U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Delaware Group Equity Funds II
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(Exact Name of Registrant as Specified in Charter)
(800) 523-1918
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(Area Code and Telephone Number)
2005 Market Street, Philadelphia, PA 19103-7094
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(Address of Principal Executive Offices Number, Street, City, State, Zip Code)
Richelle S. Maestro, Esquire, 2005 Market Street, Philadelphia, PA 19103-7094
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(Name and Address of Agent for Service, Number, Street, City, State, Zip Code)
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective
under the Securities Act of 1933, as amended.
Title of the securities being registered:
Shares of Beneficial Interest - No Par Value. No filing fee is due because
Registrant is relying on Section 24(f) of the Investment Company Act of 1940,
as amended.
It is proposed that this filing will become effective on November 15, 2003,
pursuant to Rule 488 under the Securities Act of 1933, as amended.
Delaware Group Equity Funds II has executed this Registration Statement.
Delaware Core Equity Fund
Delaware Devon Fund
Delaware Growth and Income Fund
Dear Shareholder:
Enclosed is a Notice of Meeting for a Special Joint Meeting of
Shareholders of Delaware Core Equity Fund, Delaware Devon Fund and Delaware
Growth and Income Fund. The Meeting has been called for February 19, 2004 at
11:00 a.m. Eastern time at the offices of Delaware Investments located at 2001
Market Street, 2nd Floor Auditorium, Philadelphia, Pennsylvania 19103-7055. The
accompanying Joint Proxy Statement/Prospectus describes a proposal being
presented for your consideration and requests your prompt attention and vote by
mail using the enclosed proxy card, by telephone or by the Internet.
Please take a moment to vote!
This Meeting is critically important. You are being asked to consider
and approve an Agreement and Plan of Reorganization that would result in your
shares of the Core Equity Fund, the Devon Fund and/or the Growth and Income Fund
being exchanged for those of another fund in the Delaware Investments Family of
Funds called Delaware Decatur Equity Income Fund, a series of Delaware Group
Equity Funds II.
If the shareholders of your Fund approve the proposal, the Decatur
Equity Income Fund will acquire substantially all of the assets and assume the
liabilities of your Fund:
o You will receive shares of the Decatur Equity Income Fund
equal in value to your investment in shares of your Fund.
o You will no longer be a shareholder of your current Fund and
will become a shareholder of the Decatur Equity Income Fund.
The transaction is being proposed because, although the Decatur Equity
Income Fund has an investment objective and investment policies that are similar
to your Fund (as outlined in the Joint Proxy Statement/Prospectus), the Decatur
Equity Income Fund has a better long-term performance record and lower expenses
compared to your Fund. Additionally, with respect to the Core Equity Fund and
the Devon Fund, the asset growth has been low and we believe the projected
growth in assets may not be sufficient to continue to offer them with
competitive performance and high quality service to shareholders over the long
term. Combining these Funds will bring the assets in the Decatur Equity Income
Fund to approximately $1.6 billion, which is significantly larger than your
Fund. The Decatur Equity Income Fund is managed by Delaware Management Company,
which is also the investment adviser of your Fund.
Please take the time to review this entire document and vote now!
Whether or not you plan to attend the Meeting, please vote your shares by mail,
telephone, or by the Internet. If you determine at a later date that you wish to
attend this Meeting, you may revoke your proxy and vote in person.
Thank you for your prompt attention and participation.
Sincerely,
Jude T. Driscoll
Chairman
DELAWARE CORE EQUITY FUND
(a series of Voyageur Mutual Funds III)
DELAWARE DEVON FUND
(a series of Delaware Group Equity Funds I)
DELAWARE GROWTH AND INCOME FUND
(a series of Delaware Group Equity Funds II)
2005 Market Street
Philadelphia, PA 19103-7094
NOTICE OF SPECIAL JOINT MEETING OF SHAREHOLDERS
To be held on February 19, 2004
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Joint Meeting (the "Meeting") of
Shareholders of Delaware Core Equity Fund (the "Core Equity Fund"), a series of
Voyageur Mutual Funds III, Delaware Devon Fund (the "Devon Fund"), a series of
Delaware Group Equity Funds I, and Delaware Growth and Income Fund (the "Growth
and Income Fund"), a series of Delaware Group Equity Funds II (each, an
"Acquired Fund" and a series of a "Trust"; collectively, the "Acquired Funds"
and series of the "Trusts"), will be held at the offices of Delaware Investments
located at 2001 Market Street, 2nd Floor Auditorium, Philadelphia, PA
19103-7055, on February 19, 2004 at 11:00 a.m. Eastern time. The Meeting is
being called for the following reasons:
1. For shareholders of each Acquired Fund to vote on an Agreement and
Plan of Reorganization between each Trust, on behalf of the respective Acquired
Fund, and Delaware Group Equity Funds II, on behalf of Delaware Decatur Equity
Income Fund (the "Decatur Equity Income Fund"), that provides for: (i) the
acquisition by the Decatur Equity Income Fund of substantially all of the assets
of the Acquired Fund in exchange for shares of the Decatur Equity Income Fund
and assumption by the Decatur Equity Income Fund of the liabilities of that
Acquired Fund; (ii) the pro rata distribution of shares of the Decatur Equity
Income Fund to the shareholders of the Acquired Fund; and (iii) the liquidation
and dissolution of the Acquired Fund.
2. To vote upon any other business as may properly come before the
Meeting or any adjournment thereof.
The transaction contemplated by each Agreement and Plan of
Reorganization is described in the attached Joint Proxy Statement/Prospectus. A
copy of the form of the Agreement and Plan of Reorganization is attached as
Exhibit A to the Joint Proxy Statement/Prospectus.
Shareholders of record of each Acquired Fund as of the close of
business on October 31, 2003 are entitled to notice of, and to vote at, the
Meeting or any adjournment thereof. Whether or not you plan to attend the
Meeting, please vote your shares by returning the Proxy Card by mail in the
enclosed postage-paid envelope, or by voting by telephone or the Internet. Your
vote is important.
By Order of the Boards of Trustees,
Richelle S. Maestro
Secretary
November __, 2003
To secure the largest possible representation and to save the expense of further
mailings, please mark your Proxy Card, sign it, and return it in the enclosed
envelope, which requires no postage if mailed in the United States. If you
prefer, you may instead vote by telephone or the Internet. You may revoke your
Proxy at any time at or before the Meeting or vote in person if you attend the
Meeting.
Joint Proxy Statement/Prospectus
TABLE OF CONTENTS
Page
----
Cover Pages Cover
Summary
What is the purpose of the proposal?
How will the shareholder voting be handled?
What are the general tax consequences of the Transaction?
Comparisons of Some Important Features
How do the investment objectives and policies
of each of the Acquired Funds and the Decatur Equity Income Fund compare?
What are the risks of an investment in the Funds?
Who manages the Decatur Equity Income Fund?
What are the fees and expenses of each Fund and what might they be
after the Transaction?
Where can I find more financial information about the Funds?
What are other key features of the Funds?
Transfer Agency, Custody and Administrative Services
Management and Administration Fees
Distribution Services
Rule 12b-1 Plans
Purchases and Redemptions
Dividends and Distributions
Reasons for the Transaction
Information about the Transaction
How will the Transaction be carried out?
Who will pay the expenses of the Transaction?
What are the tax consequences of the Transaction?
What should I know about Decatur Equity Income Fund Shares?
What are the capitalizations of the Funds
and what might the capitalization be after the Transaction?
Comparison of Investment Objectives and Policies
Are there any significant differences between
the investment objectives, strategies and investment policies of
the Core Equity Fund and the Decatur Equity Income Fund?
Are there any significant differences between the investment
objectives, strategies and investment policies of the Devon
Fund and the Decatur Equity Income Fund?
Are there any significant differences between the investment
objectives, strategies and investment policies of the Growth
and Income Fund and the Decatur Equity Income Fund?
How do the investment restrictions of the Funds differ?
What are the risk factors associated with investments in the Funds?
Voting Information
How many votes are necessary to approve the Plan?
How do I ensure my vote is accurately recorded?
Can I revoke my proxy?
What other matters will be voted upon at the Meeting?
Who is entitled to vote?
What other solicitations will be made?
Information about the Decatur Equity Income Fund
Information about the Core Equity Fund
Information about the Devon Fund
Information about the Growth and Income Fund
Information about each Fund
Principal Holders of Shares
JOINT PROXY STATEMENT/PROSPECTUS
Dated November 15, 2003
Acquisition of the Assets of
DELAWARE CORE EQUITY FUND
(a series of Voyageur Mutual Funds III)
DELAWARE DEVON FUND
(a series of Delaware Group Equity Funds I)
and
DELAWARE GROWTH AND INCOME FUND
(a series of Delaware Group Equity Funds II)
By and in exchange for shares of
DELAWARE DECATUR EQUITY INCOME FUND
(a series of Delaware Group Equity Funds II)
This Joint Proxy Statement/Prospectus solicits proxies to be voted at a
Special Joint Meeting of Shareholders (the "Meeting") of Delaware Core Equity
Fund (the "Core Equity Fund"), a series of Voyageur Mutual Funds III, Delaware
Devon Fund (the "Devon Fund"), a series of Delaware Group Equity Funds I, and
Delaware Growth and Income Fund (the "Growth and Income Fund"), a series of
Delaware Group Equity Funds II (each, an "Acquired Fund" and a series of a
"Trust"; collectively, the "Acquired Funds" and series of the "Trusts") to vote
on a separate Agreement and Plan of Reorganization (the "Plan") for each
Acquired Fund. If shareholders of an Acquired Fund vote to approve the Plan,
substantially all of the assets of that Acquired Fund will be acquired by
Delaware Decatur Equity Income Fund (the "Decatur Equity Income Fund" and,
together with the Acquired Funds, each a "Fund" and collectively, the "Funds"),
a series of Delaware Group Equity Funds II (the "Acquiring Trust"), in exchange
for shares of the Decatur Equity Income Fund ("Decatur Equity Income Fund
Shares") and the assumption by the Decatur Equity Income Fund of the liabilities
of that Acquired Fund. The principal offices of the Trusts and the Acquiring
Trust are located at 2005 Market Street, Philadelphia, PA 19103-7094. You can
reach the offices of both the Trusts and the Acquiring Trust by telephone by
calling 1-800-523-1918.
The Meeting will be held at the offices of Delaware Investments located
at 2001 Market Street, 2nd Floor Auditorium, Philadelphia, PA 19103-7055, on
February 19, 2004 at 11:00 a.m. Eastern time. The Boards of Trustees of the
Trusts, on behalf of each Acquired Fund, are soliciting these proxies. This
Joint Proxy Statement/Prospectus will first be sent to shareholders on or about
December __, 2003.
If the shareholders of your Acquired Fund vote to approve the Plan, you
will receive Decatur Equity Income Fund Shares equal in value to your investment
in the Acquired Fund. The Acquired Fund will then be liquidated.
The Decatur Equity Income Fund's investment objective is to seek total
return. The investment objective of each Acquired Fund is similar to the Decatur
Equity Income Fund's objective. The investment objectives of each of the
Acquired Funds are as follows: the Core Equity Fund seeks long-term capital
appreciation; the Devon Fund seeks total return; and the Growth and Income Fund
seeks capital appreciation, with current income as a secondary objective.
This Joint Proxy Statement/Prospectus gives the information about
Decatur Equity Income Fund Shares that you should know before investing. You
should retain it for future reference. A Statement of Additional Information
dated November 15, 2003 relating to this Joint Proxy Statement/Prospectus
containing more information about the Decatur Equity Income Fund, the Acquired
Funds and the proposed transaction has been filed with the SEC and is
incorporated herein by reference.
The following documents are included with and considered a part of this
Joint Proxy Statement/Prospectus, and are intended to provide you with
information about the Decatur Equity Income Fund.
o The Prospectuses of the Decatur Equity Income Fund, dated
January 31, 2003 (the "Decatur Equity Income Fund
Prospectuses").
o The Annual Report to Shareholders of the Decatur Equity Income
Fund for the fiscal year ended November 30, 2002 (the "Decatur
Equity Income Fund Annual Report").
o The Semiannual Report to Shareholders of the Decatur Equity
Income Fund for the period ended May 31, 2003 (the "Decatur
Equity Income Fund Semiannual Report").
It is anticipated that an updated prospectus and annual report for the
Decatur Equity Income Fund will be available in late January 2004, and will be
delivered to shareholders of the Acquired Funds when available. These documents,
when available, will supersede the current prospectus, annual report and
semiannual report of the Decatur Equity Income Fund, and will be incorporated by
reference into this Joint Proxy Statement/Prospectus at that time.
The Prospectus of the Core Equity Fund dated June 30, 2003 (as
supplemented August 22, 2003), the Prospectus of the Devon Fund dated December
31, 2002 (as supplemented July 10, 2003 and August 22, 2003), and the Prospectus
of the Growth and Income Fund dated January 31, 2003 (as supplemented May 1,
2003 and August 22, 2003) are incorporated by reference into this Joint Proxy
Statement/Prospectus. You can request a free copy of the Statement of Additional
Information or any of the documents described above by calling 1-800-523-1918,
or by writing to the Acquiring Trust or the Trusts at Attention: Account
Services, 2005 Market Street, Philadelphia, PA 19103-7094.
Like all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
Joint Proxy Statement/Prospectus. Any representation to the contrary is a
criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other U.S. government agency.
Mutual fund shares involve investment risks including the possible loss of
principal.
SUMMARY
This is only a summary of certain information contained in this Joint
Proxy Statement/Prospectus. You should read the more complete information in the
rest of this Joint Proxy Statement/Prospectus, including the Plan (attached as
Exhibit A to the Joint Proxy Statement/Prospectus) and the Decatur Equity Income
Fund Prospectuses, Annual Report and Semiannual Report included with this Joint
Proxy Statement/Prospectus.
What is the purpose of the proposal?
The Board of Trustees of each Trust has approved a Plan for its
Acquired Fund and recommends that shareholders of its Acquired Fund approve the
Plan. If shareholders of an Acquired Fund approve the Plan, that Fund's net
assets will be transferred to the Decatur Equity Income Fund in exchange for an
equal value of Decatur Equity Income Fund Shares. These Decatur Equity Income
Fund Shares will then be distributed pro rata to the Acquired Fund's
shareholders and that Acquired Fund will be liquidated and dissolved. The
proposed transaction for each Acquired Fund is referred to in this Joint Proxy
Statement/Prospectus as the "Transaction."(1)
This means that your shares of the Core Equity Fund, the Devon Fund
and/or the Growth and Income Fund will be exchanged for an equal value of
Decatur Equity Income Fund Shares. As a result, you will cease to be a
shareholder of your Acquired Fund and will become a shareholder of the Decatur
Equity Income Fund. This exchange will occur on a date agreed to between each
Trust and the Acquiring Trust (hereafter, the "Closing Date").
Like each Acquired Fund, the Decatur Equity Income Fund is a mutual
fund within the Delaware Investments Family of Funds that is managed by Delaware
Management Company (the "Manager"). Its investment objective and policies are
similar, but not identical, to each Acquired Fund.
For the reasons set forth below under "Reasons for the Transaction,"
the Boards of Trustees of each Trust and the Acquiring Trust have concluded that
the Transaction is in the best interests of the respective shareholders of each
Acquired Fund and the Decatur Equity Income Fund. Each Board of Trustees has
also concluded that no dilution in value would result to the shareholders of
each respective Fund as a result of the Transaction.
The Boards of Trustees of each Trust recommend that you vote
to approve the Plan.
How will the shareholder voting be handled?
Shareholders of each of the Acquired Funds will vote separately to
determine whether their Fund will be reorganized into the Decatur Equity Income
Fund. Shareholders of each Acquired Fund who own shares at the close of business
on October 31, 2003 will be entitled to vote at the Meeting, and will be
entitled to one vote for each full share and a fractional vote for each
fractional share that they hold. To approve the Transaction, a majority (as
defined under federal law) of the outstanding voting shares of that Acquired
Fund must be voted in favor of the Plan.
Please vote by proxy as soon as you receive this Joint Proxy
Statement/Prospectus. You may place your vote by completing and signing the
enclosed proxy card or by telephone or by the Internet. If you return your
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(1) Please note there is a separate Agreement and Plan for each Acquired Fund,
the terms of which are substantially similar. For clarity of presentation,
this combined Prospectus/Proxy Statement refers to each separate
reorganization of an Acquired Fund into the Decatur Equity Income Fund as
"the Transaction."
signed proxy card or vote by telephone or by Internet, your votes will be
officially cast at the Meeting by the persons appointed as proxies. You can
revoke your proxy or change your voting instructions at any time until the vote
is taken at the Meeting. For more details about shareholder voting, see the
"Voting Information" section of this Joint Proxy Statement/Prospectus.
What are the general tax consequences of the Transaction?
It is expected that shareholders of the Core Equity Fund, the Devon
Fund and the Growth and Income Fund will not recognize any gain or loss for
federal income tax purposes as a result of the exchange of their shares for
Decatur Equity Income Fund Shares. You should, however, consult your tax advisor
regarding the effect, if any, of the Transaction in light of your individual
circumstances. You should also consult your tax advisor about state and local
tax consequences of the Transaction, if any, because the information about tax
consequences in this document relates to the federal income tax consequences
only. For further information about the tax consequences of the Transaction, see
"Information About the Transaction - What are the tax consequences of the
Transaction?"
COMPARISONS OF SOME IMPORTANT FEATURES
How do the investment objectives and policies of each of the Acquired Funds and
the Decatur Equity Income Fund compare?
Core Equity Fund
The Core Equity Fund and the Decatur Equity Income Fund have similar
investment objectives and policies. The principal difference between the
investment objectives of the Funds is that the Core Equity Fund's investment
objective is to seek long-term capital appreciation, as compared to the Decatur
Equity Income Fund's investment objective to seek total return. The Core Equity
Fund invests primarily in equity securities of large capitalization companies
that are believed to have the potential for consistent long-term earnings
growth. The Decatur Equity Income Fund primarily invests in income-producing
equity securities of large, well-established companies. The primary difference
between the investment strategies of the Core Equity Fund and the Decatur Equity
Income Fund has been that, while both Funds invest in securities with value
characteristics, the Core Equity Fund also invests in securities with growth
characteristics. The Decatur Equity Income Fund also may invest up to 15% of its
net assets in high yield, higher risk corporate bonds, commonly known as junk
bonds.
Devon Fund
The investment objective of both the Devon Fund and the Decatur Equity
Income Fund is to seek total return. Although both Funds invest in securities
with value characteristics, the primary difference between the investment
strategies of the Devon Fund and the Decatur Equity Income Fund has been that
the Devon Fund also invests in securities with growth characteristics. The
Decatur Equity Income Fund also may invest up to 15% of its net assets in high
yield, higher risk corporate bonds, commonly known as junk bonds.
Growth and Income Fund
The Growth and Income Fund and the Decatur Equity Income Fund have
similar investment objectives which generally seek to provide total return. The
principal difference between the investment strategies of the Funds is that the
Growth and Income Fund's investment objective is to seek capital appreciation
with current income as a secondary objective, as compared to the Decatur Equity
Income Fund's investment objective to seek total return. Both the Growth and
Income Fund and the Decatur Equity Income Fund invest primarily in common stocks
of large, well-established companies that the Manager believes are undervalued
and have the potential to increase in price over time. Although the Growth and
Income Fund and the Decatur Equity Income Fund share similar investment
strategies, the Decatur Equity Income Fund also may invest up to 15% of its net
assets in high yield, higher risk corporate bonds, commonly known as junk bonds.
For further information about the investment objectives and policies of
the Funds, see "Comparison of Investment Objectives and Policies."
What are the risks of an investment in the Funds?
As with any mutual fund, investments in the Funds involve risks. There
can be no guarantee against losses resulting from an investment in any Fund, nor
can there be any assurance that any Fund will achieve its investment objective.
The risks associated with an investment in the Decatur Equity Income
Fund are substantially similar to the risks associated with investments in the
Core Equity Fund, the Devon Fund and the Growth and Income Fund. Those risks
include declines in security prices, which could be caused by problems in the
economy, a decline in the stock market or poor performance in specific
industries or companies in which the Funds may invest.
Investments in the Core Equity Fund may be subject to somewhat less
risk than investments in the Decatur Equity Income Fund. Unlike the Core Equity
Fund, the Decatur Equity Income Fund may invest a small percentage of its assets
in high-yield bonds, which may expose the Decatur Equity Income Fund to interest
rate and credit risks. The Decatur Equity Income Fund may also have somewhat
greater foreign securities risk than the Core Equity Fund.
Investments in the Devon Fund, as compared to investments in the
Decatur Equity Income Fund, may be exposed to certain futures and options risks.
For defensive purposes, the Devon Fund may buy and sell futures and options,
which carries the risk that a loss may occur when a security or index moves in a
direction opposite from what a portfolio manager had originally anticipated.
Unlike the Devon Fund, the Decatur Equity Income Fund may invest a small
percentage of its assets in high-yield bonds, which may expose the Decatur
Equity Income Fund to interest rate and credit risks.
Investments in the Growth and Income Fund may be subject to less risk
than investments in the Decatur Equity Income Fund. Unlike the Growth and Income
Fund, the Decatur Equity Income Fund may invest a small percentage of its assets
in high-yield bonds, which may expose the Decatur Equity Income Fund to interest
rate and credit risks.
For further information about the investment risks of the Funds, see
"Comparison of Investment Objectives and Policies."
Who manages the Decatur Equity Income Fund?
The management of the business and affairs of the Decatur Equity Income
Fund is the responsibility of the Board of Trustees of the Acquiring Trust. The
Board elects officers who are responsible for the day-to-day operations of the
Fund.
Each of the Acquired Funds and the Decatur Equity Income Fund is
managed by Delaware Management Company, a series of Delaware Management Business
Trust (the "Manager"), which is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. The Manager and its predecessors have been managing
the assets of the funds in the Delaware Investments Family of Funds since 1938.
As of September 30, 2003, the Manager and its advisory affiliates within
Delaware Investments were managing in the aggregate more than [$125] billion in
assets.
John B. Fields, Senior Vice President/Senior Portfolio Manager, has
primary responsibility for making day-to-day investment decisions for the
Decatur Equity Income Fund. When making investment decisions for the Decatur
Equity Income Fund, Mr. Fields regularly consults with members of the Value
Equity team: Robert L. Arnold, Timothy G. Connors, Nancy M. Crouse, George E.
Deming, Brian T. Hannon, Francis X. Morris, Michael S. Morris and James J.
Wright.
John B. Fields earned a bachelor's degree and an MBA from Ohio State
University. He has been managing the Decatur Equity Income Fund since 1993. He
has 31 years of investment management experience. Mr. Fields came to Delaware
Investments from DuPont, where he served as the Director of Domestic Equity Risk
Management. He is also a member of the Financial Analysts Society of Wilmington,
Delaware.
Robert L. Arnold, Vice President/Senior Portfolio Manager, holds a BS
degree from Carnegie Mellon University and earned an MBA from the University of
Chicago. Mr. Arnold began his investment career as a management consultant with
Arthur Young in Philadelphia. Prior to joining Delaware Investments in March
1992, he was a planning analyst with Chemical Bank in New York. Before acting as
a portfolio manager at Delaware Investments, he was a financial analyst focusing
on the financial services industry, including banks, thrifts, insurance
companies and consumer finance companies.
Timothy G. Connors, Senior Vice President/Chief Investment Officer,
Value Investing, earned a bachelor's degree at the University of Virginia and an
MBA degree in finance at Tulane University. He joined Delaware Investments in
1997 after serving as a Principal at Miller, Anderson & Sherrerd, where he
managed equity accounts, conducted sector analysis, and directed research. He
previously held positions at CoreStates Investment Advisers and Fauquier
National Bank. He is a CFA charterholder and a member of the Association for
Investment Management and Research.
Nancy M. Crouse, Senior Vice President/Senior Portfolio Manager, has a
bachelor's degree from Lafayette College and an MBA from the University of
Pittsburgh. She began her career at Philadelphia National Bank. Prior to joining
Delaware Investments in 1993, she served as Vice President at CoreStates
Investment Advisers, where she performed securities analysis and managed
balanced portfolios. Ms. Crouse is a CFA charterholder.
George E. Deming, Senior Vice President/Senior Portfolio Manager,
received a bachelor's degree in economics and political science from the
University of Vermont and a master's degree in international affairs from the
University of Pennsylvania's Wharton School. Before joining Delaware Investments
in 1978, he was responsible for institutional portfolio management at White Weld
& Co. He is a member of the Financial Analysts of Philadelphia.
Brian T. Hannon, Vice President/Equity Analyst, earned bachelor's
degrees in economics and chemical engineering at Carnegie-Mellon University. He
joined Delaware Investments in 1997 after serving as an Equity Research Officer
at ASB Capital Management, Inc. Previously, he held various positions in equity
research and management at DuPont. He is a CFA charterholder and a member of the
Association for Investment Management and Research and the Financial Analysts of
Philadelphia.
Francis X. Morris, Senior Vice President/Senior Portfolio Manager,
holds a bachelor's degree in finance from Providence College in Rhode Island and
an MBA from Widener University in Pennsylvania. He has been managing mutual fund
portfolios at Delaware Investments since 1999 and institutional equity
portfolios at Delaware Investments since 1997. He has 20 years of investment
management experience. Mr. Morris came to Delaware Investments from PNC Asset
Management, where he served as a securities analyst, portfolio manager and
Director of Equity Research. He is past president of the Financial Analysts of
Philadelphia.
Michael S. Morris, Vice President/Senior Equity Analyst, received his
bachelor's degree in finance from Indiana University. Mr. Morris began his
investment career at The Ohio Casualty Insurance Company, where he held
positions as both a Financial Management Coordinator and as an Equity Analyst.
He subsequently held research positions with the State Teachers Retirement
System of Ohio and Pilgrim Baxter Value Investors. Prior to joining Delaware
Investments in 1999, Mr. Morris worked as an Equity Analyst for Walnut Asset
Management. Mr. Morris is a CFA charterholder as well as a member of the Board
of Directors of the Financial Analysts of Philadelphia.
James J. Wright, Vice President/Senior Equity Analyst, received his
bachelor's degree in history from Vassar College and an MBA from The Amos Tuck
School of Business Administration at Dartmouth College. Prior to joining
Delaware Investments in 2000, he served as a managing director of Schuylkill
Capital Management in Philadelphia. Previously, he was a portfolio manager at
Gouws Capital Management and an investment officer at Provident National Bank.
Mr. Wright is CFA charterholder.
The above portfolio managers also serve as the portfolio managers for
the Growth and Income Fund. Messr. Francis X. Morris serves as the portfolio
manager for the Devon Fund, where he regularly consults with Michael S. Morris.
The Core Equity Fund is managed by a team of portfolio managers from Voyageur
Asset Management, Inc., the Fund's sub-adviser.
What are the fees and expenses of each Fund?
FEES AND EXPENSES FOR THE DECATUR EQUITY INCOME FUND
AND THE ACQUIRED FUNDS
- -----------------------------------------------------------------------------------------------------------------------
Maximum
Sales Load
Maximum on
Fund Names and Sales Load on Maximum Reinvested Redemption Exchange
Classes of Shares Purchases CDSC Dividends Fees Fees
- ------------------------------ ------------------- ---------------- ---------------- ---------------- -----------------
All Funds
Class A 5.75% none(1) none none none
Class B none 4.00%(2) none none none
Class C none 1.00%(3) none none none
Class R none none none none none
Institutional Class none none none none none
OPERATING EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Distribution Annual Fee
and Service Fund Waivers
Fund Names and Management (12b-1) Other Operating and Net
Classes of Shares Fees Fees Expenses Expenses Payments Expenses
- ------------------------------ ------------------- ---------------- ---------------- ---------------- ----------------- ------------
Decatur Equity Income Fund
after Transaction
Class A 0.60% 0.28%(5) 0.44% 1.32% (0.09%)(6) 1.23%
Class B 0.60% 1.00% 0.44% 2.04% (0.09%)(6) 1.95%
Class C 0.60% 1.00% 0.44% 2.04% (0.09%)(6) 1.95%
Class R 0.60% 0.60% 0.44% 1.64% (0.09%)(6) 1.55%
Institutional Class 0.60% none 0.44% 1.04% (0.09%)(6) 0.95%
Decatur Equity Income Fund
Class A 0.61% 0.25%(5) 0.25% 1.11% N/A 1.11%
Class B 0.61% 1.00% 0.25% 1.86% N/A 1.86%
Class C 0.61% 1.00% 0.25% 1.86% N/A 1.86%
Class R 0.61% 0.60% 0.25% 1.46% N/A 1.46%
Institutional Class 0.61% none 0.25% 0.86% N/A 0.86%
Core Equity Fund
Class A 0.65% 0.25% 1.09% 1.99% N/A 1.99%
Class B 0.65% 1.00% 1.09% 2.74% N/A 2.74%
Class C 0.65% 1.00% 1.09% 2.74% N/A 2.74%
Class R 0.65% 0.60% 1.09% 2.34% N/A 2.34%
Institutional Class 0.65% none 1.09% 1.74% N/A 1.74%
Devon Fund
Class A 0.65% 0.30% 1.17% 2.12% (0.62%)(7) 1.50%
Class B 0.65% 1.00% 1.17% 2.82% (0.62%)(7) 2.20%
Class C 0.65% 1.00% 1.17% 2.82% (0.62%)(7) 2.20%
Class R 0.65% 0.60% 1.17% 2.42% (0.62%)(7) 1.80%
Institutional Class 0.65% none 1.17% 1.82% (0.62%)(7) 1.20%
Growth and Income Fund
Class A 0.64% 0.30% 0.46% 1.40% N/A 1.40%
Class B 0.64% 1.00% 0.46% 2.10% N/A 2.10%
Class C 0.64% 1.00% 0.46% 2.10% N/A 2.10%
Class R 0.64% 0.60% 0.46% 1.70% N/A 1.70%
Institutional Class 0.64% none 0.46% 1.10% N/A 1.10%
Examples:
The following Examples are intended to help you compare the cost of
investing in an Acquired Fund with the cost of investing in the Decatur Equity
Income Fund. Each Example assumes that you invest $10,000 in each Fund for the
time period indicated and then redeem all of your shares at the end of those
periods. Each Example also assumes that your investment has a 5% return each
year.(7) These are examples only, and do not represent future expenses, which
may be greater or less than those shown below.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Decatur Equity Income Fund(9)
after Transaction
Class A $693 $961 $1,249 $2,066
Class B $198 $631 $1,090 $2,177
Class B (if redeemed) $598 $906 $1,315 $2,177
Class C $198 $631 $1,090 $2,362
Class C (if redeemed) $298 $631 $1,090 $2,362
Class R $158 $508 $883 $1,936
Institutional Class $97 $322 $565 $1,263
Core Equity Fund(8)
Class A $765 $1,164 $1,586 $2,759
Class B $277 $850 $1,450 $2,891
Class B (if redeemed) $677 $1,125 $1,675 $2,891
Class C $277 $850 $1,450 $3,070
Class C (if redeemed) $377 $850 $1,450 $3,070
Class R $237 $730 $1,250 $2,676
Institutional Class $177 $548 $944 $2,052
Devon Fund
Class A $719 $1,144 $1,595 $2,840
Class B $223 $816 $1,434 $2,935
Class B (if redeemed) $623 $1,091 $1,659 $2,935
Class C $223 $816 $1,434 $3,103
Class C (if redeemed) $323 $816 $1,434 $3,103
Class R $183 $695 $1,235 $2,709
Institutional Class $122 $512 $927 $2,086
Growth and Income Fund
Class A $709 $993 $1,297 $2,158
Class B $213 $658 $1,129 $2,252
Class B (if redeemed) $613 $933 $1,354 $2,252
Class C $213 $658 $1,129 $2,431
Class C (if redeemed) $313 $658 $1,129 $2,431
Class R $173 $536 $923 $2,009
Institutional Class $112 $350 $606 $1,340
- --------------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial advisor who is
paid a commission, a contingent deferred sales charge will apply to certain
redemptions made within two years of purchase. Additional Class A purchase
options that involve a contingent deferred sales charge may be permitted
from time to time and will be disclosed in the Prospectus if they are
available.
(2) If you redeem Class B shares during the first year after you buy them, you
will pay a contingent deferred sales charge of 4.00%, which declines to
3.25% during the second year, 2.75% during the third year, 2.25% during the
fourth and fifth years, 1.50% during the sixth year and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1.00%
contingent deferred sales charge.
(4) 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 Board of Trustees adopted a formula for calculating 12b-1 plan expenses
that went into effect on May 2, 1994. Under this formula, 12b-1 plan
expenses for Class A shares will not be more than 0.30% or less than 0.10%.
Class B and Class C shares are subject to an annual 12b-1 fee of 1.00% of
average daily net assets.
(6) Decatur Equity Income Fund's expenses will be capped at its existing
expense level (excluding any 12b-1 plan expenses) immediately prior to the
date of the merger, which may differ from 0.95%. For pro forma financial
statement purposes, the expense level to be used for calculation is 0.95%
which is the current expense level as of the date of the pro forma
financial statements. The net expenses shown for the Decatur Equity Income
Fund in the table are based on the Fund's last completed fiscal year,
November 30, 2002, which differ from the current expense level as of the
date of the pro forma financial statements and may differ from the level of
the expense cap as of the date of the merger.
(7) The Manager has contracted to waive its fee and pay expenses through
December 31, 2004 in order to prevent total operating expenses (excluding
any 12b-1 plan expenses, taxes, interest, brokerage fees and extraordinary
expenses) from exceeding 1.20% of average daily net assets.
(8) A Fund's actual rate of return may be greater or less than the hypothetical
5% return we use here. Also, this example assumes that a Fund's total
operating expenses remain unchanged in each of the periods we show.
(9) 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.
Where can I find more financial information about the Funds?
The Decatur Equity Income Fund's Annual Report and Semiannual Report, which
are included with this Joint Proxy Statement/Prospectus, contain a discussion of
the Fund's performance during the past fiscal year and six month period,
respectively, and show per share information for each of the past five fiscal
years.
The Prospectuses and the Annual and Semiannual Reports for each Acquired
Fund contain further financial information about those Funds. These documents
are available upon request. (See "Information About the Core Equity Fund,"
"Information About the Devon Fund" and "Information About the Growth and Income
Fund.")
What are other key features of the Funds?
Transfer Agency, Accounting, Custody and Administrative Services. Delaware
Service Company, Inc. ("DSC"), an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for each Acquired Fund and the
Decatur Equity Income Fund, and for other mutual funds in the Delaware
Investments Family of Funds. DSC also provides accounting services to each Fund.
Those services include performing all functions related to calculating each
Fund's net asset value and providing all financial reporting services,
regulatory compliance testing and other related accounting services. For its
services, DSC is paid fees by each Fund according to fee schedules that are the
same for each retail Fund in the Delaware Investments Family of Funds. These
fees are charged to each Fund, including the Decatur Equity Income Fund and
Acquired Funds, on a pro rata basis.
JPMorgan Chase Bank is the custodian of the securities and other assets
of each of the Acquired Funds and the Decatur Equity Income Fund, except for the
Core Equity Fund, which utilizes Mellon Bank, N.A. as its custodian. The main
office of JPMorgan Chase Bank is 4 Chase Metrotech Center, Brooklyn, New York
11245. The main office of Mellon Bank, N.A. is One Mellon Center, Pittsburgh, PA
15258.
Management and Administration Fees. The Manager is the investment manager
of all of the Acquired Funds and the Decatur Equity Income Fund. The Manager has
entered into separate management agreements relating to each of the Funds that
provide for reductions in fee rates as the assets of the Funds increase. Under
each of the Fund's management agreements, the Fund pays the Manager a management
fee as a percentage of average daily net assets equal to: 0.65% on the first
$500 million; 0.60% on the next $500 million; 0.55% on the next $1,500 million,
and 0.50% on assets in excess of $2,500 million.
The Manager has contracted to waive its fee and pay expenses of the Devon
Fund through December 31, 2004, in order to prevent total operating expenses
(excluding any 12b-1 plan expenses, taxes, interest, brokerage fees and
extraordinary expenses) from exceeding 1.20% of average daily net assets. The
Manager has also contracted to waive that portion, if any, of the annual
management fees payable by the Decatur Equity Income Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the total operating
expenses of the Fund for one year from the date of the Transaction (exclusive of
taxes, interest, brokerage commissions, extraordinary expenses, and applicable
12b-1 expenses) do not exceed the total expense levels in effect immediately
prior to the Transaction.
Distribution Services. Pursuant to underwriting agreements relating to each
of the Acquired Funds and the Decatur Equity Income Fund, Delaware Distributors,
L.P. (the "Distributor") serves as the national distributor for the Funds. The
Distributor pays the expenses of the promotion and distribution of each Fund's
shares, except for payments by the Funds on behalf of Class A Shares, Class B
Shares, Class C Shares and Class R Shares under their respective 12b-1 Plans.
The Distributor is an indirect, wholly owned subsidiary of Delaware Management
Holdings, Inc. and an affiliate of the Manager. Pursuant to a contractual
arrangement with the Distributor, Lincoln Financial Distributors, Inc. is
primarily responsible for promoting the sale of each Fund's shares through
broker/dealers, financial advisors and other financial intermediaries.
Rule 12b-1 Plans. Each Acquired Fund and the Decatur Equity Income Fund has
adopted a separate distribution plan or "Rule 12b-1 Plan" for each of its Class
A Shares, Class B Shares, Class C Shares and Class R Shares (collectively, the
"Rule 12b-1 Plans" and, each individually, a "Rule 12b-1 Plan"). The Rule 12b-1
Plans do not apply to Institutional Classes of Shares. Such Shares are not
included in calculating the Rule 12b-1 Plans' fee and the Rule 12b-1 Plans are
not used to assist in the distribution or marketing of Shares of the
Institutional Classes.
Each Rule 12b-1 Plan permits the relevant Fund to pay out of the assets of
the 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 shares of such classes. These expenses may include, among others,
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 dealer's agreements with the Distributor. The Rule 12b-1 Plan
expenses relating to Class B Shares and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares. In addition, absent any applicable fee waiver, each
Fund may make payments out of the assets of the Class A Shares, Class B Shares,
Class C Shares 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 annual fee payable by an Acquired Fund under its
Rule 12b-1 Plans and a Fund's Distribution Agreement is, on an annual basis: up
to 0.25% of average daily net assets of Class A Shares; up to 1.00% (0.25% of
which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of Class B
Shares' and Class C Shares' average daily net assets for the year; and 0.60% of
average daily net assets of Class R Shares.
The Board of Trustees of the Decatur Equity Income Fund has adopted a
formula for calculating 12b-1 plan expenses that went into effect on May 2,
1994. Under this formula, annual 12b-1 plan expenses for Class A shares of the
Decatur Equity Income Fund will not be more than 0.30% or less than 0.10%. Like
the Acquired Funds, Class B and Class C shares of the Decatur Equity Income Fund
are subject to an annual 12b-1 fee of 1.00% of average daily net assets (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), and Class R
Shares are subject to an annual 12b-1 fee of 0.60% of average daily net assets.
The Boards of Trustees for the Trusts and the Acquiring Trust 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 Shares, Class B Shares, and Class C Shares is borne by such
persons without any reimbursement from such Classes. Subject to seeking best
execution, a Fund may, from time to time, buy or sell portfolio securities from
or to firms that receive payments under the Rule 12b-1 Plans.
Purchase, Exchange and Redemption Procedures. Procedures for the purchase,
exchange and redemption of each Fund's shares are identical. You may refer to
the Prospectus of each Fund for the purchase, exchange, and redemption
procedures applicable to the purchases, exchanges and redemptions of that Fund's
shares. Set forth below is a brief description of the basic purchase, exchange,
and redemption procedures applicable to the shares of the Funds.
Shares of a Fund may be purchased at the net asset value next determined
after the Fund or its agent receives a purchase order in good order, subject to
any applicable sales charge. Purchases of shares of any of the Funds may be made
through authorized investment dealers or directly by contacting the Funds or the
Distributor, although the Institutional Class Shares of each Fund are available
for purchase only by certain groups of investors. The minimum initial investment
is $1,000 for Class A, B, and C Shares. Subsequent purchases of such Classes
must be at least $100, except for the minimum subsequent purchase amount for new
shareholder accounts in the Decatur Equity Income Fund, which must be at least
$25. The initial and subsequent investment minimums for Class A Shares will be
waived for purchases by officers, trustees and employees of any fund in the
Delaware Investments Family of Funds, the Manager or the sub-adviser or any of
their affiliates if the purchases are made pursuant to a payroll deduction
account. Shares purchased pursuant to the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act and shares purchased in connection with an
Automatic Investing Plan are subject to a minimum initial purchase of $250;
shares purchased in connection with a Coverdell Education Savings Account are
subject to an initial purchase of $500; and a minimum subsequent purchase of $25
is applicable to all Funds. Accounts opened under the Asset Planner services are
subject to a minimum initial investment of $2,000 per Asset Planner strategy
selected. There are no minimum purchase requirements for Class R Shares or the
Institutional Classes, but certain eligibility requirements must be satisfied.
Each purchase of Class B Shares is subject to a maximum purchase limitation
of $100,000. For Class C Shares, each purchase must be in an amount that is less
than $1,000,000. Purchase orders for more than the maximum amounts will be
rejected, although an investor may exceed these limitations by making cumulative
purchases over a period of time.
Each Fund reserves the right to reject any order for the purchase of
its shares if, in the opinion of management, such rejection is in such Fund's
best interest. Each Fund also reserves the right, following shareholder
notification, to charge a service fee on non-retirement accounts that, as a
result of redemption, have remained below the minimum stated account balance for
a period of three or more consecutive months. Each Fund also reserves the right,
upon 60 days' written notice, to redeem accounts involuntarily that remain under
the minimum initial purchase amount as a result of redemptions.
Class A Shares of each Fund 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. Absent a fee waiver, Class A Shares
are also subject to annual Rule 12b-1 Plan expenses for the life of the
investment.
Class B Shares of each Fund 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 during the second year of purchase;
(iii) 2.75% if shares are redeemed during the third or fourth year following
purchase; (iv) 2.25% if shares are redeemed during the fourth or fifth years
following purchase; (v) 1.50% if shares are redeemed during the sixth year
following purchase; and (vi) 0% thereafter, although the CDSC may be waived
under certain circumstances. Absent any fee waivers, Class B Shares are subject
to annual 12b-1 Plan expenses for approximately eight years after purchase, at
which time, Class B shares are subject to automatic conversion to Class A
Shares.
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, although the
CDSC may be waived under certain circumstances. Absent any fee waivers, Class C
Shares are also subject to annual Rule 12b-1 Plan expenses for the life of the
investment.
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
Rule 12b-1 Plan expenses.
Shares of any Fund will be redeemed at any time at the net asset value next
determined on the business day when a redemption request is received. Requests
for redemption of shares held in certificate form must be accompanied by the
certificates. Any applicable contingent deferred sales charge will be deducted.
Shares of a Fund may be exchanged for shares of the same class in another fund
in the Delaware Investments Family of Funds without paying a front-end sales
charge or a contingent deferred sales charge at the time of the exchange. The
sale of shares of a Fund, either through redemption or exchange, is a taxable
event and may result in a capital gain or loss to shareholders. Shareholders of
the Acquired Funds will not be charged sales charges in connection with the
Transaction and it is intended that the structure of the Transaction will not
create a taxable event for shareholders.
Dividends, Distributions and Taxes. Each Acquired Fund declares and makes
payment of dividends from its net investment income, if any, on an annual basis
and the Decatur Equity Income Fund declares and makes payment of dividends from
its net investment income, if any, on a quarterly basis. The amount of these
dividends will vary depending on changes in the Funds' net investment income.
Payments from net realized securities profits (capital gains) of each Fund, if
any, will be distributed annually. Each Fund automatically reinvests
distributions in additional shares of that Fund unless you select a different
option, such as to receive distributions in cash or to reinvest distributions in
shares of another fund in the Delaware Investments Family of Funds.
Distributions, whether received in cash or in additional shares, are
generally subject to income tax. On May 28, 2003, President Bush signed into law
the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JAGTRRA), which
changes the tax rates on certain types of distributions. You should 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, subject to the
rules for qualified dividends enacted by JAGTRRA, 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 new tax law reduces the tax rate on certain qualifying
dividends and long-term capital gains. Any capital gain may be taxable at
different rates depending on the shareholder's holding period for the shares.
Each Fund notifies its shareholders annually of the amount and nature of all
dividends and distributions received from the Fund in the prior year. For more
information about the tax implications of investments in the Funds, see the
current prospectus of each Fund under the heading "Dividends, distributions and
taxes," as well as the current Statement of Additional Information for the
Decatur Equity Income Fund under the heading "Dividends and Realized Securities
Profits Distributions and Taxes," the current Statement of Additional
Information for the Core Equity Fund under the heading "Distributions and
Taxes," the current Statement of Additional Information for the Devon Fund under
the heading "Taxes," and the current Statement of Additional Information for the
Growth and Income Fund under the heading "Taxes."
REASONS FOR THE TRANSACTION
The Boards of Trustees of the Trusts, on behalf of the Acquired Funds, have
recommended the Transaction because they believe that, with the Decatur Equity
Income Fund's better long-term performance record and lower expenses, it will
benefit each Acquired Fund's shareholders. Additionally, with respect to the
Core Equity Fund and the Devon Fund, the recent asset growth has been relatively
low and the projected growth in assets may not be sufficient to continue to
offer competitive performance and high quality service to shareholders over the
long term. Combining these Funds will bring the assets in the Decatur Equity
Income Fund to approximately $1.6 billion, which is significantly larger than
any Acquired Fund, [and could afford shareholders the opportunity to benefit
from economies of scale.]
The Plan was presented to the Boards of Trustees of the Trusts at a meeting
of the Boards on August 21, 2003. At the meeting, the Boards questioned
management about the potential benefits and costs to shareholders of each
Acquired Fund. In deciding whether to recommend approval of the Transaction to
shareholders, the Boards of Trustees considered, among other things: the
advantages and benefits, as well as the disadvantages and costs to shareholders;
the expense ratios of the Decatur Equity Income Fund and each Acquired Fund and
the impact of contractual fees waivers thereon; [the potential benefits afforded
by a larger fund through economies of scale (e.g. a fund with higher aggregate
net assets may also be able to reduce or eliminate certain duplicative costs and
expenses);] the comparative investment performance of the Decatur Equity Income
Fund and each Acquired Fund; the compatibility of the investment objectives,
policies, restrictions and investments of each of the Acquired Funds with those
of the Decatur Equity Income Fund; the tax consequences of the Transaction; and
the significant experience of the Manager. Additionally, each Board of Trustees
believes that the investment strategy of the Decatur Equity Income Fund affords
a better opportunity for sustainable positive results than each Acquired Fund's
investment strategy.
The Boards of Trustees of the Trusts and the Acquiring Trust approved the
Plan, concluding that the Transaction is in the best interests of the
shareholders of each respective Fund and that no dilution of value would result
to the shareholders of each respective Fund from the Transaction. The Board of
each Trust then decided to recommend that shareholders of the Acquired Funds
vote to approve the Transaction. As required by law, the Trustees approving the
Plan and making the foregoing determinations included a majority of the Trustees
who are not interested persons of the Acquired Funds or the Decatur Equity
Income Fund.
For the reasons discussed above, the Board of Trustees of each Trust,
on behalf of each respective Acquired Fund,
recommends that you vote FOR the Plan.
If the shareholders of an Acquired Fund do not approve the Plan, the Board
of Trustees may consider other possible courses of action for that Acquired
Fund, including liquidation and dissolution.
INFORMATION ABOUT THE TRANSACTION
This is only a summary of the Plan. You should read the actual Plan. It is
attached as Exhibit A to the Joint Proxy Statement/Prospectus and incorporated
herein by reference.
How will the Transaction be carried out?
If the shareholders of an Acquired Fund approve the Plan, the Transaction
will take place after various conditions are satisfied by the relevant Trust on
behalf of its Acquired Fund, and by the Acquiring Trust, on behalf of the
Decatur Equity Income Fund, including the delivery of certain documents. Each
Trust and the Acquiring Trust will agree on the Closing Date. If the
shareholders of an Acquired Fund do not approve the Plan, the Transaction will
not take place for that Fund.
If the shareholders of an Acquired Fund approve the Plan, that Fund will
deliver to the Decatur Equity Income Fund substantially all of its assets on the
Closing Date. In exchange, the Trust, on behalf of that Acquired Fund, will
receive Decatur Equity Income Fund Shares to be distributed pro rata by the
Acquired Fund to its shareholders and the Decatur Equity Income Fund will assume
the liabilities of that Acquired Fund. The value of the assets to be delivered
to the Decatur Equity Income Fund shall be the value of such assets computed as
of the close of business of the New York Stock Exchange, Inc. ("NYSE") (normally
4:00 p.m. Eastern time) on the last business day prior to the Closing Date.
The stock transfer books of the Acquired Fund will be permanently closed as
of the close of business of the NYSE on the day before the Closing Date. The
Acquired Fund will accept requests for redemption only if received in proper
form before that time. Requests received after that time will be considered
requests to redeem Decatur Equity Income Fund Shares.
To the extent permitted by law, the Trusts and the Acquiring Trust may
agree to amend the Plan without shareholder approval. They may also agree to
terminate and abandon the Transaction at any time before or, to the extent
permitted by law, after the approval of shareholders of an Acquired Fund.
Who will pay the expenses of the Transaction?
The expenses resulting from an Acquired Fund's participation in a
Transaction will be shared by the following parties in the percentages
indicated:
Decatur
Acquired Equity Income
Fund Fund The Manager
-------- ------------- -----------
Core Equity Fund One-third Up to $25,000 All remaining expenses
Devon Fund One-third One-third One-third
Growth and Income Fund One-third One-third One-third
What are the tax consequences of the Transaction?
The Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended. Based on certain assumptions made and representations to be
received from the Trusts, on behalf of each Acquired Fund, and for the Acquiring
Trust, on behalf of the Decatur Equity Income Fund, it is expected that Stradley
Ronon Stevens & Young, LLP, will provide a legal opinion that, for federal
income tax purposes, (i) shareholders of the Acquired Funds will not recognize
any gain or loss as a result of the exchange of their shares of the Acquired
Funds for Decatur Equity Income Fund Shares, and (ii) the Decatur Equity Income
Fund and its shareholders will not recognize any gain or loss upon receipt of
either Acquired Fund's assets.
You should consult your tax advisor regarding the effect, if any, of the
Transaction in light of your individual circumstances. You should also consult
your tax adviser about the state and local tax consequences, if any, of the
Transaction because this discussion only relates to the federal income tax
consequences.
What should I know about the Decatur Equity Income Fund Shares?
If the Transaction is approved, full and fractional Decatur Equity Income
Fund Shares will be distributed to shareholders of each Acquired Fund in
accordance with the procedures described above. When issued, each share will be
validly issued and fully paid and non-assessable, freely transferable and will
have full voting rights. The Decatur Equity Income Fund Shares will be recorded
electronically in each shareholder's account. The Decatur Equity Income Fund
will then send a confirmation to each shareholder. As described in its
prospectus, the Decatur Equity Income Fund does not issue share certificates
except for Class A Shares and Institutional Class Shares and then only when
requested. As of the Closing Date, any certificates representing shares of the
Acquired Funds will be cancelled.
All shares have noncumulative voting rights. This gives holders of more
than 50% of the shares voting the ability to elect all of the members of the
Board of Trustees. If this happens, holders of the remaining shares voting will
not be able to elect any trustees.
Like the Acquired Funds, the Decatur Equity Income Fund does not routinely
hold annual meetings of shareholders. The Decatur Equity Income Fund may hold
special meetings for matters requiring shareholder approval. A meeting of that
Fund's shareholders may also be called at any time by the Board of Trustees or
by the chairperson of the Board or by the president.
What are the capitalizations of the Funds and what might the capitalization be
after the Transaction?
The following table sets forth, as of September 30, 2003, the separate
capitalizations of the Decatur Equity Income Fund and the Acquired Funds, and
the estimated capitalization of the Decatur Equity Income Fund as adjusted to
give effect to the proposed Transaction. The capitalization of the Decatur
Equity Income Fund is likely to be different when the Transaction is
consummated.
Decatur Equity Income Fund -- Core Equity Fund
Decatur Equity Income Fund
Decatur Equity Income Core Equity Fund after Transaction
Fund (unaudited) (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $990,408,022 $27,014,154 $1,017,422,176
Total shares outstanding 64,321,794 1,407,091 66,076,788
Decatur Equity Income Fund
Decatur Equity Income Fund Core Equity Fund Class A after Transaction
Class A (unaudited) Class A (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $862,547,767 $20,254,496 $882,802,263
Total shares outstanding 56,000,296 1,039,921 57,315,523
Net asset value per share $15.40 $19.48 $15.40
Decatur Equity Income Fund
Decatur Equity Income Fund Core Equity Fund Class B after Transaction
Class B (unaudited) Class B (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $71,789,418 $4,169,825 $75,959,243
Total shares outstanding 4,681,016 228,032 4,952,843
Net asset value per share $15.34 $18.29 $15.34
Decatur Equity Income Fund
Decatur Equity Income Fund Core Equity Fund Class C after Transaction
Class C (unaudited) Class C (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $13,083,243 $2,018,058 $15,101,301
Total shares outstanding 847,869 110,287 978,657
Net asset value per share $15.43 $18.30 $15.43
Decatur Equity Income Fund
Decatur Equity Income Fund Core Equity Fund Class R after Transaction
Class R (unaudited) Class R (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $59,312 $0 $59,312
Total shares outstanding 3,850 0 3,850
Net asset value per share $15.40 $0 $15.40
Decatur Equity Income Fund
Decatur Equity Income Fund Core Equity Fund Institutional Class after
Institutional Class (unaudited) Institutional Class (unaudited) Transaction (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $42,928,282 $571,775 $43,500,057
Total shares outstanding 2,788,763 28,851 2,825,915
Net asset value per share $15.39 $19.82 $15.39
Decatur Equity Income Fund -- Devon Fund
Decatur Equity Income Fund
Decatur Equity Income Fund Devon Fund after Transaction
(unaudited) (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $990,408,022 $105,684,188 $1,096,092,210
Total shares outstanding 64,321,794 8,008,256 71,195,509
Decatur Equity Income Fund
Decatur Equity Income Fund Devon Fund Class A after Transaction
Class A (unaudited) Class A (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $862,547,767 $40,560,634 $903,108,401
Total shares outstanding 56,000,296 3,017,253 58,634,103
Net asset value per share $15.40 $13.44 $15.40
Decatur Equity Income Fund
Decatur Equity Income Fund Devon Fund Class B after Transaction
Class B (unaudited) Class B (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $71,789,418 $47,161,406 $118,950,824
Total shares outstanding 4,681,016 3,637,061 7,755,423
Net asset value per share $15.34 $12.97 $15.34
Decatur Equity Income Fund
Decatur Equity Income Fund Devon Fund Class C after Transaction
Class C (unaudited) Class C (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $13,083,243 $9,683,848 $22,767,091
Total shares outstanding 847,869 747,195 1,475,468
Net asset value per share $15.43 $12.96 $15.43
Decatur Equity Income Fund
Decatur Equity Income Fund Devon Fund Class R after Transaction
Class R (unaudited) Class R (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $59,312 $14 $59,326
Total shares outstanding 3,850 1 3,852
Net asset value per share $15.40 $13.44 $15.40
Decatur Equity Income Fund
Decatur Equity Income Fund Devon Fund Institutional Class after
Institutional Class (unaudited) Institutional Class (unaudited) Transaction (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $42,928,282 $8,278,286 $51,206,568
Total shares outstanding 2,788,763 606,746 3,326,663
Net asset value per share $15.39 $13.64 $15.39
Decatur Equity Income Fund -- Growth and Income Fund
Decatur Equity Income Fund
Decatur Equity Income Fund Growth and Income after Transaction
(unaudited) Fund (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $990,408,022 $461,429,821 $1,451,837,843
Total shares outstanding 64,321,794 36,038,631 94,304,767
Decatur Equity Income Fund
Decatur Equity Income Fund Growth and Income Fund Class A after Transaction
Class A (unaudited) Class A (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $862,547,767 $321,075,427 $1,183,623,194
Total shares outstanding 56,000,296 25,019,139 76,849,350
Net asset value per share $15.40 $12.83 $15.40
Decatur Equity Income Fund
Decatur Equity Income Fund Growth and Income Fund Class B after Transaction
Class B (unaudited) Class B (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $71,789,418 $81,400,618 $153,190,036
Total shares outstanding 4,681,016 6,412,735 9,987,445
Net asset value per share $15.34 $12.69 $15.34
Decatur Equity Income Fund
Decatur Equity Income Fund Growth and Income Fund Class C after Transaction
Class C (unaudited) Class C (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $13,083,243 $18,795,535 $31,878,778
Total shares outstanding 847,869 1,483,793 2,065,985
Net asset value per share $15.43 $12.67 $15.43
Decatur Equity Income Fund
Decatur Equity Income Fund Growth and Income Fund Class R after Transaction
Class R (unaudited) Class R (unaudited) (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $59,312 $13 $59,325
Total shares outstanding 3,850 1 3,852
Net asset value per share $15.40 $12.83 $15.40
Decatur Equity Income Fund
Decatur Equity Income Fund Growth and Income Fund Institutional Class after
Institutional Class (unaudited) Institutional Class (unaudited) Transaction (estimated)*
--------------------------------- ------------------------------ ----------------------------
Net assets (millions) $42,928,282 $40,158,228 $83,086,510
Total shares outstanding 2,788,763 3,122,963 5,398,135
Net asset value per share $15.39 $12.86 $15.39
- --------------------
* If the Transaction is approved for all three Acquired Funds, the
capitalization of the Decatur Equity Income Fund will be as follows:
Decatur Equity Net assets Total shares Net asset value
Income Fund (millions) outstanding per share
-------------- -------------- -------------- -----------------
Class A $1,244,438,324 80,798,384 $15.40
Class B $ 204,521,268 13,333,679 $15.34
Class C $ 43,580,684 2,824,372 $15.43
Class R $ 59,338 3,852 $15.40
Institutional Class $ 91,936,571 5,973,187 $15.39
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
This section describes the key investment policies of the Funds, and
certain noteworthy differences between the investment objectives and strategies
of each of the Acquired Funds as compared to the Decatur Equity Income Fund. For
a complete description of the Decatur Equity Income Fund's investment policies
and risks, you should read the Decatur Equity Income Fund Prospectuses, which is
included with this Joint Proxy Statement/Prospectus.
The investment objectives and policies of the Core Equity Fund, the Devon
Fund and the Growth and Income Fund, as compared to the Decatur Equity Income
Fund, are described in separate sections below. Policies or restrictions that
are deemed fundamental may not be changed without the approval of the lesser of
(i) a majority of the outstanding shares of the Fund, or (ii) 67% or more of the
shares represented at a meeting of shareholders at which the holders of more
than 50% of the outstanding shares are represented ("Majority Vote"). Policies
or investment restrictions of a Fund that are non-fundamental may be changed by
the Board of Trustees without shareholder approval. Although each Fund's
objective is non-fundamental, should the Board approve a change in a Fund's
objective, the Board of Trustees would notify shareholders before the change
becomes effective.
Are there any significant differences between the investment objectives,
strategies and investment policies of the Core Equity Fund and the Decatur
Equity Income Fund?
Investment Objectives. The Core Equity Fund and the Decatur Equity Income
Fund have similar investment objectives. The Core Equity Fund seeks long-term
capital appreciation. The Decatur Equity Income Fund seeks total return. The
principal difference between the Funds' investment objectives is that, while
both Funds seek appreciation of capital, the Decatur Equity Income Fund also
seeks income. The investment objective for each Fund is non-fundamental.
Investment Strategy. The principal difference between the Funds' investment
strategies is that, while both Funds invest in securities with value
characteristics, the Core Equity Fund also invests in securities with growth
characteristics. The Core Equity Fund uses a blended style of investing, which
is a combination of value and growth styles, whereas the Decatur Equity Income
Fund uses a value-oriented investment approach. Both Funds normally invest most
of their assets in equity securities, particularly common stocks, of large
companies. The Decatur Equity Income Fund, however, also may invest up to 15% of
net assets in high-yield, higher risk corporate bonds, commonly known as junk
bonds.
While the Funds share similar attributes, there is a significant difference
between the Funds' investment strategies regarding taxable investment income.
Because the Core Equity Fund seeks long-term capital appreciation, the Fund
invests primarily in equity securities that the Manager believes have the
potential for long-term capital appreciation. The Decatur Equity Income Fund,
however, invests primarily in income-producing stocks of large, well-established
companies while seeking total return, as well as high yield bonds.
Therefore, shareholders of the Decatur Equity Income Fund could receive higher
levels of taxable income than the shareholders of the Core Equity Fund due to
the Decatur Equity Income Fund's investment in income-producing common stocks
and high-yield bonds.
Principal Investments. Both Funds, under normal circumstances, will invest
at least 80% of their respective assets in equity securities, particularly
common stock of large capitalization companies. The Decatur Equity Income Fund
also may invest up to 15% of its net assets in high yield, higher risk corporate
bonds, commonly known as junk bonds..
Additional Investments. Although the Funds normally invest in equity
securities, both Funds may also invest in other types of securities. Each Fund
has different policies regarding these types of investments.
Convertible securities. Convertible securities are typically preferred
stocks or corporate bonds that can be exchanged for a set number of shares of
common stock at a predetermined price. Both Funds may invest in convertible
securities, although such investments are not currently a significant part of
either Fund's strategy.
Foreign securities, American Depositary Receipts (ADRs) and Global
Depositary Receipts (GDRs). Foreign securities include securities that are
issued by foreign corporations. ADRs are securities issued by a U.S. bank (or
non-U.S. bank for GDRs) that represent the bank's holdings of foreign
securities. The holder of an ADR or GDR is entitled to the dividends and gains
of the underlying foreign securities. The Core Equity Fund may invest up to 10%
of total assets in foreign securities, including ADRs and GDRs (however, the
Fund currently does not invest in these types of securities). The Decatur Equity
Income Fund may invest up to 20% of total assets in foreign securities, and may
invest in ADRs without limitation.
Options and futures. An option represents the right to buy or sell a
security at an agreed upon price at a future date. A futures contract is an
agreement to purchase or sell a security at a specified price and on a specified
date. Both Funds may invest in options and futures for hedging purposes. Certain
options and futures may be considered to be derivative securities.
Repurchase Agreements. A repurchase agreement is an agreement between a
buyer of securities, such as a Fund, and a seller of securities in which the
seller agrees to buy the securities back within a specified time at the same
price the buyer paid for them, plus an amount equal to an agreed upon interest
rate. These types of agreements are often viewed as an equivalent to cash. Each
Fund may invest in repurchase agreements as a short-term investment for a Fund's
cash position. However, each Fund must have collateral of 102% of the repurchase
price. Each Fund may only enter into repurchase agreements in which the
collateral is comprised of U.S. government securities.
Restricted securities. Restricted securities are privately placed
securities whose resale is restricted under securities law. Both Funds may
invest in restricted securities, which include Rule 144A securities (a
particular type of restricted security that is eligible for resale only to
qualified institutional buyers).
Illiquid securities. Illiquid securities are securities that do not have a
ready market and cannot be easily sold within seven days at a price that is
approximately equal to their value as assessed by the Fund. The Core Equity Fund
may invest up to 15% of its net assets in illiquid securities. The Decatur
Equity Income Fund may invest up to 10% of its total assets in illiquid
securities.
Temporary Defensive Investments. Both Funds may invest in a temporary
defensive manner when the Manager believes that the Fund will be affected by
adverse market conditions. When investing in this manner, the Core Equity Fund
may hold all of its assets in high quality fixed-income securities, cash or cash
equivalents and the Decatur Equity Income Fund may hold a substantial part of
its assets in cash or cash equivalents. To the extent that a Fund invests in a
temporary defensive manner, the Fund may be unable to achieve its investment
objective.
Are there any significant differences between the investment objectives,
strategies and investment policies of the Devon Fund and the Decatur Equity
Income Fund?
Investment Objectives. The Devon Fund and the Decatur Equity Income Fund
have identical investment objectives. Both Funds seek total return. The
investment objective for each Fund is non-fundamental.
Investment Strategy. Although both Funds seek total return, the Funds
differ in their investment strategies. The Devon Fund invests primarily in
common stocks that have the potential for above-average earnings per share
growth over time combined with a high degree of earnings consistency. The
Decatur Equity Income Fund invests primarily in income-producing stocks of
large, well-established companies. Additionally, the Decatur Equity Income Fund
may also invest up to 15% of its net assets in high-yield, higher risk corporate
bonds, commonly known as junk bonds.
Principal Investments. Both Funds primarily invest in equity securities,
particularly common stocks but also including securities that may be converted
into common stock.
Common stock. The Devon Fund invests 90% to 100% of its assets in common
stock in accordance with its investment strategy. The Decatur Equity Income
Fund, under normal circumstances, will invest at least 80% of its assets in
equity securities with a particular focus on common stocks.
Convertible securities. Convertible securities are typically preferred
stocks or corporate bonds that can be exchanged for a set number of shares of
common stock at a predetermined price. The Devon Fund may invest in convertible
securities without limitation; however, it will not invest more than 5% of its
net assets in convertible debt securities that are rated below investment grade
by a nationally recognized statistical ratings organization, or that are unrated
but deemed to be non-investment grade. The Decatur Equity Income Fund may also
invest in convertible securities, although such investments are not currently a
significant part of the Fund's strategy.
Additional Investments. Although the Funds normally invest in common
stocks, and to a lesser extent in convertible securities, both Funds may also
invest in other types of securities. Each Fund has different policies regarding
these types of investments.
Foreign securities and American Depositary Receipts (ADRs). Foreign
securities include securities that are issued by foreign corporations. ADRs are
securities issued by a U.S. bank that represent the bank's holdings of foreign
securities. The holder of an ADR is entitled to the dividends and gains of the
underlying foreign securities. Both Funds may invest in ADRs without limitation
and may make limited investments in foreign securities. In addition, the Devon
Fund may invest without limitation in securities of Canadian issuers registered
under the Securities Exchange Act of 1934, as amended.
Options and futures. An option represents the right to buy or sell a
security at an agreed upon price at a future date. A futures contract is an
agreement to purchase or sell a security at a specified price and on a specified
date. Both Funds may invest in options and futures for hedging purposes. In
addition, the Devon Fund may invest in options and futures to gain exposure to a
particular market segment without purchasing individual securities in that
segment or to earn additional income for the Fund. The Devon Fund may invest in
futures and options on futures if no more than 5% of the Fund's assets are
required as futures contract margin deposits and premiums on options, and will
limit the obligations under such investment in futures and options contracts to
not more than 20% of the Fund's assets. Certain options and futures may be
considered to be derivative securities.
Repurchase Agreements. A repurchase agreement is an agreement between a
buyer of securities, such as a Fund, and a seller of securities in which the
seller agrees to buy the securities back within a specified time at the same
price the buyer paid for them, plus an amount equal to an agreed upon interest
rate. These types of agreements are often viewed as an equivalent to cash. Each
Fund may invest in repurchase agreements as a short-term investment for a Fund's
cash position, however each Fund must have collateral of 102% of the repurchase
price. Each Fund may only enter into repurchase agreements in which the
collateral is comprised of U.S. government securities.
Restricted securities. Restricted securities are privately placed
securities whose resale is restricted under securities law. Both Funds may
invest in Rule 144A securities, which are a particular type of restricted
security that is eligible for resale only to qualified institutional buyers. The
Devon Fund currently limits its investments in other restricted securities to no
more than 5% of the Fund's total assets.
Illiquid securities. Illiquid securities are securities that do not have a
ready market and cannot be easily sold within seven days at a price that is
approximately equal to their value as assessed by the Fund. Each Fund may invest
up to 10% of its total assets in illiquid securities.
Temporary Defensive Investments. Both Funds may invest their assets in a
temporary defensive manner when the Manager believes that the Fund will be
affected by adverse market conditions. When investing in this manner, each Fund
may hold a substantial part of its assets in cash or cash equivalents. To the
extent that a Fund invests in a temporary defensive manner, the Fund may not be
able to achieve its investment objective.
Are there any significant differences between the investment objectives,
strategies and investment policies of the Growth and Income Fund and the Decatur
Equity Income Fund?
Investment Objectives. The Growth and Income Fund and the Decatur Equity
Income Fund have similar investment objectives. The Growth and Income Fund's
primary objective is capital appreciation, with current income as a secondary
objective. The Decatur Equity Income Fund has an objective of total return. The
Growth and Income Fund is similar to a total return fund, although the Decatur
Equity Income Fund has a somewhat greater emphasis on current income. The
investment objective for each Fund is non-fundamental.
Investment Strategy. Both Funds have similar value-oriented investment
strategies and both Funds invest primarily in common stocks of large,
well-established companies. The Decatur Equity Income Fund has a specific focus
on income producing stocks, and may also invest up to 15% of its net assets in
high-yield, higher risk corporate bonds, commonly known as junk bonds.
Principal Investments. Both Funds primarily invest in equity securities,
particularly common stock of large capitalization companies. The Decatur Equity
Income Fund, under normal circumstances, will invest at least 80% of its assets
in equity securities with a particular focus on common stocks, and the Growth
and Income Fund will generally invest 90% to 100% of its net assets in common
stocks.
Additional Investments. Although the Funds normally invest in common
stocks, both Funds may also invest in other types of securities. Each Fund has
different policies regarding these types of investments.
Convertible securities. Convertible securities are typically preferred
stocks or corporate bonds that can be exchanged for a set number of shares of
common stock at a predetermined price. Both Funds may invest in convertible
securities, although such investments are not currently a significant part of
either Fund's strategy.
Foreign securities and American Depositary Receipts (ADRs). Foreign
securities include securities that are issued by foreign corporations. ADRs are
securities issued by a U.S. bank that represent the bank's holdings of foreign
securities. The holder of an ADR is entitled to the dividends and gains of the
underlying foreign securities. Both Funds may invest up to 20% of their total
assets in foreign securities and may invest in ADRs without limitation.
Options and futures. An option represents the right to buy or sell a
security at an agreed upon price at a future date. A futures contract is an
agreement to purchase or sell a security at a specified price and on a specified
date. Each Fund may invest in options and futures for hedging purposes. Certain
options and futures may be considered to be derivative securities.
Repurchase Agreements. A repurchase agreement is an agreement between a
buyer of securities, such as a Fund, and a seller of securities in which the
seller agrees to buy the securities back within a specified time at the same
price the buyer paid for them, plus an amount equal to an agreed upon interest
rate. These types of agreements are often viewed as an equivalent to cash. Both
Funds may invest in repurchase agreements as a short-term investment for each
Fund's cash position, however each must have collateral of 102% of the
repurchase price. Each Fund may only enter into repurchase agreements in which
the collateral is comprised of U.S. government securities.
Restricted securities. Restricted securities are privately placed
securities whose resale is restricted under securities law. Both Funds may
invest in restricted securities, which include Rule 144A securities (a
particular type of restricted security that is eligible for resale only to
qualified institutional buyers).
Illiquid securities. Illiquid securities are securities that do not have a
ready market and cannot be easily sold within seven days at a price that is
approximately equal to their value as assessed by the Fund. The Funds may invest
up to 10% of their total assets in illiquid securities.
Temporary Defensive Investments. Both Funds may invest their assets in a
temporary defensive manner when the Manager believes that the Fund will be
affected by adverse market conditions. When investing in this manner, each Fund
may hold a substantial part of its assets in cash or cash equivalents. To the
extent that a Fund invests in a temporary defensive manner, the Fund may not be
able to achieve its investment objective.
How do the investment restrictions of the Acquired Funds and the Decatur Equity
Income Fund differ?
All of the Funds have adopted identical fundamental investment
restrictions, which may not be changed without the approval of a Majority Vote
of shareholders. There are, however, differences between the Funds'
non-fundamental policies, some of which have been described above.
What are the risks factors associated with investments in the Acquired Funds and
the Decatur Equity Income Fund?
Like all investments, an investment in the Funds involves risk. There is no
assurance that a Fund will meet its investment objective. The achievement of a
Fund's objective depends upon market conditions generally and on the Manager's
analytical and portfolio management skills. As with most investments in mutual
funds, the best results are generally achieved when an investment in a Fund is
held for a number of years. The investment risks for the Funds are explained
below.
Market Risk. Market risk is the risk that all or a majority of the
securities in a certain market - like the stock or bond market - will decline in
value because of factors such as economic conditions, future expectations or
investor confidence. The Funds seek to manage this risk by maintaining a
long-term investment approach and by focusing on stocks that the Manager
believes can appreciate over an extended time frame regardless of interim market
fluctuations. The Manager does not try to predict overall stock market movements
and generally does not trade for short-term purposes.
Industry and Security Risk. Industry and security risk refers to the risk
that the value of securities in a particular industry or the value of an
individual stock or bond will decline because of changing expectations for the
performance of that industry or for the individual company issuing the stock or
bond. Each Fund seeks to manage this risk by limiting the amount of its assets
invested in any one industry and in any individual security. Each Fund also
follows a rigorous selection process before choosing securities for its
portfolio
Foreign Risk. Foreign risk is the risk that foreign securities may be
adversely affected by political instability, changes in currency exchange rates,
foreign economic conditions or inadequate regulatory and accounting standards.
Investments in ADRs and GDRs, which represent an indirect ownership in foreign
securities, are subject to many of the same risks as direct investments in
foreign securities. The Funds typically invest only a small portion of their
portfolios in foreign securities. When a Fund does purchase foreign securities,
they are often denominated in U.S. dollars. Currently, the Core Equity Fund does
not exercise its ability to invest up to 10% in foreign securities and,
therefore, at this time it does not have any direct foreign risk.
Futures and Options Risk. Futures and options risk is the risk that a Fund
may experience a significant loss if it employs an options or futures strategy
related to a security or a market index and that security or index moves in the
opposite direction from what the portfolio manager anticipated. Futures and
options also involve additional expenses, which could reduce any benefit or
increase any loss to a Fund from using the strategy. The Devon Fund is the only
Fund that invests significantly in futures or options. The Funds will buy and
sell futures and options for defensive purposes, such as to protect gains in the
portfolio without actually selling a security. In addition, the Devon Fund may
invest in options and futures to gain exposure to a particular market segment
without purchasing individual securities in that segment or to earn additional
income for the Fund.
Liquidity Risk. Liquidity risk is the possibility that the Funds' portfolio
securities cannot be readily sold within seven days at approximately the price
that the Fund values them. The Funds seek to mitigate liquidity risk by limiting
its exposure to illiquid securities.
Interest Rate Risk. To the extent that the Decatur Equity Income Fund
invests in high-yield bonds and that the Funds invest in convertible debt
securities, these Funds may be affected by adverse changes in interest rates.
The Decatur Equity Income Fund attempts to mitigate this risk by limiting the
amount of high yield bonds on its portfolio to 15% of net assets. The interest
rate risk of convertible debt securities may be offset somewhat by the
convertibility feature.
Credit Risk. Because the Decatur Equity Income Fund may invest in
high-yield bonds, the Fund is at risk that a bond's issuer may be unable to make
timely payments of interest and principal. The Decatur Equity Income Fund seeks
to mitigate this risk by limiting the amount of high-yield bonds in its
portfolio to 15% of the Fund's net assets. In addition, the Fund typically
invests in bonds rated BB or B, and does not invest in bonds rated lower than C
or Ca, by a nationally recognized statistical ratings organization, or, if
unrated, that the Manager believes are of comparable quality. The Fund also
combines careful, credit-oriented bond selection and the Manager's commitment to
hold a diversified selection of high-yield bonds to further reduce the Fund's
credit risk.
VOTING INFORMATION
How many votes are necessary to approve the Plan?
Provided that a quorum is present, the approval of the Plan for each
Acquired Fund requires the affirmative vote of the lesser of (i) more than 50%
of the outstanding voting securities of the Fund, or (ii) 67% or more of the
voting securities of the Fund present at the Meeting, if the holders of more
than 50% of the Fund's outstanding voting securities are present or represented
by proxy. Each shareholder will be entitled to one vote for each full share, and
a fractional vote for each fractional share, of an Acquired Fund held on the
Record Date. If sufficient votes to approve the proposal for an Acquired Fund
are not received by the date of the Meeting, the Meeting may be adjourned with
respect to that Fund to permit further solicitations of proxies. The holders of
a majority of shares of an Acquired Fund entitled to vote at the Meeting and
present in person or by proxy (whether or not sufficient to constitute quorum)
may adjourn the Meeting with respect to that Fund. The Meeting may also be
adjourned by the chairperson of the Meeting.
Abstentions and broker non-votes will be included for purposes of
determining whether a quorum is present at the Meeting and will have the dame
effect as a vote "against" the Plan. It is not anticipated that the Acquired
Funds will receive any broker non-votes.
How do I ensure my vote is accurately recorded?
You may attend the Meeting and vote in person. You may also vote by
completing and signing the attached proxy card and mailing it in the enclosed
postage paid envelope. A proxy card is, in essence, a ballot. If you simply sign
and date the proxy but give no voting instructions, your shares will be voted in
favor of the Plan and in accordance with the views of management upon any
unexpected matters that come before the Meeting or adjournment of the Meeting.
You may also call toll-free to vote by telephone, or you may vote using the
Internet. The insert accompanying this Proxy Statement describes how to vote
using these methods.
Can I revoke my proxy?
You may revoke your proxy at any time before it is voted by sending a
written notice to the Trust for your Fund expressly revoking your proxy, by
signing and forwarding to the Trust a later-dated proxy, or by attending the
Meeting and voting in person. If your shares are held through a broker-dealer
and you wish to vote your shares in person at the Meeting, you must obtain a
"legal proxy" from your broker-dealer and present it to the Inspector of
Elections at the Meeting.
What other matters will be voted upon at the Meeting?
The Board of Trustees of each Trust does not intend to bring any matters
before the Meeting other than that described in this proxy. It is not aware of
any other matters to be brought before the Meeting by others. If any other
matter legally comes before the Meeting, proxies for which discretion has been
granted will be voted in accordance with the views of management.
Who is entitled to vote?
Only shareholders of record of each Acquired Fund at the close of business
on October 31, 2003 (the "Record Date") will be entitled to vote at the Meeting.
As of the Record Date, there were [______] outstanding shares of the Core Equity
Fund, [______] outstanding shares of the Devon Fund and [______] outstanding
shares of the Growth and Income Fund.
What other solicitations will be made?
This proxy solicitation is being made by the Board of Trustees of each
Acquired Fund for use at the Meeting. The cost of this proxy solicitation will
be shared as set forth above under "Information About the Transaction." In
addition to solicitation by mail, solicitations also may be made by
advertisement, telephone, telegram, facsimile transmission or other electronic
media, or personal contacts.
In addition to solicitation services to be provided by D.F. King & Co.,
Inc. ("D.F. King"), as described below, proxies may be solicited by the
Trustees, officers and employees of each Trust and the Acquiring Trust (none of
whom will receive compensation therefor in addition to their regular salaries)
and/or regular employees of the Manager or other service providers, or any of
their affiliates. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of the Acquired Fund's shares, and such persons will be
reimbursed for their expenses.
The Acquired Fund has retained D.F. King at a fee estimated not to exceed
$______, plus reimbursement of reasonable out-of-pocket expenses, to assist in
the solicitation of proxies (which amount is included in the estimate of total
expenses above). The Fund has also agreed to indemnify D.F. King against certain
liabilities and expenses, including liabilities under the federal securities
laws. D.F. King anticipates that approximately 50 of its employees may solicit
proxies. D.F. King is located at 77 Water Street, New York, New York 10005.
INFORMATION ABOUT THE DECATUR EQUITY INCOME FUND
Information about the Decatur Equity Income Fund is included in the
Decatur Equity Income Fund Prospectuses, which is attached to and considered a
part of this Proxy Statement/Prospectus. Additional information about the
Decatur Equity Income Fund is included in its Statement of Additional
Information dated January 31, 2003 (as amended May 31, 2003) and the Statement
of Additional Information dated November __, 2003 (relating to this
Prospectus/Proxy Statement), each of which is incorporated by reference herein.
You may request free copies of the Statements of Additional Information, which
have been filed with the SEC, by calling 1-800-523-1918 or by writing to the
Acquiring Trust at Attention: Account Services, 2005 Market Street,
Philadelphia, PA 19103-7094. It is anticipated that a new prospectus and
statement of additional information for the Decatur Equity Income Fund will be
available in late January, 2004 and will be delivered to shareholders of the
Acquired Funds when available. These documents will supersede the current
Decatur Equity Income Fund Prospectuses and statement of additional information,
and will be incorporated by reference into this Joint Proxy Statement/Prospectus
at that time.
This Prospectus/Proxy Statement, which constitutes part of a Registration
Statement filed by the Decatur Equity Income Fund with the SEC under the
Securities Act of 1933, as amended, omits certain of the information contained
in the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits and amendments thereto for further information
with respect to the Decatur Equity Income Fund and the shares it offers.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
INFORMATION ABOUT THE CORE EQUITY FUND
Information about the Core Equity Fund is included in its current
Prospectus dated June 30, 2003 (as supplemented August 22, 2003), Annual Report
to Shareholders for the fiscal year ended April 30 2003, Statement of Additional
Information dated June 30, 2003 [(as supplemented ________ ___, 2003)], and the
Statement of Additional Information dated November __, 2003 (relating to this
Proxy Statement/Prospectus), each of which is incorporated by reference herein.
You may request free copies of these documents, which have been filed with 'the
SEC, by calling 1-800-523-1918 or by writing to the Trust at Attention: Account
Services, 2005 Market Street, Philadelphia, PA 19103-7094.
INFORMATION ABOUT THE DEVON FUND
Information about the Devon Fund is included in its current Prospectus
dated December 31, 2002 (as supplemented July 10, 2003 and August 22, 2003),
Annual Report to Shareholders for the fiscal year ended October 31, 2002,
Semiannual Report to Shareholders for the fiscal period ended April 30, 2003,
Statement of Additional Information dated December 31, 2002 (as amended May 1,
2003 [and as supplemented ________ ___, 2003]), and the Statement of Additional
Information dated November __, 2003 (relating to this Proxy
Statement/Prospectus), each of which is incorporated by reference herein. You
may request free copies of these documents, which have been filed with the SEC,
by calling 1-800-523-1918 or by writing to the Trust at Attention: Account
Services, 2005 Market Street, Philadelphia, PA 19103-7094.
INFORMATION ABOUT THE GROWTH AND INCOME FUND
Information about the Growth and Income Fund is included in its current
Prospectus dated January 31, 2003 (as supplemented May 1, 2003 and August 22,
2003), Annual Report to Shareholders for the fiscal year ended November 30,
2002, Semiannual Report to Shareholders for the fiscal period ended May 31,
2003, Statement of Additional Information dated January 31, 2003 (as amended
May 1, 2003 [and as supplemented ________ ___, 2003]), and the Statement of
Additional Information dated November __, 2003 (relating to this Proxy
Statement/Prospectus), each of which is incorporated by reference herein. You
may request free copies of these documents, which have been filed with the SEC,
by calling 1-800-523-1918 or by writing to the Trust at Attention: Account
Services, 2005 Market Street, Philadelphia, PA 19103-7094.
INFORMATION ABOUT EACH FUND
Each Fund files proxy materials, reports, and other information with the
SEC in accordance with the informational requirements of the 1934 Act and the
1940 Act. These materials can be inspected and copied at the public reference
facilities maintained by the SEC, Room 1200, 450 Fifth Street, N.W., Washington,
D.C. 20549-0102. Also, copies of such material can be obtained from the Public
Reference Branch, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549-0102, at
prescribed rates or from the SEC's Internet site at http:\\www.sec.gov. To
request information regarding the Funds, you may also send an e-mail to the SEC
at publicinfo@sec.gov.
PRINCIPAL HOLDERS OF SHARES
On the Record Date, the officers and Trustees of each Trust, as a group,
[owned less than 1%] of the outstanding voting shares of each Acquired Fund.
To the best knowledge of each Acquired Fund, as of the Record Date, no
person, except as set forth in the table below, owned of record 5% or more of
the outstanding shares of any class of that Acquired Fund. Each Acquired Fund
has no knowledge of beneficial ownership.
[TO BE PROVIDED]
On the Record Date, the officers and trustees of the Acquiring Trust, as a
group, [owned less than 1%] of the outstanding shares of the Decatur Equity
Income Fund.
To the best knowledge of the Decatur Equity Income Fund, as of the Record
Date, no person, except as set forth in the table below, owned of record 5% or
more of the outstanding voting shares of each class of the Decatur Equity Income
Fund. The Decatur Equity Income Fund has no knowledge of beneficial ownership.
[TO BE PROVIDED]
EXHIBIT TO JOINT
PROXY STATEMENT/PROSPECTUS
Exhibit
A Form of Agreement and Plan of Reorganization between each Trust (on behalf
of each Acquired Fund) and the Acquiring Trust (on behalf of the Decatur
Equity Income Fund).
OTHER DOCUMENTS INCLUDED WITH THE
JOINT PROXY STATEMENT AND PROSPECTUS
Exhibit
A Prospectus of the Decatur Equity Income Fund, dated January 31, 2003, as
previously filed via EDGAR is incorporated into this filing by reference to
Post-Effective Amendment No. 120 filed January 31, 2003.
B Annual Report to Shareholders of the Decatur Equity Income Fund for the
fiscal year ended November 30, 2002 as previously filed via EDGAR on
January 28, 2003 is incorporated herein by reference.
C Semiannual Report to Shareholders of the Decatur Equity Income Fund for the
period ended May 31, 2003 as previously filed via EDGAR on July 30, 2003 is
incorporated herein by reference.
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), made
as of this ___ day of ________ 2004, by and between Delaware Group Equity Funds
II (the "Acquiring Trust"), a statutory trust created under the laws of the
State of Delaware, with its principal place of business at One Commerce Square,
Philadelphia, Pennsylvania 19103, on behalf of its series, Delaware Decatur
Equity Income Fund (the "Decatur Equity Income Fund"), and [Delaware Group
_____________ Fund] (the "Trust"), a statutory trust created under the laws of
the State of Delaware, with its principal place of business also at One Commerce
Square, Philadelphia, Pennsylvania 19103, on behalf of its series [Delaware
_____________ Fund] (the "Acquired Fund") .
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of: (i) the acquisition by the Acquiring Trust on
behalf of the Decatur Equity Income Fund of substantially all of the property,
assets and goodwill of the Acquired Fund in exchange solely for (a) shares of
beneficial interest, no par value, of the Decatur Equity Income Fund - Class A
("Decatur Equity Income Fund Class A Shares"), (b) shares of beneficial
interest, no par value, of the Decatur Equity Income Fund - Class B ("Decatur
Equity Income Fund Class B Shares"), (c) shares of beneficial interest, no par
value, of the Decatur Equity Income Fund - Class C ("Decatur Equity Income Fund
Class C Shares"), (d) shares of beneficial interest, no par value, of the
Decatur Equity Income Fund - Class R ("Decatur Equity Income Fund Class R
Shares"), (e) shares of beneficial interest, no par value of the Decatur Equity
Income Fund - Institutional Class ("Decatur Equity Income Fund Institutional
Class Shares"), and (f) the assumption by the Acquiring Trust on behalf of the
Decatur Equity Income Fund of all of the liabilities of the Acquired Fund; (ii)
the distribution of (a) Decatur Equity Income Fund Class A shares to the
shareholders of Acquired Fund - Class A Shares ("Acquired Fund Class A Shares"),
(b) Decatur Equity Income Fund Class B Shares to the shareholders of Acquired
Fund - Class B Shares ("Acquired Fund Class B Shares"), (c) Decatur Equity
Income Fund Class C Shares to the shareholders of Acquired Fund - Class C Shares
("Acquired Fund Class C Shares"), (d) Decatur Equity Income Fund Class R Shares
to the shareholders of Acquired Fund - Class R Shares ("Acquired Fund Class R
Shares"), and (e) Decatur Equity Income Fund Institutional Class Shares to the
shareholders of Acquired Fund - Institutional Class Shares ("Acquired Fund
Institutional Class Shares"), according to their respective interests in
complete liquidation of the Acquired Fund; and (iii) the dissolution of the
Acquired Fund as soon as practicable after the closing (as referenced in Section
3, hereof, hereinafter called the "Closing"), all upon and subject to the terms
and conditions of this Agreement hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in
consideration of the premises and of the covenants and agreements hereinafter
set forth, and intending to be legally bound, the parties hereto covenant and
agree as follows:
1. Sale and Transfer of Assets and Liabilities, Liquidation and
Dissolution of the Acquired Fund
(a) Subject to the terms and conditions of this Agreement, and
in reliance on the representations and warranties of the Acquiring Trust herein
contained, and in consideration of the delivery by the Acquiring Trust of the
number of its shares of beneficial interest of the Decatur Equity Income Fund
hereinafter provided, the Trust, on behalf of the Acquired Fund, agrees that it
will sell, convey, transfer and deliver to the Acquiring Trust, on behalf of the
Decatur Equity Income Fund, at the Closing provided for in Section 3, all of the
liabilities, debts, obligations and duties of any nature, whether accrued,
absolute, contingent or otherwise ("Liabilities") and the then existing assets
of the Acquired Fund as of the close of business (which hereinafter shall be,
unless otherwise noted, the regular close of business of the New York Stock
Exchange, Inc. ("NYSE")) ("Close of Business") on the valuation date (as defined
in Section 3 hereof, hereinafter called the "Valuation Date"), free and clear of
all liens, encumbrances, and claims whatsoever (other than shareholders' rights
of redemption and such restrictions as might arise under the Securities Act of
1933, as amended (the "1933 Act"), with respect to privately placed or otherwise
restricted securities that the Acquired Fund may have acquired in the ordinary
course of business), except for cash, bank deposits, or cash equivalent
securities in an estimated amount necessary (1) to pay the Acquired Fund's costs
and expenses of carrying out this Agreement (including, but not limited to, fees
of counsel and accountants, and expenses of its liquidation and dissolution
contemplated hereunder), which costs and expenses shall be established on the
books of the Acquired Fund as liability reserves, (2) to discharge all of the
Acquired Fund's Liabilities on its books at the Close of Business on the
Valuation Date including, but not limited to, its income dividends and capital
gains distributions, if any, payable for any period prior to, and through, the
Close of Business on the Valuation Date, and excluding those liabilities and
obligations that would otherwise be discharged at a later date in the ordinary
course of business, and (3) to pay such contingent liabilities as the trustees
of the Trust shall reasonably deem to exist against the Acquired Fund, if any,
at the Close of Business on the Valuation Date, for which contingent and other
appropriate liability reserves shall be established on the books of the Acquired
Fund (hereinafter "Net Assets"). The Trust, on behalf of the Acquired Fund,
shall also retain any and all rights that it may have over and against any
person that may have accrued up to and including the Close of Business on the
Valuation Date. The Trust agrees to use commercially reasonable efforts to
identify all of the Acquired Fund's Liabilities prior to the Valuation Date and
to discharge all such known Liabilities on or prior to the Valuation Date.
(b) Subject to the terms and conditions of this Agreement, and
in reliance on the representations and warranties of the Trust on behalf of the
Acquired Fund herein contained, and in consideration of such sale, conveyance,
transfer, and delivery, the Acquiring Trust agrees at the Closing to assume the
Liabilities, on behalf of the Decatur Equity Income Fund, and to deliver to the
Trust on behalf of the Acquired Fund: (i) the number of Decatur Equity Income
Fund Class A Shares, determined by dividing the net asset value per share of
Acquired Fund Class A Shares as of the Close of Business on the Valuation Date
by the net asset value per share of Decatur Equity Income Fund Class A Shares as
of Close of Business on the Valuation Date, and multiplying the result by the
number of outstanding shares of the Acquired Fund Class A Shares as of Close of
Business on the Valuation Date; (ii) the number of Decatur Equity Income Fund
Class B Shares, determined by dividing the net asset value per share of Acquired
Fund Class B Shares as of Close of Business on the Valuation Date by the net
asset value per share of Decatur Equity Income Fund Class B Shares as of Close
of Business on the Valuation Date, and multiplying the result by the number of
outstanding shares of Acquired Fund Class B Shares as of Close of Business on
the Valuation Date; (iii) the number of Decatur Equity Income Fund Class C
Shares, determined by dividing the net asset value per share of Acquired Fund
Class C Shares as of Close of Business on the Valuation Date by the net asset
value per share of Decatur Equity Income Fund Class C Shares as of Close of
Business on the Valuation Date, and multiplying the result by the number of
outstanding shares of Acquired Fund Class C Shares as of Close of Business on
the Valuation Date; (iv) the number of Decatur Equity Income Fund Class R
Shares, determined by dividing the net asset value per share of Acquired Fund
Class R Shares as of Close of Business on the Valuation Date by the net asset
value per share of Decatur Equity Income Fund Class R Shares as of Close of
Business on the Valuation Date, and multiplying the result by the number of
outstanding shares of Acquired Fund Class R Shares as of Close of Business on
the Valuation Date; and (v) the number of Decatur Equity Income Fund
Institutional Class Shares, determined by dividing the net asset value per share
of Acquired Fund Institutional Class Shares as of Close of Business on the
Valuation Date by the net asset value per share of Decatur Equity Income Fund
Institutional Class Shares as of Close of Business on the Valuation Date, and
multiplying the result by the number of outstanding shares of Acquired Fund
Institutional Class Shares as of Close of Business on the Valuation Date. All
such values shall be determined in the manner and as of the time set forth in
Section 2 hereof.
(c) As soon as practicable following the Closing, the Trust
shall dissolve the Acquired Fund and distribute pro rata to the Acquired Fund's
shareholders of record as of the Close of Business on the Valuation Date, the
shares of beneficial interest of the Decatur Equity Income Fund received by the
Acquired Fund pursuant to this Section 1. Such dissolution and distribution
shall be accomplished by the establishment of accounts on the share records of
the Decatur Equity Income Fund of the type and in the amounts due such
shareholders pursuant to this Section 1 based on their respective holdings of
shares of the Acquired Fund as of the Close of Business on the Valuation Date.
Fractional shares of beneficial interest of the Decatur Equity Income Fund shall
be carried to the third decimal place. Unless requested, no certificates
representing shares of beneficial interest of the Decatur Equity Income Fund
will be issued to shareholders of the Acquired Fund Shares irrespective of
whether such shareholders hold their shares in certificated form.
(d) At the Closing, each shareholder of record of the Trust
shall be entitled to surrender the same to the transfer agent for the Acquiring
Trust and request in exchange therefor a certificate or certificates
representing the number of whole shares of beneficial interest of the class of
Decatur Equity Income Fund shares into which the corresponding shares of
beneficial interest of the Acquired Fund theretofore represented by the
certificate or certificates so surrendered shall have been converted.
Certificates for fractional shares of beneficial interest of the Acquiring Trust
shall not be issued, but such fractional shares shall continue to be carried by
the Acquiring Trust in book entry form for the account of such shareholder.
Until so surrendered, each outstanding certificate, which, prior to Closing,
represented shares of beneficial interest of the Acquired Fund, shall be deemed
for all Decatur Equity Income Fund purposes to evidence ownership of the number
of shares of beneficial interest of the Decatur Equity Income Fund into which
the shares of beneficial interest of the Acquired Fund (which prior to Closing
were represented thereby) have been converted.
(e) At the Closing, each shareholder of record of the Acquired
Fund as of the record date (the "Distribution Record Date") with respect to any
unpaid dividends and other distributions that were declared prior to the
Closing, including any dividend or distribution declared pursuant to Section
9(e) hereof, shall have the right to receive such unpaid dividends and
distributions with respect to the shares of the Acquired Fund that such person
had on such Distribution Record Date.
2. Valuation
(a) The value of the Acquired Fund's Net Assets to be acquired
by the Decatur Equity Income Fund hereunder shall be computed as of Close of
Business on the Valuation Date using the valuation procedures set forth in the
Acquired Fund's currently effective prospectus and statement of additional
information.
(b) The net asset value of a share of beneficial interest of
the Decatur Equity Income Fund Class A Shares, Decatur Equity Income Fund Class
B Shares, Decatur Equity Income Fund Class C Shares, Decatur Equity Income Fund
Class R Shares and Decatur Equity Income Fund Institutional Class Shares shall
be determined to the nearest full cent as of the Close of Business on the
Valuation Date using the valuation procedures set forth in the Decatur Equity
Income Fund's currently effective prospectus and statement of additional
information.
(c) The net asset value of a share of beneficial interest of
the Acquired Fund Class A Shares, Acquired Fund Class B Shares, Acquired Fund
Class C Shares, Acquired Fund Class R Shares and Acquired Fund Institutional
Class Shares shall be determined to the nearest full cent as of the Close of
Business on the Valuation Date, using the valuation procedures as set forth in
the Acquired Fund's currently effective prospectus and statement of additional
information.
3. Closing and Valuation Date
The Valuation Date shall be [ ], 2004, or such later date as
the parties may mutually agree. The Closing shall take place at the principal
office of the Acquiring Trust, One Commerce Square, Philadelphia, Pennsylvania
19103 at approximately 9:00 a.m. Eastern time on the first business day
following the Valuation Date. Notwithstanding anything herein to the contrary,
in the event that on the Valuation Date (a) the NYSE shall be closed to trading
or trading thereon shall be restricted or (b) trading or the reporting of
trading on such exchange or elsewhere shall be disrupted so that, in the
judgment of the Acquiring Trust or Trust, accurate appraisal of the value of the
net assets of the Acquired Fund or the Decatur Equity Income Fund is
impracticable, the Valuation Date shall be postponed until the first business
day after the day when trading shall have been fully resumed without restriction
or disruption, reporting shall have been restored and accurate appraisal of the
value of the net assets of the Acquired Fund and the Decatur Equity Income Fund
is practicable in the judgment of the Acquiring Trust and Trust. The Trust shall
have provided for delivery as of the Closing of those Net Assets of the Acquired
Fund to be transferred to the Decatur Equity Income Fund's Custodian, [Mellon
Bank, N.A., One Mellon Center, Pittsburgh, PA 15258] [JPMorgan Chase Bank, 4
Chase Metrotech Center, Brooklyn, NY 11245]. Also, the Trust shall deliver at
the Closing a list (which may be in electronic form) of names and addresses of
the shareholders of record of its Acquired Fund Shares, and the number of full
and fractional shares of beneficial interest of such classes owned by each such
shareholder, indicating thereon which such shares are represented by outstanding
certificates and which by book-entry accounts, all as of the Close of Business
on the Valuation Date, certified by its transfer agent, or by its President or
Vice-President to the best of their knowledge and belief. The Acquiring Trust
shall issue and deliver a certificate or certificates evidencing the shares of
the Decatur Equity Income Fund to be delivered at the Closing to said transfer
agent registered in such manner as the Trust may request, or provide evidence
satisfactory to the Trust in such manner as the Trust may request that such
shares of beneficial interest of the Decatur Equity Income Fund have been
registered in an open account on the books of the Decatur Equity Income Fund.
4. Representations and Warranties by the Trust
The Trust represents and warrants to the Acquiring Trust that:
(a) The Trust is a statutory trust created under the laws of
the State of Delaware on [ ], and is validly existing and in good standing under
the laws of that State. The Trust, of which the Acquired Fund is a separate
series, is duly registered under the Investment Company Act of 1940, as amended
(the "1940 Act") as an open-end, management investment company. Such
registration is in full force and effect as of the date hereof and will be in
full force and effect as of the Closing and all of its shares sold have been
sold pursuant to an effective registration statement filed under the 1933 Act,
except for any shares sold pursuant to the private offering exemption for the
purpose of raising initial capital.
(b) The Trust is authorized to issue an unlimited number of
shares of beneficial interest of the Acquired Fund, with no par value. Each
outstanding share of the Acquired Fund is validly issued, fully paid,
non-assessable and has full voting rights and, except for any such shares sold
pursuant to the private offering exemption for purposes of raising initial
capital, is freely transferable.
(c) The financial statements appearing in the Acquired Fund
Annual Report to Shareholders for the fiscal year ended [ ], audited by Ernst &
Young LLP, copies of which have been delivered to the Acquiring Trust, and any
unaudited financial statements, copies of which may be furnished to the
Acquiring Trust, fairly present the financial position of the Acquired Fund as
of the date indicated, and the results of its operations for the period
indicated, in conformity with generally accepted accounting principles applied
on a consistent basis.
(d) The books and records of the Acquired Fund made available
to the Acquiring Trust and/or its counsel are true and correct in all material
respects and contain no material omissions with respect to the business and
operations of the Acquired Fund.
(e) The statement of assets and liabilities to be furnished by
the Trust as of the Close of Business on the Valuation Date for the purpose of
determining the number of shares of beneficial interest of the Decatur Equity
Income Fund to be issued pursuant to Section 1 hereof will accurately reflect
the Net Assets of the Acquired Fund and outstanding shares of beneficial
interest, as of such date, in conformity with generally accepted accounting
principles applied on a consistent basis.
(f) At the Closing, it will have good and marketable title to
all of the securities and other assets shown on the statement of assets and
liabilities referred to in subsection (e) above, free and clear of all liens or
encumbrances of any nature whatsoever except such restrictions as might arise
under the 1933 Act with respect to privately placed or otherwise restricted
securities that it may have acquired in the ordinary course of business and such
imperfections of title or encumbrances as do not materially detract from the
value or use of the assets subject thereto, or materially affect title thereto.
(g) The Trust has the necessary power and authority to conduct
its business and the business of the Acquired Fund as such businesses are now
being conducted.
(h) The Trust is not a party to or obligated under any
provision of its Agreement and Declaration of Trust, By-Laws, or any material
contract or any other material commitment or obligation, and is not subject to
any order or decree that would be violated by its execution of or performance
under this Agreement.
(i) The Trust has full power and authority to enter into and
perform its obligations under this Agreement, subject to approval of the Plan of
Reorganization by the Acquired Fund's shareholders. Except as provided in the
immediately preceding sentence, the execution, delivery and performance of this
Agreement have been validly authorized, executed and delivered by it, and this
Agreement constitutes its legal, valid and binding obligation enforceable
against it in accordance with its terms, subject as to enforcement to the effect
of bankruptcy, insolvency, reorganization, arrangement among creditors,
moratorium, fraudulent transfer or conveyance, and other similar laws of general
applicability relating to or affecting creditor's rights and to general equity
principles.
(j) Neither the Trust nor the Acquired Fund is under the
jurisdiction of a Court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
(k) The Trust does not have any unamortized or unpaid
organizational fees or expenses.
(l) The Trust has elected to treat the Acquired Fund as a
regulated investment company ("RIC") for federal income tax purposes under Part
I of Subchapter M of the Code, the Acquired Fund is a "fund" as defined in
Section 851(g)(2) of the Code, has qualified as a RIC for each taxable year
since its inception and will qualify as a RIC as of the Closing, and
consummation of the transactions contemplated by the Plan will not cause it to
fail to be qualified as a RIC as of the Closing.
5. Representations and Warranties by the Acquiring Trust
The Acquiring Trust represents and warrants to the Trust that:
(a) The Acquiring Trust is a statutory trust created under the
laws of the State of Delaware on [ ], and is validly existing and in good
standing under the laws of that State. The Acquiring Trust, of which the Decatur
Equity Income Fund is a separate series of shares, is duly registered under the
1940 Act as an open-end, management investment company, such registration is in
full force and effect as of the date hereof or will be in full force and effect
as of the Closing and all of its shares sold have been sold pursuant to an
effective registration statement filed under the 1933 Act, except for any shares
sold pursuant to the private offering exemption for the purpose of raising
initial capital.
(b) The Acquiring Trust is authorized to issue an unlimited
number of shares of beneficial interest, without par value, of the Decatur
Equity Income Fund. Each outstanding share of the Decatur Equity Income Fund is
fully paid, non-assessable and has full voting rights and, except for any shares
sold pursuant to the private offering exemption for purposes of raising initial
capital, is freely transferable. The shares of beneficial interest of the
Decatur Equity Income Fund to be issued pursuant to Section 1 hereof will, upon
their issuance, be validly issued and fully paid and non-assessable, freely
transferable and have full voting rights.
(c) At the Closing, each class of shares of beneficial
interest of the Decatur Equity Income Fund to be issued pursuant to this
Agreement will be eligible for offering to the public in those states of the
United States and jurisdictions in which the corresponding class of shares of
the Acquired Fund are presently eligible for offering to the public, and there
are an unlimited number of shares registered under the 1933 Act such that there
is a sufficient number of such shares to permit the transfers contemplated by
this Agreement to be consummated.
(d) The statement of assets and liabilities of the Decatur
Equity Income Fund to be furnished by the Acquiring Trust as of the Close of
Business on the Valuation Date for the purpose of determining the number of
shares of beneficial interest of the Decatur Equity Income Fund to be issued
pursuant to Section 1 hereof will accurately reflect the net assets of the
Decatur Equity Income Fund and outstanding shares of beneficial interest, as of
such date, in conformity with generally accepted accounting principles applied
on a consistent basis.
(e) At the Closing, the Acquiring Trust will have good and
marketable title to all of the securities and other assets shown on the
statement of assets and liabilities referred to in subsection (d) above, free
and clear of all liens or encumbrances of any nature whatsoever except such
restrictions as might arise under the 1933 Act with respect to privately placed
or otherwise restricted securities that it may have acquired in the ordinary
course of business and such imperfections of title or encumbrances as do not
materially detract from the value or use of the assets subject thereto, or
materially affect title thereto.
(f) The Acquiring Trust has the necessary power and authority
to conduct its business and the business of the Decatur Equity Income Fund as
such businesses are now being conducted.
(g) The Acquiring Trust is not a party to or obligated under
any provision of its Agreement and Declaration of Trust, By-Laws, or any
material contract or any other material commitment or obligation, and is not
subject to any order or decree that would be violated by its execution of or
performance under this Agreement.
(h) The Acquiring Trust has full power and authority to enter
into and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement have been validly authorized, executed and
delivered by it, and this Agreement constitutes its legal, valid and binding
obligation enforceable against it in accordance with its terms, subject to
enforcement to the effect of bankruptcy, insolvency reorganization, arrangements
among creditors, moratorium, fraudulent transfer or conveyance, and other
similar laws of general applicability relating to or affecting creditors rights
and to general equity principles.
(i) Neither the Acquiring Trust nor the Decatur Equity Income
Fund is under the jurisdiction of a Court in a Title 11 or similar case within
the meaning of Section 368(a)(3)(A) of the Code.
(j) The books and records of the Decatur Equity Income Fund
made available to the Trust and/or its counsel are true and correct in all
material respects and contain no material omissions with respect to the business
and operations of the Decatur Equity Income Fund.
(k) The Acquiring Trust has elected to treat the Decatur
Equity Income Fund as a regulated investment company ("RIC") for federal income
tax purposes under Part I of Subchapter M of the Code, the Decatur Equity Income
Fund is a "fund" as defined in Section 851(g)(2) of the Code, has qualified as a
RIC for each taxable year since its inception and will qualify as a RIC as of
the Closing, and consummation of the transactions contemplated by the Plan will
not cause it to fail to be qualified as a RIC as of the Closing.
6. Representations and Warranties by the Trust and the Acquiring
Trust
The Trust and the Acquiring Trust each represents and warrants
to the other that:
(a) Except as discussed in its currently effective prospectus,
there are no legal, administrative or other proceedings or investigations
against it, or, to its knowledge, threatened against it, that would materially
affect its financial condition or its ability to consummate the transactions
contemplated by this Agreement. It is not charged with or, to its knowledge,
threatened with, any violation or investigation of any possible violation of any
provisions of any federal, state or local law or regulation or administrative
ruling relating to any aspect of its business.
(b) There are no known actual or proposed deficiency
assessments with respect to any taxes payable by it.
(c) It has duly and timely filed, on behalf of the Acquired
Fund or the Decatur Equity Income Fund, as appropriate, all Tax (as defined
below) returns and reports (including information returns), which are required
to be filed by such Acquired Fund or Decatur Equity Income Fund, and all such
returns and reports accurately state the amount of Tax owed for the periods
covered by the returns, or, in the case of information returns, the amount and
character of income required to be reported by such Acquired Fund or Decatur
Equity Income Fund. On behalf of the Acquired Fund or the Decatur Equity Income
Fund, as appropriate, it has paid or made provision and properly accounted for
all Taxes (as defined below) due or properly shown to be due on such returns and
reports. The amounts set up as provisions for Taxes in the books and records of
the Acquired Fund or Decatur Equity Income Fund, as appropriate, as of the Close
of Business on the Valuation Date will, to the extent required by generally
accepted accounting principles, be sufficient for the payment of all Taxes of
any kind, whether accrued, due, absolute, contingent or otherwise, which were or
which may be payable by the Acquired Fund or Decatur Equity Income Fund, as
appropriate, for any periods or fiscal years prior to and including the Close of
Business on the Valuation Date, including all Taxes imposed before or after the
Close of Business on the Valuation Date that are attributable to any such period
or fiscal year. No return filed by it, on behalf of the Acquired Fund or Decatur
Equity Income Fund, as appropriate, is currently being audited by the Internal
Revenue Service or by any state or local taxing authority. As used in this
Agreement, "Tax" or "Taxes" means all federal, state, local and foreign (whether
imposed by a country or political subdivision or authority thereunder) income,
gross receipts, excise, sales, use, value added, employment, franchise, profits,
property, ad valorem or other taxes, stamp taxes and duties, fees, assessments
or charges, whether payable directly or by withholding, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (foreign or domestic) with respect thereto. To its
knowledge, there are no levies, liens or encumbrances relating to Taxes
existing, threatened or pending with respect to the assets of the Acquired Fund
or Decatur Equity Income Fund, as appropriate.
(d) All information provided to the Trust by the Acquiring
Trust, and by the Trust to the Acquiring Trust, for inclusion in, or transmittal
with, the Combined Proxy Statement and Prospectus with respect to this Agreement
pursuant to which approval of the Acquired Fund shareholders will be sought,
shall not contain any untrue statement of a material fact, or omit to state a
material fact required to be stated in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(e) Except in the case of the Trust with respect to the
approval of the Acquired Fund's shareholders of the Agreement, no consent,
approval, authorization or order of any court or governmental authority, or of
any other person or entity, is required for the consummation of the transactions
contemplated by this Agreement, except as may be required by the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, or
state securities laws or Delaware statutory trust laws (including, in the case
of each of the foregoing, the rules and regulations thereunder).
7. Covenants of the Trust
(a) The Trust covenants to operate business of the Acquired
Fund as presently conducted between the date hereof and the Closing.
(b) The Trust undertakes that the Acquired Fund will not
acquire the shares of beneficial interest of the Decatur Equity Income Fund for
the purpose of making distributions thereof other than to the Acquired Fund's
shareholders.
(c) The Trust covenants that by the Closing, all of the
Acquired Fund's federal and other Tax returns and reports required by law to be
filed on or before such date shall have been filed and all federal and other
Taxes shown as due on said returns shall have either been paid or adequate
liability reserves shall have been provided for the payment of such Taxes.
(d) The Trust will at the Closing provide the Acquiring Trust
with:
(1) A statement of the respective tax basis of all
investments to be transferred by the Acquired Fund to the
Decatur Equity Income Fund.
(2) A copy (which may be in electronic form) of the
shareholder ledger accounts including, without limitation, the
name, address and taxpayer identification number of each
shareholder of record, the number of shares of beneficial
interest held by each shareholder, the dividend reinvestment
elections applicable to each shareholder, and the backup
withholding and nonresident alien withholding certifications,
notices or records on file with the Acquired Fund with respect
to each shareholder, for all of the shareholders of record of
the Acquired Fund's shares as of the Close of Business on the
Valuation Date, who are to become holders of the Decatur
Equity Income Fund as a result of the transfer of assets that
is the subject of this Agreement, certified by its transfer
agent or its President or its Vice-President to the best of
their knowledge and belief.
(e) The Board of Trustees of the Trust shall call and the
Trust shall hold, a Special Meeting of the Acquired Fund's shareholders to
consider and vote upon this Agreement (the "Special Meeting") and the Trust
shall take all other actions reasonably necessary to obtain approval of the
transactions contemplated herein. The Trust agrees to mail to each shareholder
of record entitled to vote at the Special Meeting at which action on this
Agreement is to be considered, in sufficient time to comply with requirements as
to notice thereof, a Combined Proxy Statement and Prospectus that complies in
all material respects with the applicable provisions of Section 14(a) of the
1934 Act, and Section 20(a) of the 1940 Act, and the rules and regulations
promulgated thereunder.
(f) The Trust shall supply to the Acquiring Trust, at the
Closing, the statement of the assets and liabilities described in Section 4(e)
of this Agreement in conformity with the requirements described in such Section.
8. Covenants of the Acquiring Trust
(a) The Acquiring Trust covenants that the shares of
beneficial interest of the Decatur Equity Income Fund to be issued and delivered
to the Acquired Fund pursuant to the terms of Section 1 hereof shall have been
duly authorized as of the Closing and, when so issued and delivered, shall be
registered under the 1933 Act, validly issued, and fully paid and
non-assessable, and no shareholder of the Decatur Equity Income Fund shall have
any statutory or contractual preemptive right of subscription or purchase in
respect thereof.
(b) The Acquiring Trust covenants to operate the business of
the Decatur Equity Income Fund as presently conducted between the date hereof
and the Closing.
(c) The Acquiring Trust covenants that by the Closing, all of
the Decatur Equity Income Fund's federal and other tax returns and reports
required by law to be filed on or before such date shall have been filed and all
federal and other taxes shown as due on said returns shall have either been paid
or adequate liability reserves shall have been provided for the payment of such
taxes.
(d) The Acquiring Trust shall supply to the Trust, at the
Closing, the statement of assets and liabilities described in Section 5(d) of
this Agreement in conformity with the requirements described in such Section.
(e) The Acquiring Trust will file with the United States
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form N-14 under the 1933 Act ("Registration Statement"), relating to the
shares of beneficial interest of the Decatur Equity Income Fund issuable
hereunder, and will use its best efforts to provide that such Registration
Statement becomes effective as promptly as practicable. At the time such
Registration Statement becomes effective, it (i) will comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act and the
1940 Act, and the rules and regulations promulgated thereunder; and (ii) will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. At the time the Registration Statement becomes effective, at the
time of the Acquired Fund's shareholders' meeting, and at the Closing, the
prospectus and statement of additional information included in the Registration
Statement will not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
9. Conditions Precedent to be Fulfilled by the Trust and the
Acquiring Trust
The obligations of the Trust and the Acquiring Trust to
effectuate this Agreement and the Plan of Reorganization hereunder shall be
subject to the following respective conditions:
(a) That (1) all the representations and warranties of the
other party contained herein shall be true and correct in all material respects
as of the Closing with the same effect as though made as of and at such date;
(2) the other party shall have performed all obligations required by this
Agreement to be performed by it at or prior to the Closing; and (3) the other
party shall have delivered to such party a certificate signed by the President
or Vice-President and by the Secretary or equivalent officer to the foregoing
effect.
(b) That the other party shall have delivered to such party a
copy of the resolutions approving this Agreement adopted by the other party's
Board of Trustees, certified by the Secretary or equivalent officer.
(c) That the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the 1940 Act, nor instituted nor
threatened to institute any proceeding seeking to enjoin the consummation of the
reorganization contemplated hereby under Section 25(c) of the 1940 Act, and no
other legal, administrative or other proceeding shall be instituted or
threatened that would materially and adversely affect the financial condition of
either party or would prohibit the transactions contemplated hereby.
(d) That this Agreement and the Plan of Reorganization and the
transactions contemplated hereby shall have been approved by the appropriate
action of the shareholders of the Acquired Fund at an annual or special meeting
or any adjournment thereof.
(e) That the Acquired Fund shall have declared a distribution
or distributions prior to the Valuation Date that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i) all
of its ordinary income and all of its capital gain net income, if any, for the
period from the close of its last fiscal year to the Close of Business on the
Valuation Date, and (ii) any undistributed ordinary income and capital gain net
income from any prior period. Capital gain net income has the meaning given such
term by Section 1222(g) of the Code.
(f) That all required consents of other parties and all other
consents, orders and permits of federal, state and local authorities (including
those of the U.S. Securities and Exchange Commission and of state Blue Sky
securities authorities, including any necessary "no-action" positions or
exemptive orders from such federal and state authorities) to permit consummation
of the transaction contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve risk of
material adverse effect on the assets and properties of the Acquired Fund or the
Decatur Equity Income Fund.
(g) That prior to or at the Closing, the Trust and the
Acquiring Trust shall receive an opinion from Stradley Ronon Stevens & Young,
LLP ("SRSY") to the effect that, provided the acquisition contemplated hereby is
carried out in accordance with this Agreement and in accordance with customary
representations provided by the Trust and the Acquiring Trust in certificates
delivered to SRSY:
(1) The acquisition by the Decatur Equity Income Fund
of substantially all of the assets and the assumption of the
liabilities of the Acquired Fund in exchange solely for the
Decatur Equity Income Fund shares to be issued pursuant to
Section 1 hereof, followed by the distribution by the Acquired
Fund to its shareholders of the Decatur Equity Income Fund
shares in complete liquidation of the Acquired Fund, will
qualify as a reorganization within the meaning of Section
368(a)(1) of the Code, and the Decatur Equity Income Fund and
the Acquired Fund will each be a "party to the reorganization"
within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the
Acquired Fund upon the transfer of substantially all of its
assets to and the assumption of the liabilities by the
Acquired Fund in exchange solely for the voting shares of the
Decatur Equity Income Fund (to be issued in accordance with
Section 1 hereof) under Section 361(a) and Section 357(a) of
the Code;
(3) No gain or loss will be recognized by the Decatur
Equity Income Fund upon the receipt by it of substantially all
of the assets and the assumption of the liabilities of the
Acquired Fund in exchange solely for the voting shares of the
Decatur Equity Income Fund (to be issued in accordance with
Section 1 hereof) under Section 1032(a) of the Code;
(4) No gain or loss will be recognized by the
Acquired Fund upon the distribution of the Decatur Equity
Income Fund shares to the Acquired Fund shareholders in
accordance with Section 1 hereof in liquidation of the
Acquired Fund under Section 361(c)(1) of the Code.
(5) The basis of the assets of the Acquired Fund
received by the Decatur Equity Income Fund will be the same as
the basis of such assets to the Acquired Fund immediately
prior to the exchange under Section 362(b) of the Code;
(6) The holding period of the assets of the Acquired
Fund received by the Decatur Equity Income Fund will include
the period during which such assets were held by the Acquired
Fund under Section 1223(2) of the Code;
(7) No gain or loss will be recognized by the
shareholders of the Acquired Fund upon the exchange of their
shares in the Acquired Fund for the voting shares (including
fractional shares to which they may be entitled) of the
Decatur Equity Income Fund (to be issued in accordance with
Section 1 hereof) under Section 354(a) of the Code;
(8) The basis of the Decatur Equity Income Fund
shares received by the Acquired Fund shareholders in
accordance with Section 1 hereof (including fractional shares
to which they may be entitled) will be the same as the basis
of the shares of the Acquired Fund exchanged therefor under
Section 358(a)(1) of the Code;
(9) The holding period of the Decatur Equity Income
Fund's shares received by the Acquired Fund's shareholders in
accordance with Section 1 hereof (including fractional shares
to which they may be entitled) will include the holding period
of the Acquired Fund's shares surrendered in exchange
therefor, provided that the Acquired Fund shares were held as
a capital asset on the date of the Reorganization under
Section 1223(l) of the Code; and
(10) The Decatur Equity Income Fund will succeed to
and take into account as of the date of the transfer (as
defined in Section 1.381(b)-1(b) of the regulations issued by
the United States Treasury (the "Treasury Regulations")) the
items of the Acquired Fund described in Section 381(c) of the
Code, subject to the conditions and limitations specified in
Sections 381, 382, 383 and 384 of the Code, and the Treasury
Regulations.
(h) That the Acquiring Trust shall have received an opinion
in form and substance reasonably satisfactory to it from SRSY, counsel to the
Trust, to the effect that, subject in all respects to the effects of bankruptcy,
insolvency, arrangement among creditors, moratorium, fraudulent transfer or
conveyance, and other similar laws of general applicability relating to or
affecting creditor's rights and to general equity principles:
(1) The Trust was created as a statutory trust under
the laws of the State of Delaware on [ ], and is validly
existing and in good standing under the laws of the State of
Delaware;
(2) The Trust is authorized to issue an unlimited
number of shares of beneficial interest, without par value, of
the Trust and of the Acquired Fund. Assuming that the initial
shares of beneficial interest of the Acquired Fund were issued
in accordance with the 1940 Act, and the Agreement and
Declaration of Trust and By-Laws of the Trust, and that all
other such outstanding shares of the Acquired Fund were sold,
issued and paid for in accordance with the terms of the
Acquired Fund prospectus in effect at the time of such sales,
each such outstanding share is validly issued, fully paid,
non-assessable and has full voting rights and, except for any
shares sold pursuant to the private offering exemption for
purposes of raising initial capital, is freely transferable;
(3) The Trust is an open-end, investment company of
the management type registered as such under the 1940 Act;
(4) Except as disclosed in the Acquired Fund's
currently effective prospectus, such counsel does not know of
any material suit, action, or legal or administrative
proceeding pending or threatened against the Trust, the
unfavorable outcome of which would materially and adversely
affect the Trust or the Acquired Fund;
(5) To such counsel's knowledge, no consent,
approval, authorization or order of any court, governmental
authority or agency is required for the consummation by the
Trust of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the 1934
Act, the 1940 Act, and Delaware laws (including, in the case
of each of the foregoing, the rules and regulations
thereunder) and such as may be required under state securities
laws;
(6) Neither the execution, delivery nor performance
of this Agreement by the Trust violates any provision of its
Agreement and Declaration of Trust, its By-Laws, or the
provisions of any agreement or other instrument, known to such
counsel to which the Trust is a party or by which the Trust is
otherwise bound; and
(7) This Agreement has been validly authorized,
executed and delivered by the Trust and represents the legal,
valid and binding obligation of the Trust and is enforceable
against the Trust in accordance with its terms.
In giving the opinions set forth above, SRSY may state that it
is relying on certificates of the officers of the Trust with regard to matters
of fact and certain certifications and written statements of governmental
officials with respect to the good standing of the Trust.
(i) That the Trust shall have received an opinion in form and
substance reasonably satisfactory to it from SRSY, counsel to the Acquiring
Trust, to the effect that, subject in all respects to the effects of bankruptcy,
insolvency, arrangement among creditors, moratorium, fraudulent transfer or
conveyance, and other similar laws of general applicability relating to or
affecting creditor's rights and to general equity principles:
(1) The Acquiring Trust was created as a statutory
trust under the laws of the State of Delaware on [ ], and is
validly existing and in good standing under the laws of the
State of Delaware;
(2) The Acquiring Trust is authorized to issue an
unlimited number of shares of beneficial interest, without par
value. Assuming that the initial shares of beneficial interest
of the Decatur Equity Income Fund were issued in accordance
with the 1940 Act and the Acquiring Trust's Agreement and
Declaration of Trust and By-Laws, and that all other such
outstanding shares of the Decatur Equity Income Fund were
sold, issued and paid for in accordance with the terms of the
Decatur Equity Income Fund's prospectus in effect at the time
of such sales, each such outstanding share is validly issued,
fully paid, non-assessable and has full voting rights and,
except for any shares sold pursuant to the private offering
exemption for purposes of raising initial capital, is freely
transferable;
(3) The Acquiring Trust is an open-end investment
company of the management type registered as such under the
1940 Act;
(4) Except as disclosed in the Decatur Equity Income
Fund's currently effective prospectus, such counsel does not
know of any material suit, action, or legal or administrative
proceeding pending or threatened against the Acquiring Trust,
the unfavorable outcome of which would materially and
adversely affect the Acquiring Trust or the Decatur Equity
Income Fund;
(5) The shares of beneficial interest of the Decatur
Equity Income Fund to be issued pursuant to the terms of
Section 1 hereof have been duly authorized and, when issued
and delivered as provided in this Agreement, will have been
validly issued and fully paid and will be non-assessable by
the Acquiring Trust or the Decatur Equity Income Fund, and to
such counsel's knowledge, no shareholder has any preemptive
right to subscription or purchase in respect thereof;
(6) To such counsel's knowledge, no consent,
approval, authorization or order of any court, governmental
authority or agency is required for the consummation by the
Acquiring Trust of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933
Act, the 1934 Act, the 1940 Act, and Delaware laws (including,
in the case of each of the foregoing, the rules and
regulations thereunder and such as may be required under state
securities laws);
(7) Neither the execution, delivery nor performance
of this Agreement by the Acquiring Trust violates any
provision of its Agreement and Declaration of Trust, its
By-Laws, or the provisions of any agreement or other
instrument, known to such counsel to which the Acquiring Trust
is a party or by which the Acquiring Trust is otherwise bound;
and
(8) This Agreement has been validly authorized,
executed and delivered by the Acquiring Trust and represents
the legal, valid and binding obligation of the Acquiring Trust
and is enforceable against the Acquiring Trust in accordance
with its terms.
In giving the opinions set forth above, SRSY may state that it
is relying on certificates of the officers of the Acquiring Trust with regard to
matters of fact and certain certifications and written statements of
governmental officials with respect to the good standing of the Acquiring Trust.
(j) That the Acquiring Trust's Registration Statement with
respect to the shares of beneficial interest of the Decatur Equity Income Fund
to be delivered to the Acquired Fund's shareholders in accordance with Section 1
hereof shall have become effective, and no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto, shall have been issued prior to the Closing or shall be in effect at
the Closing, and no proceedings for the issuance of such an order shall be
pending or threatened on that date.
(k) That the shares of beneficial interest of the Decatur
Equity Income Fund to be delivered in accordance with Section 1 hereof shall be
eligible for sale by the Acquiring Trust with each state commission or agency
with which such eligibility is required in order to permit the shares lawfully
to be delivered to each Acquired Fund shareholder.
(l) That at the Closing, the Trust, on behalf of the Acquired
Fund, transfers to the Decatur Equity Income Fund aggregate Net Assets of the
Acquired Fund comprising at least 90% in fair market value of the total net
assets and 70% in fair market value of the total gross assets recorded on the
books of the Acquired Fund at the Close of Business on the Valuation Date.
10. Fees and Expenses; Other Agreements
(a) The expenses of entering into and carrying out the
provisions of this Agreement, whether or not consummated, shall be borne
[one-third by the Acquired Fund, one-third by Decatur Equity Income Fund, and
one-third by Delaware Management Company, a series of Delaware Management
Business Trust and investment manager of Decatur Equity Income Fund and the
Acquired Fund.]/ [one-third by the Acquired Fund, up to $25,000 by Decatur
Equity Income Fund, and the remainder by Delaware Management Company, a series
of Delaware Management Business Trust and investment manager of Decatur Equity
Income Fund and the Acquired Fund.]
(b) Any other provision of this Agreement to the contrary
notwithstanding, any liability of the Trust under this Agreement with respect to
any series of the Trust, or in connection with the transactions contemplated
herein with respect to any series of the Trust, shall be discharged only out of
the assets of that series of the Trust, and no other series of the Trust shall
be liable with respect thereto.
(c) Any other provision of this Agreement to the contrary
notwithstanding, any liability of the Acquiring Trust under this Agreement with
respect to any series of the Acquiring Trust, or in connection with the
transactions contemplated herein with respect to any series of the Acquiring
Trust, shall be discharged only out of the assets of that series of the
Acquiring Trust, and no other series of the Acquiring Trust shall be liable with
respect thereto.
11. Termination; Waiver; Order
(a) Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Plan of Reorganization
abandoned at any time (whether before or after adoption thereof by the
shareholders of the Acquired Fund) prior to the Closing as follows:
(1) by mutual consent of the Trust and the Acquiring
Trust;
(2) by the Acquiring Trust if any condition precedent
to its obligations set forth in Section 9 has not been
fulfilled or waived by the Acquiring Trust; or
(3) by the Trust if any condition precedent to its
obligations set forth in Section 9 has not been fulfilled or
waived by the Trust.
(b) If the transactions contemplated by this Agreement have
not been consummated by December 31, 2004, this Agreement shall automatically
terminate on that date, unless a later date is agreed to by both the Trust and
the Acquiring Trust.
(c) In the event of termination of this Agreement pursuant to
the provisions hereof, the same shall become void and have no further effect,
and there shall not be any liability on the part of either the Trust or the
Acquiring Trust or persons who are their trustees, officers, agents or
shareholders in respect of this Agreement.
(d) At any time prior to the Closing, any of the terms or
conditions of this Agreement may be waived by either the Trust or the Acquiring
Trust, respectively (whichever is entitled to the benefit thereof).
(e) The respective representations, warranties and covenants
contained in Sections 4-8 hereof shall expire with, and be terminated by, the
consummation of the Plan of Reorganization, and neither the Trust nor the
Acquiring Trust, nor any of their officers, directors, trustees, agents or
shareholders shall have any liability with respect to such representations or
warranties after the Closing. This provision shall not protect any officer,
director, trustee, agent or shareholder of the Trust or the Acquiring Trust
against any liability to the entity for which that officer, trustee, agent or
shareholder so acts or to its shareholders to which that officer, trustee, agent
or shareholder would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties in the conduct of
such office.
(f) If any order or orders of the Commission with respect to
this Agreement shall be issued prior to the Closing and shall impose any terms
or conditions that are determined by action of the Board of Trustees of the
Trust or the Board of Trustees of the Acquiring Trust to be acceptable, such
terms and conditions shall be binding as if a part of this Agreement without
further vote or approval of the shareholders of the Acquired Fund, unless such
further vote is required by applicable law or by mutual consent of the parties.
12. Liability of the Acquiring Trust and the Trust
(a) Each party acknowledges and agrees that all obligations of
the Acquiring Trust under this Agreement are binding only with respect to the
Decatur Equity Income Fund; that any liability of the Acquiring Trust under this
Agreement with respect to the Decatur Equity Income Fund, or in connection with
the transactions contemplated herein with respect to Decatur Equity Income Fund,
shall be discharged only out of the assets of the Decatur Equity Income Fund;
that no other series of the Acquiring Trust shall be liable with respect to this
Agreement or in connection with the transactions contemplated herein; and that
neither the Trust nor the Acquired Fund shall seek satisfaction of any such
obligation or liability from the shareholders of the Acquiring Trust, the
directors, officers, employees or agents of the Acquiring Trust, or any of them.
(b) Each party acknowledges and agrees that all obligations of
the Trust under this Agreement are binding only with respect to the Acquired
Fund; that any liability of the Trust under this Agreement with respect to the
Acquired Fund, or in connection with the transactions contemplated herein with
respect to the Acquired Fund, shall be discharged only out of the assets of the
Acquired Fund; that no other series of the Trust shall be liable with respect to
this Agreement or in connection with the transactions contemplated herein; and
that neither the Acquiring Trust nor the Decatur Equity Income Fund shall seek
satisfaction of any such obligation or liability from the shareholders of the
Trust, the trustees, officers, employees or agents of the Trust, or any of them.
13. Final Tax Returns and Forms 1099 of the Acquired Fund
(a) After the Closing, the Trust shall or shall cause its
agents to prepare any federal, state or local Tax returns, including any Forms
1099, required to be filed by the Trust with respect to the Acquired Fund's
final taxable year ending with its complete liquidation and for any prior
periods or taxable years and shall further cause such Tax returns and Forms 1099
to be duly filed with the appropriate taxing authorities.
(b) Notwithstanding the provisions of Section 1 hereof, any
expenses incurred by the Trust or the Acquired Fund (other than for payment of
Taxes) in connection with the preparation and filing of said Tax returns and
Forms 1099 after the Closing, shall be borne by the Acquired Fund to the extent
such expenses have been or should have been accrued by the Acquired Fund in the
ordinary course without regard to the Plan of Reorganization contemplated by
this Agreement; any excess expenses shall be borne by Delaware Management
Company, a series of Delaware Management Business Trust at the time such Tax
returns and Forms 1099 are prepared.
14. Cooperation and Exchange of Information
The Acquiring Trust and the Trust will provide each other and
their respective representatives with such cooperation and information as either
of them reasonably may request of the other in filing any Tax returns, amended
return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes or participating in or conducting any audit or other proceeding
in respect of Taxes. Each party or their respective agents will retain for a
period of six (6) years following the Closing all returns, schedules and work
papers and all material records or other documents relating to Tax matters of
the Acquired Fund and Decatur Equity Income Fund for its taxable period first
ending after the Closing and for all prior taxable periods.
15. Entire Agreement and Amendments
This Agreement embodies the entire Agreement between the
parties and there are no agreements, understandings, restrictions, or warranties
between the parties other than those set forth herein or herein provided for.
This Agreement may be amended only by mutual consent of the parties in writing.
Neither this Agreement nor any interest herein may be assigned without the prior
written consent of the other party.
16. Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all such counterparts
together shall constitute but one instrument.
17. Notices
Any notice, report, or demand required or permitted by any
provision of this Agreement shall be in writing and shall be deemed to have been
given if delivered or mailed, first class postage prepaid, addressed to the
Trust or the Acquiring Trust at One Commerce Square, Philadelphia, PA 19103,
Attention: Secretary.
18. Governing Law
This Agreement shall be governed by and carried out in
accordance with the laws of the State of Delaware.
19. Effect of Facsimile Signature
A facsimile signature of an authorized officer of a party
hereto on this Agreement and/or any transfer document shall have the same effect
as if executed in the original by such officer.
IN WITNESS WHEREOF, the Trust and the Acquiring Trust have
each caused this Agreement and Plan of Reorganization to be executed on its
behalf by its duly authorized officers, all as of the day and year first-above
written.
Trust, on behalf of the
Acquired Fund
By:
-----------------------------------------------
Title:
--------------------------------------------
Acquiring Trust, on behalf of the Decatur Equity
Income Fund
By:
-----------------------------------------------
Title:
--------------------------------------------
DELAWARE CORE EQUITY FUND
SPECIAL SHAREHOLDER MEETING - FEBRUARY 19, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Jude T. Driscoll and Richelle S. Maestro, or any of them, each with the right of substitution,
proxies of the undersigned at the Special Meeting of Shareholders of the fund named above (the "Fund"), a series of the Trust (as
defined in the proxy statement) to be held at the offices of Delaware Investments located at 2001 Market Street, 2nd Floor
Auditorium, Philadelphia, Pennsylvania 19103, on Thursday, February 19, 2004 at 11:00 a.m., or at any postponement or adjournments
thereof, with all the powers which the undersigned would possess if personally present, and instructs them to vote upon any matters
which may properly be acted upon at this meeting and specifically as indicated on the reverse side of this form. Please refer to the
proxy statement for a discussion of these matters.
BY SIGNING AND DATING THIS CARD, YOU AUTHORIZE THE PROXIES TO VOTE THE PROPOSAL AS MARKED, OR IF NOT MARKED, TO VOTE "FOR" THE
PROPOSAL, AND TO USE THEIR DISCRETION TO VOTE ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING, OR AT ANY POSTPONEMENT OR
ADJOURNMENT THEREOF. PLEASE COMPLETE AND MAIL THIS CARD AT ONCE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Please vote by checking |X| the appropriate box below.
1. To approve or disapprove an Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization between the Trust, on behalf of the Fund, [ ] [ ] [ ]
and Voyageur Mutual Funds III, on behalf of Delaware
Decatur Equity Income Fund (the "Decatur Equity Income
Fund"), that provides for: (i) the acquisition of
substantially all of the assets, subject to the
liabilities, of the Fund in exchange for shares of the
Decatur Equity Income Fund; and (ii) the dissolution of
the Fund.
THIS PROXY CARD IS ONLY VALID WHEN SIGNED AND DATED. TO SECURE THE LARGEST POSSIBLE
REPRESENTATION AND AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER SOLICITATION, PLEASE
DATE AND SIGN NAME OR NAMES BELOW AS PRINTED ON THIS CARD TO AUTHORIZE THE VOTING OF YOUR
SHARES AS INDICATED. WHERE SHARES ARE REGISTERED WITH JOINT OWNERS, ALL JOINT OWNERS SHOULD
SIGN. PERSONS SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR OTHER REPRESENTATIVE SHOULD
GIVE FULL TITLE AS SUCH.
Date ____________________________, 2004
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Signature(s) (Joint Owners) (PLEASE SIGN WITHIN BOX)
DELAWARE DEVON FUND
SPECIAL SHAREHOLDER MEETING - FEBRUARY 19, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Jude T. Driscoll and Richelle S. Maestro, or any of them, each with the right of substitution,
proxies of the undersigned at the Special Meeting of Shareholders of the fund named above (the "Fund"), a series of the Trust (as
defined in the proxy statement) to be held at the offices of Delaware Investments located at 2001 Market Street, 2nd Floor
Auditorium, Philadelphia, Pennsylvania 19103, on Thursday, February 19, 2004 at 11:00 a.m., or at any postponement or adjournments
thereof, with all the powers which the undersigned would possess if personally present, and instructs them to vote upon any matters
which may properly be acted upon at this meeting and specifically as indicated on the reverse side of this form. Please refer to the
proxy statement for a discussion of these matters.
BY SIGNING AND DATING THIS CARD, YOU AUTHORIZE THE PROXIES TO VOTE THE PROPOSAL AS MARKED, OR IF NOT MARKED, TO VOTE "FOR" THE
PROPOSAL, AND TO USE THEIR DISCRETION TO VOTE ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING, OR AT ANY POSTPONEMENT OR
ADJOURNMENT THEREOF. PLEASE COMPLETE AND MAIL THIS CARD AT ONCE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Please vote by checking |X| the appropriate box below.
1. To approve or disapprove an Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization between the Trust, on behalf of the Fund, [ ] [ ] [ ]
and Delaware Group Equity Funds I, on behalf of Delaware
Decatur Equity Income Fund (the "Decatur Equity Income
Fund"), that provides for: (i) the acquisition of
substantially all of the assets, subject to the
liabilities, of the Fund in exchange for shares of the
Decatur Equity Income Fund; and (ii) the dissolution of
the Fund.
THIS PROXY CARD IS ONLY VALID WHEN SIGNED AND DATED. TO SECURE THE LARGEST POSSIBLE
REPRESENTATION AND AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER SOLICITATION, PLEASE
DATE AND SIGN NAME OR NAMES BELOW AS PRINTED ON THIS CARD TO AUTHORIZE THE VOTING OF YOUR
SHARES AS INDICATED. WHERE SHARES ARE REGISTERED WITH JOINT OWNERS, ALL JOINT OWNERS SHOULD
SIGN. PERSONS SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR OTHER REPRESENTATIVE SHOULD
GIVE FULL TITLE AS SUCH.
Date _____________________________, 2004
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Signature(s) (Joint Owners) (PLEASE SIGN WITHIN BOX)
DELAWARE GROWTH AND INCOME FUND
SPECIAL SHAREHOLDER MEETING - FEBRUARY 19, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Jude T. Driscoll and Richelle S. Maestro, or any of them, each with the right of substitution,
proxies of the undersigned at the Special Meeting of Shareholders of the fund named above (the "Fund"), a series of the Trust (as
defined in the proxy statement) to be held at the offices of Delaware Investments located at 2001 Market Street, 2nd Floor
Auditorium, Philadelphia, Pennsylvania 19103, on Thursday, February 19, 2004 at 11:00 a.m., or at any postponement or adjournments
thereof, with all the powers which the undersigned would possess if personally present, and instructs them to vote upon any matters
which may properly be acted upon at this meeting and specifically as indicated on the reverse side of this form. Please refer to the
proxy statement for a discussion of these matters.
BY SIGNING AND DATING THIS CARD, YOU AUTHORIZE THE PROXIES TO VOTE THE PROPOSAL AS MARKED, OR IF NOT MARKED, TO VOTE "FOR" THE
PROPOSAL, AND TO USE THEIR DISCRETION TO VOTE ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING, OR AT ANY POSTPONEMENT OR
ADJOURNMENT THEREOF. PLEASE COMPLETE AND MAIL THIS CARD AT ONCE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Please vote by checking |X| the appropriate box below.
1. To approve or disapprove an Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization between the Trust, on behalf of the Fund, [ ] [ ] [ ]
and Delaware Group Equity Funds II, on behalf of Delaware
Decatur Equity Income Fund (the "Decatur Equity Income
Fund"), that provides for: (i) the acquisition of
substantially all of the assets, subject to the
liabilities, of the Fund in exchange for shares of the
Decatur Equity Income Fund; and (ii) the dissolution of
the Fund.
THIS PROXY CARD IS ONLY VALID WHEN SIGNED AND DATED. TO SECURE THE LARGEST POSSIBLE
REPRESENTATION AND AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER SOLICITATION, PLEASE
DATE AND SIGN NAME OR NAMES BELOW AS PRINTED ON THIS CARD TO AUTHORIZE THE VOTING OF YOUR
SHARES AS INDICATED. WHERE SHARES ARE REGISTERED WITH JOINT OWNERS, ALL JOINT OWNERS SHOULD
SIGN. PERSONS SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR OTHER REPRESENTATIVE SHOULD
GIVE FULL TITLE AS SUCH.
Date _____________________________, 2004
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Signature(s) (Joint Owners) (PLEASE SIGN WITHIN BOX)
STATEMENT OF ADDITIONAL INFORMATION
FOR
DELAWARE GROUP EQUITY FUNDS II
Dated November 15, 2003
Acquisition of the Assets of the
DELAWARE CORE EQUITY FUND
(a series of Voyageur Mutual Funds III)
DELAWARE DEVON FUND
(a series of Delaware Group Equity Funds I)
and
DELAWARE GROWTH AND INCOME FUND
(a series of Delaware Group Equity Funds II)
This Statement of Additional Information (SAI) relates specifically to
the proposed delivery of substantially all of the assets, subject to the
liabilities, of the Delaware Core Equity Fund, Delaware Devon Fund and Delaware
Growth and Income Fund (together, the "Acquired Funds") in exchange for shares
of the Delaware Decatur Equity Income Fund (the "Decatur Equity Income Fund")
and assumption by the Decatur Equity Income Fund of the liabilities of each
Acquired Fund.
This SAI consists of this Cover Page and the following documents. Each
of these documents is attached to and is legally considered to be part of this
SAI:
1. Statement of Additional Information of Delaware Decatur Equity Income
Fund, dated January 31, 2003 (as amended May 31, 2003) as previously
filed via EDGAR is incorporated herein by reference to Post-Effective
Amendment No. 121 filed April 30, 2003 and will be mailed to any
Shareholder who requests this SAI.
2. Annual Report of the Delaware Core Equity Fund for the fiscal year
ended April 30, 2003 as previously filed via EDGAR is incorporated
herein by reference to the N-30D filed June 27, 2003 and will be
mailed to any Shareholder who requests this Annual Report.
3. Annual Report of the Delaware Devon Fund for the fiscal year ended
October 31, 2002 as previously filed via EDGAR is incorporated herein
by reference to the N-30D filed June 23, 2003 and will be mailed to
any Shareholder who requests this Annual Report.
4. Semiannual Report of the Delaware Devon Fund for the period ended
April 30, 2003 as previously filed via EDGAR is incorporated herein by
reference to the N-CSR filed July 10, 2003 and will be mailed to any
Shareholder who requests this Semiannual Report.
5. Annual Report of the Delaware Growth and Income Fund for the fiscal
period ended November 30, 2002 as previously filed via EDGAR is
incorporated herein by reference to the N-30D filed January 17, 2003
and will be mailed to any Shareholder who requests this Annual Report.
6. Semiannual Report of the Delaware Growth and Income Fund for the
period ended May 31, 2003 as previously filed via EDGAR is
incorporated herein by reference to the N-CSR filed August 4, 2003 and
will be mailed to any Shareholder who requests this Semiannual Report.
7. Pro Forma Financial Statements for the Reorganization of Delaware
Devon Fund into Delaware Decatur Equity Income Fund.
8. Pro Forma Financial Statements for the Reorganization of Delaware
Growth and Income Fund into Delaware Decatur Equity Income Fund.
9. Pro Forma Financial Statements for the Reorganization of Delaware Core
Equity Fund, Delaware Devon Fund and Delaware Growth and Income Fund
into Delaware Decatur Equity Income Fund.
This SAI is not a prospectus; you should read this SAI in conjunction with
the Joint Proxy Statement/Prospectus dated November __, 2003, relating to the
above-referenced transaction. You can request a copy of the Joint Proxy
Statement/Prospectus by calling 1-800-523-1918 or by writing to the Delaware
Decatur Equity Income Fund at Attention: Account Services, 2005 Market Street,
Philadelphia, PA 19103-7094.
Pro Forma Financial Statements for the Reorganization of Delaware Core
Equity Fund into Delaware Decatur Equity Income Fund
The Delaware Core Equity Fund is not required to provide pro forma
financial statements because the net assets of the Delaware Core Equity Fund did
not exceed 10% of the Delaware Decatur Equity Income Fund's net assets (as of
September 30, 2003).
Pro Forma Financial Statements for the Reorganization of Delaware Devon Fund into
Delaware Decatur Equity Income Fund
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Delaware Decatur Equity Income Fund
% of Net Equity Income Fund Delaware Devon Fund Pro Forma Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ------------------------ -------------------------
Common Stock 98.82%
Aerospace & Defense 1.73%
Boeing 222,200 $ 6,814,874 36,400 $ 1,116,388 258,600 $ 7,931,262
Honeywell International 351,500 9,209,300 30,900 809,580 382,400 10,018,880
United Technologies - - 12,800 873,600 12,800 873,600
------------ ----------- ------------
16,024,174 2,799,568 18,823,742
------------ ----------- ------------
Automobiles & Automotive Parts 0.99%
General Motors 273,500 9,662,755 30,100 1,063,433 303,600 10,726,188
------------ ----------- ------------
9,662,755 1,063,433 10,726,188
------------ ----------- ------------
Banking & Finance 18.90%
Bank of America 275,082 20,411,084 14,445 1,071,819 289,527 21,482,903
Bank of New York 616,600 17,850,570 46,300 1,340,385 662,900 19,190,955
Charter One Financial - - 33,800 1,029,548 33,800 1,029,548
Citigroup 407,400 16,711,548 68,512 2,810,362 475,912 19,521,910
Comerica 274,600 12,705,742 23,600 1,091,972 298,200 13,797,714(B)
FleetBoston Financial 495,700 14,657,849 - - 495,700 14,657,849
Freddie Mac - - 27,900 1,668,699 27,900 1,668,699
Goldman Sachs Group 183,800 14,979,700 17,000 1,385,500 200,800 16,365,200
J.P. Morgan Chase 613,890 20,172,425 34,590 1,136,627 648,480 21,309,052
KeyCorp 358,000 9,451,200 - - 358,000 9,451,200
MBNA 626,000 12,551,300 79,100 1,585,955 705,100 14,137,255
Mellon Financial 615,000 16,709,550 49,800 1,353,066 664,800 18,062,616
Morgan Stanley 254,400 11,638,800 - - 254,400 11,638,800
U.S. Bancorp 864,100 20,479,171 77,000 1,824,900 941,100 22,304,071
Wells Fargo - - 21,100 1,019,130 21,100 1,019,130
------------ ----------- ------------
188,318,939 17,317,963 205,636,902
------------ ----------- ------------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Delaware Decatur Equity Income Fund
% of Net Equity Income Fund Delaware Devon Fund Pro Forma Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ------------------------ -------------------------
Buildings & Materials 0.09%
Fluor - - 28,100 997,269 28,100 997,269
---------- ---------- ----------
- 997,269 997,269
---------- ---------- ----------
Cable, Media & Publishing 1.34%
Comcast - Special Class A - - 26,400 760,848 26,400 760,848(A)
Gannett 94,400 7,457,600 - - 94,400 7,457,600
Knight-Ridder 68,900 4,853,316 - - 68,900 4,853,316(B)
Viacom Class B - - 33,963 1,545,996 33,963 1,545,996(A)
---------- ---------- ----------
12,310,916 2,306,844 14,617,760
---------- ---------- ----------
Chemicals 3.06%
Air Products & Chemicals 161,200 7,026,708 - - 161,200 7,026,708
Dow Chemical 468,000 14,882,400 - - 468,000 14,882,400
duPont (E.I.) de Nemours 222,400 9,371,936 28,500 1,200,990 250,900 10,572,926
Ecolab - - 14,200 763,250 14,200 763,250
---------- ---------- ----------
31,281,044 1,964,240 33,245,284
---------- ---------- ----------
Computers & Technology 7.10%
Cisco Systems 788,500 12,836,780 103,400 1,683,352 891,900 14,520,132(A)
Dell Computer - - 39,700 1,242,213 39,700 1,242,213(A)
First Data 175,900 7,285,778 31,700 1,313,014 207,600 8,598,792
International Business Machines 119,900 10,555,996 17,700 1,558,308 137,600 12,114,304
Microsoft 532,700 13,109,747 134,400 3,307,584 667,100 16,417,331
Oracle 1,111,800 14,464,518 133,600 1,738,136 1,245,400 16,202,654(A)
Pitney Bowes 211,900 8,139,079 - - 211,900 8,139,079
---------- ---------- ----------
66,391,898 10,842,607 77,234,505
---------- ---------- ----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Delaware Decatur Equity Income Fund
% of Net Equity Income Fund Delaware Devon Fund Pro Forma Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ------------------------ -------------------------
Consumer Products 5.50%
3M 58,400 7,385,848 8,200 1,037,054 66,600 8,422,902
Gillette 346,600 11,649,226 - - 346,600 11,649,226
Kimberly-Clark 375,800 19,515,294 25,500 1,324,215 401,300 20,839,509
Newell Rubbermaid 631,500 17,997,750 - - 631,500 17,997,750
Procter & Gamble - - 9,630 884,227 9,630 884,227
---------- ---------- ----------
56,548,118 3,245,496 59,793,614
---------- ---------- ----------
Electronics & Electrical Equipment 6.13%
Eaton 101,300 8,502,109 - - 101,300 8,502,109
Emerson Electric 183,200 9,581,360 36,500 1,908,950 219,700 11,490,310
General Electric 455,300 13,067,110 98,814 2,835,962 554,114 15,903,072
Intel 765,100 15,944,684 107,500 2,240,300 872,600 18,184,984
Raytheon 305,700 9,794,628 - - 305,700 9,794,628
Teradyne - - 79,800 1,368,570 79,800 1,368,570(A)(B)
Texas Instruments - - 69,200 1,418,600 69,200 1,418,600
---------- ---------- ----------
56,889,891 9,772,382 66,662,273
---------- ---------- ----------
Energy 8.59%
ChevronTexaco 354,900 25,176,606 20,800 1,475,552 375,700 28,652,158
Exxon Mobil 534,326 19,449,466 61,500 2,238,600 595,826 21,688,066
Kerr-McGee 348,700 16,591,146 22,000 1,046,760 370,700 17,637,906
Noble - - 22,000 784,520 22,000 784,520(A)
Occidental Petroleum 458,200 15,459,668 - - 458,200 15,459,668
Royal Dutch Petroleum ADR 217,300 9,898,015 - - 217,300 9,898,015(B)
Tidewater - - 16,000 528,320 16,000 528,320
Valero Energy - - 22,600 847,500 22,600 847,500
---------- ---------- ----------
86,574,901 6,921,252 93,496,153
---------- ---------- ----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Delaware Decatur Equity Income Fund
% of Net Equity Income Fund Delaware Devon Fund Pro Forma Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ------------------------ -------------------------
Food, Beverage & Tobacco 6.59%
Anheuser-Busch 195,200 10,273,376 27,700 1,457,851 222,900 11,731,227
Coca Cola 159,400 7,263,858 24,400 1,111,908 183,800 8,375,766
General Mills 274,400 12,836,432 - - 274,400 12,836,432
Kellogg Company 341,000 12,003,200 23,800 837,760 364,800 12,840,960
Kraft Foods Class A 219,500 7,111,800 - - 219,500 7,111,800
PepsiCo 172,600 7,628,920 23,700 1,047,540 196,300 8,676,460
Sysco 302,600 9,362,444 25,900 801,346 328,500 10,163,790
---------- ---------- ----------
66,480,030 5,256,405 71,736,435
---------- ---------- ----------
Healthcare & Pharmaceuticals 8.80%
Abbott Laboratories 344,200 15,334,110 32,700 1,456,785 376,900 16,790,895
Amgen - - 25,000 1,617,750 25,000 1,617,750(A)
Baxter International 595,800 15,097,572 - - 595,800 15,097,572
Biomet - - 36,800 1,012,000 36,800 1,012,000
Bristol-Myers Squibb 578,000 14,796,800 - - 578,000 14,796,800
HCA - - 33,800 1,115,400 33,800 1,115,400
Johnson & Johnson - - 38,900 2,114,215 38,900 2,114,215
Medtronic - - 22,224 1,082,976 22,224 1,082,976
Pfizer 485,800 15,069,516 140,365 4,354,122 626,165 19,423,638
Wyeth 456,300 20,008,755 60,200 2,639,770 516,500 22,648,525
---------- ---------- ----------
80,306,753 15,393,018 95,699,771
---------- ---------- ----------
Industrial Machinery 0.88%
Caterpillar 183,500 9,569,525 - - 183,500 9,569,525
---------- ---------- ----------
9,569,525 - 9,569,525
---------- ---------- ----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Delaware Decatur Equity Income Fund
% of Net Equity Income Fund Delaware Devon Fund Pro Forma Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- --------------------------- ------------------------ -------------------------
Insurance 9.70%
Allstate 392,900 14,140,471 - - 392,900 14,140,471
American International Group - - 28,937 1,674,874 28,937 1,674,874
Chubb 236,300 15,130,289 14,100 902,823 250,400 16,033,112
John Hancock Financial Services 526,700 15,932,675 - - 526,700 15,932,675
Marsh & McLennan 398,400 19,971,792 - - 398,400 19,971,792(B)
MBIA 163,800 8,198,190 - - 163,800 8,198,190(B)
MGIC Investment 212,200 11,463,044 16,900 912,938 229,100 12,375,982
XL Capital Ltd. Class A 197,900 17,227,195 - - 197,900 17,227,195
----------- ---------- -----------
102,063,656 3,490,635 105,554,291
----------- ---------- -----------
Leisure, Lodging & Entertainment 3.10%
Darden Restaurants 387,600 7,678,356 - - 387,600 7,678,356
MGM Grand 259,000 7,316,750 18,700 528,275 277,700 7,845,025(A)
Starwood Hotels & Resorts Worldwide 289,600 8,392,608 42,200 1,222,956 331,800 9,615,564
Walt Disney - - 91,500 1,797,975 91,500 1,797,975(B)
Westwood One 201,600 6,826,176 - - 201,600 6,826,176(A)
----------- ---------- ----------
30,213,890 3,549,206 33,763,096
----------- ---------- ----------
Metals & Mining 0.92%
Alcoa 320,200 7,880,122 42,400 1,043,464 362,600 8,923,586
Consol Energy - - 48,300 1,079,505 48,300 1,079,505(B)
----------- ---------- -----------
7,880,122 2,122,969 10,003,091
----------- ---------- -----------
Paper & Forest Products 1.71%
International Paper 468,918 17,195,223 14,100 517,047 483,018 17,712,270
Weyerhaeuser - - 17,000 856,460 17,000 856,460
----------- ---------- ----------
17,195,223 1,373,507 18,568,730
----------- ---------- ----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Delaware Decatur Equity Income Fund
% of Net Equity Income Fund Delaware Devon Fund Pro Forma Combined
Assets Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
-------- --------------------------- ------------------------ -------------------------
Retail 2.70%
Federated Department Stores 229,400 7,455,500 34,500 1,121,250 263,900 8,576,750(A)
Home Depot - - 38,600 1,254,114 38,600 1,254,114
Kohl's - - 18,700 978,945 18,700 978,945(A)
Limited Brands 867,100 13,231,946 106,400 1,623,664 973,500 14,855,610
Target - - 39,200 1,435,896 39,200 1,435,896
Wal-Mart Stores - - 43,600 2,293,796 43,600 2,293,796
----------- ----------- -------------
20,687,446 8,707,665 29,395,111
----------- ----------- -------------
Telecommunications 3.09%
Alltel 131,100 6,277,068 - - 131,100 6,277,068(B)
BellSouth 247,400 6,558,574 - - 247,400 6,558,574
SBC Communications 377,864 9,620,427 43,392 1,104,760 421,256 10,725,187
Verizon Communications 241,736 9,149,708 24,900 942,465 266,636 10,092,173
------- ----------- ----------- -------------
31,605,777 2,047,225 33,653,002
----------- ----------- -------------
Textiles, Apparel & Furniture 0.65%
Nike 127,200 7,121,928 - - 127,200 7,121,928(B)
----------- ----------- -------------
7,121,928 - 7,121,928
----------- ----------- -------------
Transportation & Shipping 0.90%
Burlington Northern Santa Fe 263,400 7,772,934 - - 263,400 7,772,934
CSX Southwest Airlines - - 21,300 697,575 21,300 697,575
- - 80,900 1,300,063 80,900 1,300,063
----------- ----------- -------------
7,772,934 1,997,638 9,770,572
----------- ----------- -------------
Utilities 6.34%
BCE 367,400 8,090,148 - - 367,400 8,090,148
Dominion Resources 193,600 12,196,800 21,200 1,335,600 214,800 13,532,400
Exelon 123,300 7,065,090 16,500 945,450 139,800 8,010,540
FirstEnergy 294,400 10,836,864 - - 294,400 10,836,864
FPL Group 192,800 12,815,416 - - 192,800 12,815,416
Public Service Enterprise Group 366,300 15,651,999 - - 366,300 15,651,999(B)
----------- ----------- -------------
66,656,317 2,281,050 68,937,367
----------- ----------- -------------
Total Common Stock 971,556,237 103,450,372 1,075,006,609
Delaware Decatur
% of Net Equity Income Fund Delaware Devon Fund
Assets Shares/Par Market Value Shares/Par Market Value
---------- -------------------------- -------------------------
Repurchase Agreements 1.19%
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by $3,918,000
U.S. Treasury Bills due 8/28/03, market
value $3,908,423) $3,831,000 3,831,000
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by $494,000
U.S. Treasury Bills due 8/28/03, market
value $493,081) $483,400 483,400
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by $1,277,000
U.S. Treasury Notes 5.25% due 5/15/04,
market value $1,329,929 and $589,000 U.S
Treasury Notes 7.25% due 5/15/04,
market value $624,449) 1,916,000 1,916,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by $161,000
U.S. Treasury Notes 5.25% due 5/15/04,
market value $167,782 and $74,000
U.S. Treasury Notes 7.25% due 5/15/04,
market value $78,779) 241,700 241,700
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by $970,000
U.S. Treasury Notes 2.125% due 8/31/04,
market value $985,892) 966,000 966,000 966,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by $122,000
U.S. Treasury Notes 2.125% due 8/31/04,
market value $124,379) 121,800 121,800
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by $4,387,000
U.S. Treasury Notes 7.875% due 11/15/04,
market value $4,820,909) 4,725,000 4,725,000
[STUBBED]
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Equity Income Fund
Pro Forma Combined
Shares/Par Market Value
---------------------------
Repurchase Agreements
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by $3,918,000
U.S. Treasury Bills due 8/28/03, market
value $3,908,423) 3,831,000 3,831,000
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by $494,000
U.S. Treasury Bills due 8/28/03, market
value $493,081) $ 483,400 483,400
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by $1,277,000
U.S. Treasury Notes 5.25% due 5/15/04,
market value $1,329,929 and $589,000 U.S
Treasury Notes 7.25% due 5/15/04,
market value $624,449) 1,916,000 1,916,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by $161,000
U.S. Treasury Notes 5.25% due 5/15/04,
market value $167,782 and $74,000
U.S. Treasury Notes 7.25% due 5/15/04,
market value $78,779) 241,700 241,700
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by $970,000
U.S. Treasury Notes 2.125% due 8/31/04,
market value $985,892) 966,000 966,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by $122,000
U.S. Treasury Notes 2.125% due 8/31/04,
market value $124,379) 121,800 121,800
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by $4,387,000
U.S. Treasury Notes 7.875% due 11/15/04,
market value $4,820,909) 4,725,000 4,725,000
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
% of Net Equity Income Fund Delaware Devon Fund
Assets Shares/Par Market Value Shares/Par Market Value
------------ ------------------------------ --------------------------
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by $553,000
U.S. Treasury Notes 7.875% due 11/15/04, market
value $608,198) 596,100 596,100
--------------- -----------
Total Repurchase Agreements 11,438,000 1,443,000
--------------- -----------
----------------------------------------------------------------------------------------------------------------------------
Total Investments at Market 100.00% $982,994,237 $104,893,372
--------------- ------------
Short Term Investments Held as
Collateral for Loaned Securities 1.75% 16,759,225 2,287,850
Total Investments at Cost
$906,866,391 $109,593,188
--------------- ------------
- -----------------------------------------------------------
(A) Non income producing
(B) Security is partially or fully on loan
(C) No adjustments are shown to the unaudited pro forma combined portfolio of
investments due to the fact that upon completion of the acquisition, no
securities would need to be sold in order for the Acquiring Fund to comply
with its Prospectus and SEC and IRS guidelines and restrictions. However,
the foregoing sentence shall not restrict in any way the ability of the
investment advisor of either of the Funds from buying or selling securities
in the normal course of such Fund's business and operations.
(D) See Note #5 in "Pro Forma Notes to Financial Statements."
ADR - American Depositary Receipts
See Pro Forma Notes to Financial Statements
[STUBBED]
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Equity Income Fund
Pro Forma Combined
Shares/Par Market Value
----------------------------
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by $553,000
U.S. Treasury Notes 7.875% due 11/15/04, market
value $608,198) 596,100
596,100
-----------
Total Repurchase Agreements 12,881,000
-----------
------------------------------------------------- ----------------------------
Total Investments at Market $1,087,887,609
--------------
Short Term Investments Held as
Collateral for Loaned Securities 19,047,075(D)
Total Investments at Cost
$1,016,459,579
- -----------------------------------------------------------
(A) Non income producing
(B) Security is partially or fully on loan
(C) No adjustments are shown to the unaudited pro forma combined portfolio of
investments due to the fact that upon completion of the acquisition, no
securities would need to be sold in order for the Acquiring Fund to comply
with its Prospectus and SEC and IRS guidelines and restrictions. However,
the foregoing sentence shall not restrict in any way the ability of the
investment advisor of either of the Funds from buying or selling securities
in the normal course of such Fund's business and operations.
(D) See Note #5 in "Pro Forma Notes to Financial Statements."
ADR - American Depositary Receipts
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Assets and Liabilities
As of May 31, 2003
(Unaudited)
Delaware Delaware Pro Forma
Decatur Equity Devon Fund Adjustments
Income Fund
---------------- ------------- -------------
Assets
Investments, at market value $982,994,237 $104,893,372 $ -
Cash 1,267 - -
Short term investments held as collateral for
loaned securities 16,759,225 2,287,850 -
Receivable for fund shares sold 142,599 6,160 -
Receivable for securities sold - - -
Dividend and interest receivable -
2,059,265 168,651
Other assets -
387 19,820
------------ ------------ --------------
Total Assets 1,001,956,980 107,375,853 -
------------ ------------ --------------
Liabilities
Payable for fund shares repurchased 647,053 11,563 -
Payable for securities purchased 628,422 - -
Obligation to return
securities lending collateral 16,759,225 2,287,850 -
Accrued expenses and other liabilities 284,377 826,747 -
------------ ------------ --------------
Total Liabilities 18,319,077 3,126,160 -
------------ ------------ --------------
Net Assets $983,637,903 $104,249,693 $ -
============ ============ ==============
Analysis of Net Assets
Accumulated paid in capital $1,078,608,095 $176,638,785 $ -
Undistributed net investment income* 3,670,719 78,041 -
Accumulated net realized loss on investments (174,768,757) (67,767,317) -
Unrealized appreciation (depreciation)
of investments 76,127,846 (4,699,816) -
-------------- ------------ --------------
Net Assets $983,637,903 $104,249,693 $ -
============== ============ ==============
*Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the Internal
Revenue Code.
[STUBBED]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Assets and Liabilities
As of May 31, 2003
(Unaudited)
Delaware
Decatur
Equity
Income Fund
Pro Forma
Combined
--------------
Assets
Investments, at market value $1,087,887,609
Cash 1,267
Short term investments held as collateral for
loaned securities 19,047,075
Receivable for fund shares sold 148,759
Receivable for securities sold -
Dividend and interest receivable 2,227,916
Other assets 20,207
--------------
Total Assets 1,109,332,833
--------------
Liabilities
Payable for fund shares repurchased 658,616
Payable for securities purchased 628,422
Obligation to return
securities lending collateral 19,047,075
Accrued expenses and other liabilities 1,111,124
--------------
Total Liabilities 21,445,237
--------------
Net Assets $1,087,887,596
==============
Analysis of Net Assets
Accumulated paid in capital $1,255,246,880
Undistributed net investment income* 3,748,760
Accumulated net realized loss on investments (242,536,074)
Unrealized appreciation (depreciation)
of investments 71,428,030
--------------
Net Assets $1,087,887,596
==============
*Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the Internal
Revenue Code.
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Assets and Liabilities
As of May 31, 2003
(Unaudited)
Delaware
Decatur
Equity
Income Fund
Delaware Delaware Pro Forma Pro Forma
Decatur Equity Devon Fund Adjustments Combined
Income Fund
--------------- -------------------- --------------- ------------
Outstanding Shares 65,400,676 8,199,987 (1,254,295) 72,346,368
Retail Class A Shares 57,482,145 3,097,508 60,144,288
(435,365)
Retail Class B Shares 4,886,161 3,688,899 7,969,906
(605,154)
Retail Class C Shares 774,103 791,614 1,431,562
(134,155)
Retail Class R Shares 1 1 - 2
Institutional Shares 2,258,266 621,965 (79,621) 2,800,610
Net asset value per share:
Retail Class A Shares $15.05 $12.93 $15.05
Retail Class B Shares $14.96 $12.51 $14.96
Retail Class C Shares $15.05 $12.50 $15.05
Retail Class R Shares $15.05 $12.93 $15.05
Institutional Shares $15.04 $13.11 $15.04
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
(Unaudited)
Delaware
Decatur Equity Delaware Pro Forma
Income Fund Devon Fund Adjustments
----------------- ------------------- ------------
Investment Income
Dividend income $24,789,934 $1,866,009 $ -
Interest income 258,332 23,255 -
Security lending income 52,845 11,388
----------------- ------------------- ------------
Total Investment Income 25,101,111 1,900,652 -
----------------- ------------------- ------------
Expenses
Management fees 6,030,101 686,120 (77,675)(A)
Distribution expenses - Class A 2,119,527 120,578 -
Distribution expenses - Class B 740,946 479,263 -
Distribution expenses - Class C 110,134 98,469 -
Distribution expenses - Class R - - -
Dividend disbursing and transfer agent fees and expenses 2,117,766 (B) 1,134,300(B) -
Accounting and administration expenses 431,257 47,588 -
Reports and statements to shareholders 233,328 204,020 (127,400)(C)
Registration fees 47,213 64,085 (40,000)(C)
Professional fees 72,396 23,300 (21,000)(C)
Trustees' fees 44,000 9,000 (5,800)(D)
Custodian fees 29,957 5,905 (659)(C)
Other 276,922 96,521 (52,550)(C)
----------------- ------------------- ---------------
12,253,547 2,969,149 (325,084)
Less expenses absorbed or waived - (1,000,553)(B) 1,000,553
Less expenses paid indirectly (23,398) (2,766) 234(C)
----------------- ------------------- ---------------
Total expense 12,230,149 1,965,830 675,703
----------------- ------------------- ---------------
Net Investment Income/(Loss) 12,870,962 (65,178) (675,703)
----------------- ------------------- ---------------
[STUBBED]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
(Unaudited)
Delaware
Decatur
Fund
Pro Forma
Combined
----------------
Investment Income
Dividend income $ 26,655,943
Interest income 281,587
Security lending income 64,233
----------------
Total Investment Income 27,001,763
----------------
Expenses
Management fees 6,638,546
Distribution expenses - Class A 2,240,105
Distribution expenses - Class B 1,220,209
Distribution expenses - Class C 208,603
Distribution expenses - Class R -
Dividend disbursing and transfer agent fees and expenses 3,252,066
Accounting and administration expenses 478,845
Reports and statements to shareholders 309,948
Registration fees 71,298
Professional fees 74,696
Trustees' fees 47,200
Custodian fees 35,203
Other 320,893
----------------
14,897,612
Less expenses absorbed or waived -
Less expenses paid indirectly (25,930)
----------------
Total expense 14,871,682
----------------
Net Investment Income/(Loss) 12,130,081
----------------
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
(Unaudited)
Delaware Delaware Pro Forma
Decatur Equity Devon Fund Adjustments
Income Fund
-------------------- --------------- --------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain (loss) on:
Investments (114,730,169) (19,942,643) -
Foreign currencies 1,160 - -
-------------------- --------------- --------------
Net realized gain (loss) (114,729,009) (19,942,643) -
Change in unrealized appreciation/(depreciation)
of investments (22,774,215) 9,939,877 -
-------------------- --------------- --------------
Net Realized and Unrealized Gain (Loss) on Investments (137,503,224) (10,002,766) -
--------------------- --------------- --------------
Change in Net Assets Resulting from Operations $ (124,632,262) $ (10,067,944) $ (675,703)
===================== =============== ==============
(A) Decrease due to the impact of lower break point levels being implemented by
merging the funds.
(B) Expense level was increased from historical levels due to the fee schedule
change effective June 1, 2003.
(C) Decrease due to elimination of expenses by merging the funds.
(D) Based on trustees' compensation plan for the surviving fund.
(E) An expense limitation will go into effect on Delaware Decatur Equity Income
Fund at it's expense level (excluding distribution expenses) immediately
prior to the merger.
See Pro Forma Notes to Financial Statements
[STUBBED]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
(Unaudited)
Delaware
Decatur
Fund
Pro Forma
Combined
---------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain (loss) on:
Investments (134,672,812)
Foreign currencies 1,160
---------------
Net realized gain (loss) (134,671,652)
Change in unrealized appreciation/(depreciation)
of investments
(12,834,338)
---------------
Net Realized and Unrealized Gain (Loss) on Investments (147,505,990)
---------------
Change in Net Assets Resulting from Operations $(135,375,909)
===============
(A)Decrease due to the impact of lower break point levels being implemented by
merging the funds.
(B)Expense level was increased from historical levels due to the fee schedule
change effective June 1, 2003.
(C)Decrease due to elimination of expenses by merging the funds.
(D)Based on trustees' compensation plan for the surviving fund.
(E)An expense limitation will go into effect on Delaware Decatur Equity Income
Fund at it's expense level (excluding distribution expenses) immediately
prior to the merger.
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Annual Fund Operating Expenses
As of May 31, 2003
(Unaudited)
Delaware Decatur Equity Income Fund Delaware Devon Fund
Retail Retail Retail Retail Institutional Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares
Management fees 0.62% 0.62% 0.62% 0.62% 0.62% 0.65% 0.65% 0.65% 0.65% 0.65%
Rule 12b-1 fees 0.25% 1.00% 1.00% 0.60% N/A 0.30% 1.00% 1.00% 0.60% N/A
Other expenses 0.34% 0.34% 0.34% 0.34% 0.34% 1.50% 1.50% 1.50% 1.50% 1.50%
Total fund operating expenses 1.21% 1.96% 1.96% 1.56% 0.96% 2.45% 3.15% 3.15% 2.75% 2.15%
Fee Waviers & payments 0.00% 0.00% 0.00% 0.00% 0.00% -0.95% -0.95% -0.95% -0.95% -0.95%
Expense Limit 1.21% 1.96% 1.96% 1.56% 0.96% 1.50% 2.20% 2.20% 1.80% 1.20%
[STUBBED]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Annual Fund Operating Expenses
As of May 31, 2003
(Unaudited)
Delaware Decatur Equity Income Fund
Pro Forma Combined
Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares
------- ------- ------- ------- ------------
Management fees 0.62% 0.62% 0.62% 0.62% 0.62%
Rule 12b-1 fees 0.25% 1.00% 1.00% 0.60% N/A
Other expenses 0.43% 0.43% 0.43% 0.43% 0.43%
Total fund operating expenses 1.30% 2.05% 2.05% 1.65% 1.05%
Fee Waviers & payments -0.09% -0.09% -0.09% -0.09% -0.09%(A)
Expense Limit 1.21% 1.96% 1.96% 1.56% 0.96%(A)
(A) An expense limitation will go into effect on Delaware Decatur Equity Income
Fund at it's expense level (excluding distribution expenses) immediately
prior to the merger.
Delaware Decatur Equity Income Fund Pro Forma Notes to Financial Statements
May 31, 2003 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware business
trust and offers four series: Delaware Decatur Equity Income Fund, Delaware
Diversified Value Fund, Delaware Growth and Income Fund, and Delaware Social
Awareness Fund. These financial statements and related notes pertain to the
Delaware Decatur Equity Income Fund (the "Fund"). The Trust is an open-end
investment company. The Fund is considered diversified under the Investment
Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares were held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
12 months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors.
The investment objective of the Delaware Decatur Equity Income Fund is to seek
total return.
1. Basis of Pro forma Presentation
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of the Delaware Devon Fund by the Delaware Decatur
Equity Income Fund, as if such acquisition had taken place as of June 1, 2002.
Under the terms of the Plan of Reorganization, the combination of the Delaware
Devon Fund and the Delaware Decatur Equity Income Fund will be accounted for by
a method of accounting for tax-free mergers of investment companies. The
acquisition would be accomplished by an acquisition of the net assets of the
Delaware Devon Fund in exchange for shares of the Delaware Decatur Equity Income
Fund at net asset value. The statement of assets and liabilities and the related
statement of operations of the Delaware Devon Fund and the Delaware Decatur
Equity Income Fund have been combined for the twelve months ended May 31, 2003.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements of the Delaware Decatur Equity Income Fund
semiannual report dated May 31, 2003 and the Delaware Devon Fund semi-annual
report dated April 30, 2003.
The following notes refer to the accompanying pro forma financial statements as
if the above-mentioned acquisition of the Delaware Devon Fund by the Delaware
Decatur Equity Income Fund had taken place as of June 1, 2002.
2. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. Securities traded on the Nasdaq Stock Market, Inc.
("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price,
which may not be the last sale price. If on a particular day an equity security
does not trade, then the mean between the bid and asked prices will be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Fund's Board of Trustees. In
determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes - The Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. The Fund declares and pays dividends from net
investment income quarterly and distributions from net realized gain on
investments, if any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $25,695 for the period ended May 31, 2003. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. The
earnings credits for the period ended May 31, 2003 were approximately $235. The
expenses paid under the above arrangements are included in their respective
expense captions on the Statement of Operations with the corresponding expense
offset shown as "expenses paid indirectly".
3. Investment Management, Administration Agreements and Other Transactions
with Affiliates
In accordance with the terms of the investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on
average daily net assets in excess of $2.5 billion.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts.
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual fee not to exceed 0.30% of the average daily net assets of the Class A
shares, 1.00% of the average daily net assets of the Class B and C shares and
0.60% of the average daily net assets of the Class R shares. Institutional Class
shares pay no distribution and service expenses.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
4. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $202,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of May 31, 2003, or at any time during the
period.
5. Securities Lending
The Fund, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. Treasury obligations and/or
cash collateral not less than 102% of the market value of the securities issued
in the United States and 105% of the market value of securities issued outside
the United States. With respect to each loan, if the aggregate market value of
the collateral held on any business day is less than the aggregate market value
of the securities which are the subject of such loan, the borrower will be
notified to provide additional collateral not less than the applicable
collateral requirements. Cash collateral received is invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poors Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Fund, or at the discretion
of the lending agent, replace the loaned securities. At May 31, 2003, the market
value of the securities on loan was $18,885,723.
The securities on loan were collateralized by the following:
Description Market Value
UBS Warburg LLC 1.38% 6/2/03 $10,087,876
Fannie Mae 1.31% 1/29/04 5,396,657
Barclays London 1.27% 6/17/03 864,651
Goldman Sachs Group 1.52% 7/14/03 755,560
Wilmington Trust Company 1.26% 7/21/03 541,350
Merrill Lynch Mortgage Capital 1.48% 6/6/03 539,686
Racers Series 2002-35-C 1.61% 4/15/04 537,509
Morgan Stanley Dean Witter 1.41% 6/30/04 215,874
Canadian Imperial Bank NY 1.41% 10/9/03 107,912
-----------
$19,047,075
-----------
Pro Forma Financial Statements for the Reorganization of Delaware Growth and Income Fund into
Delaware Decatur Equity Income Fund
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur Delaware Growth
% of Net Equity Income Fund and Income Fund
Assets Shares/Par Market Value Shares/Par Market Value
Common Stock 98.98%
Aerospace & Defense 1.67%
Boeing 222,200 $6,814,874 108,800 $3,336,896
Honeywell International 351,500 9,209,300 189,400 4,962,280
---------- ----------
16,024,174 8,299,176
---------- ----------
Automobiles & Automotive Parts 0.93%
General Motors 273,500 9,662,755 108,700 3,840,371
---------- ----------
9,662,755 3,840,371
---------- ----------
Banking & Finance 20.10%
Bank of America 275,082 20,411,084 132,548 9,835,062
Bank of New York 616,600 17,850,570 215,700 6,244,515
Charter One Financial - - 152,900 4,657,334
Citigroup 407,400 16,711,548 248,400 10,189,368
Comerica 274,600 12,705,742 134,300 6,214,061
FleetBoston Financial 495,700 14,657,849 147,400 4,358,618
Goldman Sachs Group 183,800 14,979,700 123,600 10,073,400
J.P. Morgan Chase 613,890 20,172,425 326,150 10,717,289
KeyCorp 358,000 9,451,200 81,100 2,141,040
MBNA 626,000 12,551,300 341,000 6,837,050
Mellon Financial 615,000 16,709,550 303,600 8,248,812
Morgan Stanley 254,400 11,638,800 229,400 10,495,050
U.S. Bancorp 864,100 20,479,171 417,300 9,890,010
Wells Fargo - - 93,200 4,501,560
---------- -----------
188,318,939 104,403,169
---------- -----------
Cable, Media & Publishing 1.23%
Gannett 94,400 7,457,600 45,200 3,570,800
Knight-Ridder 68,900 4,853,316 31,900 2,247,036
---------- ----------
12,310,916 5,817,836
---------- ----------
[STUBBED]
Pro Forma Financial Statements for the Reorganization of Delaware Growth and
Income Fund into Delaware Decatur Equity Income Fund
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur
Equity Income Fund
Pro Forma Combined
Shares/Par Market Value
----------------------------
Common Stock
Aerospace & Defense
Boeing 331,000 $ 10,151,770
Honeywell International 540,900 14,171,580
-----------
24,323,350
-----------
Automobiles & Automotive Parts
General Motors 382,200 13,503,126
-----------
13,503,126
-----------
Banking & Finance
Bank of America 407,630 30,246,146
Bank of New York 832,300 24,095,085
Charter One Financial 152,900 4,657,334
Citigroup 655,800 26,900,916
Comerica 408,900 18,919,803(B)
FleetBoston Financial 643,100 19,016,467
Goldman Sachs Group 307,400 25,053,100
J.P. Morgan Chase 940,040 30,889,714
KeyCorp 439,100 11,592,240
MBNA 967,000 19,388,350
Mellon Financial 918,600 24,958,362
Morgan Stanley 483,800 22,133,850
U.S. Bancorp 1,281,400 30,369,181
Wells Fargo 93,200 4,501,560
------------
292,722,108
------------
Cable, Media & Publishing
Gannett 139,600 11,028,400
Knight-Ridder 100,800 7,100,352(B)
------------
18,128,752
------------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
% of Net Delaware Decatur Equity Income Fund
Assets Shares/Par Market Value
------------- -----------------------------------------------
Chemicals 3.56%
Air Products & Chemicals 161,200 7,026,708
Dow Chemical 468,000 14,882,400
duPont (E.I.) de Nemours 222,400 9,371,936
Rohm & Haas - -
-----------------
31,281,044
-----------------
Computers & Technology 6.86%
Cisco Systems 788,500 12,836,780
First Data 175,900 7,285,778
Hewlett-Packard - -
International Business Machines 119,900 10,555,996
Microsoft 532,700 13,109,747
Oracle 1,111,800 14,464,518
Pitney Bowes 211,900 8,139,079
-----------------
66,391,898
-----------------
Consumer Products 5.48%
3M 58,400 7,385,848
Gillette 346,600 11,649,226
Kimberly-Clark 375,800 19,515,294
Newell Rubbermaid 631,500 17,997,750
-----------------
56,548,118
-----------------
Electronics & Electrical Equipment 6.09%
Eaton 101,300 8,502,109
Emerson Electric 183,200 9,581,360
General Electric 455,300 13,067,110
Intel 765,100 15,944,684
National Semiconductor - -
Raytheon 305,700 9,794,628
Texas Instruments - -
-----------------
56,889,891
-----------------
Energy 8.30%
ChevronTexaco 354,900 25,176,606
Exxon Mobil 534,326 19,449,466
Kerr-McGee 348,700 16,591,146
Occidental Petroleum 458,200 15,459,668
Royal Dutch Petroleum ADR 217,300 9,898,015
-----------------
86,574,901
-----------------
Food, Beverage & Tobacco 6.04%
Anheuser-Busch 195,200 10,273,376
Coca Cola 159,400 7,263,858
General Mills 274,400 12,836,432
Kellogg Company 341,000 12,003,200
Kraft Foods Class A 219,500 7,111,800
PepsiCo 172,600 7,628,920
Sysco 302,600 9,362,444
-----------------
66,480,030
-----------------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur Equity Income Fund
Delaware Growth and Income Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value
------------------------------- ------------------------------------
Chemicals
Air Products & Chemicals 101,300 4,415,667 262,500 11,442,375
Dow Chemical 252,000 8,013,600 720,000 22,896,000
duPont (E.I.) de Nemours 107,800 4,542,692 330,200 13,914,628
Rohm & Haas 110,800 3,593,244 110,800 3,593,244
----------------- -------------------
20,565,203 51,846,247
----------------- -------------------
Computers & Technology
Cisco Systems 384,500 6,259,660 1,173,000 19,096,440(A)
First Data 122,500 5,073,950 298,400 12,359,728
Hewlett-Packard 197,100 3,843,450 197,100 3,843,450
International Business Machines 51,300 4,516,452 171,200 15,072,448
Microsoft 271,400 6,679,154 804,100 19,788,901
Oracle 544,200 7,080,042 1,656,000 21,544,560(A)
Pitney Bowes - - 211,900 8,139,079
----------------- -------------------
33,452,708 99,844,606
----------------- -------------------
Consumer Products
3M - - 58,400 7,385,848
Gillette 149,700 5,031,417 496,300 16,680,643
Kimberly-Clark 181,000 9,399,330 556,800 28,914,624
Newell Rubbermaid 309,300 8,815,050 940,800 26,812,800
----------------- -------------------
23,245,797 79,793,915
----------------- -------------------
Electronics & Electrical Equipment
Eaton - - 101,300 8,502,109
Emerson Electric 90,000 4,707,000 273,200 14,288,360
General Electric 274,400 7,875,280 729,700 20,942,390
Intel 359,600 7,494,064 1,124,700 23,438,748
National Semiconductor 96,100 2,398,656 96,100 2,398,656(A)
Raytheon 150,600 4,825,224 456,300 14,619,852
Texas Instruments 218,000 4,469,000 218,000 4,469,000
----------------- -------------------
31,769,224 88,659,115
----------------- -------------------
Energy
ChevronTexaco 86,500 6,136,310 441,400 31,312,916
Exxon Mobil 299,254 10,892,846 833,580 30,342,312
Kerr-McGee 138,500 6,589,830 487,200 23,180,976
Occidental Petroleum 172,500 5,820,150 630,700 21,279,818
Royal Dutch Petroleum ADR 105,800 4,819,190 323,100 14,717,205(B)
----------------- -------------------
34,258,326 120,833,227
----------------- -------------------
Food, Beverage & Tobacco
Anheuser-Busch 95,900 5,047,217 291,100 15,320,593
Coca Cola - - 159,400 7,263,858
General Mills 70,600 3,302,668 345,000 16,139,100
Kellogg Company - - 341,000 12,003,200
Kraft Foods Class A 107,200 3,473,280 326,700 10,585,080
PepsiCo 110,600 4,888,520 283,200 12,517,440
Sysco 152,200 4,709,068 454,800 14,071,512
----------------- -------------------
21,420,753 87,900,783
----------------- -------------------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
% of Net Delaware Decatur Equity Income Fund
Assets Shares/Par Market Value
------------- ------------------------------------------
Healthcare & Pharmaceuticals 8.16%
Abbott Laboratories 344,200 15,334,110
Baxter International 595,800 15,097,572
Bristol-Myers Squibb 578,000 14,796,800
Pfizer 485,800 15,069,516
Wyeth 456,300 20,008,755
-----------------
80,306,753
-----------------
Industrial Machinery 1.41%
Caterpillar 183,500 9,569,525
Deere - -
-----------------
9,569,525
-----------------
Insurance 10.68%
Allstate 392,900 14,140,471
American International Group - -
Chubb 236,300 15,130,289
John Hancock Financial Services 526,700 15,932,675
Marsh & McLennan 398,400 19,971,792
MBIA 163,800 8,198,190
MGIC Investment 212,200 11,463,044
XL Capital Ltd. Class A 197,900 17,227,195
-----------------
102,063,656
-----------------
Leisure, Lodging & Entertainment 3.42%
Darden Restaurants 387,600 7,678,356
MGM Grand 259,000 7,316,750
Starwood Hotels & Resorts Worldwide 289,600 8,392,608
Walt Disney - -
Westwood One 201,600 6,826,176
-----------------
30,213,890
-----------------
Metals & Mining 0.87%
Alcoa 320,200 7,880,122
-----------------
7,880,122
-----------------
Paper & Forest Products 1.76%
International Paper 468,918 17,195,223
-----------------
17,195,223
-----------------
Retail 1.82%
Federated Department Stores 229,400 7,455,500
Limited Brands 867,100 13,231,946
Target - -
-----------------
20,687,446
-----------------
Telecommunications 3.19%
Alltel 131,100 6,277,068
BellSouth 247,400 6,558,574
SBC Communications 377,864 9,620,427
Verizon Communications 241,736 9,149,708
-----------------
31,605,777
-----------------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur Equity Income Fund
Delaware Growth and Income Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value
-------------------------------- ------------------------------------
Healthcare & Pharmaceuticals
Abbott Laboratories 189,600 8,446,680 533,800 23,780,790
Baxter International 291,400 7,384,076 887,200 22,481,648
Bristol-Myers Squibb 211,900 5,424,640 789,900 20,221,440
Pfizer 212,020 6,576,860 697,820 21,646,376
Wyeth 243,600 10,681,860 699,900 30,690,615
----------------- -------------------
38,514,116 118,820,869
----------------- -------------------
Industrial Machinery
Caterpillar 101,700 5,303,655 285,200 14,873,180
Deere 128,300 5,602,861 128,300 5,602,861
----------------- -------------------
10,906,516 20,476,041
----------------- -------------------
Insurance
Allstate 132,900 4,783,071 525,800 18,923,542
American International Group 88,900 5,145,532 88,900 5,145,532
Chubb 114,600 7,337,838 350,900 22,468,127
John Hancock Financial Services 255,000 7,713,750 781,700 23,646,425
Marsh & McLennan 188,800 9,464,544 587,200 29,436,336(B)
MBIA 79,600 3,983,980 243,400 12,182,170(B)
MGIC Investment 133,800 7,227,876 346,000 18,690,920
XL Capital Ltd. Class A 90,100 7,843,205 288,000 25,070,400
----------------- -------------------
53,499,796 155,563,452
----------------- -------------------
Leisure, Lodging & Entertainment
Darden Restaurants 248,100 4,914,861 635,700 12,593,217
MGM Grand 127,400 3,599,050 386,400 10,915,800(A)
Starwood Hotels & Resorts Worldwide 141,400 4,097,772 431,000 12,490,380
Walt Disney 188,400 3,702,060 188,400 3,702,060(B)
Westwood One 98,300 3,328,438 299,900 10,154,614(A)
----------------- -------------------
19,642,181 49,856,071
----------------- -------------------
Metals & Mining
Alcoa 192,200 4,730,042 512,400 12,610,164
----------------- -------------------
4,730,042 12,610,164
----------------- -------------------
Paper & Forest Products
International Paper 229,900 8,433,733 698,818 25,628,956
----------------- -------------------
8,433,733 25,628,956
----------------- -------------------
Retail
Federated Department Stores - - 229,400 7,455,500(A)
Limited Brands - - 867,100 13,231,946
Target 158,500 5,805,855 158,500 5,805,855
----------------- -------------------
5,805,855 26,493,301
----------------- -------------------
Telecommunications
Alltel 92,600 4,433,688 223,700 10,710,756(B)
BellSouth - - 247,400 6,558,574
SBC Communications 183,711 4,677,282 561,575 14,297,709
Verizon Communications 151,672 5,740,785 393,408 14,890,493
----------------- -------------------
14,851,755 46,457,532
----------------- -------------------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
% of Net Delaware Decatur Equity Income Fund
Assets Shares/Par Market Value
------------- -----------------------------------------------
Textiles, Apparel & Furniture 0.86%
Nike 127,200 7,121,928
-----------------
7,121,928
-----------------
Transportation & Shipping 0.53%
Burlington Northern Santa Fe 263,400 7,772,934
-----------------
7,772,934
-----------------
Utilities 6.02%
BCE 367,400 8,090,148
Dominion Resources 193,600 12,196,800
Exelon 123,300 7,065,090
FirstEnergy 294,400 10,836,864
FPL Group 192,800 12,815,416
Public Service Enterprise Group 366,300 15,651,999
-----------------
66,656,317
-----------------
Total Common Stock 971,556,237
Repurchase Agreements 1.02%
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by $3,918,000
U.S. Treasury Bills due 8/28/03, market
value $3,908,423) $3,831,000 3,831,000
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by $1,167,000
U.S. Treasury Bills due 8/28/03, market
value $1,164,531)
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by $1,277,000
U.S. Treasury Notes 5.25% due 5/15/04,
market value $1,329,929 and $589,000 U.S Treasury Notes
7.25% due 5/15/04, market value $624,449) 1,916,000 1,916,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by $381,000
U.S. Treasury Notes 5.25% due 5/15/04,
market value $396,258 and $175,000 U.S. Treasury Notes
7.25% due 5/15/04, market value $186,057)
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by $970,000
U.S. Treasury Notes 2.125% due 8/31/04, market
value $985,892) 966,000 966,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by $289,000
U.S. Treasury Notes 2.125% due 8/31/04, market
value $293,751)
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by $4,387,000
U.S. Treasury Notes 7.875% due 11/15/04, market
value $4,820,909) 4,725,000 4,725,000
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by $1,307,000
U.S. Treasury Notes 7.875% due 11/15/04, market
value $1,436,410)
-----------------
Total Repurchase Agreements 11,438,000
-----------------
- -----------------------------------------------------------------------------------------------------------------------
-----------------
Total Investments at Market 100.00% $ 982,994,237
-----------------
Short Term Investments Held as Collateral for Loaned
Securities 16,759,225
Total Investments at Cost $ 906,866,391
-----------------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur Equity Income Fund
Delaware Growth and Income Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value
-------------------------------- ------------------------------------
Textiles, Apparel & Furniture
Nike 96,700 5,414,233 223,900 12,536,161(B)
----------------- -------------------
5,414,233 12,536,161
----------------- -------------------
Transportation & Shipping
Burlington Northern Santa Fe - - 263,400 7,772,934
----------------- -------------------
- 7,772,934
----------------- -------------------
Utilities
BCE 258,500 5,692,170 625,900 13,782,318
Dominion Resources 78,500 4,945,500 272,100 17,142,300
Exelon - - 123,300 7,065,090
FirstEnergy 138,100 5,083,461 432,500 15,920,325
FPL Group 79,600 5,291,012 272,400 18,106,428
Public Service Enterprise Group - - 366,300 15,651,999(B)
----------------- -------------------
21,012,143 87,668,460
----------------- -------------------
Total Common Stock 469,882,933 1,441,439,170
Repurchase Agreements
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by $3,918,000
U.S. Treasury Bills due 8/28/03, market
value $3,908,423) $ 3,831,000 $ 3,831,000
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by $1,167,000
U.S. Treasury Bills due 8/28/03, market
value $1,164,531) $1,141,000 1,141,000 $ 1,141,000 1,141,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by $1,277,000
U.S. Treasury Notes 5.25% due 5/15/04,
market value $1,329,929 and $589,000 U.S Treasury Notes
7.25% due 5/15/04, market value $624,449) $ 1,916,000 1,916,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by $381,000
U.S. Treasury Notes 5.25% due 5/15/04,
market value $396,258 and $175,000 U.S. Treasury Notes
7.25% due 5/15/04, market value $186,057) 571,000 571,000 571,000 571,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by $970,000
U.S. Treasury Notes 2.125% due 8/31/04, market
value $985,892) 966,000 966,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by $289,000
U.S. Treasury Notes 2.125% due 8/31/04, market
value $293,751) 288,000 288,000 288,000 288,000
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by $4,387,000
U.S. Treasury Notes 7.875% due 11/15/04, market
value $4,820,909) 4,725,000 4,725,000
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by $1,307,000
U.S. Treasury Notes 7.875% due 11/15/04, market
value $1,436,410) 1,408,000 1,408,000 1,408,000 1,408,000
----------------- -------------------
Total Repurchase Agreements 3,408,000 14,846,000
----------------- -------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments at Market $ 473,280,933 $ 1,456,285,170
----------------- -------------------
Short Term Investments Held as Collateral for Loaned
Securities 5,530,425 22,289,650(D)
Total Investments at Cost $ 450,255,979 $ 1,357,122,370
----------------- -------------------
- ----------------------------------------------------------
(A) Non income producing
(B) Security is partially or fully on loan
(C) No adjustments are shown to the unaudited pro forma combined portfolio of
investments due to the fact that upon completion of the acquisition, no
securities would need to be sold in order for the Acquiring Fund to comply with
its Prospectus and SEC and IRS guidelines and restrictions. However, the
foregoing sentence shall not restrict in any way the ability of the investment
advisor of either of the Funds from buying or selling securities in the normal
course of such Fund's business and operations.
(D) See Note #5 in "Pro Forma Notes to Financial Statements."
ADR - American Depositary Receipts
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Assets and Liabilities
As of May 31, 2003
(Unaudited)
Delaware
Decatur
Equity
Income Fund
Delaware Delaware Pro Forma Pro Forma
Decatur Equity Growth and Income Adjustments Combined
Income Fund Fund
---------------- ----------------- -------------- ---------------
Assets
Investments, at market value $982,994,237 $473,290,933 $- $1,456,285,170
Cash 1,267 735 - 2,002
Short Term investments held as collateral
for loaned securities 16,759,225 5,530,425 - 22,289,650
Receivable for fund shares sold 142,599 110,723 - 253,322
Receivable for securities sold - 1,794,493 - 1,794,493
Dividend and interest receivable 2,059,265 842,332 - 2,901,597
Other assets 387 275 - 662
-------------- ---------------- -------------- ---------------
Total Assets 1,001,956,980 481,569,916 - 1,483,526,896
-------------- ---------------- -------------- ---------------
Liabilities
Payable for fund shares repurchased 647,053 1,018,839 - 1,665,892
Payable for securities purchased 628,422 2,123,530 - 2,751,952
Obligation to return securities lending collateral 16,759,225 5,530,425 - 22,289,650
Accrued expenses and other liabilities 284,377 259,272 - 543,649
-------------- ---------------- -------------- ---------------
Total Liabilities 18,319,077 8,932,066 - 27,251,143
-------------- ---------------- -------------- ---------------
Net Assets $983,637,903 $472,637,850 $- $1,456,275,753
============== ================ ============== ===============
Analysis of Net Assets
Accumulated paid in capital $1,078,608,095 $575,183,355 $- $1,653,791,450
Undistributed net investment income* 3,670,719 1,562,744 - 5,233,463
Accumulated net realized loss on investments (174,768,757) (127,143,203) - (301,911,960)
Unrealized appreciation of investments 76,127,846 23,034,954 - 99,162,800
-------------- ---------------- -------------- ---------------
Net Assets $983,637,903 $472,637,850 $- $1,456,275,753
============== ================ ============== ===============
*Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the Internal
Revenue Code.
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Assets and Liabilities
As of May 31, 2003
(Unaudited)
Delaware
Decatur
Equity
Income Fund
Delaware Delaware Pro Forma Pro Forma
Decatur Equity Growth and Income Adjustments Combined
Income Fund Fund
--------------- -------------------- --------------- ---------------
Outstanding Shares 65,400,676 37,846,666 (6,407,382) 96,839,960
Retail Class A Shares 57,482,145 26,079,216 (4,399,838) 79,161,523
Retail Class B Shares 4,886,161 6,605,676 (1,128,604) 10,363,233
Retail Class C Shares 774,103 1,508,341 (267,777) 2,014,667
Retail Class R Shares 1 1 - 2
Institutional Shares 2,258,266 3,653,432 (611,163) 5,300,535
Net asset value per share:
Retail Class A Shares $15.05 $12.51 $15.05
Retail Class B Shares $14.96 $12.40 $14.96
Retail Class C Shares $15.05 $12.38 $15.05
Retail Class R Shares $15.05 $12.51 $15.05
Institutional Shares $15.04 $12.52 $15.04
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
(Unaudited)
Delaware Decatur Delaware Growth Pro Forma
Equity Income Fund and Income Fund Adjustments
----------------------- ------------------- --------------
Investment Income
Dividend income $24,789,934 $11,440,264 $ -
Interest income 258,332 132,153 -
Security lending income 52,845 41,800
----------- ------------- -----------
Total Investment Income 25,101,111 11,614,217 -
----------- ------------- -----------
Expenses
Management fees 6,030,101 3,089,649 (442,162)(A)
Distribution expenses - Class A 2,119,527 994,154 -
Distribution expenses - Class B 740,946 858,252 -
Distribution expenses - Class C 110,134 187,450 -
Distribution expenses - Class R - - -
Dividend disbursing and transfer agent fees and expenses 2,117,766(B) 2,042,195(B) -
Accounting and administration expenses 431,257 214,466 -
Reports and statements to shareholders 233,328 189,827 (77,600)(C)
Registration fees 47,213 44,000 (20,000)(C)
Professional fees 72,396 38,290 -
Trustees' fees 44,000 25,000 (16,230)(C)
Custodian fees 29,957 22,367 (744)(D)
Other 276,922 156,029 -
----------- ------------- -----------
12,253,547 7,861,679 (556,736)
Less expenses waived - - -
Less expenses paid indirectly (23,398) (11,674) 244(C)
----------- ------------- -----------
Total expense 12,230,149 7,850,005 (556,492)
----------- ------------- -----------
Net Investment Income 12,870,962 3,764,212 556,492
----------- ------------- -----------
[STUBBED]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
(Unaudited)
Delaware
Decatur
Equity
Income Fund
Pro Forma
Combined
--------------
Investment Income
Dividend income $ 36,230,198
Interest income 390,485
Security lending income 94,645
--------------
Total Investment Income 36,715,328
--------------
Expenses
Management fees 8,677,588
Distribution expenses - Class A 3,113,681
Distribution expenses - Class B 1,599,198
Distribution expenses - Class C 297,584
Distribution expenses - Class R -
Dividend disbursing and transfer agent fees and expenses 4,159,961
Accounting and administration expenses 645,723
Reports and statements to shareholders 345,555
Registration fees 71,213
Professional fees 110,686
Trustees' fees 52,770
Custodian fees 51,580
Other 432,951
--------------
19,558,490
Less expenses waived -(E)
Less expenses paid indirectly (34,828)
--------------
Total expense 19,523,662
--------------
Net Investment Income 17,191,666
--------------
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
(Unaudited)
Delaware Decatur Delaware Growth Pro Forma
Equity Income Fund and Income Fund Adjustments
----------------------- ------------------- ----------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain (loss) on:
Investments (114,730,169) (81,694,208) -
Foreign currencies 1,160 816 -
----------------------- ------------------- ----------------
Net realized loss (114,729,009) (81,693,392) -
Change in unrealized appreciation/(depreciation)
of investments (22,774,215) 2,859,581 -
Net Realized and Unrealized Loss on Investments (137,503,224) (78,833,811) -
----------------------- ------------------- ----------------
Change in Net Assets Resulting from Operations $(124,632,262) $(75,069,599) $ 556,492
======================= =================== ================
(A) Decrease due to the impact of lower break point levels being implemented by
merging the funds.
(B) Expense level was increased from historical levels due to the fee schedule
change effective June 1, 2003.
(C) Decrease due to elimination of expenses by merging the funds.
(D) Based on trustees' compensation plan for the surviving fund.
(E) An expense limitation will go into effect on Delaware Decatur Equity Income
Fund at it's expense level (excluding distribution expenses) immediately
prior to the merger.
See Pro Forma Notes to Financial Statements
[STUBBED]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
(Unaudited)
Delaware
Decatur
Equity
Income Fund
Pro Forma
Combined
---------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain (loss) on:
Investments (196,424,377)
Foreign currencies 1,976
---------------
Net realized loss (196,422,401)
Change in unrealized appreciation/(depreciation)
of investments (19,914,634)
---------------
Net Realized and Unrealized Loss on Investments (216,337,035)
---------------
Change in Net Assets Resulting from Operations $(199,145,369)
===============
(A) Decrease due to the impact of lower break point levels being implemented by
merging the funds.
(B) Expense level was increased from historical levels due to the fee schedule
change effective June 1, 2003.
(C) Decrease due to elimination of expenses by merging the funds.
(D) Based on trustees' compensation plan for the surviving fund.
(E) An expense limitation will go into effect on Delaware Decatur Equity Income
Fund at it's expense level (excluding distribution expenses) immediately
prior to the merger.
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Annual Fund Operating Expenses
As of May 31, 2003
(Unaudited)
Delaware Decatur Equity Income Fund Delaware Growth and Income Fund
Retail Retail Retail Retail Institutional Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------------- ------- ------- ------- ------- -------------
Management fees 0.62% 0.62% 0.62% 0.62% 0.62% 0.65% 0.65% 0.65% 0.65% 0.65%
Rule 12b-1 fees 0.25% 1.00% 1.00% 0.60% N/A 0.30% 1.00% 1.00% 1.00% N/A
Other expenses 0.34% 0.34% 0.34% 0.34% 0.34% 0.57% 0.57% 0.57% 0.57% 0.57%
Total fund operating
expenses 1.21% 1.96% 1.96% 1.56% 0.96% 1.52% 2.22% 2.22% 2.22% 1.22%
Fee waviers & payments 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Expense Limit 1.21% 1.96% 1.96% 1.56% 0.96% 1.52% 2.22% 2.22% 2.22% 1.22%
[STUBBED]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Annual Fund Operating Expenses
As of May 31, 2003
(Unaudited)
Delaware Decatur Equity Income Fund
Pro Forma Combined
Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares
------ ------- ------- ------- ------------
Management fees 0.60% 0.60% 0.60% 0.60% 0.60%
Rule 12b-1 fees 0.26% 1.00% 1.00% 0.60% N/A
Other expenses 0.41% 0.41% 0.41% 0.41% 0.41%
Total fund operating
expenses 1.27% 2.01% 2.01% 1.61% 1.01%
Fee waviers & payments -0.05% -0.05% -0.05% -0.05% -0.05%(A)
Expense Limit 1.22% 1.96% 1.96% 1.56% 0.96%(A)
(A) An expense limitation will go into effect on Delaware Decatur Equity Income
Fund at it's expense level (excluding distributing expenses) immediately
prior to the merger.
Delaware Decatur Equity Income Fund
Pro Forma Notes to Financial Statements
May 31, 2003 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware business
trust and offers four series: Delaware Decatur Equity Income Fund, Delaware
Diversified Value Fund, Delaware Growth and Income Fund, and Delaware Social
Awareness Fund. These financial statements and related notes pertain to the
Delaware Decatur Equity Income Fund (the "Fund"). The Trust is an open-end
investment company. The Fund is considered diversified under the Investment
Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares were held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
12 months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors.
The investment objective of the Delaware Decatur Equity Income Fund is to seek
total return.
1. Basis of Pro forma Presentation
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of the Delaware Growth and Income Fund by the
Delaware Decatur Equity Income Fund, as if such acquisition had taken place as
of June 1, 2002.
Under the terms of the Plan of Reorganization, the combination of the Delaware
Growth and Income Fund and the Delaware Decatur Equity Income Fund will be
accounted for by a method of accounting for tax-free mergers of investment
companies. The acquisition would be accomplished by an acquisition of the net
assets of the Delaware Growth and Income Fund in exchange for shares of the
Delaware Decatur Equity Income Fund at net asset value. The statement of assets
and liabilities and the related statement of operations of the Delaware Growth
and Income Fund and the Delaware Decatur Equity Income Fund have been combined
for the twelve months ended May 31, 2003.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements of the Delaware Decatur Equity Income Fund
semiannual report dated May 31, 2003 and the Delaware Growth and Income Fund
semiannual report dated May 31, 2003.
The following notes refer to the accompanying pro forma financial statements as
if the above-mentioned acquisition of the Delaware Growth and Income Fund by the
Delaware Decatur Equity Income Fund had taken place as of June 1, 2002.
2. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. Securities traded on the Nasdaq Stock Market, Inc.
("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price,
which may not be the last sale price. If on a particular day an equity security
does not trade, then the mean between the bid and asked prices will be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Fund's Board of Trustees. In
determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes - The Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. The Fund declares and pays dividends from net
investment income quarterly and distributions from net realized gain on
investments, if any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $34,593 for the period ended May 31, 2003. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. The
earnings credits for the period ended May 31, 2003 were approximately $235. The
expenses paid under the above arrangements are included in their respective
expense captions on the Statement of Operations with the corresponding expense
offset shown as "expenses paid indirectly".
3. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of the investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on
average daily net assets in excess of $2.5 billion.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts for dividend and disbursing and transfer
agent services.
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual fee not to exceed 0.30% of the average daily net assets of the Class A
shares, 1.00% of the average daily net assets of the Class B and C shares and
0.60% of the average daily net assets of the Class R shares. Institutional Class
shares pay no distribution and service expenses.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
4. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $202,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of May 31, 2003, or at any time during the
period.
5. Securities Lending
The Fund, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. Treasury obligations and/or
cash collateral not less than 102% of the market value of the securities issued
in the United States and 105% of the market value of securities issued outside
the United States. With respect to each loan, if the aggregate market value of
the collateral held on any business day is less than the aggregate market value
of the securities which are the subject of such loan, the borrower will be
notified to provide additional collateral not less than the applicable
collateral requirements. Cash collateral received is invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poors Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Fund, or at the discretion
of the lending agent, replace the loaned securities. At May 31, 2003, the market
value of the securities on loan was $22,076,484.
The securities on loan were collateralized by the following:
Description Market Value
UBS Warburg LLC 1.38% 6/2/03 $11,805,236
Fannie Mae 1.31% 1/29/04 6,315,385
Barclays London 1.27% 6/17/03 1,011,849
Goldman Sachs Group 1.52% 7/14/03 884,187
Wilmington Trust Company 1.26% 7/21/03 633,509
Merrill Lynch Mortgage Capital 1.48% 6/6/03 631,562
Racers Series 2002-35-C 1.61% 4/15/04 629,015
Morgan Stanley Dean Witter 1.41% 6/30/04 252,624
Canadian Imperial Bank NY 1.41% 10/9/03 126,283
-----------
$22,289,650
-----------
Combined Pro Forma Financial Statements for the Reorganization of
Delaware Growth and Income Fund, Delaware Devon Fund and Delaware Core Equity
Fund into Delaware Decatur Equity Income Fund
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur Delaware Growth
% of Net Equity Income Fund and Income Fund
Assets Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ---------------------------
Common Stock 98.99%
Aerospace & Defense 1.71%
Boeing 222,200 $ 6,814,874 108,800 $ 3,336,896
Honeywell International 351,500 9,209,300 189,400 4,962,280
United Technologies - - - -
----------- -----------
16,024,174 8,299,176
----------- -----------
Automobiles & Automotive Parts 0.92%
General Motors 273,500 9,662,755 108,700 3,840,371
----------- -----------
9,662,755 3,840,371
----------- -----------
Banking & Finance 19.67%
American Express - - - -
Bank of America 275,082 20,411,084 132,548 9,835,062
Bank of New York 616,600 17,850,570 215,700 6,244,515
Charter One Financial - - 152,900 4,657,334
Citigroup 407,400 16,711,548 248,400 10,189,368
Comerica 274,600 12,705,742 134,300 6,214,061
Fannie Mae - - - -
FleetBoston Financial 495,700 14,657,849 147,400 4,358,618
Freddie Mac - - - -
Goldman Sachs Group 183,800 14,979,700 123,600 10,073,400
J.P. Morgan Chase 613,890 20,172,425 326,150 10,717,289
KeyCorp 358,000 9,451,200 81,100 2,141,040
MBNA 626,000 12,551,300 341,000 6,837,050
Mellon Financial 615,000 16,709,550 303,600 8,248,812
Morgan Stanley 254,400 11,638,800 229,400 10,495,050
U.S. Bancorp 864,100 20,479,171 417,300 9,890,010
Wells Fargo - - 93,200 4,501,560
----------- -----------
188,318,939 104,403,169
----------- -----------
[RESTUBBED TABLE]
Delaware Decatur
Delaware Delaware Core Equity Income Fund
Devon Fund Equity Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
----------------------------- ----------------------------- -----------------------------
Common Stock
Aerospace & Defense
Boeing 36,400 $1,116,388 - $ - 367,400 $11,268,158
Honeywell International 30,900 809,580 - - 571,800 14,981,160
United Technologies 12,800 873,600 - - 873,600
--------- ---------- ----------
2,799,568 - 27,122,918
--------- ---------- ----------
Automobiles & Automotive Parts
General Motors 30,100 1,063,433 - - 412,300 14,566,559
--------- ---------- ----------
1,063,433 - 14,566,559
--------- ---------- ----------
Banking & Finance
American Express - - 15,400 641,564 15,400 641,564
Bank of America 14,445 1,071,819 - - 422,075 31,317,965
Bank of New York 46,300 1,340,385 - - 878,600 25,435,470
Charter One Financial 33,800 1,029,548 - -
Citigroup 68,512 2,810,362 - - 724,312 29,711,278
Comerica 23,600 1,091,972 - - 432,500 20,011,775 (B)
Fannie Mae - - 7,000 518,000 7,000 518,000
FleetBoston Financial - - - - 643,100 19,016,467
Freddie Mac 27,900 1,668,699 - - 27,900 1,668,699
Goldman Sachs Group 17,000 1,385,500 - - 324,400 26,438,600
J.P. Morgan Chase 34,590 1,136,627 - - 974,630 32,026,341
KeyCorp - - - 439,100 11,592,240
MBNA 79,100 1,585,955 27,500 551,375 1,073,600 21,525,680
Mellon Financial 49,800 1,353,066 16,000 434,720 984,400 26,746,148
Morgan Stanley - - - 483,800 22,133,850
U.S. Bancorp 77,000 1,824,900 - - 1,358,400 32,194,081
Wells Fargo 21,100 1,019,130 - - 114,300 5,520,690
--------- --------- -----------
17,317,963 2,145,659 312,185,730
---------- --------- -----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31,2003
(Unaudited)
Delaware Decatur Delaware Growth
% of Net Equity Income Fund and Income Fund
Assets Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ---------------------------
Building & Materials 0.06%
Fluor - - - -
---------- ----------
- - - -
---------- ----------
Cable, Media & Publishing 1.37%
Comcast - Special Class A - - - -
Gannett 94,400 7,457,600 45,200 3,570,800
Knight-Ridder 68,900 4,853,316 31,900 2,247,036
Omnicom Group - - - -
Viacom Class B - - - -
---------- ----------
12,310,916 5,817,836
---------- ----------
Chemicals 3.49%
Air Products & Chemicals 161,200 7,026,708 101,300 4,415,667
Dow Chemical 468,000 14,882,400 252,000 8,013,600
duPont (E.I.) de Nemours 222,400 9,371,936 107,800 4,542,692
Ecolab - - -
Praxair - - -
Rohm & Haas - 110,800 3,593,244
---------- ----------
31,281,044 20,565,203
---------- ----------
Computers & Technology 7.20%
Cisco Systems 788,500 12,836,780 384,500 6,259,660
Dell Computer - - - -
First Data 175,900 7,285,778 122,500 5,073,950
Fiserv - - - -
Hewlett-Packard - - 197,100 3,843,450
International Business Machines 119,900 10,555,996 51,300 4,516,452
Intuit - - - -
Microsoft 532,700 13,109,747 271,400 6,679,154
Oracle 1,111,800 14,464,518 544,200 7,080,042
Pitney Bowes 211,900 8,139,079 - -
---------- ----------
66,391,898 33,452,708
---------- ----------
[RESTUBBED TABLE]
Delaware Decatur
Delaware Delaware Core Equity Income Fund
Devon Fund Equity Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
----------------------------- ----------------------------- -----------------------------
Building & Materials
Fluor 28,100 997,269 - - 28,100 997,269
---------- --------- -----------
997,269 - 997,269
---------- --------- -----------
Cable, Media & Publishing
Comcast - Special Class A 26,400 760,000 - - 26,400 760,848 (A)
Gannett - - 9,000 711,000 148,600 11,739,400
Knight-Ridder - - - - 100,800 7,100,352 (B)
Omnicom Group - - 10,000 698,100 10,000 698,100
Viacom Class B 33,963 1,545,996 - - 33,963 1,545,996 (A)
---------- --------- -----------
2,306,844 1,409,100 21,844,696
---------- --------- -----------
Chemicals
Air Products & Chemicals - - - - 262,500 11,442,375
Dow Chemical - - - - 720,000 22,896,000
duPont (E.I.) de Nemours 28,500 1,200,990 - - 358,700 15,115,618
Ecolab 14,200 763,250 16,700 897,625 30,900 1,660,875
Praxair - - 11,000 659,890 11,000 659,890
Rohm & Haas - - - - 110,800 3,593,244
---------- --------- -----------
1,964,240 1,557,515 55,368,002
---------- --------- -----------
Computers & Technology
Cisco Systems
Dell Computer 39,700 1,242,213 23,000 719,670 62,700 1,961,883 (A)
First Data 31,700 1,313,014 - - 330,100 13,672,742
Fiserv - - 18,000 595,620 18,000 595,620 (A)
Hewlett-Packard - - - - 197,100 3,843,450
International Business Machines 17,700 1,558,308 - - 188,900 16,630,756
Intuit - - 16,000 737,440 16,000 737,440 (A)
Microsoft 134,400 3,307,584 30,000 738,300 968,500 23,834,785
Oracle 133,600 1,738,136 - - 1,789,600 23,282,696 (A)
Pitney Bowes - - - - 211,900 8,139,079
---------- --------- -----------
10,842,607 3,507,350 114,194,563
---------- --------- -----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31,2003
(Unaudited)
Delaware Decatur Delaware Growth
% of Net Equity Income Fund and Income Fund
Assets Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ---------------------------
Consumer Products 5.23%
3M 58,400 7,385,848 - -
Gillette 346,600 11,649,226 149,700 5,031,417
Kimberly-Clark 375,800 19,515,294 181,000 9,399,330
Newell Rubbermaid 631,500 17,997,750 309,300 8,815,050
Procter & Gamble - - - -
---------- ----------
56,548,118 23,245,797
---------- ----------
Electronics & Electrical Equipment 6.31%
Danaher - - - -
Eaton 101,300 8,502,109 - -
Emerson Electric 183,200 9,581,360 90,000 4,707,000
General Electric 455,300 13,067,110 274,400 7,875,280
Intel 765,100 15,944,684 359,600 7,494,064
National Semiconductor - - 96,100 2,398,656
Raytheon 305,700 9,794,628 150,600 4,825,224
Teradyne - - - -
Texas Instruments - - 218,000 4,469,000
---------- ----------
56,889,891 31,769,224
---------- ----------
Energy 8.15%
ChevronTexaco 354,900 25,176,606 86,500 6,136,310
ConocoPhillips - - - -
Exxon Mobil 534,326 19,449,466 299,254 10,892,846
Kerr-McGee 348,700 16,591,146 138,500 6,589,830
Marathon Oil - - - -
Noble - - - -
Occidental Petroleum 458,200 15,459,668 172,500 5,820,150
Royal Dutch Petroleum ADR 217,300 9,898,015 105,800 4,819,190
Tidewater - - - -
Valero Energy - - - -
---------- ----------
86,574,901 34,258,326
---------- ----------
[RESTUBBED TABLE]
Delaware Decatur
Delaware Delaware Core Equity Income Fund
Devon Fund Equity Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
----------------------------- ----------------------------- -----------------------------
Consumer Products
3M 8,200 1,037,054 - - 66,600 8,422,902
Gillette - - - - 496,300 16,680,643
Kimberly-Clark 25,500 1,324,215 - - 582,300 30,238,839
Newell Rubbermaid - - - - 940,800 26,812,800
Procter & Gamble 9,630 884,227 - - 9,630 884,227
--------- --------- --------- -----------
3,245,496 - 83,039,411
--------- --------- --------- -----------
Electronics & Electrical Equipment
Danaher - - 9,000 602,280 9,000 602,280
Eaton - - - 101,300 8,502,109
Emerson Electric 36,500 1,908,950 - - 309,700 16,197,310
General Electric 98,814 2,835,962 17,800 510,860 846,314 24,289,212
Intel 107,500 2,240,300 29,000 604,360 1,261,200 26,283,408
National Semiconductor - - - - 96,100 2,398,656 (A)
Raytheon - - - - 456,300 14,619,852
Teradyne 79,800 1,368,570 - - 79,800 1,368,570 (A)(B)
Texas Instruments 69,200 1,418,600 - - 287,200 5,887,600
--------- --------- --------- -----------
9,772,382 1,717,500 100,148,997
--------- --------- --------- -----------
Energy
ChevronTexaco 20,800 1,475,552 - - 462,200 32,788,468
ConocoPhillips - - 13,966 753,745 13,966 753,745
Exxon Mobil 61,500 2,238,600 15,000 546,000 910,080 33,126,912
Kerr-McGee 22,000 1,046,760 - - 509,200 24,227,736
Marathon Oil - - 15,000 385,950 15,000 385,950
Noble 22,000 784,520 - - 22,000 784,520 (A)
Occidental Petroleum - - - - 630,700 21,279,818
Royal Dutch Petroleum ADR - - - - 323,100 14,717,205 (B)
Tidewater 16,000 528,320 - - 16,000 528,320
Valero Energy 22,600 847,500 - - 22,600 847,500
--------- --------- -----------
6,921,252 1,685,695 129,440,174
--------- --------- -----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31,2003
(Unaudited)
Delaware Decatur Delaware Growth
% of Net Equity Income Fund and Income Fund
Assets Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ---------------------------
Food, Beverage & Tobacco 6.03%
Anheuser-Busch 195,200 10,273,376 95,900 5,047,217
Coca Cola 159,400 7,263,858 - -
General Mills 274,400 12,836,432 70,600 3,302,668
Kellogg Company 341,000 12,003,200 - -
Kraft Foods Class A 219,500 7,111,800 107,200 3,473,280
PepsiCo 172,600 7,628,920 110,600 4,888,520
Sysco 302,600 9,362,444 152,200 4,709,068
---------- ----------
66,480,030 21,420,753
---------- ----------
Healthcare & Pharmaceuticals 8.76%
Abbott Laboratories 344,200 15,334,110 189,600 8,446,680
Amgen - - - -
Baxter International 595,800 15,097,572 291,400 7,384,076
Biomet - - - -
Bristol-Myers Squibb 578,000 14,796,800 211,900 5,424,640
Cardinal Health - - - -
HCA - - - -
Johnson & Johnson - - - -
Medtronic - - - -
Pfizer 485,800 15,069,516 212,020 6,576,860
Quest Diagnostics - - - -
Stryker - - - -
Wyeth 456,300 20,008,755 243,600 10,681,860
---------- ----------
80,306,753 38,514,116
---------- ----------
Industrial Machinery 1.33%
Caterpillar 183,500 9,569,525 101,700 5,303,655
Deere - - 128,300 5,602,861
Ingersoll-Rand Class A - - - -
---------- ----------
9,569,525 10,906,516
---------- ----------
Delaware Decatur
Delaware Delaware Core Equity Income Fund
Devon Fund Equity Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
----------------------------- ----------------------------- -----------------------------
Food, Beverage & Tobacco
Anheuser-Busch 27,700 1,457,851 16,000 842,080 334,800 17,620,524
Coca Cola 24,400 1,111,908 - - 183,800 8,375,766
General Mills - - - - 345,000 16,139,100
Kellogg Company 23,800 837,760 - - 364,800 12,840,960
Kraft Foods Class A - - - - 326,700 10,585,080
PepsiCo 23,700 1,047,540 18,000 795,600 324,900 14,360,580
Sysco 25,900 801,346 29,000 897,260 509,700 15,770,118
--------- --------- -----------
5,256,405 2,534,940 95,692,128
--------- --------- -----------
Healthcare & Pharmaceuticals
Abbott Laboratories 32,700 1,456,785 13,000 579,150 579,500 25,816,725
Amgen 25,000 1,617,750 - - 25,000 1,617,750 (A)
Baxter International - - - - 887,200 22,481,648
Biomet 36,800 1,012,000 - - 36,800 1,012,000
Bristol-Myers Squibb - - - 789,900 20,221,440
Cardinal Health - - 13,000 750,230 13,000 750,230
HCA 33,800 1,115,400 - - 33,800 1,115,400
Johnson & Johnson 38,900 2,114,215 9,000 489,150 47,900 2,603,365
Medtronic 22,224 1,082,976 19,000 925,870 41,224 2,008,846
Pfizer 140,365 4,354,122 19,000 589,380 857,185 26,589,878
Quest Diagnostics - - 9,000 570,240 9,000 570,240 (A)
Stryker - - 13,000 875,420 13,000 875,420
Wyeth 60,200 2,639,770 - - 760,100 33,330,385
---------- --------- -----------
15,393,018 4,779,440 138,993,327
---------- --------- -----------
Industrial Machinery
Caterpillar - - - - 285,200 14,873,180
Deere - - - - 128,300 5,602,861
Ingersoll-Rand Class A - - 14,000 613,200 14,000 613,200
---------- --------- -----------
- 613,200 21,089,241
---------- --------- -----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31,2003
(Unaudited)
Delaware Decatur Delaware Growth
% of Net Equity Income Fund and Income Fund
Assets Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ---------------------------
Insurance 10.17%
Aflac - - - -
Allstate 392,900 14,140,471 132,900 4,783,071
AMBAC Financial Group - - - -
American International Group - - 88,900 5,145,532
Chubb 236,300 15,130,289 114,600 7,337,838
John Hancock Financial Services 526,700 15,932,675 255,000 7,713,750
Marsh & McLennan 398,400 19,971,792 188,800 9,464,544
MBIA 163,800 8,198,190 79,600 3,983,980
MGIC Investment 212,200 11,463,044 133,800 7,227,876
XL Capital Ltd. Class A 197,900 17,227,195 90,100 7,843,205
----------- ----------
102,063,656 53,499,796
----------- ----------
Leisure, Lodging & Entertainment 3.36%
Darden Restaurants 387,600 7,678,356 248,100 4,914,861
MGM Grand 259,000 7,316,750 127,400 3,599,050
Starwood Hotels & Resorts Worldwide 289,600 8,392,608 141,400 4,097,772
Walt Disney - - 188,400 3,702,060
Westwood One 201,600 6,826,176 98,300 3,328,438
----------- ----------
30,213,890 19,642,181
----------- ----------
Metals & Mining 0.93%
Alcoa 320,200 7,880,122 192,200 4,730,042
Consol Energy - - -
----------- ----------
7,880,122 4,730,042
----------- ----------
Paper & Forest Products 1.70%
International Paper 468,918 17,195,223 229,900 8,433,733
Weyerhaeuser - - - -
----------- ----------
17,195,223 8,433,733
----------- ----------
[RESTUBBED TABLE]
Delaware Decatur
Delaware Delaware Core Equity Income Fund
Devon Fund Equity Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
----------------------------- ----------------------------- -----------------------------
Insurance
Aflac - - 23,000 756,930 23,000 756,930
Allstate - - - - 525,800 18,923,542
AMBAC Financial Group - - 14,000 933,940 14,000 933,940
American International Group 28,937 1,674,874 11,000 636,680 128,837 7,457,086
Chubb 14,100 902,823 - - 365,000 23,370,950
John Hancock Financial Services - - - - 781,700 23,646,425
Marsh & McLennan - - - - 587,200 29,436,336 (B)
MBIA - - - - 243,400 12,182,170 (B)
MGIC Investment 16,900 912,938 - - 362,900 19,603,858
XL Capital Ltd. Class A - - - - 288,000 25,070,400
--------- --------- -----------
3,490,635 - 2,327,550 161,381,637
--------- --------- -----------
Leisure, Lodging & Entertainment
Darden Restaurants - - - 635,700 12,593,217
MGM Grand 18,700 528,275 - - 405,100 11,444,075 (A)
Starwood Hotels & Resorts Worldwide 42,200 1,222,956 - - 473,200 13,713,336
Walt Disney 91,500 1,797,975 - - 279,900 5,500,035 (B)
Westwood One - - - - 299,900 10,154,614 (A)
3,549,206 - 53,405,277
Metals & Mining
Alcoa 42,400 1,043,464 - - 554,800 13,653,628
Consol Energy 48,300 1,079,505 - - 48,300 1,079,505 (B)
--------- --------- -----------
2,122,969 - 14,733,133
Paper & Forest Products
International Paper 14,100 517,047 - - 712,918 26,146,003
Weyerhaeuser 17,000 856,460 - - 17,000 846,460
--------- --------- -----------
1,373,507 - 27,002,463
--------- --------- -----------
Delaware Decatur Delaware Growth
% of Net Equity Income Fund and Income Fund
Assets Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ---------------------------
Retail 2.43%
eBay - - - -
Federated Department Stores 229,400 7,455,500 - -
Home Depot - - - -
Kohl's - - - -
Limited Brands 867,100 13,231,946 - -
Target - - 158,500 5,805,855
Walgreen - - - -
Wal-Mart Stores - - - -
----------- -----------
20,687,446 5,805,855
----------- -----------
Telecommunications 3.08%
Alltel 131,100 6,277,068 92,600 4,433,688
BellSouth 247,400 6,558,574 - -
SBC Communications 377,864 9,620,427 183,711 4,677,282
Verizon Communications 241,736 9,149,708 151,672 5,740,785
----------- -----------
31,605,777 14,851,755
----------- -----------
Textiles, Apparel & Furniture 0.79%
Nike 127,200 7,121,928 96,700 5,414,233
----------- -----------
7,121,928 5,414,233
----------- -----------
Transportation & Shipping 0.61%
Burlington Northern Santa Fe 263,400 7,772,934 - -
CSX - - - -
Southwest Airlines - - - -
----------- -----------
7,772,934 -
----------- -----------
Utilities 5.67%
BCE 367,400 8,090,148 258,500 5,692,170
Dominion Resources 193,600 12,196,800 78,500 4,945,500
Exelon 123,300 7,065,090 - -
FirstEnergy 294,400 10,836,864 138,100 5,083,461
FPL Group 192,800 12,815,416 79,600 5,291,012
Public Service Enterprise Group 366,300 15,651,999 - -
----------- -----------
66,656,317 21,012,143
----------- -----------
Total Common Stock 971,556,237 469,882,933
Short-term Investments 0.02%
Dreyfus Tax Exempt Cash Management - - - -
----------- -----------
- -
----------- -----------
[RESTUBBED TABLE]
Delaware Decatur
Delaware Delaware Core Equity Income Fund
Devon Fund Equity Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
----------------------------- ----------------------------- -----------------------------
Retail
eBay - - 9,000 915,390 9,000 915,390 (A)
Federated Department Stores 34,500 1,121,250 - - 263,900 8,576,750 (A)
Home Depot 38,600 1,254,114 23,000 747,270 61,600 2,001,384
Kohl's 18,700 978,945 10,000 523,500 28,700 1,502,445 (A)
Limited Brands 106,400 1,623,664 - - 973,500 14,855,610
Target 39,200 1,435,896 18,000 659,340 215,700 7,901,091
Walgreen - - 19,000 585,010 19,000 585,010
Wal-Mart Stores 43,600 2,293,796 - - 43,600 2,293,796
----------- ---------- -----------
8,707,665 3,430,510 38,631,476
----------- ---------- -----------
Telecommunications
Alltel - - - - 223,700 10,710,756 (B)
BellSouth - - - - 247,400 6,558,574
SBC Communications 43,392 1,104,760 - - 604,967 15,402,469
Verizon Communications 24,900 942,465 9,800 370,930 428,108 16,203,888
----------- ---------- -----------
2,047,225 370,930 48,875,687
----------- ---------- -----------
Textiles, Apparel & Furniture
Nike - - - - 223,900 12,536,161 (B)
----------- ---------- -----------
- - 12,536,161
----------- ---------- -----------
Transportation & Shipping
Burlington Northern Santa Fe - - - - 263,400 7,772,934
CSX 21,300 697,575 - - 21,300 -697,575
Southwest Airlines 80,900 1,300,063 - - 80,900 1,300,063
----------- ---------- -----------
1,997,638 - 9,770,572
----------- ---------- -----------
Utilities
BCE - - - - 625,900 13,782,318
Dominion Resources 21,200 1,335,600 - - 293,300 18,477,900
Exelon 16,500 945,450 - - 139,800 8,010,540
FirstEnergy - - - - 432,500 15,920,325
FPL Group - - - - 272,400 18,106,428
Public Service Enterprise Group - - - - 366,300 15,651,999 (B)
----------- ---------- -----------
2,281,050 - 89,949,510
----------- ---------- -----------
Total Common Stock 103,450,372 26,079,389 1,570,968,931
Short-term Investments
Dreyfus Tax Exempt Cash Management - - 383,326 383,326 383,326 383,326
----------- ---------- -----------
- 383,326 383,326
----------- ---------- -----------
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Decatur Delaware Growth
% of Net Equity Income Fund and Income Fund
Assets Shares/Par Market Value Shares/Par Market Value
-------- -------------------------- ---------------------------
Repurchase Agreements 1.03%
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by
$3,918,000 U.S. Treasury Bills due
8/28/03, market value $3,908,423) $3,831,000 3,831,000
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by
$1,167,000 U.S. Treasury Bills due
8/28/03, market value $1,164,531) $1,141,000 1,141,000
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by
$494,000 U.S. Treasury Bills due
8/28/03, market value $493,081)
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by
$1,277,000 U.S. Treasury Notes 5.25%
due 5/15/04, market value $1,329,929
and $589,000 U.S Treasury Notes 7.25%
due 5/15/04, market value $624,449) 1,916,000 1,916,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by
$381,000 U.S. Treasury Notes 5.25% due
5/15/04, market value $396,258 and
$175,000 U.S. Treasury Notes 7.25% due
5/15/04, market value $186,057) 571,000 571,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by
$161,000 U.S. Treasury Notes 5.25% due
5/15/04, market value $167,782 and
$74,000 U.S. Treasury Notes 7.25% due
5/15/04, market value $78,779)
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by
$970,000 U.S. Treasury Notes 2.125% due
8/31/04, market value $985,892) 966,000 966,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by
$289,000 U.S. Treasury Notes 2.125% due
8/31/04, market value $293,751) 288,000 288,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by
$122,000 U.S. Treasury Notes 2.125% due
8/31/04, market value $124,379)
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by
$4,387,000 U.S. Treasury Notes 7.875%
due 11/15/04, market value $4,820,909) 4,725,000 4,725,000
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by
$1,307,000 U.S. Treasury Notes 7.875%
due 11/15/04, market value $1,436,410) 1,408,000 1,408,000
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by
$553,000 U.S. Treasury Notes 7.875% due
11/15/04, market value $608,198)
------------ ------------
Total Repurchase Agreements 11,438,000 3,408,000
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments at Market 100.04% $982,994,237 $473,290,933
------------ ------------
Short Term Investments Held as Collateral
for Loaned Securities 16,759,225 5,530,425
Total Investments at Cost $906,866,391 $450,255,979
------------ ------------
[RESTUBBED TABLE]
Delaware Decatur Equity Income Fund
Pro Forma Portfolio of Investments(C)
As of May 31, 2003
(Unaudited)
Delaware Delaware Core Equity Income Fund
Devon Fund Equity Fund Pro Forma Combined
Shares/Par Market Value Shares/Par Market Value Shares/Par Market Value
----------------------------- ----------------------------- -----------------------------
Repurchase Agreements
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by
$3,918,000 U.S. Treasury Bills due
8/28/03, market value $3,908,423) $3,831,000 3,831,000
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by
$1,167,000 U.S. Treasury Bills due
8/28/03, market value $1,164,531) 1,141,000 1,141,000
With BNP Paribas 1.24% 6/2/03
(dated 5/30/03, collateralized by
$494,000 U.S. Treasury Bills due
8/28/03, market value $493,081) $483,400 483,400 483,400 483,400
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by
$1,277,000 U.S. Treasury Notes 5.25%
due 5/15/04, market value $1,329,929
and $589,000 U.S Treasury Notes 7.25%
due 5/15/04, market value $624,449) 1,916,000 1,916,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by
$381,000 U.S. Treasury Notes 5.25% due
5/15/04, market value $396,258 and
$175,000 U.S. Treasury Notes 7.25% due
5/15/04, market value $186,057) 571,000 571,000
With Cantor Fitzgerald 1.24% 6/2/03
(dated 5/30/03, collateralized by
$161,000 U.S. Treasury Notes 5.25% due
5/15/04, market value $167,782 and
$74,000 U.S. Treasury Notes 7.25% due
5/15/04, market value $78,779) 241,700 241,700 241,700 241,700
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by
$970,000 U.S. Treasury Notes 2.125% due
8/31/04, market value $985,892) 966,000 966,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by
$289,000 U.S. Treasury Notes 2.125% due
8/31/04, market value $293,751) 288,000 288,000
With J. P. Morgan Securities 1.18% 6/2/03
(dated 5/30/03, collateralized by
$122,000 U.S. Treasury Notes 2.125% due
8/31/04, market value $124,379) 121,800 121,800 121,800 121,800
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by
$4,387,000 U.S. Treasury Notes 7.875%
due 11/15/04, market value $4,820,909) 4,725,000 4,725,000
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by
$1,307,000 U.S. Treasury Notes 7.875%
due 11/15/04, market value $1,436,410) 1,408,000 1,408,000
With UBS Warburg 1.24% 6/2/03
(dated 5/30/03, collateralized by
$553,000 U.S. Treasury Notes 7.875% due
11/15/04, market value $608,198) 596,100 596,100 596,100 596,100
----------- ------------ -------------
Total Repurchase Agreements 1,443,000 - 16,289,000
----------- ------------ -------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments at Market $104,893,372 $26,462,715 $1,587,641,257
------------ ----------- --------------
Short Term Investments Held as Collateral
for Loaned Securities 2,287,850 - 24,577,500(D)
Total Investments at Cost $109,593,188 $25,825,055 $1,492,540,613
------------ ----------- --------------
- --------------------------------------
(A) Non income producing
(B) Security is partially or fully on loan
(C) No adjustments are shown to the unaudited pro forma combined portfolio of investments due to the fact that upon completion of
the acquisition, no securities would need to be sold in order for the Acquiring Fund to comply with its Prospectus and SEC and IRS
guidelines and restrictions. However, the foregoing sentence shall not restrict in any way the ability of the investment advisor of
any of the Funds from buying or selling securities in the normal course of such Fund's business and operations.
(D) See Note #5 in "Pro Forma Notes to Financial Statements."
ADR - American Depositary Receipts
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Assets and Liabilities
As of May 31, 2003
(Unaudited)
Delaware Decatur Delaware Growth Delaware
Equity Income Fund and Income Fund Devon Fund
-------------------- --------------------- --------------------
Assets
Investments, at market value $ 982,994,237 $ 473,290,933 $ 104,893,372
Cash 1,267 735 -
Short term investments held as collateral for
loaned securities 16,759,225 5,530,425 2,287,850
Receivable for fund shares sold 142,599 110,723 6,160
Receivable for securities sold - 1,794,493 -
Dividend and interest receivable 2,059,265 842,332 168,651
Other assets 387 276 19,820
--------------- ------------- -------------
Total Assets 1,001,956,980 481,569,916 107,375,853
--------------- ------------- -------------
Liabilities
Payable for fund shares repurchased 647,053 1,018,839 11,563
Payable for securities purchased 628,422 2,123,530 -
Obligation to return securities lending collateral 16,759,225 5,530,425 2,287,850
Accrued expenses and other liabilities 284,377 259,272 826,747
--------------- ------------- -------------
Total Liabilities 18,319,077 8,932,066 3,126,160
--------------- ------------- -------------
Net Assets $ 983,637,903 $ 472,637,850 $ 104,249,693
=============== ============= =============
Analysis of Net Assets
Accumulated paid in capital $1,078,608,095 $ 575,183,355 $ 176,638,785
Undistributed net investment income (accumulated
net investment loss)* 3,670,719 1,562,744 78,041
Accumulated net realized loss on investments (174,768,757) (127,143,203) (67,767,317)
Unrealized appreciation (depreciation) of investments 76,127,846 23,034,954 (4,699,816)
--------------- ------------- -------------
Net Assets $ 983,637,903 $ 472,637,850 $ 104,249,693
=============== ============= =============
Outstanding Shares 65,400,676 37,846,666 8,199,987
Retail Class A Shares 57,482,145 26,079,216 3,097,508
Retail Class B Shares 4,886,161 6,605,676 3,688,899
Retail Class C Shares 774,103 1,508,341 791,614
Retail Class R Shares 1 1 1
Institutional Shares 2,258,266 3,653,432 621,965
Net asset value per share:
Retail Class A Shares $15.05 $12.51 $12.93
Retail Class B Shares $14.96 $12.40 $12.51
Retail Class C Shares $15.05 $12.38 $12.50
Retail Class R Shares $15.05 $12.51 $12.93
Institutional Shares $15.04 $12.52 $13.11
[RESTUBBED TABLE]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Assets and Liabilities
As of May 31, 2003
(Unaudited)
Delaware Decatur
Equity Income Fund
Delaware Pro Forma Pro Forma
Core Equity Fund Adjustments Combined
-------------------- -------------------- --------------------
Assets
Investments, at market value $ 26,462,715 $ - $ 1,587,641,258
Cash 8,637 - 10,639
Short term investments held as collateral for
loaned securities - - 24,577,500
Receivable for fund shares sold 26,471 - 285,953
Receivable for securities sold - - 1,794,493
Dividend and interest receivable 30,492 - 3,100,740
Other assets - - 20,482
------------- ------------ ---------------
Total Assets 26,528,315 - 1,617,431,064
------------- ------------ ---------------
Liabilities
Payable for fund shares repurchased 12,945 - 1,690,400
Payable for securities purchased - - 2,751,952
Obligation to return securities lending collateral - - 24,577,500
Accrued expenses and other liabilities 62,813 - 1,433,209
------------- ------------ ---------------
Total Liabilities 75,758 - 30,453,061
------------- ------------ ---------------
Net Assets $ 26,452,557 $ - $ 1,586,978,003
============= ============ ===============
Analysis of Net Assets
Accumulated paid in capital $ 29,146,647 $ - $ 1,859,576,882
Undistributed net investment income (accumulated
net investment loss)* (23,108) - 5,288,396
Accumulated net realized loss on investments (3,308,642) - (372,987,919)
Unrealized appreciation (depreciation) of investments 637,660 - 95,100,644
------------- ------------ ---------------
Net Assets $ 26,452,557 $ - $ 1,586,978,003
============= ============ ===============
Outstanding Shares 1,418,679 (7,321,057) 105,544,951
Retail Class A Shares 1,059,190 (4,564,388) 83,153,671
Retail Class B Shares 229,612 (1,690,363) 13,719,985
Retail Class C Shares 101,472 (383,401) 2,792,129
Retail Class R Shares - - 3
Institutional Shares 28,406 (682,905) 5,879,164
Net asset value per share:
Retail Class A Shares $18.90 $15.05
Retail Class B Shares $17.79 $14.96
Retail Class C Shares $17.80 $15.05
Retail Class R Shares - $15.05
Institutional Shares $19.21 $15.04
*Undistributed net investment income includes net realized gains (losses) on foreign currencies. Net realized gains (losses) on
foreign currencies are treated as net investment income in accordance with provisions of the Internal Revenue Code.
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
Delaware Decatur Delaware Growth Delaware Delaware Core
Equity Income Fund and Income Fund Devon Fund Equity Fund
------------------- ------------------- --------------- ---------------
Investment Income
Dividend income $ 24,789,934 $ 11,440,264 $ 1,866,009 $ 281,777
Interest income 258,332 132,153 23,255 5,281
Security lending income 52,845 41,800 11,388 -
------------- ------------ ------------ -----------
Total Investment Income 25,101,111 11,614,217 1,900,652 287,058
------------- ------------ ------------ -----------
Expenses
Management fees 6,030,101 3,089,649 686,120 164,487
Distribution expenses - Class A 2,119,527 994,154 120,578 49,367
Distribution expenses - Class B 740,946 858,252 479,263 36,281
Distribution expenses - Class C 110,134 187,450 98,469 16,321
Distribution expenses - Class R - - - -
Dividend disbursing and transfer agent fees
and expenses 2,117,766(C) 2,042,195(C) 1,134,300(C) 195,058(C)
Accounting and administration expenses 431,257 214,466 47,588 11,433
Reports and statements to shareholders 233,328 189,827 204,020 41,833
Registration fees 47,213 44,000 64,085 27,000
Professional fees 72,396 38,290 23,300 2,434
Trustees' fees 44,000 25,000 9,000 3,420
Custodian fees 29,957 22,367 5,905 2,880
Other 276,922 156,029 96,521 12,091
------------- ------------ ------------ -----------
12,253,547 7,861,679 2,969,149 562,605
Less expenses absorbed or waived - - (1,000,553)(C) -
Less expenses paid indirectly (23,398) (11,674) (2,766) (61)
------------- ------------ ------------ -----------
Total expense 12,230,149 7,850,005 1,965,830 562,544
------------- ------------ ------------ -----------
Net Investment Income 12,870,962 3,764,212 (65,178) (275,486)
------------- ------------ ------------ -----------
Net Realized and Unrealized Gain/(Loss) on
Investments:
Net realized gain (loss) on:
Investments (114,730,169) (81,694,208) (19,942,643) (2,743,319)
Foreign currencies 1,160 816 - -
------------- ------------ ------------ -----------
Net realized loss (114,729,009) (81,693,392) (19,942,643) (2,743,319)
Change in unrealized appreciation/(depreciation)
of investments (22,774,215) 2,859,581 9,939,877 (213,643)
------------- ------------ ------------ -----------
Net Realized and Unrealized Loss on Investments (137,503,224) (78,833,811) (10,002,766) (2,956,962)
------------- ------------ ------------ -----------
Change in Net Assets Resulting from Operations $(124,632,262) $(75,069,599) $(10,067,944) $(3,232,448)
============= ============ ============ ===========
[RESTUBBED TABLE]
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended May 31, 2003
Delaware Decatur
Equity Income Fund
Pro Forma Pro Forma
Adjustments Combined
------------- ------------------
Investment Income
Dividend income $ - $ 38,377,984
Interest income - 419,021
Security lending income 106,033
--------- -------------
Total Investment Income - 38,903,038
--------- -------------
Expenses
Management fees (573,185)(A) 9,397,172
Distribution expenses - Class A 9,792 (B) 3,293,418
Distribution expenses - Class B - 2,114,742
Distribution expenses - Class C - 412,374
Distribution expenses - Class R - -
Dividend disbursing and transfer agent fees
and expenses - 5,489,319
Accounting and administration expenses (4,717)(D) 700,027
Reports and statements to shareholders (228,000)(D) 441,008
Registration fees (110,000)(D) 72,298
Professional fees (48,399)(D) 88,021
Trustees' fees (18,768)(E) 62,652
Custodian fees (8,610)(D) 52,499
Other - 541,563
--------- -------------
(981,887) 22,665,093
Less expenses absorbed or waived 1,000,553 -(F)
Less expenses paid indirectly 500(D) (37,399)
--------- -------------
Total expense 19,166 22,627,694
--------- -------------
Net Investment Income (19,166) 16,275,344
--------- -------------
Net Realized and Unrealized Gain/(Loss) on
Investments:
Net realized gain (loss) on:
Investments - (219,110,339)
Foreign currencies - 1,976
--------- -------------
Net realized loss - (219,108,363)
Change in unrealized appreciation/(depreciation)
of investments - (10,188,400)
--------- -------------
Net Realized and Unrealized Loss on Investments - (229,296,763)
--------- -------------
Change in Net Assets Resulting from Operations $ (19,166) $(213,021,419)
========= =============
(A) Decrease due to the impact of lower break point levels being implemented by merging the funds.
(B) Distribution expense increase for Delaware Core Equity Fund shareholders from 0.25% to 0.30% on Class A shares.
(C) Expense level was increased from historical levels due to the fee schedule change effective June 1, 2003.
(D) Decrease due to elimination of expenses by merging the funds.
(E) Based on trustees' compensation plan for the surviving fund.
(F) An expense limitation will go into effect on Delaware Decatur Equity Income Fund at its expense level (excluding distribution
expenses) immediately prior to the merger.
See Pro Forma Notes to Financial Statements
Delaware Decatur Equity Income Fund
PRO FORMA COMBINED
Annual Fund Operating Expenses
As of May 31, 2003
(Unaudited)
Delaware Decatur Equity Income Fund
--------------------------------------------------------
Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares
--------------------------------------------------------
Management fees 0.62% 0.62% 0.62% 0.62% 0.62%
Rule 12b-1 fees 0.25% 1.00% 1.00% 0.60% N/A
Other expenses 0.34% 0.34% 0.34% 0.34% 0.34%
--------------------------------------------------------
Total fund operating
expenses 1.21% 1.96% 1.96% 1.56% 0.96%
--------------------------------------------------------
Fee waviers & payments 0.00% 0.00% 0.00% 0.00% 0.00%
Expense Limit 1.21% 1.96% 1.96% 1.56% 0.96%
========================================================
[RESTUBBED TABLE]
Delaware Growth and Income Fund
---------------------------------------------------------
Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares
---------------------------------------------------------
Management fees 0.65% 0.65% 0.65% 0.65% 0.65%
Rule 12b-1 fees 0.30% 1.00% 1.00% 0.60% N/A
Other expenses 0.57% 0.57% 0.57% 0.57% 0.57%
---------------------------------------------------------
Total fund operating
expenses 1.52% 2.22% 2.22% 1.82% 1.22%
---------------------------------------------------------
Fee waviers & payments 0.00% 0.00% 0.00% 0.00% 0.00%
Expense Limit 1.52% 2.22% 2.22% 1.82% 1.22%
=========================================================
(A) An expense limitation will go into effect on Delaware Equity Income Fund at
it's expense level (excluding distribution expenses) immediately prior to
the merger.
[RESTUBBED TABLE]
Delaware Devon Fund
-------------------------------------------------------------
Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares
-------------------------------------------------------------
Management fees 0.65% 0.65% 0.65% 0.65% 0.65%
Rule 12b-1 fees 0.30% 1.00% 1.00% 0.60% N/A
Other expenses 1.50% 1.50% 1.50% 1.50% 1.50%
-------------------------------------------------------------
Total fund operating
expenses 2.45% 3.15% 3.15% 2.75% 2.15%
-------------------------------------------------------------
Fee waviers & payments -0.95% -0.95% -0.95% -0.95% -0.95%
Expense Limit 1.50% 2.20% 2.20% 1.80% 1.20%
==============================================================
[RESTUBBED TABLE]
Delaware Core Equity Fund
----------------------------------------------------------
Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares
-----------------------------------------------------------
Management fees 0.65% 0.65% 0.65% 0.65% 0.65%
Rule 12b-1 fees 0.25% 1.00% 1.00% 0.60% N/A
Other expenses 1.82% 1.82% 1.82% 1.82% 1.82%
----------------------------------------------------------
Total fund operating
expenses 2.72% 3.47% 3.47% 3.07% 2.47%
----------------------------------------------------------
Fee waviers & payments 0.00% 0.00% 0.00% 0.00% 0.00%
Expense Limit 2.72% 3.47% 3.47% 3.07% 2.47%
===========================================================
[RESTUBBED TABLE]
Delaware Decatur Equity Income Fund
Pro Forma Combined
-------------------------------------------------------
Retail Retail Retail Retail Institutional
Class A Class B Class C Class R Class
Shares Shares Shares Shares Shares
-------------------------------------------------------
Management fees 0.60% 0.60% 0.60% 0.60% 0.60%
Rule 12b-1 fees 0.27% 1.00% 1.00% 0.60% N/A
Other expenses 0.47% 0.47% 0.47% 0.47% 0.47%
-------------------------------------------------------
Total fund operating
expenses 1.34% 2.07% 2.07% 1.67% 1.07%
-------------------------------------------------------
Fee waviers & payments -0.11% -0.11% -0.11% -0.11% -0.11% (A)
Expense Limit 1.23% 1.96% 1.96% 1.56% 0.96% (A)
========================================================
Delaware Decatur Equity Income Fund
Pro Forma Notes to Financial Statements
May 31, 2003 (Unaudited)
Delaware Group Equity Funds II (the "Trust") is organized as a Delaware business
trust and offers four series: Delaware Decatur Equity Income Fund, Delaware
Diversified Value Fund, Delaware Growth and Income Fund, and Delaware Social
Awareness Fund. These financial statements and related notes pertain to the
Delaware Decatur Equity Income Fund (the "Fund"). The Trust is an open-end
investment company. The Fund is considered diversified under the Investment
Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R
and Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 5.75%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares were held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
12 months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors.
The investment objective of the Delaware Decatur Equity Income Fund is to seek
total return.
1. Basis of Pro forma Presentation
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of the Delaware Growth and Income Fund, Delaware
Devon Fund and Delaware Core Equity Fund by the Delaware Decatur Equity Income
Fund, as if such acquisitions had taken place as of June 1, 2002.
Under the terms of the Plan of Reorganization, the combination of the Delaware
Growth and Income Fund, Delaware Devon Fund, Delaware Core Equity Fund and the
Delaware Decatur Equity Income Fund will be accounted for by a method of
accounting for tax-free mergers of investment companies. The acquisition would
be accomplished by an acquisition of the net assets of the Delaware Growth and
Income Fund, Delaware Devon Fund and Delaware Core Equity Fund in exchange for
shares of the Delaware Decatur Equity Income Fund at net asset value. The
statement of assets and liabilities and the related statement of operations of
the Delaware Growth and Income Fund, Delaware Devon Fund, Delaware Core Equity
Fund and the Delaware Decatur Equity Income Fund have been combined for the
twelve months ended May 31, 2003.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements of the Delaware Decatur Equity Income Fund
semiannual report dated May 31, 2003, the Delaware Growth and Income Fund
semiannual report dated May 31, 2003, the Delaware Devon Fund semiannual report
dated April 30, 2003 and the Delaware Core Equity Fund annual report dated April
30, 2003.
The following notes refer to the accompanying pro forma financial statements as
if the above-mentioned acquisition of the Delaware Growth and Income Fund,
Delaware Devon Fund and Delaware Core Equity Fund by the Delaware Decatur Equity
Income Fund had taken place as of June 1, 2002.
2. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation- All equity securities are valued at the last quoted sales
price as of the time of the regular close of the New York Stock Exchange (NYSE)
on the valuation date. Securities traded on the Nasdaq Stock Market, Inc.
("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price,
which may not be the last sale price. If on a particular day an equity security
does not trade, then the mean between the bid and asked prices will be used.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Fund's Board of Trustees. In
determining whether market quotations are readily available or fair valuation
will be used, various factors will be taken into consideration, such as market
closures, or with respect to foreign securities, aftermarket trading or
significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes - The Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. The Fund declares and pays dividends from net
investment income quarterly and distributions from net realized gain on
investments, if any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $37,164 for the period ended May 31, 2003. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. The
earnings credits for the period ended May 31, 2003 were approximately $235. The
expenses paid under the above arrangements are included in their respective
expense captions on the Statement of Operations with the corresponding expense
offset shown as "expenses paid indirectly".
3. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of the investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on
average daily net assets in excess of $2.5 billion.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts for dividend and disbursing and transfer
agent services.
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual fee not to exceed 0.30% of the average daily net assets of the Class A
shares, 1.00% of the average daily net assets of the Class B and C shares and
0.60% of the average daily net assets of the Class R shares. Institutional Class
shares pay no distribution and service expenses.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
4. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $202,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of May 31, 2003, or at any time during the
period.
5. Securities Lending
The Fund, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with J.P. Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. Treasury obligations and/or
cash collateral not less than 102% of the market value of the securities issued
in the United States and 105% of the market value of securities issued outside
the United States. With respect to each loan, if the aggregate market value of
the collateral held on any business day is less than the aggregate market value
of the securities which are the subject of such loan, the borrower will be
notified to provide additional collateral not less than the applicable
collateral requirements. Cash collateral received is invested in fixed-income
securities, with a weighted average maturity not to exceed 90 days, rated in one
of the top two tiers by Standard & Poors Ratings Group or Moody's Investors
Service, Inc. or repurchase agreements collateralized by such securities.
However, in the event of default or bankruptcy by the lending agent, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event the borrower fails to return loaned securities and the collateral received
is insufficient to cover the value of the loaned securities and provided such
collateral shortfall is not the result of investment losses, the lending agent
has agreed to pay the amount of the shortfall to the Fund, or at the discretion
of the lending agent, replace the loaned securities. At May 31, 2003, the market
value of the securities on loan was $24,405,184.
The securities on loan were collateralized by the following:
Description Market Value
- ----------- ------------
UBS Warburg LLC 1.38% 6/2/03 $13,016,947
Fannie Mae 1.31% 1/29/04 6,963,607
Barclays London 1.27% 6/17/03 1,115,707
Goldman Sachs Group 1.52% 7/14/03 974,941
Wilmington Trust Company 1.26% 7/21/03 698,534
Merrill Lynch Mortgage Capital 1.48% 6/6/03 696,387
Racers Series 2002-35-C 1.61% 4/15/04 693,578
Morgan Stanley Dean Witter 1.41% 6/30/04 278,554
Canadian Imperial Bank NY 1.41% 10/9/03 139,245
--------------
$24,577,500
--------------
PART C
Other Information
Item 15. Indemnification
Article VI of the By-Laws are incorporated into this filing by reference to
Post-Effective Amendment No. 113 filed November 22, 1999 as Exhibit (b).
Item 16. Exhibits
The following exhibits are incorporated by reference to the previously filed
document indicated below, except Exhibits 7(a), 7(b), 9(a)(ii), 9(e)(ii), 10(d),
10(e), 13(a)(i), 13(a)(ii), 13(b)(ii), 14(a), 16(a) and 17(b).
Exhibits:
(1) Copies of the charter of the Registrant as now in effect;
(a) Agreement and Declaration of Trust (December 17, 1998)
incorporated into this filing by reference to
Post-Effective Amendment No. 113 filed November 22,
1999.
(b) Certificate of Trust (December 17, 1998) incorporated
into this filing by reference to Post-Effective
Amendment No. 113 filed November 22, 1999.
(2) Copies of the existing by-laws or corresponding instruments
of the Registrant;
(a) By-Laws (December 17, 1998) incorporated into this
filing by reference to Post-Effective Amendment No. 113
filed November 22, 1999.
(3) Copies of any voting trust agreement affecting more than
five percent of any class of equity securities of the
Registrant;
Not applicable.
(4) Copies of the agreement of acquisition, reorganization,
merger, liquidation and any amendments to it;
(a) Form of Agreement and Plan of Reorganization is filed
herewith as Exhibit A to the Combined Prospectus/Proxy
Statement.
(5) Copies of all instruments defining the rights of holders of
the securities being registered including, where applicable,
the relevant portion of the articles of incorporation or
by-laws of the Registrant;
(a) 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. 113 filed November 22, 1999.
(b) By-Laws. Article II of By-Laws incorporated into this
filing by reference to Post-Effective Amendment No. 113
filed November 22, 1999.
(6) Copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(a) Executed Investment Management Agreement (November 23,
1999) between Delaware Management Company and the
Registrant on behalf of each Fund incorporated into
this filing by reference to Post-Effective Amendment
No. 116 filed November 27, 2000.
(7) Copies of each underwriting or distribution contract between
the Registrant and a principal underwriter, and specimens or
copies of all agreements between principal underwriters and
dealers;
(a) Executed Distribution Agreement (May 15, 2003) between
Delaware Distributors, L.P. and the Registrant on
behalf of each Class is filed electronically herewith
as Exhibit No. EX-99.7(a).
(b) Form of 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 is filed electronically herewith as Exhibit
No. EX-99.7(b).
(c) Executed Financial Intermediary Distribution Agreement
(January 1, 2001) between Delaware Distributors, L.P.
and Lincoln Financial Distributors, Inc. on behalf of
the Registrant incorporated into this filing by
reference to Post-Effective Amendment No. 118 filed
January 31, 2002.
(d) Executed Appendix A (December 20, 2001) to Financial
Intermediary Distribution Agreement incorporated into
this filing by reference to Post-Effective Amendment
No. 118 filed January 31, 2002.
(e) Dealer's Agreement (January 2001) incorporated into
this filing by reference to Post-Effective Amendment
No. 119 filed January 29, 2003.
(f) Vision Mutual Fund Gateway Agreement (November 2000)
incorporated into this filing by reference to
Post-Effective Amendment No. 119 filed January 29,
2003.
(g) Registered Investment Advisers Agreement (January 2001)
incorporated into this filing by reference to
Post-Effective Amendment No. 119 filed January 29,
2003.
(h) Bank/Trust Agreement (January 2001) incorporated into
this filing by reference to Post-Effective Amendment
No. 119 filed January 29, 2003.
(8) Copies of all bonus, profit sharing, pension, or other
similar contracts or arrangements wholly or partly for the
benefit of trustees or officers of the Registrant in their
capacity as such. Furnish a reasonably detailed description
of any plan that is not set forth in a formal document;
Not applicable.
(9) Copies of all custodian agreements and depository contracts
under Section 17(f) of the 1940 Act for securities and
similar investments of the Registrant, including the
schedule of remuneration;
(a) Executed Custodian Agreement (May 1996) between
JPMorgan Chase Bank and the Registrant incorporated
into this filing by reference to Post-Effective
Amendment No. 116 filed November 27, 2000.
(i) Executed Amendment to Custodian Agreement (July 1,
2001) incorporated into this filing by reference
to Post-Effective Amendment No. 119 filed January
29, 2003.
(ii) Executed Amendment No. 1 to Schedule A (July 17,
2003) of the Custodian Agreement between JPMorgan
Chase Bank and the Registrant is filed
electronically herewith as Exhibit No.
EX-99.9(a)(ii).
(b) Executed Letter to JPMorgan Chase Bank (February 24,
1997) to add Delaware Social Awareness Fund (formerly
named Quantum Fund) to the Custodian Agreement
incorporated into this filing by reference to
Post-Effective Amendment No. 116 filed November 27,
2000.
(c) Executed Letter to JPMorgan Chase Bank (August 24,
1998) to add Delaware Decatur Equity Income Fund
(formerly named Decatur Income Fund) and Delaware
Growth and Income Fund (formerly named Decatur Total
Return Fund) to the Custodian Agreement incorporated
into this filing by reference to Post-Effective
Amendment No. 116 filed November 27, 2000.
(d) Executed Letter to JPMorgan Chase Bank (September 14,
1998) to add Delaware Diversified Value Fund to the
Custodian Agreement incorporated into this filing by
reference to Post-Effective Amendment No. 116 filed
November 27, 2000.
(e) Executed Securities Lending Agreement (December 22,
1998) with JPMorgan Chase Bank incorporated into this
filing by reference to Post-Effective Amendment No. 116
filed November 27, 2000.
(i) Executed Amendment to Securities Lending Agreement
(October 1, 2002) incorporated into this filing by
reference to Post-Effective Amendment No. 119
filed January 29, 2003.
(ii) Executed Amendment No. 1 to Schedule A (July 17,
2003) of the Securities Lending Agreement between
JPMorgan Chase Bank and the Registrant if filed
electronically herewith as Exhibit No.
99.9(e)(ii).
(10) Copies of any plan entered into by Registrant pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") and any agreements with any person relating to
implementation of the plan, and copies of any plan entered
into by Registrant pursuant to Rule 18f-3 under the 1940
Act, any agreement with any person relating to
implementation of the plan, any amendment to the plan, and a
copy of the portion of the minutes of the meeting of the
Registrant's trustees describing any action taken to revoke
the plan;
(a) Plan under Rule 12b-1 (April 19, 2001) for each Fund's
A Class incorporated into this filing by reference to
Post-Effective Amendment No. 118 filed January 31,
2002.
(b) Plan under Rule 12b-1 (April 19, 2001) for each Fund's
B Class incorporated into this filing by reference to
Post-Effective Amendment No. 118 filed January 31,
2002.
(c) Plan under Rule 12b-1 (April 19, 2001) for each Fund's
C Class incorporated into this filing by reference to
Post-Effective Amendment No. 118 filed January 31,
2002.
(d) Plan under Rule 12b-1 (May 15, 2003) for each Fund's R
Class is incorporated into this filing by reference to
Post-Effective Amendment No. 121 filed on April 30,
2003.
(e) Plan under Rule 18f-3 (February 2003) is incorporated
into this filing by reference to Post-Effective
Amendment No. 121 filed on April 30, 2003.
(11) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will,
when sold, be legally issued, fully paid and nonassessable;
To be filed by amendment.
(12) An opinion, and consent to their use, of counsel or, in lieu
of an opinion, a copy of the revenue ruling from the
Internal Revenue Service, supporting the tax matters and
consequences to shareholders discussed in the prospectus;
(a) Form of Opinion and Consent of Counsel of Tax Matters
is filed herewith as Exhibit No. EX-99.12(a).
(13) Copies of all material contracts of the Registrant not made
in the ordinary course of business which are to be performed
in whole or in part on or after the date of filing the
registration statement;
(a) Executed Shareholder Services Agreement (April 19,
2001) between Delaware Service Company, Inc. and the
Registrant on behalf of each Fund incorporated into
this filing by reference to Post-Effective Amendment
No. 121 filed January 29, 2003.
(i) Executed Schedule B (May 15, 2003) to the
Shareholder Services Agreement is filed
electronically herewith as Exhibit No.
EX-99.13(a)(i).
(ii) Executed Amendment Letter (August 23, 2002)
to the Shareholder Services Agreement is
filed electronically herewith as Exhibit No.
EX-99.13(a)(ii).
(b) Executed Delaware Group of Funds Fund Accounting
Agreement (August 19, 1996) between Delaware Service
Company, Inc. and the Registrant incorporated into this
filing by reference to Post-Effective Amendment No. 106
filed December 10, 1996 and to Post-Effective Amendment
No. 110 filed July 1, 1998.
(i) Executed Schedule B (May 16, 2002) to
Delaware Group of Funds Fund Accounting
Agreement incorporated into this filing by
reference to Post-Effective Amendment No.
119 filed January 29, 2003.
(ii) Executed Amendment No. 26 (May 1, 2003) to
Delaware Investments Family of Funds
Fund Accounting Agreement, is incorporated
into this filing by reference to
Post-Effective Amendment No. 121 filed
on April 30, 2003.
(14) Copies of any other opinions, appraisals, or rulings, and
consents to their use, relied on in preparing the
registration statement and required by Section 7 of the
Securities Act of 1933 (the "1933 Act");
(a) Consent of Ernst & Young LLP, independent auditors, is
filed electronically herewith as Exhibit No.
EX-99.14(a).
(15) All financial statements omitted pursuant to Item 14(a)(1);
Not applicable.
(16) Manually signed copies of any power of attorney pursuant to
which the name of any person has been signed to the
registration; and
(a) Trustees' Power of Attorney, is filed electronically
herewith as Exhibit No. EX-99.16(a).
(17) Any additional exhibits which the Registrant may wish to
file.
(a) Codes of Ethics for the Delaware Investments Family
of Funds incorporated into this filing by reference
to Post-Effective Amendment No. 119 filed
January 29, 2003.
(b) Codes of Ethics for Delaware Management Company, a
series of Delaware Management Business Trust, and
Delaware Distributors, L.P. is filed electronically
herewith as Exhibit No. EX-99.17(b).
(c) Code of Ethics for Lincoln Financial Distributors, Inc.
incorporated into this filing by reference to
Post-Effective Amendment No. 121 filed June 1, 2003.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering
prospectus will contain the information called for by the
applicable registration form for reoffering by persons who may
be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities
at that time offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona
fide offering of them.
SIGNATURES
----------
As required by the Securities Act of 1933, as amended, the registration
statement has been signed on behalf of the registrant in the City of
Philadelphia and Commonwealth of Pennsylvania on this 15th day of October, 2003.
DELAWARE GROUP EQUITY FUNDS II
By: Jude T. Driscoll
-------------------------
Jude T. Driscoll
Chairman
As required by the 1933 Act, this registration statement has been signed by the
following persons in the capacities and on the dates indicated:
Signature Title Date
- ------------------- -------------------- ----------------
Jude T. Driscoll Chairman (Principal October 15, 2003
- -------------------- Executive Officer)
Jude T. Driscoll and Trustee
Walter P. Babich * Trustee October 15, 2003
- --------------------
Walter P. Babich
John H. Durham * Trustee October 15, 2003
- --------------------
John H. Durham
John A. Fry * Trustee October 15, 2003
- --------------------
John A. Fry
Anthony D. Knerr * Trustee October 15, 2003
- --------------------
Anthony D. Knerr
Ann R. Leven * Trustee October 15, 2003
- --------------------
Ann R. Leven
Thomas F. Madison * Trustee October 15, 2003
- --------------------
Thomas F. Madison
Janet L. Yeomans * Trustee October 15, 2003
- --------------------
Janet L. Yeomans
Joseph H. Hastings Executive Vice President October 15, 2003
- -------------------- and Chief Financial Officer
Joseph H. Hastings (Principal Financial Officer)
*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-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.7(a) Executed Distribution Agreement (May 15, 2003) between Delaware Distributors, L.P. and the Registrant
EX-99.7(b) Form of Second Amended and Restated Financial Intermediary Agreement (August 21, 2003) between Delaware
Distributors, L.P. and Lincoln Financial Distributors, Inc.
EX-99.9(a)(ii) Executed Amendment No. 1 to Schedule A (July 17, 2003) of the Custodian Agreement between JPMorgan Chase
Bank and the Registrant
EX-99.9(e)(ii) Executed Amendment No. 1 to Schedule A (July 17, 2003) of the Securities Lending Agreement between JPMorgan
Chase Bank and the Registrant
EX-99.12(a) Form of Opinion and Consent of Counsel of Tax Matters
EX-99.13(a)(i) Executed Schedule B (May 15, 2003) to the Shareholder Services Agreement
EX-99.13(a)(ii) Executed Amendment Letter (August 23, 2002) to the Shareholder Services Agreement
EX-99.14(a) Consent of Ernst & Young LLP
EX-99.16(a) Trustees' Power of Attorney
EX-99.17(b) Code of Ethics for Delaware Management Company and Delaware Distributors, L.P. (August 2003)