocks of medium size companies, typically those with
market capitalizations between $1 billion and $9 billion at the time of
purchase. We look for stocks whose stock prices appear low relative to their
underlying value or future potential. Among other factors, we consider the
financial strength of a company, its management, the prospects for its industry
and any anticipated changes within the company, which might suggest a more
favorable outlook going forward.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the Fund's investments. This Fund
will be affected by declines in stock prices. In addition, the companies that
Mid-Cap Value Fund invests in may involve slightly more risk than large
companies due to their size, narrow product lines and limited financial
resources. For a more complete discussion of risk, please turn to page 8.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities of medium
size companies.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
3
<PAGE>
What are Mid-Cap Value Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
- -----------------------------------------------------------------
Maximum sales charge (load) imposed on purchases as none
a percentage of offering price
- -----------------------------------------------------------------
Maximum contingent deferred sales charge (load) as a none
percentage of original purchase price or redemption price,
whichever is lower
- -----------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested none
dividends
- -----------------------------------------------------------------
Redemption fees none
- -----------------------------------------------------------------
Exchange Fees(1) none
- -----------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses.
- -----------------------------------------------------------------
Management fees 0.75%
- -----------------------------------------------------------------
Distribution and service (12b-1) fees None
- -----------------------------------------------------------------
Other expenses(2) 0.57%
- -----------------------------------------------------------------
Total operating expenses(3) 1.32%
- -----------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown. (4)This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
- ---------------------------
1 year $134
- ---------------------------
3 years $418
- ---------------------------
1. Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
2. Other expenses are based on estimated amounts for the current fiscal year.
3. The investment manager has agreed to waive fees and pay expenses from the
commencement of the Fund's operations through May 31, 1999, in order to
prevent total operating expenses (excluding any taxes, interest, brokerage
fees and extraordinary expenses) from exceeding 0.75% of average daily net
assets.
4. The Fund's actual rate of return may be greater or less than the hypothetical
5% return we use here. Also, this example assumes that the Fund's total
operating expenses remain unchanged in each of the periods we show. This
example does not reflect the voluntary expense cap described in footnote 3.
4
<PAGE>
How we manage the Fund
Our investment strategies
We research individual companies and analyze economic and market conditions,
seeking to identify the securities or market sectors that we think are the best
investments for Mid Cap Value Fund. Following is a description of how the
portfolio manager pursues the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We strive to identify medium size companies that offer above-average
opportunities for long-term price appreciation because their current stock price
does not accurately reflect the companies' underlying value or future earning
potential.
We will use a selection model which we developed ourselves, to help identify
companies that meet our investment guidelines. Our search will focus on several
key characteristics including price-to-sales ratio, price-to-cash flow ratio and
price-to-earnings ratio.
Companies may be undervalued for many reasons. They may be unknown to stock
analysts, they may have experienced poor earnings or their industry may be in
the midst of a period of weak growth.
We will carefully evaluate the financial strength of the company, the nature of
its management, any developments affecting the company or its industry,
anticipated new products or services, possible management changes, projected
takeovers or technological breakthroughs. Using this extensive analysis, our
goal is to pinpoint the companies within the universe of undervalued stocks,
whose true value is likely to be recognized and rewarded with a rising stock
price in the future.
Because there is added risk when investing in medium size companies, which may
not have fully matured, we maintain a well-diversified portfolio, typically
holding 55 to 80 different stocks, representing a wide array of industries.
5
<PAGE>
The securities we typically invest in
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- --------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common stocks: Securities that represent shares Generally, we invest 90% to 100% of net assets in common
of ownership in a corporation. stock of medium size companies that we believe are selling
Stockholders participate in the corporation's for less than their true value.
profits and losses, proportionate to the
number of shares they own.
- --------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts: A The Fund is permitted to invest in REITs and would
company, usually traded publicly, that typically do so when this sector or specific companies
manages a portfolio of real estate to earn within the sector appeared to offer opportunities for
profits for shareholders. price appreciation.
- --------------------------------------------------------------------------------------------------------------------------
Foreign Securities and American Although the Fund may invest up to 5% of its net assets
Depositary Receipts in foreign securities, the manager has no present
Securities of foreign entities issued directly intention of doing so. We may invest without limit in
or, in the case of American Depositary ADRs and will do so when we believe they offer greater
Receipts, through a U.S. bank. ADRs are issued value and greater appreciation potential than U.S.
by a U.S. bank and represent the bank's holding securities.
of a stated number of shares of a foreign
corporation. An ADR entitles the holder to all
dividends and capital gains earned by the
underlying foreign shares. ADRs are bought and
sold the same as U.S. securities.
- --------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement Typically,we use repurchase agreements as a short-term
between a buyer and seller of securities in investment for the Fund's cash position. In order to
which the seller agrees to buy the securities enter into these repurchase agreements, the Fund must
back within a specified time at the same have collateral of at least 102% of the repurchase price.
price the buyer paid for them, plus an The Fund may not have more than 15% of its total assets
amount equal to an agreed upon interest in repurchase agreements with maturities of over seven
rate. Repurchase agreements are often days.
viewed as equivalent to cash.
- --------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed We may invest without limitation in privately placed
securities whose resale is restricted under securities that are eligible for resale only among certain
securities law. institutional buyers without registration. These are
commonly known as Rule 144A Securities. Other restricted
securities must be limited to 15% of total fund assets.
- --------------------------------------------------------------------------------------------------------------------------
Illiquid Securities: Securities that do no We may invest up to 15% of net assets in illiquid
have a ready market, and cannot be easily securities.
sold, if at approximately the price that the
Fund has valued them.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund may also invest in other securities including convertible securities,
warrants, preferred stocks, and bonds. Please see the Statement of Additional
Information for additional descriptions and risk information on these securities
as well as those listed in the table above. You can find additional information
about the investments in the Fund's portfolio in the annual or semi-annual
shareholder report.
Lending securities
The Fund may lend up to 25% of its assets to qualified dealers and
investors for their use in security transactions.
6
<PAGE>
Purchasing securities on a when-issued or delayed delivery basis
The Fund may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
Portfolio turnover
We anticipate that the Fund's annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if a Fund sold and replaced securities
valued at 100% of its net assets within one year.
7
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Fund, you should
consider an investment in it to be a long-term investment that typically
provides the best results when held for a number of years. The following are the
chief risks you assume when investing in the Fund. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
- --------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority of We maintain a long-term investment approach and focus on
the securities in a certain market -- like the stocks we believe can appreciate over an extended time
stock or bond market -- will decline in value frame regardless of interim market fluctuations. We do not
because of factors such as economic try to predict overall stock market movements and because
because of factors such as economic future of factors such as economic do not trade for short-term
expectations or investor confidence. purposes.
We may hold a substantial part of the Fund's assets in cash
or cash equivalents as a temporary, defensive strategy.
- --------------------------------------------------------------------------------------------------------------------------
Industry and security risk is the risk that We limit the amount of the Fund's assets invested in
the value of securities in a particular industry any one industry and in any individual security.
or the value of an individual stock or bond We also follow a rigorous selection process before
will decline because of changing choosing securities and continuously monitor them
expectations for the performance of that while they remain in the portfolio.
industry or for the individual company issuing
the stock.
- --------------------------------------------------------------------------------------------------------------------------
Smaller company risk is the risk that prices The Fund maintains a well-diversified portfolio, selects
of medium size or smaller companies may be stocks carefully and monitors them continuously. And,
more volatile than larger companies because because we focus on stocks that are already selling
of limited resources or dependence at relatively low prices, we believe we may financial
on narrow product lines. experience less price volatility than small or mid-cap
funds that do not use a value-oriented strategy.
- --------------------------------------------------------------------------------------------------------------------------
Interest rate risk is the risk that securities We analyze each company's financial situation and its
will decrease in value if interest rates rise. cashflow to determine the company's ability to finance
The risk is generally associated with bonds; future expansion and operations. The potential affect that
however, because smaller companies often rising interest rates might have on a stock is taken into
borrow money to finance their operations, consideration before the stock is purchased.
they may be adversely affected by rising
interest rates.
- --------------------------------------------------------------------------------------------------------------------------
Foreign risk is the risk that foreign securities We typically invest only a small portion of the Fund's portfolio
may be adversely affected by political in foreign securities. When we do purchase foreign securities,
instability, changes in currency exchange they are often denominated in U.S. dollars. To the extent we
rates, foreign economic conditions or invest in foreign securities, we invest primarily in issuers of
inadequate regulatory and accounting developed countries, which are less likely to encounter these
standards. foreign risks than issuers in developing countries. The Fund may
use hedging techniques to help offset potential foreign currency
losses.
- --------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that securities We limit exposure to illiquid securities.
cannot be readily sold, or can only be sold, if at
all, at approximately the price that the Fund
values them.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Who manages the Fund
Investment Manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. For these services, the Manager is paid an annual fee
equal to on an annual basis: 0.75% on the first $500 million of average daily
net assets; 0.70% on the next $500 million; 0.65% on the next $1.5 billion; and
0.60% on the average daily net assets in excess of $2.5 billion.
Portfolio manager
Christopher S. Beck, Vice President/Senior Portfolio Manager, assumed primary
responsibility for making day-to-day investment decisions for the Fund in May
1997. Mr. Beck has been in the investment business for 18 years, starting with
Wilmington Trust in 1981. Later, he became Director of Research at Cypress
Capital Management in Wilmington and Chief Investment Officer of the University
of Delaware Endowment Fund. Prior to joining Delaware Investments in May 1997,
he managed the Small Cap Fund for two years at Pitcairn Trust Company. He holds
a BS from the University of Delaware, an MBA from Lehigh University and is a CFA
Charterholder.
Andrea Giles, Research Analyst for the Fund, holds a BSAD from the Massachusetts
Institute of Technology and an MBA in Finance from Columbia University. Prior to
joining Delaware Investments in 1996, she was an account officer in the
Leveraged Capital Group with Citibank.
Christopher Driver, Research Analyst for the Fund, holds a BS in Finance from
the University of Delaware. Prior to joining Delaware Investments in 1998, he
was a Research Analyst in the Equity Value group at Blackrock, Inc. Prior to
Blackrock, he was a partner at Cashman Farrell & Associates. Mr. Driver is a CFA
charterholder.
9
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
<TABLE>
<CAPTION>
<S> <C>
Board of Directors
Investment manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio manager Distributor Service agent
(see page 9 for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
10
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate
of the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts
o a bank, trust company and similar financial institution investing for its
own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee
o registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least
$1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services
11
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800-510-4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800-510-4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
12
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently, the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
13
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
14
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), you will receive the net asset value as determined on the
business day we receive your request. We will send you a check, normally the
next business day, but no later than seven days after we receive your request to
sell your shares. If you purchased your shares by check, we will wait until your
check has cleared, which can take up to 15 days, before we send your redemption
proceeds.
Account minimum
If you redeem shares and your account balance falls below $250, the Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
Dividends, and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains, unless you elect to have them
reinvested in another Delaware Investment fund.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from this Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
15
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The portfolio manager and
investment professionals of the Fund consider Year 2000 compliance in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
16
<PAGE>
Financial highlights
Financial highlights are not shown for the Fund since it commenced operations
after the close of the fiscal year end.
17
<PAGE>
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Corporate bond
A debt security issued by a corporation. See bond.
Cost basis
The original purchase price of an investment, used in determining capital gains
and losses.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
18
<PAGE>
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
19
<PAGE>
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
20
<PAGE>
Mid-Cap Value Fund
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in this Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
- ---------------------
E-mail
[email protected]
Client Services Representative
800.510.4015
Delaphone Service
800.362.FUND (800.362.3863)
For convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
Investment Company Act file number: 811-4997
Institutional Class CUSIP Number: 24610B800
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
P-002 [--] PP 3/99
<PAGE>
DELAWARE
INVESTMENTS
Philadelphia * London
Retirement Income Fund
Class A * Class B* Class C
Prospectus
March 30, 1999
Total Return Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
-1-
<PAGE>
[inside front cover]
Table of Contents
Fund profile page
Retirement Income Fund
How we manage the Fund page
Our investment strategies
The securities we invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Fund
Choosing a share class
How to reduce your sales charge
How to buy shares Retirement plans
How to redeem shares
Account minimums
Special services
Dividends, distributions and taxes
Other investment policies
and risk considerations page
Certain management considerations page
Financial highlights page
Glossary page
Appendix A-Ratings
-2-
<PAGE>
Profile: Retirement Income Fund
What are the Fund's goals?
Retirement Income Fund seeks to provide the high current income and an
investment that has the potential for capital appreciation. Although the Fund
will strive to achieve its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in income generating securities of large, well-established
companies and in debt securities including high yield, high risk corporate
bonds, investment grade fixed income securities and U.S. government securities.
Retirement Income Fund may invest up to 45% of its net assets in high-yield,
higher risk corporate bonds, commonly known as junk bonds. These bonds involve
the risk that the issuing company may be unable to pay interest or repay
principal. However, they can offer high income potential which we believe can
make a positive contribution to the Fund's performance.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the Fund's investments. This Fund
will be affected by declines in stock and high-yield bond prices, which could be
caused by a drop in the stock market, economic recession or poor performance
from particular companies or sectors. For a more complete discussion of risk,
please turn to page 11.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for growth potential combined with regular income.
o Investors looking for supplemental monthly income from an investment
that also offers possible protection against inflation.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors seeking an investment primarily in fixed income securities.
-3-
<PAGE>
How has Retirement Income Fund performed?
This bar chart and table can help you evaluate the potential risks of investing
in the Fund. We show how returns for the Fund's Class A shares have varied over
the past two calendar years, as well as the average annual returns of these
shares for the past year and since inception. The Fund's past performance is not
necessarily an indication of how it will perform in the future. The returns
reflect voluntary expense caps and a waiver of 12b-1 fees by the distributor.
The returns would be lower without the voluntary caps and 12b-1 fee waiver.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A)]
Year-by-year total return (Class A)
Retirement Income Fund
Class A
1997 34.28%
1998 2.13%
The Fund's Class A shares had a -1.64% year-to-date return as of February 28,
1999. During the periods illustrated in this bar chart, Class A's highest return
was 13.03% for the quarter ended September 30, 1997 and its lowest return was
- -9.47% for the quarter ended September 30, 1998.
The maximum Class A sales charge of 5.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns above. If this fee were
included, the returns would be less than those shown. The average annual returns
shown below do include the sales charge.
<TABLE>
<CAPTION>
Average annual returns for periods ending 12/31/98
CLASS A S&P 500
<S> <C> <C>
1 year -3.76% 28.60%
Since inception 15.78% 30.95%
(12/2/96)
</TABLE>
The Fund's returns are compared to the performance of the S&P 500 Index. You
should remember that unlike the Fund, the index is unmanaged and doesn't include
the costs of operating a mutual fund, such as the costs of buying, selling and
holding the securities.
-4-
<PAGE>
What are the Fund's fees and expenses?
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund. The Fund may waive or reduce sales charges; please see the
Statement of Additional Information for details.
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------ ---------- ----------
Class A B C
- -------------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
Purchases as a percentage of offering price 5.75% none none
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
Redemption price, whichever is lower none(1) 5%(2) 1%(3)
- -------------------------------------------------------------- ------------ ---------- ----------
Maximum sales charge (load) imposed on
Reinvested dividends none none none
- -------------------------------------------------------------- ------------ ---------- ----------
Redemption fees none none none
- -------------------------------------------------------------- ------------ ---------- ----------
</TABLE>
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
<TABLE>
- -------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Management fees 0.65% 0.65% 0.65%
- -------------------------------------------------------- ----------- ---------- ----------
Distribution and service (12b-1) fees(4) 0.30% 1.00% 1.00%
- -------------------------------------------------------- ----------- ---------- ----------
Other expenses 0.67% 0.67% 0.67%
- -------------------------------------------------------- ----------- ---------- ----------
Total operating expenses(5) 1.62% 2.32% 2.32%
- -------------------------------------------------------- ----------- ---------- ----------
</TABLE>
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(6) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
<TABLE>
<CAPTION>
-------------- --------------- ------------ ------------------ ---------- --------------------
CLASS(7) A B B (if redeemed) C C (if redeemed)
-------------- --------------- ------------ ------------------ ---------- --------------------
<S> <C> <C> <C> <C> <C>
1 year $730 $235 $735 $235 $335
-------------- --------------- ------------ ------------------ ---------- --------------------
3 years $1,057 $724 $1,024 $724 $724
-------------- --------------- ------------ ------------------ ---------- --------------------
5 years $1,406 $1,240 $1,440 $1,240 $1,240
-------------- --------------- ------------ ------------------ ---------- --------------------
10 years $2,386 $2,481 $2,481 $2,656 $2,656
-------------- --------------- ------------ ------------------ ---------- --------------------
</TABLE>
-5-
<PAGE>
(1) A purchase of Class A shares of $1 million or more may be made at net
asset value. However, if you buy the shares through a financial adviser
who is paid a commission, a contingent deferred sales charge will apply
to certain redemptions. Additional Class A purchase options that
involve a contingent deferred sales charge may be permitted from time
to time and will be disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first year after you buy them,
you will pay a contingent deferred sales charge of 5%, which declines
to 4% during the second year, 3% during the third and fourth years, 2%
during the fifth year, 1% during the sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Class A shares are subject to a 12b-1 fee of 0.30% of average daily
net assets and Class B and C shares are each subject to a 12b-1 fee of
1.00% of average daily net assets. The distributor has agreed to waive
these 12b-1 fees through May 31, 1999.
(5) The investment manager has agreed to waive fees and pay expenses from
the commencement of the Fund's operations through May 31, 1999 in order
to prevent total operating expenses (excluding any taxes, interest,
brokerage fees, extraordinary expenses and 12b-1 fees) from exceeding
0.75% of average daily net assets.
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods
we show. This example does not reflect the voluntary expense cap
described in footnotes 4 and 5.
(7) The Class B example reflects the conversion of Class B shares to Class
A shares after approximately eight years. Information for the ninth and
tenth years reflects expenses of the Class A shares.
-6-
<PAGE>
How we manage the Fund
Our investment strategies
We research individual companies and analyze economic and market conditions,
seeking to identify the securities or market sectors that we think are the best
investments for Retirement Income Fund. Following is a description of how the
portfolio manager pursues the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
The investment objective of the Fund is to seek to provide investors with high
current income and an investment that has the potential for capital
appreciation. Although the Fund will constantly strive to attain its investment
objective, there can be no assurance that it will be attained.
The manager will seek to achieve the Fund's investment objective by investing in
a combination of income generating equity securities and debt securities
including, but not limited to, dividend paying common stocks, securities of real
estate investment trusts, preferred stocks, warrants, rights, convertible
securities, non-convertible debt securities, high-yield, high risk securities,
investment grade fixed-income securities, U.S. government securities and foreign
equity and fixed-income securities. Under normal circumstances, at least 50% of
the Fund's total assets will be invested in income generating equity securities.
In making investments in income generating equity securities, the Fund may
invest an unrestricted portion of its total assets in convertible securities and
preferred stock rated below investment grade. While debt securities may comprise
up to 50% of the Fund's total assets, no more than 45% of the Fund's total
assets will be invested in high-yield, high risk debt securities. No more than
25% of the Fund's total assets will be invested in any one industry sector nor,
as to 75% of the Fund's total assets, will more than 5% be invested in
securities of any one issuer. The Fund may invest up to 20% of its total assets
in foreign equity and debt securities. The Fund will not, however, invest more
than 5% of its total assets in securities of issuers principally located or
principally operating in markets of emerging countries.
Within the percentage guidelines noted above, the manager will determine the
proportion of the Fund's assets that will be allocated to income generating
equity securities and equity equivalents and to debt securities, based on its
analysis of economic and market conditions and its assessment of the income and
potential for appreciation that can be achieved from investment in such asset
classes. It is expected that the proportion of the Fund's total assets invested
in income generating equity securities and equity equivalent securities will
vary from 50% to 100% of the Fund's total assets. The proportion of the Fund's
total assets in debt securities will correspondingly vary from 0% to 50% of the
Fund's total assets.
Portfolio turnover
The Fund anticipates that its annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if a Fund sold and replaced securities
valued at 100% of its net assets within one year.
The securities we invest in
The following is a more detailed description of some of the securities in which
the Fund may invest.
Common stock
Common stock is generally considered to be shares of a corporation that entitle
the holder to a pro-rata share of the profits of the corporation, if any,
without a preference over any other shareholder or class of shareholders,
including holders of the corporation's preferred stock and other senior equity.
Common stock usually carries with it the right to vote and frequently an
exclusive right to do so. Holders of common stock also have the right to
participate in the remaining assets of the corporation after all other claims
are paid, including those of debt securities and preferred stock. In selecting
common stocks for investment, the manager will focus primarily on a security's
dividend-paying capacity rather than on its potential for appreciation.
-7-
<PAGE>
Preferred stock
Generally, preferred stock receives dividends prior to distributions on common
stock and usually has a priority of claim over common stockholders if the issuer
of the stock is liquidated. Unlike common stock, preferred stock does not
usually have voting rights; preferred stock, in some instances, is convertible
into common stock. Dividends on typical preferred stock are cumulative, causing
dividends to accrue even if not declared by the board of directors. There is,
however, no assurance that dividends will be declared by the boards of directors
of issuers of the preferred stocks in which the Fund invests. Preferred stock in
which the Fund may invest may be rated below investment grade (i.e., "Ba" or
lower by Moody's Investors Service, Inc. or "BB" or lower by Standard & Poor's
Ratings Group or similarly rated by other comparable rating agencies) or, if
unrated, determined to be of comparable quality by the manager.
Convertible securities
Traditional convertible securities include corporate bonds, notes and preferred
stocks that may be converted into or exchanged for common stock, and other
securities that also provide an opportunity for equity participation. These
securities are generally convertible either at a stated price or a stated rate
(that is, for a specific number of shares of common stock or other security). As
with other fixed-income securities, the price of a convertible security to some
extent varies inversely with interest rates. While providing a fixed-income
stream (generally higher in yield than the income derivable from a common stock
but lower than that afforded by a non-convertible debt security), a convertible
security also affords the investor an opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible. As the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis and
so may not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of the value
of the underlying common stock. To obtain such a higher yield, the Fund may be
required to pay for a convertible security an amount in excess of the value of
the underlying common stock. Common stock acquired by the Fund upon conversion
of a convertible security will generally be held for so long as the manager
anticipates such stock will provide the Fund with opportunities which are
consistent with the Fund's investment objectives and policies. Convertible
securities in which the Fund may invest may be rated below investment grade
(i.e., "Ba" or lower by Moody's or "BB" or lower by S&P or similarly rated by
other comparable rating agencies) or, if unrated, determined to be of comparable
quality by the manager.
Real estate investment trust securities
Real Estate Investment Trusts ("REITs") are pooled investment vehicles that
invest primarily in income-producing real estate or real estate related loans or
interests. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Like investment companies such as the Fund, REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code (the "Code"). REITs are subject to
substantial cash flow dependency, defaults by borrowers, self-liquidation, and
the risk of failing to qualify for tax-free pass-through of income under the
Code, and/or maintain exemptions from the 1940 Act. Equity REITs may be affected
by changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of any credit extended.
REITs invest all of their assets in the real estate and real estate related
sectors of the economy, and are subject to the risks of financing projects.
REITs may have limited financial resources, may trade less frequently and in a
limited volume, and are more volatile than the high-yield, high risk securities
in which the Fund may also invest.
-8-
<PAGE>
High-yield, high risk securities
Debt securities
High-yield, high risk debt securities, like all debt securities, represent money
borrowed that must be repaid and has a fixed amount, a specific maturity or
maturities and usually a specific rate of interest or original purchase
discount. Unlike common and preferred stock, debt securities, including
high-yield, high risk debt securities, do not represent an equity interest in
the issuer. However, debt securities have a priority claim over stockholders if
the issuer is liquidated. The Fund may invest in a wide variety of debt
securities, although it is anticipated that under normal market conditions, the
Fund primarily will invest in high-yield corporate debt obligations, including
zero coupon bonds and pay-in-kind securities ("PIKs"), debentures, convertible
debentures, corporate notes (including convertible notes) and units consisting
of bonds with stock or warrants to buy stock attached. See Zero coupon bonds and
Pay-in-kind bonds under Other investment policies and risk considerations. The
Fund will invest in both rated and unrated bonds. The rated bonds that the Fund
may purchase in this sector of its portfolio will be rated BBB or lower by S&P
or Fitch Investors Service, Inc., Baa or lower by Moody's, or similarly rated by
another nationally recognized statistical rating organization. See Appendix A to
this Prospectus for more rating information and High-yield securities under
Special risk considerations for a description of the risks associated with
investing in lower-rated fixed-income securities. Unrated bonds may be more
speculative in nature than rated bonds.
Foreign securities
The Fund may invest up to 20% of its total assets in securities of issuers
organized or having a majority of their assets or deriving a majority of their
operating income in foreign countries. These income generating equity securities
and debt securities include foreign government securities, equity securities and
debt obligations of foreign companies, and securities issued by supranational
entities. A supranational entity is an entity established or financially
supported by the national governments of one or more countries to promote
reconstruction or development. Examples of supranational entities include, among
others, the International Bank for Reconstruction and Development (more commonly
known as the World Bank), the European Economic Community, the European Coal and
Steel Community, the European Investment Bank, the Inter-Development Bank, the
Export-Import Bank and the Asian Development Bank.
The Fund may invest in sponsored and unsponsored American Depositary Receipts,
European Depositary Receipts, or Global Depositary Receipts ("Depositary
Receipts"). Depositary Receipts are receipts typically issued by a bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. "Sponsored" Depositary Receipts are issued jointly by the issuer of
the underlying security and a depository, and "unsponsored" Depositary Receipts
are issued without the participation of the issuer of the deposited security.
The Fund may also invest in Brady Bonds, which are described more fully under
the Other Investment policies and risk considerations section of this
Prospectus.
The Fund may invest in securities issued in any currency and may hold foreign
currencies. Securities of issuers within a given country may be denominated in
the currency of another country or in multinational currency units, such as the
European Currency Unit. The Fund may, from time to time, purchase or sell
foreign currencies and/or engage in forward foreign currency transactions in
order to expedite settlement of Fund transactions and to minimize currency value
fluctuations. See Other investment policies and risk considerations for a
further description of the Fund's foreign currency transactions.
While the Fund may purchase securities of issuers in any foreign country,
developed and underdeveloped, no more than 5% of the Fund's assets may be
invested in direct obligations or equity securities of issuers located in
emerging market countries. See Emerging market securities under Special risk
considerations.
The Fund will invest in both rated and unrated foreign securities. The rated
securities that the Fund may purchase in the international sector of its
portfolio may include those rated BBB or lower by S&P or Fitch, Baa or lower by
Moody's, or similarly rated by another nationally reorganized statistical rating
organization. See Appendix A to this Prospectus for more rating information and
Foreign securities and High-yield securities under Special risk considerations
for a description of the risks associated with investing in foreign securities
and lower-rated securities.
-9-
<PAGE>
The Fund may also invest in zero coupon bonds, purchase shares of other
investment companies and may engage in short sales. See zero coupon bonds and
Pay-in-kind bonds and Investment company securities under Other investment
polices and risk considerations.
In unusual market conditions, in order to meet redemption requests, for
temporary defensive purposes, and pending investment or at such other times when
suitable income generating equity or debt securities are not available, the Fund
may hold a substantial portion of its assets in (1) cash, (2) debt securities
issued by the U.S. government, its agencies or instrumentalities, (3) commercial
paper, (4) certificates of deposit and bankers' acceptances or repurchase
agreements with respect to any of the foregoing investments. The Fund will only
invest in commercial paper of companies rated "A-2" or better by S&P or "P-2" or
better by Moody's or similarly rated by another comparable rating agency or, if
not so rated, of equivalent investment quality as determined by the manager. See
Appendix A to this Prospectus for more rating information.
See Other investment policies and risk considerations for a description of the
Fund's other investment policies and for a further description of some of the
policies described above.
The remaining investment policies of the Fund not identified above or in
Statement of Additional Information are not fundamental and may be changed by
the Fund's Board of Directors without a shareholder vote.
-10-
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Retirement Income
Fund, you should consider an investment in it to be a long-term investment that
typically provides the best results when held for a number of years. The
following are the chief risks you assume when investing in the Fund. Please see
the Statement of Additional Information for further discussion of these risks
and the other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------- --------------------------------------------------------------------------------
Risks How we strive to manage them
- ------------------------------------------------- --------------------------------------------------------------------------------
Retirement Income Fund
- ------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority We invest in several different asset classes including both equity and fixed
of the securities in a certain market -- like income, which tend to increase and decline in different economic and
the stock or bond market -- will decline in investment conditions. We also maintain a long-term investment approach and
value because of factors such as economic focus on securities, which we believe can perform well over an extended time
conditions, future expectations or investor frame regardless of interim market fluctuations.
confidence.
- ------------------------------------------------- --------------------------------------------------------------------------------
Industry and security risk is the risk that the We limit the amount of the Fund's assets invested in any one industry and in
value of securities in a particular industry or any individual security or issuer. We also follow a rigorous selection
the value of an individual stock or bond will process when choosing securities for the portfolio.
decline because of changing expectations for
the performance of that industry or for the
individual company issuing the stock or bond.
- ------------------------------------------------- --------------------------------------------------------------------------------
Interest rate risk is the risk that securities We do not try to increase return by predicting and aggressively capitalizing
will decrease in value if interest rates rise. on interest rate moves. We monitor economic conditions and make adjustments as
The risk is greater for bonds with longer necessary to guard against undue risk from interest rate changes.
maturities than for those with shorter
maturities.
- ------------------------------------------------- --------------------------------------------------------------------------------
Credit Risk is the possibility that a bond's We carefully evaluate the financial situation of each entity whose bonds are
issuer (or an entity that insures the bond) held in the portfolio. We also hold a relatively large number of different
will be unable to make timely payments of bonds to minimize the risk should any individual issuer be unable to pay its
interest and principal. interest or repay principal.
- ------------------------------------------------- --------------------------------------------------------------------------------
Real Estate Risk is the risk that real estate We may invest a substantial portion of the portfolio in real estate investment
investment trusts held in the portfolio will be trusts, which generally offer high income potential. We carefully select
affected by declines in the value of real REITs based on the quality of their management and their ability to generate
estate, unfavorable national or regional substantial cashflow, which we believe can help to shield them from some of
economic conditions, lack of mortgage the risks involved with real estate investing.
availability, overbuilding, declining rents and
changes in interest rates.
- ------------------------------------------------- --------------------------------------------------------------------------------
Foreign risk is the risk that foreign We typically invest not more than 20% of the Fund's portfolio in foreign
securities may be adversely affected by corporations often through American Depositary Receipts. ADRs are generally
political instability, changes in currency denominated in U.S. dollars and traded on a U.S. exchange. To the extent we
exchange rates, foreign economic conditions or invest in foreign securities, we invest primarily in issuers of developed
inadequate regulatory and accounting standards. countries, which are less likely to encounter these foreign risks than issuers
in developing countries. The Fund may use hedging techniques to help offset
potential foreign currency losses.
- ------------------------------------------------- --------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, if at all,
at approximately the price that the Fund values
them.
- ------------------------------------------------- --------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
SPECIAL RISK CONSIDERATIONS
Generally
The Fund may invest a substantial portion of its assets in fixed-income
securities. The market values of fixed-income securities generally fall when
interest rates rise and, conversely, rise when interest rates fall. Lower-rated
and unrated fixed-income securities tend to reflect short-term corporate and
market developments to a greater extent than higher-rated fixed-income
securities, which react primarily to fluctuations in the general level of
interest rates. These lower-rated or unrated securities generally have higher
yields, but, as a result of factors such as reduced creditworthiness of issuers,
increased risk of default and a more limited and less liquid secondary market,
are subject to greater volatility and risk of loss of income and principal than
are higher-rated securities. The manager will attempt to reduce such risk
through portfolio diversification, credit analysis, and attention to trends in
the economy, industries and financial markets.
High-yield securities
The Fund may invest up to 45% of its total assets in bonds rated BBB or lower by
S&P or Fitch, Baa or lower by Moody's, or similarly rated by another rating
organization, and in unrated corporate bonds. See Appendix A to this Prospectus
for more rating information. Investing in these so-called "junk" or "high-yield"
bonds entails certain risks, including the risk of loss of principal and default
on interest payments, which may be greater than the risks involved in investment
grade bonds, and which should be considered by investors contemplating an
investment in the Fund. Such bonds are sometimes issued by companies whose
earnings at the time of issuance are less than the projected debt service on the
junk bonds. In addition to the considerations discussed elsewhere in this
Prospectus, those risks include the following:
Youth and volatility of the high-yield market. Although the market for
high-yield bonds has been in existence for many years, including periods of
economic downturns, the high-yield market grew rapidly during the long economic
expansion which took place in the United States during the 1980s. During that
economic expansion, the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings increased dramatically. As a
result, the high-yield market grew substantially during that economic expansion.
Although experts disagree on the impact recessionary periods have had and will
have on the high-yield market, some analysts believe a protracted economic
downturn would severely disrupt the market for high-yield bonds, would adversely
affect the value of outstanding bonds and would adversely affect the ability of
high-yield issuers to repay principal and interest. Those analysts cite
volatility experienced in the high-yield market in the past as evidence for
their position. It is likely that protracted periods of economic uncertainty
would result in increased volatility in the market prices of high-yield bonds,
an increase in the number of high-yield bond defaults and corresponding
volatility in a Class' net asset value.
Redemptions. If, as a result of volatility in the high-yield market or other
factors, the Fund experiences substantial net redemptions of the Fund's shares
for a sustained period of time (i.e., more shares of the Fund are redeemed than
are purchased), the Fund may be required to sell certain of its high-yield
securities without regard to the investment merits of the securities to be sold.
If the Fund sells a substantial number of securities to generate proceeds for
redemptions, the asset base of the Fund will decrease and the Fund's expense
ratios may increase.
Liquidity and valuation. The secondary market for high-yield securities is
currently dominated by institutional investors, including mutual funds, and
certain financial institutions. There is generally no established retail
secondary market for high-yield securities. As a result, the secondary market
for high-yield securities is more limited and less liquid than other secondary
securities markets. The high-yield secondary market is particularly susceptible
to liquidity problems when the institutions that dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the savings and
loan crisis. A less liquid secondary market may have an adverse effect on the
Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. In addition, a less liquid
secondary market makes it more difficult for the Fund to obtain precise
valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. The secondary market for
high-yield securities is also generally considered to be more likely to be
disrupted by adverse publicity and investor perceptions than the more
-12-
<PAGE>
established secondary securities markets. The privately placed high-yield
securities that the Fund may purchase are particularly susceptible to the
liquidity and valuation risks outlined above.
Lower rated convertible securities and preferred stock
The Fund may invest in lower rated convertible securities and preferred stock
(i.e., "Ba" or lower for convertible securities or "ba" or lower for preferred
stock by Moody's or "BB" or lower for convertible securities or preferred stock
by S&P or similarly rated by other comparable rating agencies) or, if unrated,
determined to be of comparable quality by the manager. Investing in lower rated
convertible securities and preferred stock entails certain risks, including the
risk of loss of principal which may be greater than the risks involved in
investing in higher rated securities, and which should be considered by
investors contemplating an investment in the Fund. The Fund may have difficulty
disposing of such securities because the trading market for such securities may
be thinner than the market for higher rated convertible securities and preferred
stock. To the extent a secondary trading market for these securities does exist,
it generally is not as liquid as the secondary trading market for higher rated
securities. The lack of a liquid secondary market as well as adverse publicity
with respect to these securities, may have an adverse impact on market price and
the Fund's ability to dispose of particular issues in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain securities also may make it
more difficult for the Fund to obtain accurate market quotations for purposes of
pricing the Fund's portfolio and calculating its net asset value. The market
behavior of convertible securities and preferred stocks in lower rating
categories is often more volatile than that of higher quality securities. Lower
quality convertible securities and preferred stocks are judged by Moody's and
S&P to have speculative elements or characteristics; their future cannot be
considered as well assured and earnings and asset protection may be moderate or
poor in comparison to investment grade securities. In addition, such lower
quality securities face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions, which could lead to inadequate
capacity to meet timely payments. A description of the ratings used by Moody's
and S&P for such securities is set forth in Appendix A to this Prospectus. See
also Special risk considerations--High-yield securities.
Foreign Securities
The Fund has the ability to purchase income generating equity securities and
debt securities in any foreign country. Investors should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations. These risks are in addition to the usual risks
inherent in domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes imposed with respect to investments in foreign nations,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability or diplomatic developments which
could affect investments in securities of issuers in those nations.
In addition, in many countries, there is substantially less publicly available
information about issuers than is available in reports about companies in the
United States. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to United States companies. Consequently,
financial data about foreign companies may not accurately reflect the real
condition of those issuers and securities markets.
Further, the Fund may encounter difficulty or be unable to pursue legal remedies
and obtain judgments in foreign courts. Commission rates on securities
transactions in foreign countries, which are sometimes fixed rather than subject
to negotiation as in the United States, are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets, and may be subject to administrative uncertainties. In
many foreign countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States, and capital requirements for brokerage firms are
generally lower. The foreign securities markets of many of the countries in
which the Fund may invest may also be smaller, less liquid and subject to
greater price volatility than those in the United States.
-13-
<PAGE>
Emerging Market Securities. The Fund may invest up to 5% of its assets in income
generating equity securities and debt securities of issuers located in emerging
market nations. Compared to the United States and other developed countries,
emerging countries may have volatile social conditions, relatively unstable
governments and political systems, economies based on only a few industries and
economic structures that are less diverse and mature, and securities markets
that trade a small number of securities, which can result in a low or
nonexistent volume of trading. Prices in these securities markets tend to be
volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries. Until recently, there has been an absence of a capital
market structure or market-oriented economy in certain emerging countries.
Further, investments and opportunities for investments by foreign investors are
subject to a variety of national policies and restrictions in many emerging
countries. Also, the repatriation of both investment income and capital from
several foreign countries is restricted and controlled under certain
regulations, including, in some cases, the need for certain governmental
consents. Countries such as those in which the Fund may invest may have
historically experienced and may continue to experience, substantial, and in
some periods extremely high rates of inflation for many years, high interest
rates, exchange rate fluctuations or currency depreciation, large amounts of
external debt, balance of payments and trade difficulties and extreme poverty
and unemployment. Other factors which may influence the ability or willingness
to service debt include, but are not limited to, a country's cash flow
situation, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of its debt service burden to the economy as a whole,
its government's policy towards the International Monetary Fund, the World Bank
and other international agencies and the political constraints to which a
government debtor may be subject. The manager currently considers countries such
as Argentina, Brazil, Chile, China, Mexico, India, Portugal, Poland and Thailand
to be emerging markets. This list is not intended to be exhaustive, but rather
representative of the types of countries now considered by the manager to
present special investment risks.
See other investment policies and risk considerations for a further description
of certain risks associated with certain of the Fund's investments, including
the risks associated with investments in foreign government securities and
engaging in foreign currency transactions and options.
-14-
<PAGE>
Who manages the Fund
Investment manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services For its services to the Fund, the manager was paid
0.07%, as a percentage of average daily net assets, after considering the effect
of the voluntary fee waiver.
Portfolio managers
Babak Zenouzi, Vice President/Senior Portfolio Manager of the Fund, oversees the
Fund's asset allocation strategy and has primary responsibility for making
day-to-day investment decisions for the Fund's investments in income generating
equity securities. Mr. Zenouzi has been a member of the Fund's management team
since its inception. He holds a BS in Finance and Economics from Babson College
in Wellesley, Massachusetts, and an MS in Finance from Boston College. Prior to
joining Delaware Investments in 1992, he was with The Boston Company where he
held the positions of assistant vice president, senior financial analyst,
financial analyst and portfolio accountant.
Gerald T. Nichols, Vice President/Senior Portfolio Manager, has primary
responsibility for making day-to-day investment decisions for the Fund regarding
its investments in debt securities. Mr. Nichols has been a member of the Fund's
management team since its inception. He is a graduate of the University of
Kansas, where he received a BS in Business Administration and an MS in Finance.
Prior to joining Delaware Investments, he was a high yield credit analyst at
Waddell & Reed, Inc. and subsequently the investment officer for a private
merchant banking firm. He is a CFA charterholder.
-15-
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
Board of Directors
<TABLE>
<CAPTION>
Investment manager The Fund Custodian
<S> <C> <C>
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page 15 for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
Financial advisers
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
-16-
<PAGE>
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
-17-
<PAGE>
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 5.75% that you
pay when you buy the shares. The offering price for Class A shares
includes the front-end sales charge.
o If you invest $50,000 or more, your front-end sales charge will be
reduced.
o You may qualify for other reduced sales charges, as described in "How
to reduce your sales charge," and under certain circumstances the sales
charge may be waived; please see the Statement of Additional
Information.
o Absent 12b-1 fee waivers, Class A shares are also subject to an annual
12b-1 fee no greater than 0.30% of average daily net assets, which is
lower than the 12b-1 fee for Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge.
-18-
<PAGE>
Class A Sales Charges
<TABLE>
<CAPTION>
------------------------------ ------------------- ---------------------- ------------------------------
<S> <C> <C> <C>
Amount of purchase Sales charge Sales charge as % of Dealer's commission as %
as % amount invested Of offering price
of offering price
------------------------------ ------------------- ---------------------- ------------------------------
Less than $50,000 5.75% 6.10% 5.00%
--------------------------------------------------------------------------------------------------------
$50,000 but 4.75% 5.02% 4.00%
Under $100,000
--------------------------------------------------------------------------------------------------------
$100,000 but 3.75% 3.94% 3.00%
Under $250,000
--------------------------------------------------------------------------------------------------------
$250,000 but 2.50% 2.56% 2.00%
Under $500,000
--------------------------------------------------------------------------------------------------------
$500,000 but 2.00% 2.07% 1.60%
Under $1 million
--------------------------------------------------------------------------------------------------------
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1
million or more of Class A shares. However, if your financial adviser
is paid a commission on your purchase, you may have to pay a limited
contingent deferred sales charge of 1% if you redeem these shares
within the first year and 0.50% if you redeem them within the second
year.
<TABLE>
<CAPTION>
------------------------------ ------------------- ---------------------- ------------------------------
Amount of purchase Sales charge as % Sales charge as % Dealer's commission as %
of offering price of amount invested of offering price
------------------------------ ------------------- ---------------------- ------------------------------
<S> <C> <C> <C>
$1,000,000 up to $5 million none none 1.00%
------------------------------ ------------------- --------------------- -------------------------------
Next $20 million none none 0.50%
up to $25 million
------------------------------ ------------------- --------------------- -------------------------------
Amount over $25 million none none 0.25%
------------------------------ ------------------- --------------------- -------------------------------
</TABLE>
-19-
<PAGE>
Class B
o Class B shares have no up-front sales charge, so the full amount of
your purchase is invested in the Fund. However, you will pay a
contingent deferred sales charge if you redeem your shares within six
years after you buy them.
o If you redeem Class B shares during the first year after you buy them,
the shares will be subject to a contingent deferred sales charge of 5%.
The contingent deferred sales charge is 4% during the second year, 3%
during the third and fourth years, 2% during the fifth year, 1% during
the sixth year, and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o For approximately eight years after you buy your Class B shares, absent
12b-1 fee waivers, they are subject to annual 12b-1 fees no greater
than 1% of average daily net assets, of which 0.25% are service fees
paid to the distributor, dealers or others for providing services and
maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses
and any dividends paid on these shares are lower than dividends on
Class A shares.
o Approximately eight years after you buy them, Class B shares
automatically convert into Class A shares with a 12b-1 fee of no more
than 0.30%, which is currently being waived. Conversion may occur as
late as three months after the eighth anniversary of purchase, during
which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
-20-
<PAGE>
Class C
o Class C shares have no up-front sales charge, so the full amount of
your purchase is invested in the Fund. However, you will pay a
contingent deferred sales charge if you redeem your shares within 12
months after you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o Absent 12b-1 fee waivers, Class C shares are subject to an annual 12b-1
fee which may not be greater than 1% of average daily net assets, of
which 0.25% are service fees paid to the distributor, dealers or others
for providing services and maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses
and pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at
any one time. The limitation on maximum purchases varies for retirement
plans.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
-21-
<PAGE>
About your account continued
How to reduce your sales charge We offer a number of ways to reduce or eliminate
the sales charge on shares. Please refer to the Statement of Additional
Information for detailed information and eligibility requirements. You can also
get additional information from your financial adviser. You or your financial
adviser must notify us at the time you purchase shares if you are eligible for
any of these programs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Program How it works Share class
A B C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of
agree to invest a certain Intent and Rights of
amount in Delaware Investment Accumulation do not apply
Funds (except money market to the purchase of Class
funds with no sales charge) B and C shares, you can
over a 13-month period to combine your purchase of
qualify for reduced front-end Class A shares with your
sales charges. purchase of B and C
- ------------------------------------------------------------------------------------------------ shares to fulfill your
Rights of Accumulation You can combine your holdings X Letter of Intent or
or purchases of all funds in qualify for Rights of
the Delaware Investments family Accumulation.
(except money market funds with
no sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
- ------------------------------------------------------------------------------------------------------------------------------
Reinvestment of redeemed shares Up to 12 months after you X Not available.
redeem shares, you can reinvest
the proceeds without paying a
front-end sales charge.
- ------------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA, SEP IRA, SARSEP, Prototype These investment plans may X Not available.
Profit Sharing, Pension, 401(k), SIMPLE qualify for reduced sales
401(k), 403(b)(7), and 457 Retirement charges by combining the
Plans purchases of all members of the
group. Members of these groups
may also qualify to purchase
shares without a front-end sales
charge and a waiver of any
contingent deferred sales
charges.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE>
How to buy shares
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service. For more information about how to sign up for this service, call our
Shareholder Service Center at 800.523.1918.
-23-
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can open an account with an initial
investment of $1,000--and make additional investments at any time for as little
as $100. If you are buying shares in an IRA or Roth IRA, under the Uniform Gifts
to Minors Act or the Uniform Transfers to Minors Act; or through an Automatic
Investing Plan, the minimum purchase is $250, and you can make additional
investments of only $25. The minimum for an Education IRA is $500. The minimums
vary for retirement plans other than IRAs, Roth IRAs or Education IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Fund may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in the Fund can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
-24-
<PAGE>
How to redeem shares
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service. For
more information about how to sign up for this service, call our Shareholder
Service Center at 800.523.1918.
-25-
<PAGE>
About your account (continued)
How to redeem shares (continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), you will receive the net asset value as determined on the
business day we receive your request. We will deduct any applicable contingent
deferred sales charges. You may also have to pay taxes on the proceeds from your
sale of shares. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares--not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $500 for Education IRAs) for three or
more consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at the
minimum by the required time, you will be charged a $9 fee for that quarter and
each quarter after that until your account reaches the minimum balance. If your
account does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
-26-
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as social security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred sales
charge as the shares you originally purchased. The holding period for the CDSC
will also remain the same, with the amount of time you held your original shares
being credited toward the holding period of your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of dividends. You
may have to pay taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to get a copy of the
fund's prospectus and read it carefully before buying shares through an
exchange.
Dividends, distributions and taxes
Dividends, if any, will be paid monthly. Capital gains, if any, will be paid
once a year. We automatically reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
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Other investment policies and risk considerations
U.S. government securities
U.S. Treasury securities are backed by the "full faith and credit" of the United
States. Securities issued or guaranteed by federal agencies and U.S. government
sponsored instrumentalities may or may not be backed by the full faith and
credit of the United States. In the case of securities not backed by the full
faith and credit of the United States, investors in such securities look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, the Federal Housing Administration, the Maritime
Administration, the Small Business Administration, and others. Certain agencies
and instrumentalities, such as the Government National Mortgage Association
("GNMA"), are, in effect, backed by the full faith and credit of the United
States through provisions in their charters that they may make "indefinite and
unlimited" drawings on the Treasury, if needed to service its debt. Debt from
certain other agencies and instrumentalities, including the Federal Home Loan
Bank and Federal National Mortgage Association, are not guaranteed by the United
States, but those institutions are protected by the discretionary authority for
the U.S. Treasury to purchase certain amounts of their securities to assist the
institutions in meeting their debt obligations. Finally, other agencies and
instrumentalities, such as the Farm Credit System, the Tennessee Valley
Authority and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under U.S. government supervision, but their debt
securities are backed only by the creditworthiness of those institutions, not
the U.S. government.
An instrumentality of a U.S. government agency is a government agency organized
under Federal charter with government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit
Banks and the Federal National Mortgage Association.
The maturities of such securities usually range from three months to thirty
years. While such securities are guaranteed as to principal and interest by the
U.S. government or its instrumentalities, their market values may fluctuate and
are not guaranteed, which may, along with the other securities in the Fund's
portfolio, cause a Class' daily net asset value to fluctuate.
Brady bonds
Among the foreign fixed-income securities in which the Fund may invest are Brady
Bonds. Brady Bonds are debt securities issued under the framework of the Brady
Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their outstanding
external indebtedness (generally commercial bank debt). Brady Bonds are not
direct or indirect obligations of the U.S. government or any of its agencies or
instrumentalities and are not guaranteed by the U.S. government or any of its
agencies or instrumentalities. In so restructuring its external debt, a debtor
nation negotiates with its existing bank lenders, as well as multilateral
institutions such as the World Bank and the International Monetary Fund, to
exchange its commercial bank debt for newly issued bonds (Brady Bonds). The
Manager believes that economic reforms undertaken by countries in connection
with the issuance of Brady Bonds make the debt of countries which have issued or
have announced plans to issue Brady Bonds an attractive opportunity for
investment. Investors, however, should recognize that the Brady Plan only sets
forth general guiding principles for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case basis between
debtor nations and their creditors. In addition, Brady Bonds have been issued
only recently and, accordingly, do not have a long payment history.
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<PAGE>
Foreign government securities
With respect to investment in debt issues of foreign governments, including
Brady Bonds, the ability of a foreign government or government-related issuer to
make timely and ultimate payments on its external debt obligations will also be
strongly influenced by the issuer's balance of payments, including export
performance, its access to international credits and investments, fluctuations
in interest rates and the extent of its foreign reserves. A country whose
exports are concentrated in a few commodities or whose economy depends on
certain strategic imports could be vulnerable to fluctuations in international
prices of these commodities or imports. If foreign government or
government-related issuers cannot generate sufficient earnings from foreign
trade to service its external debt, they may need to depend on continuing loans
and aid from foreign governments, commercial banks and multilateral
organizations, and inflows of foreign investment. The commitment on the part of
these foreign governments, multilateral organizations and others to make such
disbursements may be conditioned on the government's implementation of economic
reforms and/or economic performance and the timely service of its obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due may curtail the willingness of such
third parties to lend funds, which may further impair the issuer's ability or
willingness to service its debts in a timely manner. The cost of servicing
external debt generally will also be adversely affected by rising international
interest rates because many external debt obligations bear interest at rates
which are adjusted based upon international interest rates. The ability to
service external debt will also depend on the level of the relevant government's
international currency reserves and its access to foreign exchange. Currency
devaluations may affect the ability of a government issuer to obtain sufficient
foreign exchange to service its external debt. If a foreign governmental issuer
defaults on its obligations, the Fund may have limited legal recourse against
the issuer and/or guarantor.
Zero coupon bonds and pay-in-kind bonds
Although the Fund does not intend to purchase a substantial amount of zero
coupon bonds or PIK bonds, from time to time, the Fund may acquire zero coupon
bonds and, to a lesser extent, PIK bonds. Zero coupon bonds are debt obligations
which do not entitle the holder to any periodic payments of interest prior to
maturity or a specified date when the securities begin paying current interest,
and therefore are issued and traded at a discount from their face amounts or par
value. PIK bonds pay interest through the issuance to holders of additional
securities. Zero coupon bonds and PIK bonds are generally considered to be more
interest-sensitive than income bearing bonds, to be more speculative than
interest-bearing bonds, and to have certain tax consequences which could, under
certain circumstances, be adverse to the Fund. For example, with zero coupon
bonds, the Fund accrues, and is required to distribute to shareholders, income
on such bonds. However, the Fund may not receive the cash associated with this
income until the bonds are sold or mature. If the Fund did not have sufficient
cash to make the required distribution of accrued income, the Fund could be
required to sell other securities in its portfolio or to borrow to generate the
cash required.
Borrowings
The Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. The Fund will not borrow money in excess of one-third
of the value of its net assets. The Fund has no intention of increasing its net
income through borrowing. Any borrowing will be done from a bank and, to the
extent that such borrowing exceeds 5% of the value of the Fund's net assets,
asset coverage of at least 300% is required. In the event that such asset
coverage shall at any time fall below 300%, the Fund shall, within three days
thereafter (not including Sundays or holidays, or such longer period as the
Securities and Exchange Commission may prescribe by rules and regulations),
reduce the amount of its borrowings to such an extent that the asset coverage of
such borrowings shall be at least 300%. The Fund will not pledge more than 10%
of its net assets, or issue senior securities as defined in the 1940 Act, except
for notes to banks. Investment securities will normally not be purchased while
the Fund has an outstanding borrowing.
When-issued and delayed delivery securities
The Fund may purchase securities on a when-issued or delayed delivery basis. In
such transactions, instruments are purchased with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
yield or price at the time of the transaction. Delivery of and payment for
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<PAGE>
these securities may take as long as a month or more after the date of the
purchase commitment. The Fund will maintain with its custodian bank a separate
account with a segregated portfolio of liquid securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the Fund enters into the commitment
and no interest accrues to the Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.
Portfolio loan transactions
The Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors.
The major risk to which the Fund would be exposed on a loan transaction is the
risk that the borrower would become bankrupt at a time when the value of the
security goes up. Therefore, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, subject to overall
supervision by 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.
Rule 144A securities
The Fund may invest in restricted securities, including privately placed
securities, some of which may be eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933.
Rule 144A permits many privately placed and legally restricted securities to be
freely traded among certain institutional buyers such as the Fund. The Fund may
invest no more than 15% of the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Directors has delegated to the Manager
the day-to-day function of determining whether or not individual Rule 144A
Securities are liquid for purposes of the Fund's 15% limitation on investments
in illiquid securities. The Board has instructed the Manager to consider the
following factors in determining the liquidity of a Rule 144A Security:
o the frequency of trades and trading volume for the security
o whether at least three dealers are willing to purchase or sell the
security and the number of potential purchasers
o whether at least two dealers are making a market in the security
o the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer)
If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 15% limit on investments in
such securities, the Manager will determine what action to take to ensure that
the Fund continues to adhere to such limitation.
Investment company securities
Any investments that the Fund makes in either closed-end or open-end investment
companies will be limited by the 1940 Act, and would involve an indirect payment
of a portion of the expenses, including advisory fees, of such other investment
companies. Under the 1940 Act's current limitations, the Fund may not
o own more than 3% of the voting stock of another investment company
o invest more than 5% of the Fund's total assets in the shares of any one
investment company
o invest more than 10% of the Fund's total assets in shares of other
investment companies.
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<PAGE>
If the Fund elects to limit its investment in other investment companies to
closed-end investment companies, the 3% limitation described above is increased
to 10%. These percentage limitations also apply to the Fund's investments in
unregistered investment companies.
Repurchase agreements
In order to invest its short-term cash reserves or when in a temporary defensive
posture, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e. the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of the Fund's assets may
be invested in repurchase agreements of over seven-days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss to the Fund, if any, would be the difference
between the repurchase price and the market value of the security. The Fund will
limit its investments in repurchase agreements to those which the Manager under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
Foreign currency transactions
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund will, however, from time to time, purchase or sell foreign
currencies and/or engage in forward foreign currency transactions in order to
expedite settlement of portfolio transactions and to minimize currency value
fluctuations. The Fund may conduct its foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into contracts to purchase or sell foreign
currencies at a future date (i.e., a "forward foreign currency" contract or
"forward" contract). A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract, agreed upon by the parties, at a price set at the
time of the contract. The Fund will convert currency on a spot basis from time
to time, and investors should be aware of the costs of currency conversion.
The Fund may enter into forward contracts to "lock in" the price of a security
it has agreed to purchase or sell, in terms of U.S. dollars or other currencies
in which the transaction will be consummated. By entering into a forward
contract for the purchase or sale, for a fixed amount of U.S. dollars or foreign
currency, of the amount of foreign currency involved in the underlying security
transaction, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in currency exchange rates during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
When the Manager believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency, the
Fund may enter into a forward foreign currency contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, the amount of foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency.
The Fund will not enter into forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
At the maturity of a forward contract, the Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions. With respect to forward foreign currency contracts, the precise
matching of forward contract amounts and the value of the securities involved is
generally not possible since the future value of such
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<PAGE>
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
strategy is highly uncertain.
It is impossible to forecast the market value of Fund securities at the
expiration of the contract. Accordingly, it may be necessary for the Fund to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of a security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
Options
The Manager may employ options techniques in an attempt to protect appreciation
attained and to increase shareholder return by seeking to take advantage of the
liquidity available in the options market. The Fund may purchase call options on
foreign or U.S. securities and indices and enter into related closing
transactions and the Fund may write covered call options on such securities. The
Fund may also purchase put options on such securities and indices and enter into
related closing transactions.
A call option enables the purchaser, in return for the premium paid, to purchase
securities from the writer of the option at an agreed price up to an agreed
date. A covered call option obligates the writer, in return for the premium
received, to sell the securities subject to the option to the purchaser of the
option for an agreed upon price up to an agreed date. The advantage is that the
purchaser may hedge against an increase in the price of securities it ultimately
wishes to buy or take advantage of a rise in a particular index. The Fund will
only purchase call options to the extent that premiums paid on all outstanding
call options do not exceed 2% of its total assets. The Fund may write covered
call options in an amount not to exceed 10% of its total assets.
A put option enables the purchaser of the option, in return for the premium
paid, to sell the security underlying the option to the writer at the exercise
price during the option period, and the writer of the option has the obligation
to purchase the security from the purchaser of the option. The Fund will only
purchase put options to the extent that the premiums on all outstanding put
options do not exceed 2% of its total assets. The advantage is that the
purchaser can be protected should the market value of the security decline or
should a particular index decline.
An option on a securities index gives the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option.
Closing transactions essentially let the Fund offset put options or call options
prior to exercise or expiration. If the Fund cannot effect closing transactions,
it may have to hold a security it would otherwise sell or deliver a security it
might want to hold.
In purchasing put and call options, the premium paid by the Fund plus any
transaction costs will reduce any benefit realized by the Fund upon exercise of
the option. With respect to writing covered call options, the Fund may lose the
potential market appreciation of the securities subject to the option, if the
Manager's judgment is wrong and the price of the security moves in the opposite
direction from what was anticipated.
The Fund may use both Exchange-traded and over-the-counter options. Certain
over-the-counter options may be illiquid. The Fund will only invest in such
options to the extent consistent with its 15% limitation on investment in
illiquid securities. The Fund will comply with Securities and Exchange
Commission asset segregation and coverage requirements when engaging in these
types of transactions.
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<PAGE>
Futures
Futures contracts are agreements for the purchase or sale for future delivery of
securities. When a futures contract is sold, the Fund incurs a contractual
obligation to deliver the securities underlying the contract at a specified
price on a specified date during a specified future month. A purchase of a
futures contract means the acquisition of a contractual right to obtain delivery
to the Fund of the securities called for by the contract at a specified price
during a specified future month.
While futures contracts provide for the delivery of securities, deliveries
usually do not occur. Contracts are generally terminated by entering into an
offsetting transaction. When the Fund enters into a futures transaction, it must
deliver to the futures commission merchant selected by the Fund an amount
referred to as "initial margin." This amount is maintained by the futures
commission merchant in a segregated account. Thereafter, a "variation margin"
may be paid by the Fund to, or drawn by the Fund from, such account in
accordance with controls set for such account, depending upon changes in the
price of the underlying securities subject to the futures contract.
The Fund may also purchase and write options to buy or sell futures contracts.
Options on futures are similar to options on securities except that options on
futures give the purchaser the right, in return for the premium paid, to assume
a position in a futures contract, rather than actually to purchase or sell the
futures contract, at a specified exercise price at any time during the period of
the option.
The purpose of the purchase or sale of futures contracts with respect to a
certain security is to protect the Fund against the adverse effects of
fluctuations in interest rates without actually buying or selling that security.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
securities at higher prices.
Foreign currency futures contracts operate similarly to futures contracts
related to securities. When the Fund sells a futures contract on a foreign
currency it is obligated to deliver that foreign currency at a specified future
date. Similarly, a purchase by the Fund gives it a contractual right to receive
a foreign currency. This enables the Fund to "lock-in" exchange rates.
The Fund's designation as an open-end investment company and as a diversified
fund may not be changed unless authorized by the vote of a majority of the
Fund's outstanding voting securities. A "majority vote of the outstanding voting
securities" is the vote by the holders of the lesser of a) 67% or more of the
Fund's voting securities present in person or represented by proxy if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy; or b) more than 50% of the outstanding voting
securities. Statement of Additional Information lists other more specific
investment restrictions of the Fund which may not be changed without a majority
shareholder vote.
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Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The portfolio managers and
investment professionals of the Fund consider Year 2000 compliance in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
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Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800-523-1918.
Financial highlights are not shown for Class B and Class C shares because these
shares were not operating as of the close of the fiscal year.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Class A Shares
-------------------------
Year Period
Ended 12/2/96(1)
11/30 through
Retirement Income Fund 1998 11/30/97
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $11.700 $8.500
Income from investment operations
Net investment income(2) 0.632 0.558
Net realized and unrealized gain (loss) on investments (0.402) 2.685
------- -------
Total from investment operations 0.230 3.243
------- -------
Less dividends and distributions
Dividends from net investment income (0.570) (0.043)
Distributions from net realized gain on investments (1.200) none
------- -------
Total dividends and distributions (1.770) (0.043)
------- -------
Net asset value, end of period $10.160 $11.700
======= =======
Total return(3) 2.22% 38.31%
Ratios and supplemental data
Net assets, end of period (000 omitted) $ 23 $ 9
Ratio of expenses to average net assets 0.75% 0.75%
Ratio of expenses to average net assets
prior to expense limitation 1.62% 2.18%
Ratio of net investment income to average net assets 6.01% 5.48%
Ratio of net investment income to average net assets
prior to expense limitation 5.14% 4.05%
Portfolio turnover 91% 196%
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of trading; ratios have been annualized but total
return has not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. Total return
reflects the expense limitations in effect for the Fund.
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<PAGE>
How to read the financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain occurs when we sell an investment at a profit, while a realized
loss occurs when we sell an investments at a loss. When an investment increases
or decreases in value but we do not sell it, we record an unrealized gain or
loss. The amount of realized gain per share that we pay to shareholders is
listed under "Less dividends and distributions-Distributions from net realized
gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers, exclude front-end and contingent
deferred sales charges, and assume the shareholder has reinvested all dividends
and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
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How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
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Corporate bond
A debt security issued by a corporation. See bond.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Duration
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
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<PAGE>
Nationally recognized statistical rating organization (NRSRO)
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
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<PAGE>
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
-40-
<PAGE>
APPENDIX A--RATINGS
Bonds and convertible securities
Excerpts from Moody's description of its 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; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its 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; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
Excerpts from Fitch's description of its bond ratings:
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events;
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+; A--Bonds considered to
be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings; BBB--Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings; BB--Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements; B--Bonds
are considered highly speculative. While bonds in this class are currently
meeting debt service requirements, the probability of continued timely payment
of principal and interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity throughout the life of
the issue; CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment; CC--Bonds are minimally
protected. Default in payment of interest and/or principal seems probable over
time; C--Bonds are in imminent default in payment of interest or principal; and
DDD, DD and D--Bonds are in default on interest and/or principal payments. Such
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<PAGE>
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the "AAA" category.
Commercial Paper
Excerpts from Moody's description of its two highest commercial paper ratings:
P-1--the highest grade possessing greatest relative strength; P-2--second
highest grade possessing less relative strength than the highest grade.
Excerpts from S&P's description of its two highest commercial paper ratings:
A-1--judged to be the highest investment grade category possessing the highest
relative strength; A-2--investment grade category possessing less relative
strength than the highest rating.
Preferred Stock
The following are excerpts from S&P's description of its preferred stock
ratings:
An S&P preferred stock rating is an assessment of the capacity and willingness
of an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the debt rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
AAA This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a
high-quality fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the "A"
category.
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<PAGE>
BB, B, Preferred stocks rated "BB," "B" and "CCC" are regarded, on
CCC balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely
have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the
issuer in default on debt instruments.
NR indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligations as a matter of policy.
Plus (+) or Minus (-) To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
The following are excerpts from Moody's description of its preferred
stock ratings:
"aaa" An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within
the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well-maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are judged to
be somewhat greater than in the "aaa" and "aa" classification,
earnings and asset protection are, nevertheless, expected to
be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a
medium-grade preferred stock, neither high protected nor
poorly secured. Earnings and asset protection appear adequate
at present but may be questionable over any great length of
time.
"ba" An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured.
Earnings and asset protection may be very moderate and not
well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
"b" An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue
over any long period of time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on
dividends payments. This rating designation does not purport
to indicate the future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payments.
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<PAGE>
"c" This is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
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<PAGE>
Retirement Income Fund
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA 19103,
or call toll-free 800.523.1918. You may also obtain additional information about
the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
- ---------------------
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m. Eastern
time:
o For fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions
and telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R) service.
Investment Company Act file number: 811-4997
Class A CUSIP Number: 24610B107
DELAWARE
INVESTMENTS
Philadelphia * London
P-002 [--] PP 3/99
<PAGE>
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Retirement Income Fund
Institutional Class
Prospectus
March 30, 1999
Total Return Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
[inside front cover]
Table of Contents
Fund profile page
Retirement Income Fund
How we manage the Fund page
Our investment strategies
The securities we invest in
The risks of investing in the Fund
Who manages the Fund page
Investment manager
Portfolio managers
Fund administration (Who's who)
About your account page
Investing in the Fund
How to buy shares
How to redeem shares
Account minimum
Exchanges
Dividends, distributions and taxes
Other investment policies
and risk considerations page
Certain management considerations
Financial highlights page
Glossary
Appendix A-Ratings
<PAGE>
Profile: Retirement Income Fund
What are the Fund's goals?
Retirement Income Fund seeks to provide the high current income and an
investment that has the potential for capital appreciation. Although the Fund
will strive to achieve its goals, there is no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in income generating securities of large, well-established
companies and in debt securities including high yield, high risk corporate
bonds, investment grade fixed income securities and U.S. government securities.
Retirement Income Fund may invest up to 45% of its net assets in high-yield,
higher risk corporate bonds, commonly known as junk bonds. These bonds involve
the risk that the issuing company may be unable to pay interest or repay
principal. However, they can offer high income potential which we believe can
make a positive contribution to the Fund's performance.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Fund shares will increase and
decrease according to changes in the value of the Fund's investments. This Fund
will be affected by declines in stock and high-yield bond prices, which could be
caused by a drop in the stock market, economic recession or poor performance
from particular companies or sectors. For a more complete discussion of risk,
please turn to page 8.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors with long-term financial goals.
o Investors looking for growth potential combined with regular income.
o Investors looking for supplemental monthly income from an investment
that also offers possible protection against inflation.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors seeking an investment primarily in fixed income securities.
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<PAGE>
How has Retirement Income Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how returns for the Fund's Institutional Class shares have varied
over the past two calendar years, as well as the average annual returns of these
shares for the past year and since inception. The Fund's past performance is not
necessarily an indication of how it will perform in the future. The returns
reflect voluntary expense caps. The returns would be lower without the voluntary
caps.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (INSTITUTIONAL CLASS)]
Total return (Institutional Class)
Retirement Income Fund
Institutional Class
1998 2.14%
1997 33.86%
The Institutional Class had a -1.65% year-to-date return as of February 28,
1999. During the periods illustrated in this bar chart, the Institutional Class'
highest return was 12.94% for the quarter ended September 30, 1997 and its
lowest return was -9.48% for the quarter ended September 30, 1998.
Average annual return as of 12/31/98
Institutional S&P 500
Class
1 year 2.14% 28.60%
Since inception 19.08% 30.95%
(12/2/96)
The Fund's returns are compared to the performance of the S&P 500 Index. You
should remember that unlike the Fund, the index is unmanaged and doesn't include
the costs of operating a mutual fund, such as the costs of buying, selling and
holding the securities.
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<PAGE>
What are Retirement Income Fund's fees and expenses?
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
----------------------------------------------------------------
Maximum sales charge (load) imposed on purchases as none
a percentage of offering price
----------------------------------------------------------------
Maximum contingent deferred sales charge none
(load) as a percentage of original purchase
price or redemption price, whichever is lower
----------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested none
dividends
----------------------------------------------------------------
Redemption fees none
----------------------------------------------------------------
Exchange Fees(1) none
----------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
-----------------------------------------------------------------
Management fees 0.65%
-----------------------------------------------------------------
Distribution and service (12b-1) fees none
-----------------------------------------------------------------
Other expenses 0.67%
-----------------------------------------------------------------
Total operating expenses(2) 1.32%
-----------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(3) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
---------------------------
1 year $134
---------------------------
3 years $418
---------------------------
5 years $723
---------------------------
10 years $1,590
---------------------------
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange
your shares into a fund that has a front-end sales charge.
(2) The investment manager has agreed to waive fees and pay expenses from
the commencement of the Fund's operations through May 31, 1999, in
order to prevent total operating expenses (excluding any taxes,
interest, brokerage fees and extraordinary expenses) from exceeding
0.75% of average daily net assets.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods
we show. This example does not reflect the voluntary expense cap
described in footnote 2.
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<PAGE>
How we manage the Fund
Our investment strategies
We research individual companies and analyze economic and market conditions,
seeking to identify the securities or market sectors that we think are the best
investments for Retirement Income Fund. Following is a description of how the
portfolio manager pursues the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
The investment objective of the Fund is to seek to provide investors with high
current income and an investment that has the potential for capital
appreciation. Although the Fund will constantly strive to attain its investment
objective, there can be no assurance that it will be attained.
The manager will seek to achieve the Fund's investment objective by investing in
a combination of income generating equity securities and debt securities
including, but not limited to, dividend paying common stocks, securities of real
estate investment trusts, preferred stocks, warrants, rights, convertible
securities, non-convertible debt securities, high-yield, high risk securities,
investment grade fixed-income securities, U.S. government securities and foreign
equity and fixed-income securities. Under normal circumstances, at least 50% of
the Fund's total assets will be invested in income generating equity securities.
In making investments in income generating equity securities, the Fund may
invest an unrestricted portion of its total assets in convertible securities and
preferred stock rated below investment grade. While debt securities may comprise
up to 50% of the Fund's total assets, no more than 45% of the Fund's total
assets will be invested in high-yield, high risk debt securities. No more than
25% of the Fund's total assets will be invested in any one industry sector nor,
as to 75% of the Fund's total assets, will more than 5% be invested in
securities of any one issuer. The Fund may invest up to 20% of its total assets
in foreign equity and debt securities. The Fund will not, however, invest more
than 5% of its total assets in securities of issuers principally located or
principally operating in markets of emerging countries.
Within the percentage guidelines noted above, the manager will determine the
proportion of the Fund's assets that will be allocated to income generating
equity securities and equity equivalents and to debt securities, based on its
analysis of economic and market conditions and its assessment of the income and
potential for appreciation that can be achieved from investment in such asset
classes. It is expected that the proportion of the Fund's total assets invested
in income generating equity securities and equity equivalent securities will
vary from 50% to 100% of the Fund's total assets. The proportion of the Fund's
total assets in debt securities will correspondingly vary from 0% to 50% of the
Fund's total assets.
Portfolio turnover
The Fund anticipates that its annual portfolio turnover will be less than 100%.
A turnover rate of 100% would occur if a Fund sold and replaced securities
valued at 100% of its net assets within one year.
-4-
<PAGE>
The securities we invest in
The following is a more detailed description of some of the securities in which
the Fund may invest.
Common stock
Common stock is generally considered to be shares of a corporation that entitle
the holder to a pro-rata share of the profits of the corporation, if any,
without a preference over any other shareholder or class of shareholders,
including holders of the corporation's preferred stock and other senior equity.
Common stock usually carries with it the right to vote and frequently an
exclusive right to do so. Holders of common stock also have the right to
participate in the remaining assets of the corporation after all other claims
are paid, including those of debt securities and preferred stock. In selecting
common stocks for investment, the manager will focus primarily on a security's
dividend-paying capacity rather than on its potential for appreciation.
Preferred stock
Generally, preferred stock receives dividends prior to distributions on common
stock and usually has a priority of claim over common stockholders if the issuer
of the stock is liquidated. Unlike common stock, preferred stock does not
usually have voting rights; preferred stock, in some instances, is convertible
into common stock. Dividends on typical preferred stock are cumulative, causing
dividends to accrue even if not declared by the board of directors. There is,
however, no assurance that dividends will be declared by the boards of directors
of issuers of the preferred stocks in which the Fund invests. Preferred stock in
which the Fund may invest may be rated below investment grade (i.e., "Ba" or
lower by Moody's Investors Service, Inc. or "BB" or lower by Standard & Poor's
Ratings Group or similarly rated by other comparable rating agencies) or, if
unrated, determined to be of comparable quality by the manager.
Convertible securities
Traditional convertible securities include corporate bonds, notes and preferred
stocks that may be converted into or exchanged for common stock, and other
securities that also provide an opportunity for equity participation. These
securities are generally convertible either at a stated price or a stated rate
(that is, for a specific number of shares of common stock or other security). As
with other fixed-income securities, the price of a convertible security to some
extent varies inversely with interest rates. While providing a fixed-income
stream (generally higher in yield than the income derivable from a common stock
but lower than that afforded by a non-convertible debt security), a convertible
security also affords the investor an opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible. As the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis and
so may not experience market value declines to the same extent as the underlying
common stock. When the market price of the underlying common stock increases,
the price of a convertible security tends to rise as a reflection of the value
of the underlying common stock. To obtain such a higher yield, the Fund may be
required to pay for a convertible security an amount in excess of the value of
the underlying common stock. Common stock acquired by the Fund upon conversion
of a convertible security will generally be held for so long as the manager
anticipates such stock will provide the Fund with opportunities which are
consistent with the Fund's investment objectives and policies. Convertible
securities in which the Fund may invest may be rated below investment grade
(i.e., "Ba" or lower by Moody's or "BB" or lower by S&P or similarly rated by
other comparable rating agencies) or, if unrated, determined to be of comparable
quality by the manager.
Real estate investment trust securities
Real Estate Investment Trusts ("REITs") are pooled investment vehicles that
invest primarily in income-producing real estate or real estate related loans or
interests. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Like investment companies such as the Fund, REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code (the "Code"). REITs are subject to
substantial cash flow dependency, defaults by borrowers, self-liquidation, and
the risk of failing to qualify for tax-free pass-through of income under the
Code, and/or maintain exemptions from the 1940 Act. Equity REITs may be affected
by changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of any credit extended.
-5-
<PAGE>
REITs invest all of their assets in the real estate and real estate related
sectors of the economy, and are subject to the risks of financing projects.
REITs may have limited financial resources, may trade less frequently and in a
limited volume, and are more volatile than the high-yield, high risk securities
in which the Fund may also invest.
High-yield, high risk securities
Debt securities
High-yield, high risk debt securities, like all debt securities, represent money
borrowed that must be repaid and has a fixed amount, a specific maturity or
maturities and usually a specific rate of interest or original purchase
discount. Unlike common and preferred stock, debt securities, including
high-yield, high risk debt securities, do not represent an equity interest in
the issuer. However, debt securities have a priority claim over stockholders if
the issuer is liquidated. The Fund may invest in a wide variety of debt
securities, although it is anticipated that under normal market conditions, the
Fund primarily will invest in high-yield corporate debt obligations, including
zero coupon bonds and pay-in-kind securities ("PIKs"), debentures, convertible
debentures, corporate notes (including convertible notes) and units consisting
of bonds with stock or warrants to buy stock attached. See Zero coupon bonds and
Pay-in-kind bonds under Other investment policies and risk considerations. The
Fund will invest in both rated and unrated bonds. The rated bonds that the Fund
may purchase in this sector of its portfolio will be rated BBB or lower by S&P
or Fitch Investors Service, Inc., Baa or lower by Moody's, or similarly rated by
another nationally recognized statistical rating organization. See Appendix A to
this Prospectus for more rating information and High-yield securities under
Special risk considerations for a description of the risks associated with
investing in lower-rated fixed-income securities. Unrated bonds may be more
speculative in nature than rated bonds.
Foreign securities
The Fund may invest up to 20% of its total assets in securities of issuers
organized or having a majority of their assets or deriving a majority of their
operating income in foreign countries. These income generating equity securities
and debt securities include foreign government securities, equity securities and
debt obligations of foreign companies, and securities issued by supranational
entities. A supranational entity is an entity established or financially
supported by the national governments of one or more countries to promote
reconstruction or development. Examples of supranational entities include, among
others, the International Bank for Reconstruction and Development (more commonly
known as the World Bank), the European Economic Community, the European Coal and
Steel Community, the European Investment Bank, the Inter-Development Bank, the
Export-Import Bank and the Asian Development Bank.
The Fund may invest in sponsored and unsponsored American Depositary Receipts,
European Depositary Receipts, or Global Depositary Receipts ("Depositary
Receipts"). Depositary Receipts are receipts typically issued by a bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. "Sponsored" Depositary Receipts are issued jointly by the issuer of
the underlying security and a depository, and "unsponsored" Depositary Receipts
are issued without the participation of the issuer of the deposited security.
The Fund may also invest in Brady Bonds, which are described more fully under
the Other Investment policies and risk considerations section of this
Prospectus.
The Fund may invest in securities issued in any currency and may hold foreign
currencies. Securities of issuers within a given country may be denominated in
the currency of another country or in multinational currency units, such as the
European Currency Unit. The Fund may, from time to time, purchase or sell
foreign currencies and/or engage in forward foreign currency transactions in
order to expedite settlement of Fund transactions and to minimize currency value
fluctuations. See Other investment policies and risk considerations for a
further description of the Fund's foreign currency transactions.
-6-
<PAGE>
While the Fund may purchase securities of issuers in any foreign country,
developed and underdeveloped, no more than 5% of the Fund's assets may be
invested in direct obligations or equity securities of issuers located in
emerging market countries. See Emerging market securities under Special risk
considerations.
The Fund will invest in both rated and unrated foreign securities. The rated
securities that the Fund may purchase in the international sector of its
portfolio may include those rated BBB or lower by S&P or Fitch, Baa or lower by
Moody's, or similarly rated by another nationally reorganized statistical rating
organization. See Appendix A to this Prospectus for more rating information and
Foreign securities and High-yield securities under Special risk considerations
for a description of the risks associated with investing in foreign securities
and lower-rated securities.
The Fund may also invest in zero coupon bonds, purchase shares of other
investment companies and may engage in short sales. See zero coupon bonds and
Pay-in-kind bonds and Investment company securities under Other investment
polices and risk considerations.
In unusual market conditions, in order to meet redemption requests, for
temporary defensive purposes, and pending investment or at such other times when
suitable income generating equity or debt securities are not available, the Fund
may hold a substantial portion of its assets in (1) cash, (2) debt securities
issued by the U.S. government, its agencies or instrumentalities, (3) commercial
paper, (4) certificates of deposit and bankers' acceptances or repurchase
agreements with respect to any of the foregoing investments. The Fund will only
invest in commercial paper of companies rated "A-2" or better by S&P or "P-2" or
better by Moody's or similarly rated by another comparable rating agency or, if
not so rated, of equivalent investment quality as determined by the manager. See
Appendix A to this Prospectus for more rating information.
See Other investment policies and risk considerations for a description of the
Fund's other investment policies and for a further description of some of the
policies described above.
The remaining investment policies of the Fund not identified above or in
Statement of Additional Information are not fundamental and may be changed by
the Fund's Board of Directors without a shareholder vote.
-7-
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Retirement Income
Fund, you should consider an investment in it to be a long-term investment that
typically provides the best results when held for a number of years. The
following are the chief risks you assume when investing in the Fund. Please see
the Statement of Additional Information for further discussion of these risks
and the other risks not discussed here.
<TABLE>
<CAPTION>
Risks How we strive to manage them
- ------------------------------------------------- --------------------------------------------------------------------------------
Retirement Income Fund
- ------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Market risk is the risk that all or a majority We invest in several different asset classes including both equity and fixed
of the securities in a certain market -- like income, which tend to increase and decline in different economic and
the stock or bond market -- will decline in investment conditions. We also maintain a long-term investment approach and
value because of factors such as economic focus on securities, which we believe can perform well over an extended time
conditions, future expectations or investor frame regardless of interim market fluctuations.
confidence.
- ------------------------------------------------- --------------------------------------------------------------------------------
Industry and security risk is the risk that the We limit the amount of the Fund's assets invested in any one industry and in
value of securities in a particular industry or any individual security or issuer. We also follow a rigorous selection
the value of an individual stock or bond will process when choosing securities for the portfolio.
decline because of changing expectations for
the performance of that industry or for the
individual company issuing the stock or bond.
- ------------------------------------------------- --------------------------------------------------------------------------------
Interest rate risk is the risk that securities We do not try to increase return by predicting and aggressively capitalizing
will decrease in value if interest rates rise. on interest rate moves. We monitor economic conditions and make adjustments as
The risk is greater for bonds with longer necessary to guard against undue risk from interest rate changes.
maturities than for those with shorter
maturities.
- ------------------------------------------------- --------------------------------------------------------------------------------
Credit Risk is the possibility that a bond's We carefully evaluate the financial situation of each entity whose bonds are
issuer (or an entity that insures the bond) held in the portfolio. We also hold a relatively large number of different
will be unable to make timely payments of bonds to minimize the risk should any individual issuer be unable to pay its
interest and principal. interest or repay principal.
- ------------------------------------------------- --------------------------------------------------------------------------------
Real Estate Risk is the risk that real estate We may invest a substantial portion of the portfolio in real estate investment
investment trusts held in the portfolio will be trusts, which generally offer high income potential. We carefully select
affected by declines in the value of real REITs based on the quality of their management and their ability to generate
estate, unfavorable national or regional substantial cashflow, which we believe can help to shield them from some of
economic conditions, lack of mortgage the risks involved with real estate investing.
availability, overbuilding, declining rents and
changes in interest rates.
- ------------------------------------------------- --------------------------------------------------------------------------------
Foreign risk is the risk that foreign We typically invest not more than 20% of the Fund's portfolio in foreign
securities may be adversely affected by corporations often through American Depositary Receipts. ADRs are generally
political instability, changes in currency denominated in U.S. dollars and traded on a U.S. exchange. To the extent we
exchange rates, foreign economic conditions or invest in foreign securities, we invest primarily in issuers of developed
inadequate regulatory and accounting standards. countries, which are less likely to encounter these foreign risks than issuers
in developing countries. The Fund may use hedging techniques to help offset
potential foreign currency losses.
- ------------------------------------------------- --------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, if at all,
at approximately the price that the Fund values
them.
- ------------------------------------------------- --------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
SPECIAL RISK CONSIDERATIONS
Generally
The Fund may invest a substantial portion of its assets in fixed-income
securities. The market values of fixed-income securities generally fall when
interest rates rise and, conversely, rise when interest rates fall. Lower-rated
and unrated fixed-income securities tend to reflect short-term corporate and
market developments to a greater extent than higher-rated fixed-income
securities, which react primarily to fluctuations in the general level of
interest rates. These lower-rated or unrated securities generally have higher
yields, but, as a result of factors such as reduced creditworthiness of issuers,
increased risk of default and a more limited and less liquid secondary market,
are subject to greater volatility and risk of loss of income and principal than
are higher-rated securities. The manager will attempt to reduce such risk
through portfolio diversification, credit analysis, and attention to trends in
the economy, industries and financial markets.
High-yield securities
The Fund may invest up to 45% of its total assets in bonds rated BBB or lower by
S&P or Fitch, Baa or lower by Moody's, or similarly rated by another rating
organization, and in unrated corporate bonds. See Appendix A to this Prospectus
for more rating information. Investing in these so-called "junk" or "high-yield"
bonds entails certain risks, including the risk of loss of principal and default
on interest payments, which may be greater than the risks involved in investment
grade bonds, and which should be considered by investors contemplating an
investment in the Fund. Such bonds are sometimes issued by companies whose
earnings at the time of issuance are less than the projected debt service on the
junk bonds. In addition to the considerations discussed elsewhere in this
Prospectus, those risks include the following:
Youth and volatility of the high-yield market. Although the market for
high-yield bonds has been in existence for many years, including periods of
economic downturns, the high-yield market grew rapidly during the long economic
expansion which took place in the United States during the 1980s. During that
economic expansion, the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings increased dramatically. As a
result, the high-yield market grew substantially during that economic expansion.
Although experts disagree on the impact recessionary periods have had and will
have on the high-yield market, some analysts believe a protracted economic
downturn would severely disrupt the market for high-yield bonds, would adversely
affect the value of outstanding bonds and would adversely affect the ability of
high-yield issuers to repay principal and interest. Those analysts cite
volatility experienced in the high-yield market in the past as evidence for
their position. It is likely that protracted periods of economic uncertainty
would result in increased volatility in the market prices of high-yield bonds,
an increase in the number of high-yield bond defaults and corresponding
volatility in a Class' net asset value.
Redemptions. If, as a result of volatility in the high-yield market or other
factors, the Fund experiences substantial net redemptions of the Fund's shares
for a sustained period of time (i.e., more shares of the Fund are redeemed than
are purchased), the Fund may be required to sell certain of its high-yield
securities without regard to the investment merits of the securities to be sold.
If the Fund sells a substantial number of securities to generate proceeds for
redemptions, the asset base of the Fund will decrease and the Fund's expense
ratios may increase.
Liquidity and valuation. The secondary market for high-yield securities is
currently dominated by institutional investors, including mutual funds, and
certain financial institutions. There is generally no established retail
secondary market for high-yield securities. As a result, the secondary market
for high-yield securities is more limited and less liquid than other secondary
securities markets. The high-yield secondary market is particularly susceptible
to liquidity problems when the institutions that dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the savings and
loan crisis. A less liquid secondary market may have an adverse effect on the
Fund's ability to dispose of particular issues, when necessary, to meet the
-9-
<PAGE>
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. In addition, a less liquid
secondary market makes it more difficult for the Fund to obtain precise
valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. The secondary market for
high-yield securities is also generally considered to be more likely to be
disrupted by adverse publicity and investor perceptions than the more
established secondary securities markets. The privately placed high-yield
securities that the Fund may purchase are particularly susceptible to the
liquidity and valuation risks outlined above.
Lower rated convertible securities and preferred stock
The Fund may invest in lower rated convertible securities and preferred stock
(i.e., "Ba" or lower for convertible securities or "ba" or lower for preferred
stock by Moody's or "BB" or lower for convertible securities or preferred stock
by S&P or similarly rated by other comparable rating agencies) or, if unrated,
determined to be of comparable quality by the manager. Investing in lower rated
convertible securities and preferred stock entails certain risks, including the
risk of loss of principal which may be greater than the risks involved in
investing in higher rated securities, and which should be considered by
investors contemplating an investment in the Fund. The Fund may have difficulty
disposing of such securities because the trading market for such securities may
be thinner than the market for higher rated convertible securities and preferred
stock. To the extent a secondary trading market for these securities does exist,
it generally is not as liquid as the secondary trading market for higher rated
securities. The lack of a liquid secondary market as well as adverse publicity
with respect to these securities, may have an adverse impact on market price and
the Fund's ability to dispose of particular issues in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain securities also may make it
more difficult for the Fund to obtain accurate market quotations for purposes of
pricing the Fund's portfolio and calculating its net asset value. The market
behavior of convertible securities and preferred stocks in lower rating
categories is often more volatile than that of higher quality securities. Lower
quality convertible securities and preferred stocks are judged by Moody's and
S&P to have speculative elements or characteristics; their future cannot be
considered as well assured and earnings and asset protection may be moderate or
poor in comparison to investment grade securities. In addition, such lower
quality securities face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions, which could lead to inadequate
capacity to meet timely payments. A description of the ratings used by Moody's
and S&P for such securities is set forth in Appendix A to this Prospectus. See
also Special risk considerations--High-yield securities.
Foreign Securities
The Fund has the ability to purchase income generating equity securities and
debt securities in any foreign country. Investors should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations. These risks are in addition to the usual risks
inherent in domestic investments. There is the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes imposed with respect to investments in foreign nations,
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country), default in foreign government
securities, political or social instability or diplomatic developments which
could affect investments in securities of issuers in those nations.
In addition, in many countries, there is substantially less publicly available
information about issuers than is available in reports about companies in the
United States. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to United States companies. Consequently,
financial data about foreign companies may not accurately reflect the real
condition of those issuers and securities markets.
Further, the Fund may encounter difficulty or be unable to pursue legal remedies
and obtain judgments in foreign courts. Commission rates on securities
transactions in foreign countries, which are sometimes fixed rather than subject
to negotiation as in the United States, are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets, and may be subject to administrative uncertainties. In
many foreign countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States, and capital requirements for brokerage firms are
generally lower. The foreign securities markets of many of the countries in
which the Fund may invest may also be smaller, less liquid and subject to
greater price volatility than those in the United States.
-10-
<PAGE>
Emerging Market Securities. The Fund may invest up to 5% of its assets in income
generating equity securities and debt securities of issuers located in emerging
market nations. Compared to the United States and other developed countries,
emerging countries may have volatile social conditions, relatively unstable
governments and political systems, economies based on only a few industries and
economic structures that are less diverse and mature, and securities markets
that trade a small number of securities, which can result in a low or
nonexistent volume of trading. Prices in these securities markets tend to be
volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries. Until recently, there has been an absence of a capital
market structure or market-oriented economy in certain emerging countries.
Further, investments and opportunities for investments by foreign investors are
subject to a variety of national policies and restrictions in many emerging
countries. Also, the repatriation of both investment income and capital from
several foreign countries is restricted and controlled under certain
regulations, including, in some cases, the need for certain governmental
consents. Countries such as those in which the Fund may invest may have
historically experienced and may continue to experience, substantial, and in
some periods extremely high rates of inflation for many years, high interest
rates, exchange rate fluctuations or currency depreciation, large amounts of
external debt, balance of payments and trade difficulties and extreme poverty
and unemployment. Other factors which may influence the ability or willingness
to service debt include, but are not limited to, a country's cash flow
situation, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of its debt service burden to the economy as a whole,
its government's policy towards the International Monetary Fund, the World Bank
and other international agencies and the political constraints to which a
government debtor may be subject. The manager currently considers countries such
as Argentina, Brazil, Chile, China, Mexico, India, Portugal, Poland and Thailand
to be emerging markets. This list is not intended to be exhaustive, but rather
representative of the types of countries now considered by the manager to
present special investment risks.
See other investment policies and risk considerations for a further description
of certain risks associated with certain of the Fund's investments, including
the risks associated with investments in foreign government securities and
engaging in foreign currency transactions and options.
-11-
<PAGE>
Who manages the Fund
Investment manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services For its services to the Fund, the manager was paid
0.07%, as a percentage of average daily net assets, after considering the effect
of the voluntary fee waiver.
Portfolio managers
Babak Zenouzi, Vice President/Senior Portfolio Manager of the Fund, oversees the
Fund's asset allocation strategy and has primary responsibility for making
day-to-day investment decisions for the Fund's investments in income generating
equity securities. Mr. Zenouzi has been a member of the Fund's management team
since its inception. He holds a BS in Finance and Economics from Babson College
in Wellesley, Massachusetts, and an MS in Finance from Boston College. Prior to
joining Delaware Investments in 1992, he was with The Boston Company where he
held the positions of assistant vice president, senior financial analyst,
financial analyst and portfolio accountant.
Gerald T. Nichols, Vice President/Senior Portfolio Manager, has primary
responsibility for making day-to-day investment decisions for the Fund regarding
its investments in debt securities. Mr. Nichols has been a member of the Fund's
management team since its inception. He is a graduate of the University of
Kansas, where he received a BS in Business Administration and an MS in Finance.
Prior to joining Delaware Investments, he was a high yield credit analyst at
Waddell & Reed, Inc. and subsequently the investment officer for a private
merchant banking firm. He is a CFA charterholder.
-12-
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
Board of Directors
<TABLE>
<S> <C> <C>
Investment manager The Funds Custodian
Delaware Management Company The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
Portfolio managers Distributor Service agent
(see page 12 for details) Delaware Distributors, L.P. Delaware Service Company, Inc.
1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
</TABLE>
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
-13-
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the
following:
o retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate
of the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts
o a bank, trust company and similar financial institution investing for its
own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee
o registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least
$1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services
-14-
<PAGE>
How to buy shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800.510.4015 so we can assign you an
account number.
[GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800.510.4015.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
-15-
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently, the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
-16-
<PAGE>
How to redeem shares
[GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. You can also fax
your written request to 215-255-8864. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on an account.
[GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
[GRAPHIC OMITTED: ILLUSTRATION OF A PERSON]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
-17-
<PAGE>
About your account (continued)
How to redeem shares (cont.)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time), you will receive the net asset value as determined on the
business day we receive your request. We will send you a check, normally the
next business day, but no later than seven days after we receive your request to
sell your shares. If you purchased your shares by check, we will wait until your
check has cleared, which can take up to 15 days, before we send your redemption
proceeds.
Account minimum
If you redeem shares and your account balance falls below $250, the Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
Dividends, if any, will be paid monthly. Capital gains, if any, will be paid
once a year. We automatically reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from this Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
-18-
<PAGE>
Other investment policies and risk considerations
U.S. government securities
U.S. Treasury securities are backed by the "full faith and credit" of the United
States. Securities issued or guaranteed by federal agencies and U.S. government
sponsored instrumentalities may or may not be backed by the full faith and
credit of the United States. In the case of securities not backed by the full
faith and credit of the United States, investors in such securities look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, the Federal Housing Administration, the Maritime
Administration, the Small Business Administration, and others. Certain agencies
and instrumentalities, such as the Government National Mortgage Association
("GNMA"), are, in effect, backed by the full faith and credit of the United
States through provisions in their charters that they may make "indefinite and
unlimited" drawings on the Treasury, if needed to service its debt. Debt from
certain other agencies and instrumentalities, including the Federal Home Loan
Bank and Federal National Mortgage Association, are not guaranteed by the United
States, but those institutions are protected by the discretionary authority for
the U.S. Treasury to purchase certain amounts of their securities to assist the
institutions in meeting their debt obligations. Finally, other agencies and
instrumentalities, such as the Farm Credit System, the Tennessee Valley
Authority and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under U.S. government supervision, but their debt
securities are backed only by the creditworthiness of those institutions, not
the U.S. government.
An instrumentality of a U.S. government agency is a government agency organized
under Federal charter with government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit
Banks and the Federal National Mortgage Association.
The maturities of such securities usually range from three months to thirty
years. While such securities are guaranteed as to principal and interest by the
U.S. government or its instrumentalities, their market values may fluctuate and
are not guaranteed, which may, along with the other securities in the Fund's
portfolio, cause a Class' daily net asset value to fluctuate.
Brady bonds
Among the foreign fixed-income securities in which the Fund may invest are Brady
Bonds. Brady Bonds are debt securities issued under the framework of the Brady
Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their outstanding
external indebtedness (generally commercial bank debt). Brady Bonds are not
direct or indirect obligations of the U.S. government or any of its agencies or
instrumentalities and are not guaranteed by the U.S. government or any of its
agencies or instrumentalities. In so restructuring its external debt, a debtor
nation negotiates with its existing bank lenders, as well as multilateral
institutions such as the World Bank and the International Monetary Fund, to
exchange its commercial bank debt for newly issued bonds (Brady Bonds). The
Manager believes that economic reforms undertaken by countries in connection
with the issuance of Brady Bonds make the debt of countries which have issued or
have announced plans to issue Brady Bonds an attractive opportunity for
investment. Investors, however, should recognize that the Brady Plan only sets
forth general guiding principles for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case basis between
debtor nations and their creditors. In addition, Brady Bonds have been issued
only recently and, accordingly, do not have a long payment history.
-19-
<PAGE>
Foreign government securities
With respect to investment in debt issues of foreign governments, including
Brady Bonds, the ability of a foreign government or government-related issuer to
make timely and ultimate payments on its external debt obligations will also be
strongly influenced by the issuer's balance of payments, including export
performance, its access to international credits and investments, fluctuations
in interest rates and the extent of its foreign reserves. A country whose
exports are concentrated in a few commodities or whose economy depends on
certain strategic imports could be vulnerable to fluctuations in international
prices of these commodities or imports. If foreign government or
government-related issuers cannot generate sufficient earnings from foreign
trade to service its external debt, they may need to depend on continuing loans
and aid from foreign governments, commercial banks and multilateral
organizations, and inflows of foreign investment. The commitment on the part of
these foreign governments, multilateral organizations and others to make such
disbursements may be conditioned on the government's implementation of economic
reforms and/or economic performance and the timely service of its obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due may curtail the willingness of such
third parties to lend funds, which may further impair the issuer's ability or
willingness to service its debts in a timely manner. The cost of servicing
external debt generally will also be adversely affected by rising international
interest rates because many external debt obligations bear interest at rates
which are adjusted based upon international interest rates. The ability to
service external debt will also depend on the level of the relevant government's
international currency reserves and its access to foreign exchange. Currency
devaluations may affect the ability of a government issuer to obtain sufficient
foreign exchange to service its external debt. If a foreign governmental issuer
defaults on its obligations, the Fund may have limited legal recourse against
the issuer and/or guarantor.
Zero coupon bonds and pay-in-kind bonds
Although the Fund does not intend to purchase a substantial amount of zero
coupon bonds or PIK bonds, from time to time, the Fund may acquire zero coupon
bonds and, to a lesser extent, PIK bonds. Zero coupon bonds are debt obligations
which do not entitle the holder to any periodic payments of interest prior to
maturity or a specified date when the securities begin paying current interest,
and therefore are issued and traded at a discount from their face amounts or par
value. PIK bonds pay interest through the issuance to holders of additional
securities. Zero coupon bonds and PIK bonds are generally considered to be more
interest-sensitive than income bearing bonds, to be more speculative than
interest-bearing bonds, and to have certain tax consequences which could, under
certain circumstances, be adverse to the Fund. For example, with zero coupon
bonds, the Fund accrues, and is required to distribute to shareholders, income
on such bonds. However, the Fund may not receive the cash associated with this
income until the bonds are sold or mature. If the Fund did not have sufficient
cash to make the required distribution of accrued income, the Fund could be
required to sell other securities in its portfolio or to borrow to generate the
cash required.
Borrowings
The Fund may borrow money as a temporary measure for extraordinary purposes or
to facilitate redemptions. The Fund will not borrow money in excess of one-third
of the value of its net assets. The Fund has no intention of increasing its net
income through borrowing. Any borrowing will be done from a bank and, to the
extent that such borrowing exceeds 5% of the value of the Fund's net assets,
asset coverage of at least 300% is required. In the event that such asset
coverage shall at any time fall below 300%, the Fund shall, within three days
thereafter (not including Sundays or holidays, or such longer period as the
Securities and Exchange Commission may prescribe by rules and regulations),
reduce the amount of its borrowings to such an extent that the asset coverage of
such borrowings shall be at least 300%. The Fund will not pledge more than 10%
of its net assets, or issue senior securities as defined in the 1940 Act, except
for notes to banks. Investment securities will normally not be purchased while
the Fund has an outstanding borrowing.
When-issued and delayed delivery securities
The Fund may purchase securities on a when-issued or delayed delivery basis. In
such transactions, instruments are purchased with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
yield or price at the time of the transaction. Delivery of and payment for these
-20-
<PAGE>
securities may take as long as a month or more after the date of the purchase
commitment. The Fund will maintain with its custodian bank a separate account
with a segregated portfolio of liquid securities in an amount at least equal to
these commitments. The payment obligation and the interest rates that will be
received are each fixed at the time the Fund enters into the commitment and no
interest accrues to the Fund until settlement. Thus, it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.
Portfolio loan transactions
The Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors.
The major risk to which the Fund would be exposed on a loan transaction is the
risk that the borrower would become bankrupt at a time when the value of the
security goes up. Therefore, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, subject to overall
supervision by 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.
Rule 144A securities
The Fund may invest in restricted securities, including privately placed
securities, some of which may be eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933.
Rule 144A permits many privately placed and legally restricted securities to be
freely traded among certain institutional buyers such as the Fund. The Fund may
invest no more than 15% of the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Directors has delegated to the Manager
the day-to-day function of determining whether or not individual Rule 144A
Securities are liquid for purposes of the Fund's 15% limitation on investments
in illiquid securities. The Board has instructed the Manager to consider the
following factors in determining the liquidity of a Rule 144A Security:
o the frequency of trades and trading volume for the security
o whether at least three dealers are willing to purchase or
sell the security and the number of potential purchasers
o whether at least two dealers are making a market in the
security
o the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer)
If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 15% limit on investments in
such securities, the Manager will determine what action to take to ensure that
the Fund continues to adhere to such limitation.
Investment Company Securities
Any investments that the Fund makes in either closed-end or open-end investment
companies will be limited by the 1940 Act, and would involve an indirect payment
of a portion of the expenses, including advisory fees, of such other investment
companies. Under the 1940 Act's current limitations, the Fund may not
o own more than 3% of the voting stock of another investment
company
o invest more than 5% of the Fund's total assets in the shares
of any one investment company
o invest more than 10% of the Fund's total assets in shares of other
investment companies.
If the Fund elects to limit its investment in other investment companies to
closed-end investment companies, the 3% limitation described above is increased
to 10%. These percentage limitations also apply to the Fund's investments in
unregistered investment companies.
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<PAGE>
Repurchase agreements
In order to invest its short-term cash reserves or when in a temporary defensive
posture, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e. the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of the Fund's assets may
be invested in repurchase agreements of over seven-days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss to the Fund, if any, would be the difference
between the repurchase price and the market value of the security. The Fund will
limit its investments in repurchase agreements to those which the Manager under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
Foreign currency transactions
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund will, however, from time to time, purchase or sell foreign
currencies and/or engage in forward foreign currency transactions in order to
expedite settlement of portfolio transactions and to minimize currency value
fluctuations. The Fund may conduct its foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into contracts to purchase or sell foreign
currencies at a future date (i.e., a "forward foreign currency" contract or
"forward" contract). A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract, agreed upon by the parties, at a price set at the
time of the contract. The Fund will convert currency on a spot basis from time
to time, and investors should be aware of the costs of currency conversion.
The Fund may enter into forward contracts to "lock in" the price of a security
it has agreed to purchase or sell, in terms of U.S. dollars or other currencies
in which the transaction will be consummated. By entering into a forward
contract for the purchase or sale, for a fixed amount of U.S. dollars or foreign
currency, of the amount of foreign currency involved in the underlying security
transaction, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in currency exchange rates during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
When the Manager believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency, the
Fund may enter into a forward foreign currency contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, the amount of foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency.
The Fund will not enter into forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
At the maturity of a forward contract, the Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions. With respect to forward foreign currency contracts, the precise
matching of forward contract amounts and the value of the securities involved is
generally not possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency strategy is highly
uncertain.
-22-
<PAGE>
It is impossible to forecast the market value of Fund securities at the
expiration of the contract. Accordingly, it may be necessary for the Fund to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of a security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
Options
The Manager may employ options techniques in an attempt to protect appreciation
attained and to increase shareholder return by seeking to take advantage of the
liquidity available in the options market. The Fund may purchase call options on
foreign or U.S. securities and indices and enter into related closing
transactions and the Fund may write covered call options on such securities. The
Fund may also purchase put options on such securities and indices and enter into
related closing transactions.
A call option enables the purchaser, in return for the premium paid, to purchase
securities from the writer of the option at an agreed price up to an agreed
date. A covered call option obligates the writer, in return for the premium
received, to sell the securities subject to the option to the purchaser of the
option for an agreed upon price up to an agreed date. The advantage is that the
purchaser may hedge against an increase in the price of securities it ultimately
wishes to buy or take advantage of a rise in a particular index. The Fund will
only purchase call options to the extent that premiums paid on all outstanding
call options do not exceed 2% of its total assets. The Fund may write covered
call options in an amount not to exceed 10% of its total assets.
A put option enables the purchaser of the option, in return for the premium
paid, to sell the security underlying the option to the writer at the exercise
price during the option period, and the writer of the option has the obligation
to purchase the security from the purchaser of the option. The Fund will only
purchase put options to the extent that the premiums on all outstanding put
options do not exceed 2% of its total assets. The advantage is that the
purchaser can be protected should the market value of the security decline or
should a particular index decline.
An option on a securities index gives the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option.
Closing transactions essentially let the Fund offset put options or call options
prior to exercise or expiration. If the Fund cannot effect closing transactions,
it may have to hold a security it would otherwise sell or deliver a security it
might want to hold.
In purchasing put and call options, the premium paid by the Fund plus any
transaction costs will reduce any benefit realized by the Fund upon exercise of
the option. With respect to writing covered call options, the Fund may lose the
potential market appreciation of the securities subject to the option, if the
Manager's judgment is wrong and the price of the security moves in the opposite
direction from what was anticipated.
The Fund may use both Exchange-traded and over-the-counter options. Certain
over-the-counter options may be illiquid. The Fund will only invest in such
options to the extent consistent with its 15% limitation on investment in
illiquid securities. The Fund will comply with Securities and Exchange
Commission asset segregation and coverage requirements when engaging in these
types of transactions.
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<PAGE>
Futures
Futures contracts are agreements for the purchase or sale for future delivery of
securities. When a futures contract is sold, the Fund incurs a contractual
obligation to deliver the securities underlying the contract at a specified
price on a specified date during a specified future month. A purchase of a
futures contract means the acquisition of a contractual right to obtain delivery
to the Fund of the securities called for by the contract at a specified price
during a specified future month.
While futures contracts provide for the delivery of securities, deliveries
usually do not occur. Contracts are generally terminated by entering into an
offsetting transaction. When the Fund enters into a futures transaction, it must
deliver to the futures commission merchant selected by the Fund an amount
referred to as "initial margin." This amount is maintained by the futures
commission merchant in a segregated account. Thereafter, a "variation margin"
may be paid by the Fund to, or drawn by the Fund from, such account in
accordance with controls set for such account, depending upon changes in the
price of the underlying securities subject to the futures contract.
The Fund may also purchase and write options to buy or sell futures contracts.
Options on futures are similar to options on securities except that options on
futures give the purchaser the right, in return for the premium paid, to assume
a position in a futures contract, rather than actually to purchase or sell the
futures contract, at a specified exercise price at any time during the period of
the option.
The purpose of the purchase or sale of futures contracts with respect to a
certain security is to protect the Fund against the adverse effects of
fluctuations in interest rates without actually buying or selling that security.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
securities at higher prices.
Foreign currency futures contracts operate similarly to futures contracts
related to securities. When the Fund sells a futures contract on a foreign
currency it is obligated to deliver that foreign currency at a specified future
date. Similarly, a purchase by the Fund gives it a contractual right to receive
a foreign currency. This enables the Fund to "lock-in" exchange rates.
The Fund's designation as an open-end investment company and as a diversified
fund may not be changed unless authorized by the vote of a majority of the
Fund's outstanding voting securities. A "majority vote of the outstanding voting
securities" is the vote by the holders of the lesser of a) 67% or more of the
Fund's voting securities present in person or represented by proxy if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy; or b) more than 50% of the outstanding voting
securities. Statement of Additional Information lists other more specific
investment restrictions of the Fund which may not be changed without a majority
shareholder vote.
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<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The portfolio managers and
investment professionals of the Fund consider Year 2000 compliance in the
securities selection and investment process. However, there can be no guarantee
that, even with their due diligence efforts, they will be able to predict the
effect of Year 2000 on any company or the performance of its securities.
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<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800-523-1918.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class
---------------------------------------
Year Period
Ended 12/2/96(1)
11/30 through
Retirement Income Fund 1998 11/30/97
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $11.690 $8.500
Income from investment operations
Net investment income(2) 0.632 0.558
Net realized and unrealized gain (loss) on investments (0.402) 2.675
------- -------
Total from investment operations 0.230 3.233
------- -------
Less dividends and distributions
Dividends from net investment income (0.570) (0.043)
Distributions from net realized gain on investments (1.200) none
------- -------
Total dividends and distributions (1.770) (0.043)
------- -------
Net asset value, end of period $10.150 $11.690
======= =======
Total return(3) 2.22% 38.19%
Ratios and supplemental data
Net assets, end of period (000 omitted) $2,840 $2,763
Ratio of expenses to average net assets 0.75% 0.75%
Ratio of expenses to average net assets prior to expense limitation 1.32% 1.88%
Ratio of net investment income to average net assets 6.01% 5.48%
Ratio of net investment income to average net assets prior to expense limitation 5.44% 4.35%
Portfolio turnover 91% 196%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of trading; ratios have been annualized but total
return has not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Total return reflects the expense limitations in effect for the Fund.
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<PAGE>
How to read the financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain occurs when we sell an investment at a profit, while a realized
loss occurs when we sell an investments at a loss. When an investment increases
or decreases in value but we do not sell it, we record an unrealized gain or
loss. The amount of realized gain per share that we pay to shareholders is
listed under "Less dividends and distributions-Distributions from net realized
gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include applicable fee waivers and assume the shareholder has
reinvested all dividends and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
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<PAGE>
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Amortized cost
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Bond
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
Capital
The amount of money you invest.
Capital appreciation
An increase in the value of an investment.
Capital gains distributions
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Compounding
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Corporate bond
A debt security issued by a corporation. See bond.
Cost basis
The original purchase price of an investment, used in determining capital gains
and losses.
Depreciation
A decline in an investment's value.
Diversification
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
-28-
<PAGE>
Dividend distribution
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Expense ratio
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
Fixed-income securities
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bonds.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Management fee
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
National Association of Securities Dealers (NASD)
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Net asset value (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pays dividends at a fixed
rate and is sometimes convertible into common stock.
Price/earnings ratio
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
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Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
S&P 500 Index
The Standard & Poor's 500 Composite Stock Index; an unmanaged index of 500
widely held common stocks that is often used to represent performance of the
U.S. stock market.
Sales charge
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
Standard deviation
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical average.
Statement of Additional Information (SAI)
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Volatility
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
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APPENDIX A--RATINGS
Bonds and convertible securities
Excerpts from Moody's description of its 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; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its 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; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
Excerpts from Fitch's description of its bond ratings:
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events;
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+; A--Bonds considered to
be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings; BBB--Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings; BB--Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements; B--Bonds
are considered highly speculative. While bonds in this class are currently
meeting debt service requirements, the probability of continued timely payment
of principal and interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity throughout the life of
the issue; CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment; CC--Bonds are minimally
protected. Default in payment of interest and/or principal seems probable over
time; C--Bonds are in imminent default in payment of interest or principal; and
DDD, DD and D--Bonds are in default on interest and/or principal payments. Such
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bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the "AAA" category.
Commercial Paper
Excerpts from Moody's description of its two highest commercial paper ratings:
P-1--the highest grade possessing greatest relative strength; P-2--second
highest grade possessing less relative strength than the highest grade.
Excerpts from S&P's description of its two highest commercial paper ratings:
A-1--judged to be the highest investment grade category possessing the highest
relative strength; A-2--investment grade category possessing less relative
strength than the highest rating.
Preferred Stock
The following are excerpts from S&P's description of its preferred stock
ratings:
An S&P preferred stock rating is an assessment of the capacity and willingness
of an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the debt rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
AAA This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a
high-quality fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the "A"
category.
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BB, B, Preferred stocks rated "BB," "B" and "CCC" are regarded, on
CCC balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely
have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the
issuer in default on debt instruments.
NR indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligations as a matter of policy.
Plus (+) or Minus (-) To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
The following are excerpts from Moody's description of its preferred
stock ratings:
"aaa" An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within
the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well-maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are judged to
be somewhat greater than in the "aaa" and "aa" classification,
earnings and asset protection are, nevertheless, expected to
be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a
medium-grade preferred stock, neither high protected nor
poorly secured. Earnings and asset protection appear adequate
at present but may be questionable over any great length of
time.
"ba" An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured.
Earnings and asset protection may be very moderate and not
well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
"b" An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue
over any long period of time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on
dividends payments. This rating designation does not purport
to indicate the future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payments.
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"c" This is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
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Retirement Income Fund Institutional simplified final March 30 1999 compare
Retirement Income Fund
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in this Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
- ---------------------
E-mail
[email protected]
Client Services Representative
800.510.4015
Delaphone Service
800.362.FUND (800.362.3863)
For convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone service.
DELAWARE
INVESTMENTS
-----------
Philadelphia * London
Investment Company Act file number: 811-4997
Institutional Class CUSIP Number: 24610B404
P-002 [--] PP 3/99
