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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 033-67490
File No. 811-07972
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No.
/ /
Post-Effective Amendment No. 25 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 27
DELAWARE GROUP ADVISER FUNDS
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
2005 Market Street, Philadelphia, Pennsylvania19103-7094
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 523-1918
David F. Connor, Esq., 2005 Market Street, Philadelphia, PA19103-7094
--------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: February 28, 2006
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/X/ on February 28, 2006 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
--- C O N T E N T S ---
This Post-Effective Amendment No. 25 to Registration File No. 033-67490 includes
the following:
1. Facing Page
2. Contents Page
3. Part A - Prospectuses
4. Part B - Statement of Additional Information
5. Part C - Other Information
6. Signatures
7. Exhibits
FIXED INCOME DELAWARE
INVESTMENTS(R)
A Member of Lincoln Financial Group
Prospectus FEBRUARY 28, 2006
DELAWARE DIVERSIFIED INCOME FUND
CLASS A |X| CLASS B |X| CLASS C |X| CLASS R
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.
Table of contents
Fund profile page
Delaware Diversified Income Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Disclosure of portfolio holdings information
Who manages the Fund page
Investment manager and sub-advisor
Portfolio managers
Who's who?
About your account page
Investing in the Fund
Choosing a share class
Dealer Compensation
How to reduce your sales charge
How to buy shares
Fair valuation
Retirement plans
How to redeem shares
Account minimums
Special services
Frequent trading of Fund shares
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
Glossary page
Profile: Delaware Diversified Income Fund
What is the Fund's goal?
Delaware Diversified Income Fund seeks maximum long-term total return,
consistent with reasonable risk. Although the Fund will strive to meet its goal,
there is no assurance that it will.
What are the Fund's main investment strategies?
The Fund allocates its investments principally among the following three sectors
of the fixed-income securities markets: the U.S. Investment Grade Sector, the
U.S. High-Yield Sector, and the International Sector. Under normal
circumstances, the Fund will invest at least 80% of its net assets in fixed
income securities (the "80% policy"). We will determine how much of the Fund to
allocate to each of the three sectors, based on our evaluation of economic and
market conditions and our assessment of the returns and potential for
appreciation that can be achieved from investments in each of the three sectors.
We will periodically reallocate the Fund's assets, as deemed necessary.
In unusual market conditions, in order to meet redemption requests, for
temporary defensive purposes, and pending investment, the Fund may hold a
substantial portion of its assets in cash or short-term fixed-income
obligations. The Fund may also use a wide range of hedging instruments,
including options, futures contracts and options on futures contracts subject to
certain limitations.
The Fund's investments in emerging markets will, in the aggregate, be limited to
no more than 15% of the Fund's total assets.
The Fund's 80% policy described above may be changed without shareholder
approval. However, shareholders will be given notice at least 60 days prior to
any such change.
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. Over time, the value of your investment in
the Fund will increase and decrease according to changes in the value of the
securities in the Fund's portfolio. The Fund will be affected primarily by
changes in bond prices and currency exchange rates. Investments in high-yield,
high risk or "junk" bonds entail certain risks, including the risk of loss of
principal, which may be greater than the risks presented by investment grade
bonds and which should be considered by investors contemplating an investment in
the Fund. Among these risks are those that result from the absence of a liquid
secondary market and the dominance in the market of institutional investors. The
Fund will also be affected by prepayment risk due to its holdings of
mortgage-backed securities. With prepayment risk, when homeowners prepay
mortgages during periods of low interest rates, the Fund may be forced to
re-deploy its assets in lower yielding securities. Investments in securities of
non-U.S. issuers are generally denominated in foreign currencies and involve
certain risk and opportunity considerations not typically associated with
investing in U.S. issuers, and investments in securities of companies in
emerging markets present a greater degree of risk than tends to be the case for
foreign investments in developed markets. If, and to the extent that, we invest
in forward foreign currency contracts or use other investments to hedge against
currency risks, the Fund will be subject to the special risks associated with
those activities.
For a more complete discussion of risk, please see "The risks of investing inthe Fund" on page [__].
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor 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 that offers professional allocation among
key types of fixed-income securities.
o Investors seeking a fixed-income investment that offers potential for high
current income and total return.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short-term.
How has Delaware Diversified Income Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how annual returns for the Fund's Class A shares have varied over
the past eight calendar years, as well as the average annual returns of the
Class A, B, C and R shares for one-year, five-year and lifetime periods, as
applicable. The Fund's past performance (before and after taxes) is not
necessarily an indication of how it will perform in the future. The returns
reflect expense caps in effect during these periods. The returns would be lower
without the expense caps. Please see the footnotes on page [ ] for additional
information about the expense caps.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (Delaware
Diversified Income Fund)]
Year-by-year total return (Class A)*
1998 10.28%
1999 1.60%
2000 13.12%
2001 8.33%
2002 11.03%
2003 13.88%
2004 9.60%
2005 (0.73)%
* On October 28, 2002, the Fund acquired all of the assets and assumed all of
the liabilities of the Diversified Core Fixed Income Portfolio of Delaware
Pooled Trust (the "Predecessor Fund"), which had investment objectives and
policies identical to those of the Fund. The Fund had no operations prior
to October 28, 2002. Shareholders of the Predecessor Fund received Class A
shares of the Fund in connection with this transaction. As a result of this
transaction, Class A shares of the Fund assumed the performance history of
the Predecessor Fund for periods prior to the closing date of the
transaction. In accordance with current Securities and Exchange Commission
requirements, the average annual total returns of the Fund for periods
prior to October 28, 2002 have been restated to reflect the maximum sales
charge applicable to Class A shares, but not to reflect the distribution
and service (12b-1) fees and higher management and transfer agency fees
borne by Class A shares of the Fund.
Class A shares of the Fund currently bear the cost of distribution and
service fees at the annual rate of up to 0.30% of the average daily net
assets of the Class A shares. Shares of the Predecessor Fund were not
subject to distribution and service fees. The Fund bears the expense of
management fees at the maximum annual rate of 0.55% of the Fund's average
daily net assets. The Predecessor Fund had a management fee at the annual
rate of 0.43% of its average daily net assets. For transfer agency
services, the Fund currently pays an annual dollar charge per account of
$23.10. Additional information regarding this fee is set forth in the
Statement of Additional Information (SAI). By contrast, the Predecessor
Fund paid a fee at the annual rate of 0.01% of its average daily net assets
for transfer agency services. If the current higher expenses of the Fund
had been in effect for the Predecessor Fund, the total returns set forth in
the bar chart and table above would have been lower for all periods.
During the periods illustrated in this bar chart, Class A's highest quarterly
return was 5.62% for the quarter ended June 30, 2003 and its lowest quarterly
return was -1.82% for the quarter ended June 30, 2004.
The maximum Class A sales charge of 4.50%, which is normally deducted when you
purchase shares, is not reflected in the total returns in the previous paragraph
or in the bar chart. If this fee were included, the returns would be less than
those shown. The average annual returns in the table on page [__] include the
sales charge.
Average annual returns for periods ending 12/31/05
-------------------------------------------- ------------- --------------- --------------
1 year 5 years Lifetime*
-------------------------------------------- ------------- --------------- --------------
Class A return before taxes (5.15)% 7.30% 7.63%
-------------------------------------------- ------------- --------------- --------------
Class A return after taxes on distributions (6.56)% 4.35% 4.64%
-------------------------------------------- ------------- --------------- --------------
Class A return after taxes on distributions
and sale of Fund shares (3.35)% 4.46% 4.68%
-------------------------------------------- ------------- --------------- --------------
Class B (if redeemed) return before taxes** (5.15)% N/A 7.44%
-------------------------------------------- ------------- --------------- --------------
Class C (if redeemed) return before taxes** (2.31)% N/A 7.80%
-------------------------------------------- ------------- --------------- --------------
Class R (if redeemed) return before taxes** (0.93)% N/A 4.77%
-------------------------------------------- ------------- --------------- --------------
Lehman Brothers Aggregate Bond Index
(reflects no deduction for fees, expenses,
or taxes) 2.43% 5.87% 6.06%
-------------------------------------------- ------------- --------------- --------------
The Fund's returns above are compared to the performance of the Lehman Brothers
Aggregate Bond Index. You should remember that, unlike the Fund, the index is
unmanaged and does not reflect the actual costs of operating a mutual fund, such
as the costs of buying, selling and holding securities. Maximum sales charges
are included in the Fund returns shown above.
After-tax performance is presented only for Class A shares of the Fund. The
after-tax returns for other Fund classes may vary. Actual after-tax returns
depend on the investor's individual tax situation and may differ from the
returns shown. After-tax returns are not relevant for shares held in
tax-deferred investment vehicles such as employer-sponsored 401(k) plans and
individual retirement accounts. The after-tax returns shown are calculated using
the highest individual federal marginal income tax rates in effect during the
Fund's lifetime and do not reflect the impact of state and local taxes. The
after-tax rate used is based on the current tax characterization of the elements
of the Fund's returns (e.g., qualified vs. non-qualified dividends) and may be
different than the final tax characterization of such elements. Past
performance, both before and after taxes, is not a guarantee of future results.
* Lifetime returns are shown if the Fund or Class existed for less than 10
years. The inception dates for Class A Shares was December 29, 1997; for
Class B and Class C shares was October 28, 2002; and for Class R shares was
June 2, 2003. The Lehman Brothers Aggregate Bond Index lifetime return is
for the period December 31, 1997 through December 31, 2005.
** Total returns assume redemption of shares at the end of period. If shares
were not redeemed, the returns for Class B would be (1.34)% and 7.82% for
the one-year and lifetime periods, respectively. Returns for Class C would
be (1.36)% and 7.80% for the one-year and lifetime periods, respectively.
What are the Fund's fees and expenses?
--------------------------------- ---------------------------------- --------- --------- --------- --------
Sales charges are fees paid CLASS A B C R
directly from your investments ---------------------------------- --------- --------- --------- --------
when you buy or sell shares of Maximum sales charge (load) imposed
the Fund. You do not pay sales on purchases as a percentage of
charges when you buy or sell offering price 4.50% none none none
Class R shares. ---------------------------------- --------- --------- --------- --------
Maximum contingent deferred sales
charge (load) as a percentage of
original purchase price or
redemption price, whichever is
lower none(1) 4.00%(2) 1.00%(3) none
---------------------------------- --------- --------- --------- --------
Maximum sales charge (load)
imposed on reinvested dividends none none none none
---------------------------------- --------- --------- --------- --------
Redemption fees none none none none
---------------------------------- --------- --------- --------- --------
Exchange fees none none none none
--------------------------------- ---------------------------------- --------- --------- --------- --------
--------------------------------- ---------------------------------- --------- --------- --------- --------
Annual fund operating CLASS A B C R
expenses are deducted ---------------------------------- --------- --------- --------- --------
from the Fund's assets. Management fees 0.52% 0.52% 0.52% 0.52%
---------------------------------- --------- --------- --------- --------
Distribution and service (12b-1)
fees 0.30%(4) 1.00% 1.00% 0.60%(4)
---------------------------------- --------- --------- --------- --------
Other expenses 0.31% 0.31% 0.31% 0.31%
---------------------------------- --------- --------- --------- --------
Total annual fund operating
expenses 1.13% 1.83% 1.83% 1.43%
---------------------------------- --------- --------- --------- --------
Fee waivers and payments(5) (0.13)% (0.08)% (0.08)% (0.18)%
---------------------------------- --------- --------- --------- --------
Net expenses 1.00% 1.75% 1.75% 1.25%
---------------------------------- --------- --------- --------- --------
--------------------------- --------- ----------- ------------ ------------ ---------- ------------- ---------
This example is intended CLASS(6) A B(7) B(7) C C R
to help you compare the (if (if
cost of investing in the redeemed) redeemed)
Fund to the cost of --------- ----------- ------------ ------------ ---------- ------------- ---------
investing in other mutual 1 year $547 $178 $578 $178 $278 $127
funds with similar --------- ----------- ------------ ------------ ---------- ------------- ---------
investment objectives. We 3 years $781 $568 $793 $568 $568 $435
show the cumulative --------- ----------- ------------ ------------ ---------- ------------- ---------
amount of Fund expenses 5 years $1,032 $983 $1,133 $983 $983 $765
on a hypothetical --------- ----------- ------------ ------------ ---------- ------------- ---------
investment of $10,000 10 years $1,752 $1,958 $1,958 $2,141 $2,141 $1,698
with an annual 5% return
over the time shown.(6)
This example reflects the
net operating expenses
with expense waivers for
the one-year contractual
period and the total
operating expenses
without expense waivers
for years two through
ten. This is an example
only, and does not
represent future
expenses, which may be
greater or less than
those shown here.
--------------------------- --------- ----------- ------------ ------------ ---------- ------------- ---------
(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 advisor who is
paid a commission, a contingent deferred sales charge will apply to certain
redemptions made within two years of purchase. 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 4.00%, which declines to
3.00% during the second year, 2.25% during the third year, 1.50% during the
fourth and fifth years, 1.00% during the sixth year, and 0.00% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1.00%
contingent deferred sales charge.
(4) The Fund's distributor has contracted to limit the Class A and Class R
shares' 12b-1 fee through February 28, 2007 to no more than 0.25% and
0.50%, respectively, of average daily net assets.
(5) The investment manager has contracted to waive fees and pay expenses
through February 28,, 2007 in order to prevent total operating expenses
(excluding any 12b-1 fees, taxes, interest, brokerage fees, extraordinary
expenses and certain insurance costs) 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.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after eight years. Information for the ninth and tenth years
reflects expenses of the Class A shares.
How we manage the Fund
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for the Fund. Following
are descriptions of how the portfolio management team pursues the Fund's
investment goals.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
The Fund allocates its investment principally among the U.S. Investment Grade,
U.S. High-Yield and International sectors. The relative proportion of the Fund's
assets to be allocated among these sectors is described below.
o U.S. Investment Grade Sector Under normal circumstances, there is no limit
to the amount of the Fund's total assets that will be invested in the U.S.
investment grade sector. In managing the Fund's assets allocated to the
investment grade sector, we will invest principally in debt obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and by U.S. corporations. The corporate debt obligations
in which the Fund may invest include bonds, notes, debentures and
commercial paper of U.S. companies. The U.S. Government securities in which
the Fund may invest include a variety of securities which are issued or
guaranteed as to the payment of principal and interest by the U.S.
Government, and by various agencies or instrumentalities which have been
established or sponsored by the U.S. Government.
The investment grade sector of the Fund's assets may also be invested in
mortgage-backed securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or by government sponsored corporations.
Other mortgage-backed securities in which the Fund may invest are issued by
certain private, non-government entities. Subject to the quality
limitations, the Fund may also invest in securities which are backed by
assets such as receivables on home equity and credit card loans,
automobile, mobile home, recreational vehicle and other loans, wholesale
dealer floor plans and leases.
Securities purchased by the Fund within this sector will be rated in one of
the four highest rating categories or will be unrated securities that we
determine are of comparable quality.
o U.S. High-Yield Sector Under normal circumstances, between 5% and 50% of
the Fund's total assets will be allocated to the U.S. High-Yield Sector. We
will invest the Fund's assets that are allocated to the domestic high-yield
sector primarily in those securities having a liberal and consistent yield
and those tending to reduce the risk of market fluctuations. The Fund may
invest in domestic corporate debt obligations, including, notes, which may
be convertible or non-convertible, commercial paper, units consisting of
bonds with stock or warrants to buy stock attached, debentures, convertible
debentures, zero coupon bonds and pay-in-kind securities ("PIKs").
The Fund will invest in both rated and unrated bonds. The rated bonds that
the Fund may purchase in this sector will generally be rated BB or lower by
S&P or Fitch, Ba or lower by Moody's, or similarly rated by another
nationally recognized statistical rating organization. Unrated bonds may be
more speculative in nature than rated bonds.
o International Sector Under normal circumstances, between 5% and 50% of the
Fund's total assets will be invested in the International Sector. The
International Sector invests primarily in fixed-income securities of
issuers organized or having a majority of their assets or deriving a
majority of their operating income in foreign countries. These fixed-income
securities include foreign government securities, 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
Investment Bank, the Inter-Development Bank and the Asian Development Bank.
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 Euro. 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. Currency considerations carry a special risk
for a portfolio that allocates a significant portion of its assets to
foreign securities.
The Fund will invest in both rated and unrated foreign securities. It may
purchase securities of issuers in any foreign country, developed and
underdeveloped. These investments may include direct obligations of issuers
located in emerging markets countries. However, investments in emerging
markets will, in the aggregate, be limited to no more than 15% of the
Fund's total assets. In addition, the Fund may invest in sponsored and
unsponsored American Depositary Receipts, European Depositary Receipts, or
Global Depositary Receipts. The Fund may also invest in zero coupon bonds
and may purchase shares of other investment companies. Additionally, the
Manager will limit non-U.S. dollar denominated securities to no more than
25% of net assets.
The Fund's investment objective is non-fundamental. This means that the Board of
Trustees may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders at least 60 days before the
change in the objective became effective.
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
---------------------------------------- ----------------------------------
Securities How we use them
---------------------------------------- ----------------------------------
Corporate Bonds: Debt obligations The Fund may invest in bonds
issued by a corporation. rated in one of the four
highest rating categories for
its U.S. Investment Grade
Sector, and it may invest in
bonds rated BB or lower by S&P
or Fitch and Ba or lower by
Moody's for its U.S.
High-Yield Sector and
International Sector.
---------------------------------------- ----------------------------------
High-yield corporate bonds: Debt Emphasis is typically on those
obligations issued by a corporation rated BB or Ba by an NRSRO.
and rated lower than investment grade
by an NRSRO such as S&P or Moody's. We carefully evaluate an
High-yield bonds, also known as "junk individual company's financial
bonds," are issued by corporations situation, its management, the
that have lower credit quality and may prospects for its industry and
have difficulty repaying principal and the technical factors related to
interest. its bond offering. Our goal is
to identify those companies that
we believe will be able to repay
their debt obligations in spite
of poor ratings. The Fund may
invest in unrated bonds if we
believe their credit quality is
comparable to the rated bonds we
are permitted to invest in.
Unrated bonds may be more
speculative in nature than rated
bonds.
--------------------------------------- ----------------------------------
Mortgage-Backed Securities: The Fund may invest in
Fixed-income securities that represent mortgage-backed securities
pools of mortgages, with investors issued or guaranteed by the U.S.
receiving principal and interest government, its agencies or
payments as the underlying mortgage instrumentalities or by
loans are paid back. Many are issued government sponsored
and guaranteed against default by the corporations.
U.S. government or its agencies or
instrumentalities, such as the Federal
Home Loan Mortgage Corporation, the
Fannie Mae and the Government National
Mortgage Association. Others are
issued by private financial
institutions, with some fully
collateralized by certificates issued
or guaranteed by the government or its
agencies or instrumentalities.
---------------------------------------- ----------------------------------
Collateralized mortgage obligations The Fund may invest in CMOs and
(CMOs) and real estate mortgage REMICs. Certain CMOs and REMICs
investment conduits (REMICs): CMOs are may have variable or floating
privately issued mortgage-backed bonds interest rates and others may be
whose underlying value is the stripped. Stripped mortgage
mortgages that are collected into securities are generally
different pools according to their considered illiquid and to such
maturity. They are issued by U.S. extent, together with any other
government agencies and private illiquid investments, will not
issuers. REMICs are privately issued exceed the Fund's limit on
mortgage-backed bonds whose underlying illiquid securities. In
value is a fixed pool of mortgages addition, subject to certain
secured by an interest in real quality and collateral
property. Like CMOs, REMICs offer limitations, the Fund may invest
different pools. up to 20% of its total assets in
CMOs and REMICs issued by
private entities which are not
collateralized by securities
issued or guaranteed by the U.S.
government, its agencies or
instrumentalities, so called
non-agency mortgage backed
securities.
---------------------------------------- ----------------------------------
Asset-Backed Securities: Bonds or The Fund may invest in
notes backed by accounts receivables, asset-backed securities rated in
including home equity, automobile or one of the four highest rating
credit loans. categories by an NRSRO.
---------------------------------------- ----------------------------------
U.S. Government Securities: U.S. The Fund may invest in U.S.
Treasury securities are backed by the government securities for
"full faith and credit" of the United temporary purposes or otherwise,
States. Securities issued or as is consistent with its
guaranteed by federal agencies and investment objective and
U.S. government sponsored policies. These securities are
instrumentalities may or may not be issued or guaranteed as to the
backed by the "full faith and credit" payment of principal and
of the United States. In the case of interest by the U.S. government,
securities not backed by the "full or by various agencies or
faith and credit" of the United instrumentalities which have
States, investors in such securities been established or sponsored by
look principally to the agency or the U.S. government.
instrumentality issuing or
guaranteeing the obligation for
ultimate repayment.
---------------------------------------- ----------------------------------
Foreign Government Securities: Debt The fixed-income securities in
issued by a government other than the which the Fund may invest
United States or by an agency, include those issued by foreign
instrumentality or political governments.
subdivision of such governments.
---------------------------------------- ----------------------------------
Repurchase Agreements: An agreement Typically, we use repurchase
between a buyer of securities, such as agreements as a short-term
the Fund, and a seller of securities, investment for the Fund's cash
in which the seller agrees to buy the position or for temporary
securities back within a specified defensive purposes. In order to
time at the same price the buyer paid enter into these repurchase
for them, plus an amount equal to an agreements, the Fund must have
agreed upon interest rate. Repurchase collateral of at least 102% of
agreements are often viewed as the repurchase price. The Fund
equivalent to cash. will only enter into repurchase
agreements in which the
collateral is comprised of U.S.
government securities.
---------------------------------------- ----------------------------------
Restricted Securities: Privately We may invest in privately
placed securities whose resale is placed securities, including
restricted under U.S. securities laws. those that are eligible for
resale only among certain
institutional buyers without
registration, commonly known as
"Rule 144A Securities."
Restricted securities that are
determined to be illiquid may
not exceed the Fund's 15% limit
on illiquid securities, which is
described below.
---------------------------------------- ----------------------------------
Illiquid Securities: Securities that We may invest up to 15% of the
do not have a ready market, and cannot Fund's net assets in illiquid
be easily sold within seven days at securities.
approximately the price at which a
fund has valued them. Illiquid
securities include repurchase
agreements maturing in more than seven
days.
---------------------------------------- ----------------------------------
Short-Term Debt Investments: These The Fund may invest in these
instruments include (1) time deposits, instruments either as a means to
certificates of deposit and bankers achieve its investment objective
acceptances issued by a U.S. or, more commonly, as temporary
commercial bank; (2) commercial paper defensive investments or pending
of the highest quality rating; (3) investment in the Fund's
short-term debt obligations with the principal investment
highest quality rating; (4) U.S. securities. When investing all
government securities; and (5) or a significant portion of its
repurchase agreements collateralized assets in these instruments, the
by those instruments. Fund may not be able to achieve
its investment objective.
---------------------------------------- ----------------------------------
Time Deposits: Time deposits are Time deposits maturing in more
non-negotiable deposits maintained in than seven days will not be
a banking institution for a specified purchased by the Fund, and time
period of time at a stated interest deposits maturing from two
rate. business days through seven
calendar days will not exceed
15% of the total assets of the
Fund.
---------------------------------------- ----------------------------------
Zero Coupon and Pay-In-Kind Bonds: The Fund may purchase
Zero coupon bonds are debt obligations fixed-income securities,
which do not entitle the holder to any including zero coupon bonds and
periodic payments of interest prior to PIK bonds, consistent with its
maturity or a specified date when the investment objective.
securities begin paying current
interest, and therefore are issued and
traded at a discount from their face
amounts or par value. Pay-in-kind
("PIK") bonds pay interest through the
issuance to holders of additional
securities.
---------------------------------------- ----------------------------------
American Depositary Receipts (ADRs), The Fund may invest in sponsored
European Depositary Receipts (EDRs), and unsponsored ADRs. Such ADRs
and Global Depositary Receipts that the Fund may invest in will
(GDRs): ADRs are receipts issued by a be those that are actively
U.S. depositary (usually a U.S. bank) traded in the United States.
and EDRs and GDRs are receipts issued
by a depositary outside of the U.S. In conjunction with its
(usually a non-U.S. bank or trust investments in foreign
company or a foreign branch of a U.S. securities, the Fund may also
bank). Depositary receipts represent invest in sponsored and
an ownership interest in an underlying unsponsored EDRs and GDRs.
security that is held by the
depositary. Generally, the underlying
security represented by an ADR is
issued by a foreign issuer and the
underlying security represented by an
EDR or GDR may be issued by a foreign
or U.S. issuer. Sponsored depositary
receipts are issued jointly by the
issuer of the underlying security and
the depositary, and unsponsored
depositary receipts are issued by the
depositary without the participation
of the issuer of the underlying
security. Generally, the holder of
the depositary receipt is entitled to
all payments of interest, dividends or
capital gains that are made on the
underlying security.
---------------------------------------- ----------------------------------
Futures and Options: A futures The Fund may invest in futures,
contract is a bilateral agreement options and closing transactions
providing for the purchase and sale of related thereto. These
a specified type and amount of a activities will be entered into
financial instrument, or for the for hedging purposes and to
making and acceptance of a cash facilitate the ability to
settlement, at a stated time in the quickly deploy into the market
future for a fixed price. A call the Fund's cash, short-term debt
option is a short-term contract securities and other money
pursuant to which the purchaser of the market instruments at times when
call option, in return for the premium the Fund's assets are not fully
paid, has the right to buy, and the invested. The Fund may only
seller of the call option has the enter into these transactions
obligation to sell, the security or for hedging purposes if it is
other financial instrument underlying consistent with its respective
the option at a specified exercise investment objective and
price at any time during the term of policies. The Fund may not
the option. A put option is a similar engage in such transactions to
contract in which the purchaser of the the extent that obligations
put option, in return for a premium, resulting from these activities,
has the right to sell, and the seller in the aggregate, exceed 25% of
of the put option has the obligation the Fund's assets. In addition,
to buy, the underlying security or the Fund may enter into futures
other financial instrument at a contracts, purchase or sell
specified price during the term of the options on futures contracts,
option. and trade in options on foreign
currencies, and may enter into
closing transactions with
respect to such activities to
hedge or "cross hedge" the
currency risks associated with
its investments. Generally,
futures contracts on foreign
currencies operate similarly to
futures contracts concerning
securities, and options on
foreign currencies operate
similarly to options on
securities. See also "ForeignCurrency Transactions" below.
To the extent that the Fund
sells or "writes" put and call
options, it will designate
assets sufficient to "cover"
these obligations and mark them
to market daily.
--------------------------------------- ----------------------------------
Foreign Currency Transactions: A Although the Fund values its
forward foreign currency exchange assets daily in terms of U.S.
contract involves an obligation to dollars, it does not intend to
purchase or sell a specific currency convert its holdings of foreign
on a fixed future date at a price that currencies into U.S. dollars on
is set at the time of the contract. a daily basis. The Fund may,
The future date may be any number of however, from time to time,
days from the date of the contract as purchase or sell foreign
agreed by the parties involved. currencies and/or engage in
forward foreign currency
transactions in order to
expedite settlement of Fund
transactions and to minimize
currency value fluctuations.
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Interest Rate Swap, Index Swap and We may use interest rate swaps
Credit Default Swap Agreements: In an to adjust the Fund's sensitivity
interest rate swap, a fund receives to interest rates or to hedge
payments from another party based on a against changes in interest
variable or floating interest rate, in rates. Index swaps may be used
return for making payments based on a to gain exposure to markets that
fixed interest rate. An interest rate the Fund invests in, such as the
swap can also work in reverse with a corporate bond market. We may
fund receiving payments based on a also use index swaps as a
fixed interest rate and making substitute for futures or
payments based on a variable or options contracts if such
floating interest rate. In an index contracts are not directly
swap, a fund receives gains or incurs available to the Fund on
losses based on the total return of a favorable terms. We may enter
specified index, in exchange for into credit default swaps in
making interest payments to another order to hedge against a credit
party. An index swap can also work in event, to enhance total return
reverse with a fund receiving interest or to gain exposure to certain
payments from another party in securities or markets.
exchange for movements in the total
return of a specified index. In a
credit default swap, a fund may
transfer the financial risk of a
credit event occurring (a bond
default, bankruptcy, restructuring,
etc.) on a particular security or
basket of securities to another party
by paying that party a periodic
premium; likewise, a fund may assume
the financial risk of a credit event
occurring on a particular security or
basket of securities in exchange for
receiving premium payments from
another party. Interest rate swaps,
index swaps and credit default swaps
may be considered to be illiquid.
---------------------------------------- ----------------------------------
The Fund may also invest in other securities. Please see the SAI for additional
information on these securities as well as those listed in the table above.
Lending securities The Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for use in their securities
transactions. These transactions may generate additional income for the Fund.
Borrowing from banks The Fund may borrow money from banks as a temporary measure
for extraordinary purposes or to facilitate redemptions. The Fund will be
required to pay interest to the lending banks on the amount borrowed. As a
result, borrowing money could result in the Fund being unable to meet its
investment objective.
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. The
Fund will designate cash or securities in amounts sufficient to cover its
obligations, and will value the designated assets daily.
Portfolio turnover We anticipate that the Fund's annual portfolio turnover will
exceed 100%, and may be considerably in excess of 200%. A turnover rate of 100%
would occur if, for example, a fund bought and sold all of the securities in its
portfolio once in the course of a year or frequently traded a single security.
The turnover rate may also be affected by cash requirements from redemptions and
purchases of fund shares. A high rate of portfolio turnover in any year may
increase brokerage commissions paid and could generate taxes for shareholders on
realized investment gains.
Temporary defensive positions For temporary defensive purposes, we may invest up
to 100% of the Fund's assets in money market instruments when the manager
determines that market conditions warrant. We may also hold a portion of the
Fund's assets in cash for liquidity purposes. To the extent that the Fund holds
such instruments, it may be unable to achieve its investment objective.
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 your investment to be a long-term investment that typically provides
the best results when held for a number of years. The table below describes the
chief risks you assume when investing in the Fund. Please see the SAI for
further discussion of these risks and other risks not discussed here.
---------------------------------------- ----------------------------------
Risks How we strive to manage them
---------------------------------------- ----------------------------------
Market risk is the risk that all or a We maintain a long-term
majority of the securities in a investment approach and focus on
certain market-like the stock or bond securities we believe can
market-will decline in value because continue to provide returns over
of economic conditions, future an extended time frame
expectations or investor confidence. regardless of these interim
market fluctuations. Generally,
Index swaps are subject to the same we do not try to predict overall
market risks as the investment market market movements.
or sector that the index represents.
Depending on the actual movements of In evaluating the use of an
the index and how well the portfolio index swap for the Fund, we
manager forecasts those movements, a carefully consider how market
fund could experience a higher or changes could affect the swap
lower return than anticipated. and how that compares to our
investing directly in the market
the swap is intended to
represent. When selecting
dealers with whom we would make
interest rate or index swap
agreements for the Fund, we
focus on those dealers with high
quality ratings and do careful
credit analysis before engaging
in the transaction.
---------------------------------------- ----------------------------------
Interest rate risk is the risk that We limit the amount of the
securities, particularly bonds with Fund's assets invested in any
longer maturities, will decrease in one industry and in any
value if interest rates rise and individual security.
increase in value if interest rates
fall. Investments in equity The Fund is subject to various
securities issued by small and medium interest rate risks depending
sized companies, which often borrow upon its investment objectives
money to finance operations, may also and policies. We cannot
be adversely affected by rising eliminate this risk, but we do
interest rates. try to address it by monitoring
economic conditions, especially
Swaps may be particularly sensitive to interest rate trends and their
interest rate changes. Depending on potential impact on the Fund.
the actual movements of interest rates The Fund does not try to
and how well the portfolio manager increase returns on its
anticipates them, a portfolio could investments in debt securities
experience a higher or lower return by predicting and aggressively
than anticipated. For example, if a capitalizing on interest rate
portfolio holds interest rate swaps movements.
and is required to make payments based
on variable interest rates, it will By investing in swaps, the Fund
have to make increased payments if is subject to additional
interest rates rise, which will not interest rate risk. The Fund
necessarily be offset by the will not invest in interest rate
fixed-rate payments it is entitled to or index swaps with maturities
receive under the swap agreement. of more than two years. Each
business day we will calculate
the amount the Fund must pay for
any swaps it holds and will
designate enough cash or other
liquid securities to cover that
amount.
---------------------------------------- ----------------------------------
Credit risk is the possibility that a Our careful, credit-oriented
bond's issuer (or an entity that bond selection and our
insures the bond) will be unable to commitment to hold a diversified
make timely payments of interest and selection of high-yield bonds
principal. are designed to manage this risk.
Investing in so-called "junk" or It is likely that protracted
"high-yield" bonds entails the risk of periods of economic uncertainty
principal loss, which may be greater would cause increased volatility
than the risk involved in investment in the market prices of
grade bonds. High-yield bonds are high-yield bonds, an increase in
sometimes issued by companies whose the number of high-yield bond
earnings at the time the bond is defaults and corresponding
issued are less than the projected volatility in the Fund's net
debt payments on the bonds. asset value.
A protracted economic downturn may Our holdings of high quality
severely disrupt the market for investment grade bonds are less
high-yield bonds, adversely affect the subject to credit risk and may
value of outstanding bonds and help to balance any credit
adversely affect the ability of problems experienced by
high-yield issuers to repay principal individual high-yield bond
and interest. issuers or foreign issuers.
When selecting dealers with whom
we would make interest rate or
index swap agreements, we focus
on those with high quality
ratings and do careful credit
analysis before investing.
---------------------------------------- ----------------------------------
Foreign risk is the risk that foreign We attempt to reduce the risks
securities may be adversely affected presented by such investments by
by political instability, changes in conducting world-wide
currency exchange rates, foreign fundamental research, including
economic conditions or inadequate country visits. In addition,
regulatory and accounting standards. we monitor current economic and
market conditions and trends,
the political and regulatory
environment and the value of
currencies in different
countries in an effort to
identify the most attractive
countries and securities.
Additionally, when currencies
appear significantly overvalued
compared to average real
exchange rates, the Fund may
hedge exposure to those
currencies for defensive
purposes.
---------------------------------------- ----------------------------------
Currency risk is the risk that the The Fund, which has exposure to
value of an investment may be global and international
negatively affected by changes in investments, may be affected by
foreign currency exchange rates. changes in currency rates and
Adverse changes in exchange rates may exchange control regulations and
reduce or eliminate any gains produced may incur costs in connection
by investments that are denominated in with conversions between
foreign currencies and may increase currencies. To hedge this
losses. currency risk associated with
investments in non-U.S. dollar
denominated securities, the Fund
may invest in forward foreign
currency contracts. These
activities pose special risks
which do not typically arise in
connection with investments in
U.S. securities. In addition,
the Fund may engage in foreign
currency options and futures
transactions.
---------------------------------------- ----------------------------------
Emerging markets risk is the We may invest a portion of the
possibility that the risks associated Fund's assets in securities of
with international investing will be issuers located in emerging
greater in emerging markets than in markets. We cannot eliminate
more developed foreign markets these risks but will attempt to
because, among other things, emerging reduce these risks through
markets may have less stable political portfolio diversification,
and economic environments. In credit analysis and attention to
addition, in many emerging markets trends in the economy,
there is substantially less publicly industries and financial markets
available information about issuers and other relevant factors. The
and the information that is available Fund's investments in emerging
tends to be of a lesser quality. markets will, in the aggregate,
Economic markets and structures tend be limited to no more than 15%
to be less mature and diverse and the of the Fund's total assets.
securities markets, which are subject
to less government regulation or
supervision, may also be smaller, less
liquid and subject to greater price
volatility.
---------------------------------------- ----------------------------------
Lower rated fixed-income securities We limit investments in
(high-yield, high-risk securities), high-risk, high-yield
while generally having higher yields, fixed-income securities. We also
are subject to reduced attempt to reduce the risk
creditworthiness of issuers, increased associated with investment in
risks of default and a more limited high-yield debt securities
and less liquid secondary market than through portfolio
higher rated securities. These diversification, credit
securities are subject to greater analysis, attention to trends in
price volatility and risk of loss of the economy, industries and
income and principal than are higher financial markets, and complying
rated securities. Lower rated and with the limits on the exposure
unrated fixed-income securities tend to this asset class described in
to reflect short-term corporate and this Prospectus.
market developments to a greater
extent than higher rated fixed-income
securities, which react primarily to
fluctuations in the general level of
interest rates. Fixed-income
securities of this type are considered
to be of poor standing and primarily
speculative. Such securities are
subject to a substantial degree of
credit risk.
---------------------------------------- ----------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid
securities cannot be readily sold securities to no more than 15%
within seven days at approximately the of the Fund's net assets.
price that a fund has valued them.
Swap agreements entered into by
The high-yield secondary market is the Fund will be treated as
particularly susceptible to liquidity illiquid securities. However,
problems when institutional investors, swap dealers may be willing to
such as mutual funds and certain other repurchase interest rate swaps.
financial institutions, temporarily
stop buying bonds for regulatory,
financial or other reasons.
---------------------------------------- ----------------------------------
Futures contracts, options on futures We may use certain options
contracts, forward contracts, and strategies or may use futures
certain options used as investments contracts and options on futures
for hedging and other non-speculative contracts. We will not enter
purposes involve certain risks. For into futures contracts and
example, a lack of correlation between options thereon to the extent
price changes of an option or futures that more than 5% of the Fund's
contract and the assets being hedged total assets are required as
could render a fund's hedging strategy futures contract margin deposits
unsuccessful and could result in and premiums on options and only
losses. The same results could occur to the extent that obligations
if movements of foreign currencies do under such futures contracts and
not correlate as expected by the options thereon would not exceed
investment advisor at a time when a 20% of the Fund's total assets.
fund is using a hedging instrument
denominated in one foreign currency to We may also use options and
protect the value of a security futures to gain exposure to a
denominated in a second foreign particular market segment
currency against changes caused by without purchasing individual
fluctuations in the exchange rate for securities in the segment.
the dollar and the second currency. If
the direction of securities prices, See also "Foreign Risk" and
interest rates or foreign currency "Currency Risk" above.
prices is incorrectly predicted, the
fund will be in a worse position than
if such transactions had not been
entered into. In addition, since there
can be no assurance that a liquid
secondary market will exist for any
contract purchased or sold, a fund may
be required to maintain a position
(and in the case of written options
may be required to continue to hold
the securities used as cover) until
exercise or expiration, which could
result in losses. Further, options and
futures contracts on foreign
currencies, and forward contracts,
entail particular risks related to
conditions affecting the underlying
currency. Over-the-counter
transactions in options and forward
contracts also involve risks arising
from the lack of an organized exchange
trading environment.
---------------------------------------- ----------------------------------
Zero coupon and pay-in-kind bonds are We may invest in zero coupon and
generally considered to be more pay-in-kind bonds to the extent
interest sensitive than income-bearing consistent with the Fund's
bonds, to be more speculative than investment objective. We cannot
interest-bearing bonds, and to have eliminate the risks of zero
certain tax consequences which could, coupon bonds, but we do try to
under certain circumstances, be address them by monitoring
adverse to the Fund. For example, the economic conditions, especially
Fund accrues, and is required to interest rate trends and their
distribute to shareholders, income on potential impact on the Fund.
its zero coupon bonds. However, the
Fund may not receive the cash
associated with this income until the
bonds are sold or mature. If the Fund
does 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.
---------------------------------------- ----------------------------------
Portfolio turnover rates reflect the The Fund will normally
amount of securities that are replaced experience an annual portfolio
from the beginning of the year to the turnover rate exceeding 200%.
end of the year by the Fund. The
higher the amount of portfolio
activity, the higher the brokerage
costs and other transaction costs of
the Fund are likely to be. The amount
of portfolio activity will also affect
the amount of taxes payable by the
Fund's shareholders that are subject
to federal income tax, as well as the
character (ordinary income vs. capital
gains) of such tax obligations.
---------------------------------------- ----------------------------------
Prepayment Risk is the risk that We may invest in mortgage-backed
homeowners will prepay mortgages securities, CMOs and REMICs. We
during periods of low interest rates, take into consideration the
forcing an investor to reinvest money likelihood of prepayment when
at interest rates that might be lower mortgages are selected. We may
than those on the prepaid mortgage. look for mortgage securities
that have characteristics that
make them less likely to be
prepaid, such as low outstanding
loan balances or below-market
interest rates.
---------------------------------------- ----------------------------------
Transaction Costs Risk is the risk The Fund is subject to
that the cost of buying, selling and transaction costs risk to the
holding foreign securities, including extent that its respective
brokerage, tax and custody costs, may objective and policies permit it
be higher than those involved in to invest, and it actually does
domestic transactions. invest, in foreign securities.
We strive to monitor transaction
costs and to choose an efficient
trading strategy for the Fund.
---------------------------------------- ----------------------------------
Foreign government securities risks We attempt to reduce the risks
involve the ability of a foreign associated with investing in
government or government-related foreign governments by limiting
issuer to make timely principal and the portion of portfolio assets
interest payments on its external debt that may be invested in such
obligations. This ability to make securities.
payments will be strongly influenced
by the issuer's balance of payments,
including export performance, its
access to international credits and
investments, fluctuations in interest
rates and the extent of its foreign
reserves.
---------------------------------------- ----------------------------------
Valuation risk: A less liquid We will strive to manage this
secondary market, as described above, risk by carefully evaluating
makes it more difficult for the Fund individual bonds and by limiting
to obtain precise valuations of the the amount of the Fund's assets
high-yield securities in its that can be allocated to
portfolio. During periods of reduced privately placed high-yield
liquidity, judgment plays a greater securities.
role in valuing high-yield securities.
---------------------------------------- ----------------------------------
Legislative and regulatory risk: The We monitor the status of
United States Congress has from time regulatory and legislative
to time taken or considered proposals to evaluate any
legislative actions that could possible effects they might have
adversely affect the high-yield bond on the Fund's portfolio.
market. For example, Congressional
legislation has, with some exceptions,
generally prohibited federally insured
savings and loan institutions from
investing in high-yield securities.
Regulatory actions have also affected
the high-yield market. Similar actions
in the future could reduce liquidity
for high-yield securities, reduce the
number of new high-yield securities
being issued and could make it more
difficult for the Fund to attain its
investment objective.
---------------------------------------- ----------------------------------
Derivatives Risk is the possibility We will use derivatives for
that a fund may experience a defensive purposes, such as to
significant loss if it employs a protect gains or hedge against
derivatives strategy (including a potential losses in the
strategy involving swaps such as portfolio without actually
interest rate swaps, index swaps and selling a security, to
credit default swaps) related to a neutralize the impact of
security or a securities index and interest rate changes, to affect
that security or index moves in the diversification or to earn
opposite direction from what the additional income. We will not
portfolio manager had anticipated. use derivatives for reasons
Another risk of derivative inconsistent with our investment
transactions is the creditworthiness objectives.
of the counterparty because the
transaction depends on the willingness
and ability of the counterparty to
fulfill its contractual obligations.
Derivatives also involve additional
expenses, which could reduce any
benefit or increase any loss to a fund
from using the strategy.
---------------------------------------- ----------------------------------
Disclosure of portfolio holdings information
A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's SAI.
Who manages the Fund
Investment manager and sub-advisor
Effective September 1, 2004, 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, the
manager was paid an aggregate fee of 0.44% of average daily net assets for the
last fiscal year, after giving effect to waivers by the manager.
A discussion of the basis for the Board of Trustees' approval of the Fund's
investment advisory contract is available in the Fund's annual report to
shareholders for the fiscal year ended October 31, 2005.
Portfolio managers
Timothy L. Rabe, Paul Grillo and Philip R. Perkins have primary responsibility
for making day-to-day investment decisions for the Fund. When making decisions
for the Fund, Messrs. Rabe, Grillo and Perkins regularly consult with Ryan K.
Brist and Stephen R. Cianci.
Timothy L. Rabe, Senior Vice President/Senior Portfolio Manager, received a
bachelor's degree in finance from the University of Illinois. Prior to joining
Delaware Investments in 2000, Mr. Rabe was a high-yield portfolio manager for
Conseco Capital Management. Before that, Mr. Rabe worked as a tax analyst for
The Northern Trust Company. Mr. Rabe is a CFA charterholder.
Paul Grillo, Senior Vice President/Senior Portfolio Manager, holds a BA in
Business Management from North Carolina State University and an MBA in Finance
from Pace University. Prior to joining Delaware Investments in 1993, Mr. Grillo
served as mortgage strategist and trader at the Dreyfus Corporation. He also
served as Mortgage Strategist and Portfolio Manager at Chemical Investment Group
and as Financial Analyst at Chemical Bank. Mr. Grillo is a CFA charterholder.
Philip R. Perkins, Senior Vice President/Senior Portfolio Manager, holds a B.A.
from the University of Notre Dame. He joined Delaware Investments in June 2003
from Deutsche Bank A.G., where he served as a Managing Director in Global
Markets. He was Chief Operating Officer for the Bank's Emerging Markets
Division, based in London. From 1998 to 2001, he was based in Moscow and
responsible for Local Markets Trading. Prior to that, Mr. Perkins was Chief
Executive Officer of Dinner Key Advisors Inc., a registered broker dealer
founded to trade derivative mortgage backed bonds with institutional clients. He
began his career at Salomon Brothers, where he was a Mortgage/CMO trader from
1985 to 1990.
Ryan K. Brist, Executive Vice President/Managing Director/Chief Investment
Officer, Fixed Income, earned his bachelor's degree from Indiana University.
Prior to joining Delaware Investments in August 2000, he served as a Senior
Trader and Corporate Specialist for Conseco Capital Management's fixed-income
group. He previously worked in oil/gas investment banking as an Analyst for Dean
Witter Reynolds in New York. He is a CFA Charterholder.
Stephen R. Cianci, Senior Vice President/Senior Portfolio Manager, holds a BS
and an MBA in Finance from Widener University. He joined Delaware Investments'
Fixed Income Department in 1992 as an investment grade quantitative research
analyst. In addition to his quantitative research responsibilities, Mr. Cianci
also served as a mortgage-backed and asset-backed securities analyst. Mr. Cianci
is an Adjunct Professor of Finance at Widener University and a CFA
charterholder.
The SAI for the Fund provides additional information about the portfolio
managers' compensation, other accounts managed by the portfolio managers and the
portfolio managers' ownership of other securities in the Fund.
Who's who?
This diagram shows the various organizations involved in 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]
Investment Manager Board of Trustees JPMorgan Chase Bank
Delaware Management Company 4 Chase Metrotech Center
2005 Market Street The Funds Brooklyn, NY11245Philadelphia, PA19103-7094
Distributor Service agent
Delaware Distributors, L.P. Delaware Service Company, Inc.
2005 Market Street 2005 Market Street
Philadelphia, PA19103-7094Philadelphia, PA19103-7094
Portfolio managers Financial intermediary wholesaler
(see page __ for details) Lincoln Financial Distributors,
Inc.
2001 Market Street
Philadelphia, PA19103-7055
Financial advisors
Shareholders
Board of Trustees A mutual fund is governed by a board of trustees, which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. Generally, at least 40% of the board of trustees must be independent of
the fund's investment manager and distributor. However, the Fund relies on
certain exemptive rules adopted by the SEC that require its Board of Trustees to
be comprised of a majority of such independent Trustees. These independent fund
Trustees, in particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker/dealers and are subject to NASD
rules governing mutual fund sales practices.
Financial intermediary wholesaler Pursuant to a contractual arrangement with
Delaware Distributors, L.P., Lincoln Financial Distributors, Inc. (LFD) is
primarily responsible for promoting the sale of Fund shares through
broker/dealers, financial advisors and other financial intermediaries.
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 advisors Financial advisors provide advice to their clients, analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisors are associated with securities broker/dealers
who have entered into selling and/or service arrangements with the distributor.
Selling broker/dealers and financial advisors are compensated for their services
generally through sales commissions, and through 12b-1 fees and/or service fees
deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights. 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 policies must also seek shareholder approval.
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 advisor to determine which class best suits your
investment goals and time frame.
Choosing a share class
CLASS A
o Class A shares have an up-front sales charge of up to 4.50% that you pay
when you buy the shares.
o If you invest $100,000 or more, your front-end sales charge will be
reduced.
o You may qualify for other reductions in sales charges and under certain
circumstances the sales charge may be waived, as described in "How to
reduce your sales charge'' below.
o Class A shares are also subject to an annual 12b-1 fee no greater than
0.30% (currently, waived not to exceed 0.25%) of average daily net assets,
which is lower than the 12b-1 fee for Class B, Class C and Class R shares.
See "Dealer compensation" below for further information.
o Class A shares generally are not subject to a contingent deferred sales
charge except in the limited circumstances described in the table below.
o Class A shares generally are not available for purchase by anyone qualified
to purchase Class R shares, except as described below.
Class A sales charges
The table below details your sales charges on purchases of Class A shares. The
offering price for Class A shares includes the front-end sales charge. The sales
charge as a percentage of the net amount invested is the maximum percentage of
the amount invested rounded to the nearest hundredth. The actual percentage of
sales charge as a percentage of the amount invested will vary depending on the
amount invested, rounding and the then-current NAV. Similarly, the actual sales
charge as a percentage of offering price may be different due to the amount
invested, rounding and the then-current offering may be greater or lesser than
the percentage shown.
--------------------------------- ------------------------------ ------------------------------
Sales charge as % Sales charge as %
Amount of purchase of offering price of net amount invested
--------------------------------- ------------------------------ ------------------------------
Less than $100,000 4.50% 5.13%
--------------------------------- ------------------------------ ------------------------------
$100,000 but less than $250,000 3.50% 4.00%
--------------------------------- ------------------------------ ------------------------------
$250,000 but less than $500,000 2.50% 3.00%
--------------------------------- ------------------------------ ------------------------------
$500,000 but less than $1 million 2.00% 2.44%
--------------------------------- ------------------------------ ------------------------------
$1 million or more None (Limited CDSC may apply)* None (Limited CDSC may apply)*
--------------------------------- ------------------------------ ------------------------------
* There is no front-end sales charge when you purchase $1 million or more of
Class A shares. However, if the Distributor paid your financial advisor a
commission on your purchase of $1 million or more of Class A shares, you
will have to pay a limited contingent deferred sales charge (Limited CDSC)
of 1.00% if you redeem these shares within the first year and 0.50% if you
redeem them within the second year, unless a specific waiver of the charge
applies. The Limited CDSC will be paid to the Distributor and will be
assessed on an amount equal to the lesser of: (1) the net asset value at
the time of purchase of the Class A shares being redeemed or (2) the net
asset value of such Class A shares at the time of redemption. For purposes
of this formula, the "net asset value at the time of purchase" will be the
net asset value at purchase of the Class A shares even if those shares are
later exchanged for shares of another Delaware Investments fund and, in the
event of an exchange of Class A shares, the "net asset value of such shares
at the time of redemption" will be the net asset value of the shares
acquired in the exchange. In determining whether a Limited CDSC is payable,
it will be assumed that shares not subject to the Limited CDSC are the
first redeemed followed by other shares held for the longest period of
time. See "Dealer compensation" below for a description of the dealer
commission that is paid.
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 4.00%. The
contingent deferred sales charge is 3.00% during the second year, 2.25%
during the third year, 1.50% during the fourth and fifth years, 1.00%
during the sixth year and 0% thereafter.
o In determining whether the contingent deferred sales charge applies to a
redemption of Class B Shares, it will be assumed that shares held for more
than six years are redeemed first, followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held
longest during the six-year period. For further information on how the
contingent deferred sales charge is determined, please see "Calculation ofContingent Deferred Sales Charges - Class B and Class C" below.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see "Waivers of Contingent Deferred Sales Charges" below for
further information.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1.00% 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 B shares have higher expenses and
any dividends paid on these shares are generally lower than dividends on
Class A and Class R shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%
(currently, waived not to exceed 0.25%). Conversion may occur as late as
three months after the eighth anniversary of purchase, during which time
Class B's higher 12b-1 fees apply.
o You may purchase only up to $100,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
CLASS C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge of 1.00% if you redeem your shares within 12 months
after you buy them.
o In determining whether the contingent deferred sales charge applies to a
redemption of Class C shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for
12 months or less. For further information on how the contingent deferred
sales charge is determined, please see "Calculation of Contingent DeferredSales Charges - Class B and Class C" below.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see "Waivers of Contingent Deferred Sales Charges" below for
further information.
o Class C shares are subject to an annual 12b-1 fee no greater than 1.00% 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
any dividends paid on these shares are generally lower than dividends on
Class A and Class R 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.
CLASS R
o Class R shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. Class R shares are not subject to a
contingent deferred sales charge.
o Class R shares are subject to an annual 12b-1 fee no greater than 0.60%
(currently, waived not to exceed 0.50%) of average daily net assets, which
is lower than the 12b-1 fee for Class B and Class C shares.
o Because of the higher 12b-1 fee, Class R shares have higher expenses and
any dividends paid on these shares are generally lower than dividends on
Class A shares.
o Unlike Class B shares, Class R shares do not automatically convert into
another class.
o Class R shares generally are available only to (i) qualified and
non-qualified plan shareholders covering multiple employees (including
401(k), 401(a), 457, and non-custodial 403(b) plans, as well as other
non-qualified deferred compensation plans) with assets (at the time shares
are considered for purchase) of $10 million or less; and (ii) IRA rollovers
from plans that were previously maintained on Delaware's retirement record
keeping system or maintained on BISYS's retirement record keeping system
that are offering Class R shares to participants.
Except as noted above, no other IRA accounts are eligible for Class R shares
(e.g., no SIMPLE IRA's, SEP-IRA's, SAR-SEP IRA's, Roth IRA's, etc.). For
purposes of determining plan asset levels, affiliated plans may be combined at
the request of the plan sponsor.
Each share class may be eligible for purchase through programs sponsored by
financial intermediaries where such programs require the purchase of a specific
class of shares.
Any account holding Class A shares as of June 1, 2003 (the date Class R shares
were made available) continues to be eligible to purchase Class A shares after
that date. Any account holding Class R shares is not eligible to purchase Class
A shares.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sale and distribution of its shares. Because these
fees are paid out of the Fund's assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
Calculation of Contingent Deferred Sales Charges - Class B and Class C
Contingent deferred sales charges are charged as a percentage of the dollar
amount subject to the contingent deferred sales charge. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No contingent deferred sales charge will be imposed on
increases in net asset value above the initial purchase price, nor will a
contingent deferred sales charge be assessed on redemptions of shares acquired
through reinvestment of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of Class B shares or Class C shares of a Fund, even if
those shares are later exchanged for shares of another Delaware Investments
fund. In the event of an exchange of the shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares that
were acquired in the exchange.
Dealer compensation
Your financial advisor that sells you shares of the Fund may be eligible to
receive the following amounts as compensation for your investment in the Fund.
These amounts are paid by the distributor to the securities dealer with whom
your financial advisor is associated.
-------------------------------------- ----------- ---------- -------------- ----------
Class A(1) Class B(2) Class C(3) Class R(4)
-------------------------------------- ----------- ---------- -------------- ----------
Commission (%) - 4.00% 1.00% -
-------------------------------------- ----------- ---------- -------------- ----------
Investment less than $50,000 4.00% - - -
-------------------------------------- ----------- ---------- -------------- ----------
$50,000 but less than $100,000 4.00% - - -
-------------------------------------- ----------- ---------- -------------- ----------
$100,000 but less than $250,000 3.00% - - -
-------------------------------------- ----------- ---------- -------------- ----------
$250,000 but less than $500,000 2.00% - - -
-------------------------------------- ----------- ---------- -------------- ----------
$500,000 but less than $1,000,000 1.60% - - -
-------------------------------------- ----------- ---------- -------------- ----------
$1,000,000 but less than $5,000,000 1.00% - - -
-------------------------------------- ----------- ---------- -------------- ----------
$5,000,000 but less than $25,000,000 0.50% - - -
-------------------------------------- ----------- ---------- -------------- ----------
$25,000,000 or more 0.25% - - -
-------------------------------------- ----------- ---------- -------------- ----------
12b-1 Fee to Dealer 0.30% 0.25% 1.00% 0.60%
-------------------------------------- ----------- ---------- -------------- ----------
(1) On sales of Class A shares, the Distributor re-allows to your securities
dealer a portion of the front-end sales charge depending upon the amount you
invested. Your securities dealer is eligible to receive up to 0.30% of the 12b-1
fee applicable to Class A shares. However the Distributor has contracted to
limit this amount to 0.25% through February 28, 2007.
(2) On sales of Class B shares, the Distributor pays your securities dealer an
up-front commission of 4.00%. Your securities dealer also may be eligible to
receive a 12b-1 service fee of up to 0.25% from the date of purchase. After
approximately eight years, Class B shares automatically convert into Class A
shares and dealers may then be eligible to receive the 12b-1 fee applicable to
Class A.
(3) On sales of Class C shares, the Distributor pays your securities dealer an
up-front commission of 1.00%. The up-front commission includes an advance of the
first year's 12b-1 service fee of up to 0.25%. During the first 12 months, the
Distributor retains the full 1.00% 12b-1 fee to partially offset the up-front
commission and the prepaid 0.25% service fee advanced at the time of purchase.
Starting in the 13th month, your securities dealer may be eligible to receive
the full 1.00% 12b-1 fee applicable to Class C.
(4) On sales of Class R shares, the Distributor does not pay your securities
dealer an up-front commission. The maximum 12b-1 fee applicable to Class R
shares is 0.60% of average daily net assets. However, the Distributor has
contracted to limit this amount to 0.50% through February 28, 2007. Your
securities dealer may be eligible to receive a 12b-1 fee of up to 0.60% from the
date of purchase, although this rate is currently 0.50%.
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 SAI for detailed information and eligibility requirements.
You can also get additional information from your financial advisor. You or your
financial advisor must notify us at the time you purchase shares if you are
eligible for any of these programs. You may also need to provide information to
your financial advisor or the Fund in order to qualify for a reduction in sales
charges. Such information may include your Delaware Investments Funds holdings
in any other account, including retirement accounts held indirectly or through
an intermediary and the name of qualifying family members and their holdings.
Class R shares have no up-front sales charge. We reserve the right to determine
whether any purchase is entitled, by virtue of the foregoing, to the reduced
initial sales charge.
--------------------------- ---------------------------------------- -------------------------------------------------------------
Program How it works Share class
A B C
--------------------------- ---------------------------------------- ----------------- -------------------------------------------
Letter of Intent Through a Letter of Intent you agree X Although the Letter of Intent and Rights
to invest a certain amount in of Accumulation do not apply to the
Delaware Investments Funds (except purchase of Class B and Class C shares,
money market funds with no sales you can combine your purchase of Class A
charge) over a 13-month period to shares with your purchase of Class B and
qualify for reduced front-end sales Class C shares to fulfill your Letter of
charges. Intent or qualify for Rights of
Accumulation.
--------------------------- ---------------------------------------- ----------------- -------------------------------------------
Rights of Accumulation You can combine your holdings or X
purchases of all funds in the
Delaware Investments family (except
money market funds with no sales
charge) as well as the holdings and
purchases of your spouse and
children under 21 to qualify for
reduced front-end sales charges.
--------------------------- ---------------------------------------- ----------------- -------------------------- ----------------
Reinvestment of Up to 12 months after you redeem For Class A, For Class B, your Not
Redeemed Shares shares, you can reinvest the you will not account will be available.
proceeds without paying a sales have to pay credited with the
charge, as noted to the right. an additional contingent deferred
front-end sales charge you
sales charge. previously paid on the
amount you are
reinvesting. Your
schedule for
contingent deferred
sales charges and
conversion to Class A
will not start over
again, it will pick up
from the point at
which you redeemed
your shares.
--------------------------- ---------------------------------------- ----------------- -------------------------------------------
SIMPLE IRA, SEP IRA, These investment plans may qualify X There is no reduction in sales charges
SAR/SEP, Profit for reduced sales charges by for Class B or Class C shares for group
Sharing, Pension, combining the purchases of all purchases by retirement plans.
401(k), SIMPLE 401(k), members of the group. Members of
403(b)(7), and 457 these groups may also qualify to
Retirement Plans purchase shares without a front-end
sales charge and may qualify for a
waiver of any contingent deferred
sales charges on Class A shares.
--------------------------- ---------------------------------------- ----------------- -------------------------------------------
Buying Class A shares at Net Asset Value
Class A shares of a Fund may be purchased at net asset value under the following
circumstances, provided that you notify the Fund in advance that the trade
qualifies for this privilege.
o Shares purchased under the Delaware Investments Dividend Reinvestment Plan
and, under certain circumstances, the Exchange Privilege and the 12-Month
Reinvestment Privilege.
o Purchases by (i) current and former officers, Trustees/Directors and
employees of any fund in the Delaware Investments family, the Manager or
any of the Manager's current affiliates and those that may in the future be
created; (ii) legal counsel to the funds; and (iii) registered
representatives and employees of broker/dealers who have entered into
Dealer's Agreements with the Distributor. Family members (regardless of
age) of such persons at their direction, and any employee benefit plan
established by any of the foregoing entities, counsel or broker/dealers may
also purchase shares at net asset value.
o Shareholders who own Class A shares of Delaware Cash Reserve Fund as a
result of a liquidation of a fund in the Delaware Investments family may
exchange into Class A shares of another Fund at net asset value.
o Purchases by bank employees who provide services in connection with
agreements between the bank and unaffiliated brokers or dealers concerning
sales of shares of funds in the Delaware Investments family.
o Purchases by certain officers, trustees and key employees of institutional
clients of the Manager or any of the Manager's affiliates.
o Purchases for the benefit of the clients of brokers, dealers and registered
investment advisors if such broker, dealer or investment advisor has
entered into an agreement with the Distributor providing specifically for
the purchase of Class A shares in connection with special investment
products, such as wrap accounts or similar fee based programs. Investors
may be charged a fee when effecting transactions in Class A shares through
a broker or agent that offers these special investment products.
o Purchases by financial institutions investing for the account of their
trust customers if they are not eligible to purchase shares of the
Institutional Class of a Fund.
o Purchases by retirement plans that are maintained on retirement platforms
sponsored by financial intermediary firms, provided the financial
intermediary firm has entered into a Class A NAV Agreement with respect to
such retirement platforms.
o Purchases by certain legacy bank sponsored retirement plans that meet
requirements set forth in the SAI.
o Purchases by certain legacy retirement assets that meet requirements set
forth in the SAI.
o Investments made by plan level and/or participant retirement accounts that
are for the purpose of repaying a loan taken from such accounts.
o Loan repayments made to a Fund account in connection with loans originated
from accounts previously maintained by another investment firm.
Waivers of Contingent Deferred Sales Charges
--------------------------------------------------------- ----------------- ----------------- ---------------
Share Class
--------------------------------------------------------- ----------------- ----------------- ---------------
Category A* B C
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions in accordance with a Systematic Withdrawal X X
Plan, provided the annual amount selected to be
withdrawn under the Plan does not exceed 12% of the
value of the account on the date that the Systematic
Withdrawal Plan was established or modified
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions that result from the Fund's right to X X
liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less
than the then-effective minimum account size
--------------------------------------------------------- ----------------- ----------------- ---------------
Distributions to participants or beneficiaries from a Not available. Not available.
retirement plan qualified under section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code")
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions pursuant to the direction of a participant X Not available. Not available.
or beneficiary of a retirement plan qualified under
section 401(a) of the Code with respect to that
retirement plan
--------------------------------------------------------- ----------------- ----------------- ---------------
Periodic distributions from an individual retirement X
account (i.e., IRA, ROTH IRA, EDUCATION OR COVERDALE
IRA, SIMPLE IRA, SAR/SEP or SEP/IRA) or a qualified
plan** (403(b)(7) plan, 457 Deferred Compensation Plan,
Profit Sharing Plan, Money Purchase Plan or 401(k)
Defined Contribution Plan) not subject to a penalty
under Section 72(t)(2)(A) of the Internal Revenue Code
("IRC") or a hardship or unforeseen emergency provision
in the qualified plan as described in Tres. Reg.
§1.401(k)-1(d)(2) and Section 457(d)(3) of the IRC.
--------------------------------------------------------- ----------------- ----------------- ---------------
Returns of Excess Contributions due to any regulatory X X X
limit from an individual retirement account (i.e., IRA,
ROTH IRA, EDUCATION OR COVERDALE IRA, SIMPLE IRA,
SAR/SEP or SEP/IRA) or a qualified plan (403(b)(7)
plan, 457 Deferred Compensation Plan, Profit Sharing
Plan, Money Purchase Plan or 401(k) Defined
Contribution Plan).
--------------------------------------------------------- ----------------- ----------------- ---------------
Distributions by other employee benefit plans to pay Not available. Not available.
benefits
--------------------------------------------------------- ----------------- ----------------- ---------------
Systematic withdrawals from a retirement account or X X
qualified plan that are not subject to a penalty
pursuant to Section 72(t)(2)(A) of the IRC or a
hardship or unforeseen emergency provision in the
qualified plan** as described in Tres. Reg.
§1.401(k)-1(d)(2) and Section 457(d)(3) of the IRC.
The systematic withdrawal may be pursuant to Delaware
Investments funds' Systematic Withdrawal Plan or a
systematic withdrawal permitted by the IRC.
--------------------------------------------------------- ----------------- ----------------- ---------------
Distributions from an account of a redemption resulting X X
from the death or disability (as defined in Section
72(t)(2)(A) of the IRC) of a registered owner or a
registered joint owner occurring after the purchase of
the shares being redeemed. In the case of accounts
established under the Uniform Gifts to Minors or
Uniform Transfers to Minors Act or trust accounts, the
waiver applies upon the death of all beneficial owners.
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions by certain legacy retirement assets that Not available. X
meet the requirements set forth in the SAI.
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions by the classes of shareholders who are X Not available. Not available.
permitted to purchase shares at net asset value,
regardless of the size of the purchase. See "BuyingClass A shares at Net Asset Value" above.
--------------------------------------------------------- ----------------- ----------------- ---------------
* The waiver for Class A shares relates to a waiver of the Limited CDSC.
Please note that you or your financial advisor will have to notify us at
the time of purchase that the trade qualifies for such waiver.
** Qualified plans that are fully redeemed at the direction of the plan's
fiduciary are subject to any applicable contingent deferred sales charge or
Limited CDSC, unless the redemption is due to the termination of the plan.
Certain sales charges may be based on historical cost. Therefore, you should
maintain any records that substantiate these costs because the Fund, its
transfer agent and financial intermediaries may not maintain this information.
Information about existing sales charges and sales charge reductions and waivers
is available free of charge in a clear and prominent format on the Delaware
Investments family's Web site at www.delawareinvestments.com. Additional
information on sales charges can be found in the SAI.
About your account (continued)
How to buy shares
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Through your financial advisor
Your financial advisor can handle all the details of purchasing shares,
including opening an account. Your financial advisor may charge a separate fee
for this service.
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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, 2005
Market Street, Philadelphia, PA19103-7094. 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 Bank of New York, ABA
#021000018, Bank Account number 8900403748. 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 first call us at 800 523-1918 so we can assign you an
account number.
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By exchange
You may exchange all or part of your investment in one or more Delaware
Investments Funds for shares of other Delaware Investments Funds. 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 may purchase or exchange shares through Delaphone, our automated telephone
service, or through our Web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800 523-1918.
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. The minimum purchase is $250, and you can make additional investments
of only $25 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 for a Coverdell Education Savings
Account (formerly an "Education IRA") is $500. The minimums vary for retirement
plans other than IRAs, Roth IRAs or Coverdell Education Savings Accounts.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of regular
trading on the New York Stock Exchange (NYSE), which is normally 4:00 p.m.
Eastern Time, you will pay that day's closing share price which is based on the
Fund's NAV. If your order is received after the close of regular trading on the
NYSE, you will pay the next business day's price. A business day is any day that
the NYSE is open for business (Business Day). We reserve the right to reject any
purchase order.
About your account (continued)
How to buy shares (continued)
We determine the NAV per share for each class of the Fund at the close of
regular trading on the NYSE on each Business Day. The NAV per share for each
class of the Fund is calculated by subtracting the liabilities of each class
from its total assets and dividing the resulting number by the number of shares
outstanding for that class. We generally price securities and other assets for
which market quotations are readily available at their market value. We price
fixed-income securities on the basis of valuations provided to us by an
independent pricing service that uses methods approved by the Board of Trustees.
We price any fixed-income securities that have a maturity of less than 60 days
at amortized cost, which approximates market value. For all other securities, we
use methods approved by the Board of Trustees that are designed to price
securities at their fair market value.
Fair valuation
When the Fund uses fair value pricing, it may take into account any factors it
deems appropriate. The Fund may determine fair value based upon developments
related to a specific security, current valuations of foreign stock indices (as
reflected in U.S. futures markets) and/or U.S. sector or broader stock market
indices. The price of securities used by the Fund to calculate its NAV may
differ from quoted or published prices for the same securities. Fair value
pricing may involve subjective judgments and it is possible that the fair value
determined for a security is materially different than the value that could be
realized upon the sale of that security.
The Fund anticipates using fair value pricing for securities primarily traded on
U.S. exchanges only under very limited circumstances, such as the early closing
of the exchange on which a security is traded or suspension of trading in the
security. The Fund may use fair value pricing more frequently for securities
primarily traded in non-U.S. markets because, among other things, most foreign
markets close well before the Fund values its securities at 4:00 p.m. Eastern
Time. The earlier close of these foreign markets gives rise to the possibility
that significant events, including broad market moves, may have occurred in the
interim. To account for this, the Fund may frequently value many foreign equity
securities using fair value prices based on third party vendor modeling tools to
the extent available.
Subject to the Board's oversight, the Fund's Board has delegated responsibility
for valuing the Fund's assets to a Pricing Committee of the Manager, which
operates under the policies and procedures approved by the Board as described
above.
Retirement plans
In addition to being an appropriate investment for your IRA, Roth IRA and
Coverdell Education Savings Account, 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 advisor, or call 800 523-1918.
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Through your financial advisor
Your financial advisor can handle all the details of redeeming your shares
(selling them back to the Fund). Your financial advisor may charge a separate
fee for this service.
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By mail
You may redeem your shares by mail by writing to: Delaware Investments, 2005
Market Street, Philadelphia, PA19103-7094. All owners of the account must sign
the request. For redemptions of more than $100,000, you must include a signature
guarantee for each owner. Signature guarantees are also required when redemption
proceeds are going to an address other than the address of record on the
account.
About your account (continued)
How to buy shares (continued)
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By telephone
You may redeem up to $100,000 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 may redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account, normally the next business day after we receive
your request. If you request a wire deposit, a bank wire fee may be deducted
from your proceeds. Bank information must be on file before you request a wire
redemption.
About your account (continued)
How to redeem shares (continued)
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Through automated shareholder services
You may redeem shares through Delaphone, our automated telephone service, or
through our Web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at 800
523-1918.
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, and
we or an authorized agent receive the request before the close of regular
trading on the NYSE (normally 4:00 p.m. Eastern Time), you will receive the NAV
next determined after we receive your request. If we receive your request after
the close of regular trading on the NYSE, you will receive the NAV next
determined on the next business day. 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' NAV when
you purchased them or their NAV 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 and Roth IRAs, Uniform Gifts to Minors Act and
Uniform Transfers to Minors Act accounts or accounts with automatic investing
plans and $500 for Coverdell Education Savings Accounts) 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, your Fund may redeem your account
after 60 days' written notice to you.
If you have an account in the same Delaware Investments Fund as another member
of your household, we are sending your household one copy of the Fund's
prospectus, annual and semi-annual reports unless you opt otherwise. This will
help us reduce the printing and mailing expenses associated with the Funds. We
will continue to send one copy of each of these documents to your household
until you notify us that you wish individual materials. If you wish to receive
individual materials, please call our Shareholder Service Center at 800 523-1918
or your financial advisor. We will begin sending you individual copies of these
documents thirty days after receiving your request.
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 or quarterly
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.
About your account (continued)
Special services (continued)
Electronic Delivery
With Delaware eDelivery, you can receive your fund documents electronically
instead of via the U.S. mail. When you sign up for eDelivery, you can access
your account statements, shareholder reports, and other fund materials online,
in a secure internet environment at any time, from anywhere.
Online Account Access
Account access is a password protected area of the Delaware Investments internet
Web site that gives you access to your account information and allows you to
perform transactions in a secure internet environment.
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 front-end sales charge or 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 or
from Class R shares of any fund you will pay any applicable sales charge on your
new shares. When exchanging Class B and Class C shares of one fund for the same
class of shares in other funds, your new shares will be subject to the same
contingent deferred sales charge as the shares you originally purchased. The
holding period for the contingent deferred sales charge 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 do not pay sales charges on
shares that you acquired through the reinvestment of dividends. You may have to
pay taxes on your exchange. When you exchange shares, you are purchasing shares
in another fund so you should be sure to get a copy of the fund's Prospectus and
read it carefully before buying shares through an exchange.
MoneyLine(SM) On Demand Service
Through our MoneyLine(SM) On Demand Service, you or your financial advisor may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans. MoneyLine
has a minimum transfer of $25 and a maximum transfer of $50,000, except for
purchases into IRAs. Delaware Investments does not charge a fee for this
service; however, your bank may assess one.
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.
The applicable limited contingent deferred sales charge for Class A Shares and
the contingent deferred sales charge for Class B and C Shares redeemed via a
Systematic Withdrawal Plan will be waived if the annual amount withdrawn in each
year is less than 12% of the account balance on the date that the Plan is
established. If the annual amount withdrawn in any year exceeds 12% of the
account balance on the date that the Systematic Withdrawal Plan is established,
all redemptions under the Plan will be subjected to the applicable contingent
deferred sales charge, including an assessment for previously redeemed amounts
under the Plan.
About your account (continued)
Frequent trading of Fund shares
The Fund discourages purchases by market timers and purchase orders (including
the purchase side of exchange orders) by shareholders identified as market
timers may be rejected. The Fund's Board of Trustees has adopted policies and
procedures designed to detect, deter and prevent trading activity detrimental to
the Fund and its shareholders, such as market timing. The Fund will consider
anyone who follows a pattern of market timing in any fund in the Delaware
Investments family or Optimum Fund Trust to be a market timer and may consider
anyone who has followed a similar pattern of market timing at an unaffiliated
fund family to be a market timer.
Market timing of a fund occurs when investors make consecutive, rapid,
short-term "roundtrips" -- that is, purchases into a fund followed quickly by
redemptions out of that fund. A short-term roundtrip is any redemption of fund
shares within 20 business days of a purchase of that fund's shares. If you make
a second such short-term roundtrip in a fund within the same calendar quarter of
a previous short-term roundtrip in that fund, you may be considered a market
timer. In determining whether market timing has occurred, the Fund will consider
short-term roundtrips to include rapid purchases and sales of Fund shares
through the exchange privilege. The Fund reserves the right to consider other
trading patterns to be market timing.
Your ability to use the Fund's exchange privilege may be limited if you are
identified as a market timer. If you are identified as a market timer, we will
execute the redemption side of your exchange order but may refuse the purchase
side of your exchange order. The Fund reserves the right to restrict, reject or
cancel, without prior notice, any purchase order or exchange order for any
reason, including any purchase order or exchange order accepted by any
shareholder's financial intermediary or in any omnibus-type account.
Transactions placed in violation of the Fund's market timing policy are not
necessarily deemed accepted by the Fund and may be cancelled or revoked by the
Fund on the next business day following receipt by the Fund.
Redemptions will continue to be permitted in accordance with the Fund's current
Prospectus. A redemption of shares under these circumstances could be costly to
a shareholder if, for example, the shares have declined in value, the
shareholder recently paid a front-end sales charge, the shares are subject to a
contingent deferred sales charge or the sale results in adverse tax
consequences. To avoid this risk, a shareholder should carefully monitor the
purchases, sales and exchanges of Fund shares and avoid frequent trading in Fund
shares.
The Fund reserves the right to modify this policy at any time without notice,
including modifications to the Fund's monitoring procedures and the procedures
to close accounts to new purchases. Although the implementation of this policy
involves judgments that are inherently subjective and may be selectively
applied, we seek to make judgments and applications that are consistent with the
interests of the Fund's shareholders. While we will take actions designed to
detect and prevent market timing, there can be no assurance that such trading
activity will be completely eliminated. Moreover, the Fund's market timing
policy does not require the Fund to take action in response to frequent trading
activity. If the Fund elects not to take any action in response to frequent
trading, such frequent trading activity could continue.
Risks of market timing
By realizing profits through short-term trading, shareholders that engage in
rapid purchases and sales or exchanges of the Fund's shares dilute the value of
shares held by long-term shareholders. Volatility resulting from excessive
purchases and sales or exchanges of Fund shares, especially involving large
dollar amounts, may disrupt efficient portfolio management. In particular, the
Fund may have difficulty implementing its long-term investment strategies if it
is forced to maintain a higher level of its assets in cash to accommodate
significant short-term trading activity. Excessive purchases and sales or
exchanges of the Fund's shares may also force the Fund to sell portfolio
securities at inopportune times to raise cash to accommodate short-term trading
activity. This could adversely affect the Fund's performance if, for example,
the Fund incurs increased brokerage costs and realization of taxable capital
gains without attaining any investment advantage.
A fund that invests significantly in foreign securities may be particularly
susceptible to short-term trading strategies. This is because foreign securities
are typically traded on markets that close well before the time the fund
calculates its NAV (typically, 4:00 p.m. Eastern Time). Developments that occur
between the closing of the foreign market and the Fund's NAV calculation may
affect the value of these foreign securities. The time zone differences among
international stock markets can allow a shareholder engaging in a short-term
trading strategy to exploit differences in fund share prices that are based on
closing prices of foreign securities established some time before a fund
calculates its own share price.
Any fund that invests in securities that are thinly traded, traded infrequently
or relatively illiquid has the risk that the securities prices used to calculate
the fund's NAV may not accurately reflect current market values. A shareholder
may seek to engage in short-term trading to take advantage of these pricing
differences. Funds that may be adversely affected by such arbitrage include, in
particular, funds that significantly invest in small-cap securities, technology
and other specific industry sector securities, and in certain fixed-income
securities, such as high-yield bonds, asset-backed securities or municipal
bonds.
Transaction monitoring procedures The Fund, through its transfer agent,
maintains surveillance procedures designed to detect excessive or short-term
trading in Fund shares. This monitoring process involves several factors, which
include scrutinizing transactions in fund shares for violations of the Fund's
market timing policy or other patterns of short-term or excessive trading. For
purposes of these transaction monitoring procedures, the Fund may consider
trading activity by multiple accounts under common ownership, control or
influence to be trading by a single entity. Trading activity identified by these
factors, or as a result of any other available information, will be evaluated to
determine whether such activity might constitute market timing. These procedures
may be modified from time to time to improve the detection of excessive or
short-term trading or to address other concerns. Such changes may be necessary
or appropriate, for example, to deal with issues specific to certain retirement
plans, plan exchange limits, U.S. Department of Labor regulations, certain
automated or pre-established exchange, asset allocation or dollar cost averaging
programs, or omnibus account arrangements.
Omnibus account arrangements are common forms of holding shares of the Fund,
particularly among certain brokers/dealers and other financial intermediaries,
including sponsors of retirement plans and variable insurance products. The Fund
will attempt to apply its monitoring procedures to these omnibus accounts and to
the individual participants in such accounts. In an effort to discourage market
timers in such accounts, the Fund may consider enforcement against market timers
at the participant level and at the omnibus level, up to and including
termination of the omnibus account's authorization to purchase Fund shares.
Limitations on ability to detect and curtail market timing Shareholders seeking
to engage in market timing may employ a variety of strategies to avoid detection
and, despite the efforts of the Fund and its agents to detect market timing in
Fund shares, there is no guarantee that the Fund will be able to identify these
shareholders or curtail their trading practices. In particular, the Fund may not
be able to detect market timing attributable to a particular investor who
effects purchase, redemption and/or exchange activity in Fund shares through
omnibus accounts. The difficulty of detecting market timing may be further
compounded if these entities utilize multiple tiers or omnibus accounts.
Dividends, distributions and taxes
Dividends and Distributions. The Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code. As a
regulated investment company, the Fund generally pays no federal income tax on
the income and gains it distributes to you. Dividends, if any, are declared
daily and paid monthly. Capital gains, if any, are paid annually. The amount of
any distribution will vary, and there is no guarantee the Fund will pay either
an income dividend or a capital gain distribution. We automatically reinvest all
dividends and any capital gains, unless you direct us to do otherwise.
Annual Statements. Every January, you will receive a statement that shows the
tax status of distributions you received the previous year. Distributions
declared in December but paid in January are taxable as if they were paid in
December. Mutual funds may reclassify income after your tax reporting statement
is mailed to you. Prior to issuing your statement, the Fund makes every effort
to search for reclassified income to reduce the number of corrected forms mailed
to shareholders. However, when necessary, the Fund will send you a corrected
Form 1099-DIV to reflect reclassified information.
Avoid "Buying A Dividend." If you invest in the Fund shortly before the record
date of a taxable distribution, the distribution will lower the value of the
Fund's shares by the amount of the distribution and, in effect, you will receive
some of your investment back in the form of a taxable distribution.
Tax Considerations. In general, if you are a taxable investor, Fund
distributions are taxable to you at either ordinary income or capital gains tax
rates. This is true whether you reinvest your distributions in additional Fund
shares or receive them in cash. For federal income tax purposes, Fund
distributions of short-term capital gains are taxable to you as ordinary income.
Fund distributions of long-term capital gains are taxable to you as long-term
capital gains no matter how long you have owned your shares.
A sale or redemption of Fund shares is a taxable event and, accordingly, a
capital gain or loss may be recognized. For tax purposes, an exchange of your
Fund shares for shares of a different Fund is the same as a sale.
By law, if you do not provide the Fund with your proper taxpayer identification
number and certain required certifications, you may be subject to backup
withholding on any distributions of income, capital gains or proceeds from the
sale of your shares. The Fund also must withhold if the IRS instructs it to do
so. When withholding is required, the amount will be 28% of any distributions or
proceeds paid.
Fund distributions and gains from the sale or exchange of your Fund shares
generally are subject to state and local taxes. Non-U.S. investors may be
subject to U.S. withholding or estate tax, and are subject to special U.S. tax
certification requirements.
This discussion of "Dividends, distributions and taxes" is not intended or
written to be used as tax advice. Because everyone's tax situation is unique,
you should consult your tax professional about federal, state, local or foreign
tax consequences before making an investment in the Fund.
Certain management considerations
Investments by fund of funds and similar investment vehicles
The Fund may accept investments from funds of funds, including those within the
Delaware Investments family, as well as from similar investment vehicles, such
as 529 Plans. A "529 Plan" is a college savings program that operates under
section 529 of the Internal Revenue Code. From time to time, the Fund may
experience large investments or redemptions due to allocations or rebalancings
by these funds of funds and/or similar investment vehicles. 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 have tax consequences if sales of securities
result in gains, and could also increase transaction costs or portfolio
turnover. The manager will monitor transactions by the funds of funds and will
attempt to minimize any adverse effects on both the Fund and the funds of funds
as a result of these transactions.
Manager of managers structure
At a shareholder meeting held on March 23, 2005 (or as adjourned), the Fund's
shareholders approved a "manager of managers" structure that would permit
Delaware Management Company, the Fund's investment advisor, to appoint and
replace sub-advisors, enter into sub-advisory agreements, and amend and
terminate sub-advisory agreements with respect to the Fund, subject to Board
approval but without shareholder approval (the "Manager of Managers Structure").
While Delaware Management Company does not currently expect to use the Manager
of Managers Structure with respect to the Fund, Delaware Management Company may,
in the future, recommend to the Fund's Board the establishment of the Manager of
Managers Structure by recommending the hiring of one or more sub-advisors to
manage all or a portion of the Fund's portfolio if it believes that doing so
would be likely to enhance the Fund's performance by introducing a different
investment style or focus.
The ability to implement the Manager of Managers Structure with respect to the
Fund is contingent upon the receipt of an exemptive order from the U.S.
Securities and Exchange Commission (the "SEC") or the adoption of a rule by the
SEC authorizing the implementation of the Manager of Managers Structure. The use
of the Manager of Managers Structure with respect to the Fund may be subject to
certain conditions set forth in the SEC exemptive order or rule. There can be no
assurance that the SEC will grant the Fund's application for an exemptive order
or adopt such a rule.
The Manager of Managers Structure would enable the Fund to operate with greater
efficiency and without incurring the expense and delays associated with
obtaining shareholder approval of sub-advisory agreements. The Manager of
Managers Structure would not permit investment management fees paid by the Fund
to be increased without shareholder approval or change Delaware Management
Company's responsibilities to the Fund, including Delaware Management Company's
responsibility for all advisory services furnished by a sub-advisor.
Financial highlights
The Financial highlights tables are 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.
----------------------------------------- -----------------------------------------------------------------------
Delaware Diversified Income Fund
Class A
2005 2004 2003 2002(3)* 2001*
----------------------------------------- -------------- ---------- -------------- -------------- ---------------
Net asset value, beginning of period $8,930 $8.590 $8.960 $9.440 $8.600
Income (loss) from investment operations:
Net investment income(1) 0.320 0.377 0.374 0.444 0.541
Net realized and unrealized gain (loss)
on investments and foreign currencies (0.229) 0.450 0.804 (0.001) 0.685
------- ------ ------ ------- ------
Total from investment operations (0.099) 0.827 1.178 0.443 1.226
------- ------ ------ ------- ------
Less dividends and distributions from:
Net investment income (0.389) (0.434) (1.274) (0.477) (0.361)
Net realized gain on investments (0.092) (0.053) (0.274) (0.446) (0.025)
Return of capital (0.008) --- --- --- ---
------- ------ ------ ------- ------
Total dividends and distributions (0.489) (0.487) (1.548) (0.923) (0.386)
------- ------ ------ ------- ------
Net asset value, end of period $8.540 $8.930 $8.590 $8.960 $9.440
======= ====== ====== ====== ======
Total return(2) 1.04% 9.92% 14.80% 5.39% 14.78%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $708,433 $ 294,033 $83,100 $4,391 $8,672
Ratio of expenses to average net assets 1.00% 1.02% 1.00% 0.58% 0.55%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly 1.14% 1.19% 1.60% 1.11% 0.62%
Ratio of net investment income to average
net assets 3.72% 4.33% 4.51% 5.09% 6.05%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly 3.58% 4.16% 3.91% 4.56% 5.98%
Portfolio turnover 417% 452% 620% 545% 252%
----------------------------------------- -------------- ---------- -------------- -------------- ---------------
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects a waiver and payment of fees by
the manager and distributor, as applicable. Performance would have been
lower had the expense limitation not been in effect.
(3) As required, effective November 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities and the
recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these changes
for the year ended October 31, 2002 was a decrease in net investment income
per share of $0.044, an increase in net realized gain (loss) per share of
$0.044, and a decrease in the ratio of net investment income to average net
assets of 0.51%. Per share data and ratios for periods prior to November 1,2001 have not been restated to reflect these changes in accounting.
* Effective October 28, 2002, Delaware Pooled Trust - The Delaware
Diversified Core Fixed Income Portfolio ("Pooled Trust Portfolio") was
merged into the Delaware Group Adviser Funds - Delaware Diversified Income
Fund. Financial highlights for the periods prior to October 28, 2002,
reflect the operating history of the Pooled Trust Portfolio. Performance
prior to October 28, 2002 does not reflect the impact of distribution and
service (12b-1) fees and the higher management and transfer agency fees
currently borne by holders of Class A shares.
------------------------------------------ ------------------------------------
Delaware Diversified Income Fund Class B
Year Ended
10/31
2005 2004 2003
------------------------------------------ ---------- ----------- -------------
Net asset value, beginning of period $8.920 $8.590 $8.960
Income (loss) from investment operations:
Net investment income(2) 0.262 0.312 0.313
Net realized and unrealized gain (loss)
on investments and foreign currencies (0.219) 0.440 0.807
------ ------ ------
Total from investment operations (0.043) 0.752 1.120
------ ------ ------
Less dividends and distributions from:
Net investment income (0.323) (0.369) (1.216)
Net realized gain on investments (0.092) (0.053) (0.274)
Return of capital (0.008) --- ---
------ ------ ------
Total dividends and distributions (0.423) (0.422) (1.490)
------ ------ ------
Net asset value, end of period $8.540 $8.920 $8.590
====== ====== ======
Total return(3) 0.30% 9.10% 14.03%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $53,626 $43,335 $16,147
Ratio of expenses to average net assets 1.75% 1.77% 1.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly 1.84% 1.89% 2.30%
Ratio of net investment income to
average net assets 2.97% 3.58% 3.76%
Ratio of net investment income to
average net assets prior to expense
limitation and expenses paid indirectly 2.88% 3.46% 3.21%
Portfolio turnover 417% 452% 620%
------------------------------------------ ---------- ----------- -------------
----------------------------------------- ---------------------------------------------------------
Delaware Diversified Income Fund
Class C
Period
Year Ended 10/28/02(1)
10/31 to
2005 2004 2003 10/31/02
----------------------------------------- -------------- ------------ ------------- ------------- -
Net asset value, beginning of period $8.930 $8.590 $8.960 $8.860
Income (loss) from investment operations:
Net investment income(2) 0.263 0.312 0.315 0.005
Net realized and unrealized gain (loss)
on investments and foreign currencies (0.230) 0.450 0.798 0.095
------- -------- ------ -------
Total from investment operations (0.033) 0.762 1.113 0.100
------- -------- ------ -------
Less dividends and distributions from:
Net investment income (0.323) (0.369) (1.209) ---
Net realized gain on investments (0.092) (0.053) (0.274) ---
Return of capital (0.008) --- --- ---
------- -------- ------ -------
Total dividends and distributions (0.423) (0.422) (1.483) ---
------- -------- ------ -------
Net asset value, end of period $8.540 $8.930 $8.590 $8.960
Total return(3) 0.29% 9.11% 13.95% 1.13%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $218,077 $109,911 $48,989 $10
======= ======== ====== =====
Ratio of expenses to average net assets 1.75% 1.77% 1.75% 1.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly 1.84% 1.89% 2.30% ---(4)
Ratio of net investment income to
average net assets 2.97% 3.58% 3.76% 4.01%
Ratio of net investment income to
average net assets prior to expense
limitation and expenses paid indirectly 2.88% 3.46% 3.21% ---(4)
Portfolio turnover 417% 452% 620% 545%
------------------------------------------ ----------------------------------------
Delaware Diversified Income Fund Class R
Period
Year Ended 6/2/03(1)
10/31 to
2005 2004 10/31/03
------------------------------------------ ------------- ------------- ------------
Net asset value, beginning of period $8.930 $8.590 $8.620
Income (loss) from investment operations:
Net investment income(2) 0.301 0.347 0.142
Net realized and unrealized gain (loss)
on investments and foreign currencies (0.231) 0.450 (0.036)
------- -------- -------
Total from investment operations (0.070) 0.797 0.106
------- -------- -------
Less dividends and distributions from:
Net investment income (0.360) (0.404) (0.136)
Net realized gain on investments (0.092) (0.053) ---
Return of capital (0.008) --- ---
------- -------- -------
Total dividends and distributions (0.460) (0.457) (0.136)
------- -------- -------
Net asset value, end of period $8.540 $8.930 $8.590
======= ======== =======
Total return(3) 0.71% 9.55% 1.24%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $22,661 $5,557 $256
Ratio of expenses to average net assets 1.31% 1.37% 1.35%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly 1.44% 1.49% 1.98%
Ratio of net investment income to
average net assets 3.41% 3.98% 4.20%
Ratio of net investment income to
average net assets prior to expense
limitation and expenses paid indirectly 3.28% 3.86% 3.57%
Portfolio turnover 417% 452% 620%
------------------------------------------ ------------- ------------- ------------
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects a waiver and payment of fees by
the manager and distributor, as applicable. Performance would have been
lower had the expense limitation not been in effect. Because Class C shares
commenced operations only four days prior to the Fund's fiscal year end,
the total return noted in the table above is not necessarily representative
of the performance of the Class C shares over a longer period of time.
(4) The ratios of expenses and net investment income to average net assets
prior to expense limitation and expenses paid indirectly have been omitted
as management believes that such ratios for this relatively short period
are not meaningful.
(5) As of October 31, 2002, the Delaware Diversified Income Fund Class B had
one share outstanding, representing the initial seed purchase. Shareholder
data for this class is not disclosed because management does not believe it
to be meaningful.
How to read the Financial highlights
Net investment income (loss)
Net investment income (loss) includes dividend and interest income earned from a
fund's investments; 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, if any, that we pay to shareholders
would be listed under "Less dividends and 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 a 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 a fund's portfolio,
less any liabilities, that are attributable to that class of a 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 (loss) to average net assets
We determine this ratio by dividing net investment income (loss) by average net
assets.
Portfolio turnover rate
This figure tells you the amount of trading activity in a fund's portfolio. A
turnover rate of 100% would occur if, for example, a fund bought and sold all of
the securities in its portfolio once in the course of a year or frequently
traded a single security. A high rate of portfolio turnover in any year may
increase brokerage commissions paid and could generate taxes for shareholders on
realized investment gains.
Glossary
How to use this glossary
This glossary includes definitions of investment terms, many of which are used
throughout the Prospectus. If you would like to know the meaning of an
investment term that is not explained in the text, please check the glossary.
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 typically
is inversely related to current interest rates. Generally, when interest rates
rise, bond prices fall, and when interest rates fall, bond prices rise. See
Fixed-income securities.
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. See also Nationally recognized statistical ratings
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 advisor for 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 advisor 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. This
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.
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 advisor
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 invest is paid back at a
pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Lehman Brothers Aggregate Bond Index
An index that measures the performance of about 6,500 U.S. corporate and
government bonds.
Management fee
The amount paid by a mutual fund to the investment advisor 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 a 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.
NASD
The National Association of Securities Dealers, Inc., which is responsible for
regulating the securities industry.
Nationally recognized statistical ratings 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,
Inc. (Moody's), Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
(S&P) and Fitch, Inc. (Fitch).
Net assets
The total value of all the assets in a fund's portfolio, less any liabilities.
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.
Principal
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Redeem
To cash in your shares by selling them back to the mutual fund.
Risk
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
Sales charge
A commission that is charged on the purchase or redemption of fund shares sold
through financial advisors. May vary with the amount invested. Typically used to
compensate financial advisors 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)
A document that provides more detailed information about a fund's organization,
management, investments, policies and risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as common stocks or 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 Gifts to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide special tax advantages and a simple way to
transfer property to a minor.
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.
Delaware Diversified Income Fund
Additional information about the Fund's investments is available in the Fund's
annual and semiannual 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 period
covered by the report. You can find more information about the Fund in the
current Statement of Additional Information (SAI), which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
legally a part of this Prospectus (it is incorporated by reference). If you want
a free copy of the SAI, the annual or semiannual report, or if you have any
questions about investing in the Fund, you can write to us at 2005 Market
Street, Philadelphia, PA19103-7094, or call toll-free 800 523-1918. The Fund's
SAI and annual and semiannual reports to shareholders are also available, free
of charge, through the Fund's internet Web site (www.delawareinvestments.com).
You may also obtain additional information about the Fund from your financial
advisor.
You can find reports and other information about the Fund on the EDGAR Database
on the SEC Web site (www.sec.gov). You can also get copies of this information,
after payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov
or by writing to the Public Reference Section of the SEC, Washington, D.C.
20549-0102. Information about the Fund, including its SAI, can be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. You can get
information on the Public Reference Room by calling the SEC at 202 942-8090.
Web site
www.delawareinvestments.com
E-mail
service@delinvest.com
Shareholder Service Center
800 523-1918
Call the Shareholder Service Center:
Monday to Friday, 8 a.m. to 7 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: 811-7972
Delaware Diversified Income Fund
CUSIP NASDAQ
Class A 246248744 DPDFX
Class B 246248611 DPBFX
Class C 246248595 DPCFX
Class R 246248553 DPRFX
DELAWARE
INVESTMENTS(R)
A Member of Lincoln Financial Group
P-189 [--] PP 02/05
FIXED INCOME DELAWARE
INVESTMENTS(R)
A Member of Lincoln Financial Group
Prospectus FEBRUARY 28, 2006
DELAWARE DIVERSIFIED INCOME FUND
INSTITUTIONAL CLASS
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.
Table of contents
Fund profile page
Delaware Diversified Income Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Disclosure of portfolio holdings information
Who manages the Fund page
Investment manager
Portfolio managers
Who's who?
About your account page
Investing in the Fund
How to buy shares
Fair valuation
How to redeem shares
Account minimum
Exchanges
Frequent trading of Fund shares
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
Glossary page
Profile: Delaware Diversified Income Fund
What is the Fund's goal?
Delaware Diversified Income Fund seeks maximum long-term total return,
consistent with reasonable risk. Although the Fund will strive to meet its goal,
there is no assurance that it will.
What are the Fund's main investment strategies?
The Fund allocates its investments principally among the following three sectors
of the fixed-income securities markets: the U.S. Investment Grade Sector, the
U.S. High-Yield Sector, and the International Sector. Under normal
circumstances, the Fund will invest at least 80% of its net assets in fixed
income securities (the "80% policy"). We will determine how much of the Fund to
allocate to each of the three sectors, based on our evaluation of economic and
market conditions and our assessment of the returns and potential for
appreciation that can be achieved from investments in each of the three sectors.
We will periodically reallocate the Fund's assets, as deemed necessary.
In unusual market conditions, in order to meet redemption requests, for
temporary defensive purposes, and pending investment, the Fund may hold a
substantial portion of its assets in cash or short-term fixed-income
obligations. The Fund may also use a wide range of hedging instruments,
including options, futures contracts and options on futures contracts subject to
certain limitations.
The Fund's investments in emerging markets will, in the aggregate, be limited to
no more than 15% of the Fund's total assets.
The Fund's 80% policy described above may be changed without shareholder
approval. However, shareholders will be given notice at least 60 days prior to
any such change.
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. Over time, the value of your investment in
the Fund will increase and decrease according to changes in the value of the
securities in the Fund's portfolio. The Fund will be affected primarily by
changes in bond prices and currency exchange rates. Investments in high-yield,
high risk or "junk" bonds entail certain risks, including the risk of loss of
principal, which may be greater than the risks presented by investment grade
bonds and which should be considered by investors contemplating an investment in
the Fund. Among these risks are those that result from the absence of a liquid
secondary market and the dominance in the market of institutional investors. The
Fund will also be affected by prepayment risk due to its holdings of
mortgage-backed securities. With prepayment risk, when homeowners prepay
mortgages during periods of low interest rates, the Fund may be forced to
re-deploy its assets in lower yielding securities. Investments in securities of
non-U.S. issuers are generally denominated in foreign currencies and involve
certain risk and opportunity considerations not typically associated with
investing in U.S. issuers, and investments in securities of companies in
emerging markets present a greater degree of risk than tends to be the case for
foreign investments in developed markets. If, and to the extent that, we invest
in forward foreign currency contracts or use other investments to hedge against
currency risks, the Fund will be subject to the special risks associated with
those activities.
For a more complete discussion of risk, please see "The risks of investing inthe Fund" on page [__].
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor 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 that offers professional allocation among
key types of fixed-income securities.
o Investors seeking a fixed-income investment that offers potential for high
current income and total return.
Who should not invest in the Fund
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
How has Delaware Diversified Income Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how annual returns for the Fund's Institutional Class have varied
over the past eight calendar years, as well as the average annual returns of the
Institutional shares for one-year, five-year and lifetime periods. Because the
Institutional Class of the Fund did not commence operations until October 25,2002, we have included performance information for Class A shares of the Fund
for 1998, 1999, 2000, 2001 and 2002. Class A shares of the Fund are offered
under a separate prospectus. Institutional Class shares would have had
substantially similar annual returns as Class A shares because they represent
interests in the same portfolio of securities. However, the returns of
Institutional Class shares would differ from the returns of the Class A shares
due to the higher operating expenses of Class A shares and the sales charge
applicable to Class A shares. The Fund's past performance (before and after
taxes) is not necessarily an indication of how it will perform in the future.
The returns reflect expense caps in effect during these periods. The returns
would be lower without the expense caps. Please see the footnotes on page [___]
for additional information about the expense caps.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN]
Year-by-year total return* (Institutional Class)**
1998 10.28%
1999 1.60%
2000 13.12%
2001 8.33%
2002 11.03%
2003 14.30%
2004 9.74%
2005 (0.36)%
During the periods illustrated in this bar chart, the Institutional Class'
highest quarterly return was 5.69% for the quarter ended June 30, 2003 and its
lowest quarterly return was -1.88% for the quarter ended June 30, 2004.
The maximum Class A sales charge of 4.50%, which is normally deducted when you
purchase shares, is not reflected in the total returns in the bar chart. If this
fee was included, the returns would be less than those shown.
* Year-by-year total return for 1998, 1999, 2000 and 2001 reflects Class A
shares; 2002 reflects a blended total return for Class A shares (January 1,2002 through October 25, 2002) and Institutional Class Shares (October 28,2002 through December 31, 2005). Year-by-year total return for 2003, 2004
and 2005 reflects Institutional Class shares.
** On October 28, 2002, the Fund acquired all of the assets and assumed all of
the liabilities of the Diversified Core Fixed Income Portfolio of Delaware
Pooled Trust (the "Predecessor Fund") which had investment objectives and
policies identical to those of the Fund. The Fund had no operations prior
to October 28, 2002. Shareholders of the Predecessor Fund received Class A
shares of the Fund in connection with this transaction. As a result of this
transaction, Class A shares of the Fund assumed the performance history of
the Predecessor Fund for periods prior to the closing date of the
transaction, however, the performance history of the Predecessor Fund has
not been restated in the bar chart and table below to reflect the higher
management and transfer agency fees borne by the Fund.
The Fund bears the expense of management fees at the maximum annual rate of
0.55% of the Fund's average daily net assets. The Predecessor Fund had a
management fee at the annual rate of 0.43% of its average daily net assets.
For transfer agency services, the Fund currently pays an annual dollar
charge per account of $23.10. Additional information regarding this fee is
set forth in the Statement of Additional Information (SAI). By contrast,
the Predecessor Fund paid a fee at the annual rate of 0.01% of its average
daily net assets for transfer agency services. If these higher expenses of
the Fund had been in effect for the Predecessor Fund, the total returns set
forth in the bar chart and table above would have been lower for all
periods.
Average annual returns for periods ending 12/31/05
------------------------------------------ ---------- ----------- ------------
Lifetime
(Inception
1 year 5 years 12/29/97)
------------------------------------------ ---------- ----------- ------------
Return before taxes (0.36)% 8.48%(1) 8.35%(2)
------------------------------------------ ---------- ----------- ------------
Return after taxes on distributions (1.90)% 5.45%(1) 5.33%(2)
------------------------------------------ ---------- ----------- ------------
Return after taxes on distributions
and sale of Fund shares (0.24)% 5.44%(1) 5.30%(2)
------------------------------------------ ---------- ----------- ------------
Lehman Brothers Aggregate Bond Index
(reflects no deduction for
fees, expenses or taxes) 2.43% 5.87% 6.16%(3)
------------------------------------------ ---------- ----------- ------------
The Fund's returns above are compared to the performance of the Lehman Brothers
Aggregate Bond Index. You should remember that unlike the Fund, the index is
unmanaged and does not reflect the costs of operating a mutual fund, such as the
costs of buying, selling and holding securities.
Actual after-tax returns depend on the investor's individual tax situation and
may differ from the returns shown. After-tax returns are not relevant for shares
held in tax-deferred investment vehicles such as employer-sponsored 401(k) plans
and individual retirement accounts. The after-tax returns shown are calculated
using the highest individual federal marginal income tax rates in effect during
the Fund's lifetime and do not reflect the impact of state and local taxes. The
after-tax rate used is based on the current tax characterization of the elements
of the fund's returns (e.g., qualified vs. non-qualified dividends) and may be
different than the final tax characterization of such elements. Past
performance, both before and after taxes, is not a guarantee of future results.
(1) Average annual return reflects a blend of Class A shares (January 1, 2000
through October 25, 2002) and Institutional Class shares (October 28, 2002
through December 31, 2005).
(2) Average annual return reflects a blend of Class A shares (December 29, 1997
through October 25, 2002) and Institutional Class shares (October 28, 2002
through December 31, 2005). The average annual returns of the Institutional
Class since its inception on October 28, 2002 was 8.87%.
(3) Lehman Brothers Aggregate Bond Index lifetime return is for the period
December 29, 1997 through December 31, 2005. The return for the Lehman
Brothers Aggregate Bond Index for the period October 28, 2002 through
December 31, 2005 is 4.09%.
What are the Fund's fees and expenses?
----------------------------------------- --------------------------------------------- ---------
You do not pay sales charges directly Maximum sales charge (load) imposed none
from your investments when you buy on purchases as a percentage of
or sell shares of the offering price
Institutional Class.
--------------------------------------------- ---------
Maximum contingent deferred sales charge
(load) as a percentage of original
purchase price or redemption price,
whichever is lower none
--------------------------------------------- ---------
Maximum sales charge (load) imposed on
reinvested dividends none
--------------------------------------------- ---------
Redemption fees none
--------------------------------------------- ---------
Exchange fees none
----------------------------------------- --------------------------------------------- ---------
Annual fund operating expenses are Management fees 0.52%
deducted from the Fund's assets.
--------------------------------------------- ---------
Distribution and service (12b-1) fees none
--------------------------------------------- ---------
Other expenses 0.31%
--------------------------------------------- ---------
Total annual fund operating expense 0.83%
--------------------------------------------- ---------
Fee waivers and payments(1) (0.08)%
--------------------------------------------- ---------
Net expenses 0.75%
----------------------------------------- --------------------------------------------- ---------
This example is intended to help you 1 year $77
compare the cost of investing in the --------------------------------------------- ---------
Fund to the cost of investing in other 3 years $257
mutual funds with similar investment --------------------------------------------- ---------
objectives. We show the cumulative 5 years $453
amount of Fund expenses on a hypothetical --------------------------------------------- ---------
investment of $10,000 with an annual 5% 10 years $1,018
return over the time shown.(2) This --------------------------------------------- ---------
example reflects the net operating
expenses with expense waivers for the
one-year contractual period and the
total operating expenses without expense
waivers for the years two through ten.
This is an example only, and does not
represent future expenses, which may
be greater or less than those shown
here.
----------------------------------------- --------------------------------------------- ---------
(1) The investment manager has contracted to waive fees and pay expenses
through February 28, 2007 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees, extraordinary expenses and
certain insurance costs) from exceeding 0.75% of average daily net assets.
(2) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here.
How we manage the Fund
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for the Fund. Following
are descriptions of how the portfolio management team pursues the Fund's
investment goals.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
The Fund allocates its investment principally among the U.S. Investment Grade,
U.S. High-Yield and International sectors. The relative proportion of the Fund's
assets to be allocated among these sectors is described below.
o U.S. Investment Grade Sector Under normal circumstances, there is no limit
to the amount of the Fund's total assets that will be invested in the U.S.
investment grade sector. In managing the Fund's assets allocated to the
investment grade sector, we will invest principally in debt obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and by U.S. corporations. The corporate debt obligations
in which the Fund may invest include bonds, notes, debentures and
commercial paper of U.S. companies. The U.S. Government securities in which
the Fund may invest include a variety of securities which are issued or
guaranteed as to the payment of principal and interest by the U.S.
Government, and by various agencies or instrumentalities which have been
established or sponsored by the U.S. Government.
The investment grade sector of the Fund's assets may also be invested in
mortgage-backed securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or by government sponsored corporations.
Other mortgage-backed securities in which the Fund may invest are issued by
certain private, non-government entities. Subject to the quality
limitations, the Fund may also invest in securities which are backed by
assets such as receivables on home equity and credit card loans,
automobile, mobile home, recreational vehicle and other loans, wholesale
dealer floor plans and leases.
Securities purchased by the Fund within this sector will be rated in one of
the four highest rating categories or will be unrated securities that we
determine are of comparable quality.
o U.S. High-Yield Sector Under normal circumstances, between 5% and 50% of
the Fund's total assets will be allocated to the U.S. High-Yield Sector. We
will invest the Fund's assets that are allocated to the domestic high-yield
sector primarily in those securities having a liberal and consistent yield
and those tending to reduce the risk of market fluctuations. The Fund may
invest in domestic corporate debt obligations, including, notes, which may
be convertible or non-convertible, commercial paper, units consisting of
bonds with stock or warrants to buy stock attached, debentures, convertible
debentures, zero coupon bonds and pay-in-kind securities ("PIKs").
The Fund will invest in both rated and unrated bonds. The rated bonds that
the Fund may purchase in this sector will generally be rated BB or lower by
S&P or Fitch, Ba or lower by Moody's, or similarly rated by another
nationally recognized statistical rating organization. Unrated bonds may be
more speculative in nature than rated bonds.
o International Sector Under normal circumstances, between 5% and 50% of the
Fund's total assets will be invested in the International Sector. The
International Sector invests primarily in fixed-income securities of
issuers organized or having a majority of their assets or deriving a
majority of their operating income in foreign countries. These fixed-income
securities include foreign government securities, 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
Investment Bank, the Inter-Development Bank and the Asian Development Bank.
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
Euro. 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.
Currency considerations carry a special risk for a portfolio that allocates a
significant portion of its assets to foreign securities.
The Fund will invest in both rated and unrated foreign securities. It may
purchase securities of issuers in any foreign country, developed and
underdeveloped. These investments may include direct obligations of issuers
located in emerging markets countries and so-called Brady Bonds. However,
investments in emerging markets will, in the aggregate, be limited to no more
than 15% of the Fund's total assets. In addition, the Fund may invest in
sponsored and unsponsored American Depositary Receipts, European Depositary
Receipts, or Global Depositary Receipts. The Fund may also invest in zero coupon
bonds and may purchase shares of other investment companies. Additionally, the
Manager will limit non-U.S. dollar denominated securities to no more than 25% of
net assets.
The Fund's investment objective is non-fundamental. This means that the Board of
Trustees may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders at least 60 days before the
change in the objective became effective.
The securities we typically invest in
Fixed income securities offer the potential for greater income payments than
stocks and may provide capital appreciation.
---------------------------------------- -----------------------------------------------
Securities How we use them
---------------------------------------- -----------------------------------------------
Corporate Bonds: Debt obligations The Fund may invest in bonds rated in one of
issued by a corporation. the four highest rating categories for its
U.S. Investment Grade Sector, and it may
invest in bonds rated BB or lower by S&P or
Fitch and Ba or lower by Moody's for its
U.S. High-Yield Sector and International
Sector.
---------------------------------------- -----------------------------------------------
High-yield corporate bonds: Debt Emphasis is typically on those rated BB or Ba
obligations issued by a corporation and by an NRSRO.
rated lower than investment grade by an
NRSRO such as S&P or Moody's. We carefully evaluate an individual company's
High-yield bonds, also known as "junk financial situation, its management, the
bonds," are issued by corporations that prospects for its industry and the technical
have lower credit quality and may have factors related to its bond offering. Our
difficulty repaying principal and goal is to identify those companies that we
interest. believe will be able to repay their debt
obligations in spite of poor ratings. The
Fund may invest in unrated bonds if we believe
their credit quality is comparable to the
rated bonds we are permitted to invest in.
Unrated bonds may be more speculative in
nature than rated bonds.
---------------------------------------- -----------------------------------------------
Mortgage-Backed Securities: The Fund may invest in mortgage-backed
Fixed-income securities that represent securities issued or guaranteed by the U.S.
pools of mortgages, with investors government, its agencies or instrumentalities
receiving principal and interest or by government sponsored corporations.
payments as the underlying mortgage
loans are paid back. Many are issued
and guaranteed against default by the
U.S. government or its agencies or
instrumentalities, such as the Federal
Home Loan Mortgage Corporation, the
Fannie Mae and the Government National
Mortgage Association. Others are issued
by private financial institutions, with
some fully collateralized by
certificates issued or guaranteed by
the government or its agencies or
instrumentalities.
---------------------------------------- -----------------------------------------------
Collateralized mortgage obligations The Fund may invest in CMOs and REMICs.
(CMOs) and real estate mortgage Certain CMOs and REMICs may have variable or
investment conduits (REMICs): CMOs are floating interest rates and others may be
privately issued mortgage-backed bonds stripped. Stripped mortgage securities are
whose underlying value is the mortgages generally considered illiquid and to such
that are collected into different pools extent, together with any other illiquid
according to their maturity. They are investments, will not exceed the Fund's limit
issued by U.S. government agencies and on illiquid securities. In addition, subject
private issuers. REMICs are privately to certain quality and collateral limitations,
issued mortgage-backed bonds whose the Fund may invest up to 20% of its total
underlying value is a fixed pool of assets in CMOs and REMICs issued by private
mortgages secured by an interest in entities which are not collateralized by
real property. Like CMOs, REMICs offer securities issued or guaranteed by the U.S.
different pools. government, its agencies or instrumentalities,
so called non-agency mortgage backed
securities.
---------------------------------------- -----------------------------------------------
Asset-Backed Securities: Bonds or notes The Fund may invest in asset-backed securities
backed by accounts receivables, rated in one of the four highest rating
including home equity, automobile or categories by an NRSRO.
credit loans.
---------------------------------------- -----------------------------------------------
U.S. Government Securities: U.S. The Fund may invest in U.S. government
Treasury securities are backed by the securities for temporary purposes or
"full faith and credit" of the United otherwise, as is consistent with its
States. Securities issued or guaranteed investment objective and policies. These
by federal agencies and U.S. government securities are issued or guaranteed as to the
sponsored instrumentalities may or may payment of principal and interest by the U.S.
not be backed by the "full faith and government, or by various agencies or
credit" of the United States. In the instrumentalities which have been established
case of securities not backed by the or sponsored by the U.S. government.
"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.
---------------------------------------- -----------------------------------------------
Foreign Government Securities: Debt The fixed-income securities in which the Fund
issued by a government other than the may invest include those issued by foreign
United States or by an agency, governments.
instrumentality or political
subdivision of such governments.
---------------------------------------- -----------------------------------------------
Repurchase Agreements: An agreement Typically, we use repurchase agreements as a
between a buyer of securities, such as short-term investment for the Fund's cash
the Fund, and a seller of securities in position or for temporary defensive purposes.
which the seller agrees to buy the In order to enter into these repurchase
securities back within a specified time agreements, the Fund must have collateral of
at the same price the buyer paid for at least 102% of the repurchase price. The
them, plus an amount equal to an agreed Fund will only enter into repurchase
upon interest rate. Repurchase agreements in which the collateral is
agreements are often viewed as comprised of U.S. government securities.
equivalent to cash.
---------------------------------------- -----------------------------------------------
Restricted Securities: Privately placed We may invest in privately placed securities,
securities whose resale is restricted including those that are eligible for resale
under U.S. securities laws. only among certain institutional buyers
without registration, commonly known as "Rule
144A Securities." Restricted securities that
are determined to be illiquid may not exceed
the Fund's 15% limit on illiquid securities,
which is described below.
---------------------------------------- -----------------------------------------------
Illiquid Securities: Securities that do We may invest up to 15% of the Fund's net
not have a ready market, and cannot be assets in illiquid securities.
easily sold within seven days at
approximately the price at which a fund
has valued them. Illiquid securities
include repurchase agreements maturing
in more than seven days.
---------------------------------------- -----------------------------------------------
Short-Term Debt Investments: These The Fund may invest in these instruments
instruments include (1) time deposits, either as a means to achieve its investment
certificates of deposit and bankers objective or, more commonly, as temporary
acceptances issued by a U.S. commercial defensive investments or pending investment in
bank; (2) commercial paper of the the Fund's principal investment securities.
highest quality rating; (3) short-term When investing all or a significant portion of
debt obligations with the highest its assets in these instruments, the Fund may
quality rating; (4) U.S. government not be able to achieve its investment
securities; and (5) repurchase objective.
agreements collateralized by those
instruments.
---------------------------------------- -----------------------------------------------
Time Deposits: Time deposits are Time deposits maturing in more than seven days
non-negotiable deposits maintained in a will not be purchased by the Fund, and time
banking institution for a specified deposits maturing from two business days
period of time at a stated interest through seven calendar days will not exceed
rate. 15% of the total assets of the Fund.
---------------------------------------- -----------------------------------------------
Zero Coupon and Pay-In-Kind Bonds: Zero The Fund may purchase fixed-income securities,
coupon bonds are debt obligations which including zero coupon bonds and PIK bonds,
do not entitle the holder to any consistent with its investment objective.
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. Pay-in-kind
("PIK") bonds pay interest through the
issuance to holders of additional
securities.
---------------------------------------- -----------------------------------------------
American Depositary Receipts (ADRs), The Fund may invest in sponsored and
European Depositary Receipts (EDRs), unsponsored ADRs. Such ADRs that the Fund may
and Global Depositary Receipts (GDRs): invest in will be those that are actively
ADRs are receipts issued by a U.S. traded in the United States.
depositary (usually a U.S. bank) and
EDRs and GDRs are receipts issued by a In conjunction with its investments in foreign
depositary outside of the U.S. (usually securities, the Fund may also invest in
a non-U.S. bank or trust company or a sponsored and unsponsored EDRs and GDRs.
foreign branch of a U.S. bank).
Depositary receipts represent an
ownership interest in an underlying
security that is held by the
depositary. Generally, the underlying
security represented by an ADR is
issued by a foreign issuer and the
underlying security represented by an
EDR or GDR may be issued by a foreign
or U.S. issuer. Sponsored depositary
receipts are issued jointly by the
issuer of the underlying security and
the depositary, and unsponsored
depositary receipts are issued by the
depositary without the participation of
the issuer of the underlying security.
Generally, the holder of the depositary
receipt is entitled to all payments of
interest, dividends or capital gains
that are made on the underlying
security.
---------------------------------------- -----------------------------------------------
Futures and Options: A futures contract The Fund may invest in futures, options and
is a bilateral agreement providing for closing transactions related thereto. These
the purchase and sale of a specified activities will be entered into for hedging
type and amount of a financial purposes and to facilitate the ability to
instrument, or for the making and quickly deploy into the market the Fund's
acceptance of a cash settlement, at a cash, short-term debt securities and other
stated time in the future for a fixed money market instruments at times when the
price. A call option is a short-term Fund's assets are not fully invested. The
contract pursuant to which the Fund may only enter into these transactions
purchaser of the call option, in return for hedging purposes if it is consistent with
for the premium paid, has the right to its respective investment objective and
buy, and the seller of the call option policies. The Fund may not engage in such
has the obligation to sell, the transactions to the extent that obligations
security or other financial instrument resulting from these activities, in the
underlying the option at a specified aggregate, exceed 25% of the Fund's assets.
exercise price at any time during the In addition, the Fund may enter into futures
term of the option. A put option is a contracts, purchase or sell options on futures
similar contract in which the purchaser contracts, and trade in options on foreign
of the put option, in return for a currencies, and may enter into closing
premium, has the right to sell, and the transactions with respect to such activities
seller of the put option has the to hedge or "cross hedge" the currency risks
obligation to buy, the underlying associated with its investments. Generally,
security or other financial instrument futures contracts on foreign currencies
at a specified price during the term of operate similarly to futures contracts
the option. concerning securities, and options on foreign
currencies operate similarly to options on
securities. See also "Foreign CurrencyTransactions" below. To the extent that the
Fund sells or "writes" put and call options,
it will designate assets sufficient to "cover"
these obligations and mark them to market
daily.
---------------------------------------- -----------------------------------------------
Foreign Currency Transactions: A Although the Fund values its assets daily in
forward foreign currency exchange terms of U.S. dollars, it does not intend to
contract involves an obligation to convert its holdings of foreign currencies
purchase or sell a specific currency on into U.S. dollars on a daily basis. The Fund
a fixed future date at a price that is may, however, from time to time, purchase or
set at the time of the contract. The sell foreign currencies and/or engage in
future date may be any number of days forward foreign currency transactions in order
from the date of the contract as agreed to expedite settlement of Fund transactions
by the parties involved. and to minimize currency value fluctuations.
---------------------------------------- -----------------------------------------------
Interest Rate Swap, Index Swap and We may use interest rate swaps to adjust the
Credit Default Swap Agreements: In an Fund's sensitivity to interest rates or to
interest rate swap, a fund receives hedge against changes in interest rates.
payments from another party based on a Index swaps may be used to gain exposure to
variable or floating interest rate, in markets that the Fund invests in, such as the
return for making payments based on a corporate bond market. We may also use index
fixed interest rate. An interest rate swaps as a substitute for futures or options
swap can also work in reverse with a contracts if such contracts are not directly
fund receiving payments based on a available to the Fund on favorable terms. We
fixed interest rate and making payments may enter into credit default swaps in order
based on a variable or floating to hedge against a credit event, to enhance
interest rate. In an index swap, a total return or to gain exposure to certain
fund receives gains or incurs losses securities or markets.
based on the total return of a
specified index, in exchange for making
interest payments to another party. An
index swap can also work in reverse
with a fund receiving interest payments
from another party in exchange for
movements in the total return of a
specified index. In a credit default
swap, a fund may transfer the financial
risk of a credit event occurring (a
bond default, bankruptcy,
restructuring, etc.) on a particular
security or basket of securities to
another party by paying that party a
periodic premium; likewise, a fund may
assume the financial risk of a credit
event occurring on a particular
security or basket of securities in
exchange for receiving premium payments
from another party. Interest rate
swaps, index swaps and credit default
swaps may be considered to be illiquid.
---------------------------------------- -----------------------------------------------
The Fund may also invest in other securities. Please see the Statement of
Additional Information (SAI) for additional information on these securities as
well as those listed in the table above.
Lending securities The Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for use in their securities
transactions. These transactions may generate additional income for the Fund.
Borrowing from banks The Fund may borrow money from banks as a temporary measure
for extraordinary purposes or to facilitate redemptions. The Fund will be
required to pay interest to the lending banks on the amount borrowed. As a
result, borrowing money could result in the Fund being unable to meet its
investment objective.
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. The
Fund will designate cash or securities in amounts sufficient to cover its
obligations, and will value the designated assets daily.
Portfolio turnover We anticipate that the Fund's annual portfolio turnover will
exceed 100% and may be considerably in excess of 200%. A turnover rate of 100%
would occur if, for example, a fund bought and sold all of the securities in its
portfolio once in the course of a year or frequently traded a single security.
The turnover rate may also be affected by cash requirements from redemptions and
purchases of fund shares. A high rate of portfolio turnover in any year may
increase brokerage commissions paid and could generate taxes for shareholders on
realized investment gains.
Temporary defensive positions For temporary defensive purposes, we may invest up
to 100% of the Fund's assets in money market instruments when the manager
determines that market conditions warrant. We may also hold a portion of the
Fund's assets in cash for liquidity purposes. To the extent that the Fund holds
such instruments, it may be unable to achieve its investment objective.
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 your investment to be a long-term investment that typically provides
the best results when held for a number of years. The table below describes the
chief risks you assume when investing in the Fund. Please see the SAI for
further discussion of these risks and other risks not discussed here.
------------------------------ ----------------------------------------------------
Risks How we strive to manage them
------------------------------ ----------------------------------------------------
Market risk is the risk that We maintain a long-term investment approach and
all or a majority of the focus on securities we believe can continue to
securities in a certain provide returns over an extended time frame
market-like the stock or bond regardless of these interim market fluctuations.
market-will decline in value Generally, we do not try to predict overall market
because of economic movements.
conditions, future
expectations or investor In evaluating the use of an index swap for the
confidence. Fund, we carefully consider how market changes
could affect the swap and how that compares to our
Index swaps are subject to investing directly in the market the swap is
the same market risks as the intended to represent. When selecting dealers
investment market or sector with whom we would make interest rate or index
that the index represents. swap agreements for the Fund, we focus on those
Depending on the actual dealers with high quality ratings and do careful
movements of the index and credit analysis before engaging in the transaction.
how well the portfolio
manager forecasts those
movements, a fund could
experience a higher or lower
return than anticipated.
------------------------------ ----------------------------------------------------
Interest rate risk is the We limit the amount of the Fund's assets invested
risk that securities, in any one industry and in any individual
particularly bonds with security.
longer maturities, will
decrease in value if interest The Fund is subject to various interest rate risks
rates rise and increase in depending upon its investment objectives and
value if interest rates policies. We cannot eliminate this risk, but we
fall. Investments in equity do try to address it by monitoring economic
securities issued by small conditions, especially interest rate trends and
and medium sized companies, their potential impact on the Fund. The Fund does
which often borrow money to not try to increase returns on its investments in
finance operations, may also debt securities by predicting and aggressively
be adversely affected by capitalizing on interest rate movements.
rising interest rates.
By investing in swaps, the Fund is subject to
Swaps may be particularly additional interest rate risk. The Fund will not
sensitive to interest rate invest in interest rate or index swaps with
changes. Depending on the maturities of more than two years. Each business
actual movements of interest day we will calculate the amount the Fund must pay
rates and how well the for any swaps it holds and will designate enough
portfolio manager anticipates cash or other liquid securities to cover that
them, a portfolio could amount.
experience a higher or lower
return than anticipated. For
example, if a portfolio holds
interest rate swaps and is
required to make payments
based on variable interest
rates, it will have to make
increased payments if
interest rates rise, which
will not necessarily be
offset by the fixed-rate
payments it is entitled to
receive under the swap
agreement.
------------------------------ ----------------------------------------------------
Credit risk is the Our careful, credit-oriented bond selection and
possibility that a bond's our commitment to hold a diversified selection of
issuer (or an entity that high-yield bonds are designed to manage this risk.
insures the bond) will be
unable to make timely It is likely that protracted periods of economic
payments of interest and uncertainty would cause increased volatility in
principal. the market prices of high-yield bonds, an increase
in the number of high-yield bond defaults and
Investing in so-called "junk" corresponding volatility in the Fund's net asset
or "high-yield" bonds entails value.
the risk of principal loss,
which may be greater than the Our holdings of high quality investment grade
risk involved in investment bonds are less subject to credit risk and may help
grade bonds. High-yield bonds to balance any credit problems experienced by
are sometimes issued by individual high-yield bond issuers or foreign
companies whose earnings at issuers.
the time the bond is issued
are less than the projected When selecting dealers with whom we would make
debt payments on the bonds. interest rate or index swap agreements, we focus
on those with high quality ratings and do careful
A protracted economic credit analysis before investing.
downturn may severely disrupt
the market for high-yield
bonds, adversely affect the
value of outstanding bonds
and adversely affect the
ability of high-yield issuers
to repay principal and
interest.
------------------------------ ----------------------------------------------------
Foreign risk is the risk that We attempt to reduce the risks presented by such
foreign securities may be investments by conducting world-wide fundamental
adversely affected by research, including country visits. In addition,
political instability, we monitor current economic and market conditions
changes in currency exchange and trends, the political and regulatory
rates, foreign economic environment and the value of currencies in
conditions or inadequate different countries in an effort to identify the
regulatory and accounting most attractive countries and securities.
standards. Additionally, when currencies appear significantly
overvalued compared to average real exchange
rates, the Fund may hedge exposure to those
currencies for defensive purposes.
------------------------------ ----------------------------------------------------
Currency risk is the risk The Fund, which has exposure to global and
that the value of an international investments, may be affected by
investment may be negatively changes in currency rates and exchange control
affected by changes in regulations and may incur costs in connection with
foreign currency exchange conversions between currencies. To hedge this
rates. Adverse changes in currency risk associated with investments in
exchange rates may reduce or non-U.S. dollar denominated securities, the Fund
eliminate any gains produced may invest in forward foreign currency contracts.
by investments that are These activities pose special risks which do not
denominated in foreign typically arise in connection with investments in
currencies and may increase U.S. securities. In addition, the Fund may engage
losses. in foreign currency options and futures
transactions.
------------------------------ ----------------------------------------------------
Emerging markets risk is the We may invest a portion of the Fund's assets in
possibility that the risks securities of issuers located in emerging
associated with international markets. We cannot eliminate these risks but will
investing will be greater in attempt to reduce these risks through portfolio
emerging markets than in more diversification, credit analysis, and attention to
developed foreign markets trends in the economy, industries and financial
because, among other things, markets and other relevant factors. The Fund's
emerging markets may have investments in emerging markets will, in the
less stable political and aggregate, be limited to no more than 15% of the
economic environments. In Fund's total assets.
addition, in many emerging
markets there is
substantially less publicly
available information about
issuers and the information
that is available tends to be
of a lesser quality. Economic
markets and structures tend
to be less mature and diverse
and the securities markets,
which are subject to less
government regulation or
supervision, may also be
smaller, less liquid and
subject to greater price
volatility.
------------------------------ ----------------------------------------------------
Lower rated fixed-income We limit investments in high-risk, high-yield
securities (high-yield, fixed-income securities. We also attempt to
high-risk securities), while reduce the risk associated with investment in
generally having higher high-yield debt securities through portfolio
yields, are subject to diversification, credit analysis, attention to
reduced creditworthiness of trends in the economy, industries and financial
issuers, increased risks of markets, and complying with the limits on the
default and a more limited exposure to this asset class described in this
and less liquid secondary Prospectus.
market than higher rated
securities. These securities
are subject to greater price
volatility and risk of loss
of income and principal than
are higher rated securities.
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.
Fixed-income securities of
this type are considered to
be of poor standing and
primarily speculative. Such
securities are subject to a
substantial degree of credit
risk.
------------------------------ ----------------------------------------------------
Liquidity risk is the We limit exposure to illiquid securities to no
possibility that securities more than 15% of the Fund's net assets.
cannot be readily sold within
seven days at approximately Swap agreements entered into by the Fund will be
the price that a fund has treated as illiquid securities. However, swap
valued them. dealers may be willing to repurchase interest rate
swaps.
The high-yield secondary
market is particularly
susceptible to liquidity
problems when institutional
investors, such as mutual
funds and certain other
financial institutions,
temporarily stop buying bonds
for regulatory, financial or
other reasons.
------------------------------ ----------------------------------------------------
Futures contracts, options on We may use certain options strategies or may use
futures contracts, forward futures contracts and options on futures
contracts, and certain contracts. We will not enter into futures
options used as investments contracts and options thereon to the extent that
for hedging and other more than 5% of the Fund's total assets are
non-speculative purposes required as futures contract margin deposits and
involve certain risks. For premiums on options and only to the extent that
example, a lack of obligations under such futures contracts and
correlation between price options thereon would not exceed 20% of the Fund's
changes of an option or total assets.
futures contract and the
assets being hedged could We may also use options and futures to gain
render a fund's hedging exposure to a particular market segment without
strategy unsuccessful and purchasing individual securities in the segment.
could result in losses. The
same results could occur if See also "Foreign Risk" and "Currency Risk" above.
movements of foreign
currencies do not correlate
as expected by the investment
advisor at a time when a fund
is using a hedging instrument
denominated in one foreign
currency to protect the value
of a security denominated in
a second foreign currency
against changes caused by
fluctuations in the exchange
rate for the dollar and the
second currency. If the
direction of securities
prices, interest rates or
foreign currency prices is
incorrectly predicted, the
fund will be in a worse
position than if such
transactions had not been
entered into. In addition,
since there can be no
assurance that a liquid
secondary market will exist
for any contract purchased or
sold, a fund may be required
to maintain a position (and
in the case of written
options may be required to
continue to hold the
securities used as cover)
until exercise or expiration,
which could result in losses.
Further, options and futures
contracts on foreign
currencies, and forward
contracts, entail particular
risks related to conditions
affecting the underlying
currency. Over-the-counter
transactions in options and
forward contracts also
involve risks arising from
the lack of an organized
exchange trading environment.
------------------------------ ----------------------------------------------------
Zero coupon and pay-in-kind We may invest in zero coupon and pay-in-kind bonds
bonds are generally to the extent consistent with the Fund's
considered to be more investment objective. We cannot eliminate the
interest sensitive than risks of zero coupon bonds, but we do try to
income-bearing bonds, to be address them by monitoring economic conditions,
more speculative than especially interest rate trends and their
interest-bearing bonds, and potential impact on the Fund.
to have certain tax
consequences which could,
under certain circumstances
be adverse to the Fund. For
example, the Fund accrues,
and is required to distribute
to shareholders, income on
its zero coupon bonds.
However, the Fund may not
receive the cash associated
with this income until the
bonds are sold or mature. If
the Fund does 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.
------------------------------ ----------------------------------------------------
Portfolio turnover rates The Fund will normally experience an annual
reflect the amount of portfolio turnover rate exceeding 200%.
securities that are replaced
from the beginning of the
year to the end of the year
by the Fund. The higher the
amount of portfolio activity,
the higher the brokerage
costs and other transaction
costs of the Fund are likely
to be. The amount of
portfolio activity will also
affect the amount of taxes
payable by the Fund's
shareholders that are subject
to federal income tax, as
well as the character
(ordinary income vs. capital
gains) of such tax
obligations.
------------------------------ ----------------------------------------------------
Prepayment Risk is the risk We may invest in mortgage-backed securities,
that homeowners will prepay CMOs and REMICs. We take into consideration
mortgages during periods of the likelihood of prepayment when mortgages
low interest rates, forcing are selected. We may look for mortgage
an investor to reinvest money securities that have characteristics that
at interest rates that might make them less likely to be prepaid, such as
be lower than those on the low outstanding loan balances or below-market
prepaid mortgage. interest rates.
------------------------------ ----------------------------------------------------
Transaction Costs Risk is the The Fund is subject to transaction costs risk
risk that the cost of buying, to the extent that its respective objective
selling and holding foreign and policies permit it to invest, and it
securities, including actually does invest, in foreign securities.
brokerage, tax and custody We strive to monitor transaction costs and to
costs, may be higher than choose an efficient trading strategy for the
those involved in domestic Fund.
transactions.
------------------------------ ----------------------------------------------------
Foreign government securities We attempt to reduce the risks associated
risks involve the ability of with investing in foreign governments by
a foreign government or limiting the portion of portfolio assets that
government-related issuer to may be invested in such securities.
make timely principal and
interest payments on its
external debt obligations.
This ability to make payments
will be strongly influenced
by the issuer's balance of
payments, including export
performance, its access to
international credits and
investments, fluctuations in
interest rates and the extent
of its foreign reserves.
------------------------------ ----------------------------------------------------
Valuation risk: A less liquid We will strive to manage this risk by carefully
secondary market, as evaluating individual bonds and by limiting the
described above, makes it amount of the Fund's assets that can be allocated
more difficult for the Fund to privately placed high-yield securities.
to obtain precise valuations
of the high-yield securities
in its portfolio. During
periods of reduced liquidity,
judgment plays a greater role
in valuing high-yield
securities.
------------------------------ ----------------------------------------------------
Legislative and regulatory We monitor the status of regulatory and legislative
risk: The United States proposals to evaluate any possible effects they
Congress has from time to might have on the Fund's portfolio.
time taken or considered
legislative actions that
could adversely affect the
high-yield bond market. For
example, Congressional
legislation has, with some
exceptions, generally
prohibited federally insured
savings and loan institutions
from investing in high-yield
securities. Regulatory
actions have also affected
the high-yield market.
Similar actions in the future
could reduce liquidity for
high-yield securities, reduce
the number of new high-yield
securities being issued and
could make it more difficult
for the Fund to attain its
investment objective.
------------------------------ ----------------------------------------------------
Derivatives risk is the We will use derivatives for defensive purposes,
possibility that a Fund may such as to protect gains or hedge against potential
experience a significant loss losses in the portfolio without actually selling a
if it employs a derivatives security, to neutralize the impact of interest rate
strategy (including a changes, to affect diversification or to earn
strategy involving swaps such additional income. We will not use derivatives for
as interest rate swaps, index reasons inconsistent with our investment objectives.
swaps and credit default
swaps) related to a security
or a securities index and
that security or index moves
in the opposite direction
from what the portfolio
manager had anticipated.
Another risk of derivative
transactions is the
creditworthiness of the
counterparty because the
transaction depends on the
willingness and ability of
the counterparty to fulfill
its contractual obligations.
Derivatives also involve
additional expenses, which
could reduce any benefit or
increase any loss to a fund
from using the strategy.
------------------------------ ----------------------------------------------------
Disclosure of portfolio holdings information
A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's SAI.
Who manages the Fund
Investment manager and sub-advisor
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 an
aggregate fee of 0.44% average daily net assets for the last fiscal year, after
giving effect to waivers by the manager.
A discussion of the basis for the Board of Trustees' approval of the Fund's
investment advisory contracts is available in the Fund's annual report to
shareholders for the fiscal year ended October 31, 2005.
Portfolio managers
Timothy L. Rabe, Paul Grillo and Philip R. Perkins have primary responsibility
for making day-to-day investment decisions for the Fund. When making decisions
for the Fund, Messrs. Rabe, Grillo and Perkins regularly consult with Ryan K.
Brist and Stephen R. Cianci.
Timothy L. Rabe, Senior Vice President/Senior Portfolio Manager, received a
bachelor's degree in finance from the University of Illinois. Prior to joining
Delaware Investments in 2000, Mr. Rabe was a high-yield portfolio manager for
Conseco Capital Management. Before that, Mr. Rabe worked as a tax analyst for
The Northern Trust Company. Mr. Rabe is a CFA charterholder.
Paul Grillo, Senior Vice President/Senior Portfolio Manager, holds a BA in
Business Management from North Carolina State University and an MBA in Finance
from Pace University. Prior to joining Delaware Investments in 1993, Mr. Grillo
served as mortgage strategist and trader at the Dreyfus Corporation. He also
served as Mortgage Strategist and Portfolio Manager at Chemical Investment Group
and as Financial Analyst at Chemical Bank. Mr. Grillo is a CFA charterholder.
Philip R. Perkins, Senior Vice President/Senior Portfolio Manager, holds a B.A.
from the University of Notre Dame. He joined Delaware Investments in June 2003
from Deutsche Bank A.G., where he served as a Managing Director in Global
Markets. He was Chief Operating Officer for the Bank's Emerging Markets
Division, based in London. From 1998 to 2001, he was based in Moscow and
responsible for Local Markets Trading. Prior to that, Mr. Perkins was Chief
Executive Officer of Dinner Key Advisors Inc., a registered broker dealer
founded to trade derivative mortgage backed bonds with institutional clients. He
began his career at Salomon Brothers, where he was a Mortgage/CMO trader from
1985 to 1990.
Ryan K. Brist, Executive Vice President/Managing Director/Chief Investment
Officer, Fixed Income, earned his bachelor's degree from Indiana University.
Prior to joining Delaware Investments in August 2000, he served as a Senior
Trader and Corporate Specialist for Conseco Capital Management's fixed-income
group. He previously worked in oil/gas investment banking as an Analyst for Dean
Witter Reynolds in New York. He is a CFA Charterholder.
Stephen R. Cianci, Senior Vice President/Senior Portfolio Manager, holds a BS
and an MBA in Finance from Widener University. He joined Delaware Investments'
Fixed Income Department in 1992 as an investment grade quantitative research
analyst. In addition to his quantitative research responsibilities, Mr. Cianci
also served as a mortgage-backed and asset-backed securities analyst. Mr. Cianci
is an Adjunct Professor of Finance at Widener University and a CFA
charterholder.
The SAI for the Fund provides additional information about the portfolio
managers' compensation, other accounts managed by the portfolio managers and the
portfolio managers' ownership of other securities in the Fund.
Who's who?
This diagram shows the various organizations involved in managing, administering
and servicing the Delaware Investments Funds.
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MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
Board of Trustees
Investment manager Custodian
Delaware Management Company JPMorgan Chase Bank
2005 Market Street 4 Chase Metrotech Center
Philadelphia, PA19103-7094 The Fund Brooklyn, NY11245
Distributor Service agent
Delaware Distributors, L.P. Delaware Service Company, Inc.
2005 Market Street 2005 Market Street
Philadelphia, PA19103-7094Philadelphia, PA19103-7094
Financial intermediary
wholesaler
Lincoln Financial Distributors, Inc.
2001 Market Street
Philadelphia, PA19103-7055
Portfolio managers
(see page [__] for details)
Shareholders
Board of Trustees A mutual fund is governed by a board of trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. Generally, at least 40% of the board of trustees must be independent of
the fund's investment manager and distributor. However, the Fund relies on
certain exemptive rules adopted by the SEC that require its Board of Trustees to
be comprised of a majority of such independent Trustees. These independent fund
Trustees, in particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
rules governing mutual fund sales practices.
Financial intermediary wholesaler Pursuant to a contractual arrangement with
Delaware Distributors, L.P., Lincoln Financial Distributors, Inc. (LFD) is
primarily responsible for promoting the sale of Fund shares through
broker/dealers, financial advisors and other financial intermediaries.
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. 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 policies must also seek shareholder approval.
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 Fund's manager or its
affiliates and of securities dealer firms with a selling agreement
with the distributor;
o institutional advisory accounts of the Fund's 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 including
mutual funds managed by the Fund's investment manager, investing for
its own account or for the account of its trust customers for whom the
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 advisors investing on behalf of clients that
consist solely of institutions and high net-worth individuals having
at least $1,000,000 entrusted to the advisor for investment purposes.
Use of the Institutional Class shares is restricted to advisors who
are not affiliated or associated with a broker or dealer and who
derive compensation for their services exclusively from their advisory
clients; or
o programs sponsored by financial intermediaries where such program
requires the purchase of Institutional Class shares.
How to buy shares
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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, 2005
Market Street, Philadelphia, PA19103-7094. 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 Bank of New York, ABA
#021000018, Bank Account number 8900403748. 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 first call us at 800 510-4015 so we can assign you an
account number.
[GRAPHIC OMITTED: EXCHANGE SYMBOL]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments Funds for shares of other Delaware Investments Funds.
Please keep in mind, however, that you may not exchange your shares for Class B,
Class C or Class R shares. To open an account by exchange, call your Client
Services Representative at 800 510-4015.
[GRAPHIC OMITTED: SYMBOL OF A PERSON]
Through your financial advisor
Your financial advisor can handle all the details of purchasing shares,
including opening an account. Your financial advisor may charge a separate fee
for this service.
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of regular
trading on the New York Stock Exchange (NYSE), which is normally 4:00 p.m.
Eastern Time, you will pay that day's closing share price, which is based on the
Fund's NAV. If your order is received after the close of regular trading on the
NYSE, you will pay the next business day's price. A business day is any day that
the NYSE is open for business (Business Day). We reserve the right to reject any
purchase order.
We determine the NAV per share for each class of the Fund at the close of
regular trading on the NYSE each Business Day. The NAV per share for each class
of the Fund is calculated by subtracting the liabilities of each class from its
total assets and dividing the resulting number by the number of shares
outstanding for that class. We generally price securities and other assets for
which market quotations are readily available at their market value. We price
fixed-income securities on the basis of valuations provided to us by an
independent pricing service that uses methods approved by the Board of Trustees.
We price any fixed-income securities that have a maturity of less than 60 days
at amortized cost, which approximates market value. For all other securities, we
use methods approved by the Board of Trustees that are designed to price
securities at their fair market value.
Fair valuation
When the Fund uses fair value pricing, it may take into account any factors it
deems appropriate. The Fund may determine fair value based upon developments
related to a specific security, current valuations of foreign stock indices (as
reflected in U.S. futures markets) and/or U.S. sector or broader stock market
indices. The price of securities used by the Fund to calculate its NAV may
differ from quoted or published prices for the same securities. Fair value
pricing may involve subjective judgments and it is possible that the fair value
determined for a security is materially different than the value that could be
realized upon the sale of that security.
The Fund anticipates using fair value pricing for securities primarily traded on
U.S. exchanges only under very limited circumstances, such as the early closing
of the exchange on which a security is traded or suspension of trading in the
security. The Fund may use fair value pricing more frequently for securities
primarily traded in non-U.S. markets because, among other things, most foreign
markets close well before the Fund values its securities at 4:00 p.m., Eastern
Time. The earlier close of these foreign markets gives rise to the possibility
that significant events, including broad market moves, may have occurred in the
interim. To account for this, the Fund may frequently value many foreign equity
securities using fair value prices based on third party vendor modeling tools to
the extent available.
Subject to the Board's oversight, the Fund's Board has delegated responsibility
for valuing the Fund's assets to a Pricing Committee of the Manager, which
operates under the policies and procedures approved by the Board as described
above.
How to redeem shares
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By mail
You may redeem your shares (sell them back to the Fund) by mail by writing to:
Delaware Investments, 2005 Market Street, Philadelphia, PA19103-7094. All
owners of the account must sign the request. For redemptions of more than
$100,000, you must include a signature guarantee for each owner. You can also
fax your written request to 267 256-8992. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on the account.
[GRAPHIC OMITTED: SYMBOL OF A TELEPHONE]
By telephone
You may redeem up to $100,000 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. If you request a wire
deposit, a bank wire fee may be deducted from your proceeds. Bank information
must be on file before you request a wire redemption.
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By wire
You may redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account, normally the next business day after we receive
your request. Bank information must be on file before you request a wire
redemption.
[GRAPHIC OMITTED: SYMBOL OF A PERSON]
Through your financial advisor
Your financial advisor can handle all the details of redeeming your shares. Your
financial advisor may charge a separate fee for this service.
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, and
we or an authorized agent receive the request before the close of regular
trading on the NSYE (normally 4:00 p.m. Eastern Time), you will receive the NAV
next determined after we receive your request. If we receive your request after
the close of regular trading on the NYSE, you will receive the NAV next
determined on the next business day. You may have to pay taxes on the proceeds
from your sale of shares. We will send you a check, normally the next business
day, but no later than seven days after we receive your request to sell your
shares. If you purchased your shares by check, we will wait until your check has
cleared, which can take up to 15 days, before we send your redemption proceeds.
Account minimum
If you redeem shares and your account balance falls below $250, your Fund may
redeem your account after 60 days' written notice to you.
If you have an account in the same Delaware Investments Fund as another member
of your household, we are sending your household one copy of the Fund's
prospectus, annual and semi-annual reports unless you opt otherwise. This will
help us reduce the printing and mailing expenses associated with the Funds. We
will continue to send one copy of each of these documents to your household
until you notify us that you wish individual materials. If you wish to receive
individual materials, please call our Shareholder Service Center at 800-523-1918
or your financial advisor. We will begin sending you individual copies of these
documents thirty days after receiving your request.
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
do not 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, Class C or Class R
shares of the funds in the Delaware Investments family.
Frequent trading of Fund shares
The Fund discourages purchases by market timers and purchase orders (including
the purchase side of exchange orders) by shareholders identified as market
timers may be rejected. The Fund's Board of Trustees has adopted policies and
procedures designed to detect, deter and prevent trading activity detrimental to
the Fund and its shareholders, such as market timing. The Fund will consider
anyone who follows a pattern of market timing in any fund in the Delaware
Investments family or Optimum Fund Trust to be a market timer and may consider
anyone who has followed a similar pattern of market timing at an unaffiliated
fund family to be a market timer.
Market timing of a fund occurs when investors make consecutive, rapid,
short-term "roundtrips" -- that is, purchases into a fund followed quickly by
redemptions out of that fund. A short-term roundtrip is any redemption of fund
shares within 20 business days of a purchase of that fund's shares. If you make
a second such short-term roundtrip in a fund within the same calendar quarter of
a previous short-term roundtrip in that fund, you may be considered a market
timer. In determining whether market timing has occurred, the Fund will consider
short-term roundtrips to include rapid purchases and sales of Fund shares
through the exchange privilege. The Fund reserves the right to consider other
trading patterns to be market timing.
Your ability to use the Fund's exchange privilege may be limited if you are
identified as a market timer. If you are identified as a market timer, we will
execute the redemption side of your exchange order but may refuse the purchase
side of your exchange order. The Fund reserves the right to restrict, reject or
cancel, without prior notice, any purchase order or exchange order for any
reason, including any purchase order or exchange order accepted by any
shareholder's financial intermediary or in any omnibus-type account.
Transactions placed in violation of the Fund's market timing policy are not
necessarily deemed accepted by the Fund and may be cancelled or revoked by the
Fund on the next business day following receipt by the Fund.
Redemptions will continue to be permitted in accordance with the Fund's current
Prospectus. A redemption of shares under these circumstances could be costly to
a shareholder if, for example, the shares have declined in value, the
shareholder recently paid a front-end sales charge, the shares are subject to a
contingent deferred sales charge or the sale results in adverse tax
consequences. To avoid this risk, a shareholder should carefully monitor the
purchases, sales and exchanges of Fund shares and avoid frequent trading in Fund
shares.
The Fund reserves the right to modify this policy at any time without notice,
including modifications to the Fund's monitoring procedures and the procedures
to close accounts to new purchases. Although the implementation of this policy
involves judgments that are inherently subjective and may be selectively
applied, we seek to make judgments and applications that are consistent with the
interests of the Fund's shareholders. While we will take actions designed to
detect and prevent market timing, there can be no assurance that such trading
activity will be completely eliminated. Moreover, the Fund's market timing
policy does not require the Fund to take action in response to frequent trading
activity. If the Fund elects not to take any action in response to frequent
trading, such frequent trading activity could continue.
Risks of market timing
By realizing profits through short-term trading, shareholders that engage in
rapid purchases and sales or exchanges of the Fund's shares dilute the value of
shares held by long-term shareholders. Volatility resulting from excessive
purchases and sales or exchanges of Fund shares, especially involving large
dollar amounts, may disrupt efficient portfolio management. In particular, the
Fund may have difficulty implementing its long-term investment strategies if it
is forced to maintain a higher level of its assets in cash to accommodate
significant short-term trading activity. Excessive purchases and sales or
exchanges of the Fund's shares may also force the Fund to sell portfolio
securities at inopportune times to raise cash to accommodate short-term trading
activity. This could adversely affect the Fund's performance if, for example,
the Fund incurs increased brokerage costs and realization of taxable capital
gains without attaining any investment advantage.
A fund that invests significantly in foreign securities may be particularly
susceptible to short-term trading strategies. This is because foreign securities
are typically traded on markets that close well before the time the fund
calculates its NAV (typically, 4:00 p.m. Eastern Time). Developments that occur
between the closing of the foreign market and the fund's NAV calculation may
affect the value of these foreign securities. The time zone differences among
international stock markets can allow a shareholder engaging in a short-term
trading strategy to exploit differences in fund share prices that are based on
closing prices of foreign securities established some time before a fund
calculates its own share price.
Any fund that invests in securities that are thinly traded, traded infrequently
or relatively illiquid has the risk that the securities prices used to calculate
the fund's NAV may not accurately reflect current market values. A shareholder
may seek to engage in short-term trading to take advantage of these pricing
differences. Funds that may be adversely affected by such arbitrage include, in
particular, funds that significantly invest in small-cap securities, technology
and other specific industry sector securities, and in certain fixed-income
securities, such as high-yield bonds, asset-backed securities or municipal
bonds.
Transaction monitoring procedures
The Fund, through its transfer agent, maintains surveillance procedures designed
to detect excessive or short-term trading in Fund shares. This monitoring
process involves several factors, which include scrutinizing transactions in
fund shares for violations of the Fund's market timing policy or other patterns
of short-term or excessive trading. For purposes of these transaction monitoring
procedures, the Fund may consider trading activity by multiple accounts under
common ownership, control or influence to be trading by a single entity. Trading
activity identified by these factors, or as a result of any other available
information, will be evaluated to determine whether such activity might
constitute market timing. These procedures may be modified from time to time to
improve the detection of excessive or short-term trading or to address other
concerns. Such changes may be necessary or appropriate, for example, to deal
with issues specific to certain retirement plans, plan exchange limits, U.S.
Department of Labor regulations, certain automated or pre-established exchange,
asset allocation or dollar cost averaging programs, or omnibus account
arrangements.
Omnibus account arrangements are common forms of holding shares of the Fund,
particularly among certain brokers/ dealers and other financial intermediaries,
including sponsors of retirement plans and variable insurance products. The Fund
will attempt to apply its monitoring procedures to these omnibus accounts and to
the individual participants in such accounts. In an effort to discourage market
timers in such accounts, the Fund may consider enforcement against market timers
at the participant level and at the omnibus level, up to and including
termination of the omnibus account's authorization to purchase Fund shares.
Limitations on ability to detect and curtail market timing
Shareholders seeking to engage in market timing may employ a variety of
strategies to avoid detection and, despite the efforts of the Fund and its
agents to detect market timing in Fund shares, there is no guarantee that the
Fund will be able to identify these shareholders or curtail their trading
practices. In particular, the Fund may not be able to detect market timing
attributable to a particular investor who effects purchase, redemption and/or
exchange activity in Fund shares through omnibus accounts. The difficulty of
detecting market timing may be further compounded if these entities utilize
multiple tiers or omnibus accounts.
Dividends, distributions and taxes
Dividends and Distributions. The Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code. As a
regulated investment company, the Fund generally pays no federal income tax on
the income and gains it distributes to you. Dividends, if any, are declared
daily and paid monthly. Capital gains, if any, are paid annually. The amount of
any distribution will vary, and there is no guarantee the Fund will pay either
an income dividend or a capital gain distribution. We automatically reinvest all
dividends and any capital gains, unless you direct us to do otherwise.
Annual Statements. Every January, you will receive a statement that shows the
tax status of distributions you received the previous year. Distributions
declared in December but paid in January are taxable as if they were paid in
December. Mutual funds may reclassify income after your tax reporting statement
is mailed to you. Prior to issuing your statement, the Fund makes every effort
to search for reclassified income to reduce the number of corrected forms mailed
to shareholders. However, when necessary, the Fund will send you a corrected
Form 1099-DIV to reflect reclassified information.
Avoid "Buying A Dividend." If you invest in the Fund shortly before the record
date of a taxable distribution, the distribution will lower the value of the
Fund's shares by the amount of the distribution and, in effect, you will receive
some of your investment back in the form of a taxable distribution.
Tax Considerations. In general, if you are a taxable investor, Fund
distributions are taxable to you at either ordinary income or capital gains tax
rates. This is true whether you reinvest your distributions in additional Fund
shares or receive them in cash. For federal income tax purposes, Fund
distributions of short-term capital gains are taxable to you as ordinary income.
Fund distributions of long-term capital gains are taxable to you as long-term
capital gains no matter how long you have owned your shares.
A sale or redemption of Fund shares is a taxable event and, accordingly, a
capital gain or loss may be recognized. For tax purposes, an exchange of your
Fund shares for shares of a different Fund is the same as a sale.
By law, if you do not provide the Fund with your proper taxpayer identification
number and certain required certifications, you may be subject to backup
withholding on any distributions of income, capital gains or proceeds from the
sale of your shares. The Fund also must withhold if the IRS instructs it to do
so. When withholding is required, the amount will be 28% of any distributions or
proceeds paid.
Fund distributions and gains from the sale or exchange of your Fund shares
generally are subject to state and local taxes. Non-U.S. investors may be
subject to U.S. withholding or estate tax, and are subject to special U.S. tax
certification requirements.
This discussion of "Dividends, distributions and taxes" is not intended or
written to be used as tax advice. Because everyone's tax situation is unique,
you should consult your tax professional about federal, state, local or foreign
tax consequences before making an investment in the Fund.
Certain management considerations
Investments by fund of funds and similar investment vehicles
The Fund may accept investments from funds of funds, including those within the
Delaware Investments family, as well as from similar investment vehicles, such
as 529 Plans. A "529 Plan" is a college savings program that operates under
section 529 of the Internal Revenue Code. From time to time, the Fund may
experience large investments or redemptions due to allocations or rebalancings
by these funds of funds and/or similar investment vehicles. 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 have tax consequences if sales of securities
result in gains, and could also increase transaction costs or portfolio
turnover. The manager will monitor transactions by the funds of funds and will
attempt to minimize any adverse effects on both the Fund and the funds of funds
as a result of these transactions.
Manager of managers structure
At a shareholder meeting held on March 23, 2005 (or as adjourned), the Fund's
shareholders approved a "manager of managers" structure that would permit
Delaware Management Company, the Fund's investment advisor, to appoint and
replace sub-advisors, enter into sub-advisory agreements, and amend and
terminate sub-advisory agreements with respect to the Fund, subject to Board
approval but without shareholder approval (the "Manager of Managers Structure").
While Delaware Management Company does not currently expect to use the Manager
of Managers Structure with respect to the Fund, Delaware Management Company may,
in the future, recommend to the Fund's Board the establishment of the Manager of
Managers Structure by recommending the hiring of one or more sub-advisors to
manage all or a portion of the Fund's portfolio if it believes that doing so
would be likely to enhance the Fund's performance by introducing a different
investment style or focus.
The ability to implement the Manager of Managers Structure with respect to the
Fund is contingent upon the receipt of an exemptive order from the U.S.
Securities and Exchange Commission (the "SEC") or the adoption of a rule by the
SEC authorizing the implementation of the Manager of Managers Structure. The use
of the Manager of Managers Structure with respect to the Fund may be subject to
certain conditions set forth in the SEC exemptive order or rule. There can be no
assurance that the SEC will grant the Fund's application for an exemptive order
or adopt such a rule.
The Manager of Managers Structure would enable the Fund to operate with greater
efficiency and without incurring the expense and delays associated with
obtaining shareholder approval of sub-advisory agreements. The Manager of
Managers Structure would not permit investment management fees paid by the Fund
to be increased without shareholder approval or change Delaware Management
Company's responsibilities to the Fund, including Delaware Management Company's
responsibility for all advisory services furnished by a sub-advisor.
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 800 510-4015.
Delaware Diversified Income Fund Year Ended
10/31
2005 2004 2003
Net asset value, beginning of period $8.930 $8.600 $8.960
Income (loss) from investment operations:
Net investment income (loss)(1) 0.350 0.399 0.395
Net realized and unrealized gain (loss) on
investments and foreign currencies (0.218) 0.439 0.806
------- ------ ------
Total from investment operations 0.132 0.838 1.201
------- ------ ------
Less dividends and distributions from:
Net investment income (0.412) (0.455) (1.287)
------- ------- -------
Net realized gain on investments (0.092) (0.053) (0.274)
------- ------- -------
Return of capital (0.008) --- ---
------- ------- -------
Total dividends and distributions (0.512) (0.508) (1.561)
------- ------ ------
Net asset value, end of period $8.550 $8.930 $8.600
======= ======= =======
Total return(2) 1.41% 10.05% 15.10%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $13,270 $6,194 $567
Ratio of expenses to average net assets 0.75% 0.77% 0.75%
Ratio of expenses to average net assets prior
to expense limitations and expenses
paid indirectly 0.84% 0.89% 1.30%
Ratio of net investment income to
average net assets 3.97% 4.58% 4.76%
Ratio of net investment income to average net
assets prior to expense limitation and
expenses paid indirectly 3.88% 4.46% 4.21%
Portfolio turnover 417% 452% 620%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
As of October 31, 2002, the Delaware Diversified Income Fund Institutional Class
had one share outstanding representing the initial seed purchase. Shareholder
data for this class is not disclosed because management does not believe it is
meaningful.
How to read the Financial highlights
Net investment income (loss)
Net investment income (loss) includes dividend and interest income earned from a
fund's investments; 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, if any, that we pay to shareholders
would be listed under "Less dividends and 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 a 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 a 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 (loss) to average net assets
We determine this ratio by dividing net investment income (loss) by average net
assets.
Portfolio turnover rate
This figure tells you the amount of trading activity in a fund's portfolio. A
turnover rate of 100% would occur if, for example, a fund bought and sold all of
the securities in its portfolio once in the course of a year or frequently
traded a single security. A high rate of portfolio turnover in any year may
increase brokerage commissions paid and could generate taxes for shareholders on
realized investment gains.
Glossary
How to use this glossary
This glossary includes definitions of investment terms, many of which are used
throughout the Prospectus. If you would like to know the meaning of an
investment term that is not explained in the text, please check the glossary.
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 typically
is inversely related to current interest rates. Generally, when interest rates
rise, bond prices fall, and when interest rates fall, bond prices rise. See
Fixed-income securities.
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. See also Nationally recognized statistical ratings
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 advisor for 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.
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. This
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.
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.
Fixed-income securities
With fixed-income securities, the money you originally invest is paid back at a
pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
Inflation
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
Lehman Brothers Aggregate Bond Index
An index that measures the performance of about 6,500 U.S. corporate and
government bonds.
Management fee
The amount paid by a mutual fund to the investment advisor 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 a 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.
NASD
The National Association of Securities Dealers, Inc., which is responsible for
regulating the securities industry.
Nationally recognized statistical ratings 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,
Inc. (Moody's), Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
(S&P) and Fitch, Inc. (Fitch).
Net assets
The total value of all the assets in a fund's portfolio, less any liabilities.
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 are 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.
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)
A document that provides more detailed information about a fund's organization,
management, investments, policies and risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as common stocks or 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.
Delaware Diversified Income Fund
Additional information about the Fund's investments is available in the Fund's
annual and semiannual 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 period
covered by the report. You can find more information about the Fund in the
current Statement of Additional Information (SAI), which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
legally a part of this Prospectus (it is incorporated by reference). If you want
a free copy of the SAI, the annual or semiannual report, or if you have any
questions about investing in the Fund, you can write to us at 2005 Market
Street, Philadelphia, PA19103-7094, or call toll-free 800 510-4015. The Fund's
SAI and annual and semiannual reports to shareholders are available, free of
charge, through the Fund's internet Web site (ww.delawareinvestments.com). You
may also obtain additional information about the Fund from your financial
advisor.
You can find reports and other information about the Fund on the EDGAR Database
on the SEC Web site (http://www.sec.gov). You can also get copies of this
information, after payment of a duplicating fee, by e-mailing the SEC at
publicinfo@sec.gov or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102. Information about the Fund, including its SAI, can
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
You can get information on the Public Reference Room by calling the SEC at 202
942-8090.
Web site
www.delawareinvestments.com
E-mail
service@delinvest.com
Client Services Representative
800 510-4015
Delaphone Service
800 362-FUND (800 362-3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R)service.
Registrant's Investment Company Act file number: 811-7972
Delaware Diversified Income Fund
CUSIP NASDAQ
Institutional Class 246248587 DPFFX
DELAWARE
INVESTMENTS(R)
A Member of Lincoln Financial Group
P-195 [--] PP 02/05
GROWTH EQUITY DELAWARE
INVESTMENTS(R)
A Member of Lincoln Financial Group
Prospectus FEBRUARY 28, 2006
DELAWARE U.S. GROWTH FUND
CLASS A |X| CLASS B |X| CLASS C |X| CLASS R
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.
Table of contents
Fund profile page
Delaware U.S. Growth Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Disclosure of portfolio holdings information
Who manages the Fund page
Investment manager
Portfolio managers
Who's who?
About your account page
Investing in the Fund
Choosing a share class
Dealer Compensation
How to reduce your sales charge
How to buy shares
Fair valuation
Retirement plans
How to redeem shares
Account minimums
Special services
Frequent trading of Fund shares
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
Glossary page
Profile: Delaware U.S. Growth Fund
What is the Fund's goal?
Delaware U.S. Growth Fund seeks long-term capital appreciation by investing in
equity securities of companies we believe have the potential for sustainable
free cash flow growth. Although the Fund will strive to meet its goal, there is
no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in common stocks. The Fund invests primarily in companies
that we believe have long-term capital appreciation potential and are expected
to grow faster than the U.S. economy. Using a bottom up approach, we seek to
select securities we believe have large-end market potential, dominant business
models and strong free cash flow generation that are attractively priced
compared to the intrinsic value of the securities. We also consider a company's
operational efficiencies, management's plans for capital allocation and the
company's shareholder orientation. All of these factors give us insight into the
outlook for a company, helping identify companies poised for sustainable free
cash flow growth. We believe that sustainable free cash flow growth, if it
occurs, may result in price appreciation for the company's stock. Whether
companies provide dividend income and the amount of income they provide will not
be a primary factor in the Fund's selection decisions. We may sell a security if
we no longer believe that security is likely to contribute to meeting the
investment objective of the Fund or if there are other opportunities that appear
more attractive.
Under normal circumstances, the Fund will invest at least 80% of its net assets
in U.S. investments. This policy is not a fundamental investment policy and may
be changed without shareholder approval. However, shareholders will be given
notice at least 60 days prior to any such change. We may also invest up to 20%
of the Fund's assets in debt securities and bonds. In addition, we may invest in
convertible bonds, preferred stocks and convertible preferred stocks, provided
that these investments, when aggregated with the Fund's debt securities and
bonds, do not exceed 35% of the Fund's assets.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. Over time, the value of your investment in
the Fund will increase and decrease according to changes in the value of the
securities in the Fund's portfolio. This Fund will be particularly affected by
declines in stock prices, which tend to fluctuate more than bond prices. Stock
prices may be negatively affected by a drop in the stock market or poor
performance in specific companies or industries. Stocks of companies with high
growth expectations may be more susceptible to price declines if they do not
meet those high expectations.
For a more complete discussion of risk, please see "The risks of investing inthe Fund" on page [__]. An investment in the Fund is not a deposit of any bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation
(FDIC) or any other government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor 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 capital growth potential.
o Investors seeking a fund that can be a complement to income-producing or
value-oriented investments.
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 whose primary goal is to receive current income.
How has Delaware U.S. Growth 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 Class A shares have varied over the
past ten calendar years, as well as average annual returns of Class A, B, C and
R shares for one-year, five-year and ten-year or lifetime periods, as
applicable. The Fund's past performance (before and after taxes) is not
necessarily an indication of how it will perform in the future. The returns
reflect expense caps in effect during these periods. The returns would be lower
without the expense caps. Please see the footnotes on page [ ] for additional
information about the expense caps.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A)]
Year-by-year total return (Class A)
1996 19.56%
1997 30.93%
1998 29.57%
1999 40.34%
2000 -7.60%
2001 -24.36%
2002 -29.01%
2003 23.28%
2004 3.01%
2005 13.68%
During the periods illustrated in this bar chart, Class A's highest quarterly
return was 30.56% for the quarter ended December 31, 1999 and its lowest
quarterly return was -21.01% for the quarter ended March 31, 2001.
The maximum Class A sales charge of 5.75%, which is normally deducted when you
purchase shares, is not reflected in the previous paragraph or in the bar chart.
If this fee were included, the returns would be less than those shown. The
average annual returns in the table below do include the sales charge.
Average annual returns for periods
ending 12/31/05
--------------------------------------------- ------------- ---------------- --------------
10 years or
1 year 5 years Lifetime**
--------------------------------------------- ------------- ---------------- --------------
Class A return before taxes 7.14% (6.08)% 6.75%
--------------------------------------------- ------------- ---------------- --------------
Class A return after taxes on distributions 7.14% (6.08)% 4.98%
--------------------------------------------- ------------- ---------------- --------------
Class A return after taxes on distributions
and sale of Fund shares 4.64% (5.07)% 4.88%
--------------------------------------------- ------------- ---------------- --------------
Class B return before taxes* 8.84% (6.05)% 6.77%
--------------------------------------------- ------------- ---------------- --------------
Class C return before taxes* 11.90% (5.63)% 6.66%
--------------------------------------------- ------------- ---------------- --------------
Class R return before taxes 13.30% N/A 10.57%
--------------------------------------------- ------------- ---------------- --------------
S&P 500(R)Index 4.91% 0.54% 9.07%
(reflects no deduction for fees, expenses
or taxes)
--------------------------------------------- ------------- ---------------- --------------
Russell 1000(R)Growth Index*** 5.26% (3.58)% 6.73%
(reflects no deduction for fees, expenses
or taxes)
--------------------------------------------- ------------- ---------------- --------------
The Fund's returns above are compared to the performance of the S&P 500 Index
and the Russell 1000 Growth Index. You should remember that, unlike the Fund,
the indexes are unmanaged and do not reflect the actual costs of operating a
mutual fund, such as the costs of buying, selling and holding securities.
Maximum sales charges are included in the Fund returns shown above.
After-tax performance is presented only for Class A shares of the Fund. The
after-tax returns for other Fund classes may vary. Actual after-tax returns
depend on the investor's individual tax situation and may differ from the
returns shown. After-tax returns are not relevant for shares held in
tax-deferred investment vehicles such as employer-sponsored 401(k) plans and
individual retirement accounts. The after-tax returns shown are calculated using
the highest individual federal marginal income tax rates in effect during the
Fund's lifetime and do not reflect the impact of state and local taxes. The
after-tax rate used is based on the current tax characterization of the elements
of the Fund's returns (e.g., qualified vs. non-qualified dividends) and may be
different than the final tax characterization of such elements. Past
performance, both before and after taxes, is not a guarantee of future results.
* Total returns assume redemption of shares at end of period. The ten-year
returns for Class B shares reflect conversion to Class A shares after eight
years. If shares were not redeemed, the returns for Class B would be
12.84%, -5.62% and 6.77% for the one-year, five-year and ten-year periods,
respectively. If shares were not redeemed, returns for Class C would be
12.90%, -5.63% and 6.66% for the one-year, five-year and ten-year periods,
respectively.
** Lifetime returns are shown if the Fund or Class existed for less than 10
years. The inception date for Class R shares was June 2, 2003. The S&P 500
Index and the Russell 1000 Growth Index returns are for the ten-year
period. The S&P 500 Index and the Russell 1000 Growth Index report returns
on a monthly basis. The S&P 500 Index and the Russell 1000 Growth Index
returns for Class R's lifetime were 12.40% and 10.51%, respectively.
*** The Russell 1000 Growth Index is replacing the S&P 500 Index as the Fund's
benchmark. The investment manager believes the composition of the Russell
1000 Growth Index better reflects the Fund's investments. The S&P 500 Index
may be excluded from this comparison in the future.
What are the Fund's fees and expenses?
--------------------------------- ---------------------------------- --------- --------- --------- --------
Sales charges are fees paid CLASS A B C R
directly from your investments ---------------------------------- --------- --------- --------- --------
when you buy or sell shares of Maximum sales charge (load) imposed
the Fund. You do not pay sales on purchases as a percentage of
charges when you buy or sell offering price 5.75% none none none
Class R shares. ---------------------------------- --------- --------- --------- --------
Maximum contingent deferred sales
charge (load) as a percentage of
original purchase price or
redemption price, whichever is
lower none(1) 4.00%(2) 1.00%(3) none
---------------------------------- --------- --------- --------- --------
Maximum sales charge (load)
imposed on reinvested dividends none none none none
---------------------------------- --------- --------- --------- --------
Redemption fees none none none none
---------------------------------- --------- --------- --------- --------
Exchange fees none none none none
--------------------------------- ---------------------------------- --------- --------- --------- --------
--------------------------------- ---------------------------------- --------- --------- --------- --------
Annual fund operating CLASS A B C R
expenses are deducted ---------------------------------- --------- --------- --------- --------
from the Fund's assets. Management fees 0.65% 0.65% 0.65% 0.65%
---------------------------------- --------- --------- --------- --------
Distribution and service (12b-1)
fees 0.35%(4) 1.00% 1.00% 0.60%(4)
---------------------------------- --------- --------- --------- --------
Other expenses 0.46% 0.46% 0.46% 0.46%
---------------------------------- --------- --------- --------- --------
Total annual fund operating
expenses 1.46% 2.11% 2.11% 1.71%
---------------------------------- --------- --------- --------- --------
Fee waivers and payments(5) (0.41)% (0.36)% (0.36)% (0.46)%
---------------------------------- --------- --------- --------- --------
Net expenses 1.05% 1.75% 1.75% 1.25%
---------------------------------- --------- --------- --------- --------
--------------------------- --------- ----------- ------------ ------------ ---------- ------------- ---------
This example is intended CLASS(6) A B(7) B(7) C C R
to help you compare the (if (if
cost of investing in the redeemed) redeemed)
Fund to the cost of --------- ----------- ------------ ------------ ---------- ------------- ---------
investing in other mutual 1 year $676 $178 $578 $178 $278 $127
funds with similar --------- ----------- ------------ ------------ ---------- ------------- ---------
investment objectives. We 3 years $972 $626 $901 $626 $626 $494
show the cumulative --------- ----------- ------------ ------------ ---------- ------------- ---------
amount of Fund expenses 5 years $1,290 $1,101 $1,326 $1,101 $1,101 $885
on a hypothetical --------- ----------- ------------ ------------ ---------- ------------- ---------
investment of $10,000 10 years $2,188 $2,247 $2,247 $2,413 $2,413 $1,981
with an annual 5% return
over the time shown.(6)
This example reflects the
net operating expenses
with expense waivers for
the one-year contractual
period and the total
operating expenses
without expense waivers
for years two through
ten. This is an example
only, and does not
represent future
expenses, which may be
greater or less than
those shown here.
--------------------------- ------------- ---------------- ------------ ------------ ------------- ------------- -------------
(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 advisor who is
paid a commission, a contingent deferred sales charge will apply to
redemptions made within two years of purchase. 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 4.00%, which declines to
3.25% during the second year, 2.75% during the third year, 2.25% during the
fourth and fifth years, 1.50% during the sixth year and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1.00%
contingent deferred sales charge.
(4) The Fund's distributor has contracted to limit the Class A and Class R
shares' 12b-1 fee through February 28, 2007 to no more than 0.30% and
0.50%, respectively, of average daily net assets.
(5) The investment manager has contracted to waive fees and pay expenses
through February 28, 2007 in order to prevent total operating expenses
(excluding any 12b-1 fees, taxes, interest, brokerage fees, extraordinary
expenses and certain insurance costs) 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.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after eight years. Information for the ninth and tenth years
reflects expenses of the Class A shares.
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 the Fund. Following are descriptions of how the portfolio
management team pursues the Fund's investment goals. We take a disciplined
approach to investing, combining investment strategies and risk management
techniques that can help shareholders meet their goals.
Delaware U.S. Growth Fund seeks long-term capital appreciation. We invest
primarily in common stocks and, though we have the flexibility to invest in
companies of all sizes, we generally focus on medium and large-size companies.
Our goal is to own companies that we expect to grow faster than the U.S.
economy. Using a bottom up approach, we look for companies that:
o have large end market potential, dominant business models and strong free
cash flow generation;
o demonstrate operational efficiencies;
o have planned well for capital allocation; and
o have governance policies that tend to be favorable to shareholders.
There are a number of catalysts that might increase a company's potential for
free cash flow growth. Our disciplined, research-intensive selection process is
designed to identify catalysts such as:
o management changes;
o new products;
o structural changes in the economy; or
o corporate restructurings and turnaround situations.
We maintain a diversified portfolio representing a number of different
industries. Such an approach helps to minimize the impact that any one security
or industry could have on the portfolio if it were to experience a period of
slow or declining growth. Because our objective is capital appreciation, the
amount of dividend income that a stock provides is only an incidental
consideration for us. The Fund's investment objective is non-fundamental. This
means that the Board of Trustees may change the objective without obtaining
shareholder approval. If the objective were changed, we would notify
shareholders at least 60 days before the change in the objective became
effective.
The securities we typically invest in
Stocks offer investors the potential for capital appreciation. Certain stocks
that we invest in may pay dividends as well.
---------------------------------------- ----------------------------------
Securities How we use them
---------------------------------------- ----------------------------------
Common stocks: Securities that Generally, we invest 85% to
represent shares of ownership in a 100% of the Fund's net assets
corporation. Stockholders participate in common stock of companies
in the corporation's profits and that we think have
losses proportionate to the number of appreciation potential. We
shares they own. may invest in companies of all
sizes, but typically focus on
medium and large size
companies.
---------------------------------------- ----------------------------------
Foreign securities and American We may invest up to 20% of the
Depositary Receipts: Securities of Fund's net assets in securities
foreign entities issued directly or, of foreign issuers. Such
in the case of American Depositary foreign securities may be traded
Receipts (ADRs), through a U.S. bank. on a foreign exchange, or they
ADRs represent the bank's holdings of may be in the form of ADRs.
a stated number of shares of a foreign Direct ownership of foreign
corporation. An ADR entitles the securities will typically not be
holder to all dividends and capital a significant part of our
gains earned by the underlying foreign strategy. We may, however, own
shares. ADRs are typically bought and ADRs when we think they offer
sold on U.S. securities exchanges in greater appreciation potential
the same way as other U.S. securities. than U.S. securities.
---------------------------------------- ----------------------------------
Repurchase agreements: An agreement Typically, we use repurchase
between a buyer of securities, such as agreements as a short-term
the Fund, and a seller of securities, investment for the Fund's cash
in which the seller agrees to buy the position. In order to enter into
securities back within a specified these repurchase agreements, the
time at the same price the buyer paid Fund must have collateral of
for them, plus an amount equal to an 102% of the repurchase price.
agreed upon interest rate. Repurchase The Fund will only enter into
agreements are often viewed as repurchase agreements in which
equivalent to cash. the collateral is comprised of
U.S. government securities.
---------------------------------------- ----------------------------------
Restricted securities: Privately We may invest in privately
placed securities whose resale is placed securities, including
restricted under U.S. securities laws. those that are eligible for
resale only among certain
institutional buyers without
registration, commonly known as
"Rule 144A Securities."
Restricted securities that are
determined to be illiquid may
not exceed the Fund's 10% limit
on illiquid securities, which is
described below.
---------------------------------------- ----------------------------------
Illiquid securities: Securities that We may invest up to 10% of the
do not have a ready market, and cannot Fund's net assets in illiquid
be easily sold within seven days at securities.
approximately the price at which a
fund has valued them.
---------------------------------------- ----------------------------------
Fixed-income securities: Securities We may invest up to 20% of the
that may include debt securities, Fund's assets in debt securities
bonds, convertible bonds, as well as, and bonds. We may also invest
non-investment grade fixed-income up to 10% of this portion in
securities. non-investment grade bonds if we
believe that doing so would help
us to meet the Fund's
objective. We may also invest
in convertible bonds, preferred
stocks and convertible preferred
stock, provided that these
investments, when aggregated
with the Fund's investments in
debt securities and bonds, do
not exceed 35% of the Fund's
assets.
---------------------------------------- ----------------------------------
Options and Futures: Options represent If we have stocks that have
a right to buy or sell a security or appreciated in price, we may
group of securities at an agreed upon want to protect those gains when
price at a future date. The purchaser we anticipate adverse
of an option may or may not choose to conditions. We might use
go through with the transaction; the options or futures to neutralize
seller of an option must go through the effect of any anticipated
with the transaction. price declines, without selling
the security. We may also use
options or futures to gain
exposure to a particular market
Writing a call option on a security segment without purchasing
obligates the owner of the security to individual securities in that
sell it at an agreed upon price on an segment, particularly if we had
agreed upon date (usually no more than excess cash that we wanted to
nine months in the future.) The owner invest quickly.
of the security receives a premium
payment from the purchaser of the We might use covered call
call, but if the security appreciates options if we believe that doing
to a price greater than the agreed so would help the Fund to meet
upon selling price, the fund would its investment objective.
lose out on those gains. A call
option written by the Fund is Use of these strategies can
"covered" if the Fund owns the increase the operating costs of
security underlying the option or has the Fund and can lead to loss of
an absolute and immediate right to principal.
acquire that security without
additional cash consideration.
Futures contracts are agreements for
the purchase or sale of securities at
a specified price, on a specified
date. Unlike an option, a futures
contract must be executed unless it is
sold before the settlement date.
Options and futures are generally
considered to be derivative securities.
---------------------------------------- ----------------------------------
The Fund may also invest in other securities, including preferred stock and U.S.
government securities. Please see the Statement of Additional Information (SAI)
for additional descriptions on these securities as well as those listed in the
table above.
Lending securities The Fund may lend up to one-third of its assets to qualified
brokers, dealers and institutional investors for their use in their securities
transactions. These transactions, may generate additional income for the Fund.
Borrowing from banks The Fund may borrow money from banks as a temporary measure
for extraordinary purposes or to facilitate redemptions. The Fund will be
required to pay interest to the lending banks on the amount borrowed. As a
result, borrowing money could result in the Fund being unable to meet its
investment objective.
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. The
Fund will designate cash or securities in amounts sufficient to cover its
obligations, and will value the designated assets daily.
Portfolio turnover It is possible that the Fund's portfolio turnover rate will
exceed 100%. A turnover rate of 100% would occur if, for example, a fund bought
and sold all of the securities in its portfolio once in the course of a year or
frequently traded a single security. The turnover rate may also be affected by
cash requirements from redemptions and purchases of fund shares. A high rate of
portfolio turnover in any year may increase brokerage commissions paid and could
generate taxes for shareholders on realized investment gains.
Temporary defensive positions For temporary defensive purposes, we may invest up
to 100% of the Fund's assets in money market instruments when the manager
determines that market conditions warrant. We may also hold a portion of the
Fund's assets in cash for liquidity purposes. To the extent that the Fund holds
such instruments, it may be unable to achieve its investment objective.
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 your investment to be a long-term investment that typically provides
the best results when held for a number of years. The table below describes the
chief risks you assume when investing in the Fund. Please see the SAI for
further discussion of these risks and other risks not discussed here.
---------------------------------------- ----------------------------------
Risks How we strive to manage them
---------------------------------------- ----------------------------------
Market risk is the risk that all or a We maintain a long-term
majority of the securities in a investment approach and focus on
certain market-- like the stock or securities we believe can
bond market-- will decline in value appreciate over an extended time
because of economic conditions, future frame regardless of interim
expectations or investor confidence. market fluctuations. We do not
try to predict overall market
movements. Although we may hold
securities for any amount of
time, we generally 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: Industry We limit the amount of the
risk is the risk that the value of Fund's assets invested in any
securities in a particular industry one industry and in any
will decline because of changing individual security.
expectations for the performance of
that industry.
Securities risk is the risk that the
value of an individual stock or bond
will decline because of changing
expectations for the performance of
the individual company issuing the
stock or bond.
---------------------------------------- ----------------------------------
Foreign risk is the risk that foreign We are permitted to invest up to
securities may be adversely affected 20% of the Fund's portfolio in
by political instability, changes in foreign securities. When we do
currency exchange rates, foreign purchase foreign securities,
economic conditions or inadequate they are generally ADRs, which
regulatory and accounting standards. are denominated in U.S. dollars
and traded on U.S. stock
exchanges.
---------------------------------------- ----------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid
securities cannot be readily sold securities to no more than 10%
within seven days at approximately the of the Fund's net assets.
price that a fund has valued them.
---------------------------------------- ----------------------------------
Credit risk is the possibility that a Fixed-income securities are not
bond's issuer (or an entity that typically a significant
insures the bond) will be unable to component of our strategy.
make timely payments of interest and However, when we do invest in
principal. Bonds rated below fixed-income securities, we will
investment grade are particularly not hold more than 10% of net
subject to this risk. assets in high-yield,
non-investment grade bonds. This
limitation, combined with our
careful, credit-oriented bond
selection and our commitment to
hold a diversified selection of
high-yield bonds are designed to
manage this risk.
---------------------------------------- ----------------------------------
Futures and options risk is the We may use options and futures
possibility that a fund may experience to protect gains in the
a loss if it employs an options or portfolio without actually
futures strategy related to a security selling a security. We may also
or a market index and that security or use options and futures to
index moves in the opposite direction quickly invest excess cash so
from what the manager anticipated. that the portfolio is generally
Futures and options also involve fully invested.
additional expenses, which could
reduce any benefit or increase any
loss that a fund gains from using the
strategy.
---------------------------------------- ----------------------------------
Portfolio turnover rates reflect the It is possible that the Fund's
amount of securities that are replaced portfolio turnover rate will
from the beginning of the year to the exceed 100%.
end of the year by the Fund. The
higher the amount of portfolio
activity, the higher the brokerage
costs and other transaction costs of
the Fund are likely to be. The amount
of portfolio activity will also affect
the amount of taxes payable by the
Fund's shareholders that are subject
to federal income tax, as well as the
character (ordinary income vs. capital
gains) of such tax obligations.
---------------------------------------- ----------------------------------
Disclosure of portfolio holdings information
A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's SAI.
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 an
aggregate fee of 0.39% of average daily net assets for the last fiscal year,
after giving effect to waivers by the manager.
A discussion of the basis for the Board of Trustees' approval of the Fund's
investment advisory contract is available in the Fund's annual report to
shareholders for the fiscal year ended October 31, 2005.
Portfolio managers
Jeffrey S. Van Harte has primary responsibility for making day-to-day investment
decisions for Delaware U.S. Growth Fund. In making investment decisions for the
Fund, Mr. Van Harte regularly consults with Christopher J. Bonavico, Daniel J.
Prislin and Christopher M. Ericksen. Mssrs. Van Harte, Bonavico, Prislin and
Ericksen joined Delaware Investments in April 2005.
Jeffrey S. Van Harte, Chief Investment Officer - Focus Growth, was most recently
a principal and executive vice president at Transamerica Investment Management,
LLC. Mr. Van Harte was the lead manager of the Transamerica Large Cap Growth
strategy and managed portfolios in that discipline for over 20 years. Before
becoming a portfolio manager, Mr. Van Harte was a securities analyst and trader
for Transamerica Investment Services, which he joined in 1980. Mr. Van Harte,
who also managed institutional separate accounts and sub-advised funds, received
his bachelor's degree in finance from California State University at Fullerton
and is a CFA charterholder.
Christopher J. Bonavico, Vice President/Senior Portfolio Manager, was most
recently a principal and portfolio manager at Transamerica Investment
Management, LLC. Mr. Bonavico also managed sub-advised funds and institutional
separate accounts. Before joining Transamerica in 1993, he was a research
analyst for Salomon Brothers. Mr. Bonavico received his bachelor's degree in
economics from the University of Delaware and is a CFA charterholder.
Daniel J. Prislin, Vice President/Senior Portfolio Manager, was most recently a
principal and portfolio manager at Transamerica Investment Management, LLC,
where he also managed sub-advised funds and institutional separate accounts.
Prior to joining Transamerica in 1998, he was an assistant portfolio manager
with The Franklin Templeton Group. Mr. Prislin received his M.B.A. and
bachelor's degree in business administration from the University of California,
Berkeley and is a CFA charterholder.
Christopher M. Ericksen, Vice President/Portfolio Manager, joined Delaware
Investments in April 2005 as a portfolio manager on the Focus Growth team, which
is responsible for large-cap growth, all-cap growth and one mid-cap product. He
was most recently a portfolio manager at Transamerica Investment Management,
LLC, where he also managed institutional separate accounts. Before joining
Transamerica in 2004, he was a Vice President at Goldman Sachs; during his ten
years there he worked in investment banking as well as investment management.
Mr. Erickson received his bachelor's degree from Carnegie Mellon University,
with majors in industrial management, economics and political science. He is a
CFA charterholder.
The SAI for the Fund provides additional information about the portfolio
managers' compensation, other accounts managed by the portfolio managers and the
portfolio managers' ownership of other securities in the Fund.
Who's who?
This diagram shows the various organizations involved in managing, administering
and servicing the Delaware Investments Funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
Board of Trustees
Custodian
Investment Manager JPMorgan Chase Bank
Delaware Management Company 4 Chase Metrotech Center
2005 Market Street The Funds Brooklyn, NY11245Philadelphia, PA19103-7094
Distributor Service agent
Delaware Distributors, L.P. Delaware Service Company, Inc.
2005 Market Street 2005 Market Street
Philadelphia, PA19103-7094Philadelphia, PA19103-7094
Portfolio managers Financial intermediary wholesaler
(see page __ for details) Lincoln Financial Distributors,
Inc.
2001 Market Street
Philadelphia, PA19103-7055
Financial advisors
Shareholders
Board of Trustees A mutual fund is governed by a board of trustees, which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. Generally, at least 40% of the board of trustees must be independent of
the fund's investment manager and distributor. However, the Delaware U.S. Growth
Fund relies on certain exemptive rules adopted by the SEC that require its Board
of Trustees to be comprised of a majority of such independent Trustees. These
independent fund Trustees, in particular, are advocates for shareholder
interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker/dealers and are subject to NASD
rules governing mutual fund sales practices.
Financial intermediary wholesaler Pursuant to a contractual arrangement with
Delaware Distributors, L.P., Lincoln Financial Distributors, Inc. (LFD) is
primarily responsible for promoting the sale of Fund shares through
broker/dealers, financial advisors and other financial intermediaries.
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 advisors Financial advisors provide advice to their clients, analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisors are associated with securities broker/dealers
who have entered into selling and/or service arrangements with the distributor.
Selling broker/dealers and financial advisors are compensated for their services
generally through sales commissions, and through 12b-1 fees and/or service fees
deducted from the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights. 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 policies must also seek shareholder approval.
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 advisor 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.
o If you invest $50,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reductions in sales charges and under certain
circumstances the sales charge may be waived, as described in "How toreduce your sales charge" below.
o Class A shares are also subject to an annual 12b-1 fee no greater than
0.35% (currently, waived not to exceed 0.30%) of average daily net assets,
which is lower than the 12b-1 fee for Class B, Class C and Class R shares.
See "Dealer compensation" below for further information.
o Class A shares generally are not subject to a contingent deferred sales
charge except in the limited circumstances described in the table below.
o Class A shares generally are not available for purchase by anyone qualified
to purchase Class R shares, except as described below.
Class A sales charges
The table below details your sales charges on purchases of Class A shares. The
offering price for Class A shares includes the front-end sales charge. The sales
charge as a percentage of the net amount invested is the maximum percentage of
the amount invested rounded to the nearest hundredth. The actual percentage will
vary depending on the amount invested, rounding and the then-current NAV.
Similarly, the actual sales charge as a percentage of offering price may be
different due to the amount invested, rounding and the then-current offering may
be greater or lesser than the percentage shown.
----------------------------------- --------------------------------- ---------------------------------
Sales charge as % Sales charge as %
Amount of purchase of offering price of net amount invested
----------------------------------- --------------------------------- ---------------------------------
Less than $50,000 5.75% 6.54%
-------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.75% 5.41%
----------------------------------- --------------------------------- ---------------------------------
$100,000 but less than $250,000 3.75% 4.31%
-------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 3.00%
----------------------------------- --------------------------------- ---------------------------------
$500,000 but less than $1 million 2.00% 2.44%
----------------------------------- --------------------------------- ---------------------------------
$1 million or more None (Limited CDSC may apply)* None (Limited CDSC may apply)*
--------------------------------------------------------------------- ---------------------------------
* There is no front-end sales charge when you purchase $1 million or more of
Class A shares. However, if the Distributor paid your financial advisor a
commission on your purchase of $1 million or more of Class A shares, you
will have to pay a limited contingent deferred sales charge (Limited CDSC)
of 1.00% if you redeem these shares within the first year and 0.50% if you
redeem them within the second year, unless a specific waiver of the charge
applies. The Limited CDSC will be paid to the Distributor and will be
assessed on an amount equal to the lesser of: (1) the net asset value at
the time of purchase of the Class A shares being redeemed or (2) the net
asset value of such Class A shares at the time of redemption. For purposes
of this formula, the "net asset value at the time of purchase" will be the
net asset value at purchase of the Class A shares even if those shares are
later exchanged for shares of another Delaware Investments fund and, in the
event of an exchange of Class A shares, the "net asset value of such shares
at the time of redemption" will be the net asset value of the shares
acquired in the exchange. In determining whether a Limited CDSC is payable,
it will be assumed that shares not subject to the Limited CDSC are the
first redeemed followed by other shares held for the longest period of
time. See "Dealer compensation" below for a description of the dealer
commission that is paid.
-------------------------------------------------------------------------------------------------------
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 4.00%. The
contingent deferred sales charge is 3.25% during the second year, 2.75%
during the third year, 2.25% during the fourth and fifth years, 1.50%
during the sixth year and 0% thereafter.
o In determining whether the contingent deferred sales charge applies to a
redemption of Class B Shares, it will be assumed that shares held for more
than six years are redeemed first, followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held
longest during the six-year period. For further information on how the
contingent deferred sales charge is determined, please see "Calculation of
Contingent Deferred Sales Charges-- Class B and Class C" below.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see "Waivers of Contingent Deferred Sales Charges" below for
further information.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1.00% 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 B shares have higher expenses and
any dividends paid on these shares are generally lower than dividends on
Class A and Class R shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%
(currently 0.25%). Conversion may occur as late as three months after the
eighth anniversary of purchase, during which time Class B's higher 12b-1
fees apply.
o You may purchase only up to $100,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
CLASS C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge of 1.00% if you redeem your shares within 12 months
after you buy them.
o In determining whether the contingent deferred sales charge applies to a
redemption of Class C shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for
12 months or less. For further information on how the contingent deferred
sales charge is determined, please see "Calculation of Contingent DeferredSales Charges - Class B and Class C" below.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see "Waivers of Contingent Deferred Sales Charges" below for
further information.
o Class C shares are subject to an annual 12b-1 fee no greater than 1.00% 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
any dividends paid on these shares are generally lower than dividends on
Class A and Class R 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.
CLASS R
o Class R shares have no up-front sales charge, so the full amount of your
purchase is invested in the fund. Class R shares are not subject to a
contingent deferred sales charge.
o Class R shares are subject to an annual 12b-1 fee no greater than 0.60%
(currently, waived not to exceed 0.50%) of average daily net assets, which
is lower than the 12b-1 fee for Class B and Class C shares.
o Because of the higher 12b-1 fee, Class R shares have higher expenses and
any dividends paid on these shares are generally lower than dividends on
Class A shares.
o Unlike Class B shares, Class R shares do not automatically convert into
another class.
o Class R shares generally are available only to (i) qualified and
non-qualified plan shareholders covering multiple employees (including
401(k), 401(a), 457, and non-custodial 403(b) plans, as well as other
non-qualified deferred compensation plans) with assets (at the time shares
are considered for purchase) of $10 million or less; and (ii) IRA rollovers
from plans that were previously maintained on Delaware's retirement record
keeping system or maintained on BISYS's retirement record keeping system
that are offering Class R shares to participants.
Except as noted above, no other IRA accounts are eligible for Class R shares
(e.g., no SIMPLE IRA's SEP/IRA's, SAR/SEP IRA's, Roth IRA's, etc.). For purposes
of determining plan asset levels, affiliated plans may be combined at the
request of the plan sponsor.
Each share class may be eligible for purchase through programs sponsored by
financial intermediaries where such programs require the purchase of a specific
class of shares.
Any account holding Class A shares as of June 2, 2003 (the date Class R shares
were made available) continues to be eligible to purchase Class A shares after
that date. Any account holding Class R shares is not eligible to purchase Class
A shares.
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.
Calculation of Contingent Deferred Sales Charges - Class B and Class C
Contingent deferred sales charges are charged as a percentage of the dollar
amount subject to the contingent deferred sales charge. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No contingent deferred sales charge will be imposed on
increases in net asset value above the initial purchase price, nor will a
contingent deferred sales charge be assessed on redemptions of shares acquired
through reinvestment of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of Class B Shares or Class C Shares of a Fund, even if
those shares are later exchanged for shares of another Delaware Investments
fund. In the event of an exchange of the shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares that
were acquired in the exchange.
Dealer compensation
Your financial advisor that sells you shares of the Fund may be eligible to
receive the following amounts as compensation for your investment in the Fund.
These amounts are paid by the distributor to the securities dealer with whom
your financial advisor is associated.
-------------------------------------- --------------- ----------------- ---------------- ----------------
Class A(1) Class B(2) Class C(3) Class R(4)
-------------------------------------- --------------- ----------------- ---------------- ----------------
Commission (%) - 4.00% 1.00% -
-------------------------------------- --------------- ----------------- ---------------- ----------------
Investment less than $50,000 5.00% - - -
-------------------------------------- --------------- ----------------- ---------------- ----------------
$50,000 but less than $100,000 4.00% - - -
-------------------------------------- --------------- ----------------- ---------------- ----------------
$100,000 but less than $250,000 3.00% - - -
-------------------------------------- --------------- ----------------- ---------------- ----------------
$250,000 but less than $500,000 2.00% - - -
-------------------------------------- --------------- ----------------- ---------------- ----------------
$500,000 but less than $1,000,000 1.60% - - -
-------------------------------------- --------------- ----------------- ---------------- ----------------
$1,000,000 but less than $5,000,000 1.00% - - -
-------------------------------------- --------------- ----------------- ---------------- ----------------
$5,000,000 but less than $25,000,000 0.50% - - -
-------------------------------------- --------------- ----------------- ---------------- ----------------
$25,000,000 or more 0.25% - - -
-------------------------------------- --------------- ----------------- ---------------- ----------------
12b-1 Fee to Dealer 0.30% 0.25% 1.00% 0.60%
-------------------------------------- --------------- ----------------- ---------------- ----------------
(1) On sales of Class A shares, the Distributor re-allows to your securities
dealer a portion of the front-end sales charge depending upon the amount
you invested. Your securities dealer is eligible to receive up to 0.35% of
the 12b-1 fee applicable to Class A shares, however, the Distributor has
contracted to limit this amount to 0.30% through February 28, 2007.
(2) On sales of Class B shares, the Distributor pays your securities dealer an
up-front commission of 4.00%. Your securities dealer also may be eligible
to receive a 12b-1 service fee of up to 0.25% from the date of purchase.
After approximately eight years, Class B shares automatically convert into
Class A shares and dealers may then be eligible to receive the 12b-1 fee
applicable to Class A.
(3) On sales of Class C shares, the Distributor pays your securities dealer an
up-front commission of 1.00%. The up-front commission includes an advance
of the first year's 12b-1 service fee of up to 0.25%. During the first 12
months, the Distributor retains the full 1.00% 12b-1 fee to partially
offset the up-front commission and the prepaid 0.25% service fee advanced
at the time of purchase. Starting in the 13th month, your securities dealer
may be eligible to receive the full 1.00% 12b-1 fee applicable to Class C.
(4) On sales of Class R shares, the Distributor does not pay your securities
dealer an up-front commission. The maximum 12b-1 fee applicable to Class R
shares is 0.60% of average daily net assets. However, the Distributor has
contracted to limit this amount to 0.50% through February 28, 2007. Your
securities dealer may be eligible to receive a 12b-1 fee of up to 0.60%
from the date of purchase, although the current rate is 0.50%.
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 SAI for detailed information and eligibility requirements.
You can also get additional information from your financial advisor. You or your
financial advisor must notify us at the time you purchase shares if you are
eligible for any of these programs. You may also need to provide information to
your financial advisor or the Fund in order to qualify for a reduction in sales
charges. Such information may include your Delaware Investments Funds holdings
in any other account, including retirement accounts held indirectly or through
an intermediary and the names of qualifying family members and their holdings.
Class R shares have no up-front sales charge. We reserve the right to determine
whether any purchase is entitled, by virtue of the foregoing, to the reduced
initial sales charge.
------------------------- ---------------------------------------- -------------------------------------------------------------
Program How it works Share class
A B C
------------------------- ---------------------------------------- ----------------- -------------------------------------------
Letter of Intent Through a Letter of Intent you X Although the Letter of Intent and Rights
agree to invest a certain amount of Accumulation do not apply to the
in Delaware Investments Funds purchase of Class B and Class C shares,
(except money market funds with no you can combine your purchase of Class A
sales charge) over a 13-month shares with your purchase of Class B and
period to qualify for reduced Class C shares to fulfill your Letter of
front-end sales charges. Intent or qualify for Rights of
Accumulation.
------------------------- -------------------------------------- ----------------- -------------------------------------------
Rights of Accumulation You can combine your holdings or X
purchases of all funds in the
Delaware Investments family
(except money market funds with no
sales charge) as well as the
holdings and purchases of your
spouse and children under 21 to
qualify for reduced front-end
sales charges.
------------------------- -------------------------------------- ----------------- -------------------------- ----------------
Reinvestment of Up to 12 months after you redeem For Class A, For Class B, your Not
Redeemed Shares shares, you can reinvest the you will not account will be available.
proceeds without paying a sales have to pay credited with the
charge as noted to the right. an additional contingent deferred
front-end sales charge you
sales charge. previously paid on
the amount you are
reinvesting. Your
schedule for
contingent deferred
sales charges and
conversion to Class
A will not start
over again, it will
pick up from the
point at which you
redeemed your shares.
------------------------- -------------------------------------- ----------------- -------------------------------------------
SIMPLE IRA, SEP/IRA, These investment plans may qualify X There is no reduction in sales charges
SAR/SEP, Profit for reduced sales charges by for Class B or Class C shares for group
Sharing, Pension, combining the purchases of all purchases by retirement plans.
401(k), SIMPLE members of the group. Members of
401(k), 403(b)(7), these groups may also qualify to
and 457 Retirement purchase shares without a
Plans front-end sales charge and may
qualify for a waiver of any
contingent deferred sales charges
on Class A shares.
------------------------- -------------------------------------- ----------------- -------------------------------------------
Buying Class A shares at Net Asset Value
Class A shares of a Fund may be purchased at net asset value under the following
circumstances, provided that you notify the Fund in advance that the trade
qualifies for this privilege.
o Shares purchased under the Delaware Investments Dividend Reinvestment Plan
and, under certain circumstances, the Exchange Privilege and the 12-Month
Reinvestment Privilege.
o Purchases by (i) current and former officers, Trustees/Directors and
employees of any fund in the Delaware Investments family, the Manager or
any of the Manager's current affiliates and those that may in the future be
created; (ii) legal counsel to the funds; and (iii) registered
representatives and employees of broker/dealers who have entered into
Dealer's Agreements with the Distributor. Family members (regardless of
age) of such persons at their direction, and any employee benefit plan
established by any of the foregoing entities, counsel or broker/dealers may
also purchase shares at net asset value.
o Shareholders who own Class A shares of Delaware Cash Reserve Fund as a
result of a liquidation of a fund in the Delaware Investments family may
exchange into Class A shares of another Fund at net asset value.
o Purchases by bank employees who provide services in connection with
agreements between the bank and unaffiliated brokers or dealers concerning
sales of shares of funds in the Delaware Investments family.
o Purchases by certain officers, trustees and key employees of institutional
clients of the Manager or any of the Manager's affiliates.
o Purchases for the benefit of the clients of brokers, dealers and registered
investment advisors if such broker, dealer or investment advisor has
entered into an agreement with the Distributor providing specifically for
the purchase of Class A shares in connection with special investment
products, such as wrap accounts or similar fee based programs. Investors
may be charged a fee when effecting transactions in Class A shares through
a broker or agent that offers these special investment products.
o Purchases by financial institutions investing for the account of their
trust customers if they are not eligible to purchase shares of the
Institutional Class of a Fund.
o Purchases by retirement plans that are maintained on retirement platforms
sponsored by financial intermediary firms, provided the financial
intermediary firm has entered into a Class A NAV Agreement with respect to
such retirement platforms.
o Purchases by certain legacy bank sponsored retirement plans that meet
requirements set forth in the SAI.
o Purchases by certain legacy retirement assets that meet requirements set
forth in the SAI.
o Investments made by plan level and/or participant retirement accounts that
are for the purpose of repaying a loan taken from such accounts.
o Loan repayments made to a Fund account in connection with loans originated
from accounts previously maintained by another investment firm.
Waivers of Contingent Deferred Sales Charges
--------------------------------------------------------- ----------------- ----------------- ---------------
Share Class
--------------------------------------------------------- ----------------- ----------------- ---------------
Category A* B C
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions in accordance with a Systematic Withdrawal X X
Plan, provided the annual amount selected to be
withdrawn under the Plan does not exceed 12% of the
value of the account on the date that the Systematic
Withdrawal Plan was established or modified
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions that result from the Fund's right to X X
liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less
than the then-effective minimum account size
--------------------------------------------------------- ----------------- ----------------- ---------------
Distributions to participants or beneficiaries from a Not available. Not available.
retirement plan qualified under section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code")
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions pursuant to the direction of a participant X Not available. Not available.
or beneficiary of a retirement plan qualified under
section 401(a) of the Code with respect to that
retirement plan
--------------------------------------------------------- ----------------- ----------------- ---------------
Periodic distributions from an individual retirement X
account (i.e., IRA, ROTH IRA, EDUCATION OR COVERDALE
IRA, SIMPLE IRA, SAR/SEP or SEP/IRA) or a qualified
plan** (403(b)(7) plan, 457 Deferred Compensation Plan,
Profit Sharing Plan, Money Purchase Plan or 401(k)
Defined Contribution Plan) not subject to a penalty
under Section 72(t)(2)(A) of the Internal Revenue Code
("IRC") or a hardship or unforeseen emergency provision
in the qualified plan as described in Tres. Reg.
§1.401(k)-1(d)(2) and Section 457(d)(3) of the IRC.
--------------------------------------------------------- ----------------- ----------------- ---------------
Returns of Excess Contributions due to any regulatory X X X
limit from an individual retirement account (i.e., IRA,
ROTH IRA, EDUCATION OR COVERDALE IRA, SIMPLE IRA,
SAR/SEP or SEP/IRA) or a qualified plan (403(b)(7)
plan, 457 Deferred Compensation Plan, Profit Sharing
Plan, Money Purchase Plan or 401(k) Defined
Contribution Plan).
--------------------------------------------------------- ----------------- ----------------- ---------------
Distributions by other employee benefit plans to pay Not available. Not available.
benefits
--------------------------------------------------------- ----------------- ----------------- ---------------
Systematic withdrawals from a retirement account or X X
qualified plan that are not subject to a penalty
pursuant to Section 72(t)(2)(A) of the IRC or a
hardship or unforeseen emergency provision in the
qualified plan** as described in Tres. Reg.
§1.401(k)-1(d)(2) and Section 457(d)(3) of the IRC.
The systematic withdrawal may be pursuant to Delaware
Investments funds' Systematic Withdrawal Plan or a
systematic withdrawal permitted by the IRC.
--------------------------------------------------------- ----------------- ----------------- ---------------
Distributions from an account of a redemption resulting X X
from the death or disability (as defined in Section
72(t)(2)(A) of the IRC) of a registered owner or a
registered joint owner occurring after the purchase of
the shares being redeemed. In the case of accounts
established under the Uniform Gifts to Minors or
Uniform Transfers to Minors Act or trust accounts, the
waiver applies upon the death of all beneficial owners.
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions by certain legacy retirement assets that Not available. X
meet the requirements set forth in the SAI.
--------------------------------------------------------- ----------------- ----------------- ---------------
Redemptions by the classes of shareholders who are X Not available. Not available.
permitted to purchase shares at net asset value,
regardless of the size of the purchase. See "BuyingClass A shares at Net Asset Value" above.
--------------------------------------------------------- ----------------- ----------------- ---------------
* The waiver for Class A shares relates to a waiver of the Limited CDSC.
Please note that you or your financial advisor will have to notify us at
the time of purchase that the trade qualifies for such waiver.
** Qualified plans that are fully redeemed at the direction of the plan's
fiduciary are subject to any applicable contingent deferred sales charge or
Limited CDSC, unless the redemption is due to the termination of the plan.
Certain sales charges may be based on historical cost. Therefore, you should
maintain any records that substantiate these costs because the Fund, its
transfer agent and financial intermediaries may not maintain this information.
Information about existing sales charges and sales charge reductions and waivers
is available free of charge in a clear and prominent format on the Delaware
Investments family's Web site at www.delawareinvestments.com. Additional
information on sales charges can be found in the SAI.
How to buy shares
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Through your financial advisor
Your financial advisor can handle all the details of purchasing shares,
including opening an account. Your financial advisor may charge a separate fee
for this service.
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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, 2005
Market Street, Philadelphia, PA19103-7094. 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 Bank of New York, ABA
#021000018, Bank Account number 8900403748. 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 first call us at 800 523-1918 so we can assign you an
account number.
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By exchange
You may exchange all or part of your investment in one or more Delaware
Investments Funds for shares of other Delaware Investments Funds. 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 may purchase or exchange shares through Delaphone, our automated telephone
service, or through our Web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800 523-1918.
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. The minimum purchase is $250, and you can make additional investments
of only $25 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 for a Coverdell Education Savings
Account (formerly an "Education IRA") is $500. The minimums vary for retirement
plans other than IRAs, Roth IRAs or Coverdell Education Savings Accounts.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of regular
trading on the New York Stock Exchange (NYSE), which is normally 4:00 p.m.
Eastern Time, you will pay that day's closing share price, which is based on the
Fund's net asset value (NAV). If your order is received after the close of
regular trading on the NYSE, you will pay the next business day's price. A
business day is any day that the NYSE is open for business (Business Day). We
reserve the right to reject any purchase order.
We determine the NAV per share for each class of the Fund at the close of
regular trading on the NYSE on each Business Day. The NAV per share for each
class of the Fund is calculated by subtracting the liabilities of each class
from its total assets and dividing the resulting number by the number of shares
outstanding for that class. We generally price securities and other assets for
which market quotations are readily available at their market value. We price
fixed-income securities on the basis of valuations provided to us by an
independent pricing service that uses methods approved by the Board of Trustees.
We price any fixed-income securities that have a maturity of less than 60 days
at amortized cost. For all other securities, we use methods approved by the
Board of Trustees that are designed to price securities at their fair market
value.
Fair valuation
When the Fund uses fair value pricing, it may take into account any factors it
deems appropriate. The Fund may determine fair value based upon developments
related to a specific security, current valuations of foreign stock indices (as
reflected in U.S. futures markets) and/or U.S. sector or broader stock market
indices. The price of securities used by the Fund to calculate its NAV may
differ from quoted or published prices for the same securities. Fair value
pricing may involve subjective judgments and it is possible that the fair value
determined for a security is materially different than the value that could be
realized upon the sale of that security.
The Fund anticipates using fair value pricing for securities primarily traded on
U.S. exchanges only under very limited circumstances, such as the early closing
of the exchange on which a security is traded or suspension of trading in the
security. The Fund may use fair value pricing more frequently for securities
primarily traded in non-U.S. markets because, among other things, most foreign
markets close well before the Fund values its securities at 4:00 p.m. Eastern
Time. The earlier close of these foreign markets gives rise to the possibility
that significant events, including broad market moves, may have occurred in the
interim. To account for this, the Fund may frequently value many foreign equity
securities using fair value prices based on third party vendor modeling tools,
to the extent available.
Subject to the Board's oversight, the Fund's Board has delegated responsibility
for valuing the Fund's assets to a Pricing Committee of the Manager, which
operates under the policies and procedures approved by the Board as described
above.
Retirement plans
In addition to being an appropriate investment for your IRA, Roth IRA and
Coverdell Education Savings Account, 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 advisor, or call 800 523-1918.
How to redeem shares
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Through your financial advisor
Your financial advisor can handle all the details of redeeming your shares
(selling them back to the Fund). Your financial advisor may charge a separate
fee for this service.
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By mail
You may redeem your shares by mail by writing to: Delaware Investments, 2005
Market Street, Philadelphia, PA19103-7094. All owners of the account must sign
the request. For redemptions of more than $100,000, you must include a signature
guarantee for each owner. Signature guarantees are also required when redemption
proceeds are going to an address other than the address of record on the
account.
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By telephone
You may redeem up to $100,000 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 may redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account, normally the next business day after we receive
your request. If you request a wire deposit, a bank wire fee may be deducted
from your proceeds. Bank information must be on file before you request a wire
redemption.
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Through automated shareholder services
You may redeem shares through Delaphone, our automated telephone service, or
through our Web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at 800
523-1918.
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, and
we or an authorized agent receive the request before the close of regular
trading on the NYSE (normally 4:00 p.m. Eastern Time), you will receive the NAV
next determined after we receive your request. If we receive your request after
the close of regular trading on the NYSE, you will receive the NAV next
determined on the next business day. 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' NAV when
you purchased them or their NAV 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 and Roth IRAs, Uniform Gifts to Minors Act and
Uniform Transfers to Minors Act accounts or accounts with automatic investing
plans and $500 for Coverdell Education Savings Accounts) 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, your Fund may redeem your account
after 60 days' written notice to you.
If you have an account in the same Delaware Investments Fund as another member
of your household, we are sending your household one copy of the Fund's
prospectus, annual and semi-annual reports unless you opt otherwise. This will
help us reduce the printing and mailing expenses associated with the Funds. We
will continue to send one copy of each of these documents to your household
until you notify us that you wish individual materials. If you wish to receive
individual materials, please call our Shareholder Service Center at 800-523-1918
or your financial advisor. We will begin sending you individual copies of these
documents thirty days after receiving your request.
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 or quarterly
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.
Electronic Delivery
With Delaware eDelivery, you can receive your fund documents electronically
instead of via the U.S. mail. When you sign up for eDelivery, you can access
your account statements, shareholder reports and other fund materials online, in
a secure internet environment at any time, from anywhere.
Online Account Access
Account access is a password protected area of the Delaware Investment's Web
site that gives you access to your account information and allows you to perform
transactions in a secure environment.
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 front-end sales charge or 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 or
from Class R shares of any fund you will pay any applicable sales charge on your
new shares. When exchanging Class B and Class C shares of one fund for the same
class of shares in other funds, your new shares will be subject to the same
contingent deferred sales charge as the shares you originally purchased. The
holding period for the contingent deferred sales charge 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 do not 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.
About your account (continued)
Special services (continued)
MoneyLineSM On Demand Service
Through our MoneyLineSM On Demand Service, you or your financial advisor may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans. MoneyLine
has a minimum transfer of $25 and a maximum transfer of $50,000, except for
purchases into IRAs. Delaware Investments does not charge a fee for this
service; however, your bank may assess one.
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.
The applicable limited contingent deferred sales charge for Class A Shares and
the contingent deferred sales charge for Class B and C Shares redeemed via a
Systematic Withdrawal Plan will be waived if the annual amount withdrawn in each
year is less than 12% of the account balance on the date that the Plan is
established. If the annual amount withdrawn in any year exceeds 12% of the
account balance on the date that the Systematic Withdrawal Plan is established,
all redemptions under the Plan will be subjected to the applicable contingent
deferred sales charge, including an assessment for previously redeemed amounts
under the Plan.
Frequent trading of Fund shares
The Fund discourages purchases by market timers and purchase orders (including
the purchase side of exchange orders) by shareholders identified as market
timers may be rejected. The Fund's Board of Trustees has adopted policies and
procedures designed to detect, deter and prevent trading activity detrimental to
the Fund and its shareholders, such as market timing. The Fund will consider
anyone who follows a pattern of market timing in any fund in the Delaware
Investments family or the Optimum Fund Trust to be a market timer and may
consider anyone who has followed a similar pattern of market timing at an
unaffiliated fund family to be a market timer.
Market timing of a fund occurs when investors make consecutive, rapid,
short-term "roundtrips" -- that is, purchases into a fund followed quickly by
redemptions out of that fund. A short-term roundtrip is any redemption of fund
shares within 20 business days of a purchase of that fund's shares. If you make
a second such short-term roundtrip in a fund within the same calendar quarter of
a previous short-term roundtrip in that fund, you may be considered a market
timer. In determining whether market timing has occurred, the Fund will consider
short-term roundtrips to include rapid purchases and sales of Fund shares
through the exchange privilege. The Fund reserves the right to consider other
trading patterns to be market timing.
Your ability to use the Fund's exchange privilege may be limited if you are
identified as a market timer. If you are identified as a market timer, we will
execute the redemption side of your exchange order but may refuse the purchase
side of your exchange order. The Fund reserves the right to restrict, reject or
cancel, without prior notice, any purchase order or exchange order for any
reason, including any purchase order or exchange order accepted by any
shareholder's financial intermediary or in any omnibus-type account.
Transactions placed in violation of the Fund's market timing policy are not
necessarily deemed accepted by the Fund and may be cancelled or revoked by the
Fund on the next business day following receipt by the Fund.
Redemptions will continue to be permitted in accordance with the Fund's current
Prospectus. A redemption of shares under these circumstances could be costly to
a shareholder if, for example, the shares have declined in value, the
shareholder recently paid a front-end sales charge, the shares are subject to a
contingent deferred sales charge or the sale results in adverse tax
consequences. To avoid this risk, a shareholder should carefully monitor the
purchases, sales and exchanges of Fund shares and avoid frequent trading in Fund
shares.
The Fund reserves the right to modify this policy at any time without notice,
including modifications to the Fund's monitoring procedures and the procedures
to close accounts to new purchases. Although the implementation of this policy
involves judgments that are inherently subjective and may be selectively
applied, we seek to make judgments and applications that are consistent with the
interests of the Fund's shareholders. While we will take actions designed to
detect and prevent market timing, there can be no assurance that such trading
activity will be completely eliminated. Moreover, the Fund's market timing
policy does not require the Fund to take action in response to frequent trading
activity. If the Fund elects not to take any action in response to frequent
trading, such frequent trading and market timing activity could continue.
Risks of market timing
By realizing profits through short-term trading, shareholders that engage in
rapid purchases and sales or exchanges of the Fund's shares dilute the value of
shares held by long-term shareholders. Volatility resulting from excessive
purchases and sales or exchanges of Fund shares, especially involving large
dollar amounts, may disrupt efficient portfolio management. In particular, the
Fund may have difficulty implementing its long-term investment strategies if it
is forced to maintain a higher level of its assets in cash to accommodate
significant short-term trading activity. Excessive purchases and sales or
exchanges of the Fund's shares may also force the Fund to sell portfolio
securities at inopportune times to raise cash to accommodate short-term trading
activity. This could adversely affect the Fund's performance if, for example,
the Fund incurs increased brokerage costs and realization of taxable capital
gains without attaining any investment advantage.
A fund that invests significantly in foreign securities may be particularly
susceptible to short-term trading strategies. This is because foreign securities
are typically traded on markets that close well before the time the fund
calculates its NAV (typically, 4:00 p.m. Eastern Time). Developments that occur
between the closing of the foreign market and the fund's NAV calculation may
affect the value of these foreign securities. The time zone differences among
international stock markets can allow a shareholder engaging in a short-term
trading strategy to exploit differences in fund share prices that are based on
closing prices of foreign securities established some time before a fund
calculates its own share price.
Any fund that invests in securities that are thinly traded, traded infrequently
or relatively illiquid has the risk that the securities prices used to calculate
the fund's NAV may not accurately reflect current market values. A shareholder
may seek to engage in short-term trading to take advantage of these pricing
differences. Funds that may be adversely affected by such arbitrage include, in
particular, funds that significantly invest in small-cap securities, technology
and other specific industry sector securities, and in certain fixed-income
securities, such as high-yield bonds, asset-backed securities or municipal
bonds.
Transaction monitoring procedures The Fund, through its transfer agent,
maintains surveillance procedures designed to detect excessive or short-term
trading in Fund shares. This monitoring process involves several factors, which
include scrutinizing transactions in fund shares for violations of the Fund's
market timing policy or other patterns of short-term or excessive trading. For
purposes of these transaction monitoring procedures, the Fund may consider
trading activity by multiple accounts under common ownership, control or
influence to be trading by a single entity. Trading activity identified by these
factors, or as a result of any other available information, will be evaluated to
determine whether such activity might constitute market timing. These procedures
may be modified from time to time to improve the detection of excessive or
short-term trading or to address other concerns. Such changes may be necessary
or appropriate, for example, to deal with issues specific to certain retirement
plans, plan exchange limits, U.S. Department of Labor regulations, certain
automated or pre-established exchange, asset allocation or dollar cost averaging
programs, or omnibus account arrangements.
Omnibus account arrangements are common forms of holding shares of the Fund,
particularly among certain brokers/dealers and other financial intermediaries,
including sponsors of retirement plans and variable insurance products. The Fund
will attempt to apply its monitoring procedures to these omnibus accounts and to
the individual participants in such accounts. In an effort to discourage market
timers in such accounts, the Fund may consider enforcement against market timers
at the participant level and at the omnibus level, up to and including
termination of the omnibus account's authorization to purchase Fund shares.
Limitations on ability to detect and curtail market timing Shareholders seeking
to engage in market timing may employ a variety of strategies to avoid detection
and, despite the efforts of the Fund and its agents to detect market timing in
Fund shares, there is no guarantee that the Fund will be able to identify these
shareholders or curtail their trading practices. In particular, the Fund may not
be able to detect market timing attributable to a particular investor who
effects purchase, redemption and/or exchange activity in Fund shares through
omnibus accounts. The difficulty of detecting market timing may be further
compounded if these entities utilize multiple tiers or omnibus accounts.
Dividends, distributions and taxes
Dividends and Distributions. The Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code. As a
regulated investment company, the Fund generally pays no federal income tax on
the income and gains it distributes to you. Dividends and capital gains, if any,
are paid annually. The amount of any distribution will vary, and there is no
guarantee the Fund will pay either an income dividend or a capital gain
distribution. We automatically reinvest all dividends and any capital gains,
unless you direct us to do otherwise.
Annual Statements. Every January, you will receive a statement that shows the
tax status of distributions you received the previous year. Distributions
declared in December but paid in January are taxable as if they were paid in
December. Mutual funds may reclassify income after your tax reporting statement
is mailed to you. Prior to issuing your statement, the Fund makes every effort
to search for reclassified income to reduce the number of corrected forms mailed
to shareholders. However, when necessary, the Fund will send you a corrected
Form 1099-DIV to reflect reclassified information.
Avoid "Buying A Dividend." If you invest in the Fund shortly before the record
date of a taxable distribution, the distribution will lower the value of the
Fund's shares by the amount of the distribution and, in effect, you will receive
some of your investment back in the form of a taxable distribution.
Tax Considerations. In general, if you are a taxable investor, Fund
distributions are taxable to you at either ordinary income or capital gains tax
rates. This is true whether you reinvest your distributions in additional Fund
shares or receive them in cash.
For federal income tax purposes, Fund distributions of short-term capital gains
are taxable to you as ordinary income. Fund distributions of long-term capital
gains are taxable to you as long-term capital gains no matter how long you have
owned your shares. A portion of income dividends designated by the Fund may be
qualified dividend income eligible for taxation by individual shareholders at
long-term capital gain rates provided certain holding period requirements are
met.
A sale or redemption of Fund shares is a taxable event and, accordingly, a
capital gain or loss may be recognized. For tax purposes, an exchange of your
Fund shares for shares of a different Fund is the same as a sale.
By law, if you do not provide the Fund with your proper taxpayer identification
number and certain required certifications, you may be subject to backup
withholding on any distributions of income, capital gains or proceeds from the
sale of your shares. The Fund also must withhold if the IRS instructs it to do
so. When withholding is required, the amount will be 28% of any distributions or
proceeds paid.
Fund distributions and gains from the sale or exchange of your Fund shares
generally are subject to state and local taxes. Non-U.S. investors may be
subject to U.S. withholding or estate tax, and are subject to special U.S. tax
certification requirements.
This discussion of "Dividends, distributions and taxes" is not intended or
written to be used as tax advice. Because everyone's tax situation is unique,
you should consult your tax professional about federal, state, local or foreign
tax consequences before making an investment in the Fund.
Certain management considerations
Investments by fund of funds and similar investment vehicles
The Fund may accept investments from funds of funds, including those within the
Delaware Investments family, as well as from similar investment vehicles, such
as 529 Plans. A "529 Plan" is a college savings program that operates under
section 529 of the Internal Revenue Code. From time to time, the Fund may
experience large investments or redemptions due to allocations or rebalancings
by these funds of funds and/or similar investment vehicles. 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 have tax consequences if sales of securities
result in gains, and could also increase transaction costs or portfolio
turnover. The manager will monitor transactions by the funds of funds and will
attempt to minimize any adverse effects on both the Fund and the funds of funds
as a result of these transactions.
Manager of managers structure
At a shareholder meeting held on March 23, 2005 (or as adjourned), the Fund's
shareholders approved a "manager of managers" structure that would permit
Delaware Management Company, the Fund's investment advisor, to appoint and
replace sub-advisors, enter into sub-advisory agreements, and amend and
terminate sub-advisory agreements with respect to the Fund, subject to Board
approval but without shareholder approval (the "Manager of Managers Structure").
While Delaware Management Company does not currently expect to use the Manager
of Managers Structure with respect to the Fund, Delaware Management Company may,
in the future, recommend to the Fund's Board the establishment of the Manager of
Managers Structure by recommending the hiring of one or more sub-advisors to
manage all or a portion of the Fund's portfolio if it believes that doing so
would be likely to enhance the Fund's performance by introducing a different
investment style or focus.
The ability to implement the Manager of Managers Structure with respect to the
Fund is contingent upon the receipt of an exemptive order from the U.S.
Securities and Exchange Commission (the "SEC") or the adoption of a rule by the
SEC authorizing the implementation of the Manager of Managers Structure. The use
of the Manager of Managers Structure with respect to the Fund may be subject to
certain conditions set forth in the SEC exemptive order or rule. There can be no
assurance that the SEC will grant the Fund's application for an exemptive order
or adopt such a rule.
The Manager of Managers Structure would enable the Fund to operate with greater
efficiency and without incurring the expense and delays associated with
obtaining shareholder approval of sub-advisory agreements. The Manager of
Managers Structure would not permit investment management fees paid by the Fund
to be increased without shareholder approval or change Delaware Management
Company's responsibilities to the Fund, including Delaware Management Company's
responsibility for all advisory services furnished by a sub-advisor.
Financial highlights
The Financial highlights tables are 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.
Delaware U.S. Growth Fund Class A
Year Ended 10/31
2005 2004 2003 2002 2001
Net asset value, beginning of period $10.620 $10.840 $9.260 $11.800 $19.390
Income (loss) from investment operations:
Net investment loss(1) (0.020) (0.064) (0.039) (0.058) (0.045)
Net realized and unrealized gain (loss) on
investments 2.100 (0.156) 1.619 (2.482) (7.314)
------ ------- ------ ------- -------
Total from investment operations 2.080 (0.220) 1.580 (2.540) (7.359)
------ ------- ------ ------- -------
Less dividends and distributions from:
Net realized gain on investments --- --- --- --- (0.231)
------ ------- ------ ------- -------
Total dividends and distributions --- --- --- --- (0.231)
------ ------- ------ ------- -------
Net asset value, end of period $12.700 $10.620 $10.840 $9.260 $11.800
====== ======= ====== ======= =======
Total return(2) 19.59% (2.03%) 17.06% (21.53%) (38.36%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $38,566 $38,339 $60,934 $51,887 $66,897
Ratio of expenses to average net assets 1.15% 1.40% 1.40% 1.40% 1.46%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 1.46% 2.15% 2.28% 1.88% 1.70%
Ratio of net investment loss to average net assets (0.17%) (0.59%) (0.40%) (0.51%) (0.30%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid
indirectly (0.48%) (1.34%) (1.28%) (0.99%) (0.54%)
Portfolio turnover 65% 158% 77% 103% 70%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects a waiver and payment of fees by
the manager and the distributor, as applicable. Performance would have been
lower had the expense limitation not been in effect.
Class B
Delaware U.S. Growth Fund
Year Ended 10/31
2005 2004 2003 2002 2001
Net asset value, beginning of period $9.690 $9.950 $8.560 $10.990 $18.200
Income (loss) from investment operations:
Net investment loss(1) (0.091) (0.132) (0.100) (0.131) (0.138)
Net realized and unrealized gain (loss) on
investments 1.901 (0.128) 1.490 (2.299) (6.841)
------ ------- ------ ------- -------
Total from investment operations 1.810 (0.260) 1.390 (2.430) (6.979)
------ ------- ------ ------- -------
Less dividends and distributions from:
Net realized gain on investments --- --- --- --- (0.231)
------ ------- ------ ------- -------
Total dividends and distributions --- --- --- --- (0.231)
------ ------- ------ ------- -------
Net asset value, end of period $11.500 $9.690 $9.950 $8.560 $10.990
====== ======= ====== ======= =======
Total return(2) 18.68% (2.61%) 16.24% (22.11%) (38.79%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $28,431 $30,686 $39,613 $40,196 $62,658
Ratio of expenses to average net assets 1.85% 2.10% 2.10% 2.10% 2.16%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 2.11% 2.80% 2.94% 2.58% 2.40%
Ratio of net investment loss to average net assets (0.87%) (1.29%) (1.10%) (1.21%) (1.00%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid
indirectly (1.13%) (1.99%) (1.94%) (1.69%) (1.24%)
Portfolio turnover 65% 158% 77% 103% 70%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects a waiver and payment of fees by
the manager. Performance would have been lower had the expense limitation
not been in effect.
Class C
Delaware U.S. Growth Fund
Year Ended 10/31
2005 2004 2003 2002 2001
Net asset value, beginning of period $10.500 $10.790 $9.280 $11.910 $19.700
Income (loss) from investment operations:
Net investment loss(1) (0.099) (0.140) (0.108) (0.139) (0.148)
Net realized and unrealized gain (loss) on
investments 2.059 (0.150) 1.618 (2.491) (7.411)
------ ------- ------ ------- -------
Total from investment operations 1.960 (0.290) 1.510 (2.630) (7.559)
------ ------- ------ ------- -------
Less dividends and distributions from:
Net realized gain on investments --- --- --- --- (0.231)
------ ------- ------ ------- -------
Total dividends and distributions --- --- --- --- (0.231)
------ ------- ------ ------- -------
Net asset value, end of period $12.460 $10.500 $10.790 $9.280 $11.910
====== ======= ====== ======= =======
Total return(2) 18.67% (2.69%) 16.27% (22.08%) (38.78%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $9,327 $8,387 $10,684 $10,792 $14,959
Ratio of expenses to average net assets 1.85% 2.10% 2.10% 2.10% 2.16%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 2.11% 2.80% 2.94% 2.58% 2.40%
Ratio of net investment loss to average net assets (0.87%) (1.29%) (1.10%) (1.21%) (1.00%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid
indirectly (1.13%) (1.99%) (1.94%) (1.69%) (1.24%)
Portfolio turnover 65% 158% 77% 103% 70%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects a waiver and payment of fees by
the manager. Performance would have been lower had the expense limitation
not been in effect.
Delaware U.S. Growth Fund Class R
Year Ended Year Ended
10/31 10/31 Period 6/2/03(1)
2005 2004 to 10/31/03
Net asset value, beginning of period $10.590 $10.830 $10.120
Income (loss) from investment operations:
Net investment loss(2) (0.051) (0.097) (0.033)
Net realized and unrealized gain (loss) on 2.081 (0.143) 0.743
investments ------- ------- -------
Total from investment operations 2.030 (0.240) 0.710
------- ------- -------
Less dividends and distributions from:
Net asset value, end of period $12.620 $10.590 $10.830
======= ======= =======
Total return(3) 19.17% (2.22%) 7.02%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $354 $245 $189
Ratio of expenses to average net assets 1.42% 1.70% 1.70%
Ratio of expenses to average net assets prior to 1.71%
expense limitation and expenses paid indirectly 2.40% 2.71%
Ratio of net investment loss to average net assets (0.44%) (0.89%) (0.76%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid
indirectly (0.73%) (1.59%) (1.77%)
Portfolio turnover 65% 158% 77%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the manager and the distributor, as applicable.
Performance would have been lower had the expense limitation not been in
effect.
How to read the Financial highlights
Net investment income (loss)
Net investment income (loss) includes dividend and interest income earned from a
fund's investments; 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, if any, that we pay to shareholders
would be listed under "Less dividends and 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 a 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 a 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 (loss) to average net assets
We determine this ratio by dividing net investment income (loss) by average net
assets.
Portfolio turnover rate
This figure tells you the amount of trading activity in a fund's portfolio. A
turnover rate of 100% would occur if, for example, a fund bought and sold all of
the securities in its portfolio once in the course of a year or frequently
traded a single security. A high rate of portfolio turnover in any year may
increase brokerage commissions paid and could generate taxes for shareholders on
realized investment gains.
Glossary
How to use this glossary
This glossary includes definitions of investment terms, many of which are used
throughout the Prospectus. If you would like to know the meaning of an
investment term that is not explained in the text please check the glossary.
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 typically
is inversely related to current interest rates. Generally, when interest rates
rise, bond prices fall, and when interest rates fall, bond prices rise. See
Fixed-income securities.
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. See also Nationally recognized statistical ratings
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 advisor for 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 advisor 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.
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 advisor
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 invest is paid back at a
pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
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 advisor 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 a 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.
NASD
The National Association of Securities Dealers, Inc., which is responsible for
regulating the securities industry.
Nationally recognized statistical ratings 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,
Inc. (Moody's), Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
(S&P) and Fitch, Inc. (Fitch).
Net assets
The total value of all the assets in a fund's portfolio, less any liabilities.
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 (P/E)
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 1000(R)Growth Index
Measures the performance of those Russell 1000 companies with higher
price-to-book ratios and higher forecasted growth values. The Russell 1000
measures the performance of the 1,000 largest U.S. companies based on total
market capitalization.
S&P 500(R)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
A commission that is charged on the purchase or redemption of fund shares sold
through financial advisors. May vary with the amount invested. Typically used to
compensate financial advisors 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 funds.
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 that provides more detailed information about a fund's
organization, management investments, policies and risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as common stocks or 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 Gifts to Minors Act and Uniform Transfers to Minors Act
Federal and state laws that provide special tax advantages and a simple way to
transfer property to a minor.
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.
Delaware U.S. Growth Fund
Additional information about the Fund's investments is available in the Fund's
annual and semiannual 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 period
covered by the report. You can find more detailed information about the Fund in
the current Statement of Additional Information (SAI), which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
legally a part of this Prospectus (it is incorporated by reference). If you want
a free copy of the SAI, the annual or semiannual report, or if you have any
questions about investing in the Fund, you can write to us at 2005 Market
Street, Philadelphia, PA19103-7094, or call toll-free 800 523-1918. The Fund's
SAI and annual and semiannual reports to shareholders are also available, free
of charge, through the Fund's internet Web site (www.delawareinvestments.com).
You may also obtain additional information about the Fund from your financial
advisor.
You can find reports and other information about the Fund on the EDGAR Database
on the SEC Web site (http://www.sec.gov). You can also get copies of this
information, after payment of a duplicating fee, by e-mailing the SEC at
publicinfo@sec.gov or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. You can get information on the Public
Reference Room by calling the SEC at 202 942-8090.
Web site
www.delawareinvestments.com
E-mail
service@delinvest.com
Shareholder Service Center
800 523-1918
Call the Shareholder Service Center:
Monday to Friday, 8 a.m. to 7 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.
Registrant's Investment Company Act file number: 811-7972
Delaware U.S. Growth Fund
CUSIP NASDAQ
Class A 245917505 DUGAX
Class B 245917604 DEUBX
Class C 245917703 DEUCX
Class R 245917711 DEURX
DELAWARE
INVESTMENTS(R)
A Member of Lincoln Financial Group
P-101 [--] PP 02/05
GROWTH EQUITY DELAWARE
INVESTMENTS(R)
A Member of Lincoln Financial Group
Prospectus FEBRUARY 28, 2006
DELAWARE U.S. GROWTH FUND
INSTITUTIONAL CLASS
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.
Table of contents
Fund profile page
Delaware U.S. Growth Fund
How we manage the Fund page
Our investment strategies
The securities we typically invest in
The risks of investing in the Fund
Disclosure of portfolio holdings information
Who manages the Fund page
Investment manager
Portfolio managers
Who's who?
About your account page
Investing in the Fund
How to buy shares
Fair valuation
How to redeem shares
Account minimum
Exchanges
Frequent trading of Fund shares
Dividends, distributions and taxes
Certain management considerations page
Financial highlights page
Glossary page
Profile: Delaware U.S. Growth Fund
What is the Fund's goal?
Delaware U.S. Growth Fund seeks long-term capital appreciation by investing in
equity securities of companies we believe have the potential for sustainable
free cash flow growth. Although the Fund will strive to meet its goal, there is
no assurance that it will.
What are the Fund's main investment strategies?
We invest primarily in common stocks. The Fund invests primarily in companies
that we believe have long-term capital appreciation potential and are expected
to grow faster than the U.S. economy. Using a bottom up approach, we seek to
select securities we believe have large-end market potential, dominant business
models and strong free cash flow generation that are attractively priced
compared to the intrinsic value of the securities. We also consider a company's
operational efficiencies, management's plans for capital allocation and the
company's shareholder orientation. All of these factors give us insight into the
outlook for a company, helping identify companies poised for sustainable free
cash flow growth. We believe that sustainable free cash flow growth, if it
occurs, may result in price appreciation for the company's stock. Whether
companies provide dividend income and the amount of income they provide will not
be a primary factor in the fund's selection decisions. We may sell a security if
we no longer believe that security is likely to contribute to meeting the
investment objective of the Fund or if there are other opportunities that appear
more attractive.
Under normal circumstances, the Fund will invest at least 80% of its net assets
in U.S. investments. This policy is not a fundamental investment policy and may
be changed without shareholder approval. However, shareholders will be given
notice at least 60 days prior to any such change. We may also invest up to 20%
of the Fund's assets in debt securities and bonds. In addition, we may invest in
convertible bonds, preferred stocks and convertible preferred stocks, provided
that these investments, when aggregated with the Fund's debt securities and
bonds, do not exceed 35% of the Fund's assets.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. Over time, the value of your investment in
the Fund will increase and decrease according to changes in the value of the
securities in the Fund's portfolio. This Fund will be particularly affected by
declines in stock prices, which tend to fluctuate more than bond prices. Stock
prices may be negatively affected by a drop in the stock market or poor
performance in specific companies or industries. Stocks of companies with high
growth expectations may be more susceptible to price declines if they do not
meet those high expectations.
For a more complete discussion of risk, please see "The risks of investing inthe Fund" on page [__].
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor 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 for capital growth potential.
o Investors seeking for a fund that can be a complement to income-producing
or value-oriented investments.
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 whose primary goal is to receive current income.
How has the Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how annual returns for the Fund's Institutional Class have varied
over the past ten calendar years, as well as the average annual returns of the
Institutional Shares for one-year, five-year and ten-year periods. The Fund's
past performance (before and after taxes) is not necessarily an indication of
how it will perform in the future. The returns reflect expense caps in effect
during these periods. The returns would be lower without the expense caps.
Please see the footnotes on page [ ] for additional information about the
expense caps.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (Institutional
Class)]
Year-by-year total return (Institutional Class)
1996 19.94%
1997 31.36%
1998 29.89%
1999 40.77%
2000 -7.35%
2001 -24.09%
2002 -28.81%
2003 23.60%
2004 3.41%
2005 13.93%
During the periods illustrated in this bar chart, the Institutional Class'
highest quarterly return was 30.66% for the quarter ended December 31, 1999 and
its lowest quarterly return was -20.96% for the quarter ended March 31, 2001.
Average annual returns for periods ending 12/31/05
------------------------------------------ ---------- ----------- ------------
1 year 5 years 10 years
------------------------------------------ ---------- ----------- ------------
Return before taxes 13.93% (4.68)% 7.70%
------------------------------------------ ---------- ----------- ------------
Return after taxes on distributions 13.93% (4.68)% 5.94%
------------------------------------------ ---------- ----------- ------------
Return after taxes on distributions
and sale of Fund shares 9.06% (3.92)% 5.73%
------------------------------------------ ---------- ----------- ------------
S&P 500(R) Index (reflects no deduction
for fees, expenses or taxes) 4.91% 0.54% 9.07%
------------------------------------------ ---------- ----------- ------------
Russell 1000(R) Growth Index*
(reflects no deduction for
fees, expenses or taxes) 5.26% (3.58)% 6.73%
------------------------------------------ ---------- ----------- ------------
The Fund's returns above are compared to the performance of the S&P 500 Index
and the Russell 1000 Growth Index. You should remember that, unlike the Fund,
the indexes are unmanaged and do not reflect the actual costs of operating a
mutual fund, such as the costs of buying, selling and holding securities.
Actual after-tax returns depend on the investor's individual tax situation and
may differ from the returns shown. After-tax returns are not relevant for shares
held in tax-deferred investment vehicles such as employer-sponsored 401(k) plans
and individual retirement accounts. The after-tax returns shown are calculated
using the highest individual federal marginal income tax rates in effect during
the Fund's lifetime and do not reflect the impact of state and local taxes. The
after-tax rate used is based on the current tax characterization of the elements
of the fund's returns (e.g., qualified vs. non-qualified dividends) and may be
different than the final tax characterization of such elements. Past
performance, both before and after taxes, is not a guarantee of future results.
* The Russell 1000 Growth Index is replacing the S&P 500 Index as the Fund's
benchmark. The investment manager believes the composition of the Russell
1000 Index better reflects the Fund's investments. The S&P 500 Index may be
excluded from this comparison in the future.
What are the Fund's fees and expenses?
----------------------------------------- --------------------------------------------- ---------
You do not pay sales charges directly Maximum sales charge (load) imposed none
from your investments when you buy on purchases as a percentage of
or sell shares of the offering price
Institutional Class.
--------------------------------------------- ---------
Maximum contingent deferred sales charge
(load) as a percentage of original
purchase price or redemption price,
whichever is lower none
--------------------------------------------- ---------
Maximum sales charge (load) imposed on
reinvested dividends none
--------------------------------------------- ---------
Redemption fees none
--------------------------------------------- ---------
Exchange fees none
----------------------------------------- --------------------------------------------- ---------
Annual fund operating expenses are Management fees 0.65%
deducted from the Fund's assets.
--------------------------------------------- ---------
Distribution and service (12b-1) fees none
--------------------------------------------- ---------
Other expenses 0.46%
--------------------------------------------- ---------
Total operating expenses 1.11%
--------------------------------------------- ---------
Fee waivers and payments(1) (0.36)%
--------------------------------------------- ---------
Net expenses 0.75%
----------------------------------------- --------------------------------------------- ---------
This example is intended to help you 1 year $77
compare the cost of investing in the --------------------------------------------- ---------
Fund to the cost of investing in other 3 years $317
mutual funds with similar investment --------------------------------------------- ---------
objectives. We show the cumulative 5 years $577
amount of Fund expenses on a hypothetical --------------------------------------------- ---------
investment of $10,000 with an annual 5% 10 years $1,319
return over the time shown.(2) The --------------------------------------------- ---------
example assumes that the Fund's total
operating expenses remain unchanged in
each of the periods we show. This is an
example only, and does not represent
future expenses, which may be greater or
less than those shown here.
----------------------------------------- --------------------------------------------- ---------
(1) The investment manager has contracted to waive fees and pay expenses
through February 28, 2007 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees, extraordinary expenses and
certain insurance costs) from exceeding 0.75% of average daily net assets.
(2) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here.
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 the Fund. Following are descriptions of how the portfolio
management team pursues the Fund's investment goals. We take a disciplined
approach to investing, combining investment strategies and risk management
techniques that can help shareholders meet their goals.
Delaware U.S. Growth Fund seeks long-term capital appreciation. We invest
primarily in common stocks and, though we have the flexibility to invest in
companies of all sizes, we generally focus on medium and large-size companies.
Our goal is to own companies that we expect to grow faster than the U.S.
economy. Using a bottom up approach, we look for companies that:
o have large-end market potential, dominant business models and strong
free cash flow generation;
o demonstrate operational efficiencies:
o have planned well for capital allocation; and
o have governance policies that tend to be favorable to shareholders.
There are a number of catalysts that might increase a company's potential for
free cash flow growth. Our disciplined, research-intensive selection process is
designed to identify catalysts such as:
o management changes;
o new products;
o structural changes in the economy; or
o corporate restructurings and turnaround situations.
We maintain a diversified portfolio representing a number of different
industries. Such an approach helps to minimize the impact that any one security
or industry could have on the portfolio if it were to experience a period of
slow or declining growth. Because our objective is capital appreciation, the
amount of dividend income that stock provides is only an incidental
consideration for us.
The Fund's investment objective is non-fundamental. This means that the Board of
Trustees may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders at least 60 days before the
change in the objective became effective.
The securities we typically invest in
Stocks offer investors the potential for capital appreciation. Certain stocks
that we invest in may pay dividends as well.
------------------------------------------------------ --------------------------------------------------------------------------
Securities How we use them
------------------------------------------------------ --------------------------------------------------------------------------
Common stocks: Securities that represent shares of Generally, we invest 85% to 100% of the Fund's net assets in common stock
ownership in a corporation. Stockholders participate of companies that we think have appreciation potential. We may invest in
in the corporation's profits and losses proportionate companies of all sizes, but typically focus on medium and large-size
to the number of shares they own. companies.
------------------------------------------------------ --------------------------------------------------------------------------
Foreign securities and American Depositary Receipts: We may invest up to 20% of the Fund's net assets in securities of foreign
Securities of foreign entities issued directly or, in issuers. Such foreign securities may be traded on a foreign exchange, or
the case of American Depositary Receipts (ADRs), they may be in the form of ADRs. Direct ownership of foreign securities
through a U.S. bank. ADRs represent the bank's will typically not be a significant part of our strategy. We may,
holdings of a stated number of shares of a foreign however, own ADRs when we think they offer greater appreciation potential
corporation. An ADR entitles the holder to all than U.S. securities.
dividends and capital gains earned by the underlying
foreign shares. ADRs are typically bought and sold on
U.S. securities exchanges in the same way as other
U.S. securities.
------------------------------------------------------ --------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer Typically, we use repurchase agreements as a short-term investment for
of securities, such as the Fund, and a seller of the Fund's cash position. In order to enter into these repurchase
securities, in which the seller agrees to buy the agreements, the Fund must have collateral of 102% of the repurchase
securities back within a specified time at the same price. The Fund will only enter into repurchase agreements in which the
price the buyer paid for them, plus an amount equal collateral is comprised of U.S. government securities.
to an agreed upon interest rate. Repurchase
agreements are often viewed as equivalent to cash.
------------------------------------------------------ --------------------------------------------------------------------------
Restricted securities: Privately placed securities We may invest in privately placed securities, including those that are
whose resale is restricted under U.S. securities eligible for resale only among certain institutional buyers without
laws. registration, commonly known as "Rule 144A Securities." Restricted
securities that are determined to be illiquid may not exceed the Fund's
10% limit on illiquid securities, which is described below.
------------------------------------------------------ --------------------------------------------------------------------------
Illiquid securities: Securities that do not have a We may invest up to 10% of the Fund's net assets in illiquid securities.
ready market, and cannot be easily sold within seven
days at approximately the price at which a fund has
valued them.
------------------------------------------------------ --------------------------------------------------------------------------
Fixed-income securities: Securities that may include We may invest up to 20% of the Fund's assets in debt securities and
debt securities, bonds, convertible bonds, as well bonds. We may also invest up to 10% of this portion in non-investment
as, non-investment grade fixed-income securities. grade bonds if we believe that doing so would help us to meet the Fund's
objective. We may also invest in convertible bonds, preferred stocks and
convertible preferred stock, provided that these investments, when
aggregated with the Fund's investments in debt securities and bonds, do
not exceed 35% of the Fund's assets.
------------------------------------------------------ --------------------------------------------------------------------------
Options and Futures: Options represent a right to buy If we have stocks that have appreciated in price, we may want to protect
or sell a security or group of securities at an those gains when we anticipate adverse conditions. We might use options
agreed upon price at a future date. The purchaser of or futures to neutralize the effect of any anticipated price declines,
an option may or may not choose to go through with without selling the security. We may also use options or futures to gain
the transaction; the seller of an option must go exposure to a particular market segment without purchasing individual
through with the transaction.. securities in that segment, particularly if we had excess cash that we
wanted to invest quickly.
Writing a call option on a security obligates the
owner of the security to sell it for at an agreed We might use covered call options if we believe that doing so would help
upon price on an agreed upon date (usually no more the Fund meet its investment objective.
than nine months in the future.) The writer of the
call option receives a premium payment from the Use of these strategies can increase the operating costs of the Fund and
purchaser of the call, but if the security can lead to loss of principal.
appreciates to a price greater than the agreed upon
selling price, the fund would lose out on those
gains. A call option written by the Fund is
"covered" if the Fund owns the security underlying
the option or has an absolute and immediate right to
acquire that security without additional cash
consideration.
Futures contracts are agreements for the purchase or
sale of securities at a specified price, on a
specified date. Unlike an option, a futures contract
must be executed unless it is sold before the
settlement date.
Options and futures are generally considered to be
derivative securities.
------------------------------------------------------ --------------------------------------------------------------------------
The Fund may also invest in other securities, including preferred stock and U.S.
government securities. Please see the Statement of Additional Information (SAI)
for additional descriptions on these securities as well as those listed in the
table above.
Lending securities The Fund may lend up to one-third of its assets to qualified
brokers, dealers and institutional investors for their use in their securities
transactions. These transactions may generate additional income for the Fund.
Borrowing from banks The Fund may borrow money from banks as a temporary measure
for extraordinary purposes or to facilitate redemptions. The Fund will be
required to pay interest to the lending banks on the amount borrowed. As a
result, borrowing money could result in the Fund being unable to meet its
investment objective.
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. The
Fund will designate cash or securities in amounts sufficient to cover its
obligations, and will value the designated assets daily.
Portfolio turnover It is possible that the Fund's portfolio turnover rate will
exceed 100%. A turnover rate of 100% would occur if, for example, a fund bought
and sold all of the securities in its portfolio once in the course of a year or
frequently traded a single security. The turnover rate may also be affected by
cash requirements from redemptions and purchases of fund shares. A high rate of
portfolio turnover in any year may increase brokerage commissions paid and could
generate taxes for shareholders on realized investment gains.
Temporary defensive positions For temporary defensive purposes, we may invest up
to 100% of the Fund's assets in money market instruments when the manager
determines that market conditions warrant. We may also hold a portion of the
Fund's assets in cash for liquidity purposes. To the extent that the Fund holds
such instruments, it may be unable to achieve its investment objective.
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 your investment to be a long-term investment that typically provides
the best results when held for a number of years. The table below describes the
chief risks you assume when investing in the Fund. Please see the SAI for
further discussion of these risks and other risks not discussed here.
--------------------------------------- -----------------------------------------------------------------------------------------
Risks How we strive to manage them
--------------------------------------- -----------------------------------------------------------------------------------------
Market risk is the risk that all or a We maintain a long-term investment approach and focus on securities we believe can
majority of the securities in a appreciate over an extended time frame regardless of interim market fluctuations. We do
certain market -- like the stock or not try to predict overall market movements. Although we may hold securities for any
bond market -- will decline in value amount of time, we generally do not trade for short-term purposes.
because of factors such as economic
conditions, future expectations or We may hold a substantial part of the Fund's assets in cash or cash equivalents as a
investor confidence. temporary, defensive strategy.
--------------------------------------- -----------------------------------------------------------------------------------------
Industry and security risk: Industry We limit the amount of the Fund's assets invested in any one industry and in any
risk is the risk that the value of individual security.
securities in a particular industry
will decline because of changing
expectations for the performance of
that industry.
Securities risk is the risk that the
value of an individual stock or bond
will decline because of changing
expectations for the performance of
the individual company issuing the
stock or bond.
--------------------------------------- -----------------------------------------------------------------------------------------
Foreign risk is the risk that foreign We are permitted to invest up to 20% of the Fund's portfolio in foreign securities.
securities may be adversely affected When we do purchase foreign securities they are generally ADRs, which are denominated in
by political instability, changes in U.S. dollars and traded on U.S. stock exchanges.
currency exchange rates, foreign
economic conditions or inadequate
regulatory and
accounting standards.
--------------------------------------- -----------------------------------------------------------------------------------------
Liquidity risk is the possibility that We limit exposure to illiquid securities to no more than 10% of the Fund's net assets.
securities cannot be readily sold
within seven days at approximately the
price that a fund has valued them.
--------------------------------------- -----------------------------------------------------------------------------------------
Credit risk is the possibility that a Fixed-income securities are not typically a significant component of our strategy.
bond's issuer (or an entity that However, when we do invest in fixed-income securities, we will not hold more than 10% of
insures the bond) will be unable to aggregate net assets in high-yield, non-investment grade bonds. This limitation,
make timely payments of interest and combined with our careful, credit-oriented bond selection and our commitment to hold a
principal. Bonds rated below diversified selection of high-yield bonds are designed to manage this risk.
investment grade are particularly
subject to this risk.
--------------------------------------- -----------------------------------------------------------------------------------------
Futures and options risk is the We may use options and futures to protect gains in the portfolio without actually
possibility that a fund may experience selling a security. We may also use options and futures to quickly invest excess cash so
a loss if it employs an options or that the portfolio is generally fully invested.
futures strategy related to a security
or a market index and that security or
index moves in the opposite direction
from what the manager anticipated.
Futures and options also involve
additional expenses, which could
reduce any benefit or increase any
loss that a fund gains from using the
strategy.
--------------------------------------- -----------------------------------------------------------------------------------------
Portfolio turnover rates reflect the It is possible that the Fund's portfolio turnover rate will exceed 100%
amount of securities that are replaced
from the beginning of the year to the
end of the year by the Fund. The
higher the amount of portfolio
activity, the higher the brokerage
costs and other transaction costs of
the Fund are likely to be. The amount
of portfolio activity will also affect
the amount of taxes payable by the
Fund's shareholders that are subject
to federal income tax, as well as the
character (ordinary income vs. capital
gains) of such tax obligations.
--------------------------------------- -----------------------------------------------------------------------------------------
Disclosure of portfolio holdings information
A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's SAI.
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 an
aggregate fee of 0.39% of average daily net assets for the last fiscal year,
after giving effect to waivers by the manager.
A discussion of the basis for the Board of Trustees approval of the Fund's
investments advisory contract is available in the Fund's annual reports to
shareholders for the fiscal year ended October 31, 2005.
Portfolio managers
Jeffrey S. Van Harte has primary responsibility for making day-to-day investment
decisions for Delaware U.S. Growth Fund. In making investment decisions for the
Fund, Mr. Van Harte regularly consults with Christopher J. Bonavico, Daniel J.
Prislin and Christopher M. Ericksen. Mssrs. Van Harte, Bonavico, Prislin and
Ericksen joined Delaware Investments in April 2005.
Jeffrey S. Van Harte, Chief Investment Officer - Focus Growth, was most recently
a principal and executive vice president at Transamerica Investment Management,
LLC. Mr. Van Harte was the lead manager of the Transamerica Large Cap Growth
strategy and managed portfolios in that discipline for over 20 years. Before
becoming a portfolio manager, Mr. Van Harte was a securities analyst and trader
for Transamerica Investment Services, which he joined in 1980. Mr. Van Harte,
who also managed institutional separate accounts and sub-advised funds, received
his bachelor's degree in finance from California State University at Fullerton
and is a CFA charterholder.
Christopher J. Bonavico, Vice President/Senior Portfolio Manager, was most
recently a principal and portfolio manager at Transamerica Investment
Management, LLC. Mr. Bonavico also managed sub-advised funds and institutional
separate accounts. Before joining Transamerica in 1993, he was a research
analyst for Salomon Brothers. Mr. Bonavico received his bachelor's degree in
economics from the University of Delaware and is a CFA charterholder.
Daniel J. Prislin, Vice President/Senior Portfolio Manager, was most recently a
principal and portfolio manager at Transamerica Investment Management, LLC,
where he also managed sub-advised funds and institutional separate accounts.
Prior to joining Transamerica in 1998, he was an assistant portfolio manager
with The Franklin Templeton Group. Mr. Prislin received his M.B.A. and
bachelor's degree in business administration from the University of California,
Berkeley and is a CFA charterholder.
Christopher M. Ericksen, Vice President/Portfolio Manager, joined Delaware
Investments in April 2005 as a portfolio manager on the Focus Growth team, which
is responsible for large-cap growth, all-cap growth and one mid-cap product. He
was most recently a portfolio manager at Transamerica Investment Management,
LLC, where he also managed institutional separate accounts. Before joining
Transamerica in 2004, he was a vice president at Goldman Sachs; during his ten
years there he worked in investment banking as well as investment management.
Mr. Ericksen received his bachelor's degree from Carnegie Mellon University,
with majors in industrial management, economics and political science. He is a
CFA charterholder.
The SAI for the Fund provides additional information about the portfolio
managers' compensation, other accounts managed by the portfolio managers and the
portfolio managers' ownership of other securities in the Fund.
Who's who?
This diagram shows the various organizations involved in managing, administering
and servicing the Delaware Investments Funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS]
Board of Trustees
Investment manager Custodian
Delaware Management Company JPMorgan Chase Bank
2005 Market Street 4 Chase Metrotech Center
Philadelphia, PA19103-7094 The Fund Brooklyn, NY11245
Distributor Service agent
Delaware Distributors, L.P. Delaware Service Company, Inc.
2005 Market Street 2005 Market Street
Philadelphia, PA19103-7094Philadelphia, PA19103-7094
Financial intermediary wholesaler
Lincoln Financial Distributors, Inc.
2001 Market Street
Philadelphia, PA19103-7055
Portfolio managers
(see page [__] for details)
Shareholders
Board of Trustees A mutual fund is governed by a board of trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. Generally, at least 40% of the board of trustees must be independent of
the fund's investment manager and distributor. However, the Delaware U.S. Growth
Fund relies on certain exemptive rules adopted by the SEC that require its Board
of Trustees to be comprised of a majority of such independent Trustees. These
independent fund Trustees, in particular, are advocates for shareholder
interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker/dealers and are subject to NASD
rules governing mutual fund sales practices.
Financial intermediary wholesaler Pursuant to a contractual arrangement with
Delaware Distributors, L.P., Lincoln Financial Distributors, Inc. (LFD) is
primarily responsible for promoting the sale of Fund shares through
broker/dealers, financial advisors and other financial intermediaries.
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. 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 policies must also seek shareholder approval.
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 Fund's manager or its
affiliates and of securities dealer firms with a selling agreement
with the distributor;
o institutional advisory accounts of the Fund's 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, including
mutual funds managed by the Fund's investment manager, investing for
its own account or for the account of its trust customers for whom the
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 advisors investing on behalf of clients that
consist solely of institutions and high net-worth individuals having
at least $1,000,000 entrusted to the advisor for investment purposes.
Use of the Institutional Class shares is restricted to advisors who
are not affiliated or associated with a broker or dealer and who
derive compensation for their services exclusively from their advisory
clients;
o certain plans qualified under Section 529 of the Internal Revenue Code
for which the Fund's manager, distributor or service agent or one or
more of their affiliates provide record keeping, administrative,
investment management, marketing, distribution or similar services;
o programs sponsored by financial intermediaries where such program
requires the purchase of Institutional Class shares; or
o until April 1, 2006, investors who were formerly shareholders of "I"
shares (or a similar class of shares that is limited to certain
institutional or high net worth investors and does not carry a sales
charge or Rule 12b-1 fee) of another fund that was managed by
investment professionals who are currently portfolio managers at
Delaware Management Company.
How to buy shares
[GRAPHIC OMITTED: SYMBOL 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, 2005
Market Street, Philadelphia, PA19103-7094. 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: SYMBOL OF A JAGGED LINE]
By wire
Ask your bank to wire the amount you want to invest to Bank of New York, ABA
#021000018, Bank Account number 8900403748. 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: AN EXCHANGE SYMBOL]
By exchange
You may 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, Class C or
Class R shares. To open an account by exchange, call your Client Services
Representative at 800 510-4015.
[GRAPHIC OMITTED: SYMBOL OF A PERSON]
Through your financial advisor
Your financial advisor can handle all the details of purchasing shares,
including opening an account. Your financial advisor may charge a separate fee
for this service.
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of regular
trading on the New York Stock Exchange (NYSE), which is normally 4:00 p.m.
Eastern Time, you will pay that day's closing share price, which is based on the
Fund's net asset value (NAV). If your order is received after the close of
regular trading on the NYSE, you will pay the next business day's price. A
business day is any day that the NYSE is open for business (Business Day). We
reserve the right to reject any purchase order.
We determine the NAV per share for each class of the Fund at the close of
regular trading on the NYSE on each Business Day. The NAV per share for each
class of the Fund is calculated by subtracting the liabilities of each class
from its total assets and dividing the resulting number by the number of shares
outstanding for that class. We generally price securities and other assets for
which market quotations are readily available at their market value. We price
fixed-income securities on the basis of valuations provided to us by an
independent pricing service that uses methods approved by the Board of Trustees.
We price any fixed-income securities that have a maturity of less than 60 days
at amortized cost. For all other securities, we use methods approved by the
Board of Trustees that are designed to price securities at their fair market
value.
Fair valuation
When the Fund uses fair value pricing, it may take into account any factors it
deems appropriate. The Fund may determine fair value based upon developments
related to a specific security, current valuations of foreign stock indices (as
reflected in U.S. futures markets) and/or U.S. sector or broader stock market
indices. The price of securities used by the Fund to calculate its NAV may
differ from quoted or published prices for the same securities. Fair value
pricing may involve subjective judgments and it is possible that the fair value
determined for a security is materially different than the value that could be
realized upon the sale of that security.
The Fund anticipates using fair value pricing for securities primarily traded on
U.S. exchanges only under very limited circumstances, such as the early closing
of the exchange on which a security is traded or suspension of trading in the
security. The Fund may use fair value pricing more frequently for securities
primarily traded in non-U.S. markets because, among other things, most foreign
markets close well before the Fund values its securities at 4:00 p.m. Eastern
Time. The earlier close of these foreign markets gives rise to the possibility
that significant events, including broad market moves, may have occurred in the
interim. To account for this, the Fund may frequently value many foreign equity
securities using fair value prices based on third party vendor modeling tools to
the extent available.
Subject to the Board's oversight, the Fund's Board has delegated responsibility
for valuing the Fund's assets to a Pricing Committee of the Manager, which
operates under the policies and procedures approved by the Board as described
above.
How to redeem shares
[GRAPHIC OMITTED: SYMBOL OF AN ENVELOPE]
By mail
You may redeem your shares (sell them back to the Fund) by mail by writing to:
Delaware Investments, 2005 Market Street, Philadelphia, PA19103-7094. All
owners of the account must sign the request. For redemptions of more than
$100,000, you must include a signature guarantee for each owner. You can also
fax your written request to 267 256-8990. Signature guarantees are also required
when redemption proceeds are going to an address other than the address of
record on the account.
[GRAPHIC OMITTED: SYMBOL OF A TELEPHONE]
By telephone
You may redeem up to $100,000 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: SYMBOL OF A JAGGED LINE]
By wire
You may redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account, normally the next business day after we receive
your request. If you request a wire deposit, a bank wire fee may be deducted
from your proceeds. Bank information must be on file before you request a wire
redemption.
[GRAPHIC OMITTED: SYMBOL OF A PERSON]
Through your financial advisor
Your financial advisor can handle all the details of redeeming your shares. Your
financial advisor may charge a separate fee for this service.
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, and
we or an authorized agent receive the request before the close of regular
trading on the NYSE (normally 4:00 p.m. Eastern Time), you will receive the NAV
next determined after we receive your request. If we receive your request after
the close of regular trading on the NYSE, you will receive the NAV next
determined on the next business day. You may have to pay taxes on the proceeds
from your sale of shares. We will send you a check, normally the next business
day, but no later than seven days after we receive your request to sell your
shares. If you purchased your shares by check, we will wait until your check has
cleared, which can take up to 15 days, before we send your redemption proceeds.
Account minimum
If you redeem shares and your account balance falls below $250, your Fund may
redeem your account after 60 days' written notice to you.
If you have an account in the same Delaware Investments Fund as another member
of your household, we are sending your household one copy of the Fund's
prospectus, annual and semi-annual reports unless you opt otherwise. This will
help us reduce the printing and mailing expenses associated with the Funds. We
will continue to send one copy of each of these documents to your household
until you notify us that you wish individual materials. If you wish to receive
individual materials, please call our Shareholder Service Center at 800-523-1918
or your financial advisor. We will begin sending you individual copies of these
documents thirty days after receiving your request.
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
do not 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, Class C or Class R
shares of the funds in the Delaware Investments family.
The following limitation on exchange applies only to those investors who were
formerly shareholders of "I" shares (or a similar class of shares that is
limited to certain institutional or high-net worth investors and not carry a
sales charge or Rule 12b-1 fee) of another that was managed by investment
professionals who are currently portfolio managers at Delaware Management
Company. Until April 1, 2006, investors may exchange all or part of their
institutional shares of U.S. Growth Fund only for shares of the same class in
another Delaware Investments Fund that are specifically available for purchase
by these investors as stated in the Fund's prospectus.
Frequent trading of Fund shares
The Fund discourages purchases by market timers and purchase orders (including
the purchase side of exchange orders) by shareholders identified as market
timers may be rejected. The Fund's Board of Trustees has adopted policies and
procedures designed to detect, deter and prevent trading activity detrimental to
the Fund and its shareholders, such as market timing. The Fund will consider
anyone who follows a pattern of market timing in any fund in the Delaware
Investments family or Optimum Fund Trust to be a market timer and may consider
anyone who has followed a similar pattern of market timing at an unaffiliated
fund family to be a market timer.
Market timing of a fund occurs when investors make consecutive, rapid,
short-term "roundtrips" -- that is, purchases into a fund followed quickly by
redemptions out of that fund. A short-term roundtrip is any redemption of fund
shares within 20 business days of a purchase of that fund's shares. If you make
a second such short-term roundtrip in a fund within the same calendar quarter of
a previous short-term roundtrip in that fund, you may be considered a market
timer. In determining whether market timing has occurred, the Fund will consider
short-term roundtrips to include rapid purchases and sales of Fund shares
through the exchange privilege. The Fund reserves the right to consider other
trading patterns to be market timing.
Your ability to use the Fund's exchange privilege may be limited if you are
identified as a market timer. If you are identified as a market timer, we will
execute the redemption side of your exchange order but may refuse the purchase
side of your exchange order. The Fund reserves the right to restrict, reject or
cancel, without prior notice, any purchase order or exchange order for any
reason, including any purchase order or exchange order accepted by any
shareholder's financial intermediary or in any omnibus-type account.
Transactions placed in violation of the Fund's market timing policy are not
necessarily deemed accepted by the Fund and may be cancelled or revoked by the
Fund on the next business day following receipt by the Fund.
Redemptions will continue to be permitted in accordance with the Fund's current
Prospectus. A redemption of shares under these circumstances could be costly to
a shareholder if, for example, the shares have declined in value, the
shareholder recently paid a front-end sales charge, the shares are subject to a
contingent deferred sales charge or the sale results in adverse tax
consequences. To avoid this risk, a shareholder should carefully monitor the
purchases, sales and exchanges of Fund shares and avoid frequent trading in Fund
shares.
The Fund reserves the right to modify this policy at any time without notice,
including modifications to the Fund's monitoring procedures and the procedures
to close accounts to new purchases. Although the implementation of this policy
involves judgments that are inherently subjective and may be selectively
applied, we seek to make judgments and applications that are consistent with the
interests of the Fund's shareholders. While we will take actions designed to
detect and prevent market timing, there can be no assurance that such trading
activity will be completely eliminated. Moreover, the Fund's market timing
policy does not require the Fund to take action in response to frequent trading
activity. If the Fund elects not to take any action in response to frequent
trading, such frequent trading and market timing activity could continue.
Risks of market timing By realizing profits through short-term trading,
shareholders that engage in rapid purchases and sales or exchanges of the Fund's
shares dilute the value of shares held by long-term shareholders. Volatility
resulting from excessive purchases and sales or exchanges of Fund shares,
especially involving large dollar amounts, may disrupt efficient portfolio
management. In particular, the Fund may have difficulty implementing its
long-term investment strategies if it is forced to maintain a higher level of
its assets in cash to accommodate significant short-term trading activity.
Excessive purchases and sales or exchanges of the Fund's shares may also force
the Fund to sell portfolio securities at inopportune times to raise cash to
accommodate short-term trading activity. This could adversely affect the Fund's
performance if, for example, the Fund incurs increased brokerage costs and
realization of taxable capital gains without attaining any investment advantage.
A fund that invests significantly in foreign securities may be particularly
susceptible to short-term trading strategies. This is because foreign securities
are typically traded on markets that close well before the time the fund
calculates its NAV (typically, 4:00 p.m. Eastern Time). Developments that occur
between the closing of the foreign market and the fund's NAV calculation may
affect the value of these foreign securities. The time zone differences among
international stock markets can allow a shareholder engaging in a short-term
trading strategy to exploit differences in fund share prices that are based on
closing prices of foreign securities established some time before a fund
calculates its own share price.
Any fund that invests in securities that are thinly traded, traded infrequently
or relatively illiquid has the risk that the securities prices used to calculate
the fund's NAV may not accurately reflect current market values. A shareholder
may seek to engage in short-term trading to take advantage of these pricing
differences. Funds that may be adversely affected by such arbitrage include, in
particular, funds that significantly invest in small-cap securities, technology
and other specific industry sector securities, and in certain fixed-income
securities, such as high-yield bonds, asset-backed securities or municipal
bonds.
Transaction monitoring procedures The Fund, through its transfer agent,
maintains surveillance procedures designed to detect excessive or short-term
trading in Fund shares. This monitoring process involves several factors, which
include scrutinizing transactions in fund shares for violations of the Fund's
market timing policy or other patterns of short-term or excessive trading. For
purposes of these transaction monitoring procedures, the Fund may consider
trading activity by multiple accounts under common ownership, control or
influence to be trading by a single entity. Trading activity identified by these
factors, or as a result of any other available information, will be evaluated to
determine whether such activity might constitute market timing. These procedures
may be modified from time to time to improve the detection of excessive or
short-term trading or to address other concerns. Such changes may be necessary
or appropriate, for example, to deal with issues specific to certain retirement
plans, plan exchange limits, U.S. Department of Labor regulations, certain
automated or pre-established exchange, asset allocation or dollar cost averaging
programs, or omnibus account arrangements.
Omnibus account arrangements are common forms of holding shares of the Fund,
particularly among certain brokers/ dealers and other financial intermediaries,
including sponsors of retirement plans and variable insurance products. The Fund
will attempt to apply its monitoring procedures to these omnibus accounts and to
the individual participants in such accounts. In an effort to discourage market
timers in such accounts, the Fund may consider enforcement against market timers
at the participant level and at the omnibus level, up to and including
termination of the omnibus account's authorization to purchase Fund shares.
Limitations on ability to detect and curtail market timing Shareholders seeking
to engage in market timing may employ a variety of strategies to avoid detection
and, despite the efforts of the Fund and its agents to detect market timing in
Fund shares, there is no guarantee that the Fund will be able to identify these
shareholders or curtail their trading practices. In particular, the Fund may not
be able to detect market timing attributable to a particular investor who
effects purchase, redemption and/or exchange activity in Fund shares through
omnibus accounts. The difficulty of detecting market timing may be further
compounded if these entities utilize multiple tiers or omnibus accounts.
Dividends, distributions and taxes
Dividends and Distributions. The Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code. As a
regulated investment company, the Fund generally pays no federal income tax on
the income and gains it distributes to you. Dividends and capital gains, if any,
are paid annually. The amount of any distribution will vary, and there is no
guarantee the Fund will pay either an income dividend or a capital gain
distribution. We automatically reinvest all dividends and any capital gains,
unless you direct us to do otherwise.
Annual Statements. Every January, you will receive a statement that shows the
tax status of distributions you received the previous year. Distributions
declared in December but paid in January are taxable as if they were paid in
December. Mutual funds may reclassify income after your tax reporting statement
is mailed to you. Prior to issuing your statement, the Fund makes every effort
to search for reclassified income to reduce the number of corrected forms mailed
to shareholders. However, when necessary, the Fund will send you a corrected
Form 1099-DIV to reflect reclassified information.
Avoid "Buying A Dividend." If you invest in the Fund shortly before the record
date of a taxable distribution, the distribution will lower the value of the
Fund's shares by the amount of the distribution and, in effect, you will receive
some of your investment back in the form of a taxable distribution.
Tax Considerations. In general, if you are a taxable investor, Fund
distributions are taxable to you at either ordinary income or capital gains tax
rates. This is true whether you reinvest your distributions in additional Fund
shares or receive them in cash.
For federal income tax purposes, Fund distributions of short-term capital gains
are taxable to you as ordinary income. Fund distributions of long-term capital
gains are taxable to you as long-term capital gains no matter how long you have
owned your shares. A portion of income dividends designated by the Fund may be
qualified dividend income eligible for taxation by individual shareholders at
long-term capital gain rates provided certain holding period requirements are
met.
A sale or redemption of Fund shares is a taxable event and, accordingly, a
capital gain or loss may be recognized. For tax purposes, an exchange of your
Fund shares for shares of a different Fund is the same as a sale.
By law, if you do not provide the Fund with your proper taxpayer identification
number and certain required certifications, you may be subject to backup
withholding on any distributions of income, capital gains or proceeds from the
sale of your shares. The Fund also must withhold if the IRS instructs it to do
so. When withholding is required, the amount will be 28% of any distributions or
proceeds paid.
Fund distributions and gains from the sale or exchange of your Fund shares
generally are subject to state and local taxes. Non-U.S. investors may be
subject to U.S. withholding or estate tax, and are subject to special U.S. tax
certification requirements.
This discussion of "Dividends, distributions and taxes" is not intended or
written to be used as tax advice. Because everyone's tax situation is unique,
you should consult your tax professional about federal, state, local or foreign
tax consequences before making an investment in the Fund.
Certain management considerations
Investments by fund of funds and similar investment vehicles
The Fund may accept investments from funds of funds, including those within the
Delaware Investments family, as well as from similar investment vehicles, such
as 529 Plans. A "529 Plan" is a college savings program that operates under
section 529 of the Internal Revenue Code. From time to time, the Fund may
experience large investments or redemptions due to allocations or rebalancings
by these funds of funds and/or similar investment vehicles. 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 have tax consequences if sales of securities
result in gains, and could also increase transaction costs or portfolio
turnover. The manager will monitor transactions by the funds of funds and will
attempt to minimize any adverse effects on both the Fund and the funds of funds
as a result of these transactions.
Manager of managers structure
At a shareholder meeting held on March 23, 2005 (or as adjourned), the Fund's
shareholders approved a "manager of managers" structure that would permit
Delaware Management Company, the Fund's investment advisor, to appoint and
replace sub-advisors, enter into sub-advisory agreements, and amend and
terminate sub-advisory agreements with respect to the Fund, subject to Board
approval but without shareholder approval (the "Manager of Managers Structure").
While Delaware Management Company does not currently expect to use the Manager
of Managers Structure with respect to the Fund, Delaware Management Company may,
in the future, recommend to the Fund's Board the establishment of the Manager of
Managers Structure by recommending the hiring of one or more sub-advisors to
manage all or a portion of the Fund's portfolio if it believes that doing so
would be likely to enhance the Fund's performance by introducing a different
investment style or focus.
The ability to implement the Manager of Managers Structure with respect to the
Fund is contingent upon the receipt of an exemptive order from the U.S.
Securities and Exchange Commission (the "SEC") or the adoption of a rule by the
SEC authorizing the implementation of the Manager of Managers Structure. The use
of the Manager of Managers Structure with respect to the Fund may be subject to
certain conditions set forth in the SEC exemptive order or rule. There can be no
assurance that the SEC will grant the Fund's application for an exemptive order
or adopt such a rule.
The Manager of Managers Structure would enable the Fund to operate with greater
efficiency and without incurring the expense and delays associated with
obtaining shareholder approval of sub-advisory agreements. The Manager of
Managers Structure would not permit investment management fees paid by the Fund
to be increased without shareholder approval or change Delaware Management
Company's responsibilities to the Fund, including Delaware Management Company's
responsibility for all advisory services furnished by a sub-advisor.
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 800 510-4015.
U.S. Growth Fund Institutional Class Shares
Year ended 10/31
2005 2004 2003 2002 2001
Net asset value, beginning of period $11.080 $11.270 $9.600 $12.190 $19.970
Income (loss) from investment operations:
Net investment income (loss)(1) 0.015 (0.031) (0.010) (0.024) -----
Net realized and unrealized gain (loss) on
investments 2.185 (0.159) 1.680 (2.566) (7.549)
------- ------ ------ ------ ------
Total from investment operations 2.200 (0.190) 1.670 (2.590) (7.549)
------- ------ ------ ------ ------
Less dividends and distributions from:
Net realized gain on investments ----- ----- ----- ----- (0.231)
------- ------- ------- ------- -------
Total dividends and distributions ----- ----- ----- ----- (0.231)
------- ------ ------ ------- -------
Net asset value, end of period $13.280 $11.080 $11.270 $9.600 $12.190
======= ======= ======= ======= =======
Total return(2) 19.86% (1.69%) 17.40% (21.25%) (38.20%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $274,424 $2,666 $27,420 $30,575 $42,302
Ratio of expenses to average net assets 0.85% 1.10% 1.10% 1.10% 1.16%
Ratio of expenses to average net assets prior
to expense limitation and expenses
paid indirectly 1.11% 1.80% 1.94% 1.58% 1.40%
Ratio of net investment income (loss) to
average net assets 0.13% (0.29%) (0.10%) (0.21%) 0.00%
Ratio of net investment loss to average net
assets prior to expense limitation and
expenses paid indirectly (0.13%) (0.99%) (0.94%) (0.69%) (0.24%)
Portfolio turnover 65% 158% 77% 103% 70%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects a waiver
and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
How to read the Financial highlights
Net investment income (loss)
Net investment income (loss) includes dividend and interest income earned from a
fund's investments; 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, if any, that we pay to shareholders
would be listed under "Less dividends and 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 a 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 a 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 (loss) to average net assets
We determine this ratio by dividing net investment income (loss) by average net
assets.
Portfolio turnover rate
This figure tells you the amount of trading activity in a fund's portfolio. A
turnover rate of 100% would occur if, for example, a fund bought and sold all of
the securities in its portfolio once in the course of a year or frequently
traded a single security. A high rate of portfolio turnover in any year may
increase brokerage commissions paid and could generate taxes for shareholders on
realized investment gains.
How to use this glossary
This glossary includes definitions of investment terms, many of which are used
throughout the Prospectus. If you would like to know the meaning of an
investment term that is not explained in the text please check the glossary.
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 typically
is inversely related to current interest rates. Generally, when interest rates
rise, bond prices fall, and when interest rates fall, bond prices rise. See
Fixed-income securities.
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. See also Nationally recognized statistical ratings
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 advisor for 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.
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.
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.
Fixed-income securities
With fixed-income securities, the money you originally invest is paid back at a
pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bond.
Government securities
Securities issued by U.S. government or its agencies. They include Treasuries as
well as agency-backed securities such as Fannie Maes.
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 advisor 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 a 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.
NASD
The National Association of Securities Dealers, Inc., which is responsible for
regulating the securities industry.
Nationally recognized statistical ratings 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,
Inc. (Moody's), Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
(S&P) and Fitch, Inc. (Fitch).
Net assets
The total value of all the assets in a fund's portfolio, less any liabilities.
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 (P/E)
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 1000(R)Growth Index
Measures the performance of those Russell 1000 companies with higher
price-to-book ratios and higher forecasted growth values. The Russell 1000
measures the performance of the 1,000 largest U.S. companies based on total
market capitalization.
S&P 500(R)Index
An unmanaged index of 500 widely held common stocks that is often used to
represent performance of the U.S. stock market.
SEC (Securities and Exchange Commission)
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual funds.
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)
A document that provides more detailed information about a fund's organization,
management, investments, policies and risks.
Stock
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as common stocks or 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.
Delaware U.S. Growth Fund
Additional information about the Fund's investments is available in the Fund's
annual and semiannual 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 period
covered by the report. You can find more information about the Fund in the
current Statement of Additional Information (SAI), which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
legally a part of this Prospectus (it is incorporated by reference). If you want
a free copy of the SAI, the annual or semiannual report, or if you have any
questions about investing in the Fund, you can write to us at 2005 Market
Street, Philadelphia, PA19103-7094, or call toll-free 800 510-4015. The Fund's
SAI and annual and semiannual reports to shareholders are also available, free
of charge, through the Fund's internet Web site (www.delawareinvestments.com).
You may obtain additional information about the Fund from your financial
advisor.
You can find reports and other information about the Fund on the EDGAR Database
on the SEC Web site (www.sec.gov). You can also get copies of this information,
after payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov
or by writing to the Public Reference Section of the SEC, Washington, D.C.
20549-0102. Information about the Fund, including its SAI, can be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. You can get
information on the Public Reference Room by calling the SEC at 202 942-8090.
Web site
www.delawareinvestments.com
E-mail
service@delinvest.com
Client Services Representative
800 510-4015
Delaphone Service
800 362-FUND (800 362-3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24
hours a day, use this Touch-Tone(R)service.
DELAWARE
INVESTMENTS(R)
A Member of Lincoln Financial Group
Registrant's Investment Company Act file number: 811-7972
Delaware U.S. Growth Fund
CUSIP NASDAQ
Institutional Class 245917802 DEUIX
P-104 [--] PP 02/05
STATEMENT OF ADDITIONAL INFORMATION
February 28, 2006
DELAWARE GROUP ADVISER FUNDS
Delaware Diversified Income Fund
Delaware U.S. Growth Fund
2005 Market Street
Philadelphia, PA19103-7094
For more information about the Institutional Classes: 800 510-4015
For Prospectus, Performance and Information on Existing Accounts of
Class A Shares, Class B Shares, Class C Shares
and Class R Shares: Nationwide 800 523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800 362-7500
This Statement of Additional Information ("Part B") describes the shares of
the Delaware Diversified Income Fund and Delaware U.S. Growth Fund (each a
"Fund" and collectively, the "Funds"), which are series of the Delaware Group
Adviser Funds (the "Trust"). Each Fund offers Class A, B, C and R Shares
(collectively, the "Fund Classes") and Institutional Class Shares. All
references to "shares" or "Classes" in this Part B refer to all classes of
shares of the Funds, except where noted. The Funds' investment advisor is
Delaware Management Company, a series of Delaware Management Business Trust (the
"Manager").
This Part B supplements the information contained in the current
Prospectuses for the Funds, each dated February 28, 2006, as they may be amended
from time to time. This Part B should be read in conjunction with the applicable
Prospectus. Part B is not itself a Prospectus but is, in its entirety,
incorporated by reference into each Prospectus. A Prospectus may be obtained by
writing or calling your investment dealer or by contacting the Funds' national
distributor, Delaware Distributors, L.P. (the "Distributor"), at the above
address or by calling the above phone numbers. The Funds' financial statements,
the notes relating thereto, the financial highlights and the report of the
independent registered public accounting firm are incorporated by reference from
the Annual Report into this Part B. The Annual Report will accompany any request
for Part B. The Annual Report can be obtained, without charge, by calling 800
523-1918.
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TABLE OF CONTENTS
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Page Page
-------------------------------- ------ -----------------------------------
Cover Page Purchasing Shares
-------------------------------- ------ -----------------------------------
Fund History Investment Plans
-------------------------------- ------ -----------------------------------
Investment Restrictions Determining Offering Price
and Net Asset Value
-------------------------------- ------ -----------------------------------
Investment Strategies and Risks Redemption and Exchange
-------------------------------- ------ -----------------------------------
Disclosure of Portfolio Holdings Dividends, Distributions and
Taxes
-------------------------------- ------ -----------------------------------
Management of the Trust Performance Information
-------------------------------- ------ -----------------------------------
Investment Manager and Other
Service Providers Financial Statements
-------------------------------- ------ -----------------------------------
Portfolio Managers Principal Holders
-------------------------------- ------ -----------------------------------
Trading Practices and Brokerage Appendix A - Description of
Ratings
-------------------------------- ------ -----------------------------------
Capital Stock
-------------------------------- ------ -----------------------------------
FUND HISTORY
The Trust was originally organized as a Maryland corporation on August 10,1993 and was subsequently reorganized as a Delaware statutory trust on November23, 1999.
Classification
The Trust is an open-end management investment company. Each Fund's
portfolio of assets is diversified as defined by the Investment Company Act of
1940, as amended (the "1940 Act").
INVESTMENT RESTRICTIONS
Investment Objective
Each Fund's investment objective is non-fundamental, and may be changed
without shareholder approval. However, the Board of Trustees must approve any
changes to non-fundamental investment objectives and a Fund will notify
shareholders prior to a material change in the Fund's objective.
Fundamental Investment Restrictions
Each Fund has adopted the following restrictions which cannot be changed
without approval by the holders of a "majority" of each Fund's outstanding
shares, which is a vote by the holders of the lesser of a) 67% or more of the
voting securities present in person or by proxy at a meeting, if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy; or b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions and policies set forth herein apply at
the time of purchase of securities.
The Funds shall not:
1. Make investments that will result in the concentration (as that term may
be defined in the 1940 Act, any rule or order thereunder, or U.S. Securities and
Exchange Commission ("SEC") staff interpretation thereof) of their investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit each Fund from investing in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or in tax-exempt securities or certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that each Fund may
engage in transactions involving the acquisition, disposition or resale of their
portfolio securities, under circumstances where they may be considered to be an
underwriter under the Securities Act of 1933, as amended (the "1933" Act).
4. Purchase or sell real estate, unless acquired as a result of ownership
of securities or other instruments and provided that this restriction does not
prevent the Funds from investing in issuers that invest, deal or otherwise
engage in transactions in real estate or interests therein, or investing in
securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Funds from engaging in transactions involving futures
contracts and options thereon or investing in securities that are secured by
physical commodities.
6. Make loans, provided that this restriction does not prevent the Funds
from purchasing debt obligations, entering into repurchase agreements, loaning
their assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
Non-Fundamental Investment Restrictions
In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
Prospectuses, the Funds will be subject to the following investment
restrictions, which are considered non-fundamental and may be changed by the
Board of Trustees without shareholder approval.
1. Each Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, the Delaware U.S. Growth Fund may not operate as a
"fund of funds" which invests primarily in the shares of other investment
companies as permitted by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own
shares are utilized as investments by such a "fund of funds."
2. A Fund may not invest more than 15% of its net assets in securities
which it cannot sell or dispose of in the ordinary course of business within
seven days at approximately the value at which the Fund has valued the
investment.
3. A Fund normally may not purchase any security (other than obligations of
the U.S. Government, its agencies or instrumentalities) if as a result, with
respect to 75% of the Fund's total assets, more than 5% of the Fund's assets
(determined at the time of investment) would then be invested in securities of a
single issuer.
4. A Fund may not purchase any securities (other than obligations of the
U.S. Government, its agencies and instrumentalities) if as a result 25% or more
of the value of the Fund's total assets (determined at the time of investment)
would be invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that there is no
limitation with respect to money market instruments of domestic banks, U.S.
branches of foreign banks that are subject to the same regulations as U.S. banks
and foreign branches of domestic banks (provided that the domestic bank is
unconditionally liable in the event of the failure of the foreign branch to make
payment on its instruments for any reason). Foreign governments, including
agencies and instrumentalities thereof, and each of the electric utility,
natural gas distribution, natural gas pipeline, combined electric and natural
gas utility, and telephone industries shall be considered as a separate industry
for this purpose.
5. A Fund may not buy or sell real estate, interests in real estate or
commodities or commodity contracts; however, a Fund may invest in debt
securities secured by real estate or interests therein, or issued by companies
which invest in real estate or interests therein, including real estate
investment trusts, and may purchase or sell currencies (including forward
currency contracts) and financial futures contracts and options thereon.
6. A Fund may not engage in the business of underwriting securities of
other issuers, except to the extent that the disposal of an investment position
may technically cause the Fund to be considered an underwriter as that term is
defined under the 1933 Act.
7. A Fund may not make loans in an aggregate amount in excess of one-third
of the Fund's total assets, taken at the time any loan is made, provided that
entering into certain repurchase agreements and purchasing debt securities shall
not be deemed loans for the purposes of this restriction.
8. A Fund may not make short sales of securities or maintain a short
position if, when added together, more than 25% of the value of the Fund's net
assets would be: (i) deposited as collateral for the obligation to replace
securities borrowed to effect short sales and (ii) allocated to segregated
accounts in connection with short sales.
9. A Fund may not borrow money, except from banks for temporary or
emergency purposes not in excess of one-third of the value of the Fund's assets,
and except that the Fund may enter into reverse repurchase agreements and engage
in "roll" transactions, provided that reverse repurchase agreements, "roll"
transactions and any other transactions constituting borrowing by the Fund may
not exceed one-third of the Fund's total assets and if the Fund's borrowing,
including reverse repurchase agreements, exceeds 5% of the value of the Fund's
total assets, it will not purchase any additional securities.
10. A Fund may not invest in securities of other investment companies
except as may be acquired as part of a merger, consolidation, reorganization or
acquisition of assets and except that the Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any investment company or invest more than 10% of
its total assets in the securities of other investment companies.
11. A Fund may not make investments for the purpose of exercising control
or management.
12. A Fund may not invest in securities of any issuer if, to the knowledge
of the Trust, any officer or Trustee of the Trust or the Manager owns more than
1/2 of 1% of the outstanding securities of such issuer, and such officers and
Trustees who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
With respect to the Delaware U.S. Growth Fund only, the Fund may not:
1. Purchase any security if as a result the Fund would then have more than
5% of its total assets (determined at the time of investment) invested in
securities of companies (including predecessors) less than three years old; or
2. Purchase illiquid securities or other securities that are not readily
marketable if more than 10% of the total assets of the Fund would be invested in
such securities.
In order to comply with certain state "blue sky" restrictions, Delaware
U.S. Growth Fund will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases or programs;
2. Purchase warrants if as a result the Fund would then have more than 5%
of its net assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange will be limited to 2% of the net assets of the Fund (determined at the
time of investment). For the purpose of this limitation, warrants acquired in
units or attached to securities are deemed to be without value;
3. In connection with investment restriction number 10 above, invest in
securities issued by other investment companies without waiving the advisory fee
on that portion of its assets invested in such securities; or
4. Purchase puts, calls, straddles, spreads, and any combination thereof if
by reason thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish each Fund's
investment objective. The Funds are free to dispose of portfolio securities at
any time, subject to complying with the Internal Revenue Code and the 1940 Act,
when changes in circumstances or conditions make such a move desirable in light
of a Fund's investment objective. The Funds will not attempt to achieve or be
limited to a pre-determined rate of portfolio turnover. Such turnover always
will be incidental to transactions undertaken with a view to achieving the
Fund's investment objective.
The degree of portfolio activity may affect brokerage costs of the Fund and
taxes payable by the Fund's shareholders. A turnover rate of 100% would occur,
for example, if all the investments in a Fund's portfolio held at the beginning
of the year were replaced by the end of the year, or if a single investment was
frequently traded. In investing to achieve their investment objectives, the
Funds may hold securities for any period of time. The turnover rate also may be
affected by cash requirements from redemptions and exchanges of Fund shares. The
Funds may also be expected to engage in active and frequent trading of portfolio
securities, which means that portfolio turnover can be expected to exceed 100%.
In particular, Delaware Diversified Income Fund has, in the past, experienced
portfolio turnover rates that were significantly in excess of 100%.
The portfolio turnover rate tells you the amount of trading activity in a
fund's portfolio. A turnover rate of 100% would occur if, for example, a fund
bought and sold all of the securities in its portfolio once in the course of a
year or frequently traded a single security. A high rate of portfolio turnover
in any year may increase brokerage commissions paid and could generate taxes for
shareholders on realized investment gains.
For the fiscal years ended October 31, 2004 and 2005, the Funds' portfolio
turnover rates were as follows:
--------------------------------- ------------------- --------------------
Fund 2004 2005
--------------------------------- ------------------- --------------------
Delaware Diversified Income Fund 458% 417%
--------------------------------- ------------------- --------------------
Delaware U.S. Growth Fund 158% 65%
--------------------------------- ------------------- --------------------
INVESTMENT STRATEGIES AND RISKS
The Funds' investment objectives, strategies and risks are described in the
Prospectuses. Certain additional information is provided below. All investment
strategies of the Funds are non-fundamental and may be changed without
shareholder approval, except those identified below as fundamental restrictions.
Bank Obligations
Certificates of deposit ("CDs") are short-term negotiable obligations of
commercial banks; time deposits ("TDs") are non-negotiable deposits maintained
in banking institutions for specified periods of time at stated interest rates;
and bankers' acceptances are time drafts drawn on commercial banks by borrowers
usually in connection with international transactions.
Obligations of foreign branches of domestic banks, such as CDs and TDs, may
be general obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation and government regulation.
Such obligations are subject to different risks than are those of domestic banks
or domestic branches of foreign banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign exchange
controls and foreign withholding and other taxes on interest income. Foreign
branches of domestic banks are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank than about a domestic bank.
CDs issued by wholly owned Canadian subsidiaries of domestic banks are
guaranteed as to repayment of principal and interest (but not as to sovereign
risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation as
well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may or may not be subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is located if the branch is
licensed in that state. In addition, branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may or may
not be required to: (i) pledge to the regulator by depositing assets with a
designated bank within the state, an amount of its assets equal to 5% of its
total liabilities; and (ii) maintain assets within the state in an amount equal
to a specified percentage of the aggregate amount of liabilities of the foreign
bank payable at or through all of its State Branches. The deposits of State
Branches may not necessarily be insured by the FDIC. In addition, there may be
less publicly available information about a domestic branch of a foreign bank
than about a domestic bank.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks or by domestic branches of
foreign banks, the Manager will carefully evaluate such investments on a
case-by-case basis.
Savings and loan associations whose CDs may be purchased by either Fund are
supervised by the Office of Thrift Supervision and are insured by the Savings
Association Insurance Fund, which is administered by the FDIC and is backed by
the full faith and credit of the U.S. Government. As a result, such savings and
loan associations are subject to regulation and examination.
Combined Transactions
The Funds may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts) and multiple interest rate transactions
and any combination of futures, options, currency and interest rate transactions
("component" transactions), instead of a single transaction, as part of a single
or combined strategy when, in the opinion of the Manager, it is in the best
interests of a Fund to do so. A combined transaction will usually contain
elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Manager's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
Convertible Securities
Delaware U.S. Growth Fund may invest in securities that either have
warrants or rights attached or are otherwise convertible into other or
additional securities. A convertible security is typically a fixed-income
security (a bond or preferred stock) that may be converted at a stated price
within a specified period of time into a specified number of shares of common
stock of the same or a different issuer. Convertible securities are generally
senior to common stocks in a corporation's capital structure but are usually
subordinated to similar non-convertible securities. 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 similar non-convertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in capital appreciation attendant
upon a market price advance in the common stock underlying the convertible
security. In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock). While no securities investment is without some risk, investments
in convertible securities generally entail less risk than investments in the
common stock of the same issuer.
Credit Default Swaps
The Delaware Diversified Income Fund may enter into credit default swap
("CDS") contracts to the extent consistent with its investment objectives and
strategies. A CDS contract is a risk-transfer instrument (in the form of a
derivative security) through which one party (the "purchaser of protection")
transfers to another party (the "seller of protection") the financial risk of a
Credit Event (as defined below), as it relates to a particular reference
security or basket of securities (such as an index). In exchange for the
protection offered by the seller of protection, the purchaser of protection
agrees to pay the seller of protection a periodic premium. In the most general
sense, the benefit for the purchaser of protection is that, if a Credit Event
should occur, it has an agreement that the seller of protection will make it
whole in return for the transfer to the seller of protection of the reference
security or securities. The benefit for the seller of protection is the premium
income it receives. The Fund might use CDS contracts to limit or to reduce the
risk exposure of the Fund to defaults of the issuer or issuers of its holdings
(i.e., to reduce risk when the Fund owns or has exposure to such securities).
The Fund also might use CDS contracts to create or vary exposure to securities
or markets.
CDS transactions may involve general market, illiquidity, counterparty and
credit risks. CDS prices may also be subject to rapid movements in response to
news and events affecting the underlying securities. The aggregate notional
amount (typically, the principal amount of the reference security or securities)
of the Fund's investments in the CDS contracts will be limited to 15% of its
total net assets. As the purchaser or seller of protection, the Fund may be
required to segregate cash or other liquid assets to cover its obligations under
certain CDS contracts.
As the seller of protection in a CDS contract, the Fund would be required
to pay the par (or other agreed-upon) value of a reference security (or basket
of securities) to the counterparty in the event of a default, bankruptcy,
failure to pay, obligation acceleration, modified restructuring or agreed upon
event (each of these events is a "Credit Event"). If a Credit Event occurs, the
Fund generally would receive the security or securities to which the Credit
Event relates in return for the payment to the purchaser of the par value.
Provided that no Credit Event occurs, the Fund would receive from the
counterparty a periodic stream of payments over the term of the contract in
return for this credit protection. In addition, if no Credit Event occurs during
the term of the CDS contract, the Fund would have no delivery requirement or
payment obligation to the purchaser of protection. As the seller of protection,
the Fund would have credit exposure to the reference security (or basket of
securities). The Fund will not sell protection in a CDS contract if it cannot
otherwise hold the security (or basket of securities).
As the purchaser of protection in a CDS contract, the Fund would pay a
premium to the seller of protection. In return, the Fund would be protected by
the seller of protection from a Credit Event on the reference security (or
basket of securities). A risk in this type of transaction is that the seller of
protection may fail to satisfy its payment obligations to the Fund if a Credit
Event should occur. This risk is known as counterparty risk and is described in
further detail below.
If the purchaser of protection does not own the reference security (or
basket of securities), the purchaser of protection may be required to purchase
the reference security (or basket of securities) in the case of a Credit Event
on the reference security (or basket of securities). If the purchaser of
protection cannot obtain the security (or basket of securities), it may be
obligated to deliver a security (or basket of securities) that is deemed to be
equivalent to the reference security (or basket of securities) or the negotiated
monetary value of the obligation.
Each CDS contract is individually negotiated. The term of a CDS contract,
assuming no Credit Event occurs, is typically between two and five years. CDS
contracts may be unwound through negotiation with the counterparty.
Additionally, a CDS contract may be assigned to a third party. In either case,
the unwinding or assignment involves the payment or receipt of a separate
payment by the Fund to terminate the CDS contract.
A significant risk in CDS transactions is the creditworthiness of the
counterparty because the integrity of the transaction depends on the willingness
and ability of the counterparty to meet its contractual obligations. If there is
a default by a counterparty who is a purchaser of protection, the Fund's
potential loss is the agreed upon periodic stream of payments from the purchaser
of protection. If there is a default by a counterparty that is a seller of
protection, the Fund's potential loss is the failure to receive the par value or
other agreed upon value from the seller of protection if a Credit Event should
occur. CDS contracts do not involve the delivery of collateral to support each
party's obligations; therefore, the Fund will only have contractual remedies
against the counterparty pursuant to the CDS agreement. As with any contractual
remedy, there is no guarantee that the Fund would be successful in pursuing such
remedies. For example, the counterparty may be judgment proof due to insolvency.
The Fund thus assumes the risk that it will be delayed or prevented from
obtaining payments owed to it.
Eurodollar Instruments
Each Fund may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. Each Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed-income instruments
are linked.
Foreign Currency Transactions
Each Fund may hold foreign currency deposits from time to time and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the contract
to maturity and complete the contemplated currency exchange.
Foreign Currency Options: The Funds may purchase U.S. exchange-listed call
and put options on foreign currencies. Such options on foreign currencies
operate similarly to options on securities. Options on foreign currencies are
affected by all of those factors that influence foreign exchange rates and
investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options market.
Foreign Currency Conversion: Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should either Fund
desire to resell that currency to the dealer.
Foreign Investments
Each Fund may invest up to 20% of its assets in foreign securities. Foreign
investments can involve significant risks in addition to the risks inherent in
U.S. investments. The value of securities denominated in or indexed to foreign
currencies, and of dividends and interest from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be highly
volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those applicable to U.S. companies, and it may be more
difficult to obtain reliable information regarding an issuer's financial
condition and operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions, and custodial costs, are generally
higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Manager will be able to
anticipate or counter these potential events.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
Each Fund may invest in foreign securities that impose restrictions on
transfer within the United States or to U.S. persons. Although securities
subject to transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.
American Depositary Receipts and European Depositary Receipts ("ADRs" and
"EDRs") are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed for
use in U.S. and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies.
Forward Foreign Currency Exchange Contracts
When dealings in forward contracts, each Fund will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward contracts with respect to specific
receivables or payables of the Funds generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency. The Funds may not position hedge with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of a forward contract) of securities
held in its portfolio denominated or quoted in, or currently convertible into,
such currency.
When each Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when each Fund anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Funds may desire to "lock in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment as
the case may be. By entering into a forward contract for a fixed amount of
dollars for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, each Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when the Manager believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, each
Fund may enter into a forward contract for a fixed amount of dollars, to sell
the amount of foreign currency approximating the value of some or all of the
securities of each Fund denominated in such foreign currency.
The Funds may use currency forward contracts to manage currency risks and
to facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Fund.
In connection with purchases and sales of securities denominated in foreign
currencies, the Fund may enter into currency forward contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date. This
technique is sometimes referred to as a "settlement hedge" or "transaction
hedge." The Manager expects to enter into settlement hedges in the normal course
of managing the Fund's foreign investments. Each Fund could also enter into
forward contracts to purchase or sell a foreign currency in anticipation of
future purchases or sales of securities denominated in foreign currency, even if
the specific investments have not yet been selected by the Manager.
The Funds may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the Funds owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge (sometimes referred
to as a "position hedge") would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. Each Fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling -- for example, by
entering into a forward contract to sell Euros in return for U.S. dollars. This
type of hedge, sometimes referred to as a "proxy hedge," could offer advantages
in terms of cost, yield, or efficiency, but generally will not hedge currency
exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
Under certain conditions, SEC guidelines require mutual funds to set aside
cash and appropriate liquid assets in a segregated custodian account to cover
currency forward contracts. As required by SEC guidelines, the Funds will
segregate assets to cover currency forward contracts, if any, whose purpose is
essentially speculative. The Funds will not segregate assets to cover forward
contracts, including settlement hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the Manager's skill
in analyzing and predicting currency values. Forward contracts may substantially
change the Fund's investment exposure to changes in currency exchange rates, and
could result in losses to the Funds if currencies do not perform as the Manager
anticipates. For example, if a currency's value rose at a time when the Manager
had hedged the Funds by selling that currency in exchange for dollars, the Funds
would be unable to participate in the currency's appreciation. If the Manager
hedges currency exposure through proxy hedges, the Funds could realize currency
losses from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if the Manager increases the Funds'
exposure to a foreign currency, and that currency's value declines, each Fund
will realize a loss. There is no assurance that the Manager's use of forward
currency contracts will be advantageous to each Fund or that it will hedge at an
appropriate time.
Futures Contracts and Options Thereon
A futures contract is an agreement in which the writer (or seller) of the
contract agrees to deliver to the buyer an amount of cash or securities equal to
a specific dollar amount times the difference between the value of a specific
fixed-income security or index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying securities is made. When the futures contract is entered into,
each party deposits with a broker or in a segregated custodial account
approximately 5% of the contract amount, called the "initial margin." Subsequent
payments to and from the broker, called "variation margin," will be made on a
daily basis as the price of the underlying security or index fluctuates, making
the long and short positions in the futures contracts more or less valuable, a
process known as "marking to market." In the case of options on futures
contracts, the holder of the option pays a premium and receives the right, upon
exercise of the option at a specified price during the option period, to assume
a position in the futures contract (a long position if the option is a call and
a short position if the option is a put). If the option is exercised by the
holder before the last trading day during the option period, the option writer
delivers the futures position, as well as any balance in the writer's futures
margin account. If it is exercised on the last trading day, the option writer
delivers to the option holder cash in an amount equal to the difference between
the option exercise price and the closing level of the relevant security or
index on the date the option expires.
Each Fund intends to engage in futures contracts and options thereon as a
hedge against changes, resulting from market conditions, in the value of
securities which are held by each Fund or which each Fund intends to purchase,
in accordance with the rules and regulations of the Commodity Futures Trading
Commission ("CFTC"). Additionally, each Fund may write options on futures
contracts to realize through the receipt of premium income a greater return than
would be realized in each Fund's portfolio securities alone.
Risks of Transactions in Futures Contracts: There are several risks in
connection with the use of futures contracts as a hedging device. Successful use
of futures contracts by each Fund is subject to the ability of the Funds'
Manager to correctly predict movements in the direction of interest rates or
changes in market conditions. These predictions involve skills and techniques
that may be different from those involved in the management of the portfolio
being hedged. In addition, there can be no assurance that there will be a
correlation between movements in the price of the underlying index or securities
and movements in the price of the securities that are the subject of the hedge.
A decision of whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in interest rates.
Although each Fund will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular contract or at any particular time. Accordingly, there can be no
assurance that it will be possible, at any particular time, to close a futures
position. In the event each Fund could not close a futures position and the
value of such position declined, each Fund would be required to continue to make
daily cash payments of variation margin. However, in the event futures contracts
have been used to hedge portfolio securities, such securities will not be sold
until the futures contract can be terminated. In such circumstances, an increase
in the price of the securities, if any, may partially or completely offset
losses on the futures contract. However, there is no guarantee that the price
movements of the securities will, in fact, correlate with the price movements in
the futures contract and thus provide an offset to losses on a futures contract.
The hours of trading of futures contracts may not conform to the hours
during which each Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures market.
High-Yield, High Risk Debt Securities
The Funds may purchase securities that are rated lower than Baa by Moody's
Investors Service, Inc. ("Moody's") or lower than BBB by Standard & Poor's
("S&P"). These securities are often considered to be speculative and involve
significantly higher risk of default on the payment of principal and interest or
are more likely to experience significant price fluctuation due to changes in
the issuer's creditworthiness. Market prices of these securities may fluctuate
more than higher-rated debt securities and may decline significantly in periods
of general economic difficulty, which may follow periods of rising interest
rates. While the market for high yield corporate debt securities has been in
existence for many years and has weathered previous economic downturns, the
market in recent years has experienced a dramatic increase in the large-scale
use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Accordingly, past experience may not provide an accurate
indication of future performance of the high yield bond market, especially
during periods of economic recession. See Appendix A - Description of Ratings"
in this Part B.
The market for lower-rated securities may be less active than that for
higher-rated securities, which can adversely affect the prices at which these
securities can be sold. If market quotations are not available, these securities
will be valued in accordance with procedures established by the Board of
Trustees, including the use of third-party pricing services. Judgment plays a
greater role in valuing high yield corporate debt securities than is the case
for securities for which more external sources for quotations and last-sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by the Funds to value
its portfolio securities and the Funds' ability to dispose of these lower-rated
debt securities.
Since the risk of default is higher for lower-quality securities, the
Manager's research and credit analysis is an integral part of managing any
securities of this type held by each Fund. In considering investments for each
Fund, the Manager will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations, has
improved, or is expected to improve in the future. The Manager's analysis
focuses on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience and managerial
strength of the issuer. There can be no assurance that such analysis will prove
accurate.
Each Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as security holder to seek to
protect the interests of security holders if it determines this to be in the
best interest of shareholders.
Illiquid Securities
The Delaware Diversified Income Fund and the Delaware U.S. Growth Fund may
invest no more than 15% and 10%, respectively, of the value of their net assets
in illiquid securities.
The Funds may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the 1933 Act. Rule 144A permits many privately placed and
legally restricted securities to be freely traded among certain institutional
buyers such as the Funds.
While maintaining oversight, the Board of Trustees has delegated to the
Manager the day-to-day function of determining whether or not individual Rule
144A Securities are liquid for purposes of each Fund's limitation on investments
in illiquid assets. The Board has instructed the Manager to consider the
following factors in determining the liquidity of a Rule 144A Security: (i) the
frequency of trades and trading volume for the security; (ii) whether at least
three dealers are willing to purchase or sell the security and the number of
potential purchasers; (iii) whether at least two dealers are making a market in
the security; and (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer), and whether a security is
listed on an electronic network for trading the security.
If the Manager determines that a Rule 144A Security that was previously
determined to be liquid is no longer liquid and, as a result, the Funds'
holdings of illiquid securities exceed the Funds' limits on investment in such
securities, the Manager will determine what action to take to ensure that each
Fund continues to adhere to such limitation.
Lending of Portfolio Securities
Each Fund has the ability to lend securities from its portfolio to brokers,
dealers and other financial organizations. Such loans, if and when made, may not
exceed one-third of either Fund's total assets. The Funds may not lend its
portfolio securities to Lincoln National Corporation or its affiliates unless it
has applied for and received specific authority from the SEC. Loans of
securities by the Funds will be collateralized by cash, letters of credit or
U.S. Government securities, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
From time to time, the Funds may return a part of the interest earned from the
investment of collateral received for securities loaned to the borrower and/or a
third party, which is unaffiliated with the Funds or with Lincoln National
Corporation, and which is acting as a "finder."
In lending its portfolio securities, each Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when government securities are used as
collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (a) a Fund must receive 102% cash
collateral or equivalent securities from the borrower; (b) the borrower must
increase such collateral whenever the market value of the loaned securities
rises above the level of such collateral; (c) the Fund must be able to terminate
the loan at any time; (d) the Fund must receive reasonable interest on the loan,
as well as an amount equal to any dividends, interest or other distributions on
the loaned securities, and any increase in market value; (e) the Fund may pay
only reasonable custodian fees in connection with the loan; and (f) voting
rights on the loaned securities may pass to the borrower; however, if a material
event adversely affecting the investment occurs, the Funds' Board of Trustees
must terminate the loan and regain the right to vote the securities. The risks
in lending portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially.
Money Market Instruments
Delaware U.S. Growth Fund may invest for defensive purposes in corporate
and government money market instruments. Money market instruments in which the
Fund may invest include U.S. Government securities; certificates of deposit,
time deposits and bankers' acceptances issued by domestic banks (including their
branches located outside the U.S. and subsidiaries located in Canada), domestic
branches of foreign banks, savings and loan associations and similar
institutions; high grade commercial paper; and repurchase agreements with
respect to the foregoing types of instruments. See also "Bank Deposits" above.
Mortgage-Backed Securities
Each Fund may invest in mortgage-related securities including those
representing an undivided ownership interest in a pool of mortgages.
Government National Mortgage Association Certificates: Certificates issued
by the Government National Mortgage Association ("GNMA") are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government.
Principal is paid back monthly by the borrower over the term of the loan.
Investment of prepayments may occur at higher or lower rates than the
anticipated yield on the certificates. Due to the prepayment feature and the
need to reinvest prepayments of principal at current market rates, GNMA
certificates can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates. GNMA
certificates typically appreciate or decline in market value during periods of
declining or rising interest rates, respectively. Due to the regular repayment
of principal and the prepayment feature, the effective maturities of mortgage
pass-through securities are shorter than stated maturities, will vary based on
market conditions and cannot be predicted in advance. The effective maturities
of newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
nine and 12 years.
FNMA and FHLMC Mortgage-Backed Obligations: The Federal National Mortgage
Association ("FNMA"), a federally chartered and privately owned corporation,
issues pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest but
this guarantee is not backed by the full faith and credit of the U.S.
Government. The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the U.S. Government, issues participation certificates which
represent an interest in a pool of conventional mortgage loans. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal, and
maintains reserves to protect holders against losses due to default, but the
certificates are not backed by the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of, and realized
yield on, particular FNMA and FHLMC pass-through securities will vary based on
the prepayments of the underlying pool of mortgages and cannot be predicted.
Municipal Securities
Municipal securities are issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, roads, schools, water and sewer works, and other
utilities. Other public purposes for which municipal securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities. In addition, certain debt obligations known as "private activity
bonds" may be issued by or on behalf of municipalities and public authorities to
obtain funds to provide certain water, sewage and solid waste facilities,
qualified residential rental projects, certain local electric, gas and other
heating or cooling facilities, qualified hazardous waste facilities, high-speed
intercity rail facilities, governmentally owned airports, docks and wharves and
mass commuting facilities, certain qualified mortgages, student loan and
redevelopment bonds and bonds used for certain organizations exempt from federal
income taxation. Certain debt obligations known as "industrial development
bonds" under prior federal tax law may have been issued by or on behalf of
public authorities to obtain funds to provide certain privately-operated housing
facilities, sports facilities, industrial parks, convention or trade show
facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities, sewage or solid waste disposal facilities, and
certain facilities for water supply. Other private activity bonds and industrial
development bonds issued to finance the construction, improvement, equipment or
repair of privately operated industrial, distribution, research, or commercial
facilities may also be municipal securities, but the size of such issues is
limited under current and prior federal tax law.
Information about the financial condition of issuers of municipal
securities may be less available than about corporations with a class of
securities registered under the Securities Exchange Act of 1934, as amended (the
"1934 Act").
Options on Foreign and U.S. Currencies and Securities
Each Fund may purchase and sell (write) put and call options on securities,
although the present intent is to write only covered call options. These covered
call options must remain covered so long as each Fund is obligated as a writer.
A call option written by each Fund is "covered" if the Funds own the security
underlying the option or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by the Funds' custodian) upon
conversion or exchange of other securities held in their portfolios. A call
option is also covered if each Fund holds on a share-for-share basis a call on
the same security as the call written where the exercise price of the call held
is equal to or less than the exercise price of the call written or greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash, treasury bills or other high grade, short-term debt obligations in
a segregated account with the Fund's custodian. The premium paid by the
purchaser of an option will reflect, among other things, the relationship of the
exercise price to the market price and volatility of the underlying security,
the remaining term of the option, supply and demand and interest rates.
If the writer of an option wishes to terminate the obligation, he or she
may effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she has been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option (whether an exchange-traded
option or a NASDAQ option) is required to pledge for the benefit of the broker
the underlying security or other assets in accordance with the rules of The
Options Clearing Corporation ("OCC"), the Chicago Board of Trade and the Chicago
Mercantile Exchange, institutions which interpose themselves between buyers and
sellers of options. Technically, each of these institutions assumes the other
side of every purchase and sale transaction on an exchange and, by doing so,
guarantees the transaction.
An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although each Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange or other trading
facility will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or otherwise may exist. In
such event it might not be possible to effect closing transactions in particular
options, with the result that the Funds would have to exercise their options in
order to realize any profit and would incur brokerage commissions upon the
exercise of call options and upon the subsequent disposition of underlying
securities acquired through the exercise of call options or upon the purchase of
underlying securities for the exercise of put options. If the Funds, as a
covered call option writer, are unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. However, the OCC, based on forecasts provided by the U.S. exchanges,
believes that its facilities are adequate to handle the volume of reasonably
anticipated options transactions, and such exchanges have advised such clearing
corporation that they believe their facilities will also be adequate to handle
reasonably anticipated volume.
Options on Stock Indices
Options on stock indices are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple (the "multiplier").
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. Unlike stock options, all settlements are in cash.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Except as described below, each Fund will write call options on indices
only if on such date it holds a portfolio of securities at least equal to the
value of the index times the multiplier times the number of contracts. When each
Fund writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with its custodian, or pledge to a broker as
collateral for the option, cash, cash equivalents or at least one "qualified
security" with a market value at the time the option is written of not less than
100% of the current index value times the multiplier times the number of
contracts. The Funds will write call options on broadly-based stock market
indices only if at the time of writing it holds a diversified portfolio of
stocks.
If the Funds have written an option on an industry or market segment index,
they will so segregate or put into escrow with their custodian, or pledge to a
broker as collateral for the option, at least ten "qualified securities," which
are stocks of an issuer in such industry or market segment, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of each Fund's holdings in that
industry or market segment. No individual security will represent more than 15%
of the amount so segregated, pledged or escrowed in the case of broadly-based
stock market index options or 25% of such amount in the case of industry or
market segment index options.
If at the close of business, the market value of such qualified securities
so segregated, escrowed or pledged falls below 100% of the current index value
times the multiplier times the number of contracts, a Fund will segregate,
escrow or pledge an amount in cash, Treasury bills or other high grade
short-term debt obligations equal in value to the difference. In addition, when
each Fund writes a call on an index which is in-the-money at the time the call
is written, the Fund will segregate with its custodian or pledge to the broker
as collateral, cash, U.S. Government or other high grade short-term debt
obligations equal in value to the amount by which the call is in-the-money times
the multiplier times the number of contracts. Any amount segregated pursuant to
the foregoing sentence may be applied to each Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. However, if each Fund holds a call on the same
index as the call written where the exercise price of the call held is equal to
or less than the exercise price of the call written or greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
Treasury bills or other high grade short-term debt obligations in a segregated
account with its custodian, it will not be subject to the requirements described
in this paragraph.
Risks of Options on Stock Indices: Index prices may be distorted if trading
of certain securities included in the index is interrupted. Trading in the index
options also may be interrupted in certain circumstances, such as if trading
were halted in a substantial number of securities included in the index. If this
occurred, each Fund would not be able to close out options that it had purchased
or written and, if restrictions on exercise were imposed, may be unable to
exercise an option it holds, which could result in substantial losses to each
Fund. It is the Funds' policy to purchase or write options only on indices that
include a number of securities sufficient to minimize the likelihood of a
trading halt in the index.
Special Risks of Writing Calls on Stock Indices: Unless each Fund has other
liquid assets which are sufficient to satisfy the exercise of a call, each Fund
would be required to liquidate portfolio securities in order to satisfy the
exercise. Because an exercise must be settled within hours after receiving the
notice of exercise, if a Fund fails to anticipate an exercise it may have to
borrow from a bank (in amounts not exceeding 20% of the value of such Fund's
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
When a Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell securities in its portfolio. As with stock
options, each Fund will not learn that an index option has been exercised until
the day following the exercise date. Unlike a call on stock where the Funds
would be able to deliver the underlying securities in settlement, the Funds may
have to sell part of its portfolio in order to make settlement in cash, and the
price of such securities might decline before they can be sold. This timing risk
makes certain strategies involving more than one option substantially more risky
with index options than with stock options. For example, even if an index call
which the Funds have written is "covered" by an index call held by the Funds
with the same strike price, the Funds will bear the risk that the level of the
index may decline between the close of trading on the date the exercise notice
is filed with the clearing corporation and the close of trading on the date the
Funds exercise the call they hold or the time the Funds sell the call, which in
either case would occur no earlier than the day following the day the exercise
notice was filed.
Over-the-Counter Options
Delaware U.S. Growth Fund may deal in over-the-counter ("OTC") options. The
Fund understands the position of the SEC staff to be that purchased OTC options
and the assets used as "cover" for written OTC options are illiquid securities.
The Fund and the Manager disagree with this position and have found the dealers
with which they engage in OTC options transactions generally agreeable to and
capable of entering into closing transactions. The Fund has adopted procedures
for engaging in OTC options for the purpose of reducing any potential adverse
impact of such transactions upon the liquidity of the Fund's portfolio.
As part of these procedures, the Fund will engage in OTC options
transactions only with primary dealers that have been specifically approved by
the Trust's Board of Trustees and the Manager believe that the approved dealers
should be agreeable and able to enter into closing transactions if necessary
and, therefore, present minimal credit risks to the Fund. The Fund anticipates
entering into written agreements with those dealers to whom the Fund may sell
OTC options, pursuant to which the Fund would have the absolute right to
repurchase the OTC options from such dealers at any time at a price determined
pursuant to a formula set forth in certain no action letters published by the
SEC staff. The Fund will not engage in OTC options transactions if the amount
invested by the Fund in OTC options plus, with respect to OTC options written by
the Fund, the amounts required to be treated as illiquid pursuant to the terms
of such letters (and the value of the assets used as cover with respect to OTC
option sales which are not within the scope of such letters), plus the amount
invested by the Fund in illiquid securities, would exceed 15% of the Fund's
total assets. OTC options on securities other than U.S. Government securities
may not be within the scope of such letters and, accordingly, the amount
invested by the Fund in OTC options on such other securities and the value of
the assets used as cover with respect to OTC option sales regarding such
non-U.S. Government securities will be treated as illiquid and subject to the
10% limitation on the Fund's net assets that may be invested in illiquid
securities. See "Illiquid Securities," above.
Repurchase Agreements
While each Fund is permitted to do so, it normally does not invest in
repurchase agreements, except to invest cash balances.
The funds in the Delaware Investments family (each a "Delaware Investments
Fund" and collectively, the "Delaware Investments Funds") have obtained an
exemption (the "Order") from the joint-transaction prohibitions of Section 17(d)
of the 1940 Act to allow Delaware Investments Funds jointly to invest cash
balances. Each Fund may invest cash balances in a joint repurchase agreement in
accordance with the terms of the Order and subject generally to the conditions
described below.
A repurchase agreement is a short-term investment by which the purchaser
acquires ownership of a security and the seller agrees to repurchase the
obligation at a future time and set price, thereby determining the yield during
the purchaser's holding period. Should an issuer of a repurchase agreement fail
to repurchase the underlying security, the loss to the Fund, if any, would be
the difference between the repurchase price and the market value of the
security. Each Fund will limit its investments in repurchase agreements to those
which the Manager determines to present minimal credit risks and which are of
high quality. In addition, each Fund's counterparty must maintain collateral of
at least 102% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
Reverse Repurchase Agreements
Delaware U.S. Growth Fund is authorized to enter into reverse repurchase
agreements. A reverse repurchase agreement is the sale of a security by the Fund
and its agreement to repurchase the security at a specified time and price. The
Fund will maintain in a segregated account with its custodian cash, cash
equivalents or U.S. Government securities in an amount sufficient to cover its
obligations under reverse repurchase agreements with broker/dealers (but no
collateral is required on reverse repurchase agreements with banks). Under the
1940 Act, reverse repurchase agreements may be considered borrowings by the
Fund; accordingly, the Fund will limit its investments in reverse repurchase
agreements, together with any other borrowings, to no more than one-third of its
total assets. The use of reverse repurchase agreements by the Fund creates
leverage which increases the Fund's investment risk. If the income and gains on
securities purchased with the proceeds of reverse repurchase agreements exceed
the costs of the agreements, the Fund's earnings or net asset value ("NAV") will
increase faster than otherwise would be the case; conversely, if the income and
gains fail to exceed the costs, earnings or NAV would decline faster than
otherwise would be the case.
"Roll" Transactions
Each Fund may engage in "roll" transactions. A "roll" transaction is the
sale of securities together with a commitment (for which the Fund may receive a
fee) to purchase similar, but not identical, securities at a future date. Under
the 1940 Act, these transactions may be considered borrowings by the Funds;
accordingly, the Funds will limit their use of these transactions, together with
any other borrowings, to no more than one-third of each of their total assets.
Each Fund will segregate liquid assets such as cash, U.S. Government securities
or other high grade debt obligations in an amount sufficient to meet their
payment obligations in these transactions. Although these transactions will not
be entered into for leveraging purposes, to the extent each Fund's aggregate
commitments under these transactions exceed its holdings of cash and securities
that do not fluctuate in value (such as short-term money market instruments),
each Fund temporarily will be in a leveraged position (i.e., it will have an
amount greater than its net assets subject to market risk). Should the market
value of each Fund's portfolio securities decline while each Fund is in a
leveraged position, greater depreciation of their net assets would likely occur
than were they not in such a position. As each Fund's aggregate commitments
under these transactions increase, its leverage risk similarly increases.
Mortgage Dollar Rolls. The Delaware U.S. Growth Fund may enter into
mortgage "dollar rolls" in which the Fund sells mortgage-backed securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. Any difference between the sale price and the purchase price is
netted against the interest income foregone on the securities to arrive at an
implied borrowing (reverse repurchase) rate. Alternatively, the sale and
purchase transactions which constitute the dollar roll can be executed at the
same price, with the Fund being paid a fee as consideration for entering into
the commitment to purchase. Dollar rolls may be renewed prior to cash settlement
and initially may involve only a firm commitment agreement by the Fund to buy a
security. If the broker/dealer to whom the Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
Swaps, Caps, Floors and Collars
Each Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. Each Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities each Fund anticipates purchasing at a later
date. Each Fund intends to use these transactions as hedges and not speculative
investments and will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream that the Fund may be
obligated to pay. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
nominal amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
Each Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with each Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the
investment manager and neither Fund believes such obligations constitute senior
securities under 1940 Act and, accordingly, will not treat them as being subject
to its borrowing restrictions. Neither Fund will enter into any swap, cap, floor
or collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or is determined to be of
equivalent credit quality by the Manager. If there is a default by the
counterparty, the Funds may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agent utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Variable and Floating Rate Notes
Variable rate master demand notes, in which each Fund may invest, are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. The Funds will not invest over 5% of their assets in variable
rate master demand notes. Because master demand notes are direct lending
arrangements between a Fund and the issuer, they are not normally traded.
Although there is no secondary market in the notes, the Fund may demand payment
of principal and accrued interest at any time. While the notes are not typically
rated by credit rating agencies, issuers of variable amount master demand notes
(which are normally manufacturing, retail, financial, and other business
concerns) must satisfy the same criteria as set forth above for commercial
paper. In determining average weighted portfolio maturity, a variable amount
master demand note will be deemed to have a maturity equal to the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by each Fund will be determined by the Fund's
Manager under guidelines established by each Fund's Board of Trustees to be of
comparable quality at the time of purchase to rated instruments eligible for
purchase under either Fund's investment policies. In making such determinations,
the Manager will consider the earning power, cash flow and other liquidity
ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by each Fund,
each Fund may re-sell the note at any time to a third party. The absence of such
an active secondary market, however, could make it difficult for the Fund to
dispose of the variable or floating rate note involved in the event the issuer
of the note defaulted on its payment obligations, and the Fund could, for this
or other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank letters of credit.
Variable and floating rate notes for which no readily available market
exists will be purchased in an amount which, together with securities with legal
or contractual restrictions on resale or for which no readily available market
exists (including repurchase agreements providing for settlement more than seven
days after notice), exceed 10% and 15% of the total assets of the Delaware U.S.
Growth Fund and Delaware Diversified Income Fund, respectively, only if such
notes are subject to a demand feature that will permit the applicable Fund to
demand payment of the principal within seven days after demand by the Fund. If
not rated, such instruments must be found by either Fund's Manager under
guidelines established by the Funds' Board of Trustees, to be of comparable
quality to instruments that are rated high quality. A rating may be relied upon
only if it is provided by a nationally recognized statistical rating
organization that is not affiliated with the issuer or guarantor of the
instruments. The Funds may also invest in Canadian Commercial Paper, which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and in Europaper which is U.S. dollar denominated commercial
paper of a foreign issuer.
When-Issued Securities
The Funds may purchase securities on a "when-issued" basis. When either
Fund agrees to purchase securities on a when-issued basis, it will reserve cash
or securities in amounts sufficient to cover its obligations, and will value the
reserved assets daily. It may be expected that each Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. The Funds do not intends
to purchase when-issued securities for speculative purposes but only in
furtherance of their investment objective. Because each Fund will segregate
sufficient cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, a Fund's liquidity and the ability of the
Manager to manage the Fund might be affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its assets.
When Funds engage in when-issued transactions, they rely on the seller to
consummate the trade. Failure of the seller to do so may result in the Funds'
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous.
DISCLOSURE OF PORTFOLIO HOLDINGS INFORMATION
Each Fund has adopted a policy generally prohibiting providing portfolio
holdings information to any person until after thirty calendar days have passed.
We post a list of each Fund's portfolio holdings monthly, with a thirty day lag,
on the Funds' Web site, www.delawareinvestments.com. In addition, on a ten day
lag, we also make available a month-end summary listing of the number of each
Fund's securities, country and asset allocations, and top ten securities and
sectors by percentage of holdings for each Fund. This information is available
publicly to any and all shareholders free of charge once posted on the Web site
by calling 1-800-523-1918.
Other entities, including institutional investors and intermediaries that
distribute the Funds' shares, are generally treated similarly and are not
provided with the Funds' portfolio holdings in advance of when they are
generally available to the public. Third-party service providers and affiliated
persons of the Funds are provided with the Funds' portfolio holdings only to the
extent necessary to perform services under agreements relating to the Funds.
Third-party rating agencies and consultants who have signed agreements
("Non-Disclosure Agreements") with the Funds or the Manager may receive
portfolio holdings information more quickly than the thirty day lag. The
Non-Disclosure Agreements require that the receiving entity hold the information
in the strictest confidence and prohibit the receiving entity from disclosing
the information or trading on the information (either in Fund shares or in
shares of the Funds' portfolio securities). In addition, the receiving party
must agree to provide copies of any research or reports generated using the
portfolio holdings information in order to allow for monitoring of use of the
information. Neither the Funds, the Manager nor any affiliate receive any
compensation or consideration with respect to these agreements.
To protect the shareholders' interest and to avoid conflicts of interest,
Non-Disclosure Agreements must be approved by a member of the Manager's Legal
Department and Compliance Department and any deviation in the use of the
portfolio holdings information by the receiving party must be approved in
writing by the Funds' Chief Compliance Officer prior to such use.
The Funds' Board of Trustees will be notified of any substantial change to
the foregoing procedures. The Funds' Board of Trustees also receives an annual
report from the Trust's Chief Compliance Officer on the adequacy of the Trust's
compliance with these procedures.
MANAGEMENT OF THE TRUST
Officers and Trustees
The business and affairs of the Trust are managed under the direction of
its Board of Trustees. Certain officers and Trustees of the Trust hold identical
positions in each of the other Delaware Investments Funds. As of February 1,2006, the Trust's officers and Trustees owned less than 1% of the outstanding
shares of each Class of each Fund except for the Institutional Class of the
Delaware Diversified Income Fund, in which they owned 1.41% of the outstanding
shares. The Trust's Trustees and principal officers are noted below along with
their ages and their business experience for the past five years. The Trustees
serve for indefinite terms until their resignation, death or removal.
------------ -------------- ------------ ----------------------- ----------- -------------
Number of Other
Portfolios Directorships
in Fund Held
Complex by
Name, Overseen Trustee/
Address Position(s) Principal by Trustee/ Director
and Held with Length of Occupation(s) During Director or
Birthdate Trust Time Served Past 5 Years or Officer Officer
--------------------------------------------------------------------------------------------
Interested Trustees
--------------------------------------------------------------------------------------------
Jude T. Chairman, 5 Years - Since August 2000, 87 None
Driscoll(2) President, Executive Mr. Driscoll has
2005 Chief Officer served in various
Market Executive executive capacities
Street Officer 2 Years - at different times
Philadelphia, and Trustee at Delaware
PA 19103 Trustee Investments(1)
March 10,
1963
--------------------------------------------------------------------------------------------
Independent Trustees
--------------------------------------------------------------------------------------------
Thomas L. Trustee Since Private Investor - 87 None
Bennett March 23, (March 2004 - Present)
2005 2005
Market Investment Manager -
Street Morgan Stanley & Co.
Philadelphia, (January 1984 - March
PA 19103 2004)
October 4,
1947
--------------------------------------------------------------------------------------------
John A. Fry Trustee 4 Years President - 87 Director-
2005 Franklin & Marshall Community
Market College Health
Street (June 2002 - Present) Systems
Philadelphia,
PA19103 Executive Vice Director-
President - Allied
May 28, University of Burton
1960 Pennsylvania Security
(April 1995 - June Holdings
2002)
--------------------------------------------------------------------------------------------
Anthony D. Trustee 12 Years Founder/Managing 87 None
Knerr Director - Anthony
2005 Knerr & Associates
Market (Strategic Consulting)
Street (1990 - Present)
Philadelphia,
PA19103
December
7, 1938
--------------------------------------------------------------------------------------------
Lucinda S. Trustee Since Chief Financial 87 None
Landreth March 23, Officer -
2005 2005 Assurant, Inc.
Market (Insurance)
Street (2002 - 2004)
Philadelphia,
PA19103
June 24,
1947
--------------------------------------------------------------------------------------------
Ann R. Trustee 16 Years Consultant - 87 Director
Leven National Gallery of and
2005 Art Audit
Market (1994 - 1999) Committee
Street Chairperson -
Philadelphia, Andy
PA 19103 Warhol
Foundation
November
1, 1940 Director
and
Audit
Committee
Member -
Systemax
Inc.
--------------------------------------------------------------------------------------------
Thomas F. Trustee 11 Years President/Chief 87 Director -
Madison Executive Officer - Banner
2005 MLM Partners, Inc. Health
Market (Small Business
Street Investing &
Philadelphia, Consulting) Director -
PA 19103 (January 1993 - Center
Present) Point
February Energy
25, 1936
Director
and
Audit
Committee
Member -
Digital
River
Inc.
Director
and
Audit
Committee
Member -
Rimage
Corporation
Director -
Valmont
Industries,
Inc.
--------------------------------------------------------------------------------------------
Janet L. Trustee 6 Years Vice President 87 None
Yeomans ((January
2005 2003-Present) and
Market Treasurer (January
Street 2006-Present)
Philadelphia,
PA19103
Ms. Yeomans has held
July 31, various management
1948 positions at 3M
Corporation since
1983.
--------------------------------------------------------------------------------------------
J. Richard Trustee Since Founder - 87 Director
Zecher March 23, Investor Analytics and
2005 2005 (Risk Management) Audit
Market (May 1999 - Present) Committee
Street Member -
Philadelphia, Investor
PA 19103 Analytics
July 3, Director
1940 and
Audit
Committee
Member -
Oxigene,
Inc.
Director -
Sutton Asset
Management
--------------------------------------------------------------------------------------------
Officers
--------------------------------------------------------------------------------------------
Michael P. Senior Vice Chief Mr. Bishof has served 87 None(3)
Bishof President Financial in various executive
2005 and Chief Officer capacities at
Market Financial since different times at
Street Officer February Delaware Investments
Philadelphia, 17, 2005
PA 19103
August 18,
1962
--------------------------------------------------------------------------------------------
David F. Vice Vice Mr. Connor has served 87 None(3)
Connor President/ President as Vice President and
2005 Deputy since Deputy General
Market General September Counsel of Delaware
Street Counsel/ 21, 2000 and Investments since
Philadelphia, Secretary Secretary 2000.
PA 19103 since
October 25,
December 2005
2, 1963
--------------------------------------------------------------------------------------------
David P. Senior Vice Senior Vice Mr. O'Connor has 87 None(3)
O'Connor President/ President, served in various
2005 General General executive and legal
Market Counsel/ Counsel and capacities at
Street Chief Legal Chief Legal different times at
Philadelphia, Officer Officer Delaware Investments.
PA 19103 since
October 25,2005
February
21, 1966
--------------------------------------------------------------------------------------------
John J. Senior Vice Treasurer Mr. O'Connor has 87 None(3)
O'Connor President since served in various
2005 and Treasurer February executive capacities
Market 17, 2005 at different times at
Street Delaware Investments
Philadelphia,
PA19103
June 16,
1957
--------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Trust Manager, principal
underwriter and transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Trust's manager and distributor.
(3) Messrs. Bishof, Connor, David P. O'Connor and John J. O'Connor also serve
in similar capacities for the six portfolios of the Optimum Fund Trust,
which have the same Manager, principal underwriter and transfer agent as
the Trust. Mr. John J. O'Connor also serves in a similar capacity for
Lincoln Variable Insurance Products Trust, which has the same investment
adviser as the Trust.
Following is additional information regarding investment professionals
affiliated with the Trust.
--------------------------- --------------------------- ------------------- -------------------------------------------------
Name, Address Position(s) Held with the Length of Principal Occupation(s)
And Birthdate Trust Time Served During Past 5 Years
--------------------------- --------------------------- ------------------- -------------------------------------------------
Christopher J. Bonavico Vice President and Senior Less than 1 Year Vice President and Senior Portfolio Manager -
505 Montgomery Street Portfolio Manager Delaware Investment Advisers, a series of
11th Floor Delaware Management Business Trust
San Francisco, CA94111 U.S. Growth Fund (2005 - Present)
Mr. Bonavico has served in various capacities
at different times at Transamerica Investment
Management, LLC
--------------------------- --------------------------- ------------------- -------------------------------------------------
Ryan K. Brist, CFA Executive Vice President 5 Years Mr. Brist has served in various capacities at
2005 Market Street and Managing Director, different times at Delaware Investments
Philadelphia, PA19103-7094 Chief Investment Officer
- Fixed-Income
March 22, 1971
Diversified Income Fund
--------------------------- --------------------------- ------------------- -------------------------------------------------
Stephen R. Cianci Senior Vice President and 11 Years Mr. Cianci has served in various capacities at
2005 Market Street Senior Portfolio Manager different times at Delaware Investments
Philadelphia, PA19103
Diversified Income Fund
May 12, 1969
--------------------------- --------------------------- ------------------- -------------------------------------------------
Christopher M. Ericksen Vice President and Less than 1 Year Vice President and Portfolio Manager - Delaware
505 Montgomery Street Portfolio Manager Investment Advisers, a series of Delaware
11th Floor Management Business Trust
San Francisco, CA94111 (2005 - Present)
Mr. Ericksen has served in various capacities
March 10, 1972 at different times at Transamerica Investment
Management, LLC
--------------------------- --------------------------- ------------------- -------------------------------------------------
Paul Grillo Senior Vice President and 11 Years Mr. Grillo has served in various capacities at
2005 Market Street Senior Portfolio Manager different times at Delaware Investments
Philadelphia, PA19103
Diversified Income Fund
May 16, 1959
--------------------------- --------------------------- ------------------- -------------------------------------------------
Philip R. Perkins Senior Vice President and 2 years Senior Vice President and Senior Portfolio
2005 Market Street Senior Portfolio Manager Manager - Delaware Investment Advisers, a
Philadelphia, PA19103-7094 series of Delaware Management Business Trust
Diversified Income Fund (2003 - Present)
May 20, 1961
Chief Operating Officer and Managing Director
in Emerging Markets of Deutsche Bank (1998 -
2003)
--------------------------- --------------------------- ------------------- -------------------------------------------------
Daniel J. Prislin Vice President and Senior Less than 1 Year Vice President and Senior Portfolio Manager -
505 Montgomery Street Portfolio Manager Delaware Investment Advisers, a series of
11th Floor Delaware Management Business Trust
San Francisco, CA94111 (2005 - Present)
U.S. Growth Fund
Mr. Prislin has served in various capacities at
different times at Transamerica Investment
Management, LLC
--------------------------- --------------------------- ------------------- -------------------------------------------------
Timothy L. Rabe Senior Vice President - 4 Years Mr. Rabe has served in various capacities at
2005 Market Street Senior High Yield Trader different times at Delaware Investments
Philadelphia, PA19103-7094
Diversified Income Fund
September 18, 1970
--------------------------- --------------------------- ------------------- -------------------------------------------------
Jeffrey S. Van Harte Chief Investment Officer Less than 1 year Chief Investment Officer/Focus Growth -
505 Montgomery Street - Focus Growth Delaware Investment Advisers, a series of
11th Floor Delaware Management Business Trust
San Francisco, CA94111 U.S. Growth Fund (2005 - Present)
July 24, 1958 Mr. Van Harte has served in various capacities
at different times at Transamerica Investment
Management, LLC
--------------------------- --------------------------- ------------------- -------------------------------------------------
The following table shows each Trustee's ownership of shares of the Funds
and of all Delaware Investments Funds as of December 31, 2005.
------------------- ---------------------------------------------- -------------------------------------------------------
Aggregate Dollar Range of Equity Securities in All
Registered Investment Companies Overseen by Trustee
Name Dollar Range of Equity Securities in the Trust in Family of Investment Companies
------------------- ---------------------------------------------- -------------------------------------------------------
Jude T. Driscoll Delaware U.S. Growth Fund Over $100,000
$50,001-$100,000
------------------- ---------------------------------------------- -------------------------------------------------------
Thomas L. Bennett None None
------------------- ---------------------------------------------- -------------------------------------------------------
John A. Fry(1) None Over $100,000
------------------- ---------------------------------------------- -------------------------------------------------------
Anthony D. Knerr None $10,001 - $50,000
------------------- ---------------------------------------------- -------------------------------------------------------
Lucinda S. Landreth Delaware U.S. Growth Fund $10,001-$50,000
$1-$10,000
------------------- ---------------------------------------------- -------------------------------------------------------
Ann R. Leven None Over $100,000
------------------- ---------------------------------------------- -------------------------------------------------------
Thomas F. Madison None $10,001 - $50,000
------------------- ---------------------------------------------- -------------------------------------------------------
Janet L. Yeomans None $50,001 - $100,000
------------------- ---------------------------------------------- -------------------------------------------------------
J. Richard Zecher None $10,001-$50,000
--------------------------------------------------------------------------------------------------------------------------
(1) As of December 31, 2005, John A. Fry held assets in a 529 Plan account.
Under the terms of the Plan, a portion of the assets held in the Plan may be
invested in the Funds. Mr. Fry held no shares of the Funds outside of the Plan
as of December 31, 2005.
The following table describes the aggregate compensation received by the
Trustees from the Trust and the total compensation received from all Delaware
Investments Funds for which he or she serves as a Trustee or Director for the
fiscal year ended October 31, 2005 and an estimate of annual benefits to be
received upon retirement under the Delaware Group Retirement Plan for
Trustees/Director as of October 31, 2005. Only the Trustees of the Trust who are
not "interested persons" as defined by the 1940 Act (the "Independent Trustees")
receive compensation from the Funds.
------------------- ------------------ --------------------- ----------------------- ---------------------
Total Compensation
Pension or from the Investment
Aggregate Retirement Benefits Estimated Annual Companies in
Compensation Accrued as Part of Benefits Upon Delaware
Trustee(1,2) from the Trust Fund Expenses Retirement Investments(3)
------------------- ------------------ --------------------- ----------------------- ---------------------
Walter P. Babich $1,900 None None $59,583
------------------- ------------------ --------------------- ----------------------- ---------------------
Thomas L. Bennett $3,134 None None $65,833
------------------- ------------------ --------------------- ----------------------- ---------------------
John H. Durham $1,323 None None $42,567
------------------- ------------------ --------------------- ----------------------- ---------------------
John A. Fry(4) $4,905 None None $108,100
------------------- ------------------ --------------------- ----------------------- ---------------------
Anthony D. Knerr $5,140 None None $129,617
------------------- ------------------ --------------------- ----------------------- ---------------------
Lucinda S. Landreth $3,148 None None $65,933
------------------- ------------------ --------------------- ----------------------- ---------------------
Ann R. Leven $5,091 None None $128,333
------------------- ------------------ --------------------- ----------------------- ---------------------
Thomas F. Madison $5,220 None None $128,333
------------------- ------------------ --------------------- ----------------------- ---------------------
Janet L. Yeomans $4,938 None None $122,500
------------------- ------------------ --------------------- ----------------------- ---------------------
J. Richard Zecher $3,134 None None $65,833
---------------------------------------------------------------------------------------------------------
(1) Under the terms of the Delaware Investments Retirement Plan for
Trustees/Directors, each disinterested Trustee/Director who, at the time of
his or her retirement from the Board, has attained the age of 70 and served
on the Board for at least five continuous years, is entitled to receive
payments from each investment company in the Delaware Investments family
for which he or she serves as Trustee/Director for a period equal to the
lesser of the number of years that such person served as a Trustee/Director
or the remainder of such person's life. The amount of such payments will be
equal, on an annual basis, to the amount of the annual retainer that is
paid to Trustees/Directors of each investment company at the time of such
person's retirement. If an eligible Trustee/Director retired as of October31, 2005, he or she would be entitled to annual payments totaling the
amounts noted above, in the aggregate, from all of the investment companies
in the Delaware Investments family for which he or she serves as a
Trustee/Director, based on the number of investment companies in the
Delaware Investments family as of that date.
(2) Walter P. Babich and John H. Durham retired from the Trust's Board of
Trustees and each of the 32 investment companies in the Delaware
Investments family on March 22, 2005. Thomas L. Bennett, Lucinda S.
Landreth and J. Richard Zecher joined the Board of Trustees/Directors of
the 32 investment companies in the Delaware Investments family on March 23,2005.
(3) Each Independent Trustee/Director currently receives a total annual
retainer fee of $80,000 for serving as a Trustee/ Director for all 32
investment companies in the Delaware Investments family, plus $5,000 for
each Board Meeting attended. The following compensation is in the aggregate
from all investment companies in the complex. Members of the Audit
Committee receive additional compensation of $2,500 for each meeting.
Members of the Nominating Committee receive additional compensation of
$1,700 for each meeting. In addition, the chairpersons of the Audit and
Nominating Committees each receive an annual retainer of $15,000. The
Lead/Coordinating Trustee/Director of the Delaware Investments Funds
receives an additional retainer of $35,000.
(4) In addition to this compensation, for the 12-month period ended on October31, 2005, Mr. Fry received $12,975 in professional fees from the Trust for
services provided to the Trust's Board.
The Board of Trustees has the following committees:
Audit Committee: This committee monitors accounting and financial reporting
policies and practices, and internal controls for the Trust. It also oversees
the quality and objectivity of the Trust's financial statements and the
independent audit thereof, and acts as a liaison between the Trust's independent
registered public accounting firm and the full Board of Trustees. The Trust's
Audit Committee consists of the following four Independent Trustees: Thomas F.
Madison, Chairman; Thomas L. Bennett; Jan L. Yeomans; and J. Richard Zecher. The
Audit Committee held six meetings during the Trust's last fiscal year.
Nominating Committee: This committee recommends board members, fills
vacancies and considers the qualifications of board members. The committee also
monitors the performance of counsel for the Independent Trustees. The Nominating
Committee does not accept nominations for the Board from shareholders. The
Nominating Committee consists of the following four Independent Trustees: John
A. Fry, Chairman; Anthony D. Knerr; Lucinda S. Landreth; and Ann R. Leven
(ex-officio). The Nominating Committee held 10 meetings during the Trust's last
fiscal year.
Independent Trustee Committee: This committee develops and recommends to
the Board a set of corporate governance principles and oversees the evaluation
of the Board, its committees and its activities. The committee is comprised of
all of the Trust's Independent Trustees. The Independent Trustee Committee held
five meetings during the Trust's last fiscal year.
Code of Ethics
The Trust, the Manager and the Distributor have adopted Codes of Ethics in
compliance with the requirements of Rule 17j-1 under the 1940 Act, which govern
personal securities transactions. Under the Codes of Ethics, persons subject to
the Codes are permitted to engage in personal securities transactions, including
securities that may be purchased or held by the Funds, subject to the
requirements set forth in Rule 17j-1 under the 1940 Act and certain other
procedures set forth in the applicable Code of Ethics. The Codes of Ethics are
on public file with, and are available from, the SEC.
Proxy Voting Policy
The Trust has formally delegated to the Manager the responsibility for
making all proxy voting decisions in relation to portfolio securities held by
the Funds. If and when proxies need to be voted on behalf of the Funds, the
Manager will vote such proxies pursuant to its Proxy Voting Policies and
Procedures (the "Procedures"). The Manager has established a Proxy Voting
Committee (the "Committee") which is responsible for overseeing the Manager's
proxy voting process for the Funds. One of the main responsibilities of the
Committee is to review and approve the Procedures to ensure that the Procedures
are designed to allow the Manager to vote proxies in a manner consistent with
the goal of voting in the best interests of the Funds.
In order to facilitate the actual process of voting proxies, the Manager
has contracted with Institutional Shareholder Services ("ISS") to analyze proxy
statements on behalf of the Funds and vote proxies generally in accordance with
the Procedures. The Committee is responsible for overseeing ISS's proxy voting
activities. If a proxy has been voted for the Funds, ISS will create a record of
the vote. Information, if any, regarding how the Funds voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge: (i) through the Funds' Web site at
www.delawareinvestments.com; and (ii) on the SEC's Web site at www.sec.gov.
The Procedures contain a general guideline that recommendations of company
management on an issue (particularly routine issues) should be given a fair
amount of weight in determining how proxy issues should be voted. However, the
Manager will normally vote against management's position when it runs counter to
its specific Proxy Voting Guidelines (the "Guidelines"), and the Manager will
also vote against management's recommendation when it believes that such
position is not in the best interests of the Funds.
As stated above, the Procedures also list specific Guidelines on how to
vote proxies on behalf of the Funds. Some examples of the Guidelines are as
follows: (i) generally vote for shareholder proposals asking that a majority or
more of directors be independent; (ii) generally vote against proposals to
require a supermajority shareholder vote; (iii) votes on mergers and
acquisitions should be considered on a case-by-case basis, determining whether
the transaction enhances shareholder value; (iv) generally vote against
proposals to create a new class of common stock with superior voting rights; (v)
generally vote re-incorporation proposals on a case-by-case basis; (vi) votes
with respect to management compensation plans are determined on a case-by-case
basis; and (vii) generally vote for reports on the level of greenhouse gas
emissions from the company's operations and products.
Because the Trust has delegated proxy voting to the Manager, the Trust is
not expected to encounter any conflict of interest issues regarding proxy voting
and therefore does not have procedures regarding this matter. However, the
Manager does have a section in its Procedures that addresses the possibility of
conflicts of interest. Most proxies that the Manager receives on behalf of the
Funds are voted by ISS in accordance with the Procedures. Because almost all
Fund proxies are voted by ISS pursuant to the pre-determined Procedures, it
normally will not be necessary for the Manager to make an actual determination
of how to vote a particular proxy, thereby largely eliminating conflicts of
interest for the Manager during the proxy voting process. In the very limited
instances where the Manager are considering voting a proxy contrary to ISS's
recommendation, the Committee will first assess the issue to see if there is any
possible conflict of interest involving the Manager or affiliated persons of the
Manager. If a member of the Committee has actual knowledge of a conflict of
interest, the Committee will normally use another independent third party to do
additional research on the particular proxy issue in order to make a
recommendation to the Committee on how to vote the proxy in the best interests
of the Funds. The Committee will then review the proxy voting materials and
recommendation provided by ISS and the independent third party to determine how
to vote the issue in a manner which the Committee believes is consistent with
the Procedures and in the best interests of the Funds.
INVESTMENT ADVISOR AND OTHER SERVICE PROVIDERS
Investment Advisor
The Manager, located at 2005 Market Street, Philadelphia, PA19103-7094,
furnishes investment management services to the Funds, subject to the
supervision and direction of the Trust's Board of Trustees. The Manager also
provides investment management services to certain of the other Delaware
Investments Funds. Affiliates of the Manager also manage other investment
accounts. While investment decisions for the Funds are made independently from
those of the other funds and accounts, investment decisions for such other funds
and accounts may be made at the same time as investment decisions for the Funds.
The Manager pays the salaries of all Trustees, officers and employees who are
affiliated with both the Manager and the Trust.
The Manager and its predecessors have been managing Delaware Investments
Funds since 1938. As of December 31, 2005, the Manager and its affiliates within
Delaware Investments were managing in the aggregate in excess of $110 billion in
assets in various institutional or separately managed, investment company and
insurance accounts. The Manager is a series of Delaware Management Business
Trust, which is an indirect, wholly owned subsidiary of Delaware Management
Holdings, Inc. ("DMH"). DMH is an indirect, wholly owned subsidiary, and subject
to the ultimate control, of Lincoln National Corporation ("Lincoln"). Lincoln,
with headquarters in Philadelphia, Pennsylvania, is a diversified organization
with operations in many aspects of the financial services industry, including
insurance and investment management. Delaware Investments is the marketing name
for DMH and its subsidiaries. The Manager and its affiliates own the name
"Delaware Group." Under certain circumstances, including the termination of the
Trust's advisory relationship with the Manager or its distribution relationship
with the Distributor, the Manager and its affiliates could cause the Trust to
delete the words "Delaware Group" from its name.
The Investment Management Agreement for Delaware U.S. Growth Fund is dated
November 23, 1999 and was approved by the initial shareholder of Delaware U.S.
Growth Fund on that date. The Investment Management Agreement for Delaware
Diversified Income Fund is dated June 28, 2002 and was approved by its initial
shareholder on June 28, 2002. Each Agreement had an initial term of two years
and may be further renewed only so long as such renewals and continuance are
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of each Fund, and only if the
terms and renewal thereof have been approved by the vote of a majority of the
Trust's Independent Trustees who are not parties thereto or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval. Each Agreement is terminable without penalty on 60 days'
notice by the Trust or by the Manager. Each Agreement will terminate
automatically in the event of its assignment.
As compensation for the services rendered under the Investment Management
Agreements, the Funds shall pay the Manager an annual management fee as a
percentage of average daily net assets equal to:
-------------------------------- -----------------------------------------------
Management Fee Schedule
(as a percentage of average daily net assets)
Fund Name Annual Rate
-------------------------------- -----------------------------------------------
Delaware Diversified Income Fund 0.55% on first $500 million
0.50% on next $500 million
0.45% on next $1,500 million
0.425% on assets in excess of $2,500 million
-------------------------------- -----------------------------------------------
Delaware U.S. Growth Fund 0.65% on first $500 million
0.60% on next $500 million
0.55% on next $1,500 million
0.50% on assets in excess of $2,500 million
-------------------------------- -----------------------------------------------
During the past three fiscal years, the Funds paid the following investment
management fees:
-------------------------------- ----------------- ----------------- ----------------------
Fund October 31, 2005October 31, 2004October 31, 2003
-------------------------------- ----------------- ----------------- ----------------------
Delaware Diversified Income Fund $4,058,827 earned $1,652,880 earned $312,717 earned
$3,366,726 paid $1,249,781 paid $2,487 paid
$692,101 waived $403,099 waived $315,204 waived
-------------------------------- ----------------- ----------------- ----------------------
Delaware U.S. Growth Fund $1,035,074 earned $689,437 earned $878,695 earned
$620,900 paid $-0- paid $-0- paid
$414,174 waived $689,437 waived $878,695 waived
-------------------------------- ----------------- ----------------- ----------------------
Except for those expenses borne by the Manager under the Investment
Management Agreements and the Distributor under the Distribution Agreement, the
Fund is responsible for all of its own expenses. Among others, such expenses
include the Funds' proportionate share of rent and certain other administrative
expenses; the investment management fees; transfer and dividend disbursing agent
fees and costs; custodian expenses; federal and state securities registration
fees; proxy costs; and the costs of preparing prospectuses and reports sent to
shareholders.
Distributor
The Distributor, Delaware Distributors, L.P., located at 2005 Market
Street, Philadelphia, PA19103-7094, serves as the national distributor of the
Trust's shares under a Distribution Agreement dated May 15, 2003. The
Distributor is an affiliate of the Manager and bears all of the costs of
promotion and distribution, except for payments by the Fund Classes under their
respective Rule 12b-1 Plans. The Distributor is an indirect, wholly owned
subsidiary of DMH, and, therefore, of Lincoln. The Distributor has agreed to use
its best efforts to sell shares of the Funds. See the Prospectuses for
information on how to invest. Shares of the Funds are offered on a continuous
basis by the Distributor and may be purchased through authorized investment
dealers or directly by contacting the Distributor or the Trust. The Distributor
also serves as national distributor for the other Delaware Investments Funds.
The Board of Trustees annually reviews fees paid to the Distributor.
During the Funds' last three fiscal years, the Distributor received net
commissions from the Funds on behalf of their Class A Shares, after
re-allowances to dealers, as follows:
------------------------------------------------------------------------------------------------
Delaware U.S. Growth Fund
Class A Shares
-------------------------- ---------------------- ----------------------- ----------------------
Fiscal Year Ended Total Amount of
Underwriting Amounts Reallowed to Net Commission to
Commissions Dealers DDLP
-------------------------- ---------------------- ----------------------- ----------------------
10/31/05 $102,330 $85,106 $17,224
-------------------------- ---------------------- ----------------------- ----------------------
10/31/04 $94,753 $79,698 $15,055
-------------------------- ---------------------- ----------------------- ----------------------
10/31/03 $159,989 $144,983 $15,006
-------------------------- ---------------------- ----------------------- ----------------------
------------------------------------------------------------------------------------------------
Delaware Diversified Income Fund
Class A Shares
------------------------------------------------------------------------------------------------
Fiscal Year Ended Total Amount of
Underwriting Amounts Reallowed to Net Commission to
Commissions Dealers DDLP
-------------------------- ---------------------- ----------------------- ----------------------
10/31/05 $2,956,406 $2,578,886 $377,520
-------------------------- ---------------------- ----------------------- ----------------------
10/31/04 $1,396,834 $1,216,958 $179,876
-------------------------- ---------------------- ----------------------- ----------------------
10/31/03 $1,064,752 $948,826 $115,926
-------------------------- ---------------------- ----------------------- ----------------------
During the last three fiscal years, the Distributor received, in the
aggregate, Limited CDSC payments from Delaware U.S. Growth Fund with respect to
Class A Shares and CDSC payments with respect to such Fund's Class B Shares and
Class C Shares as follows:
-------------------------- ---------------------- ----------------------- ----------------------
Fiscal Year Ended Class A Class B Class C
-------------------------- ---------------------- ----------------------- ----------------------
10/31/05 None $78,286 $991
-------------------------- ---------------------- ----------------------- ----------------------
10/31/04 None $127,095 $2,025
-------------------------- ---------------------- ----------------------- ----------------------
10/31/03 None $152,663 $3,345
-------------------------- ---------------------- ----------------------- ----------------------
During the last three fiscal years, the Distributor received, in the
aggregate, Limited CDSC payments from Delaware Diversified Income Fund with
respect to Class A Shares and CDSC payments with respect to such Fund's Class B
Shares and Class C Shares as follows:
-------------------------- ---------------------- ----------------------- ----------------------
Fiscal Year Ended Class A Class B Class C
-------------------------- ---------------------- ----------------------- ----------------------
10/31/05 None $72,993 $54,153
-------------------------- ---------------------- ----------------------- ----------------------
10/31/04 None $59,366 $43,309
-------------------------- ---------------------- ----------------------- ----------------------
10/31/03 None None None
-------------------------- ---------------------- ----------------------- ----------------------
Lincoln Financial Distributors, Inc. ("LFD"), an affiliate of the Manager,
serves as the Funds' financial intermediary wholesaler pursuant to a Second
Amended and Restated Financial Intermediary Distribution Agreement with the
Distributor dated August 21, 2003. Pursuant to such Agreement, LFD shall: (i)
promote the sale of the Funds' shares through broker/dealers, financial advisors
and other financial intermediaries (collectively, "Financial Intermediaries");
(ii) create messaging and packaging for certain non-regulatory sales and
marketing materials related to the Funds; and (iii) produce such non-regulatory
sales and marketing materials related to the Funds. LFD is located at 2001
Market Street, Philadelphia, PA19103-7055. The rate of compensation, which is
calculated and paid monthly, to LFD for the sales of shares of the retail
Delaware Investments Funds (excluding the shares of the Delaware VIP Trust,
money market funds and house accounts and shares redeemed within 30 days of
purchase) is a non-recurring fee equal to the amount shown below:
----------------------------------------------- ---------------------------
Basis Points on Sales
----------------------------------------------- ---------------------------
Retail Mutual Funds (Class A, B and C Shares) 0.50%
----------------------------------------------- ---------------------------
Merrill Lynch Connect Program 0.25%
----------------------------------------------- ---------------------------
Registered Investment Advisors and
H.D. Vest Institutional Classes 0.45%
----------------------------------------------- ---------------------------
Citigroup Global Capital Markets, Inc.
(formerly Salomon Smith Barney) and
Delaware International Value Equity Fund
Class I Shares 0%
----------------------------------------------- ---------------------------
In addition to the non-recurring fee set forth above, the Distributor pays
LFD a fee at the annual rate set forth below of the average daily net assets of
Fund shares of the retail Delaware Investments Funds outstanding and
beneficially owned by shareholders through Financial Intermediaries, including
those Fund shares sold before the date of this Agreement.
----------------------------------------------- ---------------------------
Basis Points on Sales
----------------------------------------------- ---------------------------
Retail Mutual Funds (including shares of
money market funds and house accounts and
shares redeemed within 30 days of purchase) 0.04%
----------------------------------------------- ---------------------------
Merrill Lynch Connect Program 0%
----------------------------------------------- ---------------------------
Registered Investment Advisors and
H.D. Vest Institutional Classes 0.04%
----------------------------------------------- ---------------------------
Citigroup Global Capital Markets, Inc.
(formerly Salomon Smith Barney) and
Delaware International Value Equity Fund
Class I Shares 0.04%
----------------------------------------------- ---------------------------
The fees associated with LFD's services to the Funds are borne exclusively
by the Distributor and not by the Funds.
The Delaware Diversified Income Fund is currently an investment option on
the Personal Wealth Portfolios Program (the "Program") sponsored by
Linsco/Private Ledger Corp. ("LPL"). Delaware Capital Management ("DCM"), an
affiliate of LFD, also provides investment services to LPL in connection with
the Program. To help defray a portion of the technology development costs of the
Program, DCM paid $500,000 to LPL that contributed to the development of
software applications and other technology necessary to operate the Program. DCM
was later reimbursed by LFD for the money paid to LPL. As a result of this
co-development effort, DCM has the opportunity to enter into an option agreement
with the technology vendor to utilize the Program's software and other
technology for business purposes unrelated to the Program, and DCM will receive
preferred pricing for implementation and ongoing use of this technological
platform. Because LPL benefited from the financial contributions to the
co-development of technology, LPL's financial interests may conflict with its
ability to use strictly objective factors in reviewing and evaluating the
Delaware Diversified Income Fund for the Program. Notwithstanding the above, LPL
represents that the Delaware Diversified Income Fund is required to satisfy the
same due diligence requirements as all other mutual funds evaluated in
connection with the Program.
Transfer Agent
Delaware Service Company, Inc., which is an affiliate of the Manager and
which is located at 2005 Market Street, Philadelphia, PA19103-7094, serves as
the Fund's shareholder servicing, dividend disbursing and transfer agent (the
"Transfer Agent") pursuant to a Shareholders Services Agreement dated April 19,2001. The Transfer Agent is an indirect, wholly owned subsidiary of DMH and,
therefore, of Lincoln. The Transfer Agent also acts as shareholder servicing,
dividend disbursing and transfer agent for other Delaware Investments Funds. The
Transfer Agent is paid a fee by the Funds for providing these services
consisting of an annual per account charge of $23.10 for each open and closed
account on its records and each account held on a sub-accounting system
maintained by firms that hold accounts on an omnibus basis.
These charges are assessed monthly on a pro rata basis and determined by
using the number of Shareholder and Retirement Accounts maintained as of the
last calendar day of each month. Compensation is fixed each year and approved by
the Board of Trustees, including a majority of the Independent Trustees.
Delaware Services Company, Inc. also provides accounting services to the
Fund pursuant to a separate Fund Accounting Agreement. Those services include
performing all functions related to calculating the Fund's NAV and providing all
financial reporting services, regulatory compliance testing and other related
accounting services. For its services, Delaware Services Company, Inc. is paid a
fee based on total assets of all of the Delaware Investments Funds for which it
provides such accounting services. Such fee is equal to 0.04% multiplied by the
total amount of assets in the complex for which Delaware Services Company, Inc.
furnishes accounting services. The fees are charged to each Fund and the other
Delaware Investments Funds, on an aggregate pro rata basis. The asset-based fee
payable to the Delaware Services Company, Inc. is subject to a minimum fee
calculation based on the type and number of classes per Fund.
Each Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of each Fund. For purposes of pricing, each Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order.
Custodian
JPMorgan Chase Bank ("JPMorgan"), 4 Chase Metrotech Center, Brooklyn, NY11245 is custodian of the Funds' securities and cash. As custodian for each
Fund, JPMorgan maintains a separate account or accounts for each Fund; receives,
holds and releases portfolio securities on account of each Fund; receives and
disburses money on behalf of each Fund; and collects and receives income and
other payments and distributions on account of each Fund's portfolio securities.
Legal Counsel
Stradley Ronon Stevens & Young, LLP serves as the Trust's legal counsel.
PORTFOLIO MANAGERS
Other Accounts
The following chart lists certain information about types of other accounts
for which each portfolio manager is primarily responsible as of October 31,2005.
Total Assets in
No. of Accounts with Accounts with
No. of Performance-Based Fees Performance-
Accounts Total Assets Managed Based Fees
Van Harte
Registered Investment 17 $3.9 billion None None
Companies
Other Pooled Investment 0 None None
Vehicles
Other Accounts 46 $5.8 billion 1 $633 million
Bonavico
Registered Investment 17 $3.9 billion None None
Companies
Other Pooled Investment 0 None None
Vehicles
Other Accounts 48 $5.8. billion 1 $633 million
Prislin
Registered Investment 17 $3.9 billion None None
Companies
Other Pooled Investment 0 None None
Vehicles
Other Accounts 46 $5.8 billion 1 $633 million
Ericksen
Registered Investment 14 $3.3 billion None None
Companies
Other Pooled Investment 0 None None
Vehicles
Other Accounts 44 $5.7 billion 1 $633 million
Paul Grillo
Registered Investment Companies 12 $2.2 billion --- ---
Other Pooled Investment Vehicles 2 $11.4 million --- ---
Other Accounts 32 $1.5 billion
Philip R. Perkins
Registered Investment Companies 5 $1.7 billion --- ---
Other Pooled Investment Vehicles --- $--- --- ---
Other Accounts 1 $39.5 billion$
Timothy L. Rabe
Registered Investment Companies 13 $2.5 billion --- ---
Other Pooled Investment Vehicles --- --- --- ---
Other Accounts 2 $19.1 million
Description of Potential Material Conflicts of Interest
Individual portfolio managers may perform investment management services
for other accounts similar to those provided to the Funds and the investment
action for each account and Fund may differ. For example, one account or Fund
may be selling a security, while another account or Fund may be purchasing or
holding the same security. As a result, transactions executed for one account
and Fund may adversely affect the value of securities held by another account.
Additionally, the management of multiple accounts and Funds may give rise to
potential conflicts of interest, as a portfolio manager must allocate time and
effort to multiple accounts and Funds. A portfolio manager may discover an
investment opportunity that may be suitable for more than one account or Fund.
The investment opportunity may be limited, however, so that all accounts and
Funds for which the investment would be suitable may not be able to participate.
The Manager has adopted procedures designed to allocate investments fairly
across multiple accounts.
Some of the accounts managed by the portfolio managers have
performance-based fees. This compensation structure presents a potential
conflict of interest. The portfolio manager has an incentive to manage this
account so as to enhance its performance, to the possible detriment of other
accounts for which the investment manager does not receive a performance-based
fee.
A portfolio manager's management of personal accounts also may present
certain conflicts of interest. While the Manager's Code of Ethics is designed to
address these potential conflicts, there is no guarantee that it will do so.
Compensation Structure
Each portfolio's manager's compensation consists of the following:
Base Salary: Each named portfolio manager receives a fixed base salary.
Salaries are determined by a comparison to industry data prepared by third
parties to ensure that portfolio manager salaries are in line with salaries paid
at peer investment advisory firms.
In addition, each Focus Growth Team member is entitled to certain payments
in the nature of reimbursement payable in three installments.
Bonus - Focus Growth Team: Each named portfolio manager is eligible to
receive an annual cash bonus, which is based upon quantitative and qualitative
factors. Generally of the total potential cash compensation for a portfolio
manager, 50% or more is in the form of a bonus and is therefore at risk. The
total amount available for payment of bonuses is based on the revenues
associated with the products managed by the Focus Growth Team. The amount of
this "bonus pool" is determined by taking a pre-determined percentage of such
revenues (minus appropriate expenses associated with this product and the
investment management team).
Various members of the team have the ability to earn a percentage of the
bonus pool with the most senior contributors having the largest share. The pool
is allotted based on subjective factors (50%) and objective factors (50%). The
subjective portion of the pool is allocated to team members within the
discretion of senior management. There is a minimum guaranteed fixed payout
amount associated with this portion of the pool for the years ending December31, 2005 and December 31, 2006.
The allocation of the remaining 50% of the pool is based upon objective
factors. Performance is measured as a result of the team's standing relative to
a large cap growth composite of a nationally recognized publicly available
database, for five successive calendar years. Performance rankings are in
quartiles as follows: top decile, top quartile, second quartile, third quartile
and bottom quartile. An average is taken of the five year relative performance
data to determine the multiplier to be applied in calculating the portion of the
pool that will be paid out. To the extent there was less than a complete payout
of the "objective" portion of the bonus pool over the previous five years, there
is an opportunity to recoup these amounts if the multiplier is in excess of
100%, in the discretion of senior management.
Individual allocations of the bonus pool are based on individual
performance measurements, both objective and subjective, as determined by senior
management.
In addition, there is a potential one-time value creation payment that may
be allocated on or about December 31, 2009 to the extent the value added by the
team exceeds the relative value of their holdings in the Delaware Investments
U.S. Stock Option Plan. This amount, if any, would be paid out to the team under
a deferred compensation arrangement. The value creation payment, if any, would
be paid out to individual team members in proportion to the shares granted to
that team member under the Plan.
Bonus - Fixed Income Teams: Each portfolio manager is eligible to receive
an annual cash bonus, which is based on quantitative and qualitative factors.
The amount of the pool for bonus payments is first determined by mathematical
equation based on assets, management fees and direct expenses, including fund
waiver expenses, for registered investment companies, pooled vehicles, and
managed separate accounts. Generally, 80% of the bonus is quantitatively
determined. For investment companies, each manager is compensated according to a
Portfolio's Lipper peer group percentile ranking on a one-year and three-year
basis. For managed separate accounts the portfolio managers are compensated
according to the composite percentile ranking in consultant databases. There is
no objective award for a fund that falls below the 50th percentile for a given
time period. There is a sliding scale for investment companies that are ranked
above the 50th percentile. The managed separate accounts are compared to Callan
and other databases. The remaining 20% portion of the bonus is discretionary as
determined by the Manager and takes into account subjective factors.
Deferred Compensation: Each named portfolio manager is eligible to
participate in the Lincoln National Corporation Executive Deferred Compensation
Plan, which is available to all employees whose income exceeds a designated
threshold. The Plan is a non-qualified unfunded deferred compensation plan that
permits participating employees to defer the receipt of a portion of their cash
compensation.
Stock Option Incentive Plan/Equity Compensation Plan: Portfolio managers
may be awarded options to purchase common shares of Delaware Investments U.S.,
Inc. pursuant to the terms the Delaware Investments U.S., Inc. Stock Option Plan
(non-statutory or "non-qualified" stock options). In addition, certain managers
may be awarded restricted stock units, or "performance shares", in Lincoln.
Delaware Investments U.S., Inc., is an indirect, wholly owned subsidiary of DMH
and, therefore, of Lincoln.
The Delaware Investments U.S., Inc. Stock Option Plan was established in
2001 in order to provide certain investment personnel of the Manager with a more
direct means of participating in the growth of the Manager. Under the terms of
the plan, stock options typically vest in 25% increments on a four-year schedule
and expire ten years after issuance. Options are awarded from time to time by
the investment manager in its full discretion. Option awards may be based in
part on seniority. The fair market value of the shares is normally determined as
of each June 30 and December 31. Shares issued upon the exercise of such options
must be held for six months and one day, after which time the shareholder may
put them back to the issuer or the shares may be called back from the
shareholder.
There is a contractual minimum number of options available for distribution
to Focus Growth Team members for the years 2005-2009.
Portfolio managers who do not participate in the Delaware Investments U.S.,
Inc. Stock Option Plan are eligible to participate in Lincoln's Long-Term
Incentive Plan, which is designed to provide a long-term incentive to officers
of Lincoln. Under the plan, a specified number of performance shares are
allocated to each unit and are awarded to participants in the discretion of
their managers in accordance with recommended targets related to the number of
employees in a unit that may receive an award and the number of shares to be
awarded. The performance shares have a three year vesting schedule and, at the
end of the three years, the actual number of shares distributed to those who
received awards may be equal to, greater than or less than the amount of the
award based on Lincoln's achievement of certain performance goals relative to a
pre-determined peer group.
Other Compensation: Portfolio managers may also participate in benefit
plans and programs available generally to all employees.
Ownership of Securities
As of October 31, 2005, the portfolio managers did not own shares of either
Fund.
TRADING PRACTICES AND BROKERAGE
The Manager selects broker/dealers to execute transactions on behalf of the
Funds for the purchase or sale of portfolio securities on the basis of its
judgment of their professional capability to provide the service. The primary
consideration in selecting broker/dealers is to seek those broker/dealers who
provide best execution for the Funds. Best execution refers to many factors,
including the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. A number of trades are made on a net basis where
the Funds either buy securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission. When a commission is paid, a Fund pays reasonable brokerage
commission rates based upon the professional knowledge of the Manager's trading
department as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, a Fund pays a minimal share transaction
cost when the transaction presents no difficulty.
During the past three fiscal years, the aggregate dollar amounts of
brokerage commissions paid by the Delaware U.S. Growth Fund were as follows:
--------------------------------------------------------------------------------
Fiscal year ended October 31,
--------------------------------------------------------------------------------
2005 2004 2003
----------------------------- -------------------------- -----------------------
$392,647 $465,619 $299,791
----------------------------- -------------------------- -----------------------
During the past three fiscal years, the aggregate dollar amounts of
brokerage commissions paid by the Delaware Diversified Income Fund were as
follows:
--------------------------------------------------------------------------------
Fiscal year ended October 31,
--------------------------------------------------------------------------------
2005 2004 2003
----------------------------- -------------------------- -----------------------
$154,614 $53,260 $23,352
----------------------------- -------------------------- -----------------------
The Manager may allocate out of all commission business generated by all of
the funds and accounts under their management, brokerage business to
brokers/dealers or members of an exchange who provide brokerage and research
services. These services include advice, either directly or through publications
or writings, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; providing information on economic
factors and trends; assisting in determining portfolio strategy; providing
computer software and hardware used in security analyses; and providing
portfolio performance evaluation and technical market analyses. Such services
are used by the Manager in connection with its investment decision-making
process with respect to one or more funds and accounts managed by it, and may
not be used, or used exclusively, with respect to the fund or account generating
the brokerage.
As provided in the 1934 Act and the Investment Management Agreements,
higher commissions are permitted to be paid to brokers/dealers who provide
brokerage and research services than to broker/dealers who do not provide such
services, if such higher commissions are deemed reasonable in relation to the
value of the brokerage and research services provided. Although transactions
directed to brokers/dealers who provide such brokerage and research services may
result in the Funds paying higher commissions, the Manager believes that such
commissions are reasonable in relation to the value of the brokerage and
research services provided. In some instances, services may be provided to the
Manager which constitute in some part brokerage and research services used by
the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions that generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to each Fund and to other Delaware Investments
Funds. Subject to best execution, commissions allocated to brokers providing
such pricing services may or may not be generated by the funds receiving the
pricing service.
During the fiscal year ended October 31, 2005, portfolio transactions of
the Delaware U.S. Growth Fund in the amount of $303,782,497, resulting in
brokerage commissions of $273,564, were directed to brokers for brokerage and
research services provided.
As of October 31, 2005, the Funds did not own any securities of their
regular broker/dealers, as defined in Rule 10b-1 under the 1940 Act, or such
broker/dealers' parents.
The Manager may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order that receives allocation may be allocated an average
price obtained from the executing broker. It is believed that the ability of the
accounts to participate in volume transactions will generally be beneficial to
the accounts and funds. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the security
that a particular account or fund may obtain, it is the opinion of the Manager
and the Trust's Board of Trustees that the advantages of combined orders
outweigh the possible disadvantages of separate transactions.
Consistent with the National Association of Securities Dealers, Inc. (the
"NASD") and subject to seeking best execution, the Funds may place orders with
broker/dealers that have agreed to defray certain expenses of the Delaware
Investments Funds, such as custodian fees.
In 2005, the Delaware U.S. Growth Fund was given the authority to begin
participation in a commission recapture program. Under the program and subject
to seeking best execution (as described in the first paragraph in this section),
the Fund may direct certain security trades to brokers who have agreed to rebate
a portion of the related brokerage commission to the Fund in cash. Any such
commission rebates will be included in realized gain on securities in the
appropriate financial statements of the Fund. The Manager and its affiliates
have previously and may in the future act as an investment advisor to mutual
funds or separate accounts affiliated with the administrator of the commission
recapture program described above. In addition, affiliates of the administrator
act as consultants in helping institutional clients choose investment advisors
and may also participate in other types of businesses and provide other services
in the investment management industry.
CAPITAL STOCK
Capitalization
The Trust has a present unlimited authorized number of shares of beneficial
interest with no par value allocated to each Class of each Fund. All shares are,
when issued in accordance with the Trust's prospectuses, registration statement,
governing instruments and applicable law, fully paid and non-assessable. Shares
do not have preemptive rights. All shares of a Fund represent an undivided
proportionate interest in the assets of such Fund, and each share class has the
same voting and other rights and preferences as the other classes of a Fund,
except that shares of the Institutional Class may not vote on any matter that
affects the Fund Classes' Distribution Plans under Rule 12b-1. Similarly, as a
general matter, shareholders of Fund Classes may vote only on matters affecting
the Fund Classes' Rule 12b-1 Plans that relates to the class of shares that they
hold. However, Class B Shares may vote on any proposal to increase materially
the fees to be paid by each Fund under the Rule 12b-1 Plan relating to Class A
Shares. General expenses of each Fund will be allocated on a pro-rata basis to
the classes according to asset size, except that expenses of the Fund Classes'
Rule 12b-1 Plans will be allocated solely to those classes.
On November 29, 1993, Trust's predecessor entity changed its name from
Lincoln Renaissance Funds, Inc. to Lincoln Advisor Funds, Inc. ("LAF"). As of
the close of business May 3, 1996, the name of LAF was changed to Delaware Group
Adviser Funds, Inc. Effective November 23, 1999, the name of Delaware Group
Adviser Funds, Inc. was changed to Delaware Group Adviser Funds.
As of the close of business on May 3, 1996, the name Lincoln U.S. Growth
Portfolio was changed to U.S. Growth Fund. As of August 16, 1999, the name of
the U.S. Growth Fund changed to Delaware U.S. Growth Fund. Corresponding changes
were also made to the names of the Fund's classes on that date. Class R Shares
of each Fund first were offered on June 1, 2003.
Until April 26, 1996, the Trust consisted of nine series of shares
(Delaware U.S. Growth Fund and eight other funds). On February 23, 1996, LAF's
Board of Directors approved a restructuring to integrate fully LAF into Delaware
Investments Funds. The restructuring provided, among other things, for the
liquidation of three funds; the appointment of the Manager as the investment
manager of each of the funds; the appointment of certain sub-advisors; changes
in certain names, including Lincoln U.S. Growth Portfolio to U.S. Growth Fund,
and the change of the LAF to Delaware Group Adviser Funds. The liquidations were
completed on April 26, 1996 and following required shareholder approval of the
investment management and sub-advisory arrangements at a meeting of shareholders
held on May 3, 1996, the restructuring was consummated. In accordance with the
restructuring, beginning May 6, 1996, the former Class D shares have been
re-designated as the Institutional Class shares. On July 17, 1997, the Board of
Trustees approved the liquidations of three additional funds. These liquidations
were completed on September 19, 1997.
In accordance with the restructuring, the front-end sales charges for and
12b-1 Plan distribution fees assessable against Class A Shares and the
contingent deferred sales charge schedule for Class B Shares, as well as its
feature for conversion to Class A Shares, have been modified to be made
consistent with the charges, fees and features that generally apply to all other
Delaware Investments Funds. The charges and fees previously applicable to the
Class C Shares have not been changed.
The Delaware Diversified Income Fund commenced operations on June 28, 2002.
On October 28, 2002, Delaware Pooled Trust Diversified Core Fixed Income
Portfolio (the "Predecessor Fund") merged into Delaware Diversified Income Fund.
The Fund is treated as the surviving legal entity, but the Predecessor Fund, for
a variety of reasons, is treated as the surviving entity for such purposes as
presentation of accounting, financial and performance information. Thus, all
such information prior to October 28, 2002, represents that of the Predecessor
Fund. The Predecessor Fund commenced operations on December 29, 1997.
Noncumulative Voting
The Trust's shares have non-cumulative voting rights, which means that the
holders of more than 50% of the shares of the Trust's voting for the election of
Trustees can elect all the Trustees if they choose to do so, and, in such event,
the holders of the remaining shares will not be able to elect any Trustees.
PURCHASING SHARES
General Information
The Trust reserves the right to suspend sales of Fund shares, and reject
any order for the purchase of Fund shares if in the opinion of management such
rejection is in a Fund's best interest. The minimum initial investment generally
is $1,000 for Class A Shares, Class B Shares and Class C Shares. Subsequent
purchases of such Classes generally must be at least $100. The initial and
subsequent investment minimums for Class A Shares will be waived for purchases
by officers, Trustees and employees of any Delaware Investments Fund, the
Manager or any of the Manager's affiliates if the purchases are made pursuant to
a payroll deduction program. Shares purchased pursuant to the Uniform Gifts to
Minors Act or Uniform Transfers to Minors Act and shares purchased in connection
with an Automatic Investing Plan are subject to a minimum initial purchase of
$250 and a minimum subsequent purchase of $25. There are no minimum purchase
requirements for Class R and the Institutional Classes, but certain eligibility
requirements must be satisfied.
Each purchase of Class B Shares is subject to a maximum purchase limitation
of $100,000. For Class C Shares, each purchase must be in an amount that is less
than $1,000,000. See "Investment Plans" for purchase limitations applicable to
retirement plans. The Trust will reject any purchase order for more than
$100,000 of Class B Shares and $1,000,000 or more of Class C Shares. An investor
may exceed these limitations by making cumulative purchases over a period of
time. In doing so, an investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $50,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual Rule 12b-1 Plan
expenses than Class B Shares and Class C Shares and generally are not subject to
a contingent deferred sales charge ("CDSC").
Selling dealers are responsible for transmitting orders promptly. If a
purchase is canceled because your check is returned unpaid, you are responsible
for any loss incurred. Each Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the Delaware Investments Funds. Each Fund reserves the right
to reject purchase orders paid by third-party checks or checks that are not
drawn on a domestic branch of a United States financial institution. If a check
drawn on a foreign financial institution is accepted, you may be subject to
additional bank charges for clearance and currency conversion.
Each Fund also reserves the right, following shareholder notification, to
charge a service fee on non-retirement accounts that, as a result of redemption,
have remained below the minimum stated account balance for a period of three or
more consecutive months. Holders of such accounts may be notified of their
insufficient account balance and advised that they have until the end of the
current calendar quarter to raise their balance to the stated minimum. If the
account has not reached the minimum balance requirement by that time, the Funds
may charge a $9 fee for that quarter and each subsequent calendar quarter until
the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
The NASD has adopted amendments to its Conduct Rules, relating to
investment company sales charges. The Trust and the Distributor intend to
operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a maximum
front-end sales charge of 5.75% for Delaware U.S. Growth Fund and 4.50% for
Delaware Diversified Income Fund; however, lower front-end sales charges apply
for larger purchases. See the table in the Fund Classes' Prospectuses. Class A
Shares are also subject to annual Rule 12b-1 Plan expenses for the life of the
investment.
Class B shares of Delaware U.S. Growth Fund are purchased at NAV and are
subject to a CDSC of: (i) 4.00% if shares are redeemed during the first year
after purchase; (ii) 3.25% if shares are redeemed during the second year
following purchase; (iii) 2.75% if shares are redeemed during the third year
following purchase; (iv) 2.25% if shares are redeemed during the fourth and
fifth year following purchase; (v) 1.50% if shares are redeemed during the sixth
year following purchase; and (vi) 0.00% thereafter. Class B Shares of the
Delaware Diversified Income Fund are purchased at NAV and are subject to a CDSC
of: (i) 4.00% if shares are redeemed during the first year following purchase;
(ii) 3.00% if shares are redeemed during the second year following purchase;
(iii) 2.25% if shares are redeemed during the third year following purchase;
(iv) 1.50% if shares are redeemed during the fourth and fifth years following
purchase; (v) 1.00% if shares are redeemed during the sixth year following
purchase; and (vi) 0.00% thereafter. Class B Shares are also subject to annual
Rule 12b-1 Plan expenses which are higher than those to which Class A Shares are
subject and are assessed against Class B Shares for eight years after purchase.
See "Automatic Conversion of Class B Shares" below.
Class C Shares are purchased at NAV and are subject to a CDSC of 1% if
shares are redeemed within 12 months following purchase. Class C Shares are also
subject to annual Rule 12b-1 Plan expenses for the life of the investment which
are equal to those to which Class B Shares are subject.
Class R Shares are purchased at the NAV per share without the imposition of
a front-end sales charge or CDSC. Class R Shares are subject to annual Rule
12b-1 Plan expenses for the life of the investment.
Institutional Class Shares are purchased at the NAV per share without the
imposition of a front-end sales charge, CDSC or Rule 12b-1 Plan expenses.
See "Plans Under Rule 12b-1 for the Fund Classes" and "Determining OfferingPrice and Net Asset Value" below for more information.
Certificates representing shares purchased are not ordinarily issued.
Certificates were previously issued for Class A Shares and Institutional Class
Shares of the Funds. However, purchases not involving the issuance of
certificates are confirmed to the investor and credited to the shareholder's
account on the books maintained by the Transfer Agent. The investor will have
the same rights of ownership with respect to such shares as if certificates had
been issued. An investor will be permitted to obtain a certificate in certain
limited circumstances that are approved by an appropriate officer of the Funds.
No charge is assessed by the Trust for any certificate issued. The Funds do not
intend to issue replacement certificates for lost or stolen certificates, except
in certain limited circumstances that are approved by an appropriate officer of
the Funds. In those circumstances, a shareholder may be subject to fees for
replacement of a lost or stolen certificate, under certain conditions, including
the cost of obtaining a bond covering the lost or stolen certificate. Please
contact the Trust for further information. Investors who hold certificates
representing any of their shares may only redeem those shares by written
request. The investor's certificate(s) must accompany such request.
Alternative Purchase Arrangements - Class A, B and C Shares
The alternative purchase arrangements of Class A Shares, Class B Shares and
Class C Shares permit investors to choose the method of purchasing shares that
is most suitable for their needs given the amount of their purchase, the length
of time they expect to hold their shares and other relevant circumstances.
Investors should determine whether, given their particular circumstances, it is
more advantageous to purchase Class A Shares and incur a front-end sales charge
and annual Rule 12b-1 Plan expenses of up to a maximum of 0.30% of the average
daily net assets of Class A Shares of Delaware Diversified Income Fund or up to
a maximum of 0.35% of the average daily net assets of Delaware U.S. Growth Fund,
or to purchase either Class B or Class C Shares and have the entire initial
purchase amount invested in each Fund with the investment thereafter subject to
a CDSC and annual Rule 12b-1 Plan expenses. Class B Shares are subject to a CDSC
if the shares are redeemed within six years of purchase, and Class C Shares are
subject to a CDSC if the shares are redeemed within 12 months of purchase. Class
B and Class C Shares are each subject to annual Rule 12b-1 Plan expenses of up
to a maximum of 1.00% (0.25% of which are service fees to be paid to the
Distributor, dealers or others for providing personal service and/or maintaining
shareholder accounts) of average daily net assets of the respective Class. Class
B Shares will automatically convert to Class A Shares at the end of eight years
after purchase and, thereafter, be subject to Class A Shares' annual Rule 12b-1
Plan expenses. Unlike Class B Shares, Class C Shares do not convert to another
Class.
The higher Rule 12b-1 Plan expenses on Class B Shares and Class C Shares
will be offset to the extent a return is realized on the additional money
initially invested upon the purchase of such shares. However, there can be no
assurance as to the return, if any, that will be realized on such additional
money. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also consider the duration of the annual Rule 12b-1 Plan
expenses to which each of the classes is subject and the desirability of an
automatic conversion feature, which is available only for Class B Shares.
Class R Shares have no front-end sales charge and are not subject to a
CDSC, but incur annual Rule 12b-1 expenses of up to a maximum of 0.60%. Class A
Shares generally are not available for purchase by anyone qualified to purchase
Class R Shares.
In comparing Class B Shares and Class C Shares to Class R Shares, investors
should consider the higher Rule 12b-1 Plan expenses on Class B Shares and Class
C Shares. Investors also should consider the fact that Class R Shares do not
have a front-end sales charge and, unlike Class B Shares and Class C Shares, are
not subject to a CDSC. In comparing Class B Shares to Class R Shares, investors
should also consider the duration of the annual Rule 12b-1 Plan expenses to
which each Cass is subject and the desirability of an automatic conversation
feature to Class A Shares (with lower annual Rule 12b-1 Plan fees), which is
available only for Class B Shares and does not subject the investor to a CDSC.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in the
case of Class A Shares, from the proceeds of the front-end sales charge and Rule
12b-1 Plan fees, in the case of Class B Shares and Class C Shares, from the
proceeds of the Rule 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption, and in the case of Class R Shares, from the proceeds of the Rule
12b-1 Plan fees. Financial advisors may receive different compensation for
selling Class A Shares, Class B Shares, Class C Shares and Class R Shares.
Investors should understand that the purpose and function of the respective Rule
12b-1 Plans (including for Class R Shares) and the CDSCs applicable to Class B
Shares and Class C Shares are the same as those of the Rule 12b-1 Plan and the
front-end sales charge applicable to Class A Shares in that such fees and
charges are used to finance the distribution of the respective Classes. See
"Plans Under Rule 12b-1 for the Fund Classes" below.
Dividends, if any, paid on the Fund Classes will be calculated in the same
manner, at the same time and on the same day and will be in the same amount,
except that the amount of Rule 12b-1 Plan expenses relating to Class A Shares,
Class B Shares, Class C Shares and Class R Shares will be borne exclusively by
such shares. See "Determining Offering Price and Net Asset Value" below.
Class A Shares: Purchases of $50,000 or more ($100,000 with respect to the
Delaware Diversified Income Fund) of Class A Shares at the offering price carry
reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectuses, and may include a series of purchases over a 13-month period under
a Letter of Intention signed by the purchaser. See "Special Purchase Features -Class A Shares," below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may re-allow to dealers up to the full amount of the front-end sales
charge. The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the 1933 Act.
Dealer's Commission
As described in the Fund Classes' Prospectuses, for initial purchases of
Class A Shares of $1,000,000 or more, a dealer's commission may be paid by the
Distributor to financial advisors through whom such purchases are effected.
In determining a financial advisor's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Investments Funds as
to which a Limited CDSC applies (see "Contingent Deferred Sales Charge forCertain Redemptions of Class A Shares Purchased at Net Asset Value" under
"Redemption and Exchange") may be aggregated with those of the Class A Shares of
each Fund. Financial advisors also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisors should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Investments Funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth above, and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1.00%. CDSCs are charged as a percentage
of the dollar amount subject to the CDSC. The charge will be assessed on an
amount equal to the lesser of the NAV at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestment of dividends or capital gains distributions. For purposes
of this formula, the "NAV at the time of purchase" will be the NAV at purchase
of Class B Shares or Class C Shares of each Fund, even if those shares are later
exchanged for shares of another Delaware Investments Fund. In the event of an
exchange of the shares, the "NAV of such shares at the time of redemption" will
be the NAV of the shares that were acquired in the exchange. The Fund Classes'
Prospectuses include information on the instances in which the CDSC is waived.
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual Rule 12b-1 Plan expenses of up to 1.00% of average daily net assets of
those shares. At the end of eight years after purchase, an investor's Class B
Shares will be automatically converted into Class A Shares of each Fund. See
"Automatic Conversion of Class B Shares" below. Investors are reminded that the
Class A Shares into which Class B Shares will convert are subject to Class A
Shares' ongoing annual Rule 12b-1 Plan expenses.
In determining whether a CDSC applies to a redemption of Class B Shares, it
will be assumed that shares held for more than six years are redeemed first,
followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at NAV without a front-end sales charge
and, as a result, the full amount of an investor's purchase payment will be
invested in the Funds' shares. The Distributor currently compensates dealers or
brokers for selling Class B Shares at the time of purchase from its own assets
in an amount equal to no more than 4% of the dollar amount purchased. In
addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to Rule annual 12b-1 Plan expenses and, if redeemed within
six years of purchase, a CDSC.
Proceeds from the CDSC and the annual Rule 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B Rule 12b-1 Plan
may be in an amount equal to no more than 1.00% annually. The combination of the
CDSC and the proceeds of the Rule 12b-1 Plan fees make it possible for the Funds
to sell Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Part B, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See "Redemption and Exchange" below.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the 18th day or next
business day of March, June, September and December (each, a "Conversion Date").
If the eighth anniversary after a purchase of Class B Shares falls on a
Conversion Date, an investor's Class B Shares will be converted on that date. If
the eighth anniversary occurs between Conversion Dates, an investor's Class B
Shares will be converted on the next Conversion Date after such anniversary.
Consequently, if a shareholder's eighth anniversary falls on the day after a
Conversion Date, that shareholder will have to hold Class B Shares for as long
as three additional months after the eighth anniversary of purchase before the
shares will automatically convert into Class A Shares.
Class B Shares of a Fund acquired through a reinvestment of dividends will
convert to Class A Shares of the Fund pro-rata with Class B shares of that Fund
not acquired through dividend reinvestment.
All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at NAV without a front-end sales charge
and, as a result, the full amount of an investor's purchase payment will be
invested in the Funds' shares. The Distributor currently compensates dealers or
brokers for selling Class C Shares at the time of purchase from its own assets
in an amount equal to no more than 1% of the dollar amount purchased. As
discussed below, Class C Shares are subject to annual Rule 12b-1 Plan expenses
and, if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual Rule 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C Rule 12b-1 Plan
may be in an amount equal to no more than 1.00% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this Part B. See "Redemption and Exchange" below.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a separate
plan for each of Class A Shares, Class B Shares, Class C Shares and Class R
Shares of each Fund (the "Plans"). Each Plan permits the Funds to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the Class of shares to which the Plan applies. The Plans do not apply to
Institutional Class Shares. Such shares are not included in calculating the
Plans' fees, and the Plans are not used to assist in the distribution and
marketing of Institutional Class Shares. Shareholders of Institutional Class
Shares may not vote on matters affecting the Plans.
The Plans permit the Funds, pursuant to their Distribution Agreement, to
pay out of the assets of Class A Shares, Class B Shares, Class C Shares and
Class R Shares monthly fees to the Distributor for its services and expenses in
distributing and promoting sales of shares of such classes. These expenses
include, among other things, preparing and distributing advertisements, sales
literature, and prospectuses and reports used for sales purposes, compensating
sales and marketing personnel, holding special promotions for specified periods
of time and paying distribution and maintenance fees to brokers, dealers and
others. In connection with the promotion of shares of the Fund Classes, the
Distributor may, from time to time, pay to participate in dealer-sponsored
seminars and conferences, and reimburse dealers for expenses incurred in
connection with pre-approved seminars, conferences and advertising. The
Distributor may pay or allow additional promotional incentives to dealers as
part of pre-approved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of the Class.
In addition, each Fund may make payments from the Rule 12b-1 Plan fees of
their respective Classes directly to others, such as banks, who aid in the
distribution of Class shares or provide services in respect of a Class, pursuant
to service agreements with the Trust. The Plan expenses relating to Class B
Shares and Class C Shares are also used to pay the Distributor for advancing the
commission costs to dealers with respect to the initial sale of such shares.
The maximum aggregate fee payable by the Funds under the Plans, and the
Funds' Distribution Agreement, on an annual basis, is up to 0.30% of average
daily net assets of Delaware Diversified Income Fund's Class A shares, up to
0.35% of average daily net assets of Delaware U.S. Growth Fund's Class A Shares,
up to 1.00% (0.25% of which are service fees to be paid to the Distributor,
dealers and others for providing personal service and/or maintaining shareholder
accounts) of the Funds' Class B Shares' and Class C Shares' average daily net
assets for the year and up to 0.60% of the Class R Shares' average daily net
assets for the year. The Distributor may reduce/waive these amounts at any time.
While payments pursuant to the Plans may not exceed the foregoing amounts,
the Plans do not limit fees to amounts actually expended by the Distributor. It
is therefore possible that the Distributor may realize a profit in any
particular year. However, the Distributor currently expects that its
distribution expenses will likely equal or exceed payments to it under the
Plans. The Distributor may, however, incur such additional expenses and make
additional payments to dealers from its own resources to promote the
distribution of shares of the Fund Classes. The monthly fees paid to the
Distributor under the Plans are subject to the review and approval of the
Trust's Independent Trustees, who may reduce the fees or terminate the Plans at
any time.
All of the distribution expenses incurred by the Distributor and others,
such as broker/dealers, in excess of the amount paid on behalf of Class A
Shares, Class B Shares, Class C Shares and Class R Shares would be borne by such
persons without any reimbursement from such Fund Classes. Consistent with the
requirements of Rule 12b-1(h) under the 1940 Act, and subject to seeking best
execution, the Funds may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreement, as amended, have all been
approved by the Board of Trustees of the Trust, including a majority of the
Independent Trustees who have no direct or indirect financial interest in the
Plans and the Distribution Agreement, by a vote cast in person at a meeting duly
called for the purpose of voting on the Plans and such Agreement. Continuation
of the Plans and the Distribution Agreement, as amended, must be approved
annually by the Board of Trustees in the same manner as specified above.
Each year, the Board of Trustees must determine whether continuation of the
Plans is in the best interest of shareholders of the Fund Classes and that there
is a reasonable likelihood of each Plan providing a benefit to its respective
Class. The Plans and the Distribution Agreements, as amended, may be terminated
with respect to a Class at any time without penalty by a majority of Independent
Trustees who have no direct or indirect financial interest in the Plans and the
Distribution Agreements, or by a majority vote of the relevant Class'
outstanding voting securities. Any amendment materially increasing the
percentage payable under the Plans must likewise be approved by a majority vote
of the relevant Class' outstanding voting securities, as well as by a majority
vote of Independent Trustees who have no direct or indirect financial interest
in the Plans or Distribution Agreements. With respect to each Class A Plan, any
material increase in the maximum percentage payable thereunder must also be
approved by a majority of the outstanding voting securities of a Fund's B Class.
Also, any other material amendment to the Plans must be approved by a majority
vote of the Trustees, including a majority of Independent Trustees who have no
direct or indirect financial interest in the Plans or Distribution Agreements.
In addition, in order for the Plans to remain effective, the selection and
nomination of Independent Trustees must be effected by the Trustees who are
Independent Trustees and who have no direct or indirect financial interest in
the Plans or Distribution Agreements. Persons authorized to make payments under
the Plans must provide written reports at least quarterly to the Board of
Trustees for their review.
For the fiscal year ended October 31, 2005, the payments from the Class A,
Class B, Class C and Class R Shares of the Delaware U.S. Growth Fund, pursuant
to their respective Rule 12b-1 Plan amounted to $181,359, $293,383, $81,731 and
$1,666, respectively. Such amounts were used for the following purposes:
-------------------------------- -------------- -------------- --------------- --------------
Class A Class B Class C Class R
-------------------------------- -------------- -------------- --------------- --------------
Advertising - - - -
-------------------------------- -------------- -------------- --------------- --------------
Annual/Semi-Annual Reports $4,272 - $579 $105
-------------------------------- -------------- -------------- --------------- --------------
Broker Trails $145,457 $72.883 $63,975 $1,434
-------------------------------- -------------- -------------- --------------- --------------
Broker Sales Charges - $185,735 $9,498 -
-------------------------------- -------------- -------------- --------------- --------------
Dealer Service Expenses - - - -
-------------------------------- -------------- -------------- --------------- --------------
Interest on Broker Sales Charges - $34,765 $3,219 -
-------------------------------- -------------- -------------- --------------- --------------
Salaries & Commissions to
Wholesalers - - - -
-------------------------------- -------------- -------------- --------------- --------------
Promotional-Broker Meetings - - - -
-------------------------------- -------------- -------------- --------------- --------------
Promotional-Other $1,735 - $155 -
-------------------------------- -------------- -------------- --------------- --------------
Prospectus Printing $9,983 - $825 $35
-------------------------------- -------------- -------------- --------------- --------------
Telephone - - - -
-------------------------------- -------------- -------------- --------------- --------------
Wholesaler Expenses $19,912 - $3,480 $92
-------------------------------- -------------- -------------- --------------- --------------
Other - - - -
-------------------------------- -------------- -------------- --------------- --------------
For the fiscal year ended October 31, 2005, the payments from Class A,
Class B, Class C and Class R Shares of the Delaware Diversified Income Fund,
pursuant to their respective Rule 12b-1 Plan, amounted to $2,034,720, $495,261,
$1,610,231 and $81,548, respectively. Such amounts were used for the following
purposes:
-------------------------------- -------------- -------------- --------------- --------------
Class A Class B Class C Class R
-------------------------------- -------------- -------------- --------------- --------------
Advertising - - - -
-------------------------------- -------------- -------------- --------------- --------------
Annual/Semi-Annual Reports $778 $908 $1,404 $294
-------------------------------- -------------- -------------- --------------- --------------
Broker Trails $2,033,900 $123,458 $664,839 $70,938
-------------------------------- -------------- -------------- --------------- --------------
Broker Sales Charges - $234,460 $858,609 -
-------------------------------- -------------- -------------- --------------- --------------
Dealer Service Expenses - - - -
-------------------------------- -------------- -------------- --------------- --------------
Interest on Broker Sales Charges - $51,928 $28,968 -
-------------------------------- -------------- -------------- --------------- --------------
Salaries & Commissions to
Wholesalers - - - -
-------------------------------- -------------- -------------- --------------- --------------
Promotional-Broker Meetings - - - -
-------------------------------- -------------- -------------- --------------- --------------
Promotional-Other $42 $2,970 $4,104 -
-------------------------------- -------------- -------------- --------------- --------------
Prospectus Printing - $5,119 $8,066 $1,081
-------------------------------- -------------- -------------- --------------- --------------
Telephone - - - -
-------------------------------- -------------- -------------- --------------- --------------
Wholesaler Expenses - $76,418 $44,241 $9,241
-------------------------------- -------------- -------------- --------------- --------------
Other - - - -
-------------------------------- -------------- -------------- --------------- --------------
Other Payments to Dealers - Class A Shares, Class B Shares, Class C Shares and
Class R Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Investments Funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares. The Distributor may also pay a portion of the
expense of pre-approved dealer advertisements promoting the sale of Delaware
Investments Fund shares.
Special Purchase Features - Class A SharesBuying Class A Shares at Net Asset Value: The Fund Classes' Prospectuses
sets forth the categories of investors who may purchase Class A Shares at NAV.
This section provides additional information regarding this privilege. The Funds
must be notified in advance that a trade qualifies for purchase at NAV.
As disclosed in the Fund Classes' Prospectuses, certain retirement plans
that contain certain legacy retirement assets may make purchases of Class A
shares at NAV. The requirements are as follows:
o The purchase must be made by a group retirement plan (excluding defined
benefit plans) (a) that purchased Class A shares prior to a recordkeeping
transition period from August 2004 to October 2004 and (b) where the plan
participants records were maintained on Retirement Financial Services, Inc.'s
("RFS") proprietary recordkeeping system, provided that the plan (i) has in
excess of $500,000 of plan assets invested in Class A Shares of a Delaware
Investments Fund and any stable value account available to investment advisory
clients of the Manager or its affiliates; or (ii) is sponsored by an employer
that has at any point after May 1, 1997 had more than 100 employees while such
plan has held Class A Shares of a Delaware Investments Fund and such employer
has properly represented to, and received written confirmation back from RFS in
writing that it has the requisite number of employees. See "Group InvestmentPlans" for information regarding the applicability of the Limited CDSC.
o The purchase must be made by any group retirement plan (excluding defined
benefit pension plans) that purchased Class A shares prior to an August 2004 to
October 2004 recordkeeping transition period and purchased shares through a
retirement plan alliance program, provided that RFS was the sponsor of the
alliance program or had a product participation agreement with the sponsor of
the alliance program.
As disclosed in the Fund Classes' Prospectuses certain legacy bank
sponsored retirement plans may make purchases of Class A shares at net asset
value. These purchases may be made by bank sponsored retirement plans that held,
but are no longer eligible to purchase, Institutional Class shares or interests
in a collective trust as a result of a change in distribution arrangements.
Allied Plans: Class A Shares are available for purchase by participants in
certain 401(k) Defined Contribution Plans ("Allied Plans") which are made
available under a joint venture agreement between the Distributor and another
institution through which mutual funds are marketed and which allow investments
in Class A Shares of designated Delaware Investments Funds ("eligible Delaware
Investments Fund shares"), as well as shares of designated classes of
non-Delaware Investments Funds ("eligible non-Delaware Investments Fund
shares"). Class B Shares and Class C Shares are not eligible for purchase by
Allied Plans.
With respect to purchases made in connection with an Allied Plan, the value
of eligible Delaware Investments Fund shares and eligible non-Delaware
Investments Fund shares held by the Allied Plan may be combined with the dollar
amount of new purchases by that Allied Plan to obtain a reduced front-end sales
charge on additional purchases of eligible Delaware Investments Fund shares. See
"Combined Purchases Privilege" below.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments Fund shares for other eligible Delaware Investments Fund
shares or for eligible non-Delaware Investments Fund shares at NAV without
payment of a front-end sales charge. However, exchanges of eligible fund shares,
both Delaware Investments and non-Delaware Investments, which were not subject
to a front end sales charge, will be subject to the applicable sales charge if
exchanged for eligible Delaware Investments Fund shares to which a sales charge
applies. No sales charge will apply if the eligible fund shares were previously
acquired through the exchange of eligible shares on which a sales charge was
already paid or through the reinvestment of dividends. See "Investing byExchange" under "Investment Plans" below..
A dealer's commission may be payable on purchases of eligible Delaware
Investments Fund shares under an Allied Plan. In determining a financial
advisor's eligibility for a dealer's commission on NAV purchases of eligible
Delaware Investments Fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated. See "Class A Shares"
under "Purchasing Shares" above.
The Limited CDSC is applicable to redemptions of NAV purchases from an
Allied Plan on which a dealer's commission has been paid. Waivers of the Limited
CDSC, as described the Fund Classes' Prospectuses, apply to redemptions by
participants in Allied Plans except in the case of exchanges between eligible
Delaware Investments and non-Delaware Investments Fund shares. When eligible
Delaware Investments Fund shares are exchanged into eligible non-Delaware
Investments Fund shares, the Limited CDSC will be imposed at the time of the
exchange, unless the joint venture agreement specifies that the amount of the
Limited CDSC will be paid by the financial advisor or selling dealer. See
"Contingent Deferred Sales Charge for Certain Redemptions of Class A SharesPurchased at Net Asset Value" under "Redemption and Exchange" below.
Letter of Intention: The reduced front-end sales charges described above
with respect to Class A Shares are also applicable to the aggregate amount of
purchases made by any such purchaser previously enumerated within a 13-month
period pursuant to a written Letter of Intention provided by the Distributor and
signed by the purchaser, and not legally binding on the signer or the Trust
which provides for the holding in escrow by the Transfer Agent, of 5% of the
total amount of Class A Shares intended to be purchased until such purchase is
completed within the 13-month period. A Letter of Intention may be dated to
include shares purchased up to 90 days prior to the date the Letter of Intention
is signed. The 13-month period begins on the date of the earliest purchase. If
the intended investment is not completed, except as noted below, the purchaser
will be asked to pay an amount equal to the difference between the front-end
sales charge on Class A Shares purchased at the reduced rate and the front-end
sales charge otherwise applicable to the total shares purchased. If such payment
is not made within 20 days following the expiration of the 13-month period, the
Transfer Agent will surrender an appropriate number of the escrowed shares for
redemption in order to realize the difference. Such purchasers may include the
values (at offering price at the level designated in their Letter of Intention)
of all their shares of the Funds and of any class of any of the other Delaware
Investments Funds previously purchased and still held as of the date of their
Letter of Intention toward the completion of such Letter, except as described
below. Those purchasers cannot include shares that did not carry a front-end
sales charge, CDSC or Limited CDSC, unless the purchaser acquired those shares
through an exchange from a Delaware Investments Fund that did carry a front-end
sales charge, CDSC or Limited CDSC. For purposes of satisfying an investor's
obligation under a Letter of Intention, Class B Shares and Class C Shares of the
Funds and the corresponding classes of shares of other Delaware Investments
Funds which offer such shares may be aggregated with Class A Shares of the Funds
and the corresponding class of shares of the other Delaware Investments Funds.
Employers offering a Delaware Investments retirement plan may also complete
a Letter of Intention to obtain a reduced front-end sales charge on investments
of Class A Shares made by the plan. The aggregate investment level of the Letter
of Intention will be determined and accepted by the Transfer Agent at the point
of plan establishment. The level and any reduction in front-end sales charge
will be based on actual plan participation and the projected investments in
Delaware Investments Funds that are offered with a front-end sales charge, CDSC
or Limited CDSC for a 13-month period. The Transfer Agent reserves the right to
adjust the signed Letter of Intention based on this acceptance criteria. The
13-month period will begin on the date this Letter of Intention is accepted by
the Transfer Agent. If actual investments exceed the anticipated level and equal
an amount that would qualify the plan for further discounts, any front-end sales
charges will be automatically adjusted. In the event this Letter of Intention is
not fulfilled within the 13-month period, the plan level will be adjusted
(without completing another Letter of Intention) and the employer will be billed
for the difference in front-end sales charges due, based on the plan's assets
under management at that time. Employers may also include the value (at offering
price at the level designated in their Letter of Intention) of all their shares
intended for purchase that are offered with a front-end sales charge, CDSC or
Limited CDSC of any class. Class B Shares and Class C Shares of the Funds and
other Delaware Investments Funds which offer corresponding classes of shares may
also be aggregated for this purpose.
Combined Purchases Privilege: When you determine the availability of the
reduced front-end sales charges on Class A Shares, you can include, subject to
the exceptions described below, the total amount of any Class of shares you own
of a Fund and all other Delaware Investments Funds. In addition, if you are an
investment advisory client of the Manager's affiliates you may include assets
held in a stable value account in the total amount. However, you cannot include
mutual fund shares that do not carry a front-end sales charge, CDSC or Limited
CDSC, unless you acquired those shares through an exchange from a Delaware
Investments Fund that did carry a front-end sales charge, CDSC or Limited CDSC.
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation: In determining the availability of the reduced
front-end sales charge on Class A Shares, purchasers may also combine any
subsequent purchases of Class A Shares, Class B Shares and Class C Shares of the
Funds, as well as shares of any other class of any of the other Delaware
Investments Funds which offer such classes (except shares of any Delaware
Investments Fund which do not carry a front-end sales charge, CDSC or Limited
CDSC). If, for example, any such purchaser has previously purchased and still
holds Class A Shares of Delaware U.S. Growth Fund and/or shares of any other of
the classes described in the previous sentence with a value of $40,000 and
subsequently purchases $10,000 at offering price of additional shares of Class A
Shares of Delaware U.S. Growth Fund, the charge applicable to the $10,000
purchase would currently be 4.75%. For the purpose of this calculation, the
shares presently held shall be valued at the public offering price that would
have been in effect had the shares been purchased simultaneously with the
current purchase. Investors should refer to the table of sales charges for Class
A Shares in the Fund Classes' Prospectuses to determine the applicability of the
Right of Accumulation to their particular circumstances.
12-Month Reinvestment Privilege: Holders of Class A Shares and Class B
Shares of the Funds (and of the Institutional Class Shares holding shares which
were acquired through an exchange from one of the other Delaware Investments
Funds offered with a front-end sales charge) who redeem such shares have one
year from the date of redemption to reinvest all or part of their redemption
proceeds in the same Class of the Funds or in the same Class of any of the other
Delaware Investments Funds. In the case of Class A Shares, the reinvestment will
not be assessed a front-end sales charge and in the case of Class B Shares, the
amount of the CDSC previously charged on the redemption will be reimbursed by
the Distributor. The reinvestment will be subject to applicable eligibility and
minimum purchase requirements and must be in states where shares of such other
funds may be sold. This reinvestment privilege does not extend to Class A Shares
where the redemption of the shares triggered the payment of a Limited CDSC.
Persons investing redemption proceeds from direct investments in the Delaware
Investments Funds, offered without a front-end sales charge will be required to
pay the applicable sales charge when purchasing Class A Shares. The reinvestment
privilege does not extend to a redemption of Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
NAV next determined after receipt of remittance. In the case of Class B Shares,
the time that the previous investment was held will be included in determining
any applicable CDSC due upon redemptions as well as the automatic conversion
into Class A Shares.
A redemption and reinvestment of Class B Shares could have income tax
consequences. Shareholders will receive from the Distributor the amount of the
CDSC paid at the time of redemption as part of the reinvested shares, which may
be treated as a capital gain to the shareholder for tax purposes. It is
recommended that a tax advisor be consulted with respect to such transactions.
Any reinvestment directed to a Delaware Investments Fund in which the
investor does not then have an account will be treated like all other initial
purchases of such Fund's shares. Consequently, an investor should obtain and
read carefully the prospectus for the Delaware Investments Fund in which the
investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the Delaware Investments
Fund, including charges and expenses.
Investors should consult their financial advisors or the Transfer Agent,
which also serves as the Fund's shareholder servicing agent, about the
applicability of the Class A Limited CDSC in connection with the features
described above.
Group Investment Plans: Group Investment Plans which are not eligible to
purchase shares of the Institutional Class may also benefit from the reduced
front-end sales charges for investments in Class A Shares set forth in the table
in the Fund Classes' Prospectuses, based on total plan assets. If a company has
more than one plan investing in Delaware Investments Funds, then the total
amount invested in all plans would be used in determining the applicable
front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to the Funds at the time of each such purchase.
Employees participating in such Group Investment Plans may also combine the
investments made in their plan account when determining the applicable front-end
sales charge on purchases to non-retirement Delaware Investments investment
accounts if they so notify the Fund in which they are investing in connection
with each purchase. See "Retirement Plans for the Fund Classes" under
"Investment Plans" below for information about retirement plans.
The Limited CDSC is generally applicable to any redemptions of NAV
purchases made on behalf of a group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from a Delaware Investments Fund. See "ContingentDeferred Sales Charge for Certain Redemptions of Class A Shares Purchased at NetAsset Value" under "Redemption and Exchange" below. Notwithstanding the
foregoing, the Limited CDSC for Class A Shares on which a dealer's commission
has been paid will be waived in connection with redemptions by certain group
defined contribution retirement plans that purchase shares through a retirement
plan alliance program which requires that shares will be available at NAV,
provided that RFS either was the sponsor of the alliance program or had a
product participation agreement with the sponsor of the alliance program that
specifies that the Limited CDSC will be waived.
Availability of Class R Shares
Class R Shares generally are available only to: (i) qualified and
non-qualified plan shareholders covering multiple employees (including 401(k),
401(a), 457, and non-custodial 403(b) plans, as well as other non-qualified
deferred compensation plans) with assets (at the time shares are considered for
purchase) of $10 million or less; and (ii) to IRA rollovers from plans
maintained on Delaware's retirement recordkeeping system that are offering R
Class Shares to participants.
Availability of Institutional Class Shares
The Institutional Class of the Funds are generally available for purchase
only by: (i) 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; (ii) tax-exempt
employee benefit plans of the Manager or its affiliates and securities dealer
firms with a selling agreement with the Distributor; (iii) 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; (iv) a bank, trust company and similar
financial institution investing for its own account or for the account of its
trust customers for whom the financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment of the financial institution of a Rule
12b-1 Plan fee; (v) registered investment advisors investing on behalf of
clients that consist solely of institutions and high net-worth individuals
having at least $1,000,000 entrusted to the advisor for investment purposes, but
only if the advisor is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services; (vi) with respect to the Delaware U.S. Growth Fund only,
certain plans qualified under Section 529 of the Internal Revenue Code for which
the Funds' manager, distributor or service agent or one or more of their
affiliates provide record keeping, administrative, investment management,
marketing, distribution or similar services; (vii) programs sponsored by
financial intermediaries where such program requires the purchase of
institutional class shares; or (viii) with respect to the Delaware U.S. Growth
Fund only, until April 1, 2006, investors who were formerly shareholders of "I"
shares (or a similar class of shares that is limited to certain institutional or
high net worth investors and does not carry a sales charge or Rule 12b-1) of
another fund that was managed by investment professionals who are currently
portfolio managers at the Manager.
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from net
investment income and distributions from realized securities profits, if any,
will be automatically reinvested in additional shares of the respective Fund
Class in which an investor has an account (based on the NAV in effect on the
reinvestment date) and will be credited to the shareholder's account on that
date. All dividends and distributions of the Institutional Class are reinvested
in the accounts of the holders of such shares (based on the NAV in effect on the
reinvestment date). A confirmation of each dividend payment from net investment
income and of distributions from realized securities profits, if any, will be
mailed to shareholders in the first quarter of the next fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and add
full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check to the specific Class in which
shares are being purchased. Such purchases, which must meet the minimum
subsequent purchase requirements set forth in the Prospectuses and this Part B,
are made for Class A Shares at the public offering price, and for Class B
Shares, Class C Shares, Class R Shares and Institutional Class at the NAV, at
the end of the day of receipt. A reinvestment plan may be terminated at any
time. This plan does not assure a profit nor protect against depreciation in a
declining market.
Reinvestment of Dividends in Other Delaware Investments Funds
Subject to applicable eligibility and minimum initial purchase requirements
and the limitations set forth below, holders of Fund Classes may automatically
reinvest dividends and/or distributions in any of the other Delaware Investments
Funds, including the Funds, in states where their shares may be sold. Such
investments will be at NAV at the close of business on the reinvestment date
without any front-end sales charge or service fee. The shareholder must notify
the Transfer Agent in writing and must have established an account in the fund
into which the dividends and/or distributions are to be invested. Any
reinvestment directed to the Funds in which the investor does not then have an
account will be treated like all other initial purchases of each Fund's shares.
Consequently, an investor should obtain and read carefully the prospectus for
the fund in which the investment is intended to be made before investing or
sending money. The prospectus contains more complete information about the fund,
including charges and expenses.
Subject to the following limitations, dividends and/or distributions from
other Delaware Investments Funds may be invested in shares of the Funds,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares, Class C Shares or Class R Shares. Dividends from
Class B Shares may only be directed to other Class B Shares, dividends from
Class C Shares may only be directed to other Class C Shares and dividends from
Class R Shares may only be directed to other Class R Shares.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same Delaware
Investments Fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE
IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, or 403(b)(7) or 457 Deferred Compensation Plans.
Investing by Exchange
If you have an investment in another Delaware Investments Fund, you may
write and authorize an exchange of part or all of your investment into shares of
the Fund. If you wish to open an account by exchange, call the Shareholder
Service Center for more information. All exchanges are subject to the
eligibility and minimum purchase requirements and any additional limitations set
forth in the Funds' Prospectuses. See "Redemption and Exchange" below for more
complete information concerning your exchange privileges.
Investing proceeds from Eligible 529 Plans
The proceeds of a withdrawal from an Eligible 529 Plan which are directly
reinvested in a substantially similar class of the Delaware Investments Funds
will qualify for treatment as if such proceeds had been exchanged from another
Delaware Investments Fund rather than transferred from the Eligible 529 Plan, as
described under "Redemption and Exchange" below. The treatment of your
redemption proceeds from an Eligible 529 Plan does not apply if you take
possession of the proceeds of the withdrawal and subsequently reinvest them
(i.e., the transfer is not made directly). Similar benefits may also be extended
to direct transfers from a substantially similar class of a Delaware Investments
Funds into an Eligible 529 Plan.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan: Investors may arrange for the Funds to accept
for investment in Class A Shares, Class B Shares, Class C Shares or Class R
Shares, through an agent bank, pre-authorized government or private recurring
payments. This method of investment assures the timely credit to the
shareholder's account of payments such as social security, veterans' pension or
compensation benefits, federal salaries, Railroad Retirement benefits, private
payroll checks, dividends, and disability or pension fund benefits. It also
eliminates the possibility and inconvenience of lost, stolen and delayed checks.
Automatic Investing Plan: Shareholders of Class A Shares, Class B Shares
and Class C Shares may make automatic investments by authorizing, in advance,
monthly or quarterly payments directly from their checking account for deposit
into their Fund account. This type of investment will be handled in either of
the following ways: (i) if the shareholder's bank is a member of the National
Automated Clearing House Association ("NACHA"), the amount of the periodic
investment will be electronically deducted from his or her checking account by
Electronic Fund Transfer ("EFT") and such checking account will reflect a debit
although no check is required to initiate the transaction; or (ii) if the
shareholder's bank is not a member of NACHA, deductions will be made by
pre-authorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
Minimum Initial/Subsequent Investments by Electronic Fund Transfer: Initial
investments under the Direct Deposit Purchase Plan and the Automatic Investing
Plan must be for $250 or more and subsequent investments under such plans must
be for $25 or more. An investor wishing to take advantage of either service must
complete an authorization form. Either service can be discontinued by the
shareholder at any time without penalty by giving written notice.
Payments to the Funds from the federal government or its agencies on behalf
of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Funds may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Funds.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer, to
make investments directly to their Fund accounts. The Funds will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact the Trust for proper
instructions.
MoneyLine(SM) On Demand
You or your investment dealer may request purchases of Fund shares by phone
using MoneyLine(SM) On Demand. When you authorize the Funds to accept such
requests from you or your investment dealer, funds will be withdrawn from (for
share purchases) your pre-designated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine(SM) On Demand transactions.
It may take up to four business days for the transactions to be completed.
You can initiate this service by completing an Account Services form. If your
name and address are not identical to the name and address on your Fund account,
you must have your signature guaranteed. The Funds do not charge a fee for this
service; however, your bank may charge a fee.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other
Delaware Investments Funds. Shareholders of the Fund Classes may elect to invest
in one or more of the other Delaware Investments Funds through the Wealth
Builder Option. If in connection with the election of the Wealth Builder Option,
you wish to open a new account to receive the automatic investment, such new
account must meet the minimum initial purchase requirements described in the
prospectus of the fund that you select. All investments under this option are
exchanges and are therefore subject to the same conditions and limitations as
other exchanges noted above.
Under this automatic exchange program, shareholders can authorize regular
monthly investments (minimum of $100 per fund) to be liquidated from their
account and invested automatically into other Delaware Investments Funds,
subject to the conditions and limitations set forth in the Fund Classes'
Prospectuses. The investment will be made on the 20th day of each month (or, if
the fund selected is not open that day, the next business day) at the public
offering price or NAV, as applicable, of the fund selected on the date of
investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See "Redemption and Exchange" for a brief summary of the tax
consequences of exchanges. Shareholders can terminate their participation in
Wealth Builder at any time by giving written notice to the fund from which
exchanges are made.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans and 401(k), 403(b)(7) or 457 Plans. This option also is not
available to shareholders of the Institutional Class.
Asset Planner
The Funds previously offered the Asset Planner asset allocation service.
This service is no longer offered for the Funds. Please call the Shareholder
Service Center at (800) 523-1918 if you have any questions regarding this
service.
Retirement Plans for the Fund Classes
An investment in the Funds may be suitable for tax-deferred retirement
plans, such as: Profit Sharing or Money Purchase Pension Plans, Individual
Retirement Accounts ("IRAs"), Roth IRAs, SEP/IRAs, SAR/SEPs, 401(k) plans,
403(b)(7) plans, 457 plans, SIMPLE IRAs and SIMPLE 401(k)s. In addition, the
Fund may be suitable for use in Coverdell Education Savings Accounts ("Coverdell
ESAs"). For further details concerning these plans and accounts, including
applications, contact your investment advisor or the Distributor. To determine
whether the benefits of a tax-sheltered retirement plan or Coverdell ESA are
available and/or appropriate, you should consult with a tax adviser.
Class B Shares are available only through IRAs, SIMPLE IRAs, Roth IRAs,
Coverdell ESAs, SEP/IRAs, SAR/IRAs, 403(b)(7) plans and 457 Plans. The CDSC may
be waived on certain redemptions of Class B Shares and Class C Shares. See the
Fund Classes' Prospectuses for a list of the instances in which the CDSC is
waived.
Purchases of Class B Shares are subject to a maximum purchase limitation of
$100,000 for retirement plans. Purchases of Class C Shares must be in an amount
that is less than $1,000,000 for such plans. The maximum purchase limitations
apply only to the initial purchase of shares by the retirement plan.
Minimum investment limitations generally applicable to other investors do
not apply to retirement plans other than IRAs, for which there is a minimum
initial purchase of $250 and a minimum subsequent purchase of $25, regardless of
which Class is selected. Retirement plans may be subject to plan establishment
fees, annual maintenance fees and/or other administrative or trustee fees. Fees
are based upon the number of participants in the plan as well as the services
selected. Additional information about fees is included in retirement plan
materials. Fees are quoted upon request. Annual maintenance fees may be shared
by Delaware Management Trust Company, the Transfer Agent, other affiliates of
the Manager and others that provide services to such Plans.
Certain shareholder investment services available to non-retirement plan
shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Class
Shares. See "Availability of Institutional Class Shares" above. For additional
information on any of the plans and Delaware Investments' retirement services,
call the Shareholder Service Center telephone number.
Taxable distributions from the retirement plans described may be subject to
withholding.
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases and redemptions of Class A Shares are effected at the
offering price next calculated after receipt of the order by the Funds, their
agent or certain other authorized persons. Orders for purchases and redemptions
of Class B Shares, Class C Shares, Class R Shares and Institutional Class shares
are effected at the NAV per share next calculated after receipt of the order by
the Funds, their agent or certain other authorized persons. See "Distributor"
under "Investment Advisor and Other Service Providers" above. Selling dealers
are responsible for transmitting orders promptly.
The offering price for Class A Shares consists of the NAV per share plus
any applicable sales charges. Offering price and NAV are computed as of the
close of regular trading on the New York Stock Exchange (the "NYSE"), which is
normally 4 p.m., Eastern time, on days when the NYSE is open for business. The
NYSE is scheduled to be open Monday through Friday throughout the year except
for days when the following holidays are observed: New Year's Day, Martin Luther
King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. When the NYSE is closed, the Funds
will generally be closed, pricing calculations will not be made and purchase and
redemption orders will not be processed.
The NAV per share for each share class of each Fund is calculated by
subtracting the liabilities of each class from its total assets and dividing the
resulting number by the number of shares outstanding for that class. In
determining each Fund's total net assets, portfolio securities primarily listed
or traded on a national or foreign securities exchange, except for bonds, are
generally valued at the closing price on that exchange, unless such closing
prices are determined to be not readily available pursuant to the Funds' pricing
procedures. Exchange traded options are valued at the last reported sale price
or, if no sales are reported, at the mean between bid and asked prices.
Non-exchange traded options are valued at fair value using a mathematical model.
Futures contracts are valued at their daily quoted settlement price. Securities
not traded on a particular day, over-the-counter securities, and government and
agency securities are valued at the mean value between bid and asked prices.
Money market instruments having a maturity of less than 60 days are valued at
amortized cost. Debt securities (other than short-term obligations) are valued
on the basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Foreign securities and
the prices of foreign securities denominated in foreign currencies are
translated to U.S. dollars at the mean between the bid and offer quotations of
such currencies based on rates in effect as of the close of the London Stock
Exchange. Use of a pricing service has been approved by the Board of Trustees.
Prices provided by a pricing service take into account appropriate factors such
as institutional trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, trading characteristics and other market data.
Subject to the foregoing, securities for which market quotations are not readily
available and other assets are valued at fair value as determined in good faith
and in a method approved by the Board of Trustees.
Each Class of the Funds will bear, pro-rata, all of the common expenses of
the Funds. The NAVs of all outstanding shares of each Class of the Funds will be
computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Funds represented by the value of shares of
that Class. All income earned and expenses incurred by the Funds, will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Funds represented by the value of shares of such Classes,
except that Institutional Class will not incur any of the expenses under the
Trust's Rule 12b-1 Plans, while the Fund Classes each will bear the Rule 12b-1
Plan expenses payable under their respective Plans. Due to the specific
distribution expenses and other costs that will be allocable to each Class, the
NAV of each Class of the Funds will vary.
REDEMPTION AND EXCHANGE
General Information
You can redeem or exchange your shares in a number of different ways that
are described below. Your shares will be redeemed or exchanged at a price based
on the NAV next determined after the Funds receive your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and NAV of shares are determined will be processed on
the next business day. See the Funds' Prospectuses. A shareholder submitting a
redemption request may indicate that he or she wishes to receive redemption
proceeds of a specific dollar amount. In the case of such a request, and in the
case of certain redemptions from retirement plan accounts, the Funds will redeem
the number of shares necessary to deduct the applicable CDSC in the case of
Class B Shares and Class C Shares, and, if applicable, the Limited CDSC in the
case of Class A Shares and tender to the shareholder the requested amount,
assuming the shareholder holds enough shares in his or her account for the
redemption to be processed in this manner. Otherwise, the amount tendered to the
shareholder upon redemption will be reduced by the amount of the applicable CDSC
or Limited CDSC. Redemption proceeds will be distributed promptly, as described
below, but not later than seven days after receipt of a redemption request.
Except as noted below, for a redemption request to be in "good order," you
must provide your account number, account registration, and the total number of
shares or dollar amount of the transaction. For exchange requests, you must also
provide the name of the Delaware Investments Fund in which you want to invest
the proceeds. Exchange instructions and redemption requests must be signed by
the record owner(s) exactly as the shares are registered. You may request a
redemption or an exchange by calling the Shareholder Service Center at 800
523-1918. The Funds may suspend, terminate, or amend the terms of the exchange
privilege upon 60 days' written notice to shareholders.
In addition to redemption of the Funds' shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the NAV per share next determined after
receipt of the request in good order by the Funds, their agent, or certain
authorized persons, subject to applicable CDSC or Limited CDSC. This is computed
and effective at the time the offering price and NAV are determined. See
"Determining Offering Price and Net Asset Value" above. The Funds and the
Distributor end their business days at 5 p.m., Eastern time. This offer is
discretionary and may be completely withdrawn without further notice by the
Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the NAV
per share computed that day (subject to the applicable CDSC or Limited CDSC), if
the repurchase order was received by the broker/dealer from the shareholder
prior to the time the offering price and NAV are determined on such day. The
selling dealer has the responsibility of transmitting orders to the Distributor
promptly. Such repurchase is then settled as an ordinary transaction with the
broker/dealer (who may make a charge to the shareholder for this service)
delivering the shares repurchased.
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by either Fund or certain other authorized persons (see
"Distributor" under "Investment Advisor and Other Service Providers"); provided,
however, that each commitment to mail or wire redemption proceeds by a certain
time, as described below, is modified by the qualifications described in the
next paragraph.
The Funds will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Funds will honor redemption requests as to shares for which a check
was tendered as payment, but the Funds will not mail or wire the proceeds until
it is reasonably satisfied that the purchase check has cleared, which may take
up to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Funds will automatically redeem from the shareholder's account the shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Funds or to the Distributor.
In case of a suspension of the determination of the NAV because the NYSE is
closed for other than weekends or holidays, or trading thereon is restricted or
an emergency exists as a result of which disposal by the Funds of securities
owned by them are not reasonably practical, or they are not reasonably practical
for the Funds fairly to value their assets, or in the event that the SEC has
provided for such suspension for the protection of shareholders, the Funds may
postpone payment or suspend the right of redemption or repurchase. In such case,
the shareholder may withdraw the request for redemption or leave it standing as
a request for redemption at the NAV next determined after the suspension has
been terminated.
Payment for shares redeemed or repurchased may be made either in cash or
kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in "Determining Offering Priceand Net Asset Value" above. Subsequent sale by an investor receiving a
distribution in kind could result in the payment of brokerage commissions.
However, the Trust has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Funds are obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1.00% of the NAV of such Funds during any 90-day
period for any one shareholder.
The value of each Fund's investments is subject to changing market prices.
Thus, a shareholder redeeming shares of the Funds may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
Certain redemptions of Class A Shares purchased at NAV may result in the
imposition of a Limited CDSC. See "Contingent Deferred Sales Charge for CertainRedemptions of Class A Shares Purchased at Net Asset Value" below. Class B and
Class C Shares of Funds are subject to CDSCs as described under "ContingentDeferred Sales Charge - Class B Shares and Class C Shares" under "PurchasingShares" above and in the Fund Classes' Prospectuses. Except for the applicable
CDSC or Limited CDSC and, with respect to the expedited payment by wire
described below for which, in the case of the Fund Classes, there may be a bank
wiring cost, neither the Funds nor the Distributor charge a fee for redemptions
or repurchases, but such fees could be charged at any time in the future.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other Delaware Investments Funds (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that
might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and any CDSC assessed upon
redemption of the New Shares will be charged by the Fund from which the Original
Shares were exchanged. In the case of Class B Shares, shareholders will also
continue to be subject to the automatic conversion schedule of the Original
Shares as described in this Part B. In an exchange of Class B Shares from the
Funds, the Funds' CDSC schedule may be higher than the CDSC schedule relating to
the New Shares acquired as a result of the exchange. For purposes of computing
the CDSC that may be payable upon a disposition of the New Shares, the period of
time that an investor held the Original Shares is added to the period of time
that an investor held the New Shares. With respect to Class B Shares, the
automatic conversion schedule of the Original Shares may be longer than that of
the New Shares. Consequently, an investment in New Shares by exchange may
subject an investor to the higher Rule 12b-1 fees applicable to Class B Shares
of the Funds for a longer period of time than if the investment in New Shares
were made directly.
Holders of Class A Shares of the Funds may exchange all or part of their
shares for shares of other Delaware Investments Funds, including other Class A
Shares, but may not exchange their Class A Shares for Class B Shares, Class C
Shares or Class R Shares of the Funds or of any other Delaware Investments Fund.
Holders of Class B Shares of the Funds are permitted to exchange all or part of
their Class B Shares only into Class B Shares of other Delaware Investments
Fund. Similarly, holders of Class C Shares of the Funds are permitted to
exchange all or part of their Class C Shares only into Class C Shares of any
other Delaware Investments Fund. Class B Shares of the Funds and Class C Shares
of the Funds acquired by exchange will continue to carry the CDSC and, in the
case of Class B Shares, the automatic conversion schedule of the fund from which
the exchange is made. The holding period of Class B Shares of the Funds acquired
by exchange will be added to that of the shares that were exchanged for purposes
of determining the time of the automatic conversion into Class A Shares of the
Funds. Holders of Class R Shares of the Funds are permitted to exchange all or
part of their Class R Shares only into Class R Shares of other Delaware
Investments Funds or, if Class R Shares are not available for a particular fund,
into the Class A Shares of such Fund.
Permissible exchanges into Class A Shares of the Funds will be made without
a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of the Funds will be made without the imposition of a
CDSC by the Delaware Investments Fund from which the exchange is being made at
the time of the exchange.
Each Fund also reserves the right to refuse the purchase side of an
exchange request by any person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if a Fund receives
or anticipates simultaneous orders affecting significant portions of the Fund's
assets.
Written Redemption
You can write to the Funds at 2005 Market Street, Philadelphia, PA19103-7094 to redeem some or all of your shares. The request must be signed by
all owners of the account or your investment dealer of record. For redemptions
of more than $100,000, or when the proceeds are not sent to the shareholder(s)
at the address of record, the Funds require a signature by all owners of the
account and a signature guarantee for each owner. A signature guarantee can be
obtained from a commercial bank, a trust company or a member of a Securities
Transfer Association Medallion Program ("STAMP"). Each Fund reserves the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares or Institutional Class shares are in
certificate form, the certificate(s) must accompany your request and also be in
good order. Certificates generally are no longer issued for Class A Shares and
Institutional Class. Certificates are not issued for Class B Shares or Class C
Shares.
The Funds discourage purchases by market timers and purchase orders
(including the purchase side of exchange orders) by shareholders identified as
market timers may be rejected. The Funds will consider anyone who follows a
pattern of market timing in any Delaware Investments Fund to be a market timer.
Market timing of a Delaware Investments Fund occurs when investors make
consecutive rapid short-term "roundtrips", or in other words, purchases into a
Delaware Investments Fund followed quickly by redemptions out of that Fund. A
short-term roundtrip is any redemption of Fund shares within 20 business days of
a purchase of that Fund's shares. If you make a second such short-term roundtrip
in a Delaware Investments Fund within the same calendar quarter of a previous
short-term roundtrip in that Fund, you may be considered a market timer. The
purchase and sale of Fund shares through the use of the exchange privilege are
also included in determining whether market timing has occurred. The Funds also
reserve the right to consider other trading patterns as market timing.
Your ability to use the Funds' exchange privilege may be limited if you are
identified as a market timer. If you are identified as a market timer, we will
execute the redemption side of your exchange order but may refuse the purchase
side of your exchange order.
Written Exchange
You may also write to the Funds (at 2005 Market Street, Philadelphia, PA19103-7094) to request an exchange of any or all of your shares into another
Delaware Investments Funds, subject to the same conditions and limitations as
other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you hold your Class A Shares or Institutional Class shares in
certificate form, you may redeem or exchange only by written request and you
must return your certificates.
Telephone Redemption: Check to Your Address of Record service and the
Telephone Exchange service, both of which are described below, are automatically
provided unless you notify the Funds in which you have your account in writing
that you do not wish to have such services available with respect to your
account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
The Funds and their Transfer Agent are not responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Fund shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Funds will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes are generally tape recorded, and a written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record: The Telephone
Redemption feature is a quick and easy method to redeem shares. You or your
investment dealer of record can have redemption proceeds of $100,000 or less
mailed to you at your address of record. Checks will be payable to the
shareholder(s) of record. Payment is normally mailed the next business day after
receipt of the redemption request. This service is only available to individual,
joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank: Redemption proceeds of $1,000
or more can be transferred to your pre-designated bank account by wire or by
check. You should authorize this service when you open your account. If you
change your pre-designated bank account, you must complete an Authorization Form
and have your signature guaranteed. For your protection, your authorization must
be on file. If you request a wire, your funds will normally be sent the next
business day. If the proceeds are wired to the shareholder's account at a bank
which is not a member of the Federal Reserve System, there could be a delay in
the crediting of the funds to the shareholder's bank account. A bank wire fee
may be deducted from Fund Class redemption proceeds. If you ask for a check, it
will normally be mailed the next business day after receipt of your redemption
request to your pre-designated bank account. There are no separate fees for this
redemption method, but mailing a check may delay the time it takes to have your
redemption proceeds credited to your pre-designated bank account. Simply call
the Shareholder Service Center prior to the time the offering price and NAV are
determined, as noted above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to adjust
your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other Delaware Investments Funds under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of the Funds, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
Delaware Investments Funds. Telephone exchanges may be subject to limitations as
to amounts or frequency. The Transfer Agent and each Fund reserve the right to
record exchange instructions received by telephone and to reject exchange
requests at any time in the future.
MoneyLine(SM) On Demand
You or your investment dealer may request redemptions of Fund Class shares
by phone using MoneyLine(SM) On Demand. When you authorize the Funds to accept
such requests from you or your investment dealer, funds will be deposited to
(for share redemptions) your pre-designated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine(SM) On Demand transactions. For
more information, see "MoneyLine(SM) On Demand" under "Investment Plans" above.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares, Class C Shares and Class R
Shares who own or purchase $5,000 or more of shares at the offering price, or
NAV, as applicable, for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Funds do not recommend any specific
amount of withdrawal. This is particularly useful to shareholders living on
fixed incomes, since it can provide them with a stable supplemental amount. This
$5,000 minimum does not apply for the investments made through qualified
retirement plans. Shares purchased with the initial investment and through
reinvestment of cash dividends and realized securities profits distributions
will be credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the NAV calculated on the third business day
preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected by
the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at NAV. This plan is not recommended for all
investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital, and the share
balance may in time be depleted, particularly in a declining market.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
The sale of shares for withdrawal payments constitutes a taxable event and
a shareholder may incur a capital gain or loss for federal income tax purposes.
This gain or loss may be long-term or short-term depending on the holding period
for the specific shares liquidated. Premature withdrawals from retirement plans
may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in the Funds must be terminated
before a Systematic Withdrawal Plan with respect to such shares can take effect,
except if the shareholder is a participant in a retirement plan offering
Delaware Investments Funds or is investing in Delaware Investments Funds which
do not carry a sales charge. Redemptions of Class A Shares pursuant to a
Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase was
made at net asset value and a dealer's commission has been paid on that
purchase. The applicable Limited CDSC for Class A Shares and CDSC for Class B
and C Shares redeemed via a Systematic Withdrawal Plan will be waived if the
annual amount withdrawn in each year is less than 12% of the account balance on
the date that the Plan is established. If the annual amount withdrawn in any
year exceeds 12% of the account balance on the date that the Systematic
Withdrawal Plan is established, all redemptions under the Plan will be subjected
to the applicable CDSC, including an assessment for previously redeemed amounts
under the Plan. Whether a waiver of the CDSC is available or not, the first
shares to be redeemed for each Systematic Withdrawal Plan payment will be those
not subject to a CDSC because they have either satisfied the required holding
period or were acquired through the reinvestment of distributions. See the Fund
Classes' Prospectuses for more information about the waiver of CDSCs.
An investor wishing to start a Systematic Withdrawal Plan must complete an
authorization form. If the recipient of Systematic Withdrawal Plan payments is
other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. Each Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
Systematic Withdrawal Plan payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your pre-designated bank account through the MoneyLine(SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. It may take up to four business days for the transactions to
be completed. You can initiate this service by completing an Account Services
form. If your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Funds do not charge a
fee for this service; however, your bank may charge a fee. This service is not
available for retirement plans.
The Systematic Withdrawal Plan is not available for the Institutional
Class. Shareholders should consult with their financial advisors to determine
whether a Systematic Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000, a Limited CDSC will be imposed on certain
redemptions of Class A Shares (or shares into which such Class A Shares are
exchanged) according to the following schedule: (i) 1.00% if shares are redeemed
during the first year after the purchase; and (ii) 0.50% if such shares are
redeemed during the second year after the purchase, if such purchases were made
at NAV and triggered the payment by the Distributor of the dealer's commission
described above in "Dealer's Commission" under "Purchasing Shares."
The Limited CDSC will be paid to the Distributor and will be assessed on an
amount equal to the lesser of : (i) the NAV at the time of purchase of the Class
A Shares being redeemed or (2) the NAV of such Class A Shares at the time of
redemption. For purposes of this formula, the "NAV at the time of purchase" will
be the NAV at purchase of the Class A Shares even if those shares are later
exchanged for shares of another Delaware Investments Fund and, in the event of
an exchange of Class A Shares, the "NAV of such shares at the time of
redemption" will be the NAV of the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than two years will not be
subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments Fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the two-year
holding period. The Limited CDSC is assessed if such two year period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of the Funds or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed that
shares not subject to the Limited CDSC are the first redeemed followed by other
shares held for the longest period of time. The Limited CDSC will not be imposed
upon shares representing reinvested dividends or capital gains distributions, or
upon amounts representing share appreciation.
Waivers of Contingent Deferred Sales Charges
Please see the Fund Classes' Prospectuses for instances in which the
Limited CDSC applicable to Class A Shares and the CDSCs applicable to Class B
and C Shares may be waived.
Additional Information on Waivers of Contingent Deferred Sales Charges
As disclosed in the Fund Classes' Prospectuses, certain retirement plans
that contain certain legacy assets may redeem shares without paying a CDSC. The
following plans may redeem shares without paying a CDSC:
o The redemption must be made by a group defined contribution retirement plan
that purchased Class A shares through a retirement plan alliance program
that required shares to be available at net asset value and RFS served as
the sponsor of the alliance program or had a product participation
agreement with the sponsor of the alliance program that specified that the
limited CDSC would be waived.
o The redemption must be made by any group retirement plan (excluding defined
benefit pension plans) that purchased Class C shares prior to a
recordkeeping transition period from August 2004 to October 2004 and
purchased shares through a retirement plan alliance program, provided that
(i) RFS was the sponsor of the alliance program or had a product
participation agreement with the sponsor of the alliance program and (ii)
RFS provided fully bundled retirement plan services and maintained
participant records on its proprietary recordkeeping system.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Distributions
Each Fund intends to pay out substantially all of its net investment income
and net realized capital gains. Such payments, if any, will be made once a year
during the first quarter of the following fiscal year, typically in December.
All dividends and any capital gains distributions will be automatically credited
to the shareholder's account in additional shares of the same class of the Fund
at NAV unless the shareholder requests in writing that such dividends and/or
distributions be paid in cash.
Dividend payments of $1.00 or less will be automatically reinvested,
notwithstanding a shareholder's election to receive dividends in cash. If such a
shareholder's dividends increase to greater than $1.00, the shareholder would
have to file a new election in order to begin receiving dividends in cash again.
Any check in payment of dividends or other distributions which cannot be
delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current NAV and the dividend option may be changed from cash to
reinvest. A Fund may deduct from a shareholder's account the costs of the Fund's
effort to locate a shareholder if a shareholder's mail is returned by the U.S.
Post Office or the Fund is otherwise unable to locate the shareholder or verify
the shareholder's mailing address. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for their
location services.
Each class of shares of a Fund will share proportionately in the investment
income and expenses of such Fund, except that, absent any applicable fee waiver,
Class A Shares, Class B Shares, Class C Shares and Class R Shares alone will
incur distribution fees under their respective Rule 12b-1 Plans.
Taxes
Distributions of Net Investment Income. The Funds receive income generally
in the form of dividends and interest on their investments in portfolio
securities. This income, less expenses incurred in the operation of a Fund,
constitutes its net investment income from which dividends may be paid to you.
If you are a taxable investor, any distributions by a Fund from such income
(other than qualified dividends) will be taxable to you at ordinary income tax
rates, whether you take them in cash or in additional shares.
Distributions of Capital Gains. A Fund may derive capital gain and loss in
connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gain over net
long-term capital loss will be taxable to you as ordinary income. Distributions
paid from the excess of net long-term capital gain over net short-term capital
loss will be taxable to you as long-term capital gain, regardless of how long
you have held your shares in the Fund. Any net short-term or long-term capital
gain realized by a Fund (net of any capital loss carryovers) generally will be
distributed once each year and may be distributed more frequently, if necessary
in order to reduce or eliminate federal excise or income taxes on the Fund.
Effect of Foreign Withholding Taxes. The Funds may be subject to foreign
withholding taxes on income from certain foreign securities. This, in turn,
could reduce a Fund's distributions paid to you.
Effect of foreign debt investments on distributions. Most foreign exchange
gains realized on the sale of debt securities are treated as ordinary income by
a Fund. Similarly, foreign exchange losses realized on the sale of debt
securities generally are treated as ordinary losses. These gains when
distributed are taxable to you as ordinary income, and any losses reduce a
Fund's ordinary income otherwise available for distribution to you. This
treatment could increase or decrease a Fund's ordinary income distributions to
you, and may cause some or all of the Fund's previously distributed income to be
classified as a return of capital. A return of capital generally is not taxable
to you, but reduces the tax basis of your shares in the Fund. Any return of
capital in excess of your basis, however, is taxable as a capital gain.
PFIC securities. The Funds may invest in securities of foreign entities
that could be deemed for tax purposes to be passive foreign investment companies
(PFICs). When investing in PFIC securities, a Fund intends to mark-to-market
these securities and will recognize any gains at the end of its fiscal and
excise (described below) tax years. Deductions for losses are allowable only to
the extent of any current or previously recognized gains. These gains (reduced
by allowable losses) are treated as ordinary income that a Fund is required to
distribute, even though it has not sold the securities. You should also be aware
that the designation of a foreign security as a PFIC security will cause its
income dividends to fall outside of the definition of qualified foreign
corporation dividends. These dividends generally will not qualify for the
reduced rate of taxation on qualified dividends when distributed to you by a
Fund.
Information on the Amount and Tax Character of Distributions. The Funds
will inform you of the amount and character of your distributions at the time
they are paid, and will advise you of the tax status of such distributions for
federal income tax purposes shortly after the close of each calendar year. If
you have not held Fund shares for a full year, a Fund may designate and
distribute to you, as ordinary income, qualified dividends or capital gains, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund. Taxable Distributions
declared by a Fund in December, but paid in January, are taxable to you as if
they were paid in December.
Election to be Taxed as a Regulated Investment Company. Each Fund has
elected to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code (the "Code") and intends to so qualify during the
current fiscal year. As regulated investment companies, the Funds generally pay
no federal income tax on the income and gains they distribute to you. The Board
of Trustees reserves the right not to distribute a Fund's net long-term capital
gain or not to maintain the qualification of a Fund as a regulated investment
company if it determines such a course of action to be beneficial to
shareholders. If net long-term capital gain is retained, a Fund would be taxed
on the gain, and shareholders would be notified that they are entitled to a
credit or refund for the tax paid by the Fund. If a Fund fails to qualify as a
regulated investment company, the Fund would be subject to federal, and possibly
state, corporate taxes on its taxable income and gains, and distributions to you
will be taxed as dividend income to the extent of such Fund's earnings and
profits.
In order to qualify as a regulated investment company for federal income
tax purposes, each Fund must meet certain specific requirements, including:
(i) A Fund must maintain a diversified portfolio of securities, wherein no
security, including the securities of a qualified publicly traded partnership
(other than U.S. government securities and securities of other regulated
investment companies) can exceed 25% of the Fund's total assets, and, with
respect to 50% of the Fund's total assets, no investment (other than cash and
cash items, U.S. government securities and securities of other regulated
investment companies) can exceed 5% of the Fund's total assets or 10% of the
outstanding voting securities of the issuer;
(ii) A Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
disposition of stock, securities or foreign currencies, or other income derived
with respect to its business of investing in such stock, securities, or
currencies, and net income derived from an interest in a qualified publicly
traded partnership; and
(iii) A Fund must distribute to its shareholders at least 90% of its
investment company taxable income and net tax-exempt income for each of its
fiscal years.
Excise Tax Distribution Requirements. To avoid federal excise taxes, the
Code requires each Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts: 98% of its taxable ordinary income earned during
the calendar year; 98% of its capital gain net income earned during the
twelve-month period ending October 31; and 100% of any undistributed amounts
from the prior year. Each Fund intends to declare and pay these distributions in
December (or to pay them in January, in which case you must treat them as
received in December), but can give no assurances that its distributions will be
sufficient to eliminate all taxes.
Sales, Exchanges and Redemption of Fund Shares. Sales, exchanges and
redemptions (including redemptions in kind) are taxable transactions for federal
and state income tax purposes. If you redeem your Fund shares the Internal
Revenue Service requires you to report any gain or loss on your redemption. If
you held your shares as a capital asset, the gain or loss that you realize will
be capital gain or loss and will be long-term or short-term, generally depending
on how long you have held your shares.
Redemptions at a Loss Within Six Months of Purchase. Any loss incurred on a
redemption of shares held for six months or less will be treated as long-term
capital loss to the extent of any long-term capital gain distributed to you by
the Fund on those shares.
Wash Sales. All or a portion of any loss that you realize on a redemption
of your Fund shares will be disallowed to the extent that you buy other shares
in the Fund (through reinvestment of dividends or otherwise) within 30 days
before or after your share redemption. Any loss disallowed under these rules
will be added to your tax basis in the new shares.
Deferral of basis-- Class A Shares only. In reporting gain or loss on the
sale of your Fund shares, you may be required to adjust your basis in the shares
you sell under the following circumstances:
IF:
o In your original purchase of Fund shares, you received a
reinvestment right (the right to reinvest your sales proceeds at
a reduced or with no sales charge), and
o You sell some or all of your original shares within 90 days of
their purchase, and
o You reinvest the sales proceeds in the Fund or in another Fund of
the Trust, and the sales charge that would otherwise apply is
reduced or eliminated;
THEN: In reporting any gain or loss on your sale, all or a portion of the
sales charge that you paid for your original shares is excluded from your tax
basis in the shares sold and added to your tax basis in the new shares.
U.S. Government Securities. Income earned on certain U.S. government
obligations is exempt from state and local personal income taxes if earned
directly by you. States also grant tax-free status to dividends paid to you from
interest earned on direct obligations of the U.S. government, subject in some
states to minimum investment or reporting requirements that must be met by a
Fund. Income on investments by a Fund in certain other obligations, such as
repurchase agreements collateralized by U.S. government obligations, commercial
paper and federal agency-backed obligations (e.g., GNMA or FNMA obligations),
generally does not qualify for tax-free treatment. The rules on exclusion of
this income are different for corporations.
Qualified Dividend Income for Individuals. For individual shareholders, a
portion of the dividends paid by a Fund may be qualified dividends eligible for
taxation at long-term capital gain rates. This reduced rate generally is
available for dividends paid by a Fund out of dividends earned on the Fund's
investment in stocks of domestic corporations and qualified foreign
corporations. Because the income of the Delaware Diversified Income Fund
primarily is derived from investments earning interest rather than dividend
income, generally none or only a small percentage of its income dividends will
be qualified divided income.
Both a Fund and the investor must meet certain holding period requirements
to qualify Fund dividends for this treatment. Specifically, a Fund must hold the
stock for at least 61 days during the 121-day period beginning 60 days before
the stock becomes ex-dividend. Similarly, investors must hold their Fund shares
for at least 61 days during the 121-day period beginning 60 days before the Fund
distribution goes ex-dividend. The ex-dividend date is the first date following
the declaration of a dividend on which the purchaser of stock is not entitled to
receive the dividend payment. When counting the number of days you held your
Fund shares, include the day you sold your shares but not the day you acquired
these shares.
While the income received in the form of a qualified dividend is taxed at
the same rates as long-term capital gains, such income will not be considered as
a long-term capital gain for other federal income tax purposes. For example, you
will not be allowed to offset your long-term capital losses against qualified
dividend income on your federal income tax return. Any qualified dividend income
that you elect to be taxed at these reduced rates also cannot be used as
investment income in determining your allowable investment interest expense. For
other limitations on the amount of or use of qualified dividend income on your
income tax return, please contact your personal tax advisor.
After the close of its fiscal year, each Fund will designate the portion of
its ordinary dividend income that meets the definition of qualified dividend
income taxable at reduced rates. If 95% or more of a Fund's income is from
qualified sources, it will be allowed to designate 100% of its ordinary income
distributions as qualified dividend income.
Dividends-Received Deduction for Corporations. For corporate shareholders,
a portion of the dividends paid by the Fund may qualify for the
dividends-received deduction. The portion of dividends paid by a Fund that so
qualifies will be designated each year in a notice mailed to the Fund's
shareholders, and cannot exceed the gross amount of dividends received by a Fund
from domestic (U.S.) corporations that would have qualified for the
dividends-received deduction in the hands of a Fund if the Fund was a regular
corporation. However, because the income of the Delaware Diversified Income Fund
primarily is derived from investments earning interest rather than dividend
income, generally none or only a small percentage of its income dividends will
be eligible for the corporate dividends-received deduction.
The availability of the dividends-received deduction is subject to certain
holding period and debt financing restrictions imposed under the Code on the
corporation claiming the deduction. The amount that a Fund may designate as
eligible for the dividends-received deduction will be reduced or eliminated if
the shares on which the dividends earned by the Fund were debt-financed or held
by the Fund for less than a minimum period of time, generally 46 days during a
91-day period beginning 45 days before the stock becomes ex-dividend. Similarly,
if your Fund shares are debt-financed or held by you for less than a 46-day
period then the dividends-received deduction for Fund dividends on your shares
may also be reduced or eliminated. Even if designated as dividends eligible for
the dividends-received deduction, all dividends (including any deducted portion)
must be included in your alternative minimum taxable income calculation.
Investment in Complex Securities. The Funds may invest in complex
securities that could be subject to numerous special and complex tax rules.
These rules could accelerate the recognition of income by a Fund (possibly
causing the Fund to sell securities to raise the cash for necessary
distributions) and/or defer a Fund's ability to recognize a loss, and, in
limited cases, subject a Fund to U.S. federal income tax on income from certain
foreign securities. These rules could also affect whether gain or loss
recognized by a Fund is treated as ordinary or capital, or as interest or
dividend income. In addition, a Fund's investment in REIT securities could in
limited circumstances cause a tax-exempt investor to have unrelated business
taxable income. These rules could, therefore, affect the amount, timing or
character of the income distributed to you by a Fund. For example:
Derivatives. Each Fund is permitted to invest in certain options, futures,
forwards or foreign currency contracts. If a Fund makes these investments, it
could be required to mark-to-market these contracts and realize any unrealized
gains and losses at its fiscal year end even though it continues to hold the
contracts. Under these rules, gains or losses on the contracts generally would
be treated as 60% long-term and 40% short-term gains or losses, but gains or
losses on certain foreign currency contracts would be treated as ordinary income
or losses. In determining its net income for excise tax purposes, the Fund also
would be required to mark-to-market these contracts annually as of October 31
(for capital gain net income) and December 31 (for taxable ordinary income), and
to realize and distribute any resulting income and gains.
Short sales and securities lending transactions. A Fund's entry into a
short sale transaction or an option or other contract could be treated as the
"constructive sale" of an "appreciated financial position," causing it to
realize gain, but not loss, on the position. Additionally, a Fund's entry into
securities lending transactions may cause the replacement income earned on the
loaned securities to fall outside of the definition of qualified dividend
income. This replacement income generally will not be eligible for reduced rates
of taxation on qualified dividend income and, to the extent that debt securities
are loaned, will generally not qualify as qualified interest income for foreign
withholding tax purposes.
Tax straddles. A Fund's investment in options, futures, forwards, or
foreign currency contracts in connection with certain hedging transactions could
cause it to hold offsetting positions in securities. If the Fund's risk of loss
with respect to specific securities in its portfolio is substantially diminished
by the fact that it holds other securities, the Fund could be deemed to have
entered into a tax "straddle" or to hold a "successor position" that would
require any loss realized by it to be deferred for tax purposes.
Securities purchased at discount. A Fund is permitted to invest in
securities issued or purchased at a discount, such as zero coupon, deferred
interest or payment-in-kind (PIK) bonds that could require it to accrue and
distribute income not yet received. If it invests in these securities, the Fund
could be required to sell securities in its portfolio that it otherwise might
have continued to hold in order to generate sufficient cash to make these
distributions.
Investment in REITs. Certain tax-exempt shareholders, including qualified
pension plans, IRAs, salary deferral arrangements (401(k)s) and other tax-exempt
entities, generally are exempt from federal income taxation except with respect
to their unrelated business taxable income (UBTI). To the extent that a Fund
invests in a REIT that invests in REMIC residual interests, a portion of the
Fund's income that is attributable to these residual interests (and which is
referred to in the Code as an "excess inclusion") will be subject to federal
income tax in all events. Treasury regulations that have yet to be issued in
final form are expected to provide that excess inclusion income of regulated
investment companies, such as a Fund, will be allocated to shareholders of the
regulated investment company in proportion to the dividends received by such
shareholders, with the same consequences as if you held the related REMIC
residual interest directly. In general, excess inclusion income allocated to
tax-exempt shareholders (i) cannot be offset by net operating losses (subject to
a limited exception for certain thrift institutions), (ii) will constitute UBTI
to entities (including a qualified pension plan, an IRA, a 401(k) plan or other
tax-exempt entity) subject to tax on unrelated business income, thereby
potentially requiring such an entity that is allocated excess inclusion income,
and otherwise might not be required to file a tax return, to file a tax return
and pay tax on such income, and (iii) in the case of a foreign shareholder, will
not qualify for any reduction in U.S. federal withholding tax.
Convertible debt. Convertible debt is ordinarily treated as a "single
property" consisting of a pure debt interest until conversion, after which the
investment becomes an equity interest. If the security is issued at a premium
(i.e., for cash in excess of the face amount payable on retirement), the
creditor-holder may amortize the premium over the life of the bond. If the
security is issued for cash at a price below its face amount, the
creditor-holder must accrue original issue discount in income over the life of
the debt.
Credit Default Swap Agreements. A Fund may enter into credit default swap
agreements. The rules governing the tax aspects of swap agreements that provide
for contingent non-periodic payments of this type are in a developing stage and
are not entirely clear in certain aspects. Accordingly, while a Fund intends to
account for such transactions in a manner deemed to be appropriate, the IRS
might not accept such treatment. The Funds intend to monitor developments in
this area. Certain requirements that must be met under the Code in order for a
Fund to qualify as a regulated investment company may limit the extent to which
a Fund will be able to engage in credit default swap agreements.
Backup Withholding. By law, a Fund must withhold a portion of your taxable
dividends and sales proceeds unless you:
o provide your correct social security or taxpayer identification
number,
o certify that this number is correct,
o certify that you are not subject to backup withholding, and
o certify that you are a U.S. person (including a U.S. resident
alien).
The Fund also must withhold if the IRS instructs it to do so. When
withholding is required, the amount will be 28% of any dividends or proceeds
paid. The special U.S. tax certification requirements applicable to non-U.S.
investors are described under the "Non-U.S. Investors" heading below.
Non-U.S. Investors. Non-U.S. Investors may be subject to U.S. withholding
and estate tax and are subject to special U.S. tax certification requirements.
Foreign persons should consult their tax advisors about the applicability of
U.S. tax withholding and the use of the appropriate forms to certify their
status.
In general. The United States imposes a flat 30% withholding tax (or lower
treaty rate) on U.S. source dividends.
Capital Gain Dividends & Short-Term Capital Gain Dividends. In general,
capital gain dividends paid by a Fund from either long-term or short-term
capital gains (other than gain realized on disposition of U.S. real property
interests) are not subject to U.S. withholding tax unless you are a nonresident
alien individual present in the United States for a period or periods
aggregating 183 days or more during the taxable year.
Interest-Related Dividends. Also, interest-related dividends paid by a Fund
from qualified interest income are not subject to U.S. withholding tax.
"Qualified interest income" includes, in general, U.S. source: (1) bank deposit
interest; (2) short-term original discount; (3) interest (including original
issue discount, market discount, or acquisition discount) on an obligation which
is in registered form, unless it is earned on an obligation issued by a
corporation or partnership in which the Fund is a 10-percent shareholder or is
contingent interest; and (4) any interest-related dividend from another
regulated investment company.
Limitations on Tax Reporting for Interest-Related dividends and Short-term
Capital Gain dividends for non-U.S. investors. While a Fund makes every effort
to disclose any amounts of interest-related dividends and short-term capital
gains distributed to its non-U.S. shareholders, intermediaries who have assumed
tax reporting responsibilities on these distributions may not have fully
developed systems that will allow these tax withholding benefits to be passed
through to them.
Other. Ordinary dividends paid by a Fund to non-U.S. investors on the
income earned on portfolio investments in (i) the stock of domestic and foreign
corporations, and (ii) the debt of foreign issuers continue to be subject to
U.S. withholding tax. If you hold your Fund shares in connection with a U.S.
trade or business, your income and gains will be considered effectively
connected income and taxed in the U.S. on a net basis, in which case you may be
required to file a nonresident U.S. income tax return. The exemption from
withholding for short-term capital gain dividends and interest-related dividends
paid by a Fund is effective for dividends paid with respect to taxable years of
the Fund beginning after December 31, 2004 and before January 1, 2008.
U.S. Estate Tax. A partial exemption from U.S estate tax may apply to stock
in a Fund held by the estate of a nonresident decedent. The amount treated as
exempt is based upon the proportion of the assets held by the Fund at the end of
the quarter immediately preceding the decedent's death that are debt
obligations, deposits, or other property that would generally be treated as
situated outside the United States if held directly by the estate. This
provision applies to decedents dying after December 31, 2004 and before January1, 2008.
U.S Tax Certification Rules. Special U.S. tax certification requirements
apply to non-U.S. shareholders both to avoid U.S. back up withholding imposed at
a rate of 28% and to obtain the benefits of any treaty between the United States
and the shareholder's country of residence. In general, a non-U.S. shareholder
must provide a Form W-8 BEN (or other applicable Form W-8) to establish that you
are not a U.S. person, to claim that you are the beneficial owner of the income
and, if applicable, to claim a reduced rate of, or exemption from, withholding
as a resident of a country with which the United States has an income tax
treaty. A Form W-8BEN provided without a U.S. taxpayer identification number
will remain in effect for a period beginning on the date signed and ending on
the last day of the third succeeding calendar year unless an earlier change of
circumstances makes the information on the form incorrect.
This discussion of "Dividends, Distributions and Taxes" is not intended or
written to be used as tax advice and does not purport to deal with all federal
tax consequences applicable to all categories of investors, some of which may be
subject to special rules. You should consult your own tax advisor regarding your
particular circumstances before making an investment in the Fund.
PERFORMANCE INFORMATION
To obtain the Funds' most current performance information, please call
(800) 523-1918 or visit www.delawareinvestments.com.
Each Fund calculates its total returns for each Class of shares separately
on an "annual total return" basis for various periods. Average annual total
return reflects the average annual percentage change in value of an investment
in the Class over the measuring period. Total returns for each Class of shares
also may be calculated on an "aggregate total return" basis for various periods.
Aggregate total return reflects the total percentage change in value over the
measuring period. Both methods of calculating total return reflect changes in
the price of the shares and assume that any dividends and capital gain
distributions made by a Fund with respect to a Class during the period are
reinvested in the shares of that Class. When considering average total return
figures for periods longer than one year, it is important to note that the
annual total return of a Class for any one year in the period might have been
more or less than the average for the entire period. Each Fund also may
advertise from time to time the total return of one or more Classes of shares on
a year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules.
FINANCIAL STATEMENTS
Ernst & Young LLP, which is located at 2001 Market Street, Philadelphia, PA19103, serves as the independent registered public accounting firm for the Trust
and, in its capacity as such, audits the financial statements contained in each
Fund's Annual Report. Each Fund's Statement of Net Assets, Statement of Assets
and Liabilities (as applicable), Statement of Operations, Statement of Changes
in Net Assets, Financial Highlights and Notes to Financial Statements, as well
as the report of Ernst & Young LLP, the independent registered public accounting
firm, for the fiscal year ended October 31, 2005, are included in the Funds'
Annual Reports to shareholders. The financial statements and financial
highlights, the notes relating thereto and the reports of Ernst & Young LLP
listed above are incorporated by reference from the Annual Reports into this
Part B.
PRINCIPAL HOLDERS
As of January 31, 2006, management believes the following accounts held 5%
or more of the outstanding shares of the Funds:
------------------------------- ---------------------------------------------- ----------------------
Class Name and Address of Account Percentage
------------------------------- ---------------------------------------------- ----------------------
Delaware Diversified Income Merrill Lynch, Pierce, Fenner & Smith For 10.94%
Fund Class A the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL32246-6484
------------------------------- ---------------------------------------------- ----------------------
Delaware Diversified Income Merrill Lynch, Pierce, Fenner & Smith For 9.31%
Fund Class B the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL32246-6484
------------------------------- ---------------------------------------------- ----------------------
Delaware Diversified Income Merrill Lynch, Pierce, Fenner & Smith For 34.11%
Fund Class C the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL32246-6484
------------------------------- ---------------------------------------------- ----------------------
Citigroup Global Markets, Inc. 5.66%
House Account
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY10001-2402
------------------------------- ---------------------------------------------- ----------------------
Delaware Diversified Income Merrill Lynch, Pierce, Fenner & Smith For 65.64%
Fund Class R the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL32246-6484
------------------------------- ---------------------------------------------- ----------------------
Delaware Diversified Income FTC & Co. 29.28%
Fund Institutional Class Attn: Datalynx
P.O. Box 173736
Denver, CO80217-3736
------------------------------- ---------------------------------------------- ----------------------
The Northern Trust Company TTEE 14.81%
CIBA Specialty Chemicals 401K DV Plan
P.O. Box 92994
Chicago, IL60675-2994
------------------------------- ---------------------------------------------- ----------------------
Charles Schwab & Co. Inc. 7.89%
Special Custody Acct.
For the Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA94104-4122
------------------------------- ---------------------------------------------- ----------------------
RS DMC Employee MPP Plan 7.49%
Delaware Management Co. MPP Trust
c/o Rick Seidel
2005 Market Street
Philadelphia, PA19103-7042
------------------------------- ---------------------------------------------- ----------------------
Delaware U.S. Growth Fund Merrill Lynch, Pierce, Fenner & Smith For 27.99%
Class C the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL32246-6484
------------------------------- ---------------------------------------------- ----------------------
Citigroup Global Markets, Inc. 11.01%
House Account
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY10001-2402
------------------------------- ---------------------------------------------- ----------------------
Delaware U.S. Growth Fund Merrill Lynch, Pierce, Fenner & Smith For 60.29%
Class R the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL32246-6484
------------------------------- ---------------------------------------------- ----------------------
MG Trust Company TTEE 19.87%
King's of New Castle
700 17th Stret, Suite 300
Denver, CO80202-3531
------------------------------- ---------------------------------------------- ----------------------
MCB Trust Services Custodian FBO 14.51%
DIW Group Inc.
700 17th Street, Suite 300
Denver, CO80202-3531
------------------------------- ---------------------------------------------- ----------------------
Delaware U.S. Growth Fund Hollowwave & Co. 15.72%
Institutional Class c/o State Street Bank
P.O. Box 5496
Boston, MA02206-5496
------------------------------- ---------------------------------------------- ----------------------
JP Morgan Chase Bank as Trustee for 13.04%
United Benefits Group's Co-Op
Retirement Plan Trust
345 Park Avenue
Attn: Kenneth Louie
New York, NY10159
------------------------------- ---------------------------------------------- ----------------------
APPENDIX A--DESCRIPTION OF RATINGS
Each Fund has the ability to invest up to 10% of its net assets in high
yield, high risk fixed-income securities. The following paragraphs contain
excerpts from Moody's and S&P's rating descriptions. These credit ratings
evaluate only the safety of principal and interest and do not consider the
market value risk associated with high yield securities.
General Rating Information
----------------------------- ------- ----------------------------------------------
Moody's Investors Service - Aaa Bonds which are rated Aaa are judged to be
Bond Ratings of the best quality. They carry the
smallest degree of investment risk and are
generally referred to as "gilt edge."
Interest payments are protected by a large
or by an exceptionally stable margin and
principal is secure. While the various
protective elements are likely to change,
such changes as can be visualized are most
unlikely to impair the fundamentally strong
position of such issues.
----------------------------- ------- ----------------------------------------------
Aa Bonds which are rated Aa are judged to be of
high quality by all standards. Together
with the Aaa group they comprise what are
generally known as high grade bonds. They
are rated lower than Aaa bonds because
margins of protection may not be as large as
in Aaa securities or fluctuation of
protective elements may be of greater
amplitude or there may be other elements
which make the long-term risks appear
somewhat larger than in Aaa securities.
----------------------------- ------- ----------------------------------------------
A Bonds which are rated A possess many
favorable investment attributes and are
considered as upper medium grade
obligations. Factors giving security to
principal and interest are considered
adequate but elements may be present which
suggest a susceptibility to impairment
sometime in the future.
----------------------------- ------- ----------------------------------------------
Baa Bonds that are rated Baa are considered
medium grade obligations, i.e., they are
neither highly protected nor poorly
secured. 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. Such bonds lack
outstanding investment characteristics and
in fact have speculative characteristics as
well.
----------------------------- ------- ----------------------------------------------
Ba Bonds which are rated Ba are 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 Bonds which are rated 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 Bonds which are rated 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 Bonds which are rated Ca represent
obligations which are speculative in a high
degree. Such issues are often in default or
have other marked shortcomings.
----------------------------- ------- ----------------------------------------------
C Bonds which are rated C are 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.
----------------------------- ------- ----------------------------------------------
-------------------------------------------------------------------------------------
Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior obligations which have an original maturity not exceeding
one year
-------------------------------------------------------------------------------------
P-1 Issuers rated "PRIME-1" or "P-1" (or supporting institutions) have
superior ability for repayment of senior short-term debt obligations.
------------ ------------------------------------------------------------------------
P-2 Issuers rated "PRIME-2" or "P-2" (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations.
------------ ------------------------------------------------------------------------
P-3 Issuers rated "PRIME-3" or "P-3" (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.
------------ ------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Municipal Note Ratings
Issuers or the features associated with Moody's MIG or VMIG ratings are
identified by date of issue, date of maturity or maturities or rating expiration
date and description to distinguish each rating from other ratings. Each rating
designation is unique with no implication as to any other similar issue of the
same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issue's specific structural or
credit features.
-------------------------------------------------------------------------------------
MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support, or demonstrated broad-based access to
the market for refinancing.
-------------------------- ----------------------------------------------------------
MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
-------------------------- ----------------------------------------------------------
MIG 3/VMIG 3 This designation denotes favorable quality. All
security elements are accounted for but there is lacking
the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well
established.
-------------------------- ----------------------------------------------------------
MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security
is present and although not distinctly or predominantly
speculative, there is specific risk.
-------------------------- ----------------------------------------------------------
----------------------------- ------------ -----------------------------------------
S&P's - Bond Ratings AAA Debt rated AAA has the highest rating
assigned by S&P to a debt obligation.
Capacity to pay interest and repay
principal is extremely strong.
----------------------------- ------------ -----------------------------------------
AA Debt rated AA has a very strong
capacity to pay interest and repay
principal and differs from the highest
rated issues only in a small degree.
----------------------------- ------------ -----------------------------------------
A Debt rated A has a strong capacity to
pay interest and repay principal
although it is somewhat more
susceptible to the adverse effects of
changes in circumstances and economic
conditions than debt in higher rated
categories.
----------------------------- ------------ -----------------------------------------
BBB Debt rated BBB is regarded as having an
adequate capacity to pay interest an
repay principal. Whereas it normally
exhibits adequate protection
parameters, adverse economic conditions
or changing circumstances are more
likely to lead to a weakened capacity
to pay interest and repay principal for
debt in this category than in higher
rated categories.
----------------------------- ------------ -----------------------------------------
BB, B, CCC Debt rated BB, B, CCC or CC is
and CC regarded, on balance, as predominately
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 This rating is reserved for income
bonds on which no interest is being
paid.
----------------------------- ------------ -----------------------------------------
D Debt rated D is in default, and payment
of interest and/or repayment of
principal is in arrears.
----------------------------- ------------ -----------------------------------------
Commercial Paper Ratings
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
--------------------------------------------------------------------------------
A-1 The A-1 designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. A plus (+) designation is
applied only to those issues rated A-1 which possess an overwhelming degree
of safety.
--------------------------------------------------------------------------------
A-2 Capacity for timely payment on issues with the designation A-2 is strong.
However, the relative degree of safely is not as high as for issues
designated A-1.
------------ -------------------------------------------------------------------
A-3 Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Municipal Note Ratings
An S&P municipal note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
--------------------------------------------------------------------------------
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
------------ -------------------------------------------------------------------
SP-2 Satisfactory capacity to pay principal and interest.
------------ -------------------------------------------------------------------
SP-3 Speculative capacity to pay principal and interest.
------------ -------------------------------------------------------------------
PART C
OTHER INFORMATION
Item 23. Exhibits. The following exhibits are incorporated by reference to the
Registrant's previously filed documents indicated below, except as
noted:
(a) Agreement and Declaration of Trust.
(1) Agreement and Declaration of Trust (December 17, 1998)
incorporated into this filing by reference to Post-Effective
Amendment No. 12 filed November 22, 1999.
(2) Certificate of Trust (December 17, 1998) incorporated into
this filing by reference to Post-Effective Amendment No. 12
filed November 22, 1999.
(b) By-Laws. Amended and Restated By-Laws (May 19, 2005) attached as
Exhibit (b).
(c) Instruments Defining the Rights of Holders.
(1) Agreement and Declaration of Trust. Articles III, V and VI
of Agreement and Declaration of Trust incorporated into this
filing by reference to Post-Effective Amendment No. 12 filed
November 22, 1999.
(2) By-Laws. Article II of the Amended and Restated By-Laws (May19, 2005) attached as Exhibit (b).
(d) (d) Investment Management Agreements.
(1) Executed Investment Management Agreement (November 23, 1999)
between Delaware Management Company (a series of Delaware
Management Business Trust) and the Registrant on behalf
Delaware U.S. Growth Fund incorporated into this filing by
reference to Post-Effective Amendment No. 16 filed February28, 2001.
(i) Executed Amendment No. 1 (June 28, 2002) to Exhibit A
of the Investment Management Agreement (November 23,1999) between the Registrant and Delaware Management
Company (a series of Delaware Management Business
Trust) adding Delaware Diversified Income Fund
incorporated into this filing by reference to
Post-Effective Amendment No. 20 filed December 31,2002.
(e) Underwriting Contracts.
(1) Distribution Agreements.
(i) Executed Distribution Agreement (May 15, 2003) between
Delaware Distributors, L.P. and the Registrant on
behalf of each Class incorporated into this filing by
reference to Post-Effective Amendment No. 22 filed
December 30, 2003.
(ii) Executed Second Amended and Restated Financial
Intermediary Distribution Agreement (August 21, 2003)
between Delaware Distributors, L.P. and Lincoln
Financial Distributors, Inc. on behalf of the
Registrant incorporated into this filing by reference
to Post-Effective Amendment No. 23 filed December 27,2004.
(iii)Executed Amendment No. 1 (October 31, 2005) to
Appendix A to Second Amended and Restated Financial
Intermediary Distribution Agreement attached as Exhibit
(e)(1)(iii).
(2) Dealer's Agreement (January 2001) incorporated into this
filing by reference to Post-Effective Amendment No. 19 filed
June 28, 2002.
(3) Vision Mutual Fund Gateway(R)Agreement (November 2000)
incorporated into this filing by reference to Post-Effective
Amendment No. 19 filed June 28, 2002.
(4) Registered Investment Advisers Agreement (January 2001)
incorporated into this filing by reference to Post-Effective
Amendment No. 19 filed June 28, 2002.
(5) Bank/Trust Agreement (August 2004) incorporated into this
filing by reference to Post-Effective Amendment No. 23 filed
December 27, 2004.
(f) Bonus or Profit Sharing Contracts. Not applicable.
(g) Custodian Agreements.
(1) Executed Global Custody Agreement (May 1, 1996) between
JPMorgan Chase Bank (formerly The Chase Manhattan Bank)
and the Registrant incorporated into this filing by
reference to Post-Effective Amendment No. 7 filed
February 27, 1997.
(i) Executed Amendment (July 1, 2001) to the Global Custody
Agreement between JPMorgan Chase Bank and the
Registrant incorporated into this filing by reference
to Post-Effective Amendment No. 19 filed June 28, 2002.
(ii) Executed letter (June 2002) to add Delaware Diversified
Income Fund to the Global Custody Agreement between the
Registrant and JPMorgan Chase Bank incorporated into
this filing by reference to Post-Effective Amendment
No. 20 filed December 31, 2002.
(iii)Executed Amendment No. 1 (July 17, 2003) to Schedule A
of the Global Custody Agreement between JPMorgan Chase
Bank and the Registrant incorporated into this filing
by reference to Post-Effective Amendment No. 23 filed
December 27, 2004.
(2) Executed Securities Lending Agreement (December 22, 1998)
between JPMorgan Chase Bank (formerly The Chase Manhattan
Bank) and the Registrant incorporated into this filing by
reference to Post-Effective Amendment No. 16 filed February28, 2001.
(i) Executed Amendment (October 1, 2002) to the Securities
Lending Agreement between JPMorgan Chase Bank and the
Registrant incorporated into this filing by reference
to Post-Effective Amendment No. 20 filed December 31,2002.
(ii) Executed Amendment No. 1 (July 17, 2003) to Schedule A
of the Securities Lending Agreement between JPMorgan
Chase Bank and the Registrant incorporated into this
filing by reference to Post-Effective Amendment No. 22
filed December 30, 2003.
(h) Other Material Contracts.
(1) Executed Shareholder Services Agreement (April 19, 2001)
between Delaware Service Company, Inc. and the Registrant
incorporated into this filing by reference to Post-Effective
Amendment No. 17 filed December 28, 2001.
(i) Executed Amended Schedule A (June 28, 2002) to
Shareholder Services Agreement incorporated into this
filing by reference to Post-Effective Amendment No. 20
filed December 31, 2002.
(ii) Executed Schedule B (May 16, 2002) to the Shareholder
Services Agreement incorporated into this filing by
reference to Post-Effective Amendment No. 19 filed June28, 2002.
(2) Executed Delaware Investments Family of Funds Fund
Accounting Agreement (August 19, 1996) between Delaware
Service Company, Inc. and the Registrant incorporated into
this filing by reference to Post-Effective Amendment No. 7
filed February 27, 1997.
(i) Executed Amendment No. 30 (October 31, 2005) to
Delaware Investments Family of Funds Fund Accounting
Agreement attached as Exhibit (h)(2)(i).
(ii) Executed Schedule B (May 16, 2002) to the Delaware
Investments Family of Funds Fund Accounting Agreement
incorporated into this filing by reference to
Post-Effective Amendment No. 19 filed June 28, 2002.
(3) Form of Executed Advisor Expense Limitation Letter (February21, 2006) between Delaware Management Company and the
Registrant attached as Exhibit (h)(3).
(4) Form of Executed Distribution Expense Limitation Letter
(February 21, 2006) between Delaware Distributors, L.P. and
the Registrant attached as Exhibit (h)(4).
(i) Legal Opinion. Opinion and Consent of Counsel (June 28, 2002)
incorporated into this filing by reference to Post-Effective
Amendment No. 19 filed June 28, 2002.
(j) Other Opinions. Consent of Independent Registered Public
Accounting Firm (February 2006) attached as Exhibit (j).
(k) Omitted Financial Statements. Not applicable.
(l) Initial Capital Agreements. Undertaking of Initial Shareholder
incorporated into this filing by reference to Pre-Effective
Amendment No. 2 filed June 17, 1987.
(m) Plans under Rule 12b-1.
(1) Plan under Rule 12b-1 for A Class (April 19, 2001)
incorporated into this filing by reference to Post-Effective
Amendment No. 17 filed December 28, 2001.
(2) Plan under Rule 12b-1 for B Class (April 19, 2001)
incorporated into this filing by reference to Post-Effective
Amendment No. 17 filed December 28, 2001.
(3) Plan under Rule 12b-1 for C Class (April 19, 2001)
incorporated into this filing by reference to Post-Effective
Amendment No. 17 filed December 28, 2001.
(4) Plan under Rule 12b-1 for R Class (May 15, 2003) attached as
Exhibit (m)(4).
(n) Plan under Rule 18f-3. Plan under Rule 18f-3 (October 31, 2005)
attached as Exhibit (n).
(o) Reserved. Not applicable.
(p) Codes of Ethics.
(1) Code of Ethics for Delaware Investments Family of Funds
(December 2004) incorporated into this filing by reference
to Post-Effective Amendment No. 24 filed February 25, 2005.
(2) Code of Ethics for Delaware Management Company, a series of
Delaware Management Business Trust, and Delaware
Distributors, L.P. (December 2004) incorporated into this
filing by reference to Post-Effective Amendment No. 24 filed
February 25, 2005.
(3) Code of Ethics for Lincoln Financial Distributors, Inc.
(April 2005) filed as Exhibit (p)(3).
(q) Other. Powers of Attorney attached as Exhibit (q).
Item 24. Persons Controlled by or under Common Control with Registrant. None.Item 25. Indemnification. Article VI of the Amended and Restated By-Laws (May19, 2005) attached as Exhibit (b).Item 26. Business and Other Connections of Investment Advisor.
Delaware Management Company (the "Manager"), a series of Delaware
Management Business Trust, serves as investment manager to the
Registrant and also serves as investment manager or sub-advisor to
certain of the other funds in the Delaware Investments Funds (Delaware
Group Cash Reserve, Delaware Group Equity Funds I, Delaware Group
Equity Funds II, Delaware Group Equity Funds III, Delaware Group
Equity Funds IV, Delaware Group Equity Funds V, Delaware Group
Foundation Funds, Delaware Group Global & International Funds,
Delaware Group Government Fund, Delaware Group Income Funds, Delaware
Group Limited-Term Government Funds, Delaware Group State Tax-Free
Income Trust, Delaware Group Tax-Free Fund, Delaware Group Tax-Free
Money Fund, Delaware Pooled Trust, Delaware VIP Trust, Voyageur
Insured Funds, Voyageur Intermediate Tax-Free Funds, Voyageur
Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II,
Voyageur Mutual Funds III, Voyageur Tax-Free Funds, Delaware
Investments Dividend and Income Fund, Inc., Delaware Investments
Global Dividend and Income Fund, Inc., Delaware Investments Arizona
Municipal Income Fund, Inc., Delaware Investments Colorado Insured
Municipal Income Fund, Inc., Delaware Investments Florida Insured
Municipal Income Fund, Delaware Investments Minnesota Municipal Income
Fund, Inc., Delaware Investments Minnesota Municipal Income Fund II,
Inc. and Delaware Investments Minnesota Municipal Income Fund III,
Inc.) as well as to certain non-affiliated registered investment
companies. In addition, certain officers of the Manager also serve as
trustees of other Delaware Investments Funds, and certain officers are
also officers of these other funds. A company indirectly owned by the
Manager's parent company acts as principal underwriter to the mutual
funds in the Delaware Investments Funds (see Item 27 below) and
another such company acts as the shareholder services, dividend
disbursing, accounting servicing and transfer agent for all of the
Delaware Investments Funds.
The following persons serving as directors or officers of the Manager
have held the following positions during the past two years. Unless
otherwise noted, the principal business address of the directors and
officers of the Manager is 2005 Market Street, Philadelphia, PA19103-7094.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Name and Principal Business Positions and Offices with Positions and Offices with
Address Manager Registrant Other Positions and Offices Held
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Jude T. Driscoll President/Chief Executive Chairman/President/Chief Mr. Driscoll has served in various
Officer Executive Officer executive capacities within Delaware
Investments
President/Chief Executive Officer
and Director -
Lincoln National Investments
Companies, Inc.
Director - HYPPCO Finance Company
Ltd.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Ryan K. Brist Executive Vice Executive Vice Mr. Brist has served in various
President/Managing President/Managing executive capacities within Delaware
Director/Co-Head - Fixed Director/Chief Investment Investments
Income Officer - Fixed Income
Vice President - Lincoln National
Income Fund, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
John C.E. Campbell Executive Vice President/ Senior Vice President/Deputy Mr. Campbell has served in various
Global Marketing & Client Chief Investment Officer - Fixed executive capacities within Delaware
Services Income Investments
President/Chief Executive Officer -
Optimum Fund Trust
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Patrick P. Coyne Executive Vice President/ Executive Vice President/ Mr. Coyne has served in various
Managing Director/Chief Managing Director/Chief executive capacities within Delaware
Investment Officer - Fixed Investment Officer - Fixed Income Investments
Income
Managing Director - Fixed Income -
Lincoln National Investment
Companies, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Philip N. Russo(1) Executive Vice None Mr. Russo has served in various
President/Chief Financial executive capacities within Delaware
Officer Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
See Yeng Quek Executive Vice Executive Vice Mr. Quek has served in various
President/Managing President/Managing executive capacities within Delaware
Director/Chief Investment Director/Chief Investment Investments
Officer - Fixed Income Officer - Fixed Income
Director/Trustee - HYPPCO Finance
Company Ltd.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Douglas L. Anderson Senior Vice None Mr. Anderson has served in various
President/Operations executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Marshall T. Bassett Senior Vice President/Chief Senior Vice President/Chief Mr. Bassett has served in various
Investment Officer - Investment Officer - Emerging executive capacities within Delaware
Emerging Growth Growth Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Joseph Baxter Senior Vice President/Head Senior Vice President/Head of Mr. Baxter has served in various
of Municipal Bond Municipal Bond Investments executive capacities within Delaware
Investments Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Christopher S. Beck Senior Vice Senior Vice President/Senior Mr. Beck has served in various
President/Senior Portfolio Portfolio Manager executive capacities within Delaware
Manager Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Michael P. Bishof Senior Vice Chief Financial Officer Mr. Bishof has served in various
President/Investment executive capacities within Delaware
Accounting Investments
Chief Financial Officer - Lincoln
National Convertible Securities
Fund, Inc. and Lincoln National
Income Fund, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Michael P. Buckley Senior Vice Vice President/Portfolio Mr. Buckley has served in various
President/Director of Manager/Senior Municipal Bond executive capacities within Delaware
Municipal Research Analyst Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Stephen R. Cianci Senior Vice Senior Vice President/Senior Mr. Cianci has served in various
President/Senior Portfolio Portfolio Manager executive capacities within Delaware
Manager Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Robert F. Collins Senior Vice Vice President/Senior Portfolio Mr. Collins has served in various
President/Senior Portfolio Manager executive capacities within Delaware
Manager Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
George E. Deming Senior Vice Senior Vice President/Senior Mr. Deming has served in various
President/Senior Portfolio Portfolio Manager executive capacities within Delaware
Manager Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Timothy G. Connors Senior Vice President/Chief Senior Vice President/Chief Mr. Connors has served in various
Investment Officer - Value Investment Officer - Value executive capacities within Delaware
Investing Investing Investments
Senior Vice President/Chief
Investment Officer - Value Investing
of Lincoln National Investment
Companies, Inc.
------------------------------ ----------------------------- ---------------------------------- --------------------------------------
John B. Fields Senior Vice Senior Vice President/Senior Mr. Fields has served in various
President/Senior Portfolio Portfolio Manager executive capacities within Delaware
Manager Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Brian Funk Senior Vice Vice President/Senior High Yield Mr. Funk has served in various
President/Senior Research Analyst executive capacities within Delaware
Analyst Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Brent C. Garrels Senior Vice Vice President/High Yield Analyst Mr. Garrels has served in various
President/Senior Research executive capacities within Delaware
Analyst Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Paul Grillo Senior Vice Vice President/Senior Portfolio Mr. Grillo has served in various
President/Senior Portfolio Manager executive capacities within Delaware
Manager Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Jonathan Hatcher(2) Senior Vice Senior Vice President/Senior Mr. Hatcher has served in various
President/Senior Research Research Analyst executive capacities within Delaware
Analyst Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Carolyn McIntyre(3) Senior Vice President/Human None Ms. McIntyre has served in various
Resources executive capacities within Delaware
Investments
Senior Vice President/Human
Resources - Lincoln National
Investment Companies, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Francis X. Morris Senior Vice Director, Fundamental Mr. Morris has served in various
President/Director, Research/Senior Portfolio Manager executive capacities within Delaware
Fundamental Research/Senior Investments
Portfolio Manager
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Brian L. Murray, Jr.(4) Senior Vice President/Chief Chief Compliance Officer Mr. Murray has served in various
Compliance Officer executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Susan L. Natalini Senior Vice None Ms. Natalini has served in various
President/Global Marketing executive capacities within Delaware
& Client Services Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
D. Tysen Nutt(5) Senior Vice President/Head Senior Vice President/Head of Mr. Nutt has served in various
of Large Cap Value Large Cap Value executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
David P. O'Connor Senior Vice President/ Senior Vice President/Associate Mr. O'Connor has served in various
General Counsel/Chief Legal General Counsel/Assistant executive capacities within Delaware
Officer Secretary Investments
Vice President/Associate General
Counsel/Assistant Secretary -
Lincoln National Investment
Companies, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
John J. O'Connor Senior Vice Senior Vice President/Treasurer Mr. O'Connor has served in various
President/Investment executive capacities within Delaware
Accounting Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Philip R. Perkins(6) Senior Vice Senior Vice President/Senior Mr. Perkins has served in various
President/Senior Portfolio Portfolio Manager executive capacities within Delaware
Manager Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Timothy L. Rabe Senior Vice Senior Vice President/Senior Mr. Rabe has served in various
President/Senior Portfolio Portfolio Manager executive capacities within Delaware
Manager/Head of High Yield Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
James L. Shields Senior Vice President/Chief None Mr. Shields has served in various
Information Officer executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Jeffrey S. Van Harte(7) Senior Vice President/Chief Senior Vice President/Chief Mr. Van Harte has served in various
Investment Officer - Focus Investment Officer - Focus Growth executive capacities within Delaware
Growth Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Gary T. Abrams Vice President/Senior None Mr. Abrams has served in various
Equity Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Christopher S. Adams Vice President/Portfolio Vice President/Portfolio Mr. Adams has served in various
Manager/Senior Equity Manager/Senior Equity Analyst executive capacities within Delaware
Analyst Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Renee E. Anderson Vice President/Senior Vice President/Senior Equity Mr. Anderson has served in various
Equity Analyst II Analyst II executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Damon J. Andres Vice President/Senior Fixed Vice President/Senior Fixed Mr. Andres has served in various
Income Portfolio Manager I Income Portfolio Manager executive capacities within Delaware
Investments
Vice President - Lincoln National
Convertible Securities Fund, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Richard E. Biester Vice President/Equity Trader None Mr. Biester has served in various
executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Christopher J. Bonavico(8) Vice President/Senior Vice President/Senior Portfolio Mr. Bonavico has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Vincent A. Brancaccio Vice President/Senior None Mr. Brancaccio has served in various
Equity Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Edward J. Brennan Vice President/Private Assistant Vice President/Fixed Mr. Brennan has served in various
Placement Analyst Income Structural Analyst II executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Kenneth F. Broad(9) Vice President/Senior Vice President/Senior Portfolio Mr. Broad has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Mary Ellen M. Carrozza Vice President/Client Vice President/Client Services Ms. Carrozza has served in various
Services executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Stephen G. Catricks Vice President/Equity Vice President/Equity Analyst II Mr. Catricks has served in various
Analyst II executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
David F. Connor Vice President/Deputy Vice President/Deputy General Mr. Connor has served in various
General Counsel/Secretary Counsel/Assistant Secretary executive capacities within Delaware
Investments
Vice President/Deputy General
Counsel/Assistant Secretary -
Lincoln National Investment
Companies, Inc.
Secretary - Lincoln National
Convertible Securities Fund, Inc.
and Lincoln National Income Fund,
Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Stephen J. Czepiel Vice President/Senior Fixed None Mr. Czepiel has served in various
Income Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Joseph F. DeMichele Vice President/High Grade None Mr. DeMichele has served in various
Trading executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Christopher M. Ericksen(10) Vice President/Portfolio Vice President/Portfolio Manager Mr. Ericksen has served in various
Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Joel A. Ettinger Vice President/Taxation Vice President/Taxation Mr. Ettinger has served in various
executive capacities within Delaware
Investments
Vice President/Taxation - Lincoln
National Investment Companies, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Phoebe W. Figland Vice President/Investment Vice President/Investment Ms. Figland has served in various
Accounting Accounting executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Joseph Fiorilla Vice President/Trading None Mr. Fiorilla has served in various
Operations executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Charles E. Fish Vice President/Senior None Mr. Fish has served in various
Equity Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Clifford M. Fisher(11) Vice President/Senior Bond None Mr. Fisher has served in various
Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Patrick G. Fortier(12) Vice President/Senior Vice President/Senior Portfolio Mr. Fortier has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Denise A. Franchetti Vice President/Portfolio Vice President/Portfolio Ms. Franchetti has served in various
Manager/Municipal Bond Manager/Municipal Bond Credit executive capacities within Delaware
Credit Analyst Analyst Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
James A. Furgele Vice President/Investment Vice President/Investment Mr. Furgele has served in various
Accounting Accounting executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Daniel V. Geatens Vice President/Investment Vice President/Investment Mr. Geatens has served in various
Accounting Accounting executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Stuart M. George Vice President/Equity Trader None Mr. George has served in various
executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Barry S. Gladstein Vice President/Portfolio Vice President/Equity Analyst Mr. Gladstein has served in various
Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Brian T. Hannon Vice President/Senior Vice President/Senior Portfolio Mr. Hannon has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Lisa L. Hansen(13) Vice President/Head Trader Vice President/Head Trader of Ms. Hansen has served in various
of Focus Growth Equity Focus Growth Equity Trading executive capacities within Delaware
Trading Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Gregory M. Heywood(14) Vice President/Senior Vice President/Senior Research Mr. Heywood has served in various
Research Analyst Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Michael E. Hughes Vice President/Senior Vice President/Senior Equity Mr. Hughes has served in various
Equity Analyst I Analyst I executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Jeffrey W. Hynoski Vice President/Portfolio Vice President/Portfolio Manager Mr. Hynoski has served in various
Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Jordan L. Irving(15) Vice President/Senior Vice President/Senior Portfolio Mr. Irving has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Cynthia Isom Vice President/Senior Vice President/Portfolio Manager Ms. Isom has served in various
Portfolio Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Kenneth R. Jackson Vice President/Equity Vice President/Equity Analyst Mr. Jackson has served in various
Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Andrew Kronschnabel Vice President/High Grade None Mr. Kronschnabel has served in
Trader various executive capacities within
Delaware Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Roseanne L. Kropp Vice President/Senior Fund Vice President/Senior Fund Ms. Kropp has served in various
Analyst II/High Yield Analyst II/High Yield executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Nikhil G. Lalvani Vice President/Senior Vice President/Senior Equity Mr. Lalvani has served in various
Equity Analyst I Analyst I executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Steven T. Lampe Vice President/Portfolio Vice President/Portfolio Manager Mr. Lampe has served in various
Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Alfio Leone IV Vice President/High Grade None Mr. Leone has served in various
Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Anthony A. Lombardi(16) Vice President/Senior Vice President/Senior Portfolio Mr. Lombardi has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Charles (Tom) T. McClintic Vice President/High Yield None Mr. McClintic has served in various
Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Andrew M. McCullagh, Jr. Vice President/Senior Vice President/Senior Portfolio Mr. McCullagh has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Michael S. Morris Vice President/Portfolio Vice President/Senior Equity Mr. Morris has served in various
Manager Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Scott Moses Vice President/Fixed Income None Mr. Moses has served in various
Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
John R. Murray Vice President/Senior None Mr. Murray has served in various
Equity Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Philip O. Obazee Vice President/Derivatives Vice President/Derivatives Mr. Obazee has served in various
Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Donald G. Padilla Vice President/Equity Vice President/Equity Analyst II Mr. Padilla has served in various
Analyst II executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Daniel J. Prislin(17) Vice President/Senior Vice President/Senior Portfolio Mr. Prislin has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Craig S. Remsen Vice President/Research None Mr. Remsen has served in various
Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Joseph T. Rogina Vice President/Equity Trader None Mr. Rogina has served in various
executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Richard Salus Vice President/Deputy None Mr. Salus has served in various
Controller executive capacities within Delaware
Investments
Vice President/Deputy Controller -
Lincoln National Investment
Companies, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Kevin C. Schildt Vice President/Senior Vice President/Senior Research Mr. Schildt has served in various
Municipal Credit Analyst Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Richard D. Seidel Vice President/Assistant None Mr. Seidel has served in various
Controller/Manager - Payroll executive capacities within Delaware
Investments
Vice President/Assistant
Controller/Manager - Payroll -
Lincoln National Investment
Companies, Inc.
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Thomas Socha Vice President/Senior Fixed Vice President/Senior Fixed Mr. Socha has served in various
Income Analyst Income Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Brenda L. Sprigman Vice President/Business None Ms. Sprigman has served in various
Manager - Fixed Income executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Matthew J. Stephens Vice President/Senior High Vice President/Senior High Grade Mr. Stephens has served in various
Grade Analyst Analyst executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Michael T. Taggart Vice President/Facilities & None Mr. Taggart has served in various
Administrative Services executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Matthew Todorow(18) Vice President/Portfolio Vice President/Portfolio Manager Mr. Todorow has served in various
Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Spencer M. Tullo Vice President/Fixed Income None Mr. Tullo has served in various
Trader executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Robert A. Vogel, Jr.(19) Vice President/Senior Vice President/Senior Portfolio Mr. Vogel has served in various
Portfolio Manager Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Lori P. Wachs Vice President/Portfolio Vice President/Portfolio Manager Ms. Wachs has served in various
Manager executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
Laura A. Wagner Vice President/Investment Vice President/Investment Ms. Wagner has served in various
Accounting Accounting executive capacities within Delaware
Investments
------------------------------ ----------------------------- ---------------------------------- ------------------------------------
James J. Wright Vice President/Senior Vice President/Senior Equity Mr. Wright has served in various
Equity Analyst Analyst executive capacities within Delaware
Investments
------------------------------------------------------------------------------------------------------------------------------------
(1) Vice President of Finance, Prudential Investment Management, Inc.,
1998-2004.
(2) Senior Research Analyst, Strong Capital Management, 2000-2002.
(3) Head of Human Resources, Lincoln Life, 2001-2003.
(4) Associate General Counsel, Franklin Templeton Investments, 1998-2002.
(5) Managing Director/U.S. Active Large-Cap Value Team, Merrill Lynch,
1994-2004.
(6) Managing Director/Global Markets, Deutsche Bank, 1998-2003.
(7) Principal/Executive Vice President, Transamerica Investment Management,
LLC, 1980-2005.
(8) Principal/Portfolio Manager, Transamerica Investment Management, LLC,
1993-2005.
(9) Principal/Portfolio Manager, Transamerica Investment Management, LLC,
2000-2005.
(10) Portfolio Manager, Transamerica Investment Management, LLC, 2004-2005; Vice
President/Portfolio Manager, Goldman Sachs 1994-2004.
(11) Vice President/Municipal Bond, Advest, Inc., 1999-2002.
(12) Portfolio Manager, Transamerica Investment Management, LLC, 2000-2005.
(13) Principal/Portfolio Manager/Senior Trader, Transamerica Investment
Management, LLC, 1997-2005.
(14) Senior Research Analyst, Transamerica Investment Management, LLC,
2004-2005; Senior Analyst, Wells Capital Management, LLC 2003-2004; Senior
Analyst, Montgomery Asset Management 1996-2003.
(15) Vice President/U.S. Active Large-Cap Value Team, Merrill Lynch, 1998-2004.
(16) Director/U.S. Active Large-Cap Value Team, Merrill Lynch, 1998-2004.
(17) Principal/Portfolio Manager, Transamerica Investment Management, LLC,
1998-2005.
(18) Executive Director/Portfolio Manager, Morgan Stanley Investment Management,
1994-2003.
(19) Director/U.S. Active Large-Cap Value Team, Merrill Lynch, 1992-2004.
Item 27. Principal Underwriters.
(a)(1) Delaware Distributors, L.P. serves as principal underwriter for all
the mutual funds in the Delaware Investments Family of Funds.
(a)(2) Information with respect to each officer and partner of the
principal underwriter and the Registrant is provided below. Unless
otherwise noted, the principal business address of each officer
and partner of Delaware Distributors, L.P. is 2005 Market Street,
Philadelphia, PA19103-7094.
---------------------------------------- ---------------------------------------------- --------------------------------------------
Name and Principal Business Address Positions and Offices with Underwriter Positions and Offices with Registrant
---------------------------------------- ---------------------------------------------- --------------------------------------------
Delaware Distributors, Inc. General Partner None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Delaware Capital Management Limited Partner None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Delaware Investment Advisers Limited Partner None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Kevin J. Lucey President/Chief Executive Officer None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Philip N. Russo Executive Vice President None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Douglas L. Anderson Senior Vice President/Operations None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Michael P. Bishof Senior Vice President/Investment Accounting Senior Vice President/Chief Financial
Officer
---------------------------------------- ---------------------------------------------- --------------------------------------------
Jeffrey M. Kellogg Senior Vice President/Senior Product None
Manager/Communications Manager
---------------------------------------- ---------------------------------------------- --------------------------------------------
Deb Landsman-Yaros Senior Vice President/Head of Retail None
Investor Services
---------------------------------------- ---------------------------------------------- --------------------------------------------
Thomas M. McConnell Senior Vice President/Senior 529 Plans None
Product Manager
---------------------------------------- ---------------------------------------------- --------------------------------------------
Carolyn McIntyre Senior Vice President/Human Resources None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Brian L. Murray, Jr. Senior Vice President/Compliance Senior Vice President/Chief Compliance
Officer
---------------------------------------- ---------------------------------------------- --------------------------------------------
David P. O'Connor Senior Vice President/Strategic Investment Senior Vice President/Strategic Investment
Relationships and Initiatives/General Counsel Relationships and Initiatives/General
Counsel/Chief Legal Officer
---------------------------------------- ---------------------------------------------- --------------------------------------------
Daniel J. Perullo Senior Vice President/Eastern Director, None
Institutional Sales
---------------------------------------- ---------------------------------------------- --------------------------------------------
Robert E. Powers Senior Vice President/Senior Domestic Sales None
Manager
---------------------------------------- ---------------------------------------------- --------------------------------------------
Richard Salus Senior Vice President/Controller/ None
Treasurer/Financial Operations Principal
---------------------------------------- ---------------------------------------------- --------------------------------------------
James L. Shields Senior Vice President/Chief Information None
Officer
---------------------------------------- ---------------------------------------------- --------------------------------------------
Trevor M. Blum Vice President/Senior Consultant None
Relationship Manager
---------------------------------------- ---------------------------------------------- --------------------------------------------
E. Zoe Bradley Vice President/Product Management Manager None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Mel Carrozza Vice President/Client Services None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Anthony G. Ciavarelli Vice President/Counsel/Assistant Secretary Vice President/Associate General
Counsel/Assistant Secretary
---------------------------------------- ---------------------------------------------- --------------------------------------------
Elisa C. Colkitt Vice President/Broker Dealer Operations & None
Service Support
---------------------------------------- ---------------------------------------------- --------------------------------------------
David F. Connor Vice President/Deputy General Vice President/Deputy General
Counsel/Assistant Secretary Counsel/Secretary
---------------------------------------- ---------------------------------------------- --------------------------------------------
Joel A. Ettinger Vice President/Taxation Vice President/Taxation
---------------------------------------- ---------------------------------------------- --------------------------------------------
Edward M. Grant Vice President/Senior Domestic Sales Manager None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Audrey Kohart Vice President/Financial Planning and None
Reporting
---------------------------------------- ---------------------------------------------- --------------------------------------------
Josephine O'Brien Vice President/RFP Group Manager None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Robinder Pal Vice President/Senior Retail None
e-Business/Production Services Manager
---------------------------------------- ---------------------------------------------- --------------------------------------------
Marlene D. Petter Vice President/Marketing Communications None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Christian Reimer Vice President/529 Plans Product Manager None
---------------------------------------- ---------------------------------------------- --------------------------------------------
Richard D. Seidel Vice President/Assistant None
Controller/Assistant Treasurer
---------------------------------------- ---------------------------------------------- --------------------------------------------
Michael T. Taggart Vice President/Facilities & Administrative None
Services
---------------------------------------- ---------------------------------------------- --------------------------------------------
Molly Thompson Vice President/Associate Product Management None
Manager
---------------------------------------- ---------------------------------------------- --------------------------------------------
Kathryn R. Williams Vice President/Senior Counsel/Assistant Vice President/Associate General
Secretary Counsel/Assistant Secretary
---------------------------------------- ---------------------------------------------- --------------------------------------------
(b)(1) Lincoln Financial Distributors, Inc. (LFD) serves as financial intermediary wholesaler for all the mutual
funds in the Delaware Investments Family of Funds.
(b)(2) Information with respect to each officer and partner of LFD and the Registrant is provided below. Unless
otherwise noted, the principal business address of each officer and partner of LFD is 2001 Market Street,
Philadelphia, PA19103-7055.
-------------------------------------------- ----------------------------------------- ------------------------------------------
Name and Principal Business Address Positions and Office with LFD Positions and Offices with Registrant
-------------------------------------------- ----------------------------------------- ------------------------------------------
Westley V. Thompson President and Chief Executive Officer None
-------------------------------------------- ----------------------------------------- ------------------------------------------
David M. Kittredge Senior Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
William C. Miller Senior Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Terrance Mullen Senior Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Donald Roberson Senior Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
David L. Ahrendt(3) Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Duane L. Bernt(2) Vice President and Treasurer None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Nancy Briguglio Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Patrick J. Caulfield(1) Vice President and Chief Compliance None
Officer
-------------------------------------------- ----------------------------------------- ------------------------------------------
Daniel P. Hickey(2) Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Karina Istvan Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Rochelle Krombolz Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
William Lamoin Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Diane McCarthy Vice President, Chief Financial Officer None
and Chief Administrative Officer
-------------------------------------------- ----------------------------------------- ------------------------------------------
Henry Orvin Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
James Ryan Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Gregory Smith Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Marjorie Snelling Vice President None
-------------------------------------------- ----------------------------------------- ------------------------------------------
Marilyn K. Ondecker(3) Secretary None
---------------------------------------------------------------------------------------------------------------------------------
(1) 350 Church Street, Hartford, CT06103
(2) 1500 Market Street, Philadelphia, PA19103
(3) 1300 Clinton Street, Fort Wayne, IN46802
--------------------------------------------------------------------------------
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31 (a)
of the Investment Company Act of 1940 and the rules under that section
are maintained in Philadelphia at 2005 Market Street, Philadelphia, PA19103.
Item 29. Management Services. None.Item 30. Undertakings. Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia and Commonwealth of Pennsylvania on
this 22nd day of February, 2006.
DELAWARE GROUP ADVISER FUNDS
By: /s/ Jude T. DriscollJude T. Driscoll
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
/s/ Jude T. Driscoll Chairman/President/Chief February 22, 2006Jude T. Driscoll Executive Officer
(Principal Executive
Officer) and Trustee
/s/ Thomas L. Bennett * Trustee February 22, 2006Thomas L. Bennett
/s/ John A. Fry * Trustee February 22, 2006John A. Fry
/s/ Anthony D. Knerr * Trustee February 22, 2006Anthony D. Knerr
/s/ Lucinda S. Landreth * Trustee February 22, 2006Lucinda S. Landreth
/s/ Ann R. Leven * Trustee February 22, 2006Ann R. Leven
/s/ Thomas F. Madison * Trustee February 22, 2006Thomas F. Madison
/s/ Janet L. Yeomans * Trustee February 22, 2006Janet L. Yeomans
/s/ J. Richard Zecher * Trustee February 22, 2006J. Richard Zecher
/s/ Michael P. Bishof * Senior Vice President/ February 22, 2006Michael P. Bishof Chief Financial Officer
(Principal Accounting
Officer)
* By: /s/ Jude T. DriscollJude T. Driscoll
as Attorney-in-Fact for
each of the persons indicated
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS
TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INDEX TO EXHIBITS
Exhibit No. Exhibit
EX-99(b) Amended and Restated By-Laws (May 19, 2005)
EX-99(e)(1)(iii) Executed Amendment No. 1 (October 31, 2005) to Appendix A to
Second Amended and Restated Financial Intermediary
Distribution Agreement
EX-99(h)(2)(i) Executed Amendment No. 30 to Schedule A (October 1, 2005) of
Delaware Investments Family of Funds Fund Accounting
Agreement
EX-99(h)(3) Form of Executed Advisor Expense Limitation Letter (February21, 2006) between Delaware Management Company and the
Registrant
EX-99(h)(4) Form of Executed Distribution Expense Limitation Letter
(February 21, 2006) between Delaware Distributors, L.P. and
the Registrant
EX-99.(j) Consent of Independent Registered Public Accounting Firm
(February 2006)
EX-99(m)(4) Plan under Rule 12b-1 for R Class (May 15, 2003)
EX-99.(n) Plan under Rule 18f-3 (October 31, 2005)
EX-99.(p)(3) Code of Ethics for Lincoln Financial Distributors, Inc.
(April 2005)
EX-99.(q) Powers of Attorney
Dates Referenced Herein and Documents Incorporated by Reference
