Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment 144 757K
2: EX-99 Exhibit 99.(E)(1)(V) 7 30K
3: EX-99 Exhibit 99.(G)(4) 2 8K
4: EX-99 Exhibit 99.(H)(1)(I) 1 7K
5: EX-99 Exhibit 99.(H)(1)Iii 2 11K
6: EX-99 Exhibit 99.(H)(2)(I) 4 22K
7: EX-99 Exhibit 99.(H)(2)(Ii) 4 21K
8: EX-99 Exhibit 99.(J) 1 6K
9: EX-99 Exhibit 99.(P)(1) 8 30K
10: EX-99 Exhibit 99.(P)(2) 9 32K
11: EX-99 Exhibit 99.(Q) 9 52K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-95928
File No. 811-4547
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ____ / /
Post-Effective Amendment No. 45 /X/
----
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 45
----
VOYAGEUR MUTUAL FUNDS III
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
2005 Market Street, Philadelphia, Pennsylvania 19103-7094
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 523-1918
--------------
Richelle S. Maestro, Esquire, 2005 Market Street,
Philadelphia, Pennsylvania 19103-7094
--------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: June 30, 2004
-------------
It is proposed that this filing will become effective:
___X___immediately upon filing pursuant to paragraph (b)
_______on _________________________ 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. 45 to Registration File No. 2-95928
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
Delaware
Investments(SM)
GROWTH EQUITY --------------------------------------
A member of Lincoln Financial Group(R)
PROSPECTUS JUNE 30, 2004
--------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND
CLASS A o CLASS B o CLASS C o 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 2
Delaware Select Growth Fund 2
..................................................................
HOW WE MANAGE THE FUND page 5
Our investment strategies 5
The securities we typically invest in 6
The risks of investing in the Fund 7
..................................................................
WHO MANAGES THE FUND page 8
Investment manager 8
Portfolio managers 8
Who's who? 9
..................................................................
ABOUT YOUR ACCOUNT page 10
Investing in the Fund 10
Choosing a share class 10
Dealer compensation 12
How to reduce your sales charge 13
How to buy shares 14
Retirement plans 15
How to redeem shares 16
Account minimums 17
Special services 17
Dividends, distributions and taxes 19
Certain management considerations 19
..................................................................
FINANCIAL HIGHLIGHTS page 20
..................................................................
GLOSSARY page 22
1
PROFILE: DELAWARE SELECT GROWTH FUND
WHAT IS THE FUND'S GOAL?
Delaware Select Growth Fund seeks long-term capital appreciation which the
Fund attempts to achieve by investing primarily in equity securities of
companies we believe have the potential for high earnings growth. Although
the Fund will strive to meet its goal, there is no assurance that it will.
WHO SHOULD INVEST IN THE FUND
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to capital appreciation opportunities across a
broad range of industry sectors and company sizes.
WHO SHOULD NOT INVEST IN THE FUND
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES? We invest primarily in equity
securities of companies that we believe have the potential for high earnings
growth based on our analysis of their historical or projected earnings growth
rates, price-to-earnings ratios and cash flows. We consider companies of any
size, as long as they are larger than $300 million in market capitalization. We
look for companies that are undervalued, but still have the potential for high
earnings growth.
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 affected by declines in stock prices. This Fund may
be subject to greater investment risk than other funds because the companies the
Fund invests in are subject to greater changes in earnings and business
prospects than companies with more established earnings patterns.
For a more complete discussion of risk, please see "The risks of investing in
the Fund" on page 7.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor to
determine whether it is an appropriate choice for you.
2
HOW HAS THE DELAWARE SELECT 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 nine calendar years, as well as the average annual returns of all shares
for the one-year, five-year and lifetime periods. The Fund's past performance is
not necessarily an indication of how it will perform in the future. The returns
reflect contractual expense caps in effect during the periods. The returns would
be lower without the contractual caps.
YEAR-BY-YEAR TOTAL RETURN (Class A)
24.06% 28.55% 48.08% 36.46% 78.22% -22.33% -24.68% -32.85% 37.97%
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1995 1996 1997 1998 1999 2000 2001 2002 2003
As of March 31, 2004, the Fund's Class A shares had a calendar year-to-date
return of 3.68%. During the periods illustrated in this bar chart, Class A's
highest quarterly return was 43.13% for the quarter ended December 31, 1999 and
its lowest quarterly return was -27.96% for the quarter ended December 31, 2000.
The maximum Class A sales charge of 5.75%, 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 shown in the table below do include the
sales charge.
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AVERAGE ANNUAL RETURNS for periods ending 12/31/03 1 year 5 years lifetime**
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Class A return before taxes 30.00% -1.85% 11.71%
Class A return after taxes on distributions 30.00% -2.24% 10.22%
Class A return after taxes on distributions
and sale of Fund shares 19.50% -1.76% 9.47%
Class B return before taxes* 32.90% -1.86% 11.55%
Class C return before taxes* 35.87% -1.44% 11.56%
Class R return before taxes N/A N/A 12.79%
Russell 3000 Growth Index (reflects no
deduction for fees, expenses, or taxes) 30.97% -4.69% 9.53%
The Fund's returns are compared to the performance of the Russell 3000 Growth
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. Maximum sales charges are included in
the Fund returns shown immediately 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. If shares were not
redeemed, the returns for Class B would be 36.90%, -1.44% and 11.55%,
respectively, for the one-year, five-year and lifetime periods. Returns for
Class C would be 36.87%, -1.44% and 11.56%, respectively, for the one-year,
five-year and lifetime periods.
**The Russell 3000 Growth Index returns shown are for the Class A and Class C
lifetime periods beginning as of month end. Inception dates for Class A, Class
B, Class C and Class R shares of the Fund were May 16, 1994, April 16, 1996,
May 20, 1994 and June 2, 2003, respectively. The Russell 3000 Growth Index
returns for the Class B, Class C and Class R lifetimes was 5.73%, 9.53%, and
15.41%, respectively.
3
PROFILE: DELAWARE SELECT GROWTH FUND (CONTINUED)
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WHAT ARE THE FUND'S FEES AND EXPENSES? CLASS A B C R
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SALES CHARGES are fees paid directly from Maximum sales charge (load) imposed on
your investments when you buy or sell purchases as a percentage of offering price 5.75% none none none
shares of the Fund.
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(4) none none none none
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ANNUAL FUND OPERATING EXPENSES are deducted Management fees 0.74% 0.74% 0.74% 0.74%
from the Fund's assets.
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% 0.60%
Other expenses 0.87% 0.87% 0.87% 0.87%
Total operating expenses(5) 1.86% 2.61% 2.61% 2.21%
CLASS(7) A B B C C R
(IF REDEEMED) (IF REDEEMED)
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THIS EXAMPLE is intended to help you compare 1 year $753 $264 $664 $264 $364 $224
the cost of investing in the Fund to the cost
of investing in other mutual funds with 3 years $1,126 $811 $1,086 $811 $811 $691
similar investment objectives. We show the
cumulative amount of Fund expenses on a 5 years $1,523 $1,385 $1,610 $1,385 $1,385 $1,185
hypothetical investment of $10,000 with an
annual 5% return over the time shown.(6) 10 years $2,629 $2,762 $2,762 $2,944 $2,944 $2,544
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%
contingent deferred sales charge.
(4) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(5) The investment manager has contracted to waive fees and pay expenses through
December 31, 2004 in order to prevent total operating expenses (excluding
any 12b-1 expenses, taxes, interest, brokerage fees, extraordinary expenses
and certain insurance costs) from exceeding 1.25% 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. 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 10.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A Shares.
4
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. The following is a description of how the portfolio
managers pursue the Fund's investment goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We strive to identify companies that offer the potential for long-term price
appreciation because they are likely to experience high earnings growth. The
companies we choose for the portfolio typically exhibit one or more of the
following characteristics:
o a history of high growth in earnings-per-share;
o projections for high future growth or acceleration in earnings-per-share;
o a price-to-earnings ratio that is low relative to other stocks; or
o discounted cash flows that are high relative to other stocks.
Once we identify stocks that have these characteristics, we further evaluate the
companies. We look at the capability of the management team, the strength of a
company's position within its industry, whether its internal structure can
support continued growth, how high the company's return on equity is, how much
of the company's profits are reinvested into the company to fuel additional
growth, and how stringent the company's financial and accounting policies are.
All of these factors give us insight into the outlook for a company, helping us
to identify companies poised for high earnings growth. We believe that this high
earnings growth, if it occurs, may result in price appreciation for the
company's stock.
We maintain a well-diversified portfolio, typically holding a mix of different
stocks, representing a wide array of industries and a mix of small companies,
medium-size companies and large companies.
The Fund's investment objective is non-fundamental. This means that the Board of
Trustees may change the Fund's objective without obtaining shareholder approval.
If the objective were changed, we would notify shareholders before the change in
the objective became effective.
5
HOW WE MANAGE THE FUND (CONTINUED)
THE SECURITIES WE Stocks offer investors the potential for capital
TYPICALLY INVEST IN appreciation and may pay dividends as well.
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SECURITIES HOW WE USE THEM
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COMMON STOCKS: Securities that represent shares of We invest at least 65% of the Fund's total assets in equity
ownership in a corporation. Stockholders participate in the securities (including common stocks, preferred stocks,
corporation's profits and losses, proportionate to the number convertible securities and warrants or rights). Generally,
of shares they own. however, we invest 90% to 100% of net assets in common stock.
We may invest in companies of any size greater than $300
million in market capitalization.
REPURCHASE AGREEMENTS: An agreement between a buyer of Typically, we use repurchase agreements as a short-term
securities, such as the Fund, and a seller of securities in investment for the Fund's cash position. In order to enter
which the seller agrees to buy the securities back within a into these repurchase agreements, the Fund must have
specified time at the same price the buyer paid for them, collateral of 102% of the repurchase price. The Fund will only
plus an amount equal to an agreed upon interest rate. enter into repurchase agreements in which the collateral is
Repurchase agreements are often viewed as equivalent to cash. comprised of U.S. government securities.
RESTRICTED SECURITIES: Privately placed securities whose We may invest in privately placed securities including those
resale is restricted under securities law. that are eligible for resale only among certain institutional
buyers without registration, which are commonly known as Rule
144A Securities. Restricted securities that are determined to
be illiquid may not exceed the Fund's 15% limit on illiquid
securities, which is described below.
ILLIQUID SECURITIES: Securities that do not have a ready We may invest up to 15% of the Fund's net assets in illiquid
market and cannot be easily sold, within seven days, at securities.
approximately the price that a fund has valued them.
------------------------------------------------------------------------------------------------------------------------------------
The Fund may also invest in other securities including futures, options, debt
securities of government or corporate issuers and investment company securities.
The Fund may invest up to 10% of net assets in foreign securities including
American Depositary Receipts and Global Depositary Receipts; however, the
manager has no present intention of doing so. Please see the Statement of
Additional Information for additional descriptions on these securities as well
as those listed in the table above.
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.
LENDING SECURITIES The Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for their use in securities
transactions. These transactions, if any, may generate additional income for the
Fund.
BORROWING FROM BANKS The Fund may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions, though the Fund normally
does not do so. The Fund will not purchase new securities if borrowing exceeds
5% of net assets.
TEMPORARY DEFENSIVE POSITIONS For temporary defensive purposes, the Fund may
hold all of its assets in high quality fixed-income securities, cash or cash
equivalents. To the extent that the Fund holds these securities, it may be
unable to achieve its investment objective.
PORTFOLIO TURNOVER We anticipate that the Fund's annual portfolio turnover may
be greater than 100%. A turnover rate of 100% would occur if a Fund sold and
replaced securities valued at 100% of its net assets within one year, if for
example, the Fund bought and sold all of the securities in its portfolio once in
the course of a year or frequently traded a single security. High turnover can
result in increased transaction costs and tax liability for investors and may
affect the Fund's performance.
6
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN THE FUND 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. Following are the chief risks you assume when
investing in the Fund. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
[Enlarge/Download Table]
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RISKS HOW WE STRIVE TO MANAGE THEM
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MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market--like the stock or bond stocks we believe can appreciate over an extended time
market--will decline in value because of factors such as frame regardless of interim market fluctuations. We do
economic conditions, future expectations or investor not try to predict overall stock market movements and
confidence. though we may hold securities for any amount of time, we
generally do not trade for short-term purposes.
INDUSTRY AND SECURITY RISK is the risk that the value of We limit the amount of the Fund's assets invested in any
securities in a particular industry or the value of an one industry and in any individual security. We also
individual stock or bond will decline because of changing follow a rigorous selection process before choosing
expectations for the performance of that industry or for the securities and continuously monitor them while they
individual company issuing the stock. remain in the portfolio.
COMPANY SIZE RISK is the risk that prices of small and The Fund seeks opportunities among companies of all
medium-size companies may be more volatile than larger sizes. Because its portfolio does not concentrate
companies because of limited financial resources or specifically on small or medium-size companies, this
dependence on narrow product lines. risk may be balanced by our holdings of large companies.
INTEREST RATE RISK is the risk that securities will decrease We analyze each company's financial situation and its
in value if interest rates rise. The risk is generally cash flow to determine the company's ability to finance
associated with bonds; however, because small and medium-size future expansion and operations. The potential effect
companies often borrow money to finance their operations, that rising interest rates might have on a stock is
they may be adversely affected by rising interest rates. taken into consideration before the stock is purchased.
LIQUIDITY RISK is the possibility that securities cannot be We limit exposure to illiquid securities.
readily sold, within seven days, at approximately the price
that a fund values them.
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7
WHO MANAGES THE FUND
INVESTMENT MANAGER The Fund is managed by Delaware Management Company, a
series of Delaware Management Business Trust, which is an
indirect, wholly owned subsidiary of Delaware Management
Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs
and provides daily administrative services. For these
services, the manager was paid a fee equal to 0.39% of
average daily net assets for the last fiscal year, net of
fees waivers.
PORTFOLIO Gerald S. Frey has primary responsibility for making
MANAGERS day-to-day investment decisions for the Delaware Select
Growth Fund. When making investment decisions for the Fund,
Mr. Frey regularly consults with Marshall T. Bassett, John
A. Heffern, Jeffrey W. Hynoski, Steven T. Lampe, Matthew
Todorow and Lori P. Wachs.
GERALD S. FREY, Managing Director/Chief Investment Officer,
Growth Investing, has 24 years' experience in the money
management business and holds a BA in Economics from
Bloomsburg University and attended Wilkes College and New
York University. Prior to joining Delaware Investments in
1996, he was a Senior Director with Morgan Grenfell Capital
Management in New York. Mr. Frey has been senior portfolio
manager for the Fund since its inception.
MARSHALL T. BASSETT, Senior Vice President/Senior Portfolio
Manager, joined Delaware Investments in 1997. Before
joining Delaware Investments, he served as Vice President
in Morgan Stanley Asset Management's Emerging Growth Group,
where he analyzed small growth companies. Prior to that, he
was a trust officer at Sovran Bank and Trust Company. He
received a bachelor's degree and an MBA from Duke
University.
JOHN A. HEFFERN, Senior Vice President/Senior Portfolio
Manager, earned bachelors and MBA degrees at the University
of North Carolina at Chapel Hill. Prior to joining Delaware
Investments in 1997, he was a Senior Vice President, Equity
Research at NatWest Securities Corporation's Specialty
Financial Services unit. Before that, he was a Principal
and Senior Regional Bank Analyst at Alex. Brown & Sons.
JEFFREY W. HYNOSKI, Vice President/Portfolio Manager,
joined Delaware Investments in 1998. Prior to joining
Delaware Investments, he served as a Vice President at
Bessemer Trust Company in the mid- and large-
capitalization growth group, where he specialized in the
areas of science, technology, and telecommunications. Prior
to that, Mr. Hynoski held positions at Lord Abbett & Co.
and Cowen Asset Management. Mr. Hynoski holds a BS in
Finance from the University of Delaware and an MBA with a
concentration in Investments/Portfolio Management and
Financial Economics from Pace University.
STEVEN T. LAMPE, Vice President/Portfolio Manager, received
a bachelors degree in Economics and an MBA with a
concentration in Finance from the University of
Pennsylvania's Wharton School. He joined Delaware
Investments in 1995. He previously served as a manager at
PriceWaterhouse, specializing in financial services firms.
Mr. Lampe is a Certified Public Accountant.
MATTHEW TODOROW, Vice President/Portfolio Manager, holds a
BBA from Temple University and an MBA from the University
of Georgia's Terry College of Business. Prior to joining
Delaware Investments in 2003, he served as Executive
Director for Morgan Stanley Investment Management and as
Portfolio Manager for the Small/Mid Cap Group; prior to
that, he held positions at Keeton Capital Management.
LORI P. WACHS, Vice President/Portfolio Manager, joined
Delaware Investments in 1992 from Goldman Sachs, where she
was an equity analyst for two years. She is a graduate of
the University of Pennsylvania's Wharton School, where she
majored in Finance and Oriental Studies.
8
WHO'S WHO? This diagram shows the various organizations involved with managing,
administering and servicing the Delaware Investments Funds.
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BOARD OF TRUSTEES
-------------------
---------------------------- | -------------------------
INVESTMENT MANAGER ------------------- CUSTODIAN
Delaware Management Company --------------------- THE FUND ------------------ Mellon Bank, N.A.
2005 Market Street ------------------- One Mellon Center
Philadelphia, PA 19103-7094 | | Pittsburgh, PA 15258
---------------------------- --------------------------- | --------------------------
| DISTRIBUTOR |
| Delaware Distributors, L.P. ------------------------------
---------------------------- 2005 Market Street SERVICE AGENT
PORTFOLIO MANAGERS Philadelphia, PA 19103-7094 Delaware Service Company, Inc.
(see page 8 for details) --------------------------- 2005 Market Street
---------------------------- | Philadelphia, PA 19103-7094
| ------------------------------
------------------------------------ |
FINANCIAL INTERMEDIARY WHOLESALER |
Lincoln Financial Distributors, Inc. |
2001 Market Street |
Philadelphia, PA 19103-7055 |
------------------------------------ |
| |
---------------------
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 Select
Growth Fund relies on certain exemptive rules created by the SEC that require
the Board of Trustees overseeing the Fund 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
Regulation, Inc. (NASDR(SM)) 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 compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
SHAREHOLDERS Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment policies must also seek
shareholder approval.
9
ABOUT YOUR ACCOUNT
INVESTING IN You can choose from a number of share classes for the
THE FUND 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 o Class A shares have an up-front sales charge of up to
A 5.75% that you pay when you buy the shares. The
offering price for Class A shares includes the
front-end sales charge.
o If you invest $50,000 or more, your front-end sales
charge will be reduced.
o You may qualify for other reduced sales charges, as
described in "How to reduce your sales charge," and
under certain circumstances the sales charge may be
waived; please see the Statement of Additional
Information.
o Class A shares are also subject to an annual 12b-1 fee
no greater than 0.25% of average daily net assets,
which is lower than the 12b-1 fee for Class B, Class C
and Class R shares.
o Class A shares generally are not subject to a
contingent deferred sales charge except in the limited
circumstances described in the table below.
o Class A shares generally are not available for
purchase by anyone qualified to purchase Class R
shares.
[Enlarge/Download Table]
CLASS A SALES CHARGES -------------------------------------------------------------------------------------------------------------
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED(1)
-------------------------------------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10%
$50,000 but under $100,000 4.75% 4.99%
$100,000 but under $250,000 3.75% 3.90%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1 million 2.00% 2.04%
-------------------------------------------------------------------------------------------------------------
As shown below, there is no front-end sales charge when you purchase $1 million or more of Class A shares.
However, if your financial advisor is paid a commission on your purchase, you will have to pay a limited
contingent deferred sales charge of 1% if you redeem these shares within the first year and 0.50% if you
redeem them within the second year, unless a specific waiver of the charge applies.
-------------------------------------------------------------------------------------------------------------
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED(1)
-------------------------------------------------------------------------------------------------------------
$1 million up to $5 million none none
Next $20 million up to $25 million none none
Amount over $25 million none none
-------------------------------------------------------------------------------------------------------------
(1) This is the maximum percentage of the amount invested rounded to the nearest
hundredth. The actual percentage will vary based on the amount invested,
rounding and the then-current NAV.
10
CLASS o Class B shares have no up-front sales charge, so the
B full amount of your purchase is invested in the Fund.
However, you will pay a contingent deferred sales
charge of 1% 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 Under certain circumstances the contingent deferred
sales charge may be waived; please see the Statement
of Additional Information.
o For approximately eight years after you buy your Class
B shares, they are subject to annual 12b-1 fees no
greater than 1% of average daily net assets, of which
0.25% are service fees paid to the distributor,
dealers or others for providing services and
maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class B shares have
higher expenses and any dividends paid on these shares
are lower than dividends on Class A 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 0.25%. 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 o Class C shares have no up-front sales charge, so the
C full amount of your purchase is invested in the Fund.
However, you will pay a contingent deferred sales
charge of 1% if you redeem your shares within 12
months after you buy them.
o Under certain circumstances the contingent deferred
sales charge may be waived; please see the Statement
of Additional Information.
o Class C shares are subject to an annual 12b-1 fee no
greater than 1% of average daily net assets, of which
0.25% are service fees paid to the distributor,
dealers or others for providing services and
maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have
higher expenses and any dividends paid on these shares
are 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.
11
ABOUT YOUR ACCOUNT (CONTINUED)
CLASS o Class R shares have no up-front sales charge, so the
R 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% 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 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) to IRA rollovers from
plans maintained on Delaware's retirement
recordkeeping system that are offering Class R shares
to participants.
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.
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
program requires 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.
DEALER Your financial advisor who sells you shares of the Fund
COMPENSATION 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 up to $49,999 5.00% - - -
$50,000 to $99,999 4.00% - - -
$100,000 to $249,999 3.00% - - -
$250,000 to $499,999 2.00% - - -
$500,000 to $999,999 1.60% - - -
$1,000,000 to $4,999,999 1.00% - - -
$5,000,000 to $24,999,999 0.50% - - -
$25,000,000 or more 0.25% - - -
12B-1 FEE TO DEALER 0.25% 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 0.25%
12b-1 fee applicable to Class A shares.
(2) On sales of Class B shares, the Distributor pays your securities dealer an
up-front commission of 4.00%. After approximately eight years, Class B
shares automatically convert into Class A shares and dealers may then be
eligible to receive the 0.25% 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. Your securities dealer may be eligible to
receive a 12b-1 of up to 0.60% from the date of purchase.
12
HOW TO REDUCE YOUR We offer a number of ways to reduce or eliminate the sales
SALES CHARGE charge on shares. 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 as your other
Delaware Investments fund holdings and the names of
qualifying family members and their holdings. Please refer
to the Statement of Additional Information 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. Class R shares do not have an up front sales
charge.
[Enlarge/Download Table]
-----------------------------------------------------------------------------------------------------------------------------------
SHARE CLASS
PROGRAM HOW IT WORKS A B C
-----------------------------------------------------------------------------------------------------------------------------------
Letter of Intent Through a Letter of Intent you X Although the Letter of Intent and Rights of
agree to invest a certain amount Accumulation do not apply to the purchase of
in Delaware Investments Funds Class B and Class C shares, you can combine
(except money market funds with your purchase of Class A shares with your
no sales charge) over a 13-month purchase of Class B and Class C shares to
period to qualify for reduced fulfill your Letter of Intent or qualify for
front-end sales charges. 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, you For Class B, your Not available.
Redeemed Shares shares, you can reinvest the will not have to pay account will be
proceeds without paying a sales an additional credited with the
charge as noted to the right. front-end sales contingent deferred
charge on the sales charge you
amount you are previously paid on
reinvesting. 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 X There is no reduction in sales charges for
SAR/SEP, Prototype Profit qualify for reduced sales Class B or Class C shares by group purchases
Sharing, Pension, 401(k), charges by combining the by retirement plans.
SIMPLE 401(k), 403(b)(7), purchases of all members of the
and 457 Retirement Plans group. Members of these groups
may also qualify to purchase
shares without a front-end sales
charge and may qualify for a
waiver of any contingent
deferred sales charges.
-----------------------------------------------------------------------------------------------------------------------------------
13
ABOUT YOUR ACCOUNT (CONTINUED)
HOW TO BUY SHARES THROUGH YOUR FINANCIAL ADVISOR
Your financial advisor can handle all the details of
purchasing shares, including opening an account. Your
advisor may charge a separate fee for this service.
BY MAIL
Complete an investment slip and mail it with your
check, made payable to the fund and class of shares
you wish to purchase, to Delaware Investments, 2005
Market Street, Philadelphia, PA 19103-7094. 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.
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
so we can assign you an account number.
BY EXCHANGE
You can exchange all or part of your investment in one
or more funds in the Delaware Investments family for
shares of other funds in the family. Please keep in
mind, however, that under most circumstances you are
allowed to exchange only between like classes of
shares. To open an account by exchange, call the
Shareholder Service Center at 800 523-1918.
THROUGH AUTOMATED SHAREHOLDER SERVICES
You can purchase or exchange shares through Delaphone,
our automated telephone service, 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.
14
HOW TO BUY SHARES Once you have completed an application, you can generally
(continued) open an account with an initial investment of $1,000 and
make additional investments at any time for as little as
$100. If you are buying shares in an Individual Retirement
Account (IRA) or Roth IRA, under the Uniform Gifts to
Minors Act or the Uniform Transfers to Minors Act, or
through an Automatic Investing Plan, the minimum purchase
is $250, and you can make additional investments of only
$25. The minimum for 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. In particular, we reserve the
right to reject any specific purchase order for any person
whose transactions seem to follow a "market timing"
pattern. If we or an authorized agent receives your order
before the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. Eastern Time) on a business
day, you will pay that day's closing share price which is
based on the Fund's net asset value. If your order is
received after the close of regular trading, you will pay
the next business day's price. A business day is any day
that the New York Stock Exchange is open for business.
We determine the Fund's net asset value (NAV) per share at
the close of regular trading on the New York Stock
Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the
securities and assets in the Fund's portfolio, deducting
all liabilities, and dividing the resulting number by the
number of shares outstanding. The result is the net asset
value per share. We 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. Any fixed-income securities that have a maturity
of less than 60 days we price 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.
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.
15
ABOUT YOUR ACCOUNT (CONTINUED)
HOW TO REDEEM SHARES THROUGH YOUR FINANCIAL ADVISOR
Your financial advisor can handle all the details of
redeeming your shares. Your advisor may charge a
separate fee for this service.
BY MAIL
You can redeem your shares (sell them back to the
fund) by mail by writing to: Delaware Investments,
2005 Market Street, Philadelphia, PA 19103-7094. All
owners of the account must sign the request, and 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 an account.
BY TELEPHONE
You can 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.
BY WIRE
You can 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.
THROUGH AUTOMATED SHAREHOLDER SERVICES
You can redeem shares through Delaphone, our automated
telephone service, or through our web site,
www.delawareinvestments.com. For more information
about how to sign up for these services, call our
Shareholder Service Center at 800 523-1918.
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 receives
the request before the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time), you
will receive the net asset value next determined after we
receive your request. If we receive your request after the
close of regular trading on the New York Stock Exchange,
you will receive the net asset value 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.
16
HOW TO REDEEM SHARES If you are required to pay a contingent deferred sales
(continued) charge when you redeem your shares, the amount subject to
the fee will be based on the shares' net asset value when
you purchased them or their net asset value when you
redeem them, whichever is less. This arrangement assures
that you will not pay a contingent deferred sales charge
on any increase in the value of your shares. You also will
not pay the charge on any shares acquired by reinvesting
dividends or capital gains. If you exchange shares of one
fund for shares of another, you do not pay a contingent
deferred sales charge at the time of the exchange. If you
later redeem those shares, the purchase price for purposes
of the contingent deferred sales charge formula will be
the price you paid for the original shares--not the
exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually
redeeming.
ACCOUNT MINIMUMS If you redeem shares and your account balance falls below
the required account minimum of $1,000 ($250 for IRAs,
Uniform Gifts to Minors Act or Uniform Transfers to Minors
Act accounts or accounts with automatic investing plans,
$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, the Fund may redeem your
account after 60 days' written notice to you.
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.
ONLINE ACCOUNT ACCESS
Account access is a password protected area of the
Delaware Investments Web site that gives you access to
your account information and allows you to perform
transactions in a secure environment.
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 environment at any
time, from anywhere.
WEALTH BUILDER OPTION
With the Wealth Builder Option you can arrange
automatic monthly exchanges between your shares in one
or more of the funds in the Delaware Investments
family. 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.
17
ABOUT YOUR ACCOUNT (CONTINUED)
SPECIAL SERVICES To help make investing with us as easy as possible, and
(continued) to help you build your investments, we offer the following
special services.
----------------------------------------------------------
EXCHANGES
You can exchange all or part of your shares, normally
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. We may refuse the purchase side
of any exchange request, if, in the investment
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. In particular, a pattern of
exchanges that coincide with a "market timing"
strategy may be refused. 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 similar shares in other funds, your new
shares will be subject to the same contingent deferred
sales charge as the shares you originally purchased.
The holding period for the 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
don't pay sales charges on shares that you acquired
through the reinvestment of dividends. You may have to
pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you
should be sure to get a copy of the fund's prospectus
and read it carefully before buying shares through an
exchange.
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, except for purchases into IRAs.
MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000. 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 CDSC for Class
A Shares and CDSC for Class B and C Shares redeemed
via a Systematic Withdrawal Plan will be waived if the
annual amount withdrawn in each year is less than 12%
of the account balance on the date that the Plan is
established. If the annual amount withdrawn in any
year exceeds 12% of the account balance on the date
that the Systematic Withdrawal Plan is established,
all redemptions under the Plan will be subjected to
the applicable contingent deferred sales charge,
including an assessment for previously redeemed
amounts under the Plan.
18
DIVIDENDS, Delaware Select Growth Fund expects to declare and
DISTRIBUTIONS AND distribute all of its net investment income, if any, to
TAXES shareholders as dividends annually. The Fund also will
distribute net capital gains, if any, annually. We
automatically reinvest all dividends and any capital
gains, unless you direct us to do otherwise.
In addition, in order to satisfy certain distribution
requirements of the Tax Reform Act of 1986, the Fund may
declare special year-end dividend and capital gains
distributions during November and December to shareholders
of record on a date in such month. Such distributions, if
received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on the
earlier of the date paid or December 31 of the prior year.
On May 28, 2003, President Bush signed into law the Jobs
and Growth Tax Relief Reconciliation Act of 2003, which
changes the tax rates on certain types of distributions.
We urge you to consult your tax advisor about your
particular tax situation and how it might be affected by
the new tax law. The tax status of your dividends from the
Fund is the same whether you reinvest your dividends or
receive them in cash.
Distributions from the Fund's long-term capital gains are
taxable as capital gains, while distributions from
short-term capital gains and net investment income are
generally taxable as ordinary income. The tax rate on
capital gains is less than the tax rate on ordinary
income.
You also may be subject to state and local taxes on
distributions. Tax laws are subject to change, so we urge
you to consult your tax advisor about your particular tax
situation and how it might be affected by current tax law.
We will send you a statement each year by January 31
detailing the amount and nature of all dividends and
capital gains that you were paid for the prior year.
CERTAIN MANAGEMENT INVESTMENTS BY FUND OF FUNDS AND INVESTMENT VEHICLES THAT
CONSIDERATIONS OPERATE SIMILARLY TO FUNDS OF FUNDS
The Fund accepts investments from funds of funds,
including those within Delaware Investments family, and
investment vehicles that operate similarly to funds of
funds, 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 also 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/or similar investment vehicles and will
attempt to minimize any adverse effects on the Fund and
funds of funds and/or similar investment vehicle as a
result of these transactions.
MARKET TIMING
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 will consider anyone who follows a
pattern of market timing in any fund in the Delaware
Investments Family of Funds to be a market timer.
Market timing of a fund occurs when investors make
consecutive rapid short-term "roundtrips", or in other
words, 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. 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 Fund also reserves the right to
consider other trading patterns as 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.
19
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800 523-1918.
[Enlarge/Download Table]
CLASS A
----------------------------------------------------------------------------------------------------------------------------------
Year ended
4/30
DELAWARE SELECT GROWTH FUND 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $16.700 $20.290 $24.890 $36.380 $25.910
Income (loss) from investment operations:
Net investment loss(2) (0.171) (0.147) (0.193) (0.302) (0.294)
Net realized and unrealized gain (loss) on investments 4.151 (3.443) (4.407) (11.188) 12.393
------- ------- ------- ------- -------
Total from investment operations 3.980 (3.590) (4.600) (11.490) 12.099
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments -- -- -- -- (1.049)
In excess of net realized gain on investments -- -- -- -- (0.580)
------- ------- ------- ------- -------
Total dividends and distributions -- -- -- -- (1.629)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $20.680 $16.700 $20.290 $24.890 $36.380
======= ======= ======= ======= =======
TOTAL RETURN(3) 23.83% (17.69%) (18.48%) (31.57%) 47.93%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $243,201 $208,395 $333,172 $475,767 $632,036
Ratio of expenses to average net assets 1.50% 1.50% 1.45% 1.37% 1.29%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.86% 1.83% 1.50% 1.38% 1.29%
Ratio of net investment loss to average net assets (0.87%) (0.92%) (0.86%) (0.90%) (0.85%)
Ratio of net investment loss to average net assets prior to expense
limitation and expenses paid indirectly (1.23%) (1.25%) (0.91%) (0.91%) (0.85%)
Portfolio turnover 82% 69% 127% 156% 183%
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(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 and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
[Enlarge/Download Table]
HOW TO READ THE NET INVESTMENT NET REALIZED AND UNREALIZED GAIN (LOSS) ON NET ASSET VALUE
FINANCIAL HIGHLIGHTS INCOME (LOSS) INVESTMENTS (NAV)
--------------------------------------------------------------------------------------------------------
Net investment A realized gain on investments occurs when we This is the value of a
income (loss) sell an investment at a profit, while a mutual fund share,
includes dividend realized loss on investments occurs when we calculated by dividing the
and interest income sell an investment at a loss. When an net assets by the number
earned from a fund's investment increases or decreases in value of shares outstanding.
securities; it is but we do not sell it, we record an
after expenses have unrealized gain or loss. The amount of
been deducted. realized gain per share, if any, that we pay
to shareholders would be listed under "Less
distributions - From net realized gain on
investments."
20
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Class B Class C Class R
------------------------------------------------------- -------------------------------------------------------- ----------
Period
Year ended Year ended 6/2/03
4/30 4/30 through
2004 2003 2002 2001 2000 2004 2003 2002 2001 2000 4/30/04(1)
------------------------------------------------------- -------------------------------------------------------- ----------
$15.590 $19.090 $23.600 $34.740 $24.990 $15.430 $18.890 $23.350 $34.370 $24.740 $18.530
(0.308) (0.259) (0.340) (0.521) (0.544) (0.306) (0.258) (0.337) (0.517) (0.555) (2.370)
3.878 (3.241) (4.170) (10.619) 11.923 3.826 (3.202) (4.123) (10.503) 11.814 4.460
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
3.570 (3.500) (4.510) (11.140) 11.379 3.520 (3.460) (4.460) (11.020) 11.259 2.090
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
-- -- -- -- (1.049) -- -- -- -- (1.049) --
-- -- -- -- (0.580) -- -- -- -- (0.580) --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
-- -- -- -- (1.629) -- -- -- -- (1.629) --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$19.160 $15.590 $19.090 $23.600 $34.740 $18.950 $15.430 $18.890 $23.350 $34.370 $20.620
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
22.90% (18.33%) (19.11%) (32.07%) 46.82% 22.81% (18.27%) (19.14%) (32.06%) 46.86% 11.28%
$281,906 $257,542 $421,578 $588,152 $674,810 $98,549 $95,552 $166,246 $248,685 $304,078 $262
2.25% 2.25% 2.20% 2.12% 2.04% 2.25% 2.25% 2.20% 2.12% 2.04% 1.85%
2.61% 2.58% 2.25% 2.13% 2.04% 2.61% 2.58% 2.25% 2.13% 2.04% 2.21%
(1.62%) (1.67%) (1.61%) (1.65%) (1.60%) (1.62%) (1.67%) (1.61%) (1.65%) (1.60%) (1.26%)
(1.98%) (2.00%) (1.66%) (1.66%) (1.60%) (1.98%) (2.00%) (1.66%) (1.66%) (1.60%) (1.62%)
82% 69% 127% 156% 183% 82% 69% 127% 156% 183% 82%
------------------------------------------------------- -------------------------------------------------------- ----------
[Enlarge/Download Table]
RATIO OF NET
RATIO OF EXPENSES TO INVESTMENT LOSS TO
TOTAL RETURN NET ASSETS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO TURNOVER
------------------------------------------------------------------------------------------------------------------------------------
This represents the Net assets The expense ratio is the We determine this This figure tells you the
rate that an investor represent the percentage of net assets that a ratio by dividing net amount of trading activity
would have earned or total value of all fund pays annually for operating investment income by in a fund's portfolio. For
lost on an investment the assets in a expenses and management fees. average net assets. example, a fund with a 50%
in a fund. In fund's portfolio, These expenses include accounting turnover has bought and
calculating this less any and administration expenses, sold half of the value of
figure for the liabilities, that services for shareholders, and its total investment
financial highlights are attributable similar expenses. portfolio during the
table, we include to that class of stated period.
applicable fee the fund.
waivers, exclude
front-end and
contingent deferred
sales charges, and
assume the shareholder
has reinvested all
dividends and realized
gains.
21
GLOSSARY
HOW TO USE THIS GLOSSARY
The glossary contains 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.
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 investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
COMPOUNDING
Earnings on an investment's previous earnings.
CONSUMER PRICE INDEX (CPI)
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
CONTINGENT DEFERRED SALES CHARGE (CDSC)
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial advisor for advice and service, rather than an up-front
commission.
CORPORATE BOND
A debt security issued by a corporation.
DEPRECIATION
A decline in an investment's value.
DIVERSIFICATION
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
DIVIDEND DISTRIBUTION
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
EXPENSE RATIO
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
FINANCIAL ADVISOR
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
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.
22
MARKET CAPITALIZATION
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
NASD REGULATION, INC. (NASDR(SM))
The independent subsidiary of the National Association of Securities Dealers,
Inc. 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 (S&P) and Fitch, Inc. (Fitch).
NET ASSETS
Net assets means the total value of all assets in a Fund's portfolio, minus any
liabilities, plus the amount of a Fund's borrowings, if any, for investment
purposes.
NET ASSET VALUE (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
PREFERRED STOCK
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay 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.
RUSSELL 3000 GROWTH INDEX
The Russell 3000 Growth Index measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indexes.
SALES CHARGE
Charge on the purchase or redemption of fund shares sold through financial
advisors. May vary with the amount invested. Typically used to compensate
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.
23
GLOSSARY (CONTINUED)
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The document serving as "Part B" of a fund's registration statement that
provides more detailed information about the fund's organization, investments,
policies and risks.
STOCK
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as 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 a simple way to transfer property to a minor
with special tax advantages.
VOLATILITY
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
24
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DELAWARE SELECT 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 report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
Prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semiannual report, or if you have any questions about investing in
the Fund, you can write to us at 2005 Market Street, Philadelphia, PA
19103-7094, or call toll-free 800 523-1918. 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 the 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 8 p.m.
Eastern Time:
o For fund information, literature, price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments, wire redemptions, telephone redemptions
and telephone exchanges.
DELAPHONE SERVICE
800 362-FUND (800 362-3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R) service.
DELAWARE SELECT GROWTH FUND SYMBOLS
Delaware Select Growth Fund
CUSIP NASDAQ
----- ------
Class A 928931104 DVEAX
Class B 928931849 DVEBX
Class C 928931203 DVECX
Class R 928931740 DFSRX
Investment Company Act file number: 811-4547
PR-316 [--] IVES 6/04 J9707
GROWTH EQUITY
Prospectus JUNE 30, 2004
--------------------------------------------------------------------------------
DELAWARE SELECT 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.
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
TABLE OF CONTENTS
......................................................................
FUND PROFILE page 2
Delaware Select Growth Fund 2
......................................................................
HOW WE MANAGE THE FUND page 5
Our investment strategies 5
The securities we typically invest in 6
The risks of investing in the Fund 7
......................................................................
WHO MANAGES THE FUND page 8
Investment manager 8
Portfolio managers 8
Who's who? 9
......................................................................
ABOUT YOUR ACCOUNT page 10
Investing in the Fund 10
How to buy shares 11
How to redeem shares 12
Account minimum 12
Exchanges 12
Dividends, distributions and taxes 13
Certain management considerations 13
......................................................................
FINANCIAL HIGHLIGHTS page 14
......................................................................
GLOSSARY page 16
1
PROFILE: DELAWARE SELECT GROWTH FUND
WHAT IS THE FUND'S GOAL?
Delaware Select Growth Fund seeks long-term capital appreciation
which the Fund attempts to achieve by investing primarily in equity
securities of companies we believe have the potential for high
earnings growth. Although the Fund will strive to meet its goal,
there is no assurance that it will.
WHO SHOULD INVEST IN THE FUND
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to capital appreciation opportunities
across a broad range of industry sectors and company sizes.
WHO SHOULD NOT INVEST IN THE FUND
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may
fluctuate, sometimes significantly, over the short term.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES? We invest primarily in equity
securities of companies that we believe have the potential for high earnings
growth based on our analysis of their historical or projected earnings growth
rates, price-to-earnings ratios and cash flows. We consider companies of any
size, as long as they are larger than $300 million in market capitalization. We
look for companies that are undervalued, but still have the potential for high
earnings growth.
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 affected by declines in stock prices. This Fund may
be subject to greater investment risk than other funds because the companies the
Fund invests in are subject to greater changes in earnings and business
prospects than companies with more established earnings patterns.
For a more complete discussion of risk, please see "The risks of investing in
the Fund" on page 7.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor to
determine whether it is an appropriate choice for you.
2
HOW HAS THE DELAWARE SELECT 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 Institutional Class shares have varied
over the past nine calendar years, as well as the average annual returns of
these shares for the one-year, five-year and lifetime periods. Delaware Select
Growth Fund's Institutional Class commenced operations on August 28, 1997.
Return information for the Class for the periods prior to the time the Class
commenced operations is calculated by taking the performance of Delaware Select
Growth Fund A Class and eliminating all sales charges that apply to Class A
shares. However, for those periods, Class A 12b-1 payments were not eliminated,
and performance would have been affected if this adjustment had been made. The
Fund's past performance is not necessarily an indication of how it will perform
in the future. The returns reflect contractual expense caps in effect during the
periods. The returns would be lower without the contractual caps.
YEAR-BY-YEAR TOTAL RETURN (Institutional Class)
24.06% 28.55% 48.38% 36.78% 78.64% -22.11% -24.49% -32.69% 38.31%
----- ------ ------ ------ ------- ------- ------- ------- ------
1995 1996 1997 1998 1999 2000 2001 2002 2003
As of March 31, 2004, the Fund's Institutional Class had a calendar year-to-date
return of 3.76%. During the periods illustrated in this bar chart, the
Institutional Class' highest quarterly return was 43.20% for the quarter ended
December 31, 1999 and its lowest quarterly return was -27.93% for the quarter
ended December 31, 2000.
AVERAGE ANNUAL RETURNS for periods ending 12/31/03
[Download Table]
1 year 5 years lifetime
Return before taxes 38.31% -0.44% 12.60%
Return after taxes on distributions 38.31% -0.83% 11.10%
Return after taxes on distributions and sale of
Fund shares 24.90% -0.57% 10.28%
Russell 3000 Growth Index
(reflects no deduction for fees,
expenses, or taxes) 30.97% -4.69% 1.85%
The Fund's returns are compared to the performance of the Russell 3000 Growth
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.
3
Profile: Delaware Select Growth Fund (continued)
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WHAT ARE THE FUND'S FEES AND EXPENSES?
--------------------------------------------------------------------------------------------------------------------------------
YOU DO NOT PAY SALES CHARGES directly from your investments Maximum sales charge (load) imposed on
when you buy or sell shares of the Institutional Class. purchases as a percentage of offering price none
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
Maximum sales charge (load) imposed on
reinvested dividends none
Redemption fees none
Exchange fees(1) none
--------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES are deducted from the Management fees 0.74%
Fund's assets.
Distribution and service (12b-1) fees none
Other expenses 0.87%
Total operating expenses(2) 1.61%
--------------------------------------------------------------------------------------------------------------------------------
THIS EXAMPLE is intended to help you compare the cost of 1 year $164
investing in the Fund to the cost of investing in other mutual
funds with similar investment objectives. We show the 3 years $508
cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the 5 years $876
time shown.(3) This is an example only, and does not represent
future expenses, which may be greater or less than those 10 years $1,911
shown here.
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(2) The investment manager has contracted to waive fees and pay expenses through
December 31, 2004 in order to prevent total operating expenses (excluding
taxes, interest, brokerage fees, extraordinary expenses and certain
insurance costs) from exceeding 1.25% of average daily net assets.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. 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 10.
4
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. The following is a
description of how the portfolio managers pursue the Fund's investment
goal.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We strive to identify companies that offer the potential for long-term
price appreciation because they are likely to experience high earnings
growth. The companies we choose for the portfolio typically exhibit one
or more of the following characteristics:
o a history of high growth in earnings-per-share;
o projections for high future growth or acceleration in earnings-per-
share;
o a price-to-earnings ratio that is low relative to other stocks; or
o discounted cash flows that are high relative to other stocks.
Once we identify stocks that have these characteristics, we further
evaluate the companies. We look at the capability of the management
team, the strength of a company's position within its industry, whether
its internal structure can support continued growth, how high the
company's return on equity is, how much of the company's profits are
reinvested into the company to fuel additional growth, and how stringent
the company's financial and accounting policies are.
All of these factors give us insight into the outlook for a company,
helping us to identify companies poised for high earnings growth. We
believe that this high earnings growth, if it occurs, may result in
price appreciation for the company's stock.
We maintain a well-diversified portfolio, typically holding a mix of
different stocks, representing a wide array of industries and a mix of
small companies, medium-size companies and large companies.
The Fund's investment objective is non-fundamental. This means that the
Board of Trustees may change the Fund's objective without obtaining
shareholder approval. If the objective were changed, we would notify
shareholders before the change in the objective became effective.
5
How we manage the Fund (continued)
THE SECURITIES WE Stocks offer investors the potential for capital
TYPICALLY INVEST IN appreciation and may pay dividends as well.
[Enlarge/Download Table]
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SECURITIES HOW WE USE THEM
--------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: Securities that represent shares of We invest at least 65% of the Fund's total assets in equity
ownership in a corporation. Stockholders participate in the securities (including common stocks, preferred stocks,
corporation's profits and losses, proportionate to the number convertible securities and warrants or rights). Generally,
of shares they own. however, we invest 90% to 100% of net assets in common
stock. We may invest in companies of any size greater than
$300 million in market capitalization.
REPURCHASE AGREEMENTS: An agreement between a buyer of Typically, we use repurchase agreements as a short-term
securities, such as the Fund, and a seller of securities in which investment for the Fund's cash position. In order to enter
the seller agrees to buy the securities back within a specified into these repurchase agreements, the Fund must have
time at the same price the buyer paid for them, plus an amount collateral of 102% of the repurchase price. The Fund will
equal to an agreed upon interest rate. Repurchase agreements only enter into repurchase agreements in which the
are often viewed as equivalent to cash. collateral is comprised of U.S. government securities.
RESTRICTED SECURITIES: Privately placed securities whose We may invest in privately placed securities including
resale is restricted under securities law. those that are eligible for resale only among certain
institutional buyers without registration, which are
commonly known as Rule 144A Securities. Restricted
securities that are determined to be illiquid may not
exceed the Fund's 15% limit on illiquid securities, which
is described below.
ILLIQUID SECURITIES: Securities that do not have a ready market We may invest up to 15% of the Fund's net assets in
and cannot be easily sold, within seven days, at approximately illiquid securities.
the price that a fund has valued them.
--------------------------------------------------------------------------------------------------------------------------------
The Fund may also invest in other securities including futures, options, debt
securities of government or corporate issuers and investment company securities.
The Fund may invest up to 10% of net assets in foreign securities including
American Depositary Receipts and Global Depositary Receipts; however, the
manager has no present intention of doing so. Please see the Statement of
Additional Information for additional descriptions on these securities as well
as those listed in the table above.
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.
LENDING SECURITIES The Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for their use in securities
transactions. These transactions, if any, may generate additional income for the
Fund.
BORROWING FROM BANKS The Fund may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions, though the Fund normally
does not do so. The Fund will not purchase new securities if borrowing exceeds
5% of net assets.
TEMPORARY DEFENSIVE POSITIONS For temporary defensive purposes, the Fund may
hold all of its assets in high quality fixed-income securities, cash or cash
equivalents. To the extent that the Fund holds these securities, it may be
unable to achieve its investment objective.
PORTFOLIO TURNOVER We anticipate that the Fund's annual portfolio turnover may
be greater than 100%. A turnover rate of 100% would occur if a Fund sold and
replaced securities valued at 100% of its net assets within one year, if for
example, the Fund bought and sold all of the securities in its portfolio once in
the course of a year or frequently traded a single security. High turnover can
result in increased transaction costs and tax liability for investors and may
affect the Fund's performance.
6
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN THE FUND 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. Following are the chief risks you assume when
investing in the Fund. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
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--------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
--------------------------------------------------------------------------------------------------------------------------------
MARKET RISK is the risk that all or a majority of the securities in We maintain a long-term investment approach and focus on
a certain market--like the stock or bond market--will decline stocks we believe can appreciate over an extended time
in value because of factors such as economic conditions, future frame regardless of interim market fluctuations. We do not
expectations or investor confidence. try to predict overall stock market movements and though we
may hold securities for any amount of time, we generally do
not trade for short-term purposes.
INDUSTRY AND SECURITY RISK is the risk that the value of We limit the amount of the Fund's assets invested in any
securities in a particular industry or the value of an individual one industry and in any individual security. We also follow
stock or bond will decline because of changing expectations for a rigorous selection process before choosing securities and
the performance of that industry or for the individual company continuously monitor them while they remain in the
issuing the stock. portfolio.
COMPANY SIZE RISK is the risk that prices of small and The Fund seeks opportunities among companies of all sizes.
medium-size companies may be more volatile than larger Because its portfolio does not concentrate specifically on
companies because of limited financial resources or small or medium-size companies, this risk may be balanced
dependence on narrow product lines. by our holdings of large companies.
INTEREST RATE RISK is the risk that securities will decrease in We analyze each company's financial situation and its cash
value if interest rates rise. The risk is generally associated with flow to determine the company's ability to finance future
bonds; however, because small and medium-size companies often expansion and operations. The potential effect that rising
borrow money to finance their operations, they may be adversely interest rates might have on a stock is taken into
affected by rising interest rates. consideration before the stock is purchased.
LIQUIDITY RISK is the possibility that securities cannot be We limit exposure to illiquid securities.
readily sold, within seven days, at approximately the price that
a fund values them.
7
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's business affairs and provides daily
administrative services. For these services, the manager was
paid a fee equal to 0.39% of average daily net assets for
the last fiscal year, net of fee waivers.
PORTFOLIO Gerald S. Frey has primary responsibility for making
MANAGERS day-to-day investment decisions for the Delaware Select
Growth Fund. When making investment decisions for the Fund,
Mr. Frey regularly consults with Marshall T. Bassett, John
A. Heffern, Jeffrey W. Hynoski, Steven T. Lampe, Matthew
Todorow and Lori P. Wachs.
GERALD S. FREY, Managing Director/Chief Investment Officer,
Growth Investing, has 24 years' experience in the money
management business and holds a BA in Economics from
Bloomsburg University and attended Wilkes College and New
York University. Prior to joining Delaware Investments in
1996, he was a Senior Director with Morgan Grenfell Capital
Management in New York. Mr. Frey has been senior portfolio
manager for the Fund since its inception.
MARSHALL T. BASSETT, Senior Vice President/Senior Portfolio
Manager, joined Delaware Investments in 1997. Before joining
Delaware Investments, he served as Vice President in Morgan
Stanley Asset Management's Emerging Growth Group, where he
analyzed small growth companies. Prior to that, he was a
trust officer at Sovran Bank and Trust Company. He received
a bachelor's degree and an MBA from Duke University.
JOHN A. HEFFERN, Senior Vice President/Senior Portfolio
Manager, earned bachelors and MBA degrees from the
University of North Carolina at Chapel Hill. Prior to
joining Delaware Investments in 1997, he was a Senior Vice
President, Equity Research at NatWest Securities
Corporation's Specialty Financial Services unit. Before
that, he was a Principal and Senior Regional Bank Analyst at
Alex. Brown & Sons.
JEFFREY W. HYNOSKI, Vice President/Portfolio Manager, joined
Delaware Investments in 1998. Prior to joining Delaware
Investments, he served as a Vice President at Bessemer Trust
Company in the mid- and large- capitalization growth group,
where he specialized in the areas of science, technology,
and telecommunications. Prior to that, Mr. Hynoski held
positions at Lord Abbett & Co. and Cowen Asset Management.
Mr. Hynoski holds a BS in Finance from the University of
Delaware and an MBA with a concentration in
Investments/Portfolio Management and Financial Economics
from Pace University.
STEVEN T. LAMPE, Vice President/Portfolio Manager, received
a bachelors degree in Economics and an MBA with a
concentration in Finance from the University of
Pennsylvania's Wharton School. He joined Delaware
Investments in 1995. He previously served as a manager at
PriceWaterhouse, specializing in financial services firms.
Mr. Lampe is a Certified Public Accountant.
MATTHEW TODOROW, Vice President/Portfolio Manager, holds a
BBA from Temple University and an MBA from the University of
Georgia's Terry College of Business. Prior to joining
Delaware Investments in 2003, he served as Executive
Director for Morgan Stanley Investment Management and as
Portfolio Manager for the Small/Mid Cap Group; prior to
that, he held positions at Keeton Capital Management.
LORI P. WACHS, Vice President/Portfolio Manager, joined
Delaware Investments in 1992 from Goldman Sachs, where she
was an equity analyst for two years. She is a graduate of
the University of Pennsylvania's Wharton School, where she
majored in Finance and Oriental Studies.
8
WHO'S WHO? This diagram shows the various organizations involved with managing,
administering and servicing the Delaware Investments Funds.
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-------------------
BOARD OF TRUSTEES
-------------------
---------------------------- | -------------------------
INVESTMENT MANAGER ------------------- CUSTODIAN
Delaware Management Company --------------------- THE FUND ------------------ Mellon Bank, N.A.
2005 Market Street ------------------- One Mellon Center
Philadelphia, PA 19103-7094 | | Pittsburgh, PA 15258
---------------------------- --------------------------- | --------------------------
| DISTRIBUTOR |
| Delaware Distributors, L.P. ------------------------------
---------------------------- 2005 Market Street SERVICE AGENT
PORTFOLIO MANAGERS Philadelphia, PA 19103-7094 Delaware Service Company, Inc.
(see page 8 for details) --------------------------- 2005 Market Street
---------------------------- | Philadelphia, PA 19103-7094
| ------------------------------
------------------------------------ |
FINANCIAL INTERMEDIARY WHOLESALER |
Lincoln Financial Distributors, Inc. |
2001 Market Street |
Philadelphia, PA 19103-7055 |
------------------------------------ |
|
------------
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 Select
Growth Fund relies on certain exemptive rules created by the SEC that require
the Board of Trustees overseeing the Fund 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
Regulation, Inc. (NASDR(SM)) 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, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment policies must also seek
shareholder approval.
9
ABOUT YOUR ACCOUNT
INVESTING IN Institutional Class shares are available for purchase only by
THE FUND 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,
another series of Delaware Management Business Trust,
or its affiliates and their corporate sponsors, as
well as subsidiaries and related employee benefit
plans and rollover individual retirement accounts from
such institutional advisory accounts;
o a bank, trust company and similar financial
institution investing for its own account or for the
account of its trust customers for whom 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 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 programs require the purchase of Institutional
Class.
10
HOW TO BUY SHARES
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, PA 19103-7094. 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.
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.
BY EXCHANGE
You can exchange all or part of your investment in one
or more funds in the Delaware Investments family for
shares of other funds in the family. Please keep in
mind, however, that you may not exchange your shares
for Class B or Class C shares. To open an account by
exchange, call your Client Services Representative at
800 510-4015.
THROUGH YOUR FINANCIAL ADVISOR
Your financial advisor can handle all the details of
purchasing shares, including opening an account. Your
advisor may charge a separate fee for this service.
The price you pay for shares will depend on when we receive
your purchase order. In particular, we reserve the right to
reject any specific purchase order for any person whose
transactions seem to follow a "market timing" pattern. If
we or an authorized agent receives your order before the
close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern Time) on a business day, you
will pay that day's closing share price which is based on
the Fund's net asset value. If your order is received after
the close of regular trading, you will pay the next
business day's price. A business day is any day that the
New York Stock Exchange is open for business. We reserve
the right to reject any purchase order.
We determine the Fund's net asset value (NAV) per share at
the close of regular trading on the New York Stock Exchange
each business day that the Exchange is open. We calculate
this value by adding the market value of all the securities
and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the
number of shares outstanding. The result is the net asset
value per share. We 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. Any fixed-income securities that have a maturity
of less than 60 days we price 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.
11
About your account (continued)
HOW TO REDEEM SHARES
BY MAIL
You can redeem your shares (sell them back to the
fund) by mail by writing to: Delaware Investments,
2005 Market Street, Philadelphia, PA 19103-7094. All
owners of the account must sign the request, and 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 an account.
BY TELEPHONE
You can 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.
BY WIRE
You can 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.
THROUGH YOUR FINANCIAL ADVISOR
Your financial advisor can handle all the details of
redeeming your shares. Your advisor may charge a
separate fee for this service.
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 receives the
request before the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern Time), you will
receive the net asset value next determined after we
receive your request. If we receive your request after the
close of regular trading on the New York Stock Exchange,
you will receive the net asset value next determined on the
next business day. 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.
ACCOUNT MINIMUM If you redeem shares and your account balance falls below
$250, the Fund may redeem your account after 60 days'
written notice to you.
EXCHANGES You can exchange all or part of your shares for shares of
the same class in another Delaware Investments fund. We may
refuse the purchase side of any exchange request, if, in
the investment 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. In particular, a pattern of exchanges
that coincide with a "market timing" strategy may be
refused. If you exchange shares to a fund that has a sales
charge you will pay any applicable sales charges on your
new shares. You don't pay sales charges on shares that are
acquired through the reinvestment of dividends. You may
have to pay taxes on your exchange. When you exchange
shares, you are purchasing shares in another fund so you
should be sure to get a copy of the fund's prospectus and
read it carefully before buying shares through an exchange.
You may not exchange your shares for Class B and Class C
shares of the funds in the Delaware Investments family.
12
DIVIDENDS, Delaware Select Growth Fund expects to declare and
DISTRIBUTIONS AND distribute all of its net investment income, if any, to
TAXES shareholders as dividends annually. The Fund also will
distribute net capital gains, if any, annually. We
automatically reinvest all dividends and any capital gains.
In addition, in order to satisfy certain distribution
requirements of the Tax Reform Act of 1986, the Fund may
declare special year-end dividend and capital gains
distributions during November and December to shareholders
of record on a date in such month. Such distributions, if
received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on the
earlier of the date paid or December 31 of the prior year.
On May 28, 2003, President Bush signed into law the Jobs
and Growth Tax Relief Reconciliation Act of 2003, which
changes the tax rates on certain types of distributions. We
urge you to consult your tax advisor about your particular
tax situation and how it might be affected by the new tax
law. The tax status of your dividends from the Fund is the
same whether you reinvest your dividends or receive them in
cash.
Distributions from the Fund's long-term capital gains are
taxable as capital gains, while distributions from
short-term capital gains and net investment income are
generally taxable as ordinary income. The tax rate on
capital gains is less than the tax rate on ordinary income.
You also may be subject to state and local taxes on
distributions. Tax laws are subject to change, so we urge
you to consult your tax advisor about your particular tax
situation and how it might be affected by current tax law.
We will send you a statement each year by January 31
detailing the amount and nature of all dividends and
capital gains that you were paid for the prior year.
CERTAIN MANAGEMENT INVESTMENTS BY FUND OF FUNDS AND INVESTMENT VEHICLES THAT
CONSIDERATIONS OPERATE SIMILARLY TO FUNDS OF FUNDS
The Fund accepts investments from funds of funds, including
those within Delaware Investments family, and investment
vehicles that operate similarly to funds of funds, 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 also 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/or similar
investment vehicles and will attempt to minimize any
adverse effects on the Fund and funds of funds and/or
similar investment vehicle as a result of these
transactions.
MARKET TIMING
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 will consider anyone who follows a
pattern of market timing in any fund in the Delaware
Investments Family of Funds to be a market timer.
Market timing of a fund occurs when investors make
consecutive rapid short-term "roundtrips", or in other
words, 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. 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 Fund also reserves the right to consider
other trading patterns as 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.
13
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800 523-1918.
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Institutional Class
----------------------------------------------------------------------------------------------------------------------
Year ended
4/30
Delaware Select Growth Fund 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $16.970 $20.570 $25.170 $36.690 $26.060
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) (0.121) (0.106) (0.139) (0.220) (0.196)
Net realized and unrealized gain (loss)
on investments 4.211 (3.494) (4.461) (11.300) 12.455
------- ------- ------- ------- -------
Total from investment operations 4.090 (3.600) (4.600) (11.520) 12.259
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments -- -- -- -- (1.049)
In excess of net realized gain on investments -- -- -- -- (0.580)
------- ------- ------- ------- -------
Total dividends and distributions -- -- -- -- (1.629)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $21.060 $16.970 $20.570 $25.170 $36.690
======= ======= ======= ======= =======
TOTAL RETURN(2) 24.10% (17.50%) (18.28%) (31.38%) 48.29%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $42,410 $36,080 $53,381 $50,157 $58,967
Ratio of expenses to average net assets 1.25% 1.25% 1.20% 1.12% 1.04%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid indirectly 1.61% 1.58% 1.25% 1.13% 1.04%
Ratio of net investment loss to average net assets (0.62%) (0.67%) (0.61%) (0.65%) (0.60%)
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly (0.98%) (1.00%) (0.66%) (0.66%) (0.60%)
Portfolio turnover 82% 69% 127% 156% 183%
----------------------------------------------------------------------------------------------------------------------
(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 waivers and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
14
HOW TO READ THE
FINANCIAL HIGHLIGHTS
--------------------------------------------------------
NET INVESTMENT INCOME (LOSS)
Net investment income (loss) includes dividend and
interest income earned from a fund's securities; it is
after expenses have been deducted.
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
A realized gain on investments occurs when we sell an
investment at a profit, while a realized loss on
investments 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
distributions - 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 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 LOSS TO AVERAGE
NET ASSETS
We determine this ratio by dividing net investment
income by average net assets.
PORTFOLIO TURNOVER
This figure tells you the amount of trading activity in
a fund's portfolio. For example, a fund with a 50%
turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
15
GLOSSARY
HOW TO USE THIS GLOSSARY The glossary contains 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.
CAPITAL
The amount of money you invest.
CAPITAL APPRECIATION
An increase in the value of an investment.
CAPITAL GAINS DISTRIBUTIONS
Payments to mutual fund shareholders of profits
(realized gains) from the sale of a fund's portfolio
securities. Usually paid once a year; may be either
short-term gains or long-term gains.
COMPOUNDING
Earnings on an investment's previous earnings.
CONSUMER PRICE INDEX (CPI)
Measurement of U.S. inflation; represents the price
of a basket of commonly purchased goods.
CORPORATE BOND
A debt security issued by a corporation.
COST BASIS
The original purchase price of an investment, used in
determining capital gains and losses.
DEPRECIATION
A decline in an investment's value.
DIVERSIFICATION
The process of spreading investments among a number
of different securities, asset classes or investment
styles to reduce the risks of investing.
DIVIDEND DISTRIBUTION
Payments to mutual fund shareholders of dividends
passed along from the fund's portfolio of securities.
-----------------------------------------------------
EXPENSE RATIO
A mutual fund's total operating expenses, expressed
as a percentage of its total net assets. Operating
expenses are the costs of running a mutual fund,
including management fees, offices, staff, equipment
and expenses related to maintaining the fund's
portfolio of securities and distributing its shares.
They are paid from the fund's assets before any
earnings are distributed to shareholders.
FINANCIAL ADVISOR
Financial professional (e.g., broker, banker,
accountant, planner or insurance agent) who analyzes
clients' finances and prepares personalized programs
to meet objectives.
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
the market price per share of $10 has a market
capitalization of $10 million.
NASD REGULATION, INC. (NASDR(SM))
The independent subsidiary of the National
Association of Securities Dealers, Inc. responsible
for regulating the securities industry.
16
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 (S&P) and Fitch, Inc. (Fitch).
NET ASSETS
Net assets means the total value of all assets in a Fund's portfolio, minus any
liabilities, plus the amount of a Fund's borrowings, if any, for investment
purposes.
NET ASSET VALUE (NAV)
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
PREFERRED STOCK
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay 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.
RUSSELL 3000 GROWTH INDEX
The Russell 3000 Growth Index measures the performance of those Russell 3000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The stocks in this index are also members of either the Russell 1000
Growth or the Russell 2000 Growth indexes.
SALES CHARGE
Charge on the purchase or redemption of fund shares sold through financial
advisors. May vary with the amount invested. Typically used to compensate
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)
The document serving as "Part B" of a fund's registration statement that
provides more detailed information about the fund's organization, investments,
policies and risks.
STOCK
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as 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.
17
DELAWARE SELECT 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 report period. You can
find more detailed information about the Fund in
the current Statement of Additional Information,
which we have filed electronically with the
Securities and Exchange Commission (SEC) and
which is legally a part of this Prospectus. If
you want a free copy of the Statement of
Additional Information, the annual or semiannual
report, or if you have any questions about
investing in the Fund, you can write to us at
2005 Market Street, Philadelphia, PA 19103-7094,
or call toll-free 800 510-4015. 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
the 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
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 SELECT GROWTH FUND SYMBOLS
Delaware Select Growth Fund
CUSIP NASDAQ
----- ------
Institutional Class 928931757 VAGGX
Investment Company Act file number: 811-4547
PR-442 [--] IVES 6/04 J9708
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Delaware Investments includes funds with a wide range of -------------------------------------------------------------
investment objectives. Stock funds, income funds, national and
state-specific tax-exempt funds, money market funds, global DELAWARE SELECT GROWTH FUND
and international funds and closed-end funds give investors
the ability to create a portfolio that fits their personal -------------------------------------------------------------
financial goals. For more information, shareholders of the
Fund Classes should contact their financial advisor or call A CLASS
Delaware Investments at 800 523-1918, and shareholders of the B CLASS
Institutional Class should contact Delaware Investments at 800 C CLASS
510-4015. R CLASS
INSTITUTIONAL CLASS
-------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
2005 Market Street VOYAGEUR MUTUAL FUNDS III
Philadelphia, PA 19103-7094
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P. -------------------------------------------------------------
2005 Market Street
Philadelphia, PA 19103-7094
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT PART B
Delaware Service Company, Inc.
2005 Market Street STATEMENT OF ADDITIONAL INFORMATION
Philadelphia, PA 19103-7094 -------------------------------------------------------------
LEGAL COUNSEL JUNE 30, 2004
Stradley, Ronon, Stevens & Young, LLP
2005 Market Street
Philadelphia, PA 19103-7094
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
2001 Market Street
Philadelphia, PA 19103-7055 Delaware
Investments(SM)
CUSTODIAN -----------------------------------
Mellon Bank N.A. A member of Lincoln Financial Group(R)
One Mellon Center
Pittsburgh, PA 15258
STATEMENT OF ADDITIONAL INFORMATION
JUNE 30, 2004
DELAWARE SELECT GROWTH FUND
2005 MARKET STREET, PHILADELPHIA, PA 19103-7094
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
FOR MORE INFORMATION ABOUT INSTITUTIONAL CLASS SHARES: 800 510-4015
DEALER SERVICES: (BROKER/DEALERS ONLY) NATIONWIDE 800 362-7500
Voyageur Mutual Funds III ("Mutual Funds III") is a professionally
managed mutual fund of the series type which currently offers one series of
shares: Delaware Select Growth Fund (the "Fund"). The Fund offers Class A
Shares, Class B Shares, Class C Shares and Class R Shares (Class A Shares, Class
B Shares, Class C Shares and Class R Shares together referred to as the "Fund
Classes"), and Institutional Class Shares ("Institutional Class"). All
references to "shares" in this Part B refer to all Classes of shares of Mutual
Funds III, except where noted.
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectus for
the Fund Classes dated June 30, 2004 and the current Prospectus for the
Institutional Class dated June 30, 2004, as they may be amended from time to
time. Part B should be read in conjunction with the respective Class'
Prospectus. Part B is not itself a prospectus but is, in its entirety,
incorporated by reference into each Class' Prospectus. A Prospectus may be
obtained by writing or calling your investment dealer or by contacting the
Fund's national distributor, Delaware Distributors, L.P. (the "Distributor"), at
the above address or by calling the above phone numbers. The Fund's 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 PAGE PAGE
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COVER PAGE 1 REDEMPTION AND EXCHANGE 42
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INVESTMENT RESTRICTIONS AND POLICIES 2 DISTRIBUTIONS AND TAXES 49
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ACCOUNTING AND TAX ISSUES 14 INVESTMENT MANAGEMENT AGREEMENT 50
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PERFORMANCE INFORMATION 16 OFFICERS AND TRUSTEES 55
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TRADING PRACTICES AND BROKERAGE 19 GENERAL INFORMATION 61
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PURCHASING SHARES 21 FINANCIAL STATEMENTS 64
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INVESTMENT PLANS 33 APPENDIX A-RATINGS 65
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DETERMINING OFFERING PRICE AND NET ASSET VALUE 41 APPENDIX B-STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS 69
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1
INVESTMENT RESTRICTIONS AND POLICIES
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS - Mutual Funds III has adopted the following
restrictions for the Fund which cannot be changed without approval by the
holders of a "majority" of the Fund's outstanding shares, which is a vote by the
holders of the lesser of a) 67% or more of the voting securities present in
person or by proxy at a meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy; or b) more
than 50% of the outstanding voting securities. The percentage limitations
contained in the restrictions and policies set forth herein apply at the time of
purchase of securities.
THE FUND MAY NOT:
1. Make investments that will result in the concentration (as that term
may be defined in the Investment Company Act of 1940 (the "1940 Act")), any rule
or order thereunder, or U.S. Securities and Exchange Commission ("SEC") staff
interpretation thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this restriction does not
limit the Fund from investing in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or in tax-exempt securities or
certificates of deposits.
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 the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933 (the "1933 Act").
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
NON-FUNDAMENTAL RESTRICTIONS - In addition to the fundamental policies
and investment restrictions described above, and the various general investment
policies described in the Prospectuses, the Fund will be subject to the
following investment restrictions, which are considered non-fundamental and may
be changed by the Board of Trustees without shareholder approval.
1. The 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 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. The 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.
2
3. The Fund will not borrow money, except that the Fund may borrow from
banks for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests and cash payments of dividends and distributions
that might otherwise require the untimely disposition of securities, in an
amount not to exceed 20% of the value of the Fund's total assets (including the
amount borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made. Whenever borrowings exceed 5% of
the value of the total assets of the Fund, the Fund will not make any additional
investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include the government of any
country other than the United States, but not the U.S. government.
6. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real estate.
7. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other similar
contracts.
8. The Fund will not act as an underwriter of securities, except that
the Fund may acquire securities under circumstances in which, if the securities
were sold, the Fund might be deemed to be an underwriter for purposes of the
1933 Act, as amended.
9. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.
10. The Fund will not purchase any investment company security, other
than a security acquired pursuant to a plan of reorganization or an offer of
exchange, if as a result of the purchase (a) the Fund would own more than 3% of
the total outstanding voting securities of any investment company, (b) more than
5% of the value of the Fund's total assets would be invested in securities of
any one investment company or (c) more than 10% or the Fund's total assets would
be invested in securities issued by investment companies.
11. The Fund will not participate on a joint or joint-and-several basis
in any securities trading account.
12. The Fund will not make investments for the purpose of exercising
control or management.
13. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have been in continuous
operation for fewer than three years.
14. The Fund will not purchase or retain securities of any issuer if,
to the knowledge of the Fund, any of Mutual Funds III's trustees or officers or
any officer or trustee/director of the investment manager or sub-advisor
individually owns more than 0.5% of the outstanding securities of the company
and together they own beneficially more than 5% of the securities.
15. The Fund will not invest in warrants (other than warrants acquired
by the Fund as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets of which not more than 2% of the
Fund's net assets may be invested in warrants not listed on a recognized foreign
or domestic stock exchange.
3
16. The Fund will not purchase securities on margin, except that the
Fund may obtain any short-term credits necessary for the clearance of purchases
and sales of securities. For purposes of this restriction, the deposit or
payment of initial or variation margin in connection with futures contracts or
options on futures contracts will not be deemed to be a purchase of securities
on margin.
17. The Fund will not make short sales of securities or maintain a
short position, unless at all times when a short position is open, the Fund owns
an equal amount of the securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of the same issue
as, and equal in amount to, the securities sold short.
In addition, subject to investment policies and restrictions as set
forth in the Prospectuses and in this Part B, as a nonfundamental policy, the
Fund may not invest more than 15% of its assets, collectively, in illiquid
investments and securities of foreign issuers which are not listed on a
recognized domestic or foreign securities exchange.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of the Fund's shares in certain states.
Should the Fund determine that a commitment is no longer in the best interests
of the Fund and its shareholders, the Fund will revoke the commitment by
terminating the sale of the Fund's shares in the state involved.
For purposes of the Fund's concentration policy, the Fund intends to
comply with the SEC staff position that securities issued or guaranteed as to
principal and interest by any single foreign government are considered to be
securities of issuers in the same industry.
Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the applicable percentage occurs immediately after an acquisition of
securities or utilization of assets and such excess results therefrom.
DIVERSIFICATION
The Fund intends to operate as a diversified management investment
company, as defined in the 1940 Act, which means that at least 75% of its total
assets must be represented by cash and cash items (including receivables), U.S.
government securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of any one
issuer to an amount not greater in value than 5% of the value of total assets of
the Fund and to not more than 10% of the outstanding voting securities of such
issuer.
Supplemental information is set out below concerning certain of the
securities and other instruments in which the Fund may invest, the investment
techniques and strategies that the Fund may utilize and certain risks involved
with those investments, techniques and strategies.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities ("Government Securities") in which the Fund may invest
include debt obligations of varying maturities issued by the U.S. Treasury or
issued or guaranteed by an agency or instrumentality of the U.S. government,
including the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association and Resolution Trust Corporation. Direct
obligations of the United States Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. Because the
U.S. government is not obligated by law to provide support to an instrumentality
that it sponsors, the Fund invests in obligations issued by an instrumentality
of the U.S. government only if Delaware Management Company (the "Manager")
determines that the instrumentality's credit risk does not make its securities
unsuitable for investment by the Fund.
4
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Repurchase agreements are
instruments under which securities are purchased from a bank or securities
dealer with an agreement by the seller to repurchase the securities. Under a
repurchase agreement, the purchaser acquires ownership of the security but the
seller agrees, at the time of sale, to repurchase it at a mutually agreed-upon
time and price. The Fund will take custody of the collateral under repurchase
agreements. Repurchase agreements may be construed to be collateralized loans by
the purchaser to the seller secured by the securities transferred. The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate or maturity of the purchase security. Such
transactions afford an opportunity for the Fund to invest temporarily available
cash. The Fund's risk is limited to the seller's ability to buy the security
back at the agreed-upon sum at the agreed-upon time, since the repurchase
agreement is secured by the underlying obligation. Should such an issuer
default, the investment managers believe that, barring extraordinary
circumstances, the Fund will be entitled to sell the underlying securities or
otherwise receive adequate protection for its interest in such securities,
although there could be a delay in recovery. The Fund considers the
creditworthiness of the bank or dealer from whom it purchases repurchase
agreements. The Fund will monitor such transactions to assure that the value of
the underlying securities subject to repurchase agreements is at least equal to
the repurchase price. The underlying securities will be limited to those
described above.
Not more than 15% of the Fund's assets may be invested in illiquid
securities of which no more than 10% may be invested in repurchase agreements of
over seven days' maturity. The Fund will limit its investments in repurchase
agreements to those which the Manager under guidelines of the Board of Trustees
determines to present minimal credit risks and which are of high quality. In
addition, the Fund must have collateral of at least 102% of the repurchase
price, including the portion representing the Fund's yield under such
agreements, which is monitored on a daily basis.
The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow certain funds jointly to invest cash balances. The 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 above.
PORTFOLIO LOAN TRANSACTIONS
The Fund may loan up to 25% if its assets to qualified brokers, dealers
or institutional investors for their use relating to short sales or other
security transactions.
It is the understanding of the Manager that the staff of the SEC
permits portfolio lending by registered investment companies if certain
conditions are met. These conditions are as follows: 1) each transaction must
have 100% collateral in the form of cash, short-term U.S. government securities,
or irrevocable letters of credit payable by banks acceptable to the Fund from
the borrower; 2) this collateral must be valued daily and should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to the Fund; 3) the Fund must terminate the loan after notice, at any
time; 4) the Fund must receive reasonable interest on any loan, and any
dividends, interest or other distributions on the lent securities, and any
increase in the market value of such securities; 5) the Fund may pay reasonable
custodian fees in connection with the loan; and 6) the voting rights on the lent
securities may pass to the borrower; however, if the trustees of Mutual Funds
III know that a material event will occur affecting a loan, they must either
terminate the loan in order to vote or enter into an alternative arrangement
with the borrower to enable the trustees to vote the proxy.
The major risk to which the Fund would be exposed on a loan transaction
is the risk that a borrower would go bankrupt at a time when the value of the
security goes up. Therefore, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Trustees, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.
5
RESTRICTED AND ILLIQUID SECURITIES
Most of the privately placed securities acquired by the Fund will be
eligible for resale by the Fund without registration pursuant to Rule 144A
("Rule 144A Securities") under the 1933 Act. While maintaining oversight, the
Board of Trustees has delegated to the Manager the day-to-day function of
determining whether individual Rule 144A Securities are liquid for purposes of
the Fund's 15% limitation on investments in illiquid securities. The Board has
instructed the Manager to consider the following factors in determining the
liquidity of a Rule 144A Security: (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).
Investing in Rule 144A Securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified institutional
buyers become, for a period of time, uninterested in purchasing these
securities. If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the Fund's 15% limit on investment
in such securities, the Manager will determine what action shall be taken to
ensure that the Fund continues to adhere to such limitation.
INVESTMENT TECHNIQUES AND STRATEGIES
The Fund may purchase put and call options and engage in the writing of
covered call options and secured put options, and employ a variety of other
investment techniques. Specifically, the Fund may engage in the purchase and
sale of stock index future contracts, interest rate futures contracts, and
options on such futures, all as described more fully below. Such investment
policies and techniques may involve a greater degree of risk than those inherent
in more conservative investment approaches.
The Fund will engage in such transactions only to hedge existing
positions, and it will not engage in such transactions for the purposes of
speculation or leverage.
The Fund will not engage in such options or futures transactions unless
it receives any necessary regulatory approvals permitting them to engage in such
transactions.
Options on Securities. To hedge against adverse market shifts, the Fund
may purchase put and call options on securities held in its portfolio. In
addition, the Fund may seek to increase its income in an amount designed to meet
operating expenses or may hedge a portion of its portfolio investments through
writing (that is, selling) "covered" put and call options. A put option provides
its purchaser with the right to compel the writer of the option to purchase from
the option holder an underlying security at a specified price at any time during
or at the end of the option period. In contrast, a call option gives the
purchaser the right to buy the underlying security covered by the option from
the writer of the option at the stated exercise price. A covered call option
contemplates that, for so long as the Fund is obligated as the writer of the
option, it will own (1) the underlying securities subject to the option or (2)
securities convertible into, or exchangeable without the payment of any
consideration for, the securities subject to the option. The value of the
underlying securities on which covered call options will be written at any one
time by the Fund will not exceed 25% of the Fund's total assets. The Fund will
be considered "covered" with respect to a put option it writes if, so long as it
is obligated as the writer of a put option, it deposits and maintains with its
custodian cash, U.S. government securities or other liquid high-grade debt
obligations having a value equal to or greater than the exercise price of the
option.
The Fund may purchase options on securities that are listed on
securities exchanges or that are traded over-the-counter. As the holder of a put
option, the Fund has the right to sell the securities underlying the option and
as the holder of a call option, the Fund has the right to purchase the
securities underlying the option, in each case at the option's exercise price at
any time prior to, or on, the options expiration date. The Fund may choose to
exercise the options it holds, permit them to expire or terminate them prior to
their expiration by entering into closing sale transactions. In entering into a
closing sale transaction, the Fund would sell an option of the same series as
the one it has purchased.
6
The Fund receives a premium when it writes call options, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. By writing a call, the Fund
limits its opportunity to profit from an increase in the market value of the
underlying security above the exercise price of the option for as long as the
Fund's obligation as writer of the option continues. The Fund receives a premium
when it writes put options, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed out at a
profit. By writing a put, the Fund limits its opportunity to profit from an
increase in the market value of the underlying security above the exercise price
of the option for as long as the Fund's obligation as writer of the option
continues. Thus, in some periods, the Fund will receive less total return and in
other periods greater total return from its hedged positions than it would have
received from its underlying securities if unhedged.
In purchasing a put option, the Fund seeks to benefit from a decline in
the market price of the underlying security, whereas in purchasing a call
option, the Fund seeks to benefit from an increase in the market price of the
underlying security. If an option purchased is not sold or exercised when it has
remaining value, or if the market price of the underlying security remains equal
to or greater than the exercise price, in the case of a put, or remains equal to
or below the exercise price, in the case of a call, during the life of the
option, the Fund will lose its investment in the option. For the purchase of an
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price, in the case of a put, and must
increase sufficiently above the exercise price, in the case of a call, to cover
the premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
Over-the-Counter ("OTC") Options. The Fund may purchase OTC options.
OTC options differ from exchange-traded options in several respects. They are
transacted directly with dealers and not with a clearing corporation, and there
is a risk of non-performance by the dealer. However, the premium is paid in
advance by the dealer. OTC options are available for a greater variety of
securities and foreign currencies, and in a wider range of expiration dates and
exercise prices than exchange-traded options. Since there is no exchange,
pricing is normally done by reference to information from a market maker, which
information is carefully monitored or caused to be monitored by the investment
manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it
voluntarily only by entering into a closing transaction. In the case of OTC
options, there can be no assurance that a continuous liquid secondary market
will exist for any particular option at any specific time. Consequently, the
Fund may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which it originally wrote the option. If a
covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security or foreign currency until the option expires or the
option is exercised. Therefore, the writer of a covered OTC call option may not
be able to sell an underlying security even though it might otherwise be
advantageous to do so. Likewise, the writer of a covered OTC put option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of an OTC
put or call option might also find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The Fund may purchase and write over-the-counter put and call options
in negotiated transactions. The staff of the SEC has previously taken the
position that the value of purchased OTC options and the assets used as "cover"
for written OTC options are illiquid securities and, as such, are to be included
in the calculation of the Fund's 15% limitation on illiquid securities. However,
the staff has eased its position somewhat in certain limited circumstances. The
7
Fund will attempt to enter into contracts with certain dealers with which it
writes OTC options. Each such contract will provide that the Fund has the
absolute right to repurchase the options it writes at any time at a repurchase
price which represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event will exceed a
price determined pursuant to a formula contained in the contract. Although the
specific details of such formula may vary among contracts, the formula will
generally be based upon a multiple of the premium received by the Fund for
writing the option, plus the amount, if any, of the option's intrinsic value.
The formula will also include a factor to account for the difference between the
price of the security and the strike price of the option. If such a contract is
entered into, the Fund will count as illiquid only the initial formula price
minus the options intrinsic value.
The Fund will enter into such contracts only with primary U.S.
government securities dealers recognized by the Federal Reserve Bank of New
York. Moreover, such primary dealers will be subject to the same standards as
are imposed upon dealers with which the Fund enters into repurchase agreements.
Securities Index Options. In seeking to hedge all or a portion of its
investment, the Fund may purchase and write put and call options on securities
indexes listed on securities exchanges, which indexes include securities held in
the Fund's portfolio.
A securities index measures the movement of a certain group of stocks
or debt securities by assigning relative values to the securities included in
the index. Options on securities indexes are generally similar to options on
specific securities. Unlike options on specific securities, however, options on
securities indexes do not involve the delivery of an underlying security; the
option in the case of an option on a stock index represents the holders right to
obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying stock index on the exercise date.
When the Fund writes an option on a securities index, it will establish
a segregated account with its custodian, or a designated sub-custodian, in which
the Fund will deposit cash, U.S. government securities or other liquid high
grade debt obligations in an amount equal to the market value of the option, and
will maintain the account while the option is open.
Securities index options are subject to position and exercise limits
and other regulations imposed by the exchange on which they are traded. If the
Fund writes a securities index option, it may terminate its obligation by
effecting a closing purchase transaction, which is accomplished by purchasing an
option of the same series as the option previously written. The ability of the
Fund to engage in closing purchase transactions with respect to securities index
options depends on the existence of a liquid secondary market. Although the Fund
generally purchases or writes securities index options only if a liquid
secondary market for the options purchased or sold appears to exist, no such
secondary market may exist, or the market may cease to exist at some future
date, for some options. No assurance can be given that a closing purchase
transaction can be effected when the Fund desires to engage in such a
transaction.
Risks Relating to Purchase and Sale of Options on Stock Indexes.
Purchase and sale of options on stock indexes by the Fund are subject to certain
risks that are not present with options on securities. Because the effectiveness
of purchasing or writing stock index options as a hedging technique depends upon
the extent to which price movements in the Fund's portfolio correlate with price
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss on the purchase or writing of an
option on an index depends upon movements in the level of stock prices in the
stock market generally or, in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Fund of options on indexes will be subject to
the ability of the Manager to correctly predict movements in the direction of
the stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
In the event the Fund's advisor is unsuccessful in predicting the movements of
an index, the Fund could be in a worse position than had no hedge been
attempted.
8
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. However, it will be the Fund's
policy to purchase or write options only on indexes which include a sufficient
number of stocks so that the likelihood of a trading halt in the index is
minimized.
Short Sales Against the Box. The Fund may sell securities "short
against the box." Whereas a short sale is the sale of a security the Fund does
not own, a short sale is "against the box" if at all times during which the
short position is open, the Fund owns at least an equal amount of the securities
or securities convertible into, or exchangeable without further consideration
for, securities of the same issue as the securities sold short. Short sales
against the box are typically used by sophisticated investors to defer
recognition of capital gains or losses.
Futures Contracts and Options on Futures Contracts. The Fund may
purchase and sell stock index futures contracts. The purpose of the acquisition
or sale of a futures contract by the Fund is to hedge against fluctuations in
the value of its portfolio without actually buying or selling securities. The
futures contracts in which a Fund may invest have been developed by and are
traded on national commodity exchanges. Stock index futures contracts may be
based upon broad-based stock indexes such as the Russell 3000 Growth Index and
Standard & Poor's 500 Index ("S&P 500 Index") or upon narrow-based stock
indexes. A buyer entering into a stock index futures contract will, on a
specified future date, pay or receive a final cash payment equal to the
difference between the actual value of the stock index on the last day of the
contract and the value of the stock index established by the contract. The Fund
may assume both "long" and "short" positions with respect to futures contracts.
A long position involves entering into a futures contract to buy a commodity,
whereas a short position involves entering into a futures contract to sell a
commodity.
The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without necessarily buying or
selling the securities. Because the value of the Fund's investment securities
will exceed the value of the futures contracts sold by the Fund, an increase in
the value of the futures contracts could only mitigate, but not totally offset,
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon trading a futures contract. Upon trading a futures
contract, a Fund will be required to deposit in a segregated account with its
custodian, or designated sub-custodian, an amount of cash, short-term Government
Securities or other U.S. dollar-denominated, high-grade, short-term money market
instruments equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded and brokers
may charge a higher amount). This amount is known as "initial margin" and is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming that all
contractual obligations have been satisfied; the broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the price of the currency or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as "marking-to-market."
At any time prior to the expiration of a futures contract, the Fund may elect to
close a position by taking an opposite position, which will operate to terminate
the Fund's existing position in the contract.
Each short position in a futures or options contract entered into by
the Fund is secured by the Fund's ownership of underlying securities. The Fund
does not use leverage when it enters into long futures or options contracts; the
Fund places in a segregated account with its custodian, or designated
sub-custodian, with respect to each of its long positions, cash or money market
instruments having a value equal to the underlying commodity value of the
contract.
9
The Fund may trade stock index futures contracts to the extent
permitted under rules and interpretations adopted by the Commodity Futures
Trading Commission (the "CFTC"). U.S. futures contracts have been designed by
exchanges that have been designated as "contract markets" by the CFTC, and must
be executed through a futures commission merchant, or brokerage firm, that is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.
The Fund intends to comply with CFTC regulations and avoid "commodity
pool operator" status. These regulations require that the Fund use futures and
options positions (a) for "bona fide hedging purposes" (as defined in the
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Fund's portfolio. The Fund currently does not
intend to engage in transactions in futures contracts or options thereon for
speculation, but will engage in such transactions only for bona fide hedging
purposes.
Risks of Transactions in Futures Contracts and Options on Futures
Contracts. Holding Risks in Futures Contracts Transactions. There are several
risks in using stock index futures contracts as hedging devices. First, all
participants in the futures market are subject to initial margin and variation
margin requirements. Rather than making additional variation margin payments,
investors may close the contracts through offsetting transactions which could
distort the normal relationship between the index or security and the futures
market. Second, the margin requirements in the futures market are lower than
margin requirements in the securities market, and as a result the futures market
may attract more speculators than does the securities market. Increased
participation by speculators in the futures market may also cause temporary
price distortions. Because of possible price distortion in the futures market
and because of imperfect correlation between movements in stock indexes or
securities and movements in the prices of futures contracts, even a correct
forecast of general market trends may not result in a successful hedging
transaction over a very short period.
Another risk arises because of imperfect correlation between movements
in the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to stock index futures contracts, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the securities included in the applicable stock index. It is
possible that the Fund might sell stock index futures contracts to hedge its
portfolio against a decline in the market, only to have the market advance and
the value of securities held in the Fund's portfolio decline. If this occurred,
the Fund would lose money on the contracts and also experience a decline in the
value of its portfolio securities. While this could occur, the Manager believes
that over time the value of the Fund's portfolio will tend to move in the same
direction as the market indexes and will attempt to reduce this risk, to the
extent possible, by entering into futures contracts on indexes whose movements
they believe will have a significant correlation with movements in the value of
the Fund's portfolio securities sought to be hedged.
Successful use of futures contracts by the Fund is subject to the
ability of the Manager to predict correctly movements in the direction of
interest rates or the market. If the Fund has hedged against the possibility of
a decline in the value of the stocks held in its portfolio or an increase in
interest rates adversely affecting the value of fixed-income securities held in
its portfolio and stock prices increase or interest rates decrease instead, the
Fund would lose part or all of the benefit of the increased value of its
security which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market or decline in interest rates.
The Fund may have to sell securities at a time when it may be disadvantageous to
do so.
Liquidity of Futures Contracts. The Fund may elect to close some or all
of its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. The Fund may close
its positions by taking opposite positions. Final determinations of variation
margin are then made, additional cash as required is paid by or to the Fund, and
the Fund realizes a loss or a gain.
10
Positions in futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts. Although
the Funds intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
Risks and Special Considerations of Options on Futures Contracts. The
use of options on interest rate and stock index futures contracts also involves
additional risk. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to the Fund because the maximum amount at risk is the premium paid for the
options (plus transactions costs). The writing of a call option on a futures
contract generates a premium which may partially offset a decline in the value
of the Fund's portfolio assets. By writing a call option, the Fund becomes
obligated to sell a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, but the Fund becomes obligated to purchase a futures
contract, which may have a value lower than the exercise price. Thus, the loss
incurred by the Fund in writing options on futures contracts may exceed the
amount of the premium received.
The effective use of options strategies is dependent, among other
things, on the Fund's ability to terminate options positions at a time when the
Manager deems it desirable to do so. Although the Fund will enter into an option
position only if the Manager believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
The Fund's purchase or sale of put or call options on futures contracts
will be based upon predictions as to anticipated interest rates or market trends
by the Manager which could prove to be inaccurate. Even if the expectations of
the Manager are correct, there may be an imperfect correlation between the
change in the value of the options and of the Fund's portfolio securities.
Investments in futures contracts and related options by their nature
tend to be more short-term than other equity investments made by the Fund. The
Fund's ability to make such investments, therefore, may result in an increase in
the Fund's portfolio activity and thereby may result in the payment of
additional transaction costs.
The Internal Revenue Code of 1986 (the "Code") requires the Fund to
diversify its investment holdings. The Internal Revenue Service position
regarding the treatment of futures contracts and related options for
diversification purposes is not clear, and the extent to which the Fund may
engage in these transactions may be limited by this requirement. The Code also
provides that, with respect to certain futures contracts and options held by the
Fund at the end of its taxable year, unrealized gain or loss on such contracts
may have to be recognized for tax purposes under a special system within the
Code. The actual gain or loss recognized by the Fund in an eventual disposition
of such contract, however, will be adjusted by the amount of the gain or loss
recognized earlier under the Codes system. See Accounting and Tax Issues and
Distributions and Taxes. For more information on stock index futures contracts
and related options, see Appendix B.
11
DEBT SECURITIES
In pursuing its investment objective, the Fund may invest up to 35% of
its total assets in debt securities of corporate and governmental issuers. The
risks inherent in debt securities depend primarily on the term and quality of
the obligations in the Fund's portfolio as well as on market conditions. A
decline in the prevailing levels of interest rates generally increases the value
of debt securities, while an increase in rates usually reduces the value of
those securities.
Investments in debt securities by the Fund are limited to those that
are at the time of investment within the four highest grades (generally referred
to as an investment grade) assigned by a nationally recognized statistical
rating organization or, if unrated, are deemed to be of comparable quality by
the Manager. If a change in credit quality after acquisition by the Fund causes
a security to no longer be investment grade, the Fund will dispose of the
security, if necessary, to keep its holdings to 5% or less of the Fund's net
assets. See Credit Quality below. Debt securities rated Baa by Moody's Investors
Service, Inc. ("Moody's") BBB by Standard & Poor's ("S&P"), although considered
investment grade, have speculative characteristics and changes in economic
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds.
When the Fund's Manager determines that adverse market or economic
conditions exist and considers a temporary defensive position advisable, the
Fund may invest without limitation in high-quality fixed income securities or
hold assets in cash or cash equivalents.
CREDIT QUALITY
Any bond in which the Fund invests will be rated investment grade. As
has been the industry practice, this determination of credit quality is made at
the time the Fund acquires the bond. However, because it is possible that
subsequent downgrades could occur, if a bond held by the Fund is later
downgraded, the Manager, under the supervision of the Board of Trustees, will
consider whether it is in the best interest of the Fund's shareholders to hold
or to dispose of the bond. Among the criteria that may be considered by the
Manager and the Board are the probability that the bonds will be able to make
scheduled interest and principal payments in the future, the extent to which any
devaluation of the bond has already been reflected in the Fund's net asset
value, and the total percentage, if any, of bonds currently rated below
investment grade held by the Fund. In no event, however, will the Fund invest
more than 5% of its net assets in bonds rated lower than investment grade.
Non-investment grade securities have moderate to poor protection of
principal and interest payments and have speculative characteristics. They
involve greater risk of default or price declines due to changes in the issuer's
creditworthiness than investment-grade debt securities. Because the market for
lower-rated securities may be thinner and less active than for higher-rated
securities, there may be market price volatility for these securities and
limited liquidity in the resale market. Market prices for these securities may
decline significantly in periods of general economic difficulty or rising
interest rates.
INDEXED SECURITIES
Indexed securities include commercial paper, certificates of deposit
and other fixed-income securities whose values at maturity or coupon interest
rates are determined by reference to the return of a particular stock index or
group of stocks. Indexed securities can be affected by changes in interest rates
and the creditworthiness of their issuers as well as stock prices and may not
track market returns as accurately as direct investments in common stocks.
INVESTMENT COMPANY SECURITIES
Any investments that the Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve an
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies. Under the 1940 Act's current limitations, the Fund
may not (1) own more than 3% of the voting stock of another investment company;
12
(2) invest more than 5% of the Fund's total assets in the shares of any one
investment company; nor (3) invest more than 10% of the Fund's total assets in
shares of other investment companies. If the Fund elects to limit its investment
in other investment companies to closed-end investment companies, the 3%
limitation described above is increased to 10%. These percentage limitations
also apply to the Fund's investments in unregistered investment companies.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The Fund will designate cash or securities in
amounts sufficient to cover its obligations, and will value the designated
assets daily. The payment obligation and the interest rates that will be
received are each fixed at the time a Fund enters into the commitment and no
interest accrues to the Fund until settlement. Thus, it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.
FOREIGN SECURITIES
The Fund each may invest up to 10% of its total assets in foreign
securities. Foreign securities may include ADRs and GDRs. There are substantial
and different risks involved in investing in foreign securities. An investor
should consider these risks carefully. For example, there is generally less
publicly available information about foreign companies than is available about
companies in the U.S. Foreign companies are not subject to uniform audit and
financial reporting standards, practices and requirements comparable to those in
the U.S.
Foreign securities involve currency risks. The U.S. dollar value of a
foreign security tends to decrease when the value of the dollar rises against
the foreign currency in which the security is denominated and tends to increase
when the value of the dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be returned to
the country of origin, based on the exchange rate at the time of disbursement,
and restrictions on capital flows may be imposed. Losses and other expenses may
be incurred in converting between various currencies in connection with
purchases and sales of foreign securities.
Foreign stock markets are generally not as developed or efficient as
those in the U.S. In most foreign markets volume and liquidity are less than in
the U.S. and, at times, volatility of price can be greater than that in the U.S.
Fixed commissions on foreign stock exchanges are generally higher than the
negotiated commissions on U.S. exchanges. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and companies
than in the U.S.
There is also the possibility of adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, political or social
instability, or diplomatic developments which could adversely affect
investments, assets or securities transactions of the Fund in some foreign
countries. The Fund is not aware of any investment or exchange control
regulations which might substantially impair its operations as described,
although this could change at any time.
The Fund may be subject to foreign withholding taxes on income from
certain foreign securities. This, in turn, could reduce the Fund's distributions
paid to shareholders.
TEMPORARY INVESTMENTS
The Fund's reserves may be invested in domestic short-term money market
instruments including, but not limited to, U.S. government and agency
obligations, certificates of deposit, bankers' acceptances, time deposits,
commercial paper, short-term corporate debt securities and repurchase
agreements. During temporary defensive periods as determined by the Manager, the
Fund may hold up to 100% of its total assets in short-term obligations of the
types described above.
13
CONCENTRATION
In applying the Fund's policy on concentration: (i) utility companies
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (iii) asset backed
securities will be classified according to the underlying assets securing such
securities.
ACCOUNTING AND TAX ISSUES
When the Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's assets and liabilities
as an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which the Fund has written expires on its stipulated expiration date, the Fund
recognizes a short-term gain. If the Fund enters into a closing purchase
transaction with respect to an option which the Fund has written, the Fund
realizes a short-term gain (or loss if the cost of the closing transaction
exceeds the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a capital gain or loss (long-term or short-term,
depending on the holding period of the underlying security) from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received.
OTHER TAX REQUIREMENTS
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As a regulated
investment company, the Fund generally pays no federal income tax on the income
and gains it distributes. The Trustees reserve the right not to maintain the
qualification of the Fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the Fund
would be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you would be taxed as ordinary income
dividends to the extent of the Fund's earnings and profits.
In order to qualify as a regulated investment company for federal
income tax purposes, the Fund must meet certain specific requirements,
including:
(i) The Fund must maintain a diversified portfolio of securities,
wherein no security (other than U.S. government securities and securities of
other regulated investment companies) can exceed 25% of the Fund's total assets,
and, with respect to 50% of the Fund's total assets, no investment (other than
cash and cash items, U.S. government securities and securities of other
regulated investment companies) can exceed 5% of the Fund's total assets or 10%
of the outstanding voting securities of the issuer;
(ii) The Fund must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or disposition of stocks, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and
(iii) The 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.
The Code requires the Fund to distribute at least 98% of its taxable
ordinary income earned during the calendar year, 98% of its capital gain net
income earned during the 12 month period ending October 31 and 100% of any
undistributed amounts from the prior year to shareholders by December 31 of each
year in order to avoid federal excise tax. The Fund intends as a matter of
policy to declare and pay sufficient dividends in December or January (which are
treated by shareholders as received in December) but does not guarantee and can
give no assurances that its distributions will be sufficient to eliminate all
such taxes.
14
When the Fund holds an option or contract which substantially
diminishes the risk of loss with respect to another position of the Fund (as
might occur in some hedging transactions), this combination of positions could
be treated as a "straddle" for tax purposes, possibly resulting in deferral of
losses, adjustments in the holding periods and conversion of short-term capital
losses into long-term capital losses.
Under rules relating to "Constructive Sale Transactions", the Fund must
recognize gain (but not loss) on any constructive sale of an appreciated
financial position in stock, a partnership interest or certain debt instruments.
The Fund generally will be treated as making a constructive sale when it: 1)
enters into a short sale on the same or substantially identical property; 2)
enters into an offsetting notional principal contract; or 3) enters into a
futures or forward contract to deliver the same or substantially identical
property. Other transactions (including certain financial instruments called
collars) will be treated as constructive sales as provided in Treasury
regulations to be published. There are also certain exceptions that apply for
transactions that are closed before the end of the 30th day after the close of
the taxable year.
INVESTMENT IN FOREIGN CURRENCIES AND FOREIGN SECURITIES - The Fund is
authorized to invest certain limited amounts in foreign securities. Such
investments, if made, will have the following additional tax consequences to the
Fund:
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Fund accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time a Fund actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures or forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of its disposition are
also treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of the Fund's net investment company taxable income, which, in turn, will affect
the amount of income to be distributed to you by the Fund.
If the Fund's Section 988 losses exceed the Fund's other investment
company taxable income during a taxable year, the Fund generally will not be
able to make ordinary dividend distributions to you for that year, or
distributions made before the losses were realized will be recharacterized as
return of capital distributions for federal income tax purposes, rather than as
an ordinary dividend or capital gain distribution. If a distribution is treated
as a return of capital, your tax basis in your Fund shares will be reduced by a
like amount (to the extent of such basis), and any excess of the distribution
over your tax basis in your Fund shares will be treated as capital gain to you.
The Fund may be subject to foreign withholding taxes on income from
certain foreign securities. This, in turn, could reduce the Fund's income
dividends paid to you.
Most foreign exchange gains realized on the sale of debt securities are
treated as ordinary income by the 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 the 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. 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.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANY SECURITIES - The Fund
may invest in shares of foreign corporations which may be classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. If the Fund receives an "excess distribution" with
respect to PFIC stock, the Fund itself may be subject to U.S. federal income tax
on a portion of the distribution, whether or not the corresponding income is
distributed by the Fund to you. In general, under the PFIC rules, an excess
15
distribution is treated as having been realized ratably over the period during
which the Fund held the PFIC shares. The Fund itself will be subject to tax on
the portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years, and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. In this case, you would not be
permitted to claim a credit on your own tax return for the tax paid by the Fund.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
distributions might have been classified as capital gain. This may have the
effect of increasing Fund distributions to you that are treated as ordinary
dividends rather than long-term capital gain dividends.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC during such period. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, under another election
that involves marking-to-market the Fund's PFIC shares at the end of each
taxable year (and on certain other dates as prescribed in the Code), unrealized
gains would be treated as though they were realized. The Fund would also be
allowed an ordinary deduction for the excess, if any, of the adjusted basis of
its investment in the PFIC stock over its fair market value at the end of the
taxable year. This deduction would be limited to the amount of any net
mark-to-market gains previously included with respect to that particular PFIC
security. If the Fund were to make this second PFIC election, tax at the Fund
level under the PFIC rules generally would be eliminated.
The application of the PFIC rules may affect, among other things, the
amount of tax payable by the Fund (if any), the amounts distributable to you by
the Fund, the time at which these distributions must be made, and whether these
distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares
of a foreign corporation are acquired to ascertain that the foreign corporation
is a PFIC, and that there is always a possibility that a foreign corporation
will become a PFIC after the Fund acquires shares in that corporation. While the
Fund generally will seek to avoid investing in PFIC shares to avoid the tax
consequences detailed above, there are no guarantees that it will do so and it
reserves the right to make such investments as a matter of its fundamental
investment policy.
PERFORMANCE INFORMATION
From time to time, the Fund may state each of its Classes' total return
in advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life-of-fund, if applicable) periods. The
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.
In presenting performance information for Class A Shares, the Limited
CDSC applicable to only certain redemptions of those shares will not be deducted
from any computation of total return. See Redemption and Exchange for a
description of the Class A Shares' Limited CDSC and the limited instances in
which it applies. All references to a CDSC in this Performance Information
section will apply to Class B Shares or Class C Shares of the Fund.
Total return performance for each Class will be computed by adding all
reinvested income and realized securities profits distributions plus the change
in net asset value during a specific period and dividing by the offering price
at the beginning of the period. It will not reflect any income taxes payable by
shareholders on the reinvested distributions included in the calculation.
Because securities prices fluctuate, past performance should not be considered
as a representation of the results that may be realized from an investment in a
Fund in the future.
16
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of
$1,000 from which, in the case of only
Class A Shares, the maximum front-end
sales charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period
after the deduction of the applicable
CDSC, if any, with respect to Class B
Shares and Class C Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, the Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
The performance of the Class of the Fund, as shown below, is the
average annual total return quotations through April 30, 2004 computed as
described above.
The average annual total return for Class A Shares at offer reflects
the maximum front-end sales charge of 5.75% paid on the purchase of shares. The
average annual total return for Class A Shares at net asset value (NAV) does not
reflect the payment of any front-end sales charge. Pursuant to applicable
regulation, total return shown for the Institutional Class of the Fund and for
the periods prior to the commencement of operations of such Class is calculated
by taking the performance of the respective Class A Shares and adjusting it to
reflect the elimination of all sales charges. However, for those periods, no
adjustment has been made to eliminate the impact of 12b-1 payments by Class A
Shares, and performance for the Institutional Class of the Fund would have been
affected had such an adjustment been made. The average annual total return for
Class B Shares and Class C Shares including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at April 30, 2004. The average annual total return for Class B Shares and Class
C Shares excluding deferred sales charge assumes the shares were not redeemed at
April 30, 2004 and therefore does not reflect the deduction of a CDSC.
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. Past performance, both before and
after taxes, is not a guarantee of future results.
The average annual total return for each Class (except Class R) is
shown for the 1 year, 5 year or 10 year period ending April 30, 2004. If a Class
has not been in existence for a full 1, 5, or 10 year period, then lifetime
returns are shown. Lifetime returns are not shown if performance information
exists for the 10 year period.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
17
AVERAGE ANNUAL TOTAL RETURN
[Enlarge/Download Table]
--------------------------------------------------------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND(1)/(4) 1 year ended 5 years ended 10 years ended Life of Fund
4/30/04 4/30/04 4/30/04
--------------------------------------------------------------------------------------------------------------------------------
CLASS A (AT OFFER BEFORE TAXES)2 16.70% -4.54% N/A 11.17%
--------------------------------------------------------------------------------------------------------------------------------
CLASS A (AT OFFER AFTER TAXES ON DISTRIBUTIONS)(2) 16.70% -4.92% N/A 9.74%
--------------------------------------------------------------------------------------------------------------------------------
CLASS A (AT OFFER AFTER TAXES ON DISTRIBUTIONS AND
SALE OF FUND SHARES)(2) 10.86% -3.98% N/A 9.02%
--------------------------------------------------------------------------------------------------------------------------------
CLASS A (AT NAV BEFORE TAXES)(2) 23.83% -3.40% N/A 11.83%
--------------------------------------------------------------------------------------------------------------------------------
CLASS B (INCLUDING CDSC BEFORE TAXES)(3) 18.90% -4.54% N/A 10.85%
--------------------------------------------------------------------------------------------------------------------------------
CLASS B (INCLUDING CDSC AFTER TAXES ON
DISTRIBUTIONS)3 18.90% -4.95% N/A 9.24%
--------------------------------------------------------------------------------------------------------------------------------
CLASS B (INCLUDING CDSC AFTER TAXES ON
DISTRIBUTIONS AND SALE OF FUND SHARES)(3) 12.28% -3.99% N/A 8.57%
--------------------------------------------------------------------------------------------------------------------------------
CLASS B (EXCLUDING CDSC BEFORE TAXES)(3) 22.90% -4.13% N/A 10.85%
--------------------------------------------------------------------------------------------------------------------------------
CLASS C (INCLUDING CDSC BEFORE TAXES) 21.81% -4.13% N/A 10.99%
--------------------------------------------------------------------------------------------------------------------------------
CLASS C (INCLUDING CDSC AFTER TAXES ON
DISTRIBUTIONS) 21.81% -4.53% N/A 9.52%
--------------------------------------------------------------------------------------------------------------------------------
CLASS C (INCLUDING CDSC AFTER TAXES ON
DISTRIBUTIONS AND SALE OF FUND SHARES) 14.18% -3.65% N/A 8.85%
--------------------------------------------------------------------------------------------------------------------------------
CLASS C (EXCLUDING CDSC BEFORE TAXES) 22.81% -4.13% N/A 10.99%
--------------------------------------------------------------------------------------------------------------------------------
CLASS R (BEFORE TAXES)(3) N/A N/A N/A 11.28%
--------------------------------------------------------------------------------------------------------------------------------
CLASS R (AFTER TAXES ON DISTRIBUTIONS) N/A N/A N/A 11.28%
--------------------------------------------------------------------------------------------------------------------------------
CLASS R (AFTER TAXES ON DISTRIBUTIONS AND SALE OF
FUND SHARES) N/A N/A N/A 11.28%
--------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS (BEFORE TAXES) 24.10% -3.17% N/A 12.03%
--------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS (AFTER TAXES ON DISTRIBUTIONS) 24.10% -3.55% N/A 10.59%
--------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS (AFTER TAXES ON DISTRIBUTIONS
AND SALE OF FUND SHARES) 15.67% -2.85% N/A 9.81%
--------------------------------------------------------------------------------------------------------------------------------
(1) Reflects applicable expense caps in effect during the periods. See
Investment Management Agreement for information regarding expense caps for
the Fund. In the absence of such voluntary waivers, performance would have
been affected negatively.
(2) Effective November 2, 1998, the maximum front-end sales charge is 5.75%.
The above performance numbers are calculated using 5.75% as the applicable
sales charge for all time periods.
(3) Effective November 18, 2002, the CDSC schedule for Class B Shares will be
changed to: 4.00% during the first year, 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. The above figures have been
calculated using this new schedule. For the period November 2, 1998 through
November 18, 2002, the CDSC schedule for Class B Shares was: (i) 5% if
shares are redeemed within one year of purchase (ii) 4% if shares are
redeemed during the second year; (iii) 3% if shares are redeemed during the
third or fourth year; (iv) 2% if shares are redeemed during the fifth year;
(v) 1% if shares are redeemed during the sixth year; and (v) 0% thereafter.
(4) Date of initial public offering of Delaware Select Growth Fund Class A
Shares was May 16, 1994; date of initial public offering of Delaware Select
Growth Fund Class C Shares was May 20, 1994; date of initial public
offering of Delaware Select Growth Fund Class B Shares was April 16, 1996;
date of initial public offering of Delaware Select Growth Fund
Institutional Class Shares was August 28, 1997; and date of initial public
offering of Delaware Select Growth Fund Class R Shares was June 1, 2003.
18
TRADING PRACTICES AND BROKERAGE
Mutual Funds III selects brokers or dealers to execute transactions on
behalf of the Fund for the purchase or sale of portfolio securities on the basis
of its judgment of their professional capability to provide the service. The
primary consideration is to have brokers or dealers execute transactions at best
execution. Best execution refers to many factors, including the price paid or
received for a security, the commission charged, the promptness and reliability
of execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. Some trades are made on a net basis where a Fund either buys
securities directly from the dealer or sells them to the dealer. In these
instances, there is no direct commission charged but there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission. When a commission is paid, the Fund involved pays reasonably
competitive brokerage commission rates based upon the professional knowledge of
the Manager's trading department as to rates paid and charged for similar
transactions throughout the securities industry. In some instances, the 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 Fund were as follows:
------------------------------------------------------------------------------
4/30/04 4/30/03 4/30/02
------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND $1,956,128 $2,123,805 $3,105,773
------------------------------------------------------------------------------
The Manager may allocate out of all commission business generated by
all of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software and hardware used in
security analyses; and providing portfolio performance evaluation and technical
market analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
During the fiscal year ended April 30, 2004, portfolio transactions of
the Fund, in the amount listed below, resulting in brokerage commissions in the
amount listed below, were directed to brokers for brokerage and research
services provided:
--------------------------------------------------------------------------------
PORTFOLIO BROKERAGE COMMISSIONS
TRANSACTIONS AMOUNTS AMOUNTS
--------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND $1,213,193,114 $2,901,241
--------------------------------------------------------------------------------
As provided in the 1934 Act and the Funds' Investment Management
Agreement, higher commissions are permitted to be paid to broker/dealers who
provide brokerage and research services than to broker/dealers who do not
provide such services if such higher commissions are deemed reasonable in
relation to the value of the brokerage and research services provided. Although
transactions are directed to broker/dealers who provide such brokerage and
research services, the Funds believe that the commissions paid to such
broker/dealers are not, in general, higher than commissions that would be paid
to broker/dealers not providing such services and that such commissions are
reasonable in relation to the value of the brokerage and research services
provided. In some instances, services may be provided to the Manager which
constitute in some part brokerage and research services used by the Manager in
connection with its investment decision-making process and constitute in some
part services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In such cases,
the Manager will make a good faith allocation of brokerage and research services
and will pay out of its own resources for services used by the Manager in
connection with administrative or other functions not related to its investment
decision-making process. In addition, so long as no fund is disadvantaged,
portfolio transactions which generate commissions or their equivalent are
allocated to broker/dealers who provide daily portfolio pricing services to a
Fund and to other funds in the Delaware Investments family. Subject to best
execution, commissions allocated to brokers providing such pricing services may
or may not be generated by the funds receiving the pricing service.
19
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order 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 Mutual Funds III's Board of Trustees that the advantages of combined orders
outweigh the possible disadvantages of separate transactions.
Consistent with the NASD Regulation, Inc. (the "NASDR(SM)"), and
subject to seeking best execution, the Funds may place orders with
broker/dealers that have agreed to defray certain expenses of the funds in the
Delaware Investments family such as custodian fees.
PORTFOLIO TURNOVER
Portfolio trading will be undertaken principally to accomplish the
Fund's objective in relation to anticipated movements in the general level of
interest rates. The Fund is free to dispose of portfolio securities at any time,
subject to complying with the Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
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 the Fund's securities at the
beginning of the year were replaced by the end of the year, or if one single
investment was frequently traded. In investing to achieve its investment
objective, the Fund may hold securities for any period of time. The Fund's
portfolio turnover will be increased if the Fund writes a large number of call
options that are subsequently exercised. To the extent the Fund realizes gains
on securities held for twelve months or less, such gains are taxable to the
shareholder subject to tax or to the Fund at ordinary income tax rates. The
turnover rate also may be affected by cash requirements from redemptions or
repurchases of Fund shares. High portfolio turnover involves correspondingly
greater brokerage costs and may affect taxes payable by shareholders that are
subject to federal income taxes.
The portfolio turnover rate of the Fund is calculated by dividing the
lesser of purchases or sales of securities for the particular fiscal year by the
monthly average of the value of securities owned by the Fund during the
particular fiscal year, exclusive of securities whose maturities at the time of
acquisition are one year or less.
20
The portfolio turnover rates of the Fund for the past two fiscal years
were as follows:
-------------------------------------------------------------------
2004 2003
-------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND 82% 69%
-------------------------------------------------------------------
The Fund may be expected to engage in active and frequent trading of
portfolio securities, which means that the portfolio turnover can be expected to
exceed 100%.
PURCHASING SHARES
The Distributor serves as the national distributor for the Fund's
classes of shares, and has agreed to use its best efforts to sell shares of the
Fund. See the Prospectuses for additional information on how to invest. Shares
of the Fund are offered on a continuous basis, and may be purchased through
authorized investment dealers or directly by contacting Mutual Funds III or the
Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, trustees and
employees of any fund in the Delaware Investments family, the Manager or any of
the its affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Asset Planner service are
subject to a minimum initial investment of $2,000 per Asset Planner Strategy
selected. There are no minimum purchase requirements for the Funds'
Institutional Class and Class R Shares, 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. Mutual Funds III 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. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $50,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B Shares, Class C Shares and Class R Shares generally are not subject
to a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Mutual Funds III reserves the right to reject any order for the purchase of
shares of the Fund if in the opinion of management such rejection is in the
Fund's best interests. If a purchase is canceled because your check is returned
unpaid, you are responsible for any loss incurred. The Fund can redeem shares
from your account(s) to reimburse itself for any loss, and you may be restricted
from making future purchases in any of the funds in the Delaware Investments
family. The 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.
The Fund also reserves the right, following shareholder notification,
to charge a service fee on non-retirement accounts that, as a result of
redemption, have remained below the minimum stated account balance for a period
of three or more consecutive months. Holders of such accounts may be notified of
their insufficient account balance and advised that they have until the end of
the current calendar quarter to raise their balance to the stated minimum. If
the account has not reached the minimum balance requirement by that time, the
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
21
The 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 NASDR(SM) has adopted Conduct Rules, as amended, relating to
investment company sales charges. Mutual Funds III and the Distributor intend to
operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 5.75%; however, lower front-end sales charges
apply for larger purchases. Class A Shares are also subject to annual 12b-1 Plan
expenses for the life of the investment.
Class B Shares are purchased at net asset value and are subject to a
CDSC of: (i) 4.00% if shares are redeemed within one year of purchase; (ii)
3.25% if shares are redeemed within two years of 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 years following purchase; (v) 1.50% if
shares are redeemed during the sixth year following purchase; and (vi) 0%
thereafter. Class B Shares are also subject to annual 12b-1 Plan expenses which
are higher than those to which Class A Shares and Class R Shares are subject and
are assessed against Class B Shares for approximately eight years after
purchase. See Automatic Conversion of Class B Shares, below.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Class R Shares are purchased at the net asset value per share without
the imposition of a front-end or contingent deferred sales charge. Class R
Shares are subject to annual 12b-1 Plan expenses for the life of the investment.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Class A Shares, Class B Shares, Class C Shares, Class R Shares and
Institutional Class shares represent a proportionate interest in a Fund's assets
and will receive a proportionate interest in the Fund's income, before
application, as to Class A, Class B, Class C Shares and Class R Shares, of any
expenses under the Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued in
the case of Class A Shares or Institutional Class shares, unless a shareholder
submits a specific request. Certificates are not issued in the case of Class B
Shares, Class C Shares or Class R Shares or in the case of any retirement plan
account including self-directed IRAs. However, purchases not involving the
issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing full
share denominations purchased by sending a letter signed by each owner of the
account to the Transfer Agent requesting the certificate. No charge is assessed
by Mutual Funds III for any certificate issued. A shareholder may be subject to
fees for replacement of a lost or stolen certificate under certain conditions,
including the cost of obtaining a bond covering the lost or stolen certificate.
Please contact the Fund for further information. Investors who hold certificates
representing any of their shares may only redeem those shares by written
request. The investor's certificate(s) must accompany such request.
22
ALTERNATIVE PURCHASE ARRANGEMENTS - CLASS A, B AND C SHARES
The alternative purchase arrangements of Class A Shares, Class B
Shares and Class C Shares permit investors to choose the method of purchasing
shares that is most suitable for their needs given the amount of their purchase,
the length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of
0.25% of the average daily net assets of Class A Shares of the Fund, or to
purchase either Class B or Class C Shares and have the entire initial purchase
amount invested in the Fund with the investment thereafter subject to a CDSC and
annual 12b-1 Plan expenses. Class B Shares are subject to a CDSC if the shares
are redeemed within six years of purchase, and Class C Shares are subject to a
CDSC if the shares are redeemed within 12 months of purchase. Class B and Class
C Shares are each subject to annual 12b-1 Plan expenses of up to a maximum of 1%
(0.25% of which are service fees to be paid to the Distributor, dealers or
others for providing personal service and/or maintaining shareholder accounts)
of average daily net assets of the respective Class. Class B Shares will
automatically convert to Class A Shares at the end of approximately eight years
after purchase and, thereafter, be subject to Class A Shares' annual 12b-1 Plan
expenses. Unlike Class B Shares, Class C Shares do not convert to another Class.
The higher 12b-1 Plan expenses on Class B Shares and Class C Shares
will be offset to the extent a return is realized on the additional money
initially invested upon the purchase of such shares. However, there can be no
assurance as to the return, if any, that will be realized on such additional
money. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also consider the duration of the annual 12b-1 Plan expenses to
which each of the classes is subject and the desirability of an automatic
conversion feature, which is available only for Class B Shares.
Class R Shares have no front-end sales charge and are not subject to a
CDSC, but incur annual 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 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 12b-1 Plan expenses to
which each of the class is subject and the desirability of an automatic
conversion feature to Class A Shares (with lower annual 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 Fund, the Distributor and others will be paid,
in the case of Class A Shares, from the proceeds of the front-end sales charge
and 12b-1 Plan fees, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption, and in the case of Class R Shares, from the proceeds of the 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 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 12b-1 Plan and the front-end sales
charge applicable to Class A Shares in that such fees and charges are used to
finance the distribution of the respective Classes. See Plans Under Rule 12b-1
for the Fund Classes.
Dividends, if any, paid on Class A Shares, Class B Shares, Class C
Shares and Class R Shares will be calculated in the same manner, at the same
time and on the same day and will be in the same amount, except that the
additional amount of 12b-1 Plan expenses relating to Class B Shares, Class C
Shares and Class R Shares will be borne exclusively by such shares. See
Determining Offering Price and Net Asset Value.
23
CLASS A SHARES
Purchases of $50,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectuses, and may include a series of purchases over a 13-month period under
a Letter of Intention signed by the purchaser. See Special Purchase Features -
Class A Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may reallow to dealers up to the full amount of the front-end sales.
In addition, certain dealers who enter into an agreement to provide extra
training and information on Delaware Investments products and services and who
increase sales of Delaware Investments funds may receive an additional
commission of up to 0.15% of the offering price in connection with sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the 1933 Act.
DEALER'S COMMISSION
As described in the Prospectuses, for initial purchases of Class A
Shares of $1,000,000 or more, a dealer's commission may be paid by the
Distributor to financial advisors through whom such purchases are effected.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial 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
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) may be aggregated with those of the Class A Shares of a
Fund. Financial 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%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of Class B Shares or Class C
Shares of the Fund, even if those shares are later exchanged for shares of
another Delaware Investments fund. In the event of an exchange of the shares,
the "net asset value of such shares at the time of redemption" will be the net
asset value of the shares that were acquired in the exchange. See Waiver of
Contingent Deferred Sales Charge - Class B Shares and Class C Shares under
Redemption and Exchange for the Fund Classes for a list of the instances in
which the CDSC is waived.
24
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the same
Fund. See Automatic Conversion of Class B Shares below. Such conversion will
constitute a tax-free exchange for federal income tax purposes. Investors are
reminded that the Class A Shares into which Class B Shares will convert are
subject to Class A Shares' ongoing annual 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 net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class B Shares at the time of purchase from its
own assets in an amount equal to no more than 5% of the dollar amount purchased.
In addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if redeemed within six
years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for a Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege will
continue to be subject to the CDSC schedule for Class B Shares described in this
Part B, even after the exchange. Such CDSC schedule may be higher than the CDSC
schedule for Class B Shares acquired as a result of the exchange. See Redemption
and Exchange.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the 18th day (or next
business day) of March, June, September and December (each, a "Conversion
Date"). If the eighth anniversary after a purchase of Class B Shares falls on a
Conversion Date, an investor's Class B Shares will be converted on that date. If
the eighth anniversary occurs between Conversion Dates, an investor's Class B
Shares will be converted on the next Conversion Date after such anniversary.
Consequently, if a shareholder's eighth anniversary falls on the day after a
Conversion Date, that shareholder will have to hold Class B Shares for as long
as three additional months after the eighth anniversary of purchase before the
shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Delaware Cash Reserve Fund Consultant Class)
pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares into Class A Shares
will constitute tax-free exchanges for federal income tax purposes.
25
LEVEL SALES CHARGE ALTERNATIVE - CLASS C SHARES
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, Class C Shares are subject to annual 12b-1 Plan expenses
and, if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege will
continue to be subject to the CDSC schedule for Class C Shares as described in
this Part B. See Redemption and Exchange.
PLANS UNDER RULE 12B-1 FOR THE FUND CLASSES
Pursuant to Rule 12b-1 under the 1940 Act, Mutual Funds III has adopted
a plan for each of the Class A Shares, Class B Shares, Class C Shares and Class
R Shares of the Fund (the "Plans"). Each Plan permits the relevant Fund to pay
for certain distribution, promotional and related expenses involved in the
marketing of only the class of shares to which the Plan applies. The Plans do
not apply to Institutional Class of shares. Such shares are not included in
calculating the Plans' fees, and the Plans are not used to assist in the
distribution and marketing of shares of Institutional Class. Shareholders of
Institutional Class may not vote on matters affecting the Plans.
The Plans permit the Fund, pursuant to its 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, and paying distribution and maintenance fees to
securities brokers and dealers who enter into agreements with the Distributor.
The Plan expenses relating to Class B and Class C Shares are also used to pay
the Distributor for advancing the commission costs to dealers with respect to
the initial sale of such shares.
In addition, the Fund may make payments out of the assets of Class A,
Class B, Class C and Class R Shares directly to other unaffiliated parties, such
as banks, who either aid in the distribution of shares of, or provide services
to, such Classes.
The maximum aggregate fee payable by the Fund under its Plans, and the
Fund's Distribution Agreement, is on an annual basis, up to 0.25% of the Fund's
Class A Shares' average daily net assets for the year up to 1% (0.25% of which
are service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of the Class B
Shares' and Class C Shares' average daily net assets for the year and up to
0.60% of Class R Shares' average daily net assets for the year. Mutual Funds
III's Board of Trustees may reduce these amounts 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, Class B, Class C and Class R Shares would be borne by such persons without
any reimbursement from such Fund Classes. Subject to seeking best execution, the
Fund may, from time to time, buy or sell portfolio securities from or to firms
which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
26
The Plans and the Distribution Agreements, as amended, have all been
approved by the Board of Trustees of Mutual Funds III, including a majority of
the trustees who are not "interested persons" (as defined in the 1940 Act) of
Mutual Funds III and who have no direct or indirect financial interest in the
Plans, by vote cast in person at a meeting duly called for the purpose of voting
on the Plans and such Agreements. Continuation of the Plans and the Distribution
Agreements, as amended, must be approved annually by the Board of Trustees in
the same manner as specified above.
Each year, the trustees must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares, Class C Shares and Class R Shares of the Fund and that there is
a reasonable likelihood of the Plan relating to a Fund Class providing a benefit
to that Class. The Fund's Plans and Distribution Agreement may be terminated
with respect to a Class at any time without penalty by a majority of those
trustees who are not "interested persons" or by a majority vote of the
outstanding voting securities of the relevant Fund Class. Any amendment
materially increasing the percentage payable under the Plans must likewise be
approved by a majority vote of the outstanding voting securities of the relevant
Fund Class, as well as by a majority vote of those trustees who are not
"interested persons." With respect to the Class A Shares' Plan, any material
increase in the maximum percentage payable thereunder must also be approved by a
majority of the outstanding voting securities Class B Shares of the Fund. Also,
any other material amendment to the Plans must be approved by a majority vote of
the trustees including a majority of the noninterested trustees of Mutual Funds
III having no interest in the Plans. In addition, in order for the Plans to
remain effective, the selection and nomination of trustees who are not
"interested persons" of Mutual Funds III must be effected by the trustees who
themselves are not "interested persons" and who have no direct or indirect
financial interest in the Plans. Persons authorized to make payments under the
Plans must provide written reports at least quarterly to the Board of Trustees
for their review.
For the fiscal year ended April 30, 2004, 12b-1 Plan payments from
Class A Shares, Class B Shares, Class C and Class R Shares of the Fund are shown
below. Class R Shares of the Fund were available for purchase as of June 2,
2003.
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND
----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
----------------------------------------------------------------------------------------------------------------------------
Advertising $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------
Annual/Semiannual Reports $0 $0 $2,516 $0
----------------------------------------------------------------------------------------------------------------------------
Broker Trails $611,223 $718,250 $953,681 $280
----------------------------------------------------------------------------------------------------------------------------
Broker Sales Charges $0 $1,296,420 $36,619 $0
----------------------------------------------------------------------------------------------------------------------------
Dealer Service Expenses $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------
Interest on Broker Sales Charges $0 $871,915 $0 $0
----------------------------------------------------------------------------------------------------------------------------
Commissions to Wholesalers $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------
Promotional-Broker Meetings $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------
Promotional-Other $0 $0 $8,602 $0
----------------------------------------------------------------------------------------------------------------------------
Telephone $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------
Prospectus Printing $0 $0 $2,985 $0
----------------------------------------------------------------------------------------------------------------------------
Wholesaler Expenses $0 $0 $43,527 $64
----------------------------------------------------------------------------------------------------------------------------
Other $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------
Total $611,223 $2,886,585 $1,047,930 $344
----------------------------------------------------------------------------------------------------------------------------
OTHER PAYMENTS TO DEALERS - CLASS A, CLASS B, CLASS C 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 family of funds. In some instances, these
incentives or payments may be offered only to certain dealers who maintain, have
sold or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Investments fund shares.
27
SPECIAL PURCHASE FEATURES - CLASS A SHARES
BUYING CLASS A SHARES AT NET ASSET VALUE
Class A Shares of the Fund may be purchased at net asset value under the
Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, trustees/directors and employees of Mutual
Funds III, any other fund in the Delaware Investments family, the Manager, or
any of the Manager's current affiliates and those that may in the future be
created, legal counsel to the funds and registered representatives and employees
of broker/dealers who have entered into Dealer's Agreements with the Distributor
may purchase Class A Shares and any such class of shares of any of the other
funds in the Delaware Investments family, including any fund that may be
created, at the net asset value per share. Family members (regardless of age) of
such persons at their direction, and any employee benefit plan established by
any of the foregoing funds, corporations, counsel or broker/dealers may also
purchase Class A Shares at net asset value.
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 of Funds
may exchange into Class A shares of another fund at net asset value.
Any class members included in the settlement of Blanke v. Lincoln
National Corporation and Lincoln National Life Insurance Company may purchase
Class A shares of the Fund at net asset value for a period of 90 days after the
final settlement date. The initial purchase of such shares must be for an amount
of at least $1,000 and must comply with the Amended Notice of Class Action,
Proposed Settlement and Fairness Hearing. Class members may call 800 960-0366 to
receive information regarding the settlement.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of funds in the
Delaware Investments family. Officers, trustees and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisors affiliated with a broker or dealer, 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.
Class A Shares may be purchased at net asset value by bank sponsored
retirement plans that are no longer eligible to purchase Institutional Class
Shares or purchase interests in a collective trust as a result of a change in
the distribution arrangements.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional Class
of a Fund; any group retirement plan (excluding defined benefit pension plans),
or such plans of the same employer, for which plan participant records are
maintained on the Retirement Financial Services, Inc. (formerly known as
Delaware Investment & Retirement Services, Inc.) proprietary record keeping
system that (i) has in excess of $500,000 of plan assets invested in Class A
Shares of funds in the Delaware Investments family and any stable value account
available to investment advisory clients of the Manager or its affiliates; or
(ii) is sponsored by an employer that has at any point after May 1, 1997 had
more than 100 employees while such plan has held Class A Shares of a fund in the
Delaware Investments family and such employer has properly represented in
writing to Retirement Financial Services, Inc. that it has the requisite number
of employees and received written confirmation back from Retirement Financial
Services, Inc. See Group Investment Plans for information regarding the
applicability of the Limited CDSC.
28
Purchases of Class A Shares at net asset value may be made 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 Share NAV Agreement with respect to such retirement platform.
Purchases of Class A Shares at net asset value may also be made by any
group retirement plan (excluding defined benefit pension plans) that purchases
shares through a retirement plan alliance program that requires shares to be
available at net asset value, provided Retirement Financial Services, Inc.
either is the sponsor of the alliance program or has a product participation
agreement with the sponsor of the alliance program.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a fund account
in connection with loans originated from accounts previously maintained by
another investment firm will also be invested at net asset value.
Mutual Funds III must be notified in advance that the trade qualifies
for purchase at net asset value.
ALLIED PLANS
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Investments funds ("eligible Delaware Investments
fund shares"), as well as shares of designated classes of non-Delaware
Investments funds ("eligible non-Delaware Investments fund shares"). Class B
Shares and Class C Shares are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware Investments
fund shares held by the Allied Plan may be combined with the dollar amount of
new purchases by that Allied Plan to obtain a reduced front-end sales charge on
additional purchases of eligible Delaware Investments fund shares. See Combined
Purchases Privilege, below.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments fund
shares or for eligible non-Delaware Investments fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible fund
shares, both Delaware Investments and non-Delaware Investments, which were not
subject to a front end sales charge, will be subject to the applicable sales
charge if exchanged for eligible Delaware Investments fund shares to which a
sales charge applies. No sales charge will apply if the eligible fund shares
were previously acquired through the exchange of eligible shares on which a
sales charge was already paid or through the reinvestment of dividends. See
Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
advisor's eligibility for a dealer's commission on net asset value purchases of
eligible Delaware Investments fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated. See Class A Shares,
above.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Investments and non-Delaware Investments fund shares.
When eligible Delaware Investments fund shares are exchanged into eligible
non-Delaware Investments fund shares, the Limited CDSC will be imposed at the
time of the exchange, unless the joint venture agreement specifies that the
amount of the Limited CDSC will be paid by the financial advisor or selling
dealer. See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange.
29
LETTER OF INTENTION
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Mutual Funds III, which provides for the holding in escrow by the
Transfer Agent of 5% of the total amount of Class A Shares intended to be
purchased until such purchase is completed within the 13-month period. A Letter
of Intention may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the difference
between the front-end sales charge on Class A Shares purchased at the reduced
rate and the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13-month period, the Transfer Agent will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level designated in
their Letter of Intention) of all their shares of the Fund and of any class of
any of the other mutual funds in the Delaware Investments family (except shares
of any fund in the Delaware Investments family which do not carry a front-end
sales charge, CDSC or Limited CDSC, other than shares of Delaware Group VIP
Trust beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC) previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter.
Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge on
investments of Class A Shares made by the plan. The aggregate investment level
of the Letter of Intention will be determined and accepted by the Transfer Agent
at the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in Delaware Investments funds that are offered with a front-end
sales charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent
reserves the right to adjust the signed Letter of Intention based on this
acceptance criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments exceed the
anticipated level and equal an amount that would qualify the plan for further
discounts, any front-end sales charges will be automatically adjusted. In the
event this Letter of Intention is not fulfilled within the 13-month period, the
plan level will be adjusted (without completing another Letter of Intention) and
the employer will be billed for the difference in front-end sales charges due,
based on the plan's assets under management at that time. Employers may also
include the value (at offering price at the level designated in their Letter of
Intention) of all their shares intended for purchase that are offered with a
front-end sales charge, CDSC or Limited CDSC of any class. Class B Shares and
Class C Shares of the Fund and other funds in the Delaware Investments family
which offer corresponding classes of shares may also be aggregated for this
purpose.
COMBINED PURCHASES PRIVILEGE
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Fund, as well as shares of any other class of any of the other
funds in the Delaware Investments family (except shares of any Delaware
Investments fund which do not carry a front-end sales charge, CDSC or Limited
CDSC, other than shares of Delaware VIP Trust beneficially owned in connection
with the ownership of variable insurance products, unless they were acquired
through an exchange from a Delaware Investments fund which carried a front-end
sales charge, CDSC or Limited CDSC). In addition, assets held in any stable
value product available through Delaware Investments may be combined with other
Delaware Investments fund holdings.
30
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
RIGHT OF ACCUMULATION
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of the Fund, as
well as shares of any other class of any of the other funds in the Delaware
Investments funds which offer such classes (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware VIP Trust beneficially owned in
connection with the ownership of variable insurance products, unless they were
acquired through an exchange from a Delaware Investments fund which carried a
front-end sales charge, CDSC or Limited CDSC). If, for example, any such
purchaser has previously purchased and still holds Class A Shares and/or shares
of any other of the classes described in the previous sentence with a value of
$40,000 and subsequently purchases $10,000 at offering price of additional
shares of Class A Shares, the charge applicable to the $10,000 purchase would
currently be 4.75%. For the purpose of this calculation, the shares presently
held shall be valued at the public offering price that would have been in effect
were the shares purchased simultaneously with the current purchase. Investors
should refer to the table of sales charges for Class A Shares to determine the
applicability of the Right of Accumulation to their particular circumstances.
GROUP INVESTMENT PLANS
Group Investment Plans that are not eligible to purchase shares of the
Institutional Class may also benefit from the reduced front-end sales charges
for investments in Class A Shares, based on total plan assets. If a company has
more than one plan investing in the Delaware Investments family of funds, then
the total amount invested in all plans would be used in determining the
applicable front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to the Fund in which the investment is being made
at the time of each such purchase. Employees participating in such Group
Investment Plans may also combine the investments made in their plan account
when determining the applicable front-end sales charge on purchases to
non-retirement investment accounts of Delaware Investments if they so notify the
Fund in connection with each purchase. For other retirement plans and special
services, see Retirement Plans for the Fund Classes under Investment Plans.
The Limited CDSC is generally applicable to any redemptions of net
asset value purchases made on behalf of a group retirement plan on which a
dealer's commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from a fund in the Delaware Investments family.
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange. Notwithstanding the
foregoing, the Limited CDSC for Class A Shares on which a dealer's commission
has been paid will be waived in connection with redemptions by certain group
defined contribution retirement plans that purchase shares through a retirement
plan alliance program which requires that shares will be available at net asset
value, provided that, Retirement Financial Services, Inc. either is the sponsor
of the alliance program or has a product participation agreement with the
sponsor of the alliance program that specifies that the Limited CDSC will be
waived.
CLASS R SHARES
Class R Shares generally are available only to (i) qualified and
non-qualified plans (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.
12-MONTH REINVESTMENT PRIVILEGE
Holders of Class A Shares and Class B Shares of the Fund (and of the
Institutional Class holding shares which were acquired through an exchange from
one of the other mutual funds in the Delaware Investments family offered with a
front-end sales charge) who redeem such shares have one year from the date of
redemption to reinvest all or part of their redemption proceeds in the same
31
Class of the Fund or in the same Class of any of the other funds in the Delaware
Investments family. In the case of Class A Shares, the reinvestment will not be
assessed a front-end sales charge and in the case of Class B Shares, the amount
of the CDSC previously charged on the redemption will be reimbursed by the
Distributor. The reinvestment will be subject to applicable eligibility and
minimum purchase requirements and must be in states where shares of such other
funds may be sold. This reinvestment privilege does not extend to Class A Shares
where the redemption of the shares triggered the payment of a Limited CDSC.
Persons investing redemption proceeds from direct investments in mutual funds in
the Delaware Investments family, offered without a front-end sales charge will
be required to pay the applicable sales charge when purchasing Class A Shares.
The reinvestment privilege does not extend to a redemption of Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. In the case of
Class B Shares, the time that the previous investment was held will be included
in determining any applicable CDSC due upon redemptions as well as the automatic
conversion into Class A Shares.
A redemption and reinvestment of Class B Shares could have income tax
consequences. Shareholders will receive from the Distributor the amount of the
CDSC paid at the time of redemption as part of the reinvested shares, which may
be treated as a capital gain to the shareholder for tax purposes. It is
recommended that a tax advisor be consulted with respect to such transactions.
Any reinvestment directed to a fund in which the investor does not then
have an account will be treated like all other initial purchases of the fund's
shares. Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is intended to be made before
investing or sending money. The prospectus contains more complete information
about the fund, including charges and expenses.
Investors should consult their financial 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.
THE INSTITUTIONAL CLASS
The Institutional Class of the Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager or its affiliates and securities dealer firms with
a selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment Advisers, an affiliate of the Manager, or its affiliates and
their corporate sponsors, as well as subsidiaries and related employee benefit
plans and rollover individual retirement accounts from such institutional
advisory accounts; (d) a bank, trust company and similar financial institution
investing for its own account or for the account of its trust customers for whom
such financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 fee; (e)
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; and (f)
certain plans qualified under Section 529 of the Internal Revenue Code for which
Delaware Service Company, Inc., the Distributor, or the Manager or one or more
of their affiliates provide record keeping, administrative, investment
management, marketing, distribution or similar services ("Eligible 529 Plans");
and (g) programs sponsored by financial intermediaries where such program
requires the purchase of Institutional Class shares.
Shares of the Institutional Class are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
32
INVESTMENT PLANS
REINVESTMENT PLAN/OPEN ACCOUNT
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Fund Class in which an investor has an account (based on the net asset value in
effect on the reinvestment date) and will be credited to the shareholder's
account on that date. All dividends and distributions of the Institutional Class
are reinvested in the accounts of the holders of such shares (based on the net
asset value in effect on the reinvestment date). A confirmation of each
distribution from realized securities profits, if any, will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectuses
and this Part B, are made, for Class A Shares at the public offering price, and
for Class B Shares, Class C Shares, Class R Shares and Institutional Class
shares at the net asset value, at the end of the day of receipt. A reinvestment
plan may be terminated at any time. This plan does not assure a profit nor
protect against depreciation in a declining market.
REINVESTMENT OF DIVIDENDS IN OTHER FUNDS IN THE DELAWARE INVESTMENTS FAMILY
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B,
Class C and Class R Shares may automatically reinvest dividends and/or
distributions in any of the mutual funds in the Delaware Investments family,
including the Funds, in states where their shares may be sold. Such investments
will be at net asset value at the close of business on the reinvestment date
without any front-end sales charge or service fee. The shareholder must notify
the Transfer Agent in writing and must have established an account in the fund
into which the dividends and/or distributions are to be invested. Any
reinvestment directed to a fund in which the investor does not then have an
account will be treated like all other initial purchases of a fund's shares.
Consequently, an investor should obtain and read carefully the prospectus for
the fund in which the investment is intended to be made before investing or
sending money. The prospectus contains more complete information about the fund,
including charges and expenses.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Investments family may be invested in shares of
the Fund, provided an account has been established. Dividends from Class A
Shares may not be directed to Class B Shares, Class C Shares and 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 mutual fund in the Delaware
Investments family, 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 set
forth in each fund's prospectus. See Redemption and Exchange for more complete
information concerning your exchange privileges.
33
Holders of Class A Shares of the Fund may exchange all or part of their
shares for certain of the shares of other funds in the Delaware Investments
family, including other Class A Shares, but may not exchange their Class A
Shares for Class B Shares, Class C Shares or Class R Shares of the Fund or of
any other fund in the Delaware Investments family. Holders of Class B Shares of
a Fund are permitted to exchange all or part of their Class B Shares only into
Class B Shares of other Delaware Investments funds. Similarly, holders of Class
C Shares of the Fund are permitted to exchange all or part of their Class C
Shares only into Class C Shares of other Delaware Investments funds. Class B
Shares of the Fund and Class C Shares of the Fund acquired by exchange will
continue to carry the CDSC and, in the case of Class B Shares, the automatic
conversion schedule of the fund from which the exchange is made. The holding
period of Class B Shares of the Fund acquired by exchange will be added to that
of the shares that were exchanged for purposes of determining the time of the
automatic conversion into Class A Shares of the Fund. Holders of Class R Shares
of the Fund 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 Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of the Fund will be made without the imposition of a
CDSC by the fund from which the exchange is being made at the time of the
exchange.
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
Family of Funds will qualify for treatment as if such proceeds had been
exchanged from another Fund within the Delaware Investments Family of Funds
rather than transferred from the Eligible 529 Plan, as described under
INVESTMENT PLANS - Investing by Exchange. The treatment of your redemption
proceeds from an Eligible 529 Plan described in this paragraph 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 the Delaware
Investments Family of Funds into an Eligible 529 Plan.
INVESTING BY ELECTRONIC FUND TRANSFER
Direct Deposit Purchase Plan -- Investors may arrange for the Fund to
accept for investment in Class A, Class B, Class C Shares or Class R Shares,
through an agent bank, preauthorized government or private recurring payments.
This method of investment assures the timely credit to the shareholder's account
of payments such as social security, veterans' pension or compensation benefits,
federal salaries, Railroad Retirement benefits, private payroll checks,
dividends, and disability or pension fund benefits. It also eliminates lost,
stolen and delayed checks.
Automatic Investing Plan -- Shareholders of Class A, Class B, Class C
and Class R Shares may make automatic investments by authorizing, in advance,
monthly or quarterly payments directly from their checking account for deposit
into their Fund account. This type of investment will be handled in either of
the following ways. (1) If the shareholder's bank is a member of the National
Automated Clearing House Association ("NACHA"), the amount of the investment
will be electronically deducted from his or her account by Electronic Fund
Transfer ("EFT"). The shareholder's checking account will reflect a debit each
month at a specified date although no check is required to initiate the
transaction. (2) If the shareholder's bank is not a member of NACHA, deductions
will be made by preauthorized checks, known as Depository Transfer Checks.
Should the shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
34
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 Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Fund may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Fund.
DIRECT DEPOSIT PURCHASES BY MAIL
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Mutual Funds III for proper
instructions.
MONEYLINE(SM) ON DEMAND
You or your investment dealer may request purchases of Fund Class shares
by phone using MoneyLine(SM) On Demand. When you authorize a Fund to accept such
requests from you or your investment dealer, funds will be withdrawn (for share
purchases) from your predesignated bank account. Your request will be processed
the same day if you call prior to 4 p.m., Eastern Time. There is a $25 minimum
and $50,000 maximum limit for MoneyLine(SM) On Demand transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this service by completing an Account Services form.
If your name and address are not identical to the name and address on your Fund
account, you must have your signature guaranteed. The Fund does not charge a fee
for this service; however, your bank may charge a fee.
WEALTH BUILDER OPTION
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Investments family. Shareholders of the Fund Classes may
elect to invest in one or more of the other mutual funds in the Delaware
Investments family through the Wealth Builder Option. See Wealth Builder Option
and Redemption and Exchange in the Prospectuses for the Fund Classes.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Fund Classes' Prospectuses. The investment will be made on the 20th day of each
month (or, if the fund selected is not open that day, the next business day) at
the public offering price or net asset value, as applicable, of the fund
selected on the date of investment. No investment will be made for any month if
the value of the shareholder's account is less than the amount specified for
investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Redemption and Exchange for a brief summary of the tax consequences
of exchanges. Shareholders can terminate their participation at any time by
giving written notice to their Fund.
35
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Class.
ASSET PLANNER
To invest in the funds in the Delaware Investments family using the
Asset Planner asset allocation service, you should complete a Asset Planner
Account Registration Form, which is available only from a financial advisor or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisors or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial advisor, you may also design a customized asset allocation
strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Exchanges in the Prospectuses.
Also see Buying Class A Shares at Net Asset Value in this Part B. The minimum
initial investment per Strategy is $2,000; subsequent investments must be at
least $100. Individual fund minimums do not apply to investments made using the
Asset Planner service. Class A, Class B, Class C and Class R Shares are
available through the Asset Planner service. Generally, only shares within the
same class may be used within the same Strategy. However, Class A Shares of the
Fund and of other funds in the Delaware Investments family may be used in the
same Strategy with consultant class shares that are offered by certain other
Delaware Investments funds.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, the annual maintenance fee is waived until further notice. Investors
who utilize the Asset Planner for an IRA will continue to pay an annual IRA fee
of $15 per Social Security number.
Investors will receive a customized quarterly Strategy Report
summarizing all Asset Planner investment performance and account activity during
the prior period. Confirmation statements will be sent following all
transactions other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
RETIREMENT PLANS FOR THE FUND CLASSES
An investment in the Fund may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including a 401(k) deferred compensation plan, an Individual Retirement Account
("IRA") and the new Roth IRA and Coverdell Education Savings Account.
Among the retirement plans that Delaware Investments offers, Class B
Shares are available for investment only for Individual Retirement Accounts,
SIMPLE IRAs, Roth IRAs, Coverdell Education Savings Accounts, Simplified
Employee Pension Plans, Salary Reduction Simplified Employee Pension Plans,
403(b) Plans and 457 Deferred Compensation Plans. The CDSC may be waived on
certain redemptions of Class B Shares and Class C Shares. See Waiver of
Contingent Deferred Sales Charge under Redemption and Exchange for a list of the
instances in which the CDSC is waived.
36
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.
For information concerning the applicability of a CDSC upon redemption
of Class B Shares and Class C Shares, see Purchasing Shares in this Part B.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans other than IRAs, Roth IRAs and Coverdell
Education Savings Accounts, for which there is a minimum initial purchase of
$250 and a minimum subsequent purchase of $25 regardless of which Class is
selected. Retirement plans may be subject to plan establishment fees, annual
maintenance fees and/or other administrative or trustee fees. Fees are based
upon the number of participants in the plan as well as the services selected.
Additional information about fees is included in the 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 Institutional Class Shares. See
Institutional Class, above. For additional information on any of the Plans and
Delaware's retirement services, call the Shareholder Service Center telephone
number.
IT IS ADVISABLE FOR AN INVESTOR CONSIDERING ANY ONE OF THE RETIREMENT
PLANS DESCRIBED BELOW TO CONSULT WITH AN ATTORNEY, ACCOUNTANT OR A QUALIFIED
RETIREMENT PLAN CONSULTANT. FOR FURTHER DETAILS, INCLUDING APPLICATIONS FOR ANY
OF THESE PLANS, CONTACT YOUR INVESTMENT DEALER OR THE DISTRIBUTOR.
Taxable distributions from the retirement plans described below may be
subject to withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the plans described below.
PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLANS
Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations. These
plans can be maintained as Section 401(k), profit sharing or money purchase
pension plans. Contributions may be invested only in Class A Shares, Class C
Shares and Class R Shares.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year; however, the
deductibility of such contributions may be restricted based on certain income
limits.
IRA DISCLOSURES
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that can be
utilized depending on the individual's circumstances. A new Roth IRA and
Coverdell Education Savings Account are available in addition to the existing
deductible IRA and non-deductible IRA.
37
DEDUCTIBLE AND NON-DEDUCTIBLE IRAS
An individual can contribute up to $3,000 to his or her IRA each year
through 2004. Contributions may or may not be deductible depending upon the
taxpayer's adjusted gross income ("AGI"), not counting any IRA deduction, and
whether the taxpayer is an active participant in an employer sponsored
retirement plan.
In June of 2001, The Economic Growth and Tax Reconciliation Act of 2001
was signed into law and makes significant changes to the annual contribution
limits. The current amount of $3,000 will rise to $5,000 in 2008 with annual
inflation adjustments thereafter. Individuals who have attained age 50 by the
end of the calendar year will be eligible to make additional "catch-up"
contributions of $500 through 2005, and $1,000 beginning in 2006.
The annual contribution limits through 2008 are as follows:
CALENDAR YEAR UNDER AGE 50 AGE 50 AND ABOVE
------------- ------------ ----------------
2004 $3,000 $3,500
2005 $4,000 $4,500
2006-2007 $4,000 $5,000
2008 $5,000 $6,000
Even if a taxpayer is an active participant in an employer sponsored
retirement plan, the full $3,000 is still available through 2004 and increased
limits in subsequent years are still available if the taxpayer's AGI is not
greater than $40,000 ($60,000 for taxpayers filing joint returns) for tax years
beginning in 2003. A partial deduction is allowed for married couples with
income greater than $60,000 and less than $70,000, and for single individuals
with AGI greater than $40,000 and less than $50,000. These income phase-out
limits are annually increased until they reach $80,000-$100,000 in 2007 for
joint filers and $50,000-$60,000 in 2005 for single filers. No deductions are
available for contributions to IRAs by taxpayers whose AGI exceeds the maximum
income limit established for each year and who are active participants in an
employer sponsored retirement plan.
Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as the annual contribution
limit and defer taxes on interest or other earnings from the IRAs.
Under the law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI is not
greater than $150,000. The maximum deductible IRA contribution for a married
individual who is not an active participant, but whose spouse is, is phased out
for combined AGI greater than $150,000 and less than $160,000.
CONDUIT (ROLLOVER) IRAS
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or another IRA
may rollover the distribution tax-free to a Conduit IRA. The rollover of the
eligible distribution must be completed by the 60th day after receipt of the
distribution.
A distribution qualifies as an "eligible rollover distribution" if it
is made from a qualified retirement plan, a 403(b) plan or another IRA and does
not constitute one of the following:
(1) Substantially equal periodic payments over the employee's life or
life expectancy or the joint lives or life expectancies of the
employee and his/her designated beneficiary;
(2) Substantially equal installment payments for a period certain of 10
or more years;
(3) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;
38
(4) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the
employee; and
(5) A distribution of after-tax contributions which is not includable in
income.
ROTH IRAS
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $3,000 each year can be made to a Roth IRA. As a result
of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998
Act"), the $3,000 annual limit will not be reduced by any contributions to a
deductible or non-deductible IRA for the same year. The limits after 2002 are
the same as for a regular IRA. The maximum contribution that can be made to a
Roth IRA is phased out for single filers with AGI greater than $95,000 and less
than $110,000, and for couples filing jointly with AGI greater than $150,000 and
less than $160,000. Qualified distributions from a Roth IRA would be exempt from
federal taxes. Qualified distributions are distributions (1) made after the
five-taxable year period beginning with the first taxable year for which a
contribution was made to a Roth IRA and (2) that are (a) made on or after the
date on which the individual attains age 59 1/2, (b) made to a beneficiary on or
after the death of the individual, (c) attributed to the individual being
disabled, or (d) for a qualified special purpose (e.g., first time homebuyer
expenses).
Distributions that are not qualified distributions are tax-free if the
taxpayer is withdrawing contributions, not accumulated earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
previously deducted contributions held in the IRA are subject to a tax upon
conversion; however, no 10% additional tax for early withdrawal would apply.
COVERDELL EDUCATION SAVINGS ACCOUNTS (FORMERLY "EDUCATION IRAS")
For taxable years beginning after December 31, 1997, a Coverdell
Education Savings Account has been created exclusively for the purpose of paying
qualified higher education expenses. Beginning in 2002, the annual contribution
that can be made for each designated beneficiary has been increased to $2,000
and qualifying expenses will no longer be limited to those related to higher
education.
Elementary (including kindergarten) and secondary public, private or
religious school tuition expenses will now qualify. The new law specifically
permits as elementary and secondary school expenses academic tutoring; certain
computer technology; and expenses for uniforms, transportation and extended day
programs.
The $2,000 annual limit is an addition to the annual contribution limit
as applicable to IRAs and Roth IRAs. Eligible contributions must be in cash and
made prior to the date the beneficiary reaches age 18. Similar to the Roth IRA,
earnings would accumulate tax-free. There is no requirement that the contributor
be related to the beneficiary, and there is no limit on the number of
beneficiaries for whom one contributor can establish Coverdell Education Savings
Accounts. In addition, multiple Coverdell Education Savings Accounts can be
created for the same beneficiary, however, the contribution limit of all
contributions for a single beneficiary cannot exceed the annual limit.
The $2,000 annual contribution limit for a Coverdell Education Savings
Account is phased out ratably for single contributors with modified AGI greater
than $95,000 and less than $110,000, and for couples filing jointly with
modified AGI greater than $190,000 and less than $220,000. Individuals with
modified AGI above the phase-out range are not allowed to make contributions to
a Coverdell Education Savings Account established on behalf of any other
individual.
Distributions from a Coverdell Education Savings Account are excludable
from gross income to the extent that the distribution does not exceed qualified
higher education expenses incurred by the beneficiary during the year the
distribution is made regardless of whether the beneficiary is enrolled at an
eligible educational institution on a full-time, half-time, or less than
half-time basis.
39
Any balance remaining in a Coverdell Education Savings Account at the
time a beneficiary becomes 30 years old must be distributed, and the earnings
portion of such a distribution will be includable in gross income of the
beneficiary and subject to an additional 10% penalty tax if the distribution is
not for qualified higher education expenses. Tax-free (and penalty-free)
transfers and rollovers of account balances from one Coverdell Education Savings
Account benefiting one beneficiary to another Coverdell Education Savings
Account benefiting a different beneficiary (as well as redesignations of the
named beneficiary) is permitted, provided that the new beneficiary is a member
of the family of the old beneficiary and that the transfer or rollover is made
before the time the old beneficiary reaches age 30 and the new beneficiary
reaches age 18.
GROUP IRAS OR GROUP ROTH IRAS
A company or association may establish a Group IRA or Group Roth IRA
for employees or members who want to purchase shares of the Fund.
Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution taxes, but distributions must commence no later
than April 1 of the calendar year following the year in which the participant
reaches age 70 1/2. Distributions from the account (except for the pro-rata
portion of any nondeductible contributions) are fully taxable as ordinary income
in the year received. Excess contributions removed after the tax filing
deadline, plus extensions, for the year in which the excess contributions were
made are subject to a 6% excise tax on the amount of excess. Premature
distributions (distributions made before age 59 1/2, except for death,
disability and certain other limited circumstances) will be subject to a 10%
additional tax on the amount prematurely distributed, in addition to the income
tax resulting from the distribution.
Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks. In addition, effective January 1, 1998, the new law allows for premature
distribution without a 10% additional tax if (i) the amounts are used to pay
qualified higher education expenses (including graduate level courses) of the
taxpayer, the taxpayer's spouse or any child or grandchild of the taxpayer or
the taxpayer's spouse, or (ii) used within 120 days of the distribution to pay
acquisition costs of a principal residence for the purchase of a first-time home
by the taxpayer, taxpayer's spouse or any child or grandchild of the taxpayer or
the taxpayer's spouse. A qualified first-time homebuyer is someone who has had
no ownership interest in a principal residence during the past two years. The
aggregate amount of distribution for first-time home purchases cannot exceed a
lifetime cap of $10,000.
Individuals are entitled to revoke the account, for any reason and
without penalty, by mailing written notice of revocation to Delaware Management
Trust Company within seven days after the receipt of the IRA Disclosure
Statement or within seven days after the establishment of the IRA, except, if
the IRA is established more than seven days after receipt of the IRA Disclosure
Statement, the account may not be revoked.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may continue to be maintained by employers having 25 or
fewer employees. An employee may elect to make additional contributions to such
existing plans.
PROTOTYPE 401(k) DEFINED CONTRIBUTION PLAN
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations as well as taxable entities may
establish 401(k) plans. Plan documents are available to enable employers to
40
establish a plan. An employer may also elect to make profit sharing
contributions and/or matching contributions with investments in only Class A
Shares, Class C Shares and Class R Shares or certain other funds in the Delaware
Investments family. Purchases under the Plan may be combined for purposes of
computing the reduced front-end sales charge applicable to Class A Shares as set
forth in the table in the Prospectuses for the Fund Classes.
DEFERRED COMPENSATION PLAN FOR PUBLIC SCHOOLS AND NON-PROFIT ORGANIZATIONS
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase shares
of any of the Classes in conjunction with such an arrangement. Purchases under
the Plan may be combined for purposes of computing the reduced front-end sales
charge applicable to Class A Shares as set forth in the table in the
Prospectuses for the Fund Classes.
DEFERRED COMPENSATION PLAN FOR STATE AND LOCAL GOVERNMENT EMPLOYEES ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of the Fund. Although investors may use their
own plan, there is available a Delaware Investments 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Purchases under the Plan may be combined
for purposes of computing the reduced front-end sales charge applicable to Class
A Shares as set forth in the table in the Prospectuses for the Fund Classes.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or
fewer employees.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is available
only to plan sponsors with 100 or fewer employees and, in exchange for mandatory
plan sponsor contributions, discrimination testing is not required.
DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund, its agent or certain other authorized persons.
See Distribution and Service under Investment Management Agreement. Orders for
purchases of Class B Shares, Class C Shares, Class R Shares and Institutional
Class shares are effected at the net asset value per share next calculated by
the Fund in which shares are being purchased after receipt of the order by the
Fund, its agent or designee. Selling dealers are responsible for transmitting
orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern Time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for the days when the following holidays are
observed: New Year's Day, Presidents' Day, Martin Luther King, Jr.'s Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Funds will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.
41
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, will be included in
the Funds' financial statements, which are incorporated by reference into this
Part B.
Each Fund's net asset value per share is computed by adding the value
of all the Fund's securities and other assets, deducting any liabilities of the
Fund, and dividing by the number of Fund shares outstanding. Expenses and fees
are accrued daily. Portfolio securities, except for bonds, which are primarily
traded on a national or foreign securities exchange 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. Options are
valued at the last reported sales price or, if no sales are reported, at the
mean between bid and asked prices. Securities not traded on a particular day,
over-the-counter securities and government and agency securities are valued at
the mean value between bid and asked prices. Money market instruments having a
maturity of less than 60 days are valued at amortized cost. Debt securities
(other than short-term obligations) are valued on the basis of valuations
provided by a pricing service when such prices are believed to reflect the fair
value of such securities. Foreign securities, currencies and other assets
denominated in foreign currencies are translated into U.S. dollars at the
exchange rate of such currencies against the U.S. dollar, as provided by an
independent pricing service. For all other securities and for securities whose
closing prices are not readily available, we use methods approved by the Board
of Trustees that are designed to price securities at their fair market value.
Each Class of the Fund will bear, pro-rata, all of the common expenses
of that Fund. The net asset values of all outstanding shares of each Class of
the Fund will be computed on a pro-rata basis for each outstanding share based
on the proportionate participation in that Fund represented by the value of
shares of that Class. All income earned and expenses incurred by the Fund will
be borne on a pro-rata basis by each outstanding share of a Class, based on each
Class' percentage in the Fund represented by the value of shares of such
Classes, except that the Institutional Class will not incur any of the expenses
under the relevant Fund's 12b-1 Plans and Class A, Class B, Class C and Class R
Shares alone will bear the 12b-1 Plan expenses payable under their respective
Plans. Due to the specific distribution expenses and other costs that will be
allocable to each Class, the net asset value of each Class of the Fund will
vary.
REDEMPTION AND EXCHANGE
YOU CAN REDEEM OR EXCHANGE YOUR SHARES IN A NUMBER OF DIFFERENT WAYS.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, tax-advantaged funds, bond
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund. Further, in order for an exchange to be processed, shares of the fund
being acquired must be registered in the state where the acquiring shareholder
resides. An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve a capital gain or loss to the
shareholder for federal income tax purposes. You may want to consult your
financial advisor or investment dealer to discuss which funds in Delaware
Investments will best meet your changing objectives, and the consequences of any
exchange transaction. You may also call the Delaware Investments directly for
fund information.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. A shareholder submitting a redemption
request may indicate that he or she wishes to receive redemption proceeds of a
specific dollar amount. In the case of such a request, and in the case of
certain redemptions from retirement plan accounts, a Fund will redeem the number
of shares necessary to deduct the applicable CDSC in the case of Class B Shares
and Class C Shares, and, if applicable, the Limited CDSC in the case of Class A
Shares and tender to the shareholder the requested amount, assuming the
shareholder holds enough shares in his or her account for the redemption to be
processed in this manner. Otherwise, the amount tendered to the shareholder upon
redemption will be reduced by the amount of the applicable CDSC or Limited CDSC.
Redemption proceeds will be distributed promptly, as described below, but not
later than seven days after receipt of a redemption request.
42
Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800 523-1918. The Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by the Fund or certain other authorized persons (see Distribution
and Service under Investment Management Agreement); provided, however, that each
commitment to mail or wire redemption proceeds by a certain time, as described
below, is modified by the qualifications described in the next paragraph.
The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the purchase check has cleared, which may take
up to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. The Fund reserves the right to reject a
written or telephone redemption request or delay payment of redemption proceeds
if there has been a recent change to the shareholder's address of record.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to the Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the SEC has provided for such suspension for the protection of
shareholders, a Fund may postpone payment or suspend the right of redemption or
repurchase. In such case, the shareholder may withdraw the request for
redemption or leave it standing as a request for redemption at the net asset
value next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash or
kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Mutual Funds
III has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder.
43
The value of the Fund's investments is subject to changing market
prices. Thus, a shareholder reselling shares to the Fund may sustain either a
gain or loss, depending upon the price paid and the price received for such
shares.
Certain redemptions of Class A Shares purchased at net asset value will
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value, below.
Class B Shares are subject to a CDSC of: (i) 4.00% if shares are redeemed within
one year of 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 years following purchase; (v) 1.50% if shares are redeemed during the
sixth year following purchase; (vi) and 0% thereafter. Class C Shares are
subject to a CDSC of 1% if shares are redeemed within 12 months following
purchase. See Contingent Deferred Sales Charge - Class B Shares and Class C
Shares under Purchasing Shares. Except for the applicable CDSC or Limited CDSC
and, with respect to the expedited payment by wire described below for which, in
the case of the Fund Classes, there may be a bank wiring cost, neither the Fund
nor the Distributor charges a fee for redemptions or repurchases, but such fees
could be charged at any time in the future.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments (in
each case, "New Shares") in a permitted exchange, will not be subject to a CDSC
that might otherwise be due upon redemption of the Original Shares. However,
such shareholders will continue to be subject to the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the Original Shares as
described in this Part B and any CDSC assessed upon redemption will be charged
by the fund from which the Original Shares were exchanged. In an exchange of
Class B Shares from a Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. With respect to Class B
Shares, the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to Class B
Shares of a Fund for a longer period of time than if the investment in New
Shares were made directly.
WRITTEN REDEMPTION
You can write to the Fund at 2005 Market Street, Philadelphia, PA
19103-7094 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"). The 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 are issued for Class A Shares and Institutional Class
Shares only if a shareholder submits a specific request. Certificates are not
issued for Class B Shares, Class C Shares or Class R Shares.
WRITTEN EXCHANGE
You may also write to each Fund (at 2005 Market Street, Philadelphia, PA
19103-7094) to request an exchange of any or all of your shares into another
mutual fund in Delaware Investments, subject to the same conditions and
limitations as other exchanges noted above and in the Prospectuses.
TELEPHONE REDEMPTION AND EXCHANGE
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares or Institutional Class Shares in
certificate form, you may redeem or exchange only by written request and you
must return your certificates.
44
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. The 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 Fund by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Fund nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by 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
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. If the
proceeds are wired to the shareholder's account at a bank which is not a member
of the Federal Reserve System, there could be a delay in the crediting of the
funds to the shareholder's bank account. A bank fee may be deducted from Fund
Class redemption proceeds. If you ask for a check, it will normally be mailed
the next business day after receipt of your redemption request to your
predesignated bank account. There are no separate fees for this redemption
method, but the mail time may delay getting funds into your bank account. Simply
call the Shareholder Service Center prior to the time the offering price and net
asset value are determined, as noted above.
TELEPHONE EXCHANGE
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in Delaware Investments under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Investments family. Telephone exchanges may be subject to
limitations as to amounts or frequency. The Transfer Agent and the Fund reserve
the right to record exchange instructions received by telephone and to reject
exchange requests at any time in the future.
45
MONEYLINE(SM) ON DEMAND
You or your investment dealer may request redemptions of your Fund
shares by phone using MoneyLine(SM) On Demand. When you authorize the Fund to
accept such requests from you or your investment dealer, funds will be deposited
(for share redemptions) to your predesignated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern Time. There is a $25
minimum and $50,000 maximum limit for MoneyLine(SM) On Demand transactions. See
MoneyLine(SM) On Demand under Investment Plans.
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
net asset value, as applicable, for which certificates have not been issued may
establish a Systematic Withdrawal Plan for monthly withdrawals of $25 or more,
or quarterly withdrawals of $75 or more, although the Fund does not recommend
any specific amount of withdrawal. This is particularly useful to shareholders
living on fixed incomes, since it can provide them with a stable supplemental
amount. This $5,000 minimum does not apply for the Fund's prototype retirement
plans. Shares purchased with the initial investment and through reinvestment of
cash dividends and realized securities profits distributions will be credited to
the shareholder's account and sufficient full and fractional shares will be
redeemed at the net asset value calculated on the third business day preceding
the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected by
the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital, and the share
balance may in time be depleted, particularly in a declining market.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in Delaware Investments funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net
asset value and a dealer's commission has been paid on that purchase. The
applicable Limited CDSC for Class A Shares and CDSC for Class B and Class C
Shares redeemed via a Systematic Withdrawal Plan will be waived if the annual
amount withdrawn in each year is less than 12% of the account balance on the
date that the Plan is established. If the annual amount withdrawn in any year
exceeds 12% of the account balance on the date that the Systematic Withdrawal
Plan is established, all redemptions under the Plan will be subjected to the
applicable contingent deferred sales charge, including an assessment for
previously redeemed amounts under the Plan. Whether a waiver of the contingent
deferred sales charge is available or not, the first shares to be redeemed for
each Systematic Withdrawal Plan will be those not subject to a contingent
deferred sales charge because they have either satisfied the required holding
period or were acquired through the reinvestment of distributions.
An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
46
Systematic Withdrawal Plan payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine(SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. It may take up to four business days for the transactions to
be completed. You can initiate this service by completing an Account Services
form. If your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Fund does not charge
a fee for any this service; however, your bank may charge a fee. This service is
not available for retirement plans.
The Systematic Withdrawal Plan is not available to 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 or more made on or after July 1, 1998, a
Limited CDSC will be imposed on certain redemptions of Class A Shares (or shares
into which such Class A Shares are exchanged) according to the following
schedule: (1) 1.00% if shares are redeemed during the first year after the
purchase; and (2) 0.50% if such shares are redeemed during the second year after
the purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission as described in the
Prospectuses.
The Limited CDSC will be paid to the Distributor and will be assessed on
an amount equal to the lesser of: (1) the net asset value at the time of
purchase of the Class A Shares being redeemed or (2) the net asset value of such
Class A Shares at the time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset value at purchase of
the Class A Shares even if those shares are later exchanged for shares of
another Delaware Investments fund and, in the event of an exchange of Class A
Shares, the "net asset value of such shares at the time of redemption" will be
the net asset value of the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than two years will not
be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the two-year
holding period. The Limited CDSC is assessed if such two year period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of the Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation.
WAIVER OF LIMITED CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from the Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the Internal Revenue Code; (v) returns of excess contributions to an IRA;
(vi) distributions by other employee benefit plans to pay benefits; (vii)
distributions from an account if the redemption results from the death of the
registered owner, or a registered joint owner, of the account (in the case of
accounts established under the Uniform Gifts to Minors or Uniform Transfer to
Minors Acts or trust accounts, the waiver applies upon the death of all
beneficial owners) or a total and permanent disability (as defined in Section 72
of the Code) of all registered owners occurring after the purchase of the shares
being redeemed; (viii) distributions described in (ii), (iv), and (vi) above
pursuant to a systematic withdrawal plan; (ix) redemptions by the classes of
shareholders who are permitted to purchase shares at net asset value, regardless
of the size of the purchase; and (x) redemptions by certain group defined
contribution retirement plans that purchase shares through a retirement plan
alliance program which requires that shares will be available at net asset
value, provided that, Retirement Financial Services, Inc. either is the sponsor
of the alliance program or has a product participation agreement with the
sponsor of the alliance program that specifies that the Limited CDSC will be
waived (see Buying Class A Shares at Net Asset Value under Purchasing Shares).
47
WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from the
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic
distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, or 403(b)(7) or 457
Deferred Compensation Plan due to death, disability or attainment of age 59 1/2,
and IRA distributions qualifying under Section 72(t) of the Internal Revenue
Code; and (iv) distributions from an account if the redemption results from the
death of the registered owner, or a registered joint owner, of the account (in
the case of accounts established under the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts or trust accounts, the waiver applies upon the death of
all beneficial owners) or a total and permanent disability (as defined in
Section 72 of the Code) of all registered owners occurring after the purchase of
the shares being redeemed.
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from the Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age
70 1/2, and IRA distributions qualifying under Section 72(t) of the Internal
Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred Compensation
Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or a 401(k)
Defined Contribution Plan upon attainment of normal retirement age under the
plan or upon separation from service; (vi) periodic distributions from an IRA or
SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of the registered owner or a
registered joint owner of the account (in the case of accounts established under
the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners) or a total
and permanent disability (as defined in Section 72 of the Code) of all
registered owners occurring after the purchase of the shares being redeemed.
The CDSC on Class C Shares also is waived for any group retirement plan
(excluding defined benefit pension plans) (i) that purchases shares through a
retirement plan alliance program, provided Retirement Financial Services, Inc.
either is the sponsor of the alliance program or has a product participation
agreement with the sponsor of the alliance program, and (ii) for which
Retirement Financial Services, Inc. provides fully-bundled retirement plan
services and maintains participant records on its proprietary recordkeeping
system.
In addition, the applicable Limited CDSC for Class A Shares and CDSC for
Class B Shares and Class 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 Systematic Withdrawal Plan was established.
48
DISTRIBUTIONS AND TAXES
The Fund will inform its shareholders of the amount of their income
dividends and capital gain distributions, and will advise them of their tax
status for federal income tax purposes shortly after the close of each calendar
year. If you have not owned your Fund shares for a full year, the Fund may
designate and distribute to you, as ordinary income or capital gains, a
percentage of income that may not be equal to the actual amount of each type of
income earned during the period of your investment in the Fund. Distributions
declared in December but paid in January are taxable to you as if paid in
December.
Redemptions and exchanges of Fund shares are taxable transactions for
federal and state income tax purposes. If you redeem your Fund shares, or
exchange them for shares of a different Delaware Investments fund, the IRS
requires you to report any gain or loss on your redemption or exchange. If you
hold your shares as a capital asset, any gain or loss that you realize is a
capital gain or loss and is long-term or short-term, generally depending on how
long you have owned your shares.
Any loss incurred on the redemption or exchange of shares held for six
months or less is treated as a long-term capital loss to the extent of any
long-term capital gains distributed to you by the Fund on those shares.
All or a portion of any loss that you realize on the redemption of your
Fund shares is 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 is added to your
tax basis in the new shares.
If you redeem some or all of your shares in the Fund, and then reinvest
the redemption proceeds in the Fund or in another Delaware Investments fund
within 12 months of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. In reporting
any gain or loss on your redemption, all or a portion of the sales charge that
you paid for your original shares in the Fund is excluded from your tax basis in
the shares sold and added to your tax basis in the new shares.
The Fund may invest in complex securities that may be subject to numerous
special and complex tax rules. These rules could affect whether gain or loss
recognized by the Fund is treated as ordinary or capital, or as interest or
dividend income. These rules could also accelerate the recognition of income to
a Fund (possibly causing the Fund to sell securities to raise the cash for
necessary distributions) and/or defer the Fund's ability to recognize a loss,
and, in limited cases, subject the Fund to U.S. federal income tax on income
from certain foreign securities. These rules could therefore affect the amount,
timing or character of the income distributed to you by the Fund.
JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003 (JGTRRA)
On May 28, 2003, President Bush signed into law the Jobs and Growth Tax
Relief Reconciliation Act of 2003 (JGTRRA) .The new law reduces the tax rate on
dividends and capital gains to 15% (5% for taxpayers with income in the lower
brackets; 0% for those taxpayers in 2008).
REDUCTION OF TAX RATE ON DIVIDENDS
Qualifying dividends will be taxed at a rate of 15% (5% for taxpayers
with income in the lower brackets; 0% for these taxpayers in 2008). Prior law
will apply for tax years beginning after December 31, 2008. Dividends paid on
foreign corporation stocks that are readily tradable on U.S. securities markets
are eligible for the lower rates.
The amount of ordinary dividends qualifying for the lower tax rates
that may be paid by a RIC for any tax year may not exceed the amount of the
aggregate qualifying dividends received by the RIC, unless that aggregate is at
least 95% of the RIC gross income (as specially computed), in which case the
entire dividend qualifies. Obviously, money market and bond mutual fund
distributions will generally not qualify.
49
The lower tax rates are not available for dividends to the extent that
the taxpayer is obligated to make related payments with respect to positions in
substantially similar or related property (e.g., payments in lieu of dividends
under a short sale). The capital gain rates also do not apply to (1) dividends
received from an organization that was exempt from tax under Section 501 or was
a tax-exempt farmers' cooperative in either the tax year of the distribution or
the preceding tax year; (2) dividends received from a mutual savings bank that
received a deduction under Section 591; or (3) deductible dividends paid on
employer securities (i.e., under Section 404(k)).
Owners whose shares are lent in short sales would not qualify for the
lower rate. The lower tax rates would not apply under the law as enacted to
"payments in lieu of dividends," which are received by someone whose stock is
loaned to a short-seller. Brokerages have commonly lent stock out of margin
accounts to short sellers, but may need to accommodate investors who do not want
to receive unfavorable dividend treatment because their stock was lent out.
Depending on the details of regulations that may be issued later this year,
brokerages may decide to limit any such loans after 2003 to securities that are
held in accounts owned by tax-indifferent parties, such as pension funds. The
legislative history indicates that the Service is to be liberal in waiving
penalties for failure to report substitute payments properly for payors who are
making good-faith efforts to comply, but cannot reasonably do so given the time
needed to update their systems.
REDUCTION OF TAX RATE ON CAPITAL GAINS
Under JGTRRA, the top individual rate on adjusted net capital gain,
which was generally 20% (10% for taxpayers in the 10% and 15% brackets), is
reduced to 15% (5% for taxpayers with income in the lower brackets). These lower
rates apply to both the regular tax and the alternative minimum tax. The lower
rates apply to assets held more than one year. For taxpayers with income in the
lower brackets, the 5% rate is reduced to 0% for 2008.
The tax rate on short-term capital gains is unchanged, and they will
continue to be taxed at the ordinary income rate. The capital gains changes
apply to sales and exchanges (and installment payments received) on or after May
6, 2003, but not with respect to tax years beginning after December 31, 2008.
The special tax rates for gains on assets held for more than five years
(8% for taxpayers with income in the 10% and 15% brackets; 18% for other
taxpayers with respect to assets purchased after 2000) have been repealed.
BACK-UP WITHHOLDING CHANGES
Prior to the passage of JGTRRA the backup withholding rate for
shareholders that did not provide taxpayer identification numbers was 30%. This
rate has been reduced to 28%, retroactive to January 1, 2003.
INVESTMENT MANAGEMENT AGREEMENT
Delaware Management Company (the "Manager"), located at 2005 Market
Street, Philadelphia, PA 19103-7094, furnishes investment management services to
the Funds, subject to the supervision and direction of Mutual Funds III's Board
of Trustees.
On March 31, 2004, the Manager and its affiliates within Delaware
Investments were managing in the aggregate in excess of $106.2 billion in assets
in various institutional or separately managed, investment company, and
insurance accounts.
The Investment Management Agreement for the Fund is dated December 15,
1999 and was approved by the initial shareholder on that date. The Agreement has
an initial term of two years and may be renewed each year only so long as such
renewal and continuance are specifically approved at least annually by the Board
of Trustees or by vote of a majority of the outstanding voting securities of the
Fund to which the Agreement relates, and only if the terms and the renewal
thereof have been approved by the vote of a majority of the trustees of Mutual
Funds III who are not parties thereto or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Agreement is terminable without penalty on 60 days' notice by the trustees
of Mutual Funds III or by the Manager. The Agreement will terminate
automatically in the event of its assignment.
50
Under the Investment Management Agreement, the Fund pays the Manager a
monthly investment advisory fee rate based on average daily net assets on an
annual basis as follows:
----------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND 0.75% on the first $500 million
0.70% on the next $500 million
0.65% on the next $1.5 billion
0.60% on the average daily net assets
in excess of $2.5 billion
----------------------------------------------------------------------------
The Manager contracted to waive that portion, if any, of the annual
management fees payable by the Fund and to pay certain expenses of the Fund to
the extent necessary to ensure that the Total Operating Expenses of the Fund
(exclusive of applicable 12b-1 plan payments, taxes, interest, brokerage
commissions and extraordinary expenses) did not exceed, on an annual basis,
1.50% of average daily net assets through June 30, 2000. The Manager voluntarily
waived that portion, if any, of the annual management fees payable by the Fund
and to pay certain expenses of the Fund to the extent necessary to ensure that
the Total Operating Expenses of the Fund (exclusive of applicable 12b-1 plan
payments, taxes, interest, brokerage commissions and extraordinary expenses) did
not exceed, on an annual basis, 1.50% of average daily net assets through
December 31, 2000. The Manager contracted to waive that portion, if any, of the
annual management fees payable by the Fund and to pay certain expenses of the
Fund to the extent necessary to ensure that the Total Operating Expenses of the
Fund (exclusive of applicable 12b-1 plan payments, taxes, interest, brokerage
commissions and extraordinary expenses) do not exceed, on an annual basis, 1.20%
of average daily net assets through December 31, 2001. The Manager contracted to
waive that portion, if any, of the annual management fees payable by the Fund
and to pay certain expenses of the Fund to the extent necessary to ensure that
the Total Operating Expenses of the Fund (exclusive of applicable 12b-1 plan
payments, taxes, interest, brokerage commissions and extraordinary expenses) do
not exceed, on an annual basis, 1.25% of average daily net assets through
December 31, 2002. The Manager contracted to waive that portion, if any, of the
annual management fees payable by the Fund and to pay certain expenses of the
Fund to the extent necessary to ensure that the Total Operating Expenses of the
Fund (exclusive of applicable 12b-1 plan payments, taxes, interest, brokerage
commissions and extraordinary expenses) do not exceed, on an annual basis, 1.25%
of average daily net assets through December 31, 2003. The Manager contracted to
waive that portion, if any, of the annual management fees payable by the Fund
and to pay certain expenses of the Fund to the extent necessary to ensure that
the Total Operating Expenses of the Fund (exclusive of applicable 12b-1 plan
payments, taxes, interest, brokerage commissions and extraordinary expenses) do
not exceed, on an annual basis, 1.25% of average daily net assets through
December 31, 2004.
On April 30, 2004, the Fund's total net assets were $666,328,318.
Investment management fees incurred for the last three fiscal years
with respect to the Fund was as follows:
[Enlarge/Download Table]
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FUND APRIL 30, 2004 APRIL 30, 2003 APRIL 30, 2002
------------------------------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND $5,017,915 earned $4,971,458 earned $8,229,081 earned
$2,660,509 paid $2,751,708 paid $7,676,174 paid
$2,357,406 waived $2,219,750 waived $552,907 waived
------------------------------------------------------------------------------------------------------
51
Under the general supervision of the Board of Trustees, the Manager
makes and executes all investment decisions for the Fund. The Manager pays the
salaries of all trustees, officers and employees of Mutual Funds III who are
affiliated with the Manager. The Fund pays all of its other expenses.
The Fund has formally delegated to its investment adviser, Delaware
Management Company (the "Adviser"), the ability to make all proxy voting
decisions in relation to portfolio securities held by the Fund. If and when
proxies need to be voted on behalf of the Fund, the Adviser will vote such
proxies pursuant to its Proxy Voting Policies and Procedures (the "Procedures").
The Adviser has established a Proxy Voting Committee (the "Committee") which is
responsible for overseeing the Adviser's proxy voting process for the Fund. 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 Adviser to
vote proxies in a manner consistent with the goal of voting in the best
interests of the Fund.
In order to facilitate the actual process of voting proxies, the
Adviser has contracted with Institutional Shareholder Services ("ISS") to
analyze proxy statements on behalf of the Fund and other Adviser clients 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 Fund, ISS will create a record of the vote. Beginning no later
than August 31, 2004, information (if any) regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) through the Fund's website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://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 Adviser will normally vote against management's position when it runs
counter to its specific Proxy Voting Guidelines (the "Guidelines"), and the
Adviser will also vote against management's recommendation when it believes that
such position is not in the best interests of the Fund.
As stated above, the Procedures also list specific Guidelines on how to
vote proxies on behalf of the Fund. 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) generally vote for debt
restructuring if it is expected that the company will file for bankruptcy if the
transaction is not approved; (iv) votes on mergers and acquisitions should be
considered on a case-by-case basis, determining whether the transaction enhances
shareholder value; (v) generally vote against proposals to create a new class of
common stock with superior voting rights; (vi) generally vote for proposals to
authorize preferred stock in cases where the company specifies the voting,
dividend, conversion, and other rights of such stock and the terms of the
preferred stock appear reasonable; (vii) generally vote for management proposals
to institute open-market share repurchase plans in which all shareholders may
participate on equal terms; (viii) votes with respect to management compensation
plans are determined on a case-by-case basis; (ix) generally vote for reports on
the level of greenhouse gas emissions from the company's operations and
products; and (x) generally vote for proposals asking for a report on the
feasibility of labeling products containing genetically modified ingredients.
52
Because the Fund has delegated proxy voting to the Adviser, the Fund is
not expected to encounter any conflict of interest issues regarding proxy voting
and therefore does not have procedures regarding this matter. However, the
Adviser does have a section in its Procedures that addresses the possibility of
conflicts of interest. Most proxies which the Adviser receives on behalf of the
Fund 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 Adviser to make an actual determination of how to
vote a particular proxy, thereby largely eliminating conflicts of interest for
the Adviser during the proxy voting process. In the very limited instances where
the Adviser is 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 Adviser or affiliated persons of the Adviser. 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 Fund. 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 Fund.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as the Fund's
investment advisor, subject to the authority of the Board of Trustees. Voyageur
was an indirect, wholly owned subsidiary of Dougherty Financial Group, Inc.
("DFG"). After the close of business on April 30, 1997, Voyageur became an
indirect, wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") as a result of Lincoln National's acquisition of DFG.
Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, the Fund's previous investment advisory agreement with
Voyageur was "assigned", as that term is defined by the Investment Company Act
of 1940, and the previous agreements therefore terminated upon the completion of
the acquisition. The Board of Directors of the Fund unanimously approved a new
advisory agreement at a meeting held in person on February 14, 1997, and called
for a shareholders meeting to approve the new agreement. At a meeting held on
April 11, 1997, the shareholders of the Fund approved the Investment Management
Agreement with the Manager, an indirect wholly owned subsidiary of LNC, to
become effective after the close of business on April 30, 1997, the date the
acquisition was completed.
Beginning May 1, 1997, Delaware Management Company became the Fund's
investment manager. The Investment Management Agreement into which the Fund's
investment manager entered had an initial term of two years and was renewable
each year only so long as such renewal and continuance were specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund to which the Agreement relates,
and only if the terms and the renewal thereof were approved by the vote of a
majority of the trustees of Mutual Funds III who were 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.
DISTRIBUTION AND SERVICE
The Distributor, Delaware Distributors, L.P., located at 2005 Market
Street, Philadelphia, PA 19103-7094, serves as the national distributor of each
Fund's shares under a Distribution Agreement dated as of 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 Funds on behalf of Class
A, Class B, Class C and Class R Shares under their respective 12b-1 Plans. The
Distributor is an indirect, wholly owned subsidiaries of Delaware Management
Holdings, Inc.
53
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. 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. The address of LFD is 2001 Market Street,
Philadelphia, PA 19103-7055. The rate of compensation, which is calculated and
paid monthly, to LFD for the sales of shares of the retail funds of Delaware
Investments Family of Funds (excluding the shares of Delaware VIP Trust series,
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:
[Enlarge/Download Table]
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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 Delaware Investments retail funds outstanding and
beneficially owned by shareholders through Financial Intermediaries, including
those Fund shares sold before the date of this Agreement.
[Enlarge/Download Table]
--------------------------------------------------------------------------------------------------------------------
Basis Points on Sales
--------------------------------------------------------------------------------------------------------------------
Retail Mutual Funds (including shares of money market funds and house accounts and 0.04%
shares redeemed within 30 days of purchase)
--------------------------------------------------------------------------------------------------------------------
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 Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 2005 Market Street, Philadelphia, PA 19103-7094,
serves as the Fund's shareholder servicing, dividend disbursing and transfer
agent pursuant to a Shareholders Services Agreement dated as of April 19, 2001.
The Transfer Agent also provides accounting services to the Fund pursuant to the
terms of a separate Fund Accounting Agreement. The Transfer Agent is also an
indirect, wholly owned subsidiary of Delaware Management Holdings, Inc.
The 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 the Fund. For purposes of pricing, the Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Investors may be charged a fee when effecting transactions through a
broker or agent.
54
OFFICERS AND TRUSTEES
The business and affairs of Mutual Funds III are managed under the
direction of its Board of Trustees.
Certain officers and trustees of Mutual Funds III hold identical
positions in each of the other funds in the Delaware Investments family. On May
31, 2004, Mutual Funds III's officers and trustees owned less than 1% of the
outstanding shares of each class of the Fund's Class A, Class B, Class C and
Class R Shares. As of May 30, 2004, Mutual Funds III's officers and trustees
owned 1.8% of the outstanding shares of the Delaware Select Growth Fund's
Institutional Class Shares.
As of May 30, 2004, management believes the following shareholders held
of record 5% or more of the outstanding shares of a Class:
[Enlarge/Download Table]
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CLASS NAME AND ADDRESS OF ACCOUNT SHARE AMOUNT PERCENTAGE
----- --------------------------- ------------ ----------
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Delaware Select Growth Fund Merrill Lynch, Pierce, Fenner & Smith 614,755.190 5.32%
A Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
----------------------------------------------------------------------------------------------------------------------------------
Delaware Select Growth Fund Merrill Lynch, Pierce, Fenner & Smith 1,556,617.990 10.77%
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
----------------------------------------------------------------------------------------------------------------------------------
Delaware Select Growth Fund Merrill Lynch, Pierce, Fenner & Smith 1,148,217.820 22.44%
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
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Delaware Select Growth Fund T. Rowe Price Retirement Plan Services 333,298.440 16.68%
Institutional Class For the Benefit of Retirement Plan Clients
4515 Painters Mill Rd.
Owings Mills, MD 21117-4903
---------------------------------------------------------------------------------------
RS DMC Employee MPP Plan 320,628.830 16.05%
Delaware Management Company MPP Trust
c/o Rick Seidel
2005 Market Street
Philadelphia, PA 19103-7094
---------------------------------------------------------------------------------------
Reliance Trust Company 310,329.330 15.53%
TTEE FBO Dean Foods 401(k) Plan
Attn: Fanny Sheumaker
2515 McKinney Avenue, Suite 120 LB30
Dallas, TX 75201-1978
---------------------------------------------------------------------------------------
RS DMTC 457 Deferred Comp. Plan 139,649.270 6.99%
Philadelphia Gas Works 457 Plan
Attn: Retirement Plans
2005 Market Street
Philadelphia, PA 19103-7094
---------------------------------------------------------------------------------------
Western Washington U.A. 134,366.610 6.72%
Supplemental Pension Plan
c/o Zenith Administrators
201 Queen Anne Avenue N., Suite 100
Seattle, WA 98109-4824
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55
DMH Corp., Delaware Investments U.S., Inc., Delaware General
Management, Inc. Delaware Management Company, Inc., Delaware Service Company,
Inc., Delaware Distributors, Inc., Delaware Management Trust Company, Delaware
Management Business Trust, Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Capital Management (a series of Delaware
Management Business Trust), Delaware Lincoln Cash Management (a series of
Delaware Management Business Trust), Delaware Distributors, L.P., DIAL Holding
Company, Inc., Delaware International Holdings Ltd., Delaware International
Advisers Ltd., Retirement Financial Services, Inc. and LNC Administrative
Services, Inc. are direct or indirect, wholly owned subsidiaries of Delaware
Management Holdings, Inc. ("DMH"). DMH and Delaware International Advisers Ltd.
are indirect, wholly owned subsidiaries, and subject to the ultimate control, of
Lincoln National Corporation. Lincoln National Corporation, 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.
As noted under Investment Management Agreement, after the close of
business on April 30, 1997, Voyageur became an indirect, wholly owned subsidiary
of Lincoln National as a result of Lincoln National's acquisition of DFG.
56
Trustees and principal officers of Mutual Funds III are noted below
along with their ages and their business experience for the past five years.
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POSITION(S) NUMBER OF
HELD WITH PRINCIPAL OCCUPATION(S) PORTFOLIOS IN FUND OTHER DIRECTORSHIPS
MUTUAL FUNDS LENGTH OF TIME DURING COMPLEX OVERSEEN BY HELD BY TRUSTEE OR
NAME, ADDRESS AND BIRTHDATE III SERVED PAST 5 YEARS TRUSTEE OR OFFICER OFFICER
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INDEPENDENT TRUSTEES
WALTER P. BABICH Trustee 16 Years Board Chairman - Citadel 98 None
2005 Market Street Construction Corporation
Philadelphia, PA 19103 (1989 - Present)
October 1, 1927
JOHN H. DURHAM Trustee 25 Years(3) Private Investor 98 Trustee -
2005 Market Street Abington Memorial
Philadelphia, PA 19103 Hospital
August 7, 1937
President/Director -
22 WR Corporation
ANTHONY D. KNERR Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA 19103 (Strategic Consulting)
December 7, 1938 (1990 - Present)
ANN R. LEVEN Trustee 15 Years Treasurer/Chief Fiscal Officer 98 Director -
2005 Market Street - National Gallery of Art Andy Warhol
Philadelphia, PA 19103 (1994 - 1999) Foundation
November 1, 1940
Director -
Systemax Inc.
THOMAS F. MADISON Trustee 10 Years President/Chief Executive 98 Director -
2005 Market Street Officer - MLM Partners, Inc. Banner Health
Philadelphia, PA 19103 (Small Business Investing and
February 25, 1936 Consulting) Director -
(January 1993 - Present) Center Point Energy
Director -
Digital River Inc.
Director -
Rimage Corporation
JANET L. YEOMANS Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions -
Philadelphia, PA 19103 3M Corporation
July 31, 1948 (January 2003 - Present)
Ms. Yeomans has held various
management positions at 3M
Corporation since 1983.
57
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POSITION(S) NUMBER OF OTHER
HELD WITH PRINCIPAL OCCUPATION(S) PORTFOLIOS IN FUND DIRECTORSHIPS
MUTUAL FUNDS LENGTH OF TIME DURING COMPLEX OVERSEEN BY HELD BY TRUSTEE
NAME, ADDRESS AND BIRTHDATE III SERVED PAST 5 YEARS TRUSTEE OR OFFICER OR OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
JUDE T. DRISCOLL(2) Chairman and 4 Years - Since August 2000, Mr. 80 None
2005 Market Street Trustee Executive Officer Driscoll has served in various
Philadelphia, PA 19103 executive capacities at
March 10, 1963 Trustee since different times at Delaware
May 15, 2003 Investments(1)
Senior Vice President and
Director of Fixed-Income
Process - Conseco Capital
Management
(June 1998 - August 2000)
JOSEPH H. HASTINGS Executive Vice Executive Vice Mr. Hastings has served in 98 None
2005 Market Street President and President and various executive capacities
Philadelphia, PA 19103 Chief Chief Financial at different times at Delaware
December 19, 1949 Financial Officer since Investments
Officer August 21, 2003
RICHELLE S. MAESTRO Executive Vice Chief Legal Ms. Maestro has served in 98 None
2005 Market Street President, Officer since various executive capacities
Philadelphia, PA 19103 Chief Legal March 17, 2003 at different times at Delaware
November 26, 1957 Officer and Investments
Secretary
MICHAEL P. BISHOF Senior Vice 8 Years Mr. Bishof has served in 98 None
2005 Market Street President and various executive capacities
Philadelphia, PA 19103 Treasurer at different times at Delaware
August 18, 1962 Investments
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
58
Following is additional information regarding investment professionals
affiliated with Mutual Funds III.
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PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND BIRTHDATE POSITION(S) HELD WITH MUTUAL FUNDS III LENGTH OF TIME SERVED DURING PAST 5 YEARS
----------------------------------------------------------------------------------------------------------------------------------
Gerald S. Frey Managing Director/Chief Investment 7 Years Mr. Frey has served in various
2005 Market Street Officer - Growth Investing capacities at different times at
Philadelphia, PA 19103-7094 Delaware Investments
February 7, 1946
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Marshall T. Bassett Senior Vice President/Senior Portfolio 6 Years Mr. Bassett has served in various
2005 Market Street Manager capacities at different times at
Philadelphia, PA 19103-7094 Delaware Investments
February 8, 1954
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John A. Heffern Senior Vice President/Senior Portfolio 6 Years Mr. Heffern has served in various
2005 Market Street Manager capacities at different times at
Philadelphia, PA 19103-7094 Delaware Investments
October 20, 1961
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Jeffrey W. Hynoski Vice President/Portfolio Manager 5 Years Vice President and Portfolio
2005 Market Street Manager of Delaware Investment
Philadelphia, PA 19103-7094 Advisers, a series of Delaware
Management Business Trust
September 19, 1962 (1998 - Present)
Vice President - Bessener Trust
Company
(1993 - 1997)
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Steven T. Lampe Vice President/Portfolio Manager 8 Years Mr. Lampe has served in various
2005 Market Street capacities at different times at
Philadelphia, PA 19103-7094 Delaware Investments
September 13, 1968
----------------------------------------------------------------------------------------------------------------------------------
Lori P. Wachs Vice President/Portfolio Manager 11 Years Ms. Wachs has served in various
2005 Market Street capacities at different times at
Philadelphia, PA 19103-7094 Delaware Investments
November 8, 1968
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59
The following table shows each Trustee's ownership of shares of the
Fund and of all Delaware Investments funds as of December 31, 2003.
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AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY SECURITIES COMPANIES OVERSEEN BY TRUSTEE IN FAMILY
NAME IN THE FUND OF INVESTMENT COMPANIES
-------------------------------------------------------------------------------------------------------------------------------
Walter A. Babich none Over $100,000
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John H. Durham none Over $100,000
-------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Delaware Select Growth Fund - $10,001 - $50,000 $10,001 - $50,000
-------------------------------------------------------------------------------------------------------------------------------
Ann R. Leven Delaware Select Growth Fund - $10,001 - $50,000 Over $100,000
-------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Delaware Select Growth Fund - $1 - $10,000 $10,001 - $50,000
-------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans none $10,001 - $50,000
-------------------------------------------------------------------------------------------------------------------------------
The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from Mutual Funds
III and the total compensation received from all investment companies in the
Delaware Investments family for which he or she serves as a trustee or director
for the fiscal year ended April 30, 2004 and an estimate of annual benefits to
be received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of April 30, 2004. Only the independent trustees/directors
of Mutual Funds III receive compensation from the Fund.
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PENSION OR TOTAL COMPENSATION
RETIREMENT ESTIMATED FROM THE
AGGREGATE BENEFITS ANNUAL INVESTMENT
COMPENSATION ACCRUED AS BENEFITS COMPANIES IN
FROM THE PART OF FUND UPON DELAWARE
NAME MUTUAL FUNDS III EXPENSES RETIREMENT(1) INVESTMENTS(2)
-----------------------------------------------------------------------------------------------------------------------
Walter P. Babich $3,333 none $61,000 $ 96,233
-----------------------------------------------------------------------------------------------------------------------
John H. Durham $2,815 none $61,000 $ 79,943
-----------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr $2,950 none $61,000 $ 87,108
-----------------------------------------------------------------------------------------------------------------------
Ann R. Leven $3,311 none $61,000 $101,983
-----------------------------------------------------------------------------------------------------------------------
Thomas F. Madison $3,123 none $61,000 $ 97,483
-----------------------------------------------------------------------------------------------------------------------
Jan L. Yeomans $3,123 none $61,000 $ 97,483
-----------------------------------------------------------------------------------------------------------------------
(1) Under the terms of the Delaware Investments Retirement Plan for
Directors/Trustees, each disinterested Trustee/Director who, at the
time of his or her retirement from the Board, has attained the age of
70 and served on the Board for at least five continuous years, is
entitled to receive payments from each investment company in the
Delaware Investments family for which he or she serves as a
Trustee/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
April 30, 2004, 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 served
as trustee or director based on the number of investment companies in
the Delaware Investments family as of that date.
(2) Each independent Trustee/Director receives a total annual retainer fee
of $61,000 for serving as a trustee/director for all 32 investment
companies in Delaware Investments, plus $3,145 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 $2,000 for each meeting. Members of
the nominating committee receive additional compensation of $1,500 for
each meeting. In addition, the chairperson of the audit and nominating
committees each receive an annual retainer of $5,000 and $1,000,
respectively. The Coordinating Trustee/Director of the Delaware
Investments funds receives an additional retainer of $10,000.
60
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 Delaware
Investments funds. It also oversees the quality and objectivity of the Delaware
Investments funds' financial statements and the independent audit thereof, and
acts as a liaison between the Delaware Investments funds' independent registered
public accounting firm and the full Board of Trustees. Three independent
trustees comprise the committee. The Audit Committee held five 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 independent trustees. Three independent
trustees and one interested trustee serve on the committee. The Nominating
Committee held one meeting during the Trust's last fiscal year.
GENERAL INFORMATION
Disclosure of Portfolio Holdings
The Fund's full portfolio holdings list is published monthly, with a
thirty day lag, on the Fund's website www.delawarefunds.com. In addition, on a
ten day lag, we also make available a month-end summary listing of the number of
the Fund's securities, country and asset allocations, and top ten securities and
sectors by percentage of holdings for the Fund.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Investments Family of Funds. The Transfer Agent is
paid a fee by the Fund for providing these services consisting of an annual per
account charge for (i) each open and closed account on the their records and
each account held on a sub-accounting system maintained by firms that hold
accounts on an omnibus basis ("Shareholder Accounts"); and (ii) each account on
a retirement processing system ("Retirement Accounts"). These charges are as
follows:
Shareholder Accounts $21.25 Per Annum
Retirement Accounts $30.00 Per Annum
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 disinterested trustees.
The Transfer Agent also provides accounting services to the Fund. Those
services include performing all functions related to calculating the Fund's net
asset value and providing all financial reporting services, regulatory
compliance testing and other related accounting services. For its services, the
Transfer Agent is paid a fee based on total assets of all funds in the Delaware
Investments Family of Funds for which it provides such accounting services. Such
fee is equal to 0.025% multiplied by the total amount of assets in the complex
for which the Transfer Agent furnishes accounting services, where such aggregate
complex assets are $10 billion or less, and 0.020% of assets if such aggregate
complex assets exceed $10 billion. The fees are charged to the Fund and the
other mutual funds in the Delaware Investments Family of Funds, on an aggregate
pro rata basis. The asset-based fee payable to the Transfer Agent is subject to
a minimum fee calculation based on the type and number of classes per Fund.
Mutual Funds III is an open-end, registered management investment
company. The Fund operates as a diversified fund as defined under the 1940 Act.
Mutual Funds III was organized as a Minnesota corporation in January 1985 and
reorganized as a Delaware business trust on December 15, 1999.
61
The Manager is the investment manager of the Fund. The Manager also
provides investment management services to certain of the other funds available
from the Delaware Investments family. Delaware Investment Advisers, a series of
Delaware Management Business Trust, also manages private investment accounts.
While investment decisions of the Fund are made independently from those of the
other funds and accounts, investment decisions for such other funds and accounts
may be made at the same time as investment decisions for the Fund.
The Fund's Board of Trustees is responsible for overseeing the performance
of the Fund's investment adviser and determining whether to approve and/or renew
the Fund's investment management agreements. When the Board considers whether to
renew an investment management agreement, it considers various factors that
include:
The nature, extent and quality of the services provided by the investment
adviser.
The investment performance of the fund's assets managed by the investment
adviser.
The fair market value of the services provided by the investment adviser.
Comparative analysis of expense ratios of, and advisory fees paid by,
similar funds.
The extent to which economies of scale could be realized as the fund grows.
Other benefits accruing to the investment adviser or its affiliates from
its relationship with the fund.
The investment adviser's management of the operations and expenses of the
fund including how portfolio transactions for the fund are conducted,
transaction costs and how brokers are chosen.
At its annual contract review meeting (the "Meeting"), the Board of
Trustees was presented with information concerning each Delaware Investments
service provider to the Fund, including the Manager, the Distributor and the
transfer agent, shareholder servicing agent and fund accountant. The Board
reviewed materials provided by Delaware Investments concerning the level and
quality of service provided to the Funds and both the costs to the Fund and the
profit to Delaware Investments. Throughout the prior year, the Board also
received regular reports detailing Fund performance, the current investment
strategies for the Fund and Fund expenses. In addition, at the Meeting the Board
separately received and reviewed independent historical and comparative reports
provided by Lipper, Inc. that analyzed the Fund's performance over a five-year
period, as well as actual and contractual management and total expenses. The
reports also provided comparative information for performance and expenses
against the Fund's peer mutual funds. In addition to information pertaining to
the Fund, the Board also received similar information concerning all of the
other investment companies in the Delaware Investments Family of Funds.
In reviewing the investment management agreement for the Fund, the Board of
Trustees considered the Fund's performance relative to its performance goals,
peers and benchmark, the investment process and controls used in managing the
Fund, the Fund's fees and expenses relative to its peers, the experience and
qualifications of personnel responsible for managing the Fund and quality of
other services provided to the Fund in addition to investment advice.
The Board met in executive session to consider approval of the investment
management agreements, and advice from outside counsel as to the adequacy of the
materials provided. The independent Trustees also met separately with the
provider of the independent third party reports on the Fund. The Board concluded
that management had effectively communicated with the Board and had been
responsive to the issues raised by the Board during the previous year. The Board
was pleased with the quality and performance provided by the executive officers
and staff of the investment adviser, the emphasis placed on research in the
investment process, and the compensation system that had been implemented for
investment advisory personnel. The Board noted that management had maintained
and, in some instances, increased financial and personnel resources committed to
fund management. The Board concluded that Delaware Investments provided strong
corporate management and compliance oversight to the Fund and all the Funds in
the complex.
In considering the investment performance of the Fund, the Board looked at
the Fund's performance relative to its peers and benchmark. The Fund's
performance for Class A shares over the past one, three and five year periods
has been 47.30%, -4.40%, and 0.36%, respectively. Measured against its peer
group of comparable mutual funds, the Fund was consistently above the median in
portfolio performance. Based upon these considerations, the Board determined
that the performance of the Fund has been strong and provides substantial
evidence of the high quality of investment and other management services
provided.
In considering the costs of the services to be provided and profits to be
realized by the Manager, and its affiliates from the relationship with the
Funds, the Board considered the service fees charged to the Fund and the fair
market value of services provided by the Manager. The Board looked at the
advisory fee of the Fund compared to its peer group and at overall levels of
expenses for the Fund compared to its peer group.
The Board's objective is to limit the total expense ratio of the Fund to an
acceptable range as compared to the median of a peer group of comparable mutual
funds. The Board took into consideration management's agreement with that
objective and the means of implementing that objective, which could include
certain types of remedial actions as well as potential future voluntary or
contractual expense caps. The Board noted that the Fund's total expense ratio
was only slightly higher than its peers.
After considering these factors, the Board found the Fund's fees to be fair
and reasonable and generally in line with fees charged to comparable funds in
the industry.
The Board also reviewed the quality of services performed by the investment
adviser's affiliates on behalf of each Fund, including fund accounting, transfer
agent, administrative, and shareholder services. The expense and fee information
for all Delaware Investments service providers, including the Manager, was
included in the reports provided by Lipper, Inc. The Board also considered the
prestigious DALBAR service awards received by the investment adviser's affiliate
for the quality of service it provided to Fund investors.
The Manager and its affiliate Delaware International Advisers Ltd.,
manage several of the investment options for Delaware-Lincoln ChoicePlus and
Delaware Medallion(SM) III Variable Annuities. ChoicePlus is issued and
distributed by Lincoln National Life Insurance Company. ChoicePlus offers a
variety of different investment styles managed by leading money managers.
Medallion is issued by Allmerica Financial Life Insurance and Annuity Company
(First Allmerica Financial Life Insurance Company in New York and Hawaii).
Delaware Medallion offers various investment series ranging from domestic equity
funds, international equity and bond funds and domestic fixed income funds. Each
investment series available through ChoicePlus and Medallion utilizes an
investment strategy and discipline the same as or similar to one of the Delaware
Investments mutual funds available outside the annuity. See Delaware VIP Trust,
in Appendix C.
The Delaware Investments Family of Funds, the Manager, the Distributor
and the Financial intermediary distributor, in compliance with SEC Rule 17j-1
under the 1940 Act, have adopted Codes of Ethics which govern personal
securities transactions. Under the Codes of Ethics, persons subject to the Codes
are permitted to engage in personal securities transactions, including
securities that may be purchased or held by the Funds, subject to the
requirements set forth in Rule 17j-1 and certain other procedures set forth in
the applicable Code of Ethics. The Codes of Ethics for the Delaware Investments
Family of Funds, the Manager, the Distributor and the Financial intermediary
distributor are on public file with, and are available from, the SEC.
The Distributor acts as national distributor for the Fund and for the
other mutual funds in the Delaware Investments family. In its capacity as such,
DDLP received net commissions from the Fund on behalf of Class A Shares, after
reallowances to dealers, as follows:
------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND
------------------------------------------------------------------------------
FISCAL TOTAL AMOUNT AMOUNTS NET
YEAR OF UNDERWRITING REALLOWED COMMISSION
ENDED COMMISSION TO DEALERS TO DDLP
------------------------------------------------------------------------------
4/30/04 $557,860 $495,986 $55,874
4/30/03 537,018 521,971 15,047
4/30/02 1,137,069 1,068,146 68,923
------------------------------------------------------------------------------
62
DDLP received Limited CDSC payments with respect to Class A Shares of
the Fund as follows:
------------------------------------------------------------------------------
FISCAL YEAR ENDED DELAWARE SELECT GROWTH FUND
A CLASS
------------------------------------------------------------------------------
4/30/04 $0
4/30/03 2,793
4/30/02 3,460
------------------------------------------------------------------------------
DDLP received CDSC payments with respect to Class B Shares of each Fund
as follows:
------------------------------------------------------------------------------
FISCAL YEAR ENDED DELAWARE SELECT GROWTH FUND
B CLASS
------------------------------------------------------------------------------
4/30/04 $878,373
4/30/03 1,751,465
4/30/02 2,300,270
------------------------------------------------------------------------------
DDLP received CDSC payments with respect to Class C Shares of each Fund
as follows:
------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND
FISCAL YEAR ENDED C CLASS
------------------------------------------------------------------------------
4/30/04 $5,456
4/30/03 21,593
4/30/02 47,926
------------------------------------------------------------------------------
DDLP received CDSC payments with respect to Class R Shares of each Fund
as follows:
------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND
FISCAL YEAR ENDED R CLASS
------------------------------------------------------------------------------
4/30/04 $0
4/30/03 21,593
4/30/02 47,926
------------------------------------------------------------------------------
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Investments family. The Transfer Agent is paid a
fee by the Fund for providing these services consisting of an annual per account
charge of $5.50 plus transaction charges for particular services according to a
schedule. Compensation is fixed each year and approved by the Board of Trustees,
including a majority of the unaffiliated trustees. The Transfer Agent also
provides accounting services to the Fund. Those services include performing all
functions related to calculating the Fund's net asset value and providing all
financial reporting services, regulatory compliance testing and other related
accounting services. For its services, the Transfer Agent is paid a fee based on
total assets of all funds in the Delaware Investments family for which it
provides such accounting services. Such fee is equal to 0.025% multiplied by the
total amount of assets in the complex for which the Transfer Agent furnishes
accounting services, where such aggregate complex assets are $10 billion or
less, and 0.020% of assets if such aggregate complex assets exceed $10 billion.
The fees are charged to each fund, including each Fund, on an aggregate pro-rata
basis. The asset-based fee payable to the Transfer Agent is subject to a minimum
fee calculated by determining the total number of investment portfolios and
associated classes.
Mellon Bank, N.A., One Mellon Center, Pittsburgh, PA 15258, is
custodian of the Fund's securities and cash. Mellon Bank maintains a separate
account or accounts for the Fund; receives, holds and releases portfolio
securities on account of the Fund; receives and disburses money on behalf of the
Fund; and collects and receives income and other payments and distributions on
account of the Fund's portfolio securities.
63
CAPITALIZATION
Mutual Funds III has a present unlimited authorized number of shares of
beneficial interest with no par value allocated to each Class.
While shares of Mutual Funds III have equal voting rights on matters
affecting the Fund, the Fund would vote separately on any matter which it is
directly affected by, such as any change in its fundamental investment policies
and as otherwise prescribed by the 1940 Act. Shares of the Fund have a priority
in the Fund's assets, and in gains on and income from the portfolio of the
Fund.
All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.
Shares of each Class of the Fund represent a proportionate interest in
the assets of the Fund, and have the same voting and other rights and
preferences as the other classes of that Fund, except that shares of the Fund's
Institutional Class may not vote on any matter affecting the Fund Classes' Plans
under Rule 12b-1. Similarly, as a general matter, shareholders of Class A
Shares, Class B Shares, Class C Shares and Class R Shares of the Fund may vote
only on matters affecting the 12b-1 Plan that relates to the Class of shares
that they hold. However, Class B Shares may vote on any proposal to increase
materially the fees to be paid by the Fund under the 12b-1 Plan relating to its
Class A Shares. General expenses of the Fund will be allocated on a pro-rata
basis to the classes according to asset size, except that expenses of the 12b-1
Plans of the Fund's Class A, Class B, Class C and Class R Shares will be
allocated solely to those classes.
Effective June 2, 2003, the Fund began offering Class R Shares.
Effective as of the close of business September 29, 1999, the name of Delaware
Aggressive Growth Fund changed to Delaware Select Growth Fund and corresponding
changes were also made to the Fund's Classes. On August 16, 1999, the names of
Delaware-Voyageur Aggressive Growth Fund and Delaware-Voyageur Growth Stock Fund
changed to Delaware Aggressive Growth Fund and Delaware Select Growth Fund.
Corresponding changes were also made to the names of each of the Classes of the
Funds. Beginning June 9, 1997, the names of Voyageur Aggressive Growth Fund
changed to Delaware-Voyageur Aggressive Growth Fund and Voyageur Growth Stock
Fund changed to Delaware-Voyageur Growth Stock Fund. Beginning August 29, 1997,
the Fund began offering Institutional Class Shares.
NONCUMULATIVE VOTING
MUTUAL FUNDS III'S SHARES HAVE NONCUMULATIVE VOTING RIGHTS WHICH MEANS
THAT THE HOLDERS OF MORE THAN 50% OF THE SHARES OF MUTUAL FUNDS III VOTING FOR
THE ELECTION OF TRUSTEES CAN ELECT ALL THE TRUSTEES IF THEY CHOOSE TO DO SO,
AND, IN SUCH EVENT, THE HOLDERS OF THE REMAINING SHARES WILL NOT BE ABLE TO
ELECT ANY TRUSTEES.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent registered public
accounting firm for Mutual Funds III and, in its capacity as such, audits the
annual financial statements of the Funds. Each Fund's Statement of Net Assets,
Statement of Operations, Statement of Changes in Net Assets, Financial
Highlights and Notes to Financial Statements, as well as the report of Ernst &
Young LLP, the independent registered public accounting firm, for the fiscal
year ended April 30, 2004 are included in each Fund's Annual Report to
shareholders. The financial statements and financial highlights, the notes
relating thereto and the reports of Ernst & Young LLP listed above are
incorporated by reference from the Annual Reports into this Part B.
64
APPENDIX A -- RATINGS
EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Standard & Poor's. The investment process involves assessment of
various factors -- such as product and industry position, corporate resources
and financial policy -- with results that make some common stocks more highly
esteemed than others. In this assessment, Standard & Poor's believes that
earnings and dividend performance is the end result of the interplay of these
factors and that, over the long run, the record of this performance has a
considerable bearing on relative quality. The rankings, however, do not pretend
to reflect all of the factors, tangible or intangible, that bear on stock
quality.
Relative quality of bonds or other debt, that is, degrees of protection
for principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key elements
in establishing Standard & Poor's earnings and dividend rankings for common
stocks, which are designed to capsulize the nature of this record in a single
symbol. It should be noted, however, that the process also takes into
consideration certain adjustments and modifications deemed desirable in
establishing such rankings.
The point of departure in arriving at these rankings is a computerized
scoring system based on per-share earnings and dividend records of the most
recent ten years -- a period deemed long enough to measure significant time
segments of secular growth, to capture indications of basic change in trend as
they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample of
stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
--------------------------------------------------------------------------------
A+ Highest B+ Average C Lowest
--------------------------------------------------------------------------------
A High B Below Average D In Reorganization
--------------------------------------------------------------------------------
A- Above Average B- Lower
--------------------------------------------------------------------------------
NR signifies no ranking because of insufficient data or because the
stock is not amenable to the ranking process.
The positions as determined above may be modified in some instances by
special considerations, such as natural disasters, massive strikes, and
non-recurring accounting adjustments.
A ranking is not a forecast of future market price performance, but is
basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may be attractively priced for purchase.
Rankings based upon earnings and dividend records are no substitute for complete
analysis. They cannot take into account potential effects of management changes,
internal company policies not yet fully reflected in the earnings and dividend
record, public relations standing, recent competitive shifts, and a host of
other factors that may be relevant to investment status and decision.
65
COMMERCIAL PAPER RATINGS
Standard & Poor's. Commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
designation 1, 2, and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong.
Moody's Investors Service, Inc. Moody's commercial paper ratings are
opinions of the ability of the issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation that such obligations are exempt from registration under
the Securities Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment of short-term promissory
obligations.
Prime-2 Strong capacity for repayment of short-term promissory
obligations.
Prime-3 Acceptable capacity for repayment of short-term promissory
obligations.
CORPORATE BOND RATINGS
Standard & Poor's. Its ratings for corporate bonds have the following
definitions:
Investment grade:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
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.
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.
Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and 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.
Speculative Grade:
Debt rated "BB," "B," "CCC" and "CC" and "C" is regarded, as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as a "Investment Grade"
ratings) generally are regarded as eligible for bank investment. Also, the laws
of various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
66
Moody's Investors Service, Inc. Its ratings for corporate bonds include
the following:
Bonds which are rated "Aaa" are judged to be 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.
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 the best 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 present
which make the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated "A" possess many favorable attributes and are to
be 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.
Bonds which are rated "Baa" are considered as 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.
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.
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.
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.
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.
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.
PREFERRED STOCK RATING
Standard & Poor's. Its ratings for preferred stock have the following
definitions:
An issue rated "AAA" has the highest rating that may be assigned by
Standard & Poor's to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
67
Preferred stock rate "BB," "B," and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
"NR" indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Moody's Investors Service, Inc. Its ratings for preferred stock include
the following:
An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
An issue which is rate "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
An issue which is rated "baa" is considered to be medium-grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
An issue rated "c" is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
68
APPENDIX B -- STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS
STOCK INDEX FUTURES CONTRACTS
To the extent described in the Prospectus and Statement of Additional
Information, the Fund may purchase and sell stock index futures contracts,
options thereon and options on stock indexes. Stock index futures contracts are
commodity contracts listed on commodity exchanges. They presently include
contracts on the S&P 500 Index and such other broad stock market indexes as the
New York Stock Exchange Composite Stock Index and the Value Line Composite Stock
Index, as well as narrower "sub-indexes" such as the S&P 100 Energy Stock Index
and the New York Stock Exchange Utilities Stock Index. A stock index assigns
relative values to common stocks included in the index and the index fluctuates
with the value of the common stocks so included. A futures contract is a legal
agreement between a buyer or seller and the clearing house of a futures exchange
in which the parties agree to make a cash settlement on a specified future date
in an amount determined by the stock index on the last trading day of the
contract. The amount is a specified dollar amount (usually $100 or $500) times
the difference between the index value on the last trading day and the value on
the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The S&P 500 Index
assigns relative weightings to the common stocks included in the Index, and the
Index fluctuates with changes in the market values of those common stocks. In
the case of S&P 500 Index futures contracts, the specified multiple is $500.
Thus, if the value of the S&P 500 Index were 150, the value of one contract
would be $75,000 (150 x $500). Unlike other futures contracts, a stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract with the settlement amount being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example (excluding any transaction costs), if
the Fund enters into one futures contract to buy the S&P 500 Index at a
specified future date at a contract value of 150 and the S&P 500 Index is at 154
on that future date, the Fund will gain $500 x (154-150) or $2,000. If the Fund
enters into one futures contract to sell the S&P 500 Index at a specified future
date at a contract value of 150 and the S&P 500 Index is at 152 on that future
date, the Fund will lose $500 x (152-150) or $1,000.
Unlike the purchase or sale of an equity security, no price would be
paid or received by the Fund upon entering into stock index futures contracts.
Upon entering into a contract, the Fund would be required to deposit with its
custodian in a segregated account in the name of the futures broker an amount of
cash or U.S. Treasury bills equal to a portion of the contract value. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve borrowing funds by the Fund to finance
the transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract that is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied.
Subsequent payments, called "variation margin," to and from the broker
would be made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the contract more or less
valuable, a process known as "marking to the market." For example, when the Fund
enters into a contract in which it benefits from a rise in the value of an index
and the price of the underlying stock index has risen, the Fund will receive
from the broker a variation margin payment equal to that increase in value.
Conversely, if the price of the underlying stock index declines, the Fund would
be required to make a variation margin payment to the broker equal to the
decline in value.
The Fund intends to use stock index futures contracts and related
options for hedging and not for speculation. Hedging permits the Fund to gain
rapid exposure to or protect itself from changes in the market. For example, the
Fund may find itself with a high cash position at the beginning of a market
rally. Conventional procedures of purchasing a number of individual issues
entail the lapse of time and the possibility of missing a significant market
movement. By using futures contracts, the Fund can obtain immediate exposure to
the market and benefit from the beginning stages of a rally. The buying program
can then proceed, and once it is completed (or as it proceeds), the contracts
can be closed. Conversely, in the early stages of a market decline, market
exposure can be promptly offset by entering into stock index futures contracts
to sell units of an index and individual stocks can be sold over a longer period
under cover of the resulting short contract position.
69
The Fund may enter into contracts with respect to any stock index or
sub-index. To hedge the Fund's portfolio successfully, however, the Fund must
enter into contracts with respect to indexes or sub-indexes whose movements will
have a significant correlation with movements in the prices of the Fund's
portfolio securities.
Options on Stock Index Futures Contracts. To the extent described in
the Prospectus and/or this Part B the Fund may purchase and sell put and call
options on stock index futures contracts which are traded on a recognized
exchange or board of trade as a hedge against changes in the market, and will
enter into closing transactions with respect to such options to terminate
existing positions. An option on a stock index futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
stock index futures contract at a specified exercise price at any time prior to
the expiration date of the option. A call option gives the purchaser of such
option the right to buy, and it obliges its writer to sell, a specified
underlying futures contract at a specified exercise price at any time prior to
the expiration date of the option. A purchaser of a put option has the right to
sell, and the writer has the obligation to buy, such contract at the exercise
price during the option period. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's future margin
account, which represents the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing price of the stock index futures
contract on the expiration date. The Fund will pay a premium for purchasing
options on stock index futures contracts. Because the value of the option is
fixed at the point of sale, there are no daily cash payments to reflect changes
in the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Fund. In connection with the writing of options on stock index futures
contracts, the Fund will make initial margin deposits and make or receive
maintenance margin payments that reflect changes in the market value of such
options. Premiums received from the writing of an option are included in initial
margin deposits.
Purchase of Put Options on Futures Contracts. The Fund will purchase
put options on futures contracts if the Fund's investment advisor anticipates a
market decline. A put option on a stock index futures contract becomes more
valuable as the market declines. By purchasing put options on stock index
futures contracts at a time when the Fund's investment advisor expects the
market to decline, the Fund will seek to realize a profit to offset the loss in
value of its portfolio securities.
Purchase of Call Options on Futures Contracts. The Fund will purchase
call options on stock index futures contracts if the Fund's investment advisor
anticipates a market rally. The purchase of a call option on a stock index
futures contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. A call option on such a contract becomes more
valuable as the market appreciates. The Fund will purchase a call option on a
stock index futures contract to hedge against a market advance when the Fund is
holding cash. The Fund can take advantage of the anticipated rise in the value
of equity securities without actually buying them until the market is
stabilized. At that time, the options can be liquidated and the Fund's cash can
be used to buy portfolio securities.
Writing Call Options on Futures Contracts. The Fund will write call
options on stock index futures contracts if the Fund's investment advisor
anticipates a market decline. As the market declines, a call option on such a
contract becomes less valuable. If the futures contract price at expiration of
the option is below the exercise price, the option will not be exercised and the
Fund will retain the full amount of the option premium. Such amount provides a
partial hedge against any decline that may have occurred in the Fund's portfolio
securities.
Writing Put Options on Futures Contracts. The Fund will write put
options on stock index futures contracts if the Fund's investment advisor
anticipates a market rally. As the market appreciates, a put option on a stock
index futures contract becomes less valuable. If the futures contract price at
expiration of the option has risen due to market appreciation and is above the
exercise price, the option will not be exercised and the Fund will retain the
full amount of the option premium. Such amount can then be used by a Fund to buy
portfolio securities when the market has stabilized.
70
Risks Relating to Options on Stock Index Futures Contracts. Compared to
the purchase or sale of futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to a Fund because the maximum
amount at risk is the premium paid for the options (plus transaction costs).
However, there may be circumstances when a purchase of a call or put option on a
futures contract would result in a loss to a Fund when the purchase or sale of a
futures contract would not result in a loss, such as when there is no movement
in the underlying index.
The writing of a put or call option on a futures contract involves
risks similar to those relating to transactions in futures contracts as
described in the Prospectus and Statement of Additional Information. By writing
a call option, the Fund, in exchange for the receipt of a premium, becomes
obligated to sell a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, but the Fund becomes obligated to purchase a futures
contract, which may have a value lower than the exercise price. The loss
incurred by the Fund in writing options on futures contracts may exceed the
amount of the premium received.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Finally, the Fund's purchase or sale of put or call options on stock
index futures contracts will be based upon predictions as to anticipated market
trends by the Fund's investment advisor or sub-advisor, which could prove to be
inaccurate. Even if the expectations of the Fund's investment advisor or
sub-advisor are correct, there may be an imperfect correlation between the
change in the value of the options and of the Fund's portfolio securities.
71
PART C
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Other Information
Item 23. Exhibits
(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. 37 filed December 14, 1999.
(2) Certificate of Trust (December 17, 1998) incorporated
into this filing by reference to Post-Effective
Amendment No. 37 filed December 14, 1999.
(b) By-Laws. By-Laws (December 17, 1998) incorporated into this
filing by reference to Post-Effective Amendment No. 37 filed
December 14, 1999.
(c) Copies of All Instruments Defining the Rights of Holders.
(1) Agreement and Declaration of Trust. Articles III, V and
VI of Agreement and Declaration of Trust incorporated
into this filing by reference to Post-Effective
Amendment No. 37 filed December 14, 1999.
(2) By-Laws. Article II of By-Laws incorporated into this
filing by reference to Post-Effective Amendment No. 37
filed December 14, 1999.
(d) Investment Management Agreements.
(1) Executed Investment Management Agreement (December 15,
1999) between Delaware Management Company (a series of
Delaware Management Business Trust) and the Registrant
on behalf of each Fund incorporated into this filing by
reference to Post-Effective Amendment No. 39 filed May
25, 2001.
(e) (1) Distribution Agreements.
(i) Executed Distribution Agreement (May 15, 2003)
between Delaware Distributors, L.P. and the
Registrant on behalf of each Fund incorporated
into this filing by reference to Post-Effective
Amendment No. 44 filed June 30, 2003.
(ii) Executed Financial Intermediary Distribution
Agreement (January 1, 2001) between Delaware
Distributors, L.P. and Lincoln Financial
Distributors, Inc. on behalf of the Registrant on
behalf of each Fund incorporated into this filing
by reference to Post-Effective Amendment No. 39
filed May 25, 2001.
(iii) Executed Appendix A (December 20, 2001) to the
Financial Intermediary Distribution Agreement
incorporated into this filing by reference to
Post-Effective Amendment No. 42 filed June 28,
2002.
(iv) Executed Amended and Restated Financial
Intermediary Distribution Agreement (May 15,
2003) between Delaware Distributors, L.P. and
Lincoln Financial Distributors, Inc. on behalf of
the Registrant on behalf of each Fund
incorporated into this filing by reference to
Post-Effective Amendment No. 44 filed June 30,
2003.
(v) 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 on behalf of each Fund attached as
Exhibit.
(2) Dealer's Agreement. Dealer's Agreement (January 2001)
incorporated into this filing by reference to
Post-Effective Amendment No. 42 filed June 28, 2002.
(3) Vision Mutual Fund Gateway Agreement. Vision Mutual Fund
Gateway Agreement (November 2000) incorporated into this
filing by reference to Post-Effective Amendment No. 42
filed June 28, 2002.
(4) Registered Investment Advisers Agreement. Registered
Investment Advisers Agreement (January 2001)
incorporated into this filing by reference to
Post-Effective Amendment No. 42 filed June 28, 2002.
(5) Bank/Trust Agreement. Bank/Trust Agreement (January
2001) incorporated into this filing by reference to
Post-Effective Amendment No. 42 filed June 28, 2002.
(f) Inapplicable.
(g) Custodian Agreement.
(3) Form of Amended and Restated Mutual Fund Custody and
Services Agreement (May 2002) between Mellon Bank, N.A.
and the Registrant incorporated into this filing by
reference to Post-Effective Amendment No. 42 filed June
28, 2002.
(4) Form of Amendment No. 1 to Appendix D of the Amended and
Restated Mutual Fund Custody and Services Agreement
(September 2003) between Mellon Bank, N.A. and the
Registrant attached as Exhibit.
(5) Executed Securities Lending Authorization (March 12,
2002) between Mellon Bank, N.A. and the Registrant
incorporated into this filing by reference to
Post-Effective Amendment No. 42 filed June 28, 2002.
(h) Other Material Contracts.
(1) Executed Shareholder Services Agreement (April 19, 2001)
between Delaware Service Company, Inc. and the
Registrant on behalf of the each Fund incorporated into
this filing by reference to Post-Effective Amendment No.
42 filed June 28, 2002.
(i) Executed Schedule A (August 24, 2001) to the
Shareholder Services Agreement attached as
Exhibit.
(ii) Executed Schedule B (May 16, 2002) to the
Shareholder Services Agreement incorporated into
this filing by reference to Post-Effective
Amendment No. 44 filed June 30, 2003.
(iii) Letter Amendment to the Shareholder Services
Agreement (August 23, 2002) attached as Exhibit.
(2) Executed Fund Accounting Agreement (August 19, 1996)
between Delaware Service Company, Inc. and the
Registrant on behalf of each Fund incorporated into this
filing by reference to Post-Effective Amendment No. 30
filed June 27, 1997, Post-Effective Amendment No. 33
filed June 29, 1998 and Post-Effective Amendment No. 34
filed May 11, 1999.
(i) Executed Amendment No. 27 (October 1, 2003) to
Schedule A of the Delaware Investments Family of
Funds Fund Accounting Agreement attached as
Exhibit.
(ii) Form of Amendment No. 28 (June 30, 2004) to
Schedule A of Delaware Investments Family of
Funds Fund Accounting Agreement attached as
Exhibit.
(iii) Executed Schedule B (May 16, 2002) to the
Delaware Group of Funds Fund Accounting Agreement
incorporated into this filing by reference to
Post-Effective Amendment No. 42 filed June 28,
2002.
(i) Opinion of Counsel. Incorporated into this filing by reference to
Post-Effective Amendment No. 37 filed December 14, 1999.
(j) Consent of Auditors. Attached as Exhibit.
(k) Inapplicable.
(l) Letter of Investment Intent. Incorporated into this filing by
reference to Pre-Effective Amendment No. 1.
(m) Plans under Rule 12b-1.
(1) Plan under Rule 12b-1 for Class A (April 19, 2001) on
behalf of each Fund incorporated into this filing by
reference to Post-Effective Amendment No. 39 filed May
25, 2001.
(2) Plan under Rule 12b-1 for Class B (April 19, 2001) on
behalf of each Fund incorporated into this filing by
reference to Post-Effective Amendment No. 39 filed May
25, 2001.
(3) Plan under Rule 12b-1 for Class C (April 19, 2001) on
behalf of each Fund incorporated into this filing by
reference to Post-Effective Amendment No. 39 filed May
25, 2001.
(4) Plan under Rule 12b-1 for Class R (May 15, 2003) on
behalf of each Fund incorporated into this filing by
reference to Post-Effective Amendment No. 43 filed April
30, 2003.
(n) Plan under Rule 18f-3. Plan under Rule 18f-3 (May 1, 2003)
incorporated into this filing by reference to Post-Effective
Amendment No. 43 filed April 30, 2003.
(o) Inapplicable.
(p) Code of Ethics.
(1) Code of Ethics for the Delaware Investments' Family of
Funds (February 2004) attached as Exhibit.
(2) Code of Ethics for Delaware Investments (February 2004)
attached as Exhibit.
(3) Code of Ethics for Lincoln Financial Distributors, Inc.
(April 2003) incorporated into this filing by reference
to Post-Effective Amendment No. 43 filed April 30, 2003.
(q) Trustees' Power of Attorney. Trustee's Power of Attorney (August
21, 2003) attached as Exhibit.
Item 24. Indemnification. Article VI of the By-Laws incorporated into this
filing by reference to Post-Effective Amendment No. 37 filed December
14, 1999.
Item 25. 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 family (Delaware
Group Adviser 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 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 the 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 family (see
Item 26 below) and another such company acts as the shareholder
services, dividend disbursing, accounting servicing and transfer agent
for all of the mutual funds in the Delaware Investments family.
The following persons serving as directors or officers of the
Manager have held the following positions during the past two years. Unless
noted, the principal business address of the Manager is 2005 Market Street,
Philadelphia, PA 19103-7094
[Enlarge/Download Table]
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NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Jude T. Driscoll President/Chief Executive Officer of Delaware Management Company, Delaware Investment
Advisers and Delaware Capital Management (each a series of Delaware Management Business
Trust)
Chairman/President/Chief Executive Officer of each fund in the Delaware Investments
Family of Funds
Chairman and Director of Delaware International Advisers Ltd.
President/Chief Executive Officer and Director/Trustee of Delaware Management Holdings,
Inc., DMH Corp, DIAL Holding Company, Inc., Delaware International Holdings Ltd.,
Delaware Investments U.S., Inc., Delaware General Management, Inc., Delaware Management
Company, Inc., Delaware Service Company, Inc., Delaware Distributors, Inc., Retirement
Financial Services, Inc., Delaware Management Business Trust, Delaware Distributors,
L.P., Lincoln National Investment Companies, Inc. and LNC Administrative Services
Corporation
President of Delaware Lincoln Cash Management (a series of Delaware Management Business
Trust)
Director of HYPPCO Finance Company Ltd.
-------------------------------------- -------------------------------------------------------------------------------------------
John C. E. Campbell Executive Vice President/Global Marketing & Client Services of Delaware Management
Company (a series of Delaware Management Business Trust)
Executive Vice President/Global Marketing Sales, Client Services & Product Development
and President/Global Institutional Services of Delaware Investment Advisers (a series of
Delaware Management Business Trust)
Director of Delaware International Advisers Ltd.
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Patrick P. Coyne Executive Vice President/Managing Director/Chief Investment Officer - Fixed Income of
Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management
(each series of Delaware Management Business Trust), Delaware Management Holdings, Inc.,
Delaware Management Business Trust and Lincoln National Investment Companies, Inc.
Executive Vice President/Managing Director/Head of Equity Investments of each fund in the
Delaware Investments Family of Funds
President and Director of Lincoln National Convertible Securities Fund, Inc. and Lincoln
National Income Fund, Inc.
-------------------------------------- -------------------------------------------------------------------------------------------
Joseph H. Hastings Executive Vice President/Interim Chief Financial Officer/Treasurer/Controller of Delaware
Management Company, Delaware Capital Management, Delaware Lincoln Cash Management (each a
series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH
Corp., DIAL Holding Company, Inc., Delaware Investments U.S., Inc., Delaware General
Management, Inc., Delaware Management Company, Inc., Delaware Service Company, Inc.,
Delaware Management Business Trust, Lincoln National Investment Companies, Inc. and LNC
Administrative Services Corporation
Executive Vice President/Chief Financial Officer/Treasurer and Director of Delaware
Management Trust Company
Executive Vice President/Chief Financial Officer of Retirement Financial Services, Inc.
and each fund in the Delaware Investments Family of Funds
Executive Vice President/Interim Chief Financial Officer/Controller of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Executive Vice President/Interim Chief Financial Officer of Delaware International
Holdings Ltd.
Executive Vice President of Delaware Distributors, Inc. and Delaware Distributors, L.P.
-------------------------------------- -------------------------------------------------------------------------------------------
Joanne O. Hutcheson Executive Vice President/Chief Operating Officer of Delaware Management Company, Delaware
Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each
a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH
Corp., DIAL Holding Company, Inc., Delaware International Holdings, Inc., Delaware
Investments U.S., Inc., Delaware General Management, Inc., Delaware Management Company,
Inc., Delaware Management Business Trust and Lincoln National Investment Companies, Inc.
Executive Vice President/Chief Operating Officer and Director of Delaware Service
Company, Inc., Retirement Financial Services, Inc. and LNC Administrative Services
Corporation
Executive Vice President of Delaware Distributors, Inc., Delaware Distributors, L.P.,
Senior Vice President/Human Resources of Delaware Management Trust Company
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Richelle S. Maestro Executive Vice President/General Counsel/Secretary of Delaware Management Company, Delaware
Investment Advisers, Delaware Capital Management and Delaware Lincoln Cash Management (each
a series of Delaware Management Business Trust) and each fund in the Delaware Investments
Family of Funds
Executive Vice President/General Counsel/Secretary and Director/Trustee of Delaware
Management Holdings, Inc., DMH Corp., DIAL Holding Company, Inc., Delaware Investments
U.S., Delaware General Management, Inc., Delaware Management Company, Inc., Delaware
Service Company, Inc., Delaware Distributors, Inc., Retirement Financial Services, Inc.,
Lincoln National Investment Companies, Inc. and LNC Administrative Services Corporation
Executive President/Deputy General Counsel and Director of Delaware International
Holdings Ltd.
Senior Vice President/General Counsel/Secretary and Director/Trustee of Delaware Management
Business Trust and Delaware Distributors, L.P.
Senior Vice President/General Counsel/Secretary of Delaware Management Trust Company
Vice President/General Counsel of Lincoln National Convertible Securities Fund, Inc. and
Lincoln National Income Fund, Inc.
General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane, Philadelphia, PA.
-------------------------------------- -------------------------------------------------------------------------------------------
See Yeng Quek Executive Vice President/Managing Director/Chief Investment Officer - Fixed Income of
Delaware Management Company, Delaware Investment Advisers and Delaware Lincoln Cash
Management (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
Executive Vice President/Managing Director/Chief Investment Officer - Fixed Income and
Director/Trustee of Delaware Management Holdings, Inc., Delaware Management Business Trust
and Lincoln National Investment Companies, Inc.
Director/Trustee of DHM Corp., DIAL Holding Company, Inc., Delaware International
Holdings Ltd., Delaware Investments U.S., Inc., Delaware Management Company, Inc.,
Delaware Service Company, Inc. and HYPPCO Finance Company Ltd.
-------------------------------------- -------------------------------------------------------------------------------------------
Gerald S. Frey Managing Director/Chief Investment Officer - Growth Investing of Delaware Management
Company, Delaware Investment Advisers, Delaware Capital Management (each a series of
Delaware Management Business Trust), Delaware Management Holdings, Inc., Delaware
Management Business Trust, Lincoln National Investments Companies, Inc. and each fund in
the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Service Company, Inc., Delaware Distributors, Inc.,
Retirement Financial Services, Inc. and Delaware Distributors, L.P
Senior Vice President/Operations and Director of Delaware Management Trust Company
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Robert L. Arnold Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers and Delaware Capital Management (each a series of Delaware Management
Business Trust) and each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Marshall T. Bassett Senior Vice President/Portfolio Manager of Delaware Management Company and Delaware
Investment Advisers (each a series of Delaware Management Business Trust)
Senior Vice President/Senior Portfolio Manager of each fund in the Delaware Investments
Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Christopher S. Beck Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers, Delaware Capital Management (each a series of Delaware Management
Business Trust) and each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President/Investment Accounting of Delaware Management Company, Delaware
Capital Management (each a series of Delaware Management Business Trust), Delaware
Service Company, Inc. and Delaware Distributors, L.P.
Senior Vice President/Treasurer/Investment Accounting of Delaware Investment Advisers (a
series of Delaware Management Business Trust)
Senior Vice President/Manager of Investment Accounting of Delaware International Advisers
Ltd.,
Senior Vice President/Treasurer of each fund in the Delaware Investments Family of Funds
Chief Financial Officer of Lincoln National Convertible Securities Fund, Inc. and Lincoln
National Income Fund, Inc.
-------------------------------------- -------------------------------------------------------------------------------------------
Lisa O. Brinkley Senior Vice President/Compliance Director of Delaware Management Company, Delaware
Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each
a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH
Corp., DIAL Holding Company, Inc., Delaware Investments U.S., Inc., Delaware General
Management, Inc., Delaware Management Company, Inc., Delaware Service Company, Inc.,
Delaware Distributors, Inc. Retirement Financial Services, Inc., Delaware Management
Business Trust, Delaware Distributors, L.P., Lincoln National Investment Companies, Inc.,
LNC Administrative Services Corporation and each fund in the Delaware Investments Family
of Funds
Senior Vice President/Compliance Director/Assistant Secretary of Delaware Management
Trust Company
-------------------------------------- -------------------------------------------------------------------------------------------
Ryan K. Brist Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investments Family of Funds
Vice President of Lincoln National Income Fund, Inc.
-------------------------------------- -------------------------------------------------------------------------------------------
Timothy G. Connors Senior Vice President/Chief Investment Officer - Value Investing of Delaware Management
Company, Delaware Investment Advisers (each a series of Delaware Management Business
Trust), Delaware Management Holdings, Inc., Delaware Management Business Trust , Lincoln
National Investment Companies, Inc. and each fund in the Delaware Investments Family of
Funds
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Nancy M. Crouse Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investment Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
George E. Deming Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investments Family of Funds
Director of Delaware International Advisers Ltd.
-------------------------------------- -------------------------------------------------------------------------------------------
Robert J. DiBraccio Senior Vice President/Head of Equity Trading of Delaware Management Company, Delaware
Investment Advisers and Delaware Capital Management (each a series of Delaware Management
Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
John B. Fields Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investments Family of Funds
Trustee of Delaware Management Business Trust
-------------------------------------- -------------------------------------------------------------------------------------------
Jonathan Hatcher Senior Vice President/Senior Fixed Income Analyst III of Delaware Management Company,
Delaware Investment Advisers (each a series of Delaware Management Business Trust) and
each fund in the Delaware Investments Family of Funds
Vice President/Senior High Yield Analyst of Delaware Investment Advisers (a series of
Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
John A. Heffern Senior Vice President/Portfolio Manager of Delaware Management Company and Delaware
Investment Advisers (each a series of Delaware Management Business Trust)
Senior Vice President/Senior Portfolio Manager of each fund in the Delaware Investments
Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Carolyn McIntyre(1) Senior Vice President/Human Resources of Delaware Management Company, Delaware Investment
Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of
Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., DIAL
Holding Company, Inc., Delaware General Management, Inc., Delaware Management Business
Trust and Lincoln National Investment Companies, Inc.
-------------------------------------- -------------------------------------------------------------------------------------------
Susan L. Natalini Senior Vice President/Global Marketing & Client Services of Delaware Management Company
and Delaware Investment Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Francis X. Morris Director - Fundamental /Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust)
Director- Fundamental Research/Senior Portfolio Manager of Delaware Investment Advisers
(a series of Delaware Management Business Trust) and each fund in the Delaware
Investments Family of Funds
Vice President/Senior Portfolio Manager of Delaware General Management, Inc.
Vice President/Senior Equity Analyst of Delaware Capital Management (a series of Delaware
Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
John J. O'Connor Senior Vice President/Investment Accounting of Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Service Company, Inc.
Senior Vice President/Investment Accounting/Assistant Treasurer of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Senior Vice President/Assistant Treasurer of each fund in the Delaware Investments Family
of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Philip R Perkins(2) Senior Vice President/Senior Portfolio Manager of Delaware Management Company and
Delaware Investment Adviser (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Timothy L. Rabe Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Paul M. Ross Senior Vice President/Global Marketing & Client Services of Delaware Management Company
and Delaware Investment Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
James L. Shields Senior Vice President/Chief Information Officer of Delaware Management Company, Delaware
Investment Advisers, Delaware Capital Management (each a series of Delaware Management
Business Trust), Delaware Service Company, Inc., Retirement Financial Services, Inc. and
Delaware Distributors, L.P.
-------------------------------------- -------------------------------------------------------------------------------------------
David Starer(3) Senior Vice President/Portfolio Manager/Senior Equity Analyst of Delaware Management
Company, Delaware Investment Advisers (each a series of Delaware Management Business
Trust) and each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Ward W. Tatge Senior Vice President/Director of Fixed Income Research of Delaware Management Company,
Delaware Investment Advisers (each a series of Delaware Management Business Trust) and
each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Gary T. Abrams Vice President/Equity Trader of Delaware Management Company and Delaware Investment
Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Christopher S. Adams Vice President/Portfolio Manager/Senior Equity Analyst of Delaware Management Company (a
series of Delaware Management Business Trust) and each fund in the Delaware Investments
Family of Funds
Vice President/Senior Equity Analyst I of Delaware Investment Advisers (a series of
Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Renee E. Anderson Vice President/Portfolio Manager/Senior Equity Analyst II of Delaware Management Company
(a series of Delaware Management Business Trust) and each fund in the Delaware
Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Damon J. Andres Vice President/Senior Fixed Income Portfolio Manager I of Delaware Management Company (a
series of Delaware Management Business Trust)
Vice President/Senior Portfolio Manager of each fund in the Delaware Investments Family
of Funds
Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Vice President of Lincoln National Convertible Securities Fund, Inc.
-------------------------------------- -------------------------------------------------------------------------------------------
Joseph Baxter Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Richard E. Biester Vice President/Equity Trader of Delaware Management Company and Delaware Investment
Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Vincent A. Brancaccio Vice President/Senior Equity Trader of Delaware Management Company and Delaware
Investment Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Michael P. Buckley Vice President/Portfolio Manager/Director of Municipal Research of Delaware Management
Company and Delaware Investment Advisers (each a series of Delaware Management Business
Trust)
Vice President/Portfolio Manager/Senior Municipal Bond Analyst of each fund in the Delaware
Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
MaryEllen M. Carrozza Vice President/Client Services of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust), Delaware General
Management, Inc. and each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Stephen R. Cianci Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investments Family of Funds
Vice President/Portfolio Manager of Delaware Capital Management (a series of Delaware
Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
David F. Connor Vice President/Deputy General Counsel/Assistant Secretary of Delaware Management Company,
Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash
Management (each a series of Delaware Management Business Trust), Delaware Management
Holdings, Inc., DMH Corp., DIAL Holding Company, Inc., Delaware Investments U.S., Inc.,
Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Distributors,
Inc. Retirement Financial Services, Inc., Delaware Management Trust Company, Delaware
Management Business Trust, Delaware Distributors, L.P., Lincoln National Investment
Companies, Inc., LNC Administrative Services Corporation and each fund in the Delaware
Investments Family of Funds
Secretary of Lincoln National Convertible Securities Fund, Inc. and Lincoln National
Income Fund, Inc.
-------------------------------------- -------------------------------------------------------------------------------------------
Scott E. Decatur(4) Vice President/Senior Equity Analyst of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investment Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Joseph F. DeMichele Vice President/High Grade Trading of Delaware Management Company (a series of Delaware
Management Business Trust)
Vice President/Senior High Grade Trading of Delaware Investment Advisers (a series of
Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Joel A. Ettinger Vice President/Taxation of Delaware Management Company, Delaware Investment Advisers,
Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware
Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., DIAL Holding
Company, Inc., Delaware General Management, Inc., Delaware Management Company, Inc.,
Delaware Service Company, Inc., Delaware Distributors, Inc. Retirement Financial
Services, Inc., Delaware Management Business Trust, Delaware Distributors, L.P., Lincoln
National Investment Companies, Inc., LNC Administrative Services Corporation and each
fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Phoebe W. Figland Vice President/Investment Accounting of Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Service Company, Inc. and each fund in the Delaware
Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
ADDRESS* POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Joseph Fiorilla Vice President/Trading Operations of Delaware Management Company and Delaware Investment
Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Charles E. Fish Vice President/Senior Equity Trader of Delaware Management Company and Delaware
Investment Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Clifford M. Fisher(5) Vice President/Senior Bond Trader of Delaware Management Company and Delaware Investment
Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Denise A. Franchetti Vice President/Portfolio Manager/Municipal Bond Credit Analyst of Delaware Management
Company, Delaware Investment Advisers (each a series of Delaware Management Business
Trust) and each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Brian Funk Vice President/High Yield Analyst of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
James A. Furgele Vice President/Investment Accounting of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust), Delaware Service Company,
Inc. and each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Brent C. Garrells Vice President/ High Yield Analyst of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Daniel V. Geatens Vice President/Investment Accounting of Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Service Company, Inc. and each fund in the Delaware
Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Stuart M. George Vice President/Equity Trader of Delaware Management Company and Delaware Investment
Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Robert E. Ginsberg Vice President/Portfolio Manager/Senior Equity Analyst of Delaware Management Company (a
series of Delaware Management Business Trust) and each fund in the Delaware Investments
Family of Funds
Vice President/Portfolio Manager/Senior Equity Analyst of Delaware Investment Advisers (a
series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Barry Gladstein Vice President/Portfolio Analyst of Delaware Management Company and Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Vice President/Equity Analyst of Delaware Capital Management (a series of Delaware
Management Business Trust) and each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Paul Grillo Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investments Family of Funds
Vice President/Portfolio Manager of Delaware Capital Management (a series of Delaware
Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Brian T. Hannon Vice President/Equity Analyst of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Jonathan Hatcher(6) Vice President/Senior High Yield Trader of Delaware Management Company (a series of
Delaware Management Business Trust)
Vice President/Senior High Yield Analysis of Delaware Investment Advisers (a series of
Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
ADDRESS* POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Jeffrey W. Hynoski Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Cynthia Isom Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Kenneth R. Jackson Vice President/Equity Analyst of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Steven T. Lampe Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment
Advisers, Delaware Capital Management (each a series of Delaware Management Business
Trust) and each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Kevin S. Lee Vice President/Assistant Controller of Delaware Management Company, Delaware Investment
Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of
Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., DIAL
Holding Company, Inc., Delaware Investments U.S., Inc., Delaware General Management,
Inc., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware
Distributors, Inc. Retirement Financial Services, Inc., Delaware Management Trust
Company, Delaware Management Business Trust, Delaware Distributors, L.P., Lincoln
National Investment Companies, Inc., LNC Administrative Services Corporation and LNC
Administrative Services Corporation
-------------------------------------- -------------------------------------------------------------------------------------------
Andrew M. McCullagh, Jr. Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Michael S. Morris Vice President/Portfolio Manager of Delaware Management Company and Delaware Investment
Advisers (each a series of Delaware Management Business Trust)
Vice President/Senior Equity Analyst of each fund in the Delaware Investments Family of
Funds
-------------------------------------- -------------------------------------------------------------------------------------------
John R. Murray Vice President/Senior Equity Analyst of Delaware Management Company (a series of Delaware
Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Brian L. Murray. Jr.(7) Vice President/Associate General Counsel/Assistant Secretary of Delaware Management
Company, Delaware Investment Advisers, Delaware Capital Management (each a series of
Delaware Management Business Trust), Delaware Service Company, Inc., Delaware
Distributors, Inc., Retirement Financial Services, Inc., Delaware Management Business
Trust, Delaware Distributors, L.P., and each fund in the Delaware Investments Family of
Funds
-------------------------------------- -------------------------------------------------------------------------------------------
David P. O'Connor Vice President/Associate General Counsel/Assistant Secretary of Delaware Management
Company, Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash
Management (each a series of Delaware Management Business Trust), Delaware Management
Holdings, Inc., DMH Corp., DIAL Holding Company, Inc., Delaware Investments U.S., Inc.,
Delaware General Management, Inc., Delaware Management Company, Inc., Delaware Service
Company, Inc., Delaware Distributors, Inc. Retirement Financial Services, Inc., Delaware
Management Business Trust, Delaware Distributors, L.P., Lincoln National Investment
Companies, Inc., LNC Administrative Services Corporation and each fund in the Delaware
Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Philip O. Obazee(8) Vice President/Derivatives Manager of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
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-------------------------------------- -------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER
ADDRESS* POSITIONS & OFFICES HELD
-------------------------------------- -------------------------------------------------------------------------------------------
Donald G. Padilla Vice President/Equity Analyst II of Delaware Management Company and Delaware Investment
Advisers (each a series of Delaware Management Business Trust)
Vice President/Equity Analyst of each fund in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Richard Salus Vice President/Deputy Controller of Delaware Management Company, Delaware Investment
Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of
Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., DIAL
Holding Company, Inc., Delaware Investments U.S., Inc., Delaware General Management,
Inc., Delaware Management Company, Inc., Lincoln National Investment Companies, Inc., LNC
Administrative Services Corporation and LNC Administrative Services Corporation
Vice President/Assistant Controller of Delaware International Holdings Ltd., Delaware
Service Company, Inc., Delaware Distributors, Inc., Retirement Financial Services, Inc.,
Delaware Management Trust Company, Delaware Management Business Trust and Delaware
Distributors, L.P.
-------------------------------------- -------------------------------------------------------------------------------------------
Kevin C. Schildt Vice President/Senior Municipal Credit Analyst of Delaware Management Company and
Delaware Investment Advisers (each a series of Delaware Management Business Trust)
Vice President/Senior Research Analyst of each fund in the Delaware Investments Family of
Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Richard D. Seidel Vice President/Assistant Controller/Manager - Payroll of Delaware Management Company,
Delaware Investment Advisers, Delaware Lincoln Cash Management (each a series of Delaware
Management Business Trust), Delaware Investments, U.S., Delaware General Management,
Inc., Delaware Management Company, Inc., Delaware Distributors, Inc., Retirement
Financial Services, Inc., Delaware Management Business Trust, Lincoln Investment
Companies, Inc. and LNC Administrative Services Corporation
Vice President/Assistant Treasurer of Delaware Capital Management (a series of Delaware
Management Business Trust), Delaware Management Holdings, Inc., DHM Corp., DIAL Holding
Company, Inc., Delaware Service Company, Inc. and Delaware Distributors, L.P.
-------------------------------------- -------------------------------------------------------------------------------------------
Brenda L. Sprigman Vice President/Business Manager - Fixed Income of Delaware Management Company and
Delaware Investment Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
Matthew J. Stephens Vice President/Senior High Grade Analyst of Delaware Management Company, Delaware
Investment Advisers (each a series of Delaware Management Business Trust) and each fund
in the Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Michael T. Taggart Vice President/Facilities & Administrative Services of Delaware Management Company,
Delaware Investment Advisers (each a series of Delaware Management Business Trust),
Delaware Service Company, Inc., Delaware Distributors, Inc. and Delaware Distributors,
L.P.
-------------------------------------- -------------------------------------------------------------------------------------------
Lori P. Wachs Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Laura Wagner Vice President/Investment Accounting of Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Service Company, Inc. and each fund in the Delaware
Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
Chris Welker Vice President/Senior High Grade Trader of Delaware Management Company and Delaware
Investment Advisers (each a series of Delaware Management Business Trust)
-------------------------------------- -------------------------------------------------------------------------------------------
James J. Wright Vice President/Senior Equity Analyst of Delaware Management Company, Delaware Investment
Advisers (each a series of Delaware Management Business Trust) and each fund in the
Delaware Investments Family of Funds
-------------------------------------- -------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(1) HEAD OF HUMAN RESOURCES, Lincoln Life, 2001-2003.
(2) MANAGING DIRECTOR/GLOBAL MARKETS, Deutsche Bank, 1998-2003.
(3) SENIOR QUANTITATIVE ANALYST, Jacobs Levy Equity Management, 1996-2001.
(4) QUANTITATIVE INVESTMENT PROFESSIONAL, Grantham, Mayo, VanOtterloo & Co.,
1997-2002.
(5) VICE PRESIDENT/MUNICIPAL BOND, Advest, Inc., 1999-2002.
(6) SENIOR RESEARCH ANALYST, Strong Capital Management, 2000-2002.
(7) ASSOCIATE CORPORATE COUNSEL, Franklin Templeton Investments, 1998-2002.
(8) VICE PRESIDENT/QUANTITATIVE RESEARCH GROUP, First Union Capital Markets
Corporation, 1998-2001.
-------------------------------------------------------------------------------
*Business Address is 2005 Market Street, Philadelphia, PA 19103-7094.
Item 26. Principal Underwriters.
(a)(1) Delaware Distributors, L.P. serves as principal
underwriter for all the mutual funds in the Delaware
Investments Family of Funds.
(b)(1) Information with respect to each officer or partner
of the principal underwriter and the Registrant is
provided below. Unless noted, the principal business
address of Delaware Distributors, L.P. is 2005 Market
Street, Philadelphia, PA 19103-7094.
[Enlarge/Download Table]
------------------------------------------ ------------------------------------------ ------------------------------------------
NAME & PRINCIPAL BUSINESS ADDRESS POSITIONS & OFFICES WITH UNDERWRITER POSITIONS & OFFICES WITH REGISTRANT
------------------------------------------ ------------------------------------------ ------------------------------------------
Delaware Distributors, Inc. General Partner None
------------------------------------------ ------------------------------------------ ------------------------------------------
Delaware Capital Management Limited Partner None
------------------------------------------ ------------------------------------------ ------------------------------------------
Delaware Investment Advisers Limited Partner None
------------------------------------------ ------------------------------------------ ------------------------------------------
Jude T. Driscoll President/Chief Executive Officer Chairman/President/Chief Executive
Officer
------------------------------------------ ------------------------------------------ ------------------------------------------
Joseph H. Hastings Executive Vice President Executive Vice President/Chief
Financial Officer
------------------------------------------ ------------------------------------------ ------------------------------------------
Joanne O. Hutcheson Executive Vice President None
------------------------------------------ ------------------------------------------ ------------------------------------------
Diane M. Anderson Senior Vice President/Retirement None
Operations
------------------------------------------ ------------------------------------------ ------------------------------------------
Douglas L. Anderson Senior Vice President/Operations None
------------------------------------------ ------------------------------------------ ------------------------------------------
Michael P. Bishof Senior Vice President/Investment Senior Vice President/Treasurer
Accounting
------------------------------------------ ------------------------------------------ ------------------------------------------
Lisa O. Brinkley Senior Vice President/Compliance Director Senior Vice President/Compliance Director
------------------------------------------ ------------------------------------------ ------------------------------------------
Kevin J. Lucey Senior Vice President/Chief of Sales, None
Client Services & Marketing
------------------------------------------ ------------------------------------------ ------------------------------------------
Richelle S. Maestro Senior Vice President/General Counsel/ Executive Vice President/General
Secretary Counsel/ Secretary (Chief Legal Officer)
------------------------------------------ ------------------------------------------ ------------------------------------------
Thomas M. McConnell Senior Vice President/Senior 529 Plans None
Product Manager
------------------------------------------ ------------------------------------------ ------------------------------------------
James L. Shields Senior Vice President/Chief Information None
Officer
------------------------------------------ ------------------------------------------ ------------------------------------------
Daniel H. Carlson Vice President/Marketing Services None
------------------------------------------ ------------------------------------------ ------------------------------------------
Elisa C. Colkitt Vice President/Broker Dealer Operations None
& Service Support
------------------------------------------ ------------------------------------------ ------------------------------------------
[Enlarge/Download Table]
------------------------------------------ ------------------------------------------ ------------------------------------------
NAME & PRINCIPAL BUSINESS ADDRESS POSITIONS & OFFICES WITH UNDERWRITER POSITIONS & OFFICES WITH REGISTRANT
------------------------------------------ ------------------------------------------ ------------------------------------------
David F. Connor Vice President/Deputy General Vice President/Deputy General
Counsel/Assistant Secretary Counsel/Assistant Secretary
------------------------------------------ ------------------------------------------ ------------------------------------------
Joel A. Ettinger Vice President/Taxation Vice President/Taxation
------------------------------------------ ------------------------------------------ ------------------------------------------
Susan T. Friestedt Vice President/Retirement Services None
------------------------------------------ ------------------------------------------ ------------------------------------------
Edward M. Grant Vice President/Defined Contribution None
Sales Manager
------------------------------------------ ------------------------------------------ ------------------------------------------
Jeffrey M. Kellogg Vice President/Senior Product None
Manager/Communications Manager
------------------------------------------ ------------------------------------------ ------------------------------------------
Kevin S. Lee Vice President/Assistant Controller None
------------------------------------------ ------------------------------------------ ------------------------------------------
Patricia McWilliams Vice President/Client Services None
------------------------------------------ ------------------------------------------ ------------------------------------------
Brian L. Murray, Jr. Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
------------------------------------------ ------------------------------------------ ------------------------------------------
David P. O'Connor Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
------------------------------------------ ------------------------------------------ ------------------------------------------
Robinder Pal Vice President/Senior Retail e-Business/ None
Production Services Manager
------------------------------------------ ------------------------------------------ ------------------------------------------
Richard Salus Vice President/Deputy Controller None
------------------------------------------ ------------------------------------------ ------------------------------------------
Richard D. Seidel Vice President/Assistant Controller None
------------------------------------------ ------------------------------------------ ------------------------------------------
Michael T. Taggart Vice President/Facilities & None
Administrative Services
------------------------------------------ ------------------------------------------ ------------------------------------------
(a)(2) 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 or partner
of LFD and the Registrant is provided below. Unless
noted, the principal business address of LFD is 2001
Market Street, Philadelphia, PA 19103-7055.
[Enlarge/Download Table]
--------------------------------------------- ------------------------------------------ -----------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS & OFFICES WITH LFD POSITIONS & OFFICES WITH REGISTRANT
--------------------------------------------- ------------------------------------------ -----------------------------------------
Westley V. Thompson President/Chief Executive Officer and None
Director
--------------------------------------------- ------------------------------------------ -----------------------------------------
David M. Kittredge Senior Vice President/Chief Operating None
Officer and Director
--------------------------------------------- ------------------------------------------ -----------------------------------------
Margaret Skinner Senior Vice President None
--------------------------------------------- ------------------------------------------ -----------------------------------------
Frederick J. Crawford(1) Vice President/Treasurer None
--------------------------------------------- ------------------------------------------ -----------------------------------------
Patrick Caufield(2) Vice President/Chief Compliance Officer None
--------------------------------------------- ------------------------------------------ -----------------------------------------
Keith J. Ryan(3) Financial Officer None
--------------------------------------------- ------------------------------------------ -----------------------------------------
Cynthia A. Rose(3) Secretary None
--------------------------------------------- ------------------------------------------ -----------------------------------------
-------------------------------------------------------------------------------
(1) 1500 Market Street, Philadelphia, PA 19103.
(2) 350 Church Street, Hartford, CT 06103
(3) 1300 Clinton Street, Fort Wayne, IN 46802
-------------------------------------------------------------------------------
(c) Not Applicable.
Item 27. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 2005 Market
Street, Philadelphia, PA 19103-7094.
Item 29. Management Services. None.
Item 30. Undertakings. Inapplicable.
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, Commonwealth of Pennsylvania on this
29th day of June, 2004.
VOYAGEUR MUTUAL FUNDS III
By: Jude T. Driscoll
------------------------------
Jude T. Driscoll
President
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:
[Enlarge/Download Table]
Signature Title Date
--------------------------------- -------------------------------------------- --------------
Jude T. Driscoll * President/Chief Executive Officer (Principal June 29, 2004
--------------------------------- Executive Officer) and Trustee
Jude T. Driscoll
* Trustee June 29, 2004
---------------------------------
Walter P. Babich
* Trustee June 29, 2004
---------------------------------
John H. Durham
* Trustee June 29, 2004
---------------------------------
John A. Fry
* Trustee June 29, 2004
---------------------------------
Anthony D. Knerr
* Trustee June 29, 2004
---------------------------------
Ann R. Leven
* Trustee June 29, 2004
---------------------------------
Thomas F. Madison
* Trustee June 29, 2004
---------------------------------
Janet L. Yeomans
* Executive Vice President/Chief Financial Officer June 29, 2004
--------------------------------- (Principal Accounting Officer)
Joseph H. Hastings
* By: Jude T. Driscoll
----------------------
Jude 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.(e)(1)(v) Executed Second Amended and Restated Financial
Intermediary Distribution Agreement (August 21, 2003)
EX-99.(g)(4) Form of Amendment No. 1 to Appendix D of the Amended
and Restated Mutual Fund Custody and Services
Agreement (May 2002)
EX-99.(h)(1)(i) Executed Schedule A (August 24, 2001) to the
Shareholder Services Agreement
EX-99.(h)(1)(iii) Letter Amendment to the Shareholder Services
Agreement (August 23, 2002)
EX-99.(h)(2)(i) Executed Amendment No. 27 (October 1, 2003) to
Schedule A of the Delaware Investments Family of
Funds Fund Accounting Agreement
EX-99.(h)(2)(ii) Form of Amendment No. 28 (June 30, 2004) to Schedule
A of Delaware Investments Family of Funds Fund
Accounting Agreement
EX-99.(j) Consent of Auditors
EX-99.(p)(1) Code of Ethics for the Delaware Investments' Family
of Funds (February 2004)
EX-99.(p)(2) Code of Ethics for Delaware Investments (February
2004)
EX-99.(q) Trustees' Power of Attorney (August 21, 2003)
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
---|
This ‘485BPOS’ Filing | | Date | | First | | Last | | | Other Filings |
---|
| | |
| | 12/31/08 | | 101 | | 102 |
| | 12/31/04 | | 7 | | 103 |
| | 8/31/04 | | 104 |
| | 6/30/04 | | 1 | | 144 | | | N-PX |
Filed on / Effective on: | | 6/29/04 | | 142 |
| | 5/31/04 | | 107 |
| | 5/30/04 | | 107 |
| | 4/30/04 | | 69 | | 118 | | | 24F-2NT, N-CSR, N-CSR/A, NSAR-B |
| | 3/31/04 | | 6 | | 102 |
| | 12/31/03 | | 103 | | 112 |
| | 10/1/03 | | 128 | | 144 |
| | 8/21/03 | | 106 | | 144 |
| | 6/30/03 | | 126 | | 128 | | | 485BPOS, NSAR-B |
| | 6/2/03 | | 6 | | 118 |
| | 6/1/03 | | 16 | | 70 |
| | 5/28/03 | | 24 | | 101 |
| | 5/15/03 | | 105 | | 129 |
| | 5/6/03 | | 102 |
| | 5/1/03 | | 129 |
| | 4/30/03 | | 103 | | 129 | | | 24F-2NT, 485BPOS, N-30D, N-CSR, NSAR-B |
| | 3/17/03 | | 110 |
| | 1/1/03 | | 102 |
| | 12/31/02 | | 103 |
| | 11/18/02 | | 70 | | | | | 497 |
| | 8/23/02 | | 128 | | 144 |
| | 6/28/02 | | 126 | | 128 | | | 485BPOS |
| | 5/16/02 | | 128 |
| | 4/30/02 | | 103 | | | | | 24F-2NT, N-30D, NSAR-B |
| | 3/12/02 | | 127 |
| | 12/31/01 | | 103 |
| | 12/20/01 | | 126 |
| | 8/24/01 | | 128 | | 144 |
| | 5/25/01 | | 126 | | 129 | | | 485APOS, PRE 14A |
| | 4/19/01 | | 106 | | 129 |
| | 1/1/01 | | 126 |
| | 12/31/00 | | 6 | | 103 |
| | 6/30/00 | | 103 | | | | | 497J |
| | 12/31/99 | | 6 | | 34 |
| | 12/15/99 | | 102 | | 126 | | | 485BPOS |
| | 12/14/99 | | 126 | | 129 | | | 485BPOS, N-8A/A |
| | 9/29/99 | | 118 |
| | 8/16/99 | | 118 |
| | 5/11/99 | | 128 | | | | | 485APOS |
| | 12/17/98 | | 126 |
| | 11/2/98 | | 70 |
| | 7/1/98 | | 99 |
| | 6/29/98 | | 128 | | | | | 485BPOS, N-30D |
| | 1/1/98 | | 92 |
| | 12/31/97 | | 91 |
| | 9/1/97 | | 88 |
| | 8/29/97 | | 118 |
| | 8/28/97 | | 34 | | 70 |
| | 6/27/97 | | 128 | | | | | 485APOS |
| | 6/9/97 | | 118 | | | | | 497 |
| | 5/1/97 | | 80 | | 105 |
| | 4/30/97 | | 105 | | 108 | | | 24F-2NT, N-30D, NSAR-B |
| | 4/11/97 | | 105 | | | | | PRE 14A |
| | 2/14/97 | | 105 |
| | 1/1/97 | | 92 |
| | 12/31/96 | | 92 | | | | | N-30D |
| | 8/19/96 | | 128 |
| | 4/16/96 | | 6 | | 70 |
| | 5/20/94 | | 6 | | 70 |
| | 5/16/94 | | 6 | | 70 |
| List all Filings |
4 Subsequent Filings that Reference this Filing
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