-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iw0E7m4iwdRrxVSXM/pQlDamdyh+NtEwwQHIQTzlE1G29JX7ssHb39cW3+d/P5BB x3vt39IWXMhEWXEr1xysag== 0000950116-03-004082.txt : 20031016 0000950116-03-004082.hdr.sgml : 20031016 20031016145356 ACCESSION NUMBER: 0000950116-03-004082 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20031016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE GROUP ADVISER FUNDS INC /MD/ CENTRAL INDEX KEY: 0000910682 IRS NUMBER: 521842569 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-14 SEC ACT: 1933 Act SEC FILE NUMBER: 333-109743 FILM NUMBER: 03943699 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: DELAWARE GROUP ADVISERS FUNDS INC STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: DELAWARE GROUP ADVISER FUNDS INC DATE OF NAME CHANGE: 19960508 FORMER COMPANY: FORMER CONFORMED NAME: LINCOLN ADVISOR FUNDS INC DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: LINCOLN RENAISSANCE FUNDS INC DATE OF NAME CHANGE: 19930817 N-14 1 n-14.txt N-14 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --- Pre-Effective Amendment No. --- -------- Post-Effective Amendment No. --- -------- (Check appropriate box or boxes) Delaware Group Adviser Funds ----------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) (800) 523-1918 ----------------------------------------------------------------------------- (Area Code and Telephone Number) 2005 Market Street, Philadelphia, PA 19103-7094 ----------------------------------------------------------------------------- (Address of Principal Executive Offices Number, Street, City, State, Zip Code) Richelle S. Maestro, Esquire, 2005 Market Street, Philadelphia, PA 19103-7094 ----------------------------------------------------------------------------- (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 of Delaware Diversified Income Fund. 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 STRATEGIC INCOME FUND Dear Shareholder: Enclosed is a Notice of Meeting for a Special Meeting of Shareholders (the "Meeting") of Delaware Strategic 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. The accompanying 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 Strategic Income Fund being exchanged for those of another fund in the Delaware Investments Family of Funds called Delaware Diversified Income Fund (the "Diversified Income Fund"), a series of Delaware Group Adviser Funds. If the shareholders of the Strategic Income Fund approve the proposal, the Diversified Income Fund will acquire substantially all of the assets and assume the liabilities of the Strategic Income Fund. o You will receive shares of the Diversified Income Fund equal in value to your investment in shares of Strategic Income Fund. o You will no longer be a shareholder of the Strategic Income Fund and will become a shareholder of the Diversified Income Fund. The transaction is being proposed because, although the Diversified Income Fund has an investment objective and investment policies that are similar to the Strategic Income Fund (as outlined in the Proxy Statement/Prospectus), the Diversified Income Fund has a better opportunity for substainable results and lower expenses compared to the Strategic Income Fund. Additionally, the asset growth for the Strategic Income Fund has been low and we believe 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 the Strategic Income Fund with the Diversified Income Fund will bring the assets in the Diversified Income Fund to approximately $[122] million, which is larger than the Strategic Income Fund. The Diversified Income Fund is managed by Delaware Management Company, a series of Delaware Management Business Trust, which is also the investment advisor of the Strategic Income 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 STRATEGIC INCOME FUND (a series of Delaware Group Income Funds) 2005 Market Street Philadelphia, PA 19103-7094 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To be held on February 19, 2004 To the Shareholders: NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Meeting") of Delaware Strategic Income Fund (the "Strategic Income Fund"), a series of Delaware Group Income Funds (the "Acquired Trust"), will be held at the offices of Delaware Investments located at 2001 Market Street, 2nd Floor Auditorium, Philadelphia, Pennsylvania 19103, on February 19, 2004 at 11:00 a.m. Eastern time. The Meeting is being called for the following reasons: 1. For shareholders of the Strategic Income Fund to vote on an Agreement and Plan of Reorganization between the Trust, on behalf of the Strategic Income Fund, and Delaware Group Adviser Funds, on behalf of Delaware Diversified Income Fund (the "Diversified Income Fund"), that provides for: (i) the acquisition by Diversified Income Fund of substantially all of the assets of the Strategic Income Fund in exchange for shares of the Diversified Income Fund and the assumption by Diversified Income Fund of the liabilities of the Strategic Income Fund; (ii) the pro rata distribution of shares of the Diversified Income Fund to the shareholders of the Strategic Income Fund; and (iii) the liquidation and dissolution of the Strategic Income Fund. 2. To vote upon any other business as may properly come before the Meeting or any adjournment thereof. The transaction contemplated by the Agreement and Plan of Reorganization is described in the attached Proxy Statement/Prospectus. A copy of the form of the Agreement and Plan of Reorganization is attached as Exhibit A to the Proxy Statement/Prospectus. Shareholders of record of the Strategic Income 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. 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 the Strategic Income Fund and the Diversified Income Fund compare? What are the risks of an investment in the Funds? Who manages the Diversified 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 Diversified 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 Strategic Income Fund and the Diversified 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 Diversified Income Fund Information about the Strategic Income Fund Information About each Fund Principal Holders of Shares
PROXY STATEMENT/PROSPECTUS Dated November 15, 2003 Acquisition of the Assets of DELAWARE STRATEGIC INCOME FUND (a series of Delaware Group Income Funds) By and in exchange for shares of DELAWARE DIVERSIFIED INCOME FUND (a series of Delaware Group Adviser Funds) This Proxy Statement/Prospectus solicits proxies to be voted at a Special Meeting of Shareholders (the "Meeting") of Delaware Strategic Income Fund (the "Strategic Income Fund"), a series of Delaware Group Income Funds (the "Trust"), to vote on the Agreement and Plan of Reorganization (the "Plan") for the Strategic Income Fund. If shareholders of the Strategic Income Fund vote to approve the Plan, Delaware Diversified Income Fund (the "Diversified Income Fund" and, together with Strategic Income Fund, each a "Fund" and collectively, the "Funds"), a series of Delaware Group Adviser Funds (the "Acquiring Trust"), will acquire substantially all of the assets of the Strategic Income Fund in exchange for shares of Diversified Income Fund ("Diversified Income Fund Shares") and the assumption by Diversified Income Fund of the liabilities of Strategic Income Fund. The principal offices of the Trust and the Acquiring Trust are located at 2005 Market Street, Philadelphia, PA 19103-7094. You can reach the offices of both the Trust 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, Pennsylvania 19103, on February 19, 2004 at 11:00 a.m. Eastern time. The Board of Trustees of the Trust, on behalf of the Strategic Income Fund, is soliciting this proxy. This Proxy Statement/Prospectus will first be sent to shareholders on or about [December ___, 2003]. If the shareholders of the Strategic Income Fund vote to approve the Plan, you will receive Diversified Income Fund Shares equal in value to your investment in the Strategic Income Fund. The Strategic Income Fund will then be liquidated. The Diversified Income Fund and the Strategic Income Fund have similar investment objectives. The Diversified Income Fund's investment objective is to seek maximum long-term total return, consistent with reasonable risk. The Strategic Income Fund's investment objective is to seek high current income and total return. This Proxy Statement/Prospectus gives the information about Diversified 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 Proxy Statement/Prospectus containing more information about the Diversified Income Fund, the Strategic Income Fund 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 Proxy Statement/Prospectus, and are intended to provide you with information about the Diversified Income Fund. o The Prospectuses of the Diversified Income Fund, dated December 31, 2002 (the "Diversified Income Fund Prospectus"). o The Annual Report to Shareholders of the Diversified Income Fund for the fiscal year ended October 31, 2002 (the "Diversified Income Fund Annual Report"). o The Semiannual Report to Shareholders of the Diversified Income Fund for the six months ended April 30, 2003 (the "Diversified Income Fund Semiannual Report"). It is anticipated that an updated prospectus and annual report for the Diversified Income Fund will be available in December 2003 and will be delivered to shareholders of the Strategic Income Fund when available. These documents, when available, will supercede the Diversified Income Fund Prospectus, the Diversified Income Fund Annual Report and the Diversified Income Fund Semiannual Report, and will be incorporated by reference into this Proxy Statement/Prospectus at that time. The Prospectuses of the Strategic Income Fund dated September 30, 2002, as supplemented September 29, 2003 (the "Strategic Income Fund Prospectus") is incorporated by reference into this 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 Trust 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 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 Proxy Statement/Prospectus. You should read the more complete information in the rest of this Proxy Statement/Prospectus, including the Plan (attached as Exhibit A), the Diversified Income Fund Prospectus, the Diversified Income Fund Annual Report and the Diversified Income Fund Semiannual Report. What is the purpose of the proposal? The Board of Trustees of the Trust has approved a Plan for the Strategic Income Fund and recommends that shareholders of the Strategic Income Fund approve the Plan. If shareholders of the Strategic Income Fund approve the Plan, the Fund's net assets will be transferred to the Diversified Income Fund in exchange for an equal value of Diversified Income Fund Shares. These Diversified Income Fund Shares will then be distributed pro rata to the Strategic Income Fund's shareholders and the Strategic Income Fund will be liquidated and dissolved. The proposed transaction for the Strategic Income Fund is referred to in this Proxy Statement/Prospectus as the "Transaction." This means that your shares of the Strategic Income Fund will be exchanged for an equal value of Diversified Income Fund Shares. As a result, you will cease to be a shareholder of your Strategic Income Fund and will become a shareholder of the Diversified Income Fund. This exchange will occur on a date agreed to between the Trust and the Acquiring Trust (hereafter, the "Closing Date"). Like the Strategic Income Fund, the Diversified Income Fund is a mutual fund within the Delaware Investments Family of Funds that is managed by Delaware Management Company, a series of Delaware Management Business Trust (the "Manager"). Its investment objective and policies are similar, but not identical, to the Strategic Income Fund. For the reasons set forth below under "Reasons for the Transaction," the Boards of Trustees of the Trust and the Acquiring Trust have concluded that the Transaction is in the best interests of the respective shareholders of the Strategic Income Fund and the Diversified Income Fund. Each Board of Trustees also concluded that no dilution in value would result to the shareholders of each respective Fund, as a result of the Transaction. The Board of Trustees of the Trust recommend that you vote to approve the Plan. How will the shareholder voting be handled? Shareholders of Strategic Income 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 the Diversified Income Fund must be voted in favor of the Plan. Please vote by proxy as soon as you receive this 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 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 Proxy Statement/Prospectus. What are the general tax consequences of the Transaction? It is expected that shareholders of the Strategic Income Fund will not recognize any gain or loss for federal income tax purposes as a result of the exchange of their shares for Diversified 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 the Strategic Income Fund and the Diversified Income Fund compare? The Funds have similar investment objectives and policies. The Strategic Income Fund's investment objective is to seek high current income and total return. The Diversified Income's investment objective is to seek maximum long-term total return consistent with reasonable risk. Accordingly, both Funds seek, at least in part, to provide total return to their shareholders. The Strategic Income Fund, however, places a somewhat greater emphasis on current income as compared to the Diversified Income Fund. Each Fund seeks to achieve its investment objective by investing primarily in three distinct sectors of the fixed-income market: high-yield; investment grade; and international. o High-Yield Sector - consists of high-yielding, lower-rated or unrated fixed-income securities that are believed to be similarly rated issued by U.S. companies. High yield securities are commonly referred to as "junk bonds." o Investment Grade Sector - consists of investment grade debt obligations of U.S. companies and those issued or guaranteed by the U.S. government, its agencies or instrumentalities, or by U.S. companies. o International Sector - consists of bonds issued by foreign governments, their agencies and instrumentalities, as well as other fixed-income securities of issuers in foreign countries. The primary difference between the investment strategies of the Strategic Income Fund and Diversified Income Fund is that the Strategic Income Fund has the ability to invest a slightly higher percentage of its assets in high-yield bonds, foreign securities and emerging market securities than Diversified Income Fund's ability to invest in such sectors. What are the risks of an investment in the Funds? As with most investments, 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 Diversified Income Fund are similar to the risks associated with investments in the Strategic Income Fund. Those risks include changes in market conditions, particularly changes in bond prices and interest rates, and poor performance of bond issuers in which the Funds may invest. The Strategic Income Fund may incur risks associated with high-yield bonds, foreign securities and investments in emerging markets to a greater extent than the Diversified Income Fund. 2 For further information about the investment objectives and policies of the Funds, see "Comparison of Investment Objectives and Policies." Who manages the Diversified Income Fund? The management of the business and affairs of the Diversified 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 Diversified Income Fund. The Manager manages the assets of the Funds and makes each Fund's investment decisions. The Manager is a series of Delaware Management Business Trust, 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. On September 30, 2003, the Manager and its affiliates within Delaware Investments were managing in the aggregate in excess of $[000] billion in assets in various institutional or separately managed, investment company, and insurance accounts. Delaware International Advisers Ltd. ("Delaware International") is the sub-advisor for each Fund. Delaware International manages the foreign securities portion of each Fund's portfolio under the overall supervision of the Manager and furnishes the Manager with investment recommendations, asset allocation advice, research and other investment services regarding foreign securities. Paul Grillo, Timothy L. Rabe and Upender V. Rao have primary responsibility for making day-to-day investment decisions for the Diversified Income Fund. When making decisions for the Diversified Income Fund, Mr. Grillo, Mr. Rabe and Mr. Rao regularly consult with Joanna Bates, Stephen R. Cianci, John Kirk and Chistopher A. Moth Paul Grillo, Vice President/Senior Portfolio Manager, holds a BA in Business Management from North Carolina State University and an MBA in Finance from Pace University. Prior to joining Delaware Investments in 1993, Mr. Grillo served as mortgage strategist and trader at the Dreyfus Corporation. He also served as mortgage strategist and portfolio manager for the Chemical Investment Group and as financial analyst at Chemical Bank. Mr. Grillo is a CFA charterholder. Timothy L. Rabe, Senior Vice President/Senior Portfolio Manager, received a bachelor's degree in finance from the University of Illinois. Prior to joining Delaware Investments in 2000, Mr. Rabe was a high-yield portfolio manager for Conseco Capital Management. Before that, Mr. Rabe worked as a tax analyst for The Northern Trust Company. Mr. Rabe is a CFA charterholder. Upender V. Rao, Senior Vice President/Senior Portfolio Manager, received his MBA from the University of Michigan's Business School and his undergraduate degree in engineering from Indian Institute of Technology, Madras, India. Prior to joining Delaware Investments in 2000, Mr. Rao served as head of emerging markets research and trading at Conseco Capital Management. Previous to his role in emerging markets, Mr. Rao was the head of all energy and basic industry research. Mr. Rao is a CFA charterholder. 3 Joanna Bates, Senior Portfolio Manager (Delaware International), is a graduate of London University. She joined the Fixed Income team at Delaware International in June 1997. Prior to that, she was Associate Director, Fixed Interest at Hill Samuel Investment Management which she joined in 1990. She had previously worked at Fidelity International and Save & Prosper as fund manager and analyst for global bond markets. Ms. Bates is an associate of the Institute of Investment Management and Research. Stephen R. Cianci, Vice President/Senior Portfolio Manager, holds a BS and an MBA in Finance from Widener University. He joined Delaware Investments' Fixed Income Department in 1992 as an investment grade quantitative research analyst. In addition to his quantitative research responsibilities, Mr. Cianci also served as a mortgage-backed and asset-backed securities analyst. Mr. Cianci is an Adjunct Professor of Finance at Widener University and a CFA charterholder. John Kirk, Director/Investment Director (Delaware International), is a graduate of the University of Wales and received an M.A. in Operations Research from Lancaster University. Prior to joining Delaware International in September of 1998, he was responsible for European and Asian Fixed Income at Royal Bank of Canada in London, and had global responsibility for credit and risk management. He started his career at Ford Motor Company as a member of their operations research group. Christopher A. Moth, Director/Senior Portfolio Manager/Chief Investment Officer - Global Fixed Income & Currencies (Delaware International), is a graduate of The City University London. He joined Delaware International in 1992, having previously worked at Guardian Royal Exchange in an actuarial capacity, where he was responsible for quantitative models and projections. Mr. Moth has been awarded the Certificate in Finance and Investment from the Institute of Actuaries in London. Messrs. Grillo, Rabe, Moth and Ms. Bates also have primary responsibilities for the management of the Strategic Income Fund. What are the fees and expenses of each Fund? The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Funds. The sales charge structure for each Fund is identical, and, except as noted, the operating expenses shown are based on expenses incurred during each Fund's most recent fiscal year. The Manager has contracted to waive its fees and/or pay expenses of the Diversified Income Fund for the period from January 1, 2004 through December 31, 2004 to the extent necessary to limit the total operating expenses of the Fund to the levels shown below. This arrangement will result in lower total operating expenses for the Diversified Income Fund after the Transaction. FEES AND EXPENSES FOR THE DIVERSIFIED INCOME FUND AND THE STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------------- Fund Names and Classes of Shares Maximum Sales Load on Maximum Maximum Sales Load on Redemption Purchases CDSC Reinvested Dividends Fees - --------------------------------------------------------------------------------------------------------------------------------- Diversified Income Fund Class A 4.50% None(1) None None Class B None 4.00%(2) None None Class C None 1.00%(3) None None Class R None None None None Institutional Class None None None None Strategic Income Fund Class A 4.50% None(1) None None Class B None 4.00%(2) None None Class C None 1.00%(3) None None Class R None None None None Institutional Class None None None None
4 OPERATING EXPENSES
- ---------------------------------------------------------------------------------------------------------------------------------- Fund Names and Classes Management Distributions and Other Total Annual Fund Fee Waivers Net of Shares Fees Service (12b-1)Fee Expenses Operating Expenses & Payments Expenses - ---------------------------------------------------------------------------------------------------------------------------------- Diversified Income Fund after Transaction Class A 0.55% 0.30%(4) 0.44% 1.29% (0.29%)(4),(5) 1.00% Class B 0.55% 1.00% 0.44% 1.99% (0.24%)(5) 1.75% Class C 0.55% 1.00% 0.44% 1.99% (0.24%)(5) 1.75% Class R 0.55% 0.60% 0.44% 1.59% (0.24%)(5) 1.35% Institutional Class 0.55% none 0.44% 0.99% (0.24%)(5) 0.75% Diversified Income Fund Class A 0.55% 0.30%(6) 1.52% 2.37% (1.37%)(6),(7) 1.00% Class B 0.55% 1.00% 1.52% 3.07% (1.32%)(7) 1.75% Class C 0.55% 1.00% 1.52% 3.07% (1.32%)(7) 1.75% Class R 0.55% 0.60% 1.52% 2.67% (1.32%)(7) 1.35% Institutional Class 0.55% none 1.52% 2.07% (1.32%)(7) 0.75% Strategic Income Fund Class A 0.65% 0.30%(8) 0.90% 1.85% (0.00%)(8),(9) 1.85% Class B 0.65% 1.00% 0.90% 2.55% (0.00%)(9) 2.55% Class C 0.65% 1.00% 0.90% 2.55% (0.00%)(9) 2.55% Class R 0.65% 0.60% 0.90% 2.15% (0.00%)(9) 2.15% Institutional Class 0.65% none 0.90% 1.55% (0.00%)(9) 1.55%
(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 ("CDSC") will apply to redemptions made within two years of purchase. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the Prospectus if they are available. (2) If you redeem Class B shares during the first year after you buy them, you will pay a contingent deferred sales charge of 4.00%, which declines to 3.00% during the second year, 2.25% during the third year, 1.50% during the fourth and fifth years, 1.00% during the sixth year and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1.00% contingent deferred sales charge. (4) Class A shares are subject to a maximum 12b-1 fee of 0.30% of average daily net assets and Class B and Class C shares are each subject to an annual 12b-1 fee of 1.00% of average daily net assets. Class R shares are subject to an annual 12b-1 fee of 0.60%. The Fund's distributor has contracted to waive a portion of that 12b-1 fee paid by Class A shares through December 31, 2004 in order to prevent total 12b-1 plan expenses from exceeding 0.25% of average daily net assets. (5) The investment manager has contracted to waive fees and pay expense through December 31, 2004 in order to prevent total operating expenses (excluding any 12b-1 fees, taxes, interests, brokerage fees and extraordinary expenses) from exceeding 0.75% of average daily net assets. (6) Class A shares are subject to a maximum 12b-1 fee of 0.30% of average daily net assets and Class B and Class C shares are each subject to an annual 12b-1 fee of 1.00% of average daily net assets. Class R shares are subject to an annual 12b-1 fee of 0.60%. The Fund's distributor has contracted to waive a portion of that 12b-1 fee paid by Class A shares through December 31, 2004 in order to prevent total 12b-1 plan expenses from exceeding 0.25% of average daily net assets. (7) The investment manager has contracted to waive fees and pay expenses through December 31, 2004 in order to prevent total operating expenses (excluding any 12b-1 fees, taxes, interest, brokerage fees and extraordinary expenses) from exceeding 0.75% of average daily net assets. (8) Class A shares are subject to a 12b-1 fee of 0.30% of average daily net assets and Class B and Class C shares are each subject to an annual 12b-1 fee of 1.00% of average daily net assets. Class R shares are subject to an annual 12b-1 fee of 0.60%. The Fund's distributor has agreed to limit the 12b-1 fee paid by Class A shares through March 31, 2004 to no more than 0.25% of average daily net assets. 5 (9) The investment manager has agreed to waive fees and pay expenses through March 31, 2004 in order to prevent total operating expenses (excluding any 12b-1 fees taxes, interest, brokerage fees and extraordinary expenses) from exceeding 0.75% of average daily net assets. The fees and expenses shown in the table above do not reflect the voluntary expense caps by the manager. The following table shows operating expenses which are based on the most recently completed fiscal year and reflects the manager's current fee waivers and payments.
- ------------------------------------------------------------------------------------------------------------------------ Fund operating expenses including voluntary expense caps in place through March 31, 2004. - ------------------------------------------------------------------------------------------------------------------------ Fund Name and Classes Management Distributions and Other Total Annual Fund of Shares Fees Service (12b-1)Fee Expenses Operating Expenses - ------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund Class A 0.00% 0.25%(9) 0.75% 1.00% Class B 0.00% 1.00% 0.75% 1.75% Class C 0.00% 1.00% 0.75% 1.75% Class R 0.00% 0.60% 0.75% 1.35% Institutional Class 0.00% none 0.75% 0.75%
Examples: The following Examples are intended to help you compare the cost of investing in the Acquired Fund with the cost of investing in the Diversified 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. 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 Years2 ------ ------- ------- --------- Diversified Income Fund after Transaction(1) Class A $547 $813 $1,099 $1,912 Class B $178 $601 $1,051 $2,117 Class B (if redeemed) $578 $826 $1,201 $2,117 Class C $178 $601 $1,051 $2,298 Class C (if redeemed) $278 $601 $1,051 $2,298 Class R $137 $478 $843 $1,869 Institutional Class $77 $291 $524 $1,191 Strategic Income Fund(3) Class A $629 $1,006 $1,406 $2,522 Class B $258 $793 $1,355 $2,714 Class B (if redeemed) $658 $1,019 $1,505 $2,714 Class C $258 $793 $1,355 $2,885 Class C (if redeemed) $358 $793 $1,355 $2,885 Class R $218 $673 $1,154 $2,483 Institutional Class $158 $490 $845 $1,845
(1) The Diversified Income Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example reflects the net operating expenses with expense waivers for the one year contractual period and total operating expenses without expense waivers for years two through ten. (2) The Class B example reflects the conversion of Class B shares to Class A shares after approximately eight years. Information for the ninth and tenth years reflects expenses of the Class A shares. (3) The Strategic Income Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. This example assumes that the Fund's total operating expenses remain unchanged in each of the periods we show. In addition, this example does not reflect the voluntary expense cap. 6 Where can I find more financial information about the Funds? The Diversified Income Fund Annual Report and the Diversified Income Semiannual Report, which are included with, include a discussion of that Fund's performance during the past fiscal year and shows per share information for past five fiscal years. The Prospectuses, and the Annual and Semiannual Reports for the Strategic Income Fund contain further financial information about the Strategic Income Fund. These documents are available upon request. (See "Information About the Strategic 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 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 Diversified Income Fund and Strategic Income Fund, on a pro rata basis. JPMorgan Chase Bank is the custodian of the securities and other assets of both Funds. The main office of JPMorgan Chase Bank is 4 Chase Metrotech Center, Brooklyn, New York 11245. Management and Administration Fees. The Manager is the investment manager of both the Funds. 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 Diversified Income Fund's management agreement, the Fund pays the Manager a management fee as a percentage of average daily net assets equal to: 0.55% on the first $500 million; 0.50% on the next $500 million; 0.45% on the next $1,500 million, and 0.425% on assets in excess of $2,500 million. The Manager has contracted to waive that portion, if any, of the annual management fees payable by the Diversified Income Fund and to pay certain expenses of the Fund to the extent necessary to ensure that the total operating expenses of the Fund do not exceed 0.75% (exclusive of applicable 12b-1 expenses, taxes, interest, brokerage commissions and extraordinary expenses) for the period January 1, 2004 to December 31, 2004. Under the Strategic Income Fund's investment management agreement, the Strategic Income Fund pays the Manager an annual 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 agreed to waive that portion, if any, of the annual management fees payable by Strategic Income Fund and to pay certain expenses of the Fund to the extent necessary to ensure that the total operating expenses of the Fund do not exceed 0.75% (exclusive of applicable 12b-1 fees taxes, interest, brokerage commissions and extraordinary expenses) through March 31, 2004. Distribution Services. Pursuant to underwriting agreements relating to each of the Funds, 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 the Funds' shares, except for payments by the Funds on behalf of Class A Shares, Class B Shares and Class C 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 Fund shares through broker/dealers, financial advisors and other financial intermediaries. Rule 12b-1 Plans. Each 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. 7 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 a Fund under its Rule 12b-1 Plans and a Fund's Distribution Agreement is, on an annual basis: up to 0.30% 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 and up to 0.60% of average daily net assets of Class R Shares for the year. The Distributor may waive 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, Class C Shares and Class R 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 a 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 authorized agent receives a purchase order in good order, subject to any applicable sales charge. Purchases of shares of the Funds may be made through authorized investment dealers or directly by contacting the Funds or the Distributor, although the Institutional Class Shares and Class R 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 of each Fund. Subsequent purchases must be at least $100. The initial and subsequent investment minimums for Class A Shares will be waived for purchases by officers, trustees and employees of any fund in the Delaware Investments Family of Funds, the manager or the sub-advisor 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 Uniforms Transfers to Minors Act and shares purchased in connection with an Automatic Investing Plan are subject to a minimum initial purchase of $250 and a minimum subsequent purchase of $25. Accounts opened under the Asset Planner services are subject to a minimum initial investment of $2,000 per Asset Planner strategy selected. There are no minimum purchase requirements for 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. 8 Class A Shares of each Fund are purchased at the offering price, which reflects a maximum front-end sales charge of 4.50%; 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) 3.00% if shares are redeemed during the second year of purchase; (iii) 2.25% if shares are redeemed during the third year following purchase; (iv) 1.50% if shares are redeemed during the fourth or fifth year following purchase; (v) 1.00% 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 net asset value per share without the imposition of a front-end or contingent deferred sales charge. Absent any fee waivers, Class R Shares are also 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 certificated 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 Strategic Income Fund 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. The Diversified Income Fund declares dividends, if any, on a daily basis and pays such dividends on a monthly basis. The Strategic Income Fund declares and pays dividends, if any, from its net investment income on a monthly 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), if any, will be distributed annually for the Diversified Income Fund and twice a year for the Strategic Income Fund. 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. 9 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 of 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 Diversified Income Fund under the heading "Dividends, Distributions and Taxes" and the current Statement of Additional Information for the Strategic Income Fund under the heading "Taxes." REASONS FOR THE TRANSACTION The Board of Trustees of the Trust, on behalf of the Strategic Income Fund, have recommended the Transaction for purposes of combining the Strategic Income Fund with a larger fund that has similar investment objectives and policies and a better opportunity for sustainable results. There has also been relatively low demand for and slow growth in assets of the Strategic Income Fund. The Plan was presented to the Board of Trustees of the Trust at a meeting of the Board on August 21, 2003. At the meeting, the Board questioned management about the potential benefits and costs to shareholders of the Strategic Income Fund. In deciding whether to recommend approval of the Transaction to shareholders, the Board of Trustees considered, among other things: the advantages and benefits, as well as the disadvantages and costs to shareholders; the expense ratios of the Diversified Income Fund and the Strategic Income Fund and the impact of contractual fee waivers thereon; the comparative investment performance of the Diversified Income Fund and the Strategic Income Fund; the compatibility of the investment objectives, policies, restrictions and investments of the Strategic Income Fund with those of the Diversified Income Fund; the tax consequences of the Transaction; and the significant experience of the Manager. Additionally, the Board of Trustees believes that the investment strategy of Diversified Income Fund affords a better opportunity for sustainable positive results than the Strategic Income Fund's investment strategy. During the course of their deliberations, the Board of Trustees also considered that the expenses of the Transaction will be shared one-half by the Diversified Income Fund and one-half by the Manager. The Boards of Trustees of the Trust 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 the Trust then decided to recommend that shareholders of the Strategic Income Fund 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 Strategic Income Fund or the Diversified Income Fund. For the reasons discussed above, the Board of Trustees of the Trust, on behalf of the Strategic Income Fund, recommends that you vote FOR the Plan. If the shareholders of the Strategic Income Fund do not approve the Plan, the Board of Trustees may consider other possible courses of action for the Strategic Income 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 and incorporated herein by reference. 10 How will the Transaction be carried out? If the shareholders of the Strategic Income Fund approve the Plan, the Transaction will take place after various conditions are satisfied by the Trust on behalf of the Strategic Income Fund, and by the Acquiring Trust, on behalf of the Diversified Income Fund, including the delivery of certain documents. The Trust and the Acquiring Trust will agree on the Closing Date. If the shareholders of the Strategic Income Fund do not approve the Plan, the Transaction will not take place. If the shareholders of the Strategic Income Fund approve the Plan, the Fund will deliver to the Diversified Income Fund substantially all of its assets on the Closing Date. In exchange, the Trust, on behalf of the Strategic Income Fund, will receive Diversified Income Fund Shares to be distributed pro rata by the Strategic Income Fund to its shareholders and the Diversified Income Fund will assume the liabilities of the Strategic Income Fund. The value of the assets to be delivered to the Diversified 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 Strategic Income Fund will be permanently closed as of the close of business of the NYSE on the day before the Closing Date. The Strategic Income 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 shares of the Diversified Income Fund. To the extent permitted by law, the Trust 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 the Strategic Income Fund. Who will pay the expenses of the Transaction? The expenses of the Transaction will be shared equally by the Diversified Income Fund and the Manager. 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 Trust, on behalf of the Strategic Income Fund, and for the Acquiring Trust, on behalf of the Diversified 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 Strategic Income Fund will not recognize any gain or loss as a result of the exchange of their shares of the Strategic Income Fund for shares of the Diversified Income Fund, and (ii) the Diversified Income Fund and its shareholders will not recognize any gain or loss upon receipt of the Strategic Income Fund's assets. 11 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 advisor 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 Diversified Income Fund Shares? If the Transaction is approved, full and fractional shares of the Diversified Income Fund will be distributed to shareholders of the Strategic Income 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 shares of the Diversified Income Fund will be recorded electronically in each shareholder's account. The Diversified Income Fund will then send a confirmation to each shareholder. As described in its prospectus, the Diversified 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 Strategic Income Fund 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 Strategic Income Fund, the Diversified Income Fund does not routinely hold annual meetings of shareholders. The Diversified 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 Diversified Income Fund and the Strategic Income Fund, and the estimated capitalization of the Diversified Income Fund as adjusted to give effect to the proposed Transaction. The capitalization of the Diversified Income Fund is likely to be different when the Transaction is consummated.
Diversified Income Fund - Strategic Income Fund Diversified Income Fund after Diversified Income Fund Strategic Income Fund Transaction (unaudited) (unaudited) (estimated) Net assets (millions) $129,020,506 $32,823,108 $161,843,614 Total shares outstanding 14,961,509 7,412,551 18,768,688 Diversified Income Fund Strategic Income Fund Diversified Income Fund Class A Class A Class A after Transaction (unaudited) (unaudited) (estimated) Net assets (millions) $71,020,865 $10,834,302 $81,855,167 Total shares outstanding 8,235,678 2,444,522 9,492,558 Net asset value per share $8.62 $4.43 $8.62 Diversified Income Fund Strategic Income Fund Diversified Income Fund Class B Class B Class B after Transaction (unaudited) (unaudited) (estimated) Net assets (millions) $14,679,365 $13,715,060 $28,394,425 Total shares outstanding 1,702,254 3,098,351 3,293,328 Net asset value per share $8.62 $4.43 $8.62 Diversified Income Fund Strategic Income Fund Diversified Income Fund Class C Class C Class C after Transaction (unaudited) (unaudited) (estimated) Net assets (millions) $43,121,318 $3,765,253 $46,886,571 Total shares outstanding 5,000,512 850,748 5,437,316 Net asset value per share $8.62 $4.43 $8.62
12
Diversified Income Fund Strategic Income Fund Diversified Income Fund Class R Class R Class R after Transaction (unaudited) (unaudited) (estimated) Net assets (millions) $1,042 --- $1,042 Total shares outstanding 120.863 --- 120.863 Net asset value per share $8.62 --- $8.62 Diversified Income Fund Diversified Income Fund Strategic Income Fund Institutional Class Institutional Class Institutional Class after Transaction (unaudited) (unaudited) (estimated) Net assets (millions) $197,916 $4,508,493 $4,706,409 Total shares outstanding 22,944 1,018,930 545,365 Net asset value per share $8.63 $4.42 $8.63
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 the Strategic Income Fund as compared to the Diversified Income Fund. For a complete description of the Diversified Income Fund's investment policies and risks, you should read the Diversified Income Fund Prospectus, which is included with this Proxy Statement/Prospectus. The investment objectives and policies of the Strategic Income Fund, as compared to the Diversified 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. Are there any significant differences between the investment objectives, strategies and investment policies of the Strategic Income Fund and the Diversified Income Fund? Investment Objectives. The Strategic Income Fund seeks high current income and total return. The investment objective for the Strategic Income Fund is non-fundamental. In the event that the Board of Trustees of the Strategic Income Fund approves a change in the Fund's objective, the Board will notify shareholders before the change becomes effective. The Diversified Income Fund seeks maximum long-term total return, consistent with reasonable risk. The investment objective for the Diversified Income Fund is fundamental and may not be changed without the prior approval of shareholders. Accordingly, the primary difference between the investment objectives of the Strategic Income Fund and the Diversified Income Fund is that the Strategic Income Fund places a somewhat greater emphasis on current income as compared to the Diversified Income Fund. Investment Strategy. Each Fund allocates its investments primarily among three (3) sectors of the fixed-income securities market: U.S. investment grade sector; U.S. high-yield sector; and the international sector. o U.S. High-Yield Sector - consists of high-yielding, lower-rated or unrated fixed-income securities that the Manager considers to be of similar quality that are issued by U.S. companies. o Investment Grade Sector - consists of investment grade debt obligations of U.S. companies and those issued or guaranteed by the U.S. government, its agencies or instrumentalities, or by U.S. companies. 13 o International Sector - consists of bonds issued by foreign governments, their agencies and instrumentalities, as well as other fixed-income securities of issuers in foreign countries. Each Fund determines how much to allocate to each sector based on the Manager's evaluation of economic and market conditions and the assessment of returns and potential for appreciation offered by each sector. Each Fund may periodically reallocates its assets, as deemed necessary. The primary differences between the investment strategies of the Strategic Income Fund and the Diversified Income Fund is that the Strategic Income Fund may invest no more than 60% of its net assets in investment-grade fixed-income securities, whereas the Diversified Income Fund has no such limitation. In addition, the Strategic Income Fund has the ability to invest a higher percentage of its assets in high-yield bonds, foreign securities and investments in emerging markets as compared to Diversified Income Fund's ability to invest in such securities. The Diversified Income Fund has adopted a non-fundamental investment policy to invest, under normal market conditions, at least 80% of its net assets in fixed-income securities and to provide shareholders at least 60 days' prior notice before changing such policy. The Strategic Income Fund has not adopted such a policy. Principal Investments. Each Fund primarily invests in the following types of fixed-income securities: U.S. Investment-Grade Bonds. U.S. investment-grade bonds are debt securities that are issued by a U.S. issuer and that are rated in one of the top four highest rating categories by a nationally recognized statistical ratings organization ("NRSRO"), such as S&P or Moody's, or are unrated securities that the Manager deems to be of similar quality. The Strategic Income Fund may invest up to 60% of its net assets and Diversified Income Fund may invest without limitation in such debt securities. High-Yield Securities. High-yield securities, also known as "junk bonds," are debt securities that are rated lower than investment-grade (i.e., BB or Ba by an NRSRO) or are unrated securities that the Manager deems to be of similar quality. The Strategic Income Fund may invest up to 60% of its net assets, and the Diversified Income Fund may invest up to 50% of its net assets, in high-yield securities. U.S. Government Securities. U.S. government securities include direct U.S. obligations, including bills, notes, bonds as well as other debt securities issued by the U.S. Treasury and securities of U.S. government agencies or instrumentalities. The Strategic Income Fund may invest up to 60% of its net assets in direct U.S. government obligations; however, these securities will typically be a smaller percentage of the portfolio because they generally do not offer as high a level of current income as other fixed-income securities. The Diversified Income Fund may invest in U.S. government securities without limitation for temporary purposes or otherwise, as is consistent with its investment objective and policies. Foreign Government Securities and Foreign Corporate Bonds. Foreign government securities and foreign corporate bonds include debt obligations issued by foreign governments and debt securities issued by foreign corporations. Both Funds may invest in foreign government securities and foreign debt securities. The Strategic Income Fund may invest up to 60% of its net assets in foreign debt securities that are investment grade securities or unrated securities that the Manager deems to be equivalent to investment grade. The Strategic Income Fund may also invest in non-investment grade foreign bonds, but will limit its investments in foreign government securities issued by emerging or developing countries to no more than 15% of its net assets. The Strategic Income Fund may invest in Brady Bonds without limitation. The Diversified Income Fund may invest up to 50% of its assets in foreign debt securities but will not invest more than 25% of its assets in non-dollar denominated foreign debt. Like the Strategic Income Fund, the Diversified Income Fund may also invest in emerging markets and foreign securities rated below investment grade. However, the Diversified Income Fund will limit its investment in emerging markets, Brady Bonds and foreign securities that are rated or considered to be below investment grade to no more than 5% of the Fund's net assets. 14 Additional Investments. Although the Funds generally invest in fixed-income securities, each Fund may invest in other types of securities. In addition, each Fund may use a wide range of hedging instruments, subject to certain limitations, including options, futures contracts and options on futures contracts. Each Fund has different policies regarding these types of investments. Mortgage-backed Securities. Mortgage-backed securities generally include privately issued mortgage-backed bonds whose underlying value is a fixed pool of mortgages secured by an interest in real property. Strategic Income Fund may invest up to 60% of its net assets in government-related mortgage-backed securities or privately issued mortgage-backed securities that are fully collateralized, including Collateralized Mortgage Obligations (CMOs) and Real Estate Mortgage Investment Conduits (REMICs). The Fund may also invest in mortgage-backed securities issued by private companies that are not fully collateralized, provided that such securities have a rating in one of the four highest categories issued by an NRSRO at the time of purchase. Diversified Income Fund may invest, without limitation, in investment grade mortgage-backed securities issued or guaranteed by the U.S. government, its agencies or instrumentalities or by government-sponsored corporations, including CMOs and REMICs. The Diversified Income Fund may also invest, without limitation, in investment grade mortgage-backed securities issued by private companies. The Diversified Income Fund's investments in such securities will be limited to securities that are rated in one of the four highest rating categories by an NRSRO or will be unrated securities that the Manager determines to be of comparable quality. Asset-backed Securities. Asset-backed securities are bonds or notes backed by account receivables, including home equity, automobile or credit loans. Both Funds may invest in asset-backed securities that are rated in one of the four highest rating categories by an NRSRO. Interest rate swap and index swap agreements. In an interest rate swap, a Fund receives payments from another party based on a floating interest rate in return for making payments based on a fixed interest rate. An interest rate swap can also work in reverse, with a Fund receiving payments based on a fixed interest rate and making payments based on a floating interest rate. Interest rate swaps may be used to adjust a Fund's sensitivity to interest rates by changing its duration. In addition, a Fund may use interest rate swaps to hedge against changes in interest rates. The Manager may use index swaps to gain exposure to markets that the Fund invests in, such as the corporate bond market. A Fund may also use index swaps as a substitute for futures, options or forward contracts if such contracts are not directly available to the Fund on favorable terms. Futures and Options. Options represent a right to buy or sell a security or group of securities at an agreed upon price at a future date. Futures contracts are agreements for the purchase or sale of a security or group of securities at a specific price, on a specific date. Each Fund may invest in futures and options for hedging purposes. The Diversified Income Fund may not engage in such transactions to the extent that obligations resulting from these activities, in the aggregate, exceed 25% of the Fund's assets. Restricted securities. Restricted securities are privately placed securities whose resale is restricted under various securities laws. Each Fund may invest up to 15% of its net assets in restricted securities, including securities that are eligible for resale only among certain institutional buyers without registration, which are commonly known as Rule 144A securities. 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 15% of its net assets in illiquid securities. 15 Temporary Defensive Investments. Each Fund 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 Strategic Income Fund may hold a substantial part of its assets in cash or cash equivalents, and the Diversified Income Fund may hold all of its assets in money market instruments. 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 Funds differ? Each Fund has 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 Funds? Like all investments, an investment in the Funds involves risks. 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 investment 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 strive to manage this risk by maintaining a long-term investment approach and focusing on securities it believes that can continue to provide returns over an extended period of time regardless of these interim market fluctuations. Generally, the Funds do not try to predict overall market movements or trade for short-term purposes. Interest Rate Risk. Interest risk is the risk that securities, particularly bonds with longer maturities, will decrease in value if interest rates rise and increase in value if interest rates fall. The risk is greater for bonds with longer maturities than for those with shorter maturities. The Funds are subject to various interest rate risks depending upon its investment objectives and policies. The Funds cannot eliminate this risk. However, each Fund attempts to manage the risk by monitoring economic conditions, especially interest rate trends and their potential impact on the Fund. Neither Fund tries to increase its return on its investments in debt securities by aggressively capitalizing on interest rate movements. The Funds, by investing in swaps, are subject to additional interest rate risk. The Funds will not invest in interest rate or index swaps with maturities of more than two years. Each business day the Funds will calculate the amount they must pay for any swaps they hold and will segregate enough cash or other liquid securities to cover that amount. Industry and Security Risk. Industry and security risk refers to the risk that the value of securities in a particular industry, or in an individual security, will decline because of changes in performance expectations. The Funds seek to manage this risk through diversification and by implementing policies that prohibit concentration. The Funds diversify their assets across three distinct sectors of the fixed-income securities market and among a wide variety of individual issuers. Credit Risk. Credit risk is the possibility that a bond's issuer (or an entity that insures the bond) will not be able to make timely payments of interest and principal. Investing in so-called "junk" or "high-yield" bonds entails the risk of principal loss, which may be greater than the risk involved in investment grade bonds. High-yield bonds are sometimes issued by companies whose earnings at the time the bond is issued are less than the projected debt payments on the bonds. The Funds conduct careful, credit-oriented bond selection, and our commitment to hold a diversified selection of high-yield bonds is designed to manage credit risk. It is likely that protracted periods of economic uncertainty would cause increased volatility in the market prices of high-yield bonds, an increase in the number of high-yield bond defaults and corresponding volatility in the Funds' net asset value. Each Fund's holdings of high quality investment grade bonds are less subject to credit risk and may help to balance any credit problems experienced by individual high-yield bond issuers or foreign issuers. 16 Prepayment Risk. Prepayment Risk is the risk that homeowners will prepay mortgages during periods of low interest rates, forcing an investor to reinvest money at interest rates that might be lower than those on the prepaid mortgage. Each Fund may invest in Mortgage-Backed Securities, CMOs and REMICs. A Fund takes into consideration the likelihood of prepayment when mortgages are selected, and may look for mortgage securities that have characteristics that make them less likely to be prepaid, such as low outstanding loan balances or below-market interest rates. Because the Strategic Income Fund may invest up to 60% of its net assets in mortgage-backed securities, the Strategic Income Fund may be slightly more sensitive to this risk than the Diversified Income Fund. Futures and Option Risks. Futures and options risk is the possibility that a fund may experience a significant loss if it employs an options or futures strategy related to a security or a market index moves in the opposite direction from what the portfolio managers 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 Funds will use options and futures for defense purposes, such as to protect gains in the portfolio without actually selling a security or to neutralize the impact of interest rate changes. The Funds do not use futures and options for speculative reasons or in an effort to enhance return. Foreign Risk. Foreign risk is the risk that foreign securities may be adversely affected by political instability (including governmental seizures or nationalization of assets), changes in currency exchange rates, foreign economic conditions or inadequate regulatory and accounting standards. Foreign markets may also be less efficient, less liquid, have greater price volatility, less regulation and higher transaction costs than U.S. markets. The Funds will attempt to reduce foreign investing risks through portfolio diversification, credit analysis and attention to trends in world economies, industries and financial markets. The Manager evaluates the political and economic situations in the countries where each Fund invests and takes these risks into account before selecting securities for a Fund's portfolio. There is no way, however, to eliminate foreign risks when investing internationally. To the extent that the Strategic Income Fund invests a greater percentage of its assets in foreign securities as compared to the Diversified Income Fund, it may incur greater risks associated with such investments. Lower Rated Fixed-Income Securities Risk. Lower Rated Fixed-Income Securities (high-yield, high-risk securities, commonly known as "junk bonds"), while generally having higher yields, are subject to reduced creditworthiness of issuers, increased risks of default and a more limited and less liquid secondary market than higher rated securities. These securities are subject to greater price volatility and risk of loss of income and principal than are higher rated securities. Lower rated and unrated fixed-income securities tend to reflect short-term corporate and market developments to a greater extent than higher rated fixed-income securities, which react primarily to fluctuations in the general level of interest rates. Fixed-income securities of this type are considered to be of poor standing and primarily speculative. Such securities are subject to a substantial degree of credit risk. Each Fund attempts to manage the risk associated with its investment in high-yield debt securities through portfolio diversification, credit analysis, attention to trends in the economy, industries and financial markets, and complying with the limits on the exposure to this asset class as described in this Prospectus. To the extent that the Strategic Income Fund invests a greater percentage of its assets in high-yield securities as compared to the Diversified Income Fund, it may incur greater risks associated with such investments. Foreign Government Securities Risk. Foreign government securities risks involve the ability of a foreign government or government-related issuer to make timely principal and interest payments on its external debt obligations. This ability to make payments will be strongly influenced by the issuer's balance of payments, including export performance, its access to international credits and investments, fluctuations in interest rates and the extent of its foreign reserves. The Funds attempt to reduce the risks associated with investing in foreign governments by limiting the portion of portfolio assets that may be invested in such securities. 17 Emerging Markets Risk. Emerging Markets Risk is the possibility that the risks associated with international investing will be greater in emerging markets than in more developed foreign markets because, among other things, emerging markets may have less stable political and economic environments. In addition, in many emerging markets, there is substantially less publicly available information about issuers and the information that is available tends to be of a lesser quality. Economic markets and structures tend to be less mature and diverse and the securities markets that are subject to less government regulation or supervision may also be smaller, less liquid and subject to greater price volatility. Each Fund limits its exposure to emerging markets securities. Because the Strategic Income Fund may invest a higher percentage of its net assets in emerging markets securities than the Diversified Income Fund, the Strategic Income Fund may incur greater risk associated with these investments. Liquidity Risk. Liquidity risk is the possibility that a Fund's portfolio assets cannot be readily sold within seven days at the approximate price that the Fund values the security. The Funds seek to mitigate liquidity risk by limiting their investments in illiquid securities and by evaluating the size of a bond issuance as a way to anticipate its likely liquidity level. VOTING INFORMATION How many votes are necessary to approve the Plan? Provided that a quorum is present, the approval of the Plan for the Strategic Income 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 the Strategic Income Fund held on the Record Date. If sufficient votes to approve the proposal for the Strategic Income Fund are not received by the date of the Meeting, the Meeting may be adjourned with respect to the Fund to permit further solicitations of proxies. The holders of a majority of shares of the Strategic Income 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 the 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 same effect as a vote "against" the Plan. It is not anticipated that any broker non-votes will be received. 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. 18 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, 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 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 the 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 the Strategic Income 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 Strategic Income Fund. What other solicitations will be made? This proxy solicitation is being made by the Board of Trustees of the Strategic Income Fund for use at the Meeting. The cost of this proxy solicitation will be shared as set forth above. 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 the 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 Strategic Income Fund's shares, and such persons will be reimbursed for their expenses. The Strategic Income 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 DIVERSIFIED INCOME FUND Information about the Diversified Income Fund is included in the Diversified Income Fund Prospectus, which is included with and considered a part of this Proxy Statement/Prospectus. Additional information about the Diversified Income Fund is included in its Statement of Additional Information dated December 31, 2002 (as amended May 1, 2003) and the Statement of Additional Information dated November 15, 2003 (relating to this Proxy Statement/Prospectus), 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 an updated prospectus and annual report for the Diversified Income Fund will be available in December 2003 and will be delivered to shareholders of the Strategic Income Fund when available. These documents, when available, will supercede the Diversified Income Fund Prospectus, the Diversified Income Fund Annual Report and the Diversified Income Fund Semiannual Report, and will be incorporated by reference into this Proxy Statement/Prospectus at that time. 19 This Proxy Statement/Prospectus, which constitutes part of a Registration Statement filed by the Diversified 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 Diversified 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 STRATEGIC INCOME FUND Information about the Strategic Income Fund is included in its current Prospectus dated September 30, 2002, as supplemented September 29, 2003, Annual Report to Shareholders for the fiscal year ended July 31, 2003, Statement of Additional Information dated September 30, 2003, and the Statement of Additional Information dated November 15, 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. Also, copies of such material can be obtained from the Public Reference Branch, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, 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 the Trust, as a group, [owned less than 1% of the outstanding voting shares of the Strategic Income Fund.] To the best knowledge of the Strategic 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 shares of any class of the Strategic Income Fund. The Strategic Income Fund has no knowledge of beneficial ownership.
- ------------------------------------------------------------------------------------------------------------------------------ Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- - ------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund Class A - ------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund Class B - ------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund Class C - ------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund Institutional Class - ------------------------------------------------------------------------------------------------------------------------------
20 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 Diversified Income Fund]. To the best knowledge of the Diversified 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 Diversified Income Fund. The Diversified Income Fund has no knowledge of beneficial ownership.
- ------------------------------------------------------------------------------------------------------------------------------ Class Name and Address of Account Share Amount Percentage - ----- --------------------------- ------------ ---------- - ------------------------------------------------------------------------------------------------------------------------------ Diversified Income Fund Class A - ------------------------------------------------------------------------------------------------------------------------------ Diversified Income Fund Class B - ------------------------------------------------------------------------------------------------------------------------------ Diversified Income Fund Class C - ------------------------------------------------------------------------------------------------------------------------------ Diversified Income Fund Class R - ------------------------------------------------------------------------------------------------------------------------------ Diversified Income Fund Institutional Class - ------------------------------------------------------------------------------------------------------------------------------
21 EXHIBIT TO PROXY STATEMENT/PROSPECTUS Exhibit - ------- A Form of Agreement and Plan of Reorganization between the Trust (on behalf of the Strategic Income Fund) and the Acquiring Trust (on behalf of the Diversified Income Fund). OTHER DOCUMENTS INCLUDED TO PROXY STATEMENT/PROSPECTUS A Prospectuses of the Diversified Income Fund, dated December 31, 2002 as previously filed via EDGAR is incorporated into this filing by reference to Post-Effective Amendment No. 20 filed December 31, 2002. B Annual Report to Shareholders of the Diversified Income Fund for the fiscal year ended October 31, 2002 as previously filed via EDGAR is incorporated herein by reference to N-30D filed January 8, 2003. C Semiannual Report to Shareholders of the Diversified Income Fund for the six month ended April 30, 2003 as previously filed via EDGAR is incorporated herein by reference to N-30D filed July 2, 2003. 22 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 Adviser Funds (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 Diversified Income Fund ("Diversified Income Fund"), and Delaware Group Income Funds (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 Strategic Income Fund ("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 Diversified 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 Diversified Income Fund - Class A ("Diversified Income Fund Class A Shares"), (b) shares of beneficial interest, no par value, of the Diversified Income Fund - Class B ("Diversified Income Fund Class B Shares"), (c) shares of beneficial interest, no par value, of the Diversified Income Fund - Class C ("Diversified Income Fund Class C Shares"), (d) shares of beneficial interest, no par value, of the Diversified Income Fund - - Class R ("Diversified Income Fund Class R Shares"), (e) shares of beneficial interest, no par value of the Diversified Income Fund - Institutional Class ("Diversified Income Fund Institutional Class Shares"), and (f) the assumption by the Acquiring Trust on behalf of the Diversified Income Fund of all of the liabilities of the Acquired Fund; (ii) the distribution of (a) Diversified Income Fund Class A shares to the shareholders of Acquired Fund - Class A Shares ("Acquired Fund Class A Shares"), (b) Diversified Income Fund Class B Shares to the shareholders of Acquired Fund - Class B Shares ("Acquired Fund Class B Shares"), (c) Diversified Income Fund Class C Shares to the shareholders of Acquired Fund - Class C Shares ("Acquired Fund Class C Shares"), (d) Diversified Income Fund Class R Shares to the shareholders of Acquired Fund - Class R Shares ("Acquired Fund Class R Shares"), and (e) Diversified 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 Diversified 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 Diversified 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 2 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 Diversified Income Fund, and to deliver to the Trust on behalf of the Acquired Fund: (i) the number of Diversified 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 Diversified 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 Diversified 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 3 value per share of Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified Income Fund shall be carried to the third decimal place. Unless requested, no certificates representing shares of beneficial interest of the Diversified Income Fund will be issued to shareholders of the Acquired Fund Shares irrespective of whether such shareholders hold their shares in certificated form. 4 (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 Diversified 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 Diversified Income Fund purposes to evidence ownership of the number of shares of beneficial interest of the Diversified 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 Diversified 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. 5 (b) The net asset value of a share of beneficial interest of the Diversified Income Fund Class A Shares, Diversified Income Fund Class B Shares, Diversified Income Fund Class C Shares, Diversified Income Fund Class R Shares and Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified Income Fund's Custodian, JPMorgan Chase Bank, 4 Chase Metrotech Center, Brooklyn, NY 11245. Also, the Trust shall deliver at the 6 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 Diversified 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 Diversified Income Fund have been registered in an open account on the books of the Diversified 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. 7 (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 Diversified 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. 8 (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. 9 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 Diversified 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 Diversified Income Fund. Each outstanding share of the Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified Income Fund to be issued pursuant to Section 1 hereof will accurately reflect the net assets of the Diversified Income Fund and outstanding shares of beneficial interest, as of such date, in conformity with generally accepted accounting principles applied on a consistent basis. 10 (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 Diversified 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 Diversified 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. 11 (j) The books and records of the Diversified 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 Diversified Income Fund. (k) The Acquiring Trust has elected to treat the Diversified Income Fund as a regulated investment company ("RIC") for federal income tax purposes under Part I of Subchapter M of the Code, the Diversified 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 Diversified 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 Diversified 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 Diversified Income Fund. 12 On behalf of the Acquired Fund or the Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified 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's 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). 13 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 Diversified 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 Diversified 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 Diversified 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. 14 (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 Diversified 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 Diversified 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 Diversified Income Fund as presently conducted between the date hereof and the Closing. 15 (c) The Acquiring Trust covenants that by the Closing, all of the Diversified 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 Diversified 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: 16 (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. 17 (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 Diversified 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 Diversified Income Fund of substantially all of the assets and the assumption of the liabilities of the Acquired Fund in exchange solely for the Diversified Income Fund shares to be issued pursuant to Section 1 hereof, followed by the distribution by the Acquired Fund to its shareholders of the Diversified 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 Diversified 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 Diversified 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 Diversified 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 Diversified Income Fund (to be issued in accordance with Section 1 hereof) under Section 1032(a) of the Code; 18 (4) No gain or loss will be recognized by the Acquired Fund upon the distribution of the Diversified 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 Diversified 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 Diversified 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 Diversified Income Fund (to be issued in accordance with Section 1 hereof) under Section 354(a) of the Code; (8) The basis of the Diversified 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 Diversified 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 19 (10) The Diversified 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; 20 (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: 21 (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 Diversified 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 Diversified Income Fund were sold, issued and paid for in accordance with the terms of the Diversified 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 Diversified 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 Diversified Income Fund; (5) The shares of beneficial interest of the Diversified 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 Diversified Income Fund, and to such counsel's knowledge, no shareholder has any preemptive right to subscription or purchase in respect thereof; 22 (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 Diversified 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. 23 (k) That the shares of beneficial interest of the Diversified 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 Diversified 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 equally by the Diversified Income Fund and by Delaware Management Company, a series of Delaware Management Business Trust and investment manager of the Diversified 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. 24 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. 25 (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 Diversified Income Fund; that any liability of the Acquiring Trust under this Agreement with respect to the Diversified Income Fund, or in connection with the transactions contemplated herein with respect to Diversified Income Fund, shall be discharged only out of the assets of the Diversified 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 Diversified 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. 26 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 Diversified Income Fund for its taxable period first ending after the Closing and for all prior taxable periods. 27 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. 28 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. Delaware Group Income Funds, on behalf of the Delaware Strategic Income Fund _____________________________________________ By:__________________________________________ Title:_______________________________________ Delaware Group Adviser Funds, on behalf of the Delaware Diversified Income Fund _____________________________________________ By:__________________________________________ Title:_______________________________________ 29 DELAWARE STRATEGIC INCOME FUND SPECIAL SHAREHOLDER MEETING - FEBRUARY 19, 2004 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES The undersigned hereby appoints Richelle S. Maestro, Michael P. Bishof and David P. O'Connor, 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 Two Commerce Square, 2001 Market Street, 2nd Floor Auditorium, Philadelphia, Pennsylvania 19103, on Thursday, February 19, 2004 at 11:00 a.m. (E.S.T.), 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. 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 ______________________, 200_ --------------------------------------------- --------------------------------------------- Signature(s) (Joint Owners) (PLEASE SIGN WITHIN BOX) 1. To approve an Agreement and Plan of Reorganization FOR AGAINST ABSTAIN between the Trust, on behalf of the Fund, and ---- ------ ------ Delaware Group Adviser Funds, on behalf of Delaware Diversified Income Fund (the "Diversified 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 Diversified Income Fund; and (ii) the dissolution of the Fund. STATEMENT OF ADDITIONAL INFORMATION FOR DELAWARE GROUP ADVISER FUNDS Dated November 15, 2003 Acquisition of the Assets of the DELAWARE STRATEGIC INCOME FUND (a series of Delaware Group Income Fund) By and in exchange for shares of the DELAWARE DIVERSIFIED INCOME FUND (a series of Delaware Group Adviser Funds) This Statement of Additional Information (SAI) relates specifically to the proposed delivery of substantially all of the assets of Delaware Strategic Income Fund (the "Strategic Income Fund") in exchange for shares of Delaware Diversified Income Fund (the "Diversified Income Fund") and the assumption by Diversified Income Fund of the liabilities of the Strategic Income Fund. This SAI consists of this Cover Page and the following documents, each of which is attached to and is legally considered to be a part of this SAI: 1. Statement of Additional Information of Delaware Diversified Income Fund, dated December 31, 2002 (as amended May 1, 2003) as previously filed via EDGAR is incorporated herein by reference to Post-Effective Amendment No. 21 filed April 30, 2003 and will be mailed to any Shareholder who requests this SAI. 2. Annual Report of Delaware Strategic Income Fund for the fiscal year ended July 31, 2003 as previously filed via EDGAR is incorporated herein by reference to N-CSR filed October 2, 2003 and will be mailed to any Shareholder who requests this Annual Report. 3. Pro Forma Financial Statements for the Reorganization of Delaware Strategic Income Fund into Delaware Diversified Income Fund. This SAI is not a prospectus; you should read this SAI in conjunction with the Proxy Statement/Prospectus dated November 15, 2003, relating to the above-referenced transaction. You can request a copy of the Proxy Statement/Prospectus by calling 1-800-523-1918 or by writing to the Delaware Diversified Income Fund at Attention: Account Services, 2005 Market Street, Philadelphia, PA 19103-7094. Pro Forma Financial Statements for the Reorganization of Delaware Strategic Income Fund into Delaware Diversified Income Fund Delaware Diversified Income Fund Pro Forma Portfolio of Investments* As of April 30, 2003 (Unaudited)
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ --------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- ------------------------------------- ---------------------------------- Agency Collateralized Mortgage Obligations 0.67% Fannie Mae Series Interest Only Strip 02-16 Class IG 6.00% 3/25/15 USD 35,184 $ 1,703 35,184 $ 1,703 Fannie Mae Series 02-70 QD 5.50% 6/25/26 35,000 36,340 25,957 Fannie Mae Series 03-W1 1A1 6.50% 12/25/42 48,193 51,325 38,554 41,060 Freddie Mac Series 2302 NJ 6.50% 11/15/29 50,000 50,888 45,000 45,799 Freddie Mac Series 2303 CW 8.50% 11/15/24 2,793 2,792 3,165 3,164 Freddie Mac Series T-11 A6 6.50% 9/25/18 34,073 34,552 42,591 43,190 Freddie Mac Series T-50 A3 2.182% 9/27/07 20,000 20,028 20,000 20,028 GNMA Series 02-61 BA 4.648% 3/16/26 30,000 30,674 15,000 15,337 GNMA Series 02-62 B 4.763% 1/16/25 30,000 31,168 15,000 15,584 GNMA Series 98-9 B 6.85% 12/20/25 18,733 18,769 16,290 16,321 ---------- --------- Total Agency Collateralized Mortgage Obligations 278,239 228,143 ---------- --------- Agency Mortgage-Backed Securities 13.58% Fannie Mae 4.50% 6/1/18 130,000 131,097 60,000 60,506 5.00% 5/1/17 TBA 1,955,000 2,015,482 235,000 242,270 5.50% 5/25/14 120,000 124,800 80,000 83,200 5.50% 7/3/33 TBA 565,000 575,947 295,000 300,716 6.00% 5/25/14 90,000 94,331 - - 6.00% 4/1/17 58,231 61,052 36,395 38,158 6.00% 6/1/17 9,671 10,140 14,879 15,599 6.00% 8/25/30 TBA 500,000 517,813 255,000 264,084 6.50% 5/1/16 20,000 21,181 30,000 31,772 6.50% 5/1/31 15,000 15,675 85,000 88,825 6.50% 8/1/32 525,051 548,679 135,013 141,088 7.50% 2/1/30 4,947 5,276 - - 7.50% 6/1/31 16,621 17,722 38,075 40,598 7.50% 10/1/31 5,778 6,159 4,127 4,400 Freddie Mac 4.50% 6/1/18 TBA 400,000 403,625 - - 5.50% 8/1/33 TBA 1,480,000 1,508,212 150,000 152,859 6.00% 7/1/33 TBA 550,000 569,250 45,000 46,575 6.50% 3/1/30 1,205,000 1,258,471 275,000 287,203 7.00% 7/1/32 65,421 69,040 23,745 25,059 7.50% 2/1/30 - - 12,437 13,265 GNMA 6.50% 12/15/23 19,869 21,030 19,869 21,030 6.50% 1/15/28 18,041 19,005 - - 6.50% 2/15/32 168,681 177,432 - - 6.50% 9/15/32 56,746 59,690 104,762 110,197 7.50% 6/15/32 15,313 16,351 - - 9.50% 9/15/17 - - 13,370 15,087 10.00% 7/15/17 - - 21,713 25,038 ---------- --------- Total Agency Mortgage-Backed Securities 8,247,460 2,007,529 ---------- ---------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Agency Collateralized Mortgage Obligations Fannie Mae Series 02-16 Class IG 6.00% 3/25/15 70,368 $ 3,406 Fannie Mae Series 02-70 QD 5.50% 6/25/26 60,000 62,297 Fannie Mae Series 03-W1 1A1 6.50% 12/25/42 86,747 92,385 Freddie Mac Series 2302 NJ 6.50% 11/15/29 95,000 96,687 Freddie Mac Series 2303 CW 8.50% 11/15/24 5,958 5,956 Freddie Mac Series T-11 A6 6.50% 9/25/18 76,664 77,742 Freddie Mac Series T-50 A3 2.182% 9/27/07 40,000 40,056 GNMA Series 02-61 BA 4.648% 3/16/26 45,000 46,011 GNMA Series 02-62 B 4.763% 1/16/25 45,000 46,752 GNMA Series 98-9 B 6.85% 12/20/25 35,023 35,090 ---------- Total Agency Collateralized Mortgage Obligations 506,382 ---------- Agency Mortgage-Backed Securities Fannie Mae 4.50% 6/1/18 190,000 191,603 5.00% 5/1/17 TBA 2,190,000 2,257,752 5.50% 5/25/14 200,000 208,000 5.50% 7/3/33 TBA 860,000 876,663 6.00% 5/25/14 90,000 94,331 6.00% 4/1/17 94,626 99,210 6.00% 6/1/17 24,550 25,739 6.00% 8/25/30 TBA 755,000 781,897 6.50% 5/1/16 50,000 52,953 6.50% 5/1/31 100,000 104,500 6.50% 8/1/32 660,064 689,767 7.50% 2/1/30 4,947 5,276 7.50% 6/1/31 54,696 58,320 7.50% 10/1/31 9,905 10,559 Freddie Mac 4.50% 6/1/18 TBA 400,000 403,625 5.50% 8/1/33 TBA 1,630,000 1,661,071 6.00% 7/1/33 TBA 595,000 615,825 6.50% 3/1/30 1,480,000 1,545,674 7.00% 7/1/32 89,166 94,099 7.50% 2/1/30 12,437 13,265 GNMA 6.50% 12/15/23 39,738 42,060 6.50% 1/15/28 18,041 19,005 6.50% 2/15/32 168,681 177,432 6.50% 9/15/32 161,508 169,887 7.50% 6/15/32 15,313 16,351 9.50% 9/15/17 13,370 15,087 10.00% 7/15/17 21,713 25,038 ---------- Total Agency Mortgage-Backed Securities 10,254,989 ----------
2
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ --------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- ------------------------------------- ---------------------------------- Agency Obligations 2.50% Fannie Mae 3.25% 11/15/07 - - 115,000 116,944 3.50% 1/28/08 210,000 213,816 30,000 30,545 4.375% 10/15/06 255,000 272,088 40,000 42,680 4.375% 3/15/13 85,000 86,018 35,000 35,419 7.125% 6/15/10 195,000 236,243 - - 7.25% 1/15/10 250,000 303,530 - - Fannie Mae Global 6.375% 8/15/07 - - 324,000 212,699 * Federal Home Loan Bank 2.50% 3/15/06 10,000 10,102 - - 3.875% 2/12/10 75,000 76,069 - - Freddie Mac 4.50% 1/15/13 - - 5,000 5,117 5.125% 10/15/08 70,000 76,849 - - 5.75% 4/15/08 150,000 168,883 - - ----------- ---------- Total Agency Obligations 1,443,598 443,404 ----------- ---------- Asset Backed Securities 0.74% Citibank Credit Card Master Trust I Series 99-7 A 6.65% 11/15/06 15,000 16,163 - - MBNA Credit Card Master Note Series 01-A1 A1 5.75% 10/15/08 20,000 21,879 60,000 65,636 Series 01-C3 C3 6.55% 12/15/08 20,000 21,608 15,000 16,206 NationsCredit Grantor Trust Series 97-1 A 6.75% 8/15/13 21,028 22,617 44,090 47,423 Peoplefirst.com Auto Receivables Owner Trust 44,825 45,514 - - Series 00-2 A4 6.43% 9/15/07 Sharp Series 02-HE2N N 9.50% 10/25/32 12,084 12,054 9,063 9,040 SLMA Student Loan Trust Series 97-1 A2 1.7318% 1/25/10 - - 30,093 30,273 Series 97-4 A2 1.9118% 10/25/10 - - 95,825 96,809 Series 96-3 Certificates 2.112% 10/25/11 115,000 115,655 35,000 35,199 ----------- ---------- Total Asset Backed Securities 255,490 300,586 ----------- ----------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Agency Obligations Fannie Mae 3.25% 11/15/07 115,000 116,944 3.50% 1/28/08 240,000 244,361 4.375% 10/15/06 295,000 314,768 4.375% 3/15/13 120,000 121,437 7.125% 6/15/10 195,000 236,243 7.25% 1/15/10 250,000 303,530 Fannie Mae Global 6.375% 8/15/07 324,000 212,699 Federal Home Loan Bank 2.50% 3/15/06 10,000 10,102 3.875% 2/12/10 75,000 76,069 Freddie Mac 4.50% 1/15/13 5,000 5,117 5.125% 10/15/08 70,000 76,849 5.75% 4/15/08 150,000 168,883 ----------------------- Total Agency Obligations 1,887,002 ----------------------- Asset Backed Securities Citibank Credit Card Master Trust I Series 99-7 A 6.65% 11/15/06 15,000 16,163 MBNA Credit Card Master Note Series 01-A1 A1 5.75% 10/15/08 80,000 87,515 Series 01-C3 C3 6.55% 12/15/08 35,000 37,814 NationsCredit Grantor Trust Series 97-1 A 6.75% 8/15/13 65,118 70,040 Peoplefirst.com Auto Receivables Owner Trust 44,825 45,514 Series 00-2 A4 6.43% 9/15/07 Sharp Series 02-HE2N N 9.50% 10/25/32 21,147 21,094 SLMA Student Loan Trust Series 97-1 A2 1.7318% 1/25/10 30,093 30,273 Series 97-4 A2 1.9118% 10/25/10 95,825 96,809 Series 96-3 Certificates 2.112% 10/25/11 150,000 150,854 ----------- Total Asset Backed Securities 556,076 ------------
3
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Collateralized Mortgage Obligations 1.11% Bank of America Series 03-D 1A1 3.428% 5/25/33 45,000 45,802 20,000 20,356 Series 03-D 1A2 3.428% 5/25/33 15,000 14,813 5,000 4,937 Cendant Mortgage 02-4 A6 6.50% 7/25/32 42,220 43,517 26,388 27,198 Countrywide Alternative Loan Trust 02-7 CB11 6.75% 8/25/32 94,621 96,922 31,042 31,797 Credit Suisse First Boston Series 02-10 2A1 7.50% 5/25/32 41,543 43,919 24,233 25,619 Series 02-34 1A1 7.50% 12/25/32 46,644 49,354 37,316 39,484 Series 03-8 5A1 6.50% 4/25/33 149,651 154,166 54,825 56,480 IMPAC Secured Assets 01-4 A3 6.38% 4/25/24 9,784 9,816 4,892 4,908 Washington Mutual Series 03-AR4 A7 3.95% 5/25/33 49,607 49,886 29,529 29,695 Series 03-S1 A1 5.00% 4/25/33 53,788 55,469 34,229 35,298 ----------- ---------- Total Collateralized Mortgage Obligations 563,664 275,772 ----------- ---------- Commercial Mortgage-Backed Securities 0.35% Chase Commercial Mortgage Securities Series 96-2 C 6.90% 11/19/06 20,000 22,503 - - Commercial Mortgage Series 00-C1 A1 7.206% 9/15/08 105,742 117,812 84,594 94,250 First Union National Bank Commercial Mortgage 26,263 28,859 - - Series 99-C4 A1 7.184% 9/15/08 ----------- ---------- Total Commercial Mortgage-Backed Securities 169,174 94,250 ----------- ---------- Corporate Bonds 34.44% Automobiles & Automotive Parts 0.66% Collins & Aikman 10.75% 12/31/11 79,000 81,370 60,000 61,800 CSK Auto 12.00% 6/15/06 79,000 86,999 60,000 66,075 Ford Motor 7.45% 7/16/31 195,000 174,029 30,000 26,774 ----------- ---------- 342,398 154,649 ----------- ---------- Banking, Finance & Insurance 3.87% #AON 144A 7.375% 12/14/12 5,000 5,698 15,000 17,094 #ASIF Global Financing 144A 4.90% 1/17/13 70,000 71,579 10,000 10,226 Bank of Hawaii 6.875% 6/1/03 50,000 50,205 20,000 20,082 Bear Stearns 4.00% 1/31/08 70,000 71,999 15,000 15,428 #Bluewater Finance 144A 10.25% 2/15/12 35,000 36,050 30,000 30,900 Cendant 7.375% 1/15/13 20,000 22,343 15,000 16,757 Citigroup 5.625% 8/27/12 30,000 32,437 5,000 5,406 5.875% 2/22/33 105,000 108,144 20,000 20,599 Credit Suisse First Boston USA 4.625% 1/15/08 55,000 57,722 15,000 15,742 #Erac USA Finance 144A 7.35% 6/15/08 120,000 136,207 20,000 22,701 #Farmers Exchange Capital 144A 7.20% 7/15/48 45,000 33,033 30,000 22,022 #Farmers Insurance Exchange 144A 8.625% 5/1/24 145,000 127,942 35,000 30,883 Finova Group 7.50% 11/15/09 120,000 48,600 135,000 54,675 Ford Motor Credit 5.80% 1/12/09 75,000 71,476 15,000 14,295 6.875% 2/1/06 10,000 10,351 - - 7.25% 10/25/11 50,000 50,204 5,000 5,020 Franklin Resources 3.70% 4/15/08 30,000 30,103 10,000 10,034 General Electric Capital 4.25% 1/28/05 25,000 26,126 50,000 52,252 5.45% 1/15/13 50,000 53,205 15,000 15,961 GMAC 6.75% 1/15/06 5,000 5,276 - - 6.875% 9/15/11 15,000 15,312 20,000 20,416 7.00% 2/1/12 5,000 5,131 5,000 5,131 8.00% 11/1/31 105,000 109,676 15,000 15,668 Goldman Sachs 5.25% 4/1/13 65,000 67,013 5,000 5,155 6.125% 2/15/33 20,000 20,755 10,000 10,377 #ING Bank 144A 5.125% 5/1/15 190,000 194,261 30,000 30,673 International Lease Finance 5.875% 5/1/13 95,000 96,575 15,000 15,249 Merrill Lynch 3.70% 4/21/08 50,000 50,467 - - Morgan Stanley 5.30% 3/1/13 110,000 114,387 30,000 31,197 National Rural Utilities 3.875% 2/15/08 40,000 40,750 15,000 15,281 PHH 7.125% 3/1/13 45,000 48,788 5,000 5,421 Popular North America 4.25% 4/1/08 55,000 56,368 10,000 10,249 Prudential Financial 3.75% 5/1/08 80,000 80,270 10,000 10,034 #PSE&G Capital 144A 6.25% 5/15/03 35,000 35,034 - - Regions Financial 6.375% 5/15/12 10,000 11,349 20,000 22,698 Stilwell Financial 7.00% 11/1/06 5,000 5,468 10,000 10,936 #TIAA Global Markets 144A 2.75% 1/13/06 15,000 15,182 25,000 25,303 TIG Holdings 8.125% 4/15/05 45,000 40,275 35,000 31,325 Wells Fargo 3.50% 4/4/08 25,000 25,271 5,000 5,054 #Wilmington Trust 144A 4.875% 4/15/13 40,000 40,153 10,000 10,038 #Zurich Capital Trust I 144A 8.376% 6/1/37 80,000 78,474 65,000 63,760 ----------- ---------- 2,199,659 724,042 ----------- ---------- Building & Materials 0.61% #Lone Star Industries 144A 8.85% 6/15/05 65,000 63,146 50,000 48,574 Schuler Homes 10.50% 7/15/11 60,000 67,200 45,000 50,400 Standard Pacific 9.25% 4/15/12 70,000 74,725 55,000 58,713 Valspar 6.00% 5/1/07 60,000 64,395 20,000 21,465 York International - - 10,000 10,720 ----------- ---------- 269,466 189,872 ----------- ----------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Collateralized Mortgage Obligations Bank of America Series 03-D 1A1 3.428% 5/25/33 65,000 66,158 Series 03-D 1A2 3.428% 5/25/33 20,000 19,750 Cendant Mortgage 02-4 A6 6.50% 7/25/32 68,608 70,715 Countrywide Alternative Loan Trust 02-7 CB11 6.75% 8/25/32 125,663 128,719 Credit Suisse First Boston Series 02-10 2A1 7.50% 5/25/32 65,776 69,538 Series 02-34 1A1 7.50% 12/25/32 83,960 88,838 Series 03-8 5A1 6.50% 4/25/33 204,476 210,646 IMPAC Secured Assets 01-4 A3 6.38% 4/25/24 14,676 14,724 Washington Mutual Series 03-AR4 A7 3.95% 5/25/33 79,136 79,581 Series 03-S1 A1 5.00% 4/25/33 88,017 90,767 ---------- Total Collateralized Mortgage Obligations 839,436 ---------- Commercial Mortgage-Backed Securities Chase Commercial Mortgage Securities Series 96-2 C 6.90% 11/19/06 20,000 22,503 Commercial Mortgage Series 00-C1 A1 7.206% 9/15/08 190,336 212,062 First Union National Bank Commercial Mortgage 26,263 28,859 Series 99-C4 A1 7.184% 9/15/08 ---------- Total Commercial Mortgage-Backed Securities 263,424 ---------- Corporate Bonds Automobiles & Automotive Parts Collins & Aikman 10.75% 12/31/11 139,000 143,170 CSK Auto 12.00% 6/15/06 139,000 153,074 Ford Motor 7.45% 7/16/31 225,000 200,803 ---------- 497,047 ---------- Banking, Finance & Insurance #AON 144A 7.375% 12/14/12 20,000 22,792 #ASIF Global Financing 144A 4.90% 1/17/13 80,000 81,805 Bank of Hawaii 6.875% 6/1/03 70,000 70,287 Bear Stearns 4.00% 1/31/08 85,000 87,427 #Bluewater Finance 144A 10.25% 2/15/12 65,000 66,950 Cendant 7.375% 1/15/13 35,000 39,100 Citigroup 5.625% 8/27/12 35,000 37,843 5.875% 2/22/33 125,000 128,743 Credit Suisse First Boston USA 4.625% 1/15/08 70,000 73,464 #Erac USA Finance 144A 7.35% 6/15/08 140,000 158,908 #Farmers Exchange Capital 144A 7.20% 7/15/48 75,000 55,055 #Farmers Insurance Exchange 144A 8.625% 5/1/24 180,000 158,825 Finova Group 7.50% 11/15/09 255,000 103,275 Ford Motor Credit 5.80% 1/12/09 90,000 85,771 6.875% 2/1/06 10,000 10,351 7.25% 10/25/11 55,000 55,224 Franklin Resources 3.70% 4/15/08 40,000 40,137 General Electric Capital 4.25% 1/28/05 75,000 78,378 5.45% 1/15/13 65,000 69,166 GMAC 6.75% 1/15/06 5,000 5,276 6.875% 9/15/11 35,000 35,728 7.00% 2/1/12 10,000 10,262 8.00% 11/1/31 120,000 125,344 Goldman Sachs 5.25% 4/1/13 70,000 72,168 6.125% 2/15/33 30,000 31,132 #ING Bank 144A 5.125% 5/1/15 220,000 224,934 International Lease Finance 5.875% 5/1/13 110,000 111,824 Merrill Lynch 3.70% 4/21/08 50,000 50,467 Morgan Stanley 5.30% 3/1/13 140,000 145,584 National Rural Utilities 3.875% 2/15/08 55,000 56,031 PHH 7.125% 3/1/13 50,000 54,209 Popular North America 4.25% 4/1/08 65,000 66,617 Prudential Financial 3.75% 5/1/08 90,000 90,304 #PSE&G Capital 144A 6.25% 5/15/03 35,000 35,034 Regions Financial 6.375% 5/15/12 30,000 34,047 Stilwell Financial 7.00% 11/1/06 15,000 16,404 #TIAA Global Markets 144A 2.75% 1/13/06 40,000 40,485 TIG Holdings 8.125% 4/15/05 80,000 71,600 Wells Fargo 3.50% 4/4/08 30,000 30,325 #Wilmington Trust 144A 4.875% 4/15/13 50,000 50,191 #Zurich Capital Trust I 144A 8.376% 6/1/37 145,000 142,234 ---------- 2,923,701 ---------- Building & Materials #Lone Star Industries 144A 8.85% 6/15/05 115,000 111,720 Schuler Homes 10.50% 7/15/11 105,000 117,600 Standard Pacific 9.25% 4/15/12 125,000 133,438 Valspar 6.00% 5/1/07 80,000 85,860 York International 10,000 10,720 ---------- 459,338 ----------
4
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Cable, Media & Publishing 4.96% America Media Operation 10.25% 5/1/09 80,000 87,200 60,000 65,400 AOL Time Warner 7.70% 5/1/32 25,000 27,942 5,000 5,588 Charter Communications 10.75% 10/1/09 515,000 345,049 410,000 274,700 Comcast Cable Communications 7.05% 3/15/33 95,000 103,464 15,000 16,336 CSC Holdings 10.50% 5/15/16 55,000 62,288 40,000 45,300 #Dex Media East 144A 12.125% 11/15/12 70,000 83,650 55,000 65,725 #DirecTV Holdings/Finance 144A 8.375% 3/15/13 120,000 135,000 95,000 106,875 Echostar DBS 10.375% 10/1/07 105,000 118,125 75,000 84,375 #Hollinger 144A 11.875% 3/1/11 45,000 48,150 40,000 42,800 Insight Midwest 9.75% 10/1/09 120,000 129,300 100,000 107,750 Liberty Media 8.25% 2/1/30 100,000 114,361 20,000 22,872 Lodgenet Entertainment 10.25% 12/15/06 90,000 91,350 90,000 91,350 Mail-Well I 9.625% 3/15/12 95,000 96,900 75,000 76,500 Mediacom LLC 9.50% 1/15/13 120,000 129,600 100,000 108,000 Nextmedia Operating 10.75% 7/1/11 55,000 61,188 45,000 50,063 #PEI Holdings 144A 11.00% 3/15/10 65,000 69,225 40,000 42,600 #RH Donnelley Finance 144A 10.875% 12/15/12 55,000 63,938 25,000 29,063 Thomson 5.75% 2/1/08 45,000 49,718 20,000 22,097 Time Warner 8.18% 8/15/07 10,000 11,401 15,000 17,101 USA Interactive 6.75% 11/15/05 120,000 127,055 10,000 10,588 7.00% 1/15/13 20,000 22,014 25,000 27,518 Vertis 10.875% 6/15/09 35,000 36,925 25,000 26,375 #Vertis 144A 10.875% 6/15/09 65,000 68,575 55,000 58,025 #Vivendi Universal 144A 9.25% 4/15/10 65,000 73,288 45,000 56,375 ##XM Satellite Radio 14.00% 12/31/09 110,213 78,251 80,770 57,347 ----------- ---------- 2,233,957 1,510,723 ----------- ---------- Chemicals 1.22% Huntsman ICI Chemicals 10.125% 7/1/09 40,000 41,400 30,000 31,050 #Huntsman International 144A 9.875% 3/1/09 60,000 65,400 50,000 54,500 IMC Global 6.55% 1/15/05 45,000 45,675 15,000 15,225 7.625% 11/1/05 85,000 87,125 60,000 61,500 Lyondell Chemical 9.50% 12/15/08 50,000 51,250 40,000 41,000 Macdermid 9.125% 7/15/11 61,000 68,015 50,000 55,750 #Polyone 144A 10.625% 5/15/10 40,000 40,000 40,000 40,000 Solutia 6.72% 10/15/37 80,000 57,600 80,000 57,600 11.25% 7/15/09 70,000 53,550 75,000 57,375 ----------- ---------- 510,015 414,000 ----------- ---------- Computers & Technology 0.24% Asat Finance LLC 12.50% 11/1/06 32,500 26,163 22,750 18,314 Chippac International 12.75% 8/1/09 70,000 78,750 50,000 56,250 ----------- ---------- 104,913 74,564 ----------- ---------- Consumer Products 0.65% American Greetings 11.75% 7/15/08 100,000 115,000 105,000 120,750 #Fortune Brands 144A 7.125% 11/1/04 30,000 32,403 15,000 16,201 Salton 12.25% 4/15/08 97,000 101,365 90,000 94,050 ----------- ---------- 248,768 231,001 ----------- ---------- Electronics & Electrical Equipment 0.59% Amkor Technologies 9.25% 5/1/06 90,000 94,500 100,000 105,000 Homer City Funding 8.137% 10/1/19 40,000 40,700 35,000 35,613 #Sanmina SCI 144A 10.375% 1/15/10 90,000 103,050 60,000 68,700 ----------- ---------- 238,250 209,313 ----------- ----------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Cable, Media & Publishing America Media Operation 10.25% 5/1/09 140,000 152,600 AOL Time Warner 7.70% 5/1/32 30,000 33,530 Charter Communications 10.75% 10/1/09 925,000 619,749 Comcast Cable Communications 7.05% 3/15/33 110,000 119,800 CSC Holdings 10.50% 5/15/16 95,000 107,588 #Dex Media East 144A 12.125% 11/15/12 125,000 149,375 #DirecTV Holdings/Finance 144A 8.375% 3/15/13 215,000 241,875 Echostar DBS 10.375% 10/1/07 180,000 202,500 #Hollinger 144A 11.875% 3/1/11 85,000 90,950 Insight Midwest 9.75% 10/1/09 220,000 237,050 Liberty Media 8.25% 2/1/30 120,000 137,233 Lodgenet Entertainment 10.25% 12/15/06 180,000 182,700 Mail-Well I 9.625% 3/15/12 170,000 173,400 Mediacom LLC 9.50% 1/15/13 220,000 237,600 Nextmedia Operating 10.75% 7/1/11 100,000 111,251 #PEI Holdings 144A 11.00% 3/15/10 105,000 111,825 #RH Donnelley Finance 144A 10.875% 12/15/12 80,000 93,001 Thomson 5.75% 2/1/08 65,000 71,815 Time Warner 8.18% 8/15/07 25,000 28,502 USA Interactive 6.75% 11/15/05 130,000 137,643 7.00% 1/15/13 45,000 49,532 Vertis 10.875% 6/15/09 60,000 63,300 #Vertis 144A 10.875% 6/15/09 120,000 126,600 #Vivendi Universal 144A 9.25% 4/15/10 110,000 129,663 ##XM Satellite Radio 14.00% 12/31/09 190,983 135,598 ----------- 3,744,680 ----------- Chemicals Huntsman ICI Chemicals 10.125% 7/1/09 70,000 72,450 #Huntsman International 144A 9.875% 3/1/09 110,000 119,900 IMC Global 6.55% 1/15/05 60,000 60,900 7.625% 11/1/05 145,000 148,625 Lyondell Chemical 9.50% 12/15/08 90,000 92,250 Macdermid 9.125% 7/15/11 111,000 123,765 #Polyone 144A 10.625% 5/15/10 80,000 80,000 Solutia 6.72% 10/15/37 160,000 115,200 11.25% 7/15/09 145,000 110,925 ----------- 924,015 ----------- Computers & Technology Asat Finance LLC 12.50% 11/1/06 55,250 44,477 Chippac International 12.75% 8/1/09 120,000 135,000 ----------- 179,477 ----------- Consumer Products American Greetings 11.75% 7/15/08 205,000 235,750 #Fortune Brands 144A 7.125% 11/1/04 45,000 48,604 Salton 12.25% 4/15/08 187,000 195,415 ----------- 479,769 ----------- Electronics & Electrical Equipment Amkor Technologies 9.25% 5/1/06 190,000 199,500 Homer City Funding 8.137% 10/1/19 75,000 76,313 #Sanmina SCI 144A 10.375% 1/15/10 150,000 171,750 ----------- 447,563 -----------
5
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Energy 5.13% #Allegheny Energy 144A Series A 10.25% 11/15/07 55,000 57,475 20,000 20,900 Series B 10.25% 11/15/07 25,677 24,778 19,000 18,335 Apache Financial Property 7.00% 3/15/09 75,000 86,859 20,000 23,162 #Citgo Petroleum 144A 11.375% 2/1/11 115,000 128,800 95,000 106,400 Consumers Energy 6.00% 3/15/05 5,000 5,350 15,000 16,050 6.20% 5/1/08 - - 40,000 40,051 Duke Capital 7.50% 10/1/09 60,000 66,850 10,000 11,142 Dynegy Holdings 6.875% 4/1/11 50,000 42,500 30,000 25,500 #El Paso 144A 8.50% 6/1/10 45,000 48,713 35,000 37,888 El Paso Energy 7.00% 5/15/11 80,000 70,000 75,000 65,625 7.375% 12/15/12 65,000 55,250 55,000 46,750 El Paso Natural Gas 6.75% 11/15/03 45,000 45,338 40,000 40,300 #El Paso Natural Gas 144A 8.375% 6/15/32 45,000 45,675 25,000 25,375 #Enterprise Products 144A 6.875% 3/1/33 30,000 32,069 15,000 16,035 #Frontier Escrow FTO 144A 8.00% 4/15/13 90,000 93,600 70,000 72,800 #Globalsantafe 144A 5.00% 2/15/13 75,000 75,415 20,000 20,111 Hanover Equipment Trust 8.50% 9/1/08 65,000 66,625 50,000 51,250 Kinder Morgan Energy Partners 8.00% 3/15/05 25,000 27,635 30,000 33,162 Marathon Oil 9.125% 1/15/13 95,000 122,300 - - 9.375% 2/15/12 - - 5,000 6,480 Nabors Industries 5.375% 8/15/12 135,000 141,933 5,000 5,257 NGC 6.75% 12/15/05 50,000 47,750 30,000 28,650 Northern Border Pipeline 6.25% 5/1/07 30,000 32,414 15,000 16,207 +Petroleum GEO-Services 6.25% 11/19/03 65,000 30,550 - - #Premcor Refining Group 144A 9.50% 2/1/13 110,000 123,200 115,000 128,800 Sempra Energy 6.80% 7/1/04 5,000 5,260 10,000 10,520 #Southern Natural Gas 144A 8.875% 3/15/10 45,000 49,950 30,000 33,300 Tennessee Gas Pipeline 8.375% 6/15/32 120,000 124,200 95,000 98,325 #Tesoro Petroleum 144A 8.00% 4/15/08 105,000 109,200 100,000 104,000 Transcontinental Gas Pipeline 6.125% 1/15/05 32,000 32,640 25,000 25,500 6.25% 1/15/08 60,000 60,600 120,000 121,200 Transocean 6.75% 4/15/05 80,000 86,643 20,000 21,661 Tyumen Oil 11.00% 11/6/07 120,000 139,499 105,000 122,063 Valero Energy 6.125% 4/15/07 20,000 21,369 15,000 16,027 #Valero Logistics 144A 6.05% 3/15/13 60,000 63,006 - - Williams Companies 6.625% 11/15/04 35,000 34,475 35,000 34,475 #Williams Gas Pipeline 144A 7.375% 11/15/06 100,000 101,750 70,000 71,225 Williams Series A 7.50% 1/15/31 35,000 30,800 35,000 30,800 ---------- ---------- 2,330,471 1,545,326 ---------- ----------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Energy #Allegheny Energy 144A Series A 10.25% 11/15/07 75,000 78,375 Series B 10.25% 11/15/07 44,677 43,113 Apache Financial Property 7.00% 3/15/09 95,000 110,021 #Citgo Petroleum 144A 11.375% 2/1/11 210,000 235,200 Consumers Energy 6.00% 3/15/05 20,000 21,400 6.20% 5/1/08 40,000 40,051 Duke Capital 7.50% 10/1/09 70,000 77,992 Dynegy Holdings 6.875% 4/1/11 80,000 68,000 #El Paso 144A 8.50% 6/1/10 80,000 86,601 El Paso Energy 7.00% 5/15/11 155,000 135,625 7.375% 12/15/12 120,000 102,000 El Paso Natural Gas 6.75% 11/15/03 85,000 85,638 #El Paso Natural Gas 144A 8.375% 6/15/32 70,000 71,050 #Enterprise Products 144A 6.875% 3/1/33 45,000 48,104 #Frontier Escrow FTO 144A 8.00% 4/15/13 160,000 166,400 #Globalsantafe 144A 5.00% 2/15/13 95,000 95,526 Hanover Equipment Trust 8.50% 9/1/08 115,000 117,875 Kinder Morgan Energy Partners 8.00% 3/15/05 55,000 60,797 Marathon Oil 9.125% 1/15/13 95,000 122,300 9.375% 2/15/12 5,000 6,480 Nabors Industries 5.375% 8/15/12 140,000 147,190 NGC 6.75% 12/15/05 80,000 76,400 Northern Border Pipeline 6.25% 5/1/07 45,000 48,621 +Petroleum GEO-Services 6.25% 11/19/03 65,000 30,550 #Premcor Refining Group 144A 9.50% 2/1/13 225,000 252,000 Sempra Energy 6.80% 7/1/04 15,000 15,780 #Southern Natural Gas 144A 8.875% 3/15/10 75,000 83,250 Tennessee Gas Pipeline 8.375% 6/15/32 215,000 222,525 #Tesoro Petroleum 144A 8.00% 4/15/08 205,000 213,200 Transcontinental Gas Pipeline 6.125% 1/15/05 57,000 58,140 6.25% 1/15/08 180,000 181,800 Transocean 6.75% 4/15/05 100,000 108,304 Tyumen Oil 11.00% 11/6/07 225,000 261,562 Valero Energy 6.125% 4/15/07 35,000 37,396 #Valero Logistics 144A 6.05% 3/15/13 60,000 63,006 Williams Companies 6.625% 11/15/04 70,000 68,950 #Williams Gas Pipeline 144A 7.375% 11/15/06 170,000 172,975 Williams Series A 7.50% 1/15/31 70,000 61,600 ---------- 3,875,797 ----------
6
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Environmental Services 0.36% #Casella Waste Systems 144A 9.75% 2/1/13 25,000 27,125 15,000 16,275 IESI 10.25% 6/15/12 120,000 124,800 100,000 104,000 ----------- ----------- 151,925 120,275 ----------- ----------- Food, Beverage & Tobacco 1.78% Advantica Restaurant 12.75% 9/30/07 100,000 104,500 55,000 57,475 B&G Foods 9.625% 8/1/07 70,000 72,538 100,000 103,625 Di Giorgio 10.00% 6/15/07 90,000 89,550 80,000 79,600 Diageo Capital PLC 3.375% 3/20/08 20,000 20,057 10,000 10,028 #Dole Foods 144A 8.875% 3/15/11 70,000 76,475 55,000 60,087 Kraft Foods 6.25% 6/1/12 100,000 109,137 10,000 10,914 National Wine & Spirits 10.125% 1/15/09 90,000 82,350 80,000 73,200 UST 6.625% 7/15/12 5,000 5,662 15,000 16,985 8.80% 3/15/05 105,000 115,801 15,000 16,543 Wendy's International 6.20% 6/15/14 125,000 140,673 5,000 5,627 6.25% 11/15/11 55,000 60,385 30,000 32,937 ----------- ----------- 877,128 467,021 ----------- ----------- Healthcare & Pharmaceuticals 0.35% #Ameripath 144A 10.50% 4/1/13 110,000 117,150 85,000 90,525 #HMP Equity Holdings 144A 15.433% 5/15/08 65,000 30,833 55,000 26,089 ----------- ----------- 147,983 116,614 ----------- ----------- Industrial Machinery 0.11% #Brickman Group 144A 11.75% 12/15/09 32,000 36,000 25,000 28,125 Johnson Controls 5.00% 11/15/06 15,000 15,957 5,000 5,319 ----------- ----------- 51,957 33,444 ----------- ----------- Leisure, Lodging & Entertainment 2.15% Alliance Gaming 10.00% 8/1/07 78,000 81,900 65,000 68,250 AMC Entertainment 9.50% 3/15/09 35,000 36,400 - - 9.875% 2/1/12 15,000 15,825 15,000 15,825 Circus & Eldorador 10.125% 3/1/12 105,000 101,588 85,000 82,237 Extended Stay America 9.875% 6/15/11 55,000 57,475 35,000 36,575 Herbst Gaming 10.75% 9/1/08 100,000 110,250 75,000 82,688 John Q Hammons Hotels 8.875% 5/15/12 45,000 46,800 20,000 20,800 Meristar Hospital 10.50% 6/15/09 90,000 88,200 85,000 83,300 Penn National 11.125% 3/1/08 70,000 77,525 55,000 60,913 Premier Parks 9.75% 6/15/07 70,000 72,975 60,000 62,550 Regal Cinemas 9.375% 2/1/12 100,000 110,500 85,000 93,925 #Town Sports International 144A 9.625% 4/15/11 65,000 68,575 40,000 42,200 #Turning Stone Casino 144A 9.125% 12/15/10 60,000 63,450 40,000 42,300 ----------- ----------- 931,463 691,563 ----------- ----------- Metals & Mining 0.46% Great Central Minnesota 8.875% 4/1/08 180,000 108,900 140,000 84,700 Jorgensen (Earle M.) 9.75% 6/1/12 58,000 61,190 30,000 31,650 Oregon Steel Mills 10.00% 7/15/09 35,000 33,425 30,000 28,650 ----------- ----------- 203,515 145,000 ----------- -----------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Environmental Services #Casella Waste Systems 144A 9.75% 2/1/13 40,000 43,400 IESI 10.25% 6/15/12 220,000 228,800 ----------- 272,200 ----------- Food, Beverage & Tobacco Advantica Restaurant 12.75% 9/30/07 155,000 161,975 B&G Foods 9.625% 8/1/07 170,000 176,163 Di Giorgio 10.00% 6/15/07 170,000 169,150 Diageo Capital PLC 3.375% 3/20/08 30,000 30,085 #Dole Foods 144A 8.875% 3/15/11 125,000 136,562 Kraft Foods 6.25% 6/1/12 110,000 120,051 National Wine & Spirits 10.125% 1/15/09 170,000 155,550 UST 6.625% 7/15/12 20,000 22,647 8.80% 3/15/05 120,000 132,344 Wendy's International 6.20% 6/15/14 130,000 146,300 6.25% 11/15/11 85,000 93,322 ----------- 1,344,149 ----------- Healthcare & Pharmaceuticals #Ameripath 144A 10.50% 4/1/13 195,000 207,675 #HMP Equity Holdings 144A 15.433% 5/15/08 120,000 56,922 ----------- 264,597 ----------- Industrial Machinery #Brickman Group 144A 11.75% 12/15/09 57,000 64,125 Johnson Controls 5.00% 11/15/06 20,000 21,276 ----------- 85,401 ----------- Leisure, Lodging & Entertainment Alliance Gaming 10.00% 8/1/07 143,000 150,150 AMC Entertainment 9.50% 3/15/09 35,000 36,400 9.875% 2/1/12 30,000 31,650 Circus & Eldorador 10.125% 3/1/12 190,000 183,825 Extended Stay America 9.875% 6/15/11 90,000 94,050 Herbst Gaming 10.75% 9/1/08 175,000 192,938 John Q Hammons Hotels 8.875% 5/15/12 65,000 67,600 Meristar Hospital 10.50% 6/15/09 175,000 171,500 Penn National 11.125% 3/1/08 125,000 138,438 Premier Parks 9.75% 6/15/07 130,000 135,525 Regal Cinemas 9.375% 2/1/12 185,000 204,425 #Town Sports International 144A 9.625% 4/15/11 105,000 110,775 #Turning Stone Casino 144A 9.125% 12/15/10 100,000 105,750 ----------- 1,623,026 ----------- Metals & Mining Great Central Minnesota 8.875% 4/1/08 320,000 193,600 Jorgensen (Earle M.) 9.75% 6/1/12 88,000 92,840 Oregon Steel Mills 10.00% 7/15/09 65,000 62,075 ----------- 348,515 -----------
7
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Miscellaneous 0.57% Alderwoods Group 12.25% 1/2/09 40,000 41,400 25,000 25,875 #Gemstone Investors 144A 7.71% 10/31/04 55,000 53,213 50,000 48,375 Samsonite 10.75% 6/15/08 85,000 80,750 55,000 52,250 Tech Olympic USA 10.375% 7/1/12 70,000 72,450 55,000 56,925 ---------- --------- 247,813 183,425 ---------- --------- Packaging & Containers 0.85% AEP Industries 9.875% 11/15/07 105,000 99,224 90,000 85,050 Consolidated Container 10.125% 7/15/09 85,000 51,000 80,000 48,000 #Owens-Brockway Glass 144A 8.25% 5/15/13 75,000 77,813 60,000 62,250 Portola Packaging 10.75% 10/1/05 75,000 76,688 45,000 46,013 Silgan Holdings 9.00% 6/1/09 50,000 52,250 45,000 47,025 ---------- --------- 356,975 288,338 ---------- --------- Paper & Forest Products 0.79% Georgia-Pacific 9.875% 11/1/21 265,000 251,750 220,000 209,000 Tembec Industries 8.50% 2/1/11 75,000 78,375 55,000 57,475 ---------- --------- 330,125 266,475 ---------- --------- Real Estate 0.22% Tanger Properties 9.125% 2/15/08 90,000 93,600 70,000 72,800 ---------- --------- 93,600 72,800 ---------- --------- Retail 1.12% J Crew Operating 10.375% 10/15/07 75,000 67,875 65,000 58,825 Lowe's 7.50% 12/15/05 40,000 45,400 25,000 28,375 Office Depot 10.00% 7/15/08 80,000 93,200 80,000 93,200 Petco Animal Supplies 10.75% 11/1/11 63,000 71,190 75,000 84,750 #Remington Arms 144A 10.50% 2/1/11 79,000 85,715 95,000 103,075 Saks 7.25% 12/1/04 51,000 53,550 60,000 63,000 ---------- --------- 416,930 431,225 ---------- --------- Telecommunications 2.51% Alamosa Delaware 12.50% 2/1/11 105,000 69,825 75,000 49,875 #American Tower Escrow Amount 144A 8.274% 8/1/08 50,000 35,250 - - AT&T 6.50% 11/15/06 10,000 10,733 20,000 21,467 Citizens Communications 6.375% 8/15/04 10,000 10,475 20,000 20,949 Crown Castle International ##10.625% 11/15/07 55,000 57,063 45,000 46,687 10.75% 8/1/11 90,000 93,150 80,000 82,800 Level 3 Communications 9.125% 5/1/08 55,000 44,825 25,000 20,375 Nextel Communications 9.375% 11/15/09 75,000 81,375 60,000 65,100 ##9.95% 2/15/08 40,000 42,200 35,000 36,925 Nextel Partners 12.50% 11/15/09 50,000 54,750 30,000 32,850 ##14.00% 2/1/09 85,000 86,700 65,000 66,300 Nortel Networks Capital 7.40% 6/15/06 50,000 49,000 55,000 53,900 #Qwest Services 144A 13.50% 1/1/08 150,000 167,249 115,000 128,225 Sprint Capital 6.375% 5/1/09 5,000 5,125 5,000 5,125 7.625% 1/30/11 5,000 5,400 - - Star Choice Communications 13.00% 12/15/05 55,000 58,575 40,000 42,600 Time Warner Telecommunications 9.75% 7/15/08 105,000 88,725 75,000 63,375 US West Communications 7.20% 11/1/04 28,000 28,420 30,000 30,450 Verizon Virginia 4.625% 3/15/13 90,000 89,622 25,000 24,895 Verizon Wireless Capital 5.375% 12/15/06 10,000 10,787 15,000 16,180 ---------- --------- 1,089,249 808,078 ---------- --------- Textiles, Apparel & Furniture 0.50% J Crew 13.125% 10/15/08 100,000 71,500 80,000 57,200 #Levi Strauss 144A 12.25% 12/15/12 85,000 70,975 55,000 45,925 #Phillips Van-Heusen 144A 8.125% 5/1/13 75,000 75,000 60,000 60,000 ---------- --------- 217,475 163,125 ---------- --------- Transportation & Shipping 1.10% American Airlines 6.817% 5/23/11 20,000 14,359 10,000 7,180 Continental Airlines 7.033% 6/15/11 18,555 9,726 - - CP Ships Limited 10.375% 7/15/12 85,000 92,437 90,000 97,875 Delta Air Lines 7.299% 9/18/06 20,000 12,926 10,000 6,463 HORNBECK-LEEVAC Marine Services 10.625% 8/1/08 55,000 59,675 50,000 54,250 Kansas City Southern Railway 9.50% 10/1/08 76,000 84,360 70,000 77,700 #Overseas Shipholding 144A 8.25% 3/15/13 75,000 77,719 105,000 108,806 Stena AB 9.625% 12/1/12 65,000 71,825 50,000 55,250 ---------- --------- 423,027 407,524 ---------- ---------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Miscellaneous Alderwoods Group 12.25% 1/2/09 65,000 67,275 #Gemstone Investors 144A 7.71% 10/31/04 105,000 101,588 Samsonite 10.75% 6/15/08 140,000 133,000 Tech Olympic USA 10.375% 7/1/12 125,000 129,375 ------------ 431,238 ------------ Packaging & Containers AEP Industries 9.875% 11/15/07 195,000 184,274 Consolidated Container 10.125% 7/15/09 165,000 99,000 #Owens-Brockway Glass 144A 8.25% 5/15/13 135,000 140,063 Portola Packaging 10.75% 10/1/05 120,000 122,701 Silgan Holdings 9.00% 6/1/09 95,000 99,275 ------------ 645,313 ------------ Paper & Forest Products Georgia-Pacific 9.875% 11/1/21 485,000 460,750 Tembec Industries 8.50% 2/1/11 130,000 135,850 ------------ 596,600 ------------ Real Estate Tanger Properties 9.125% 2/15/08 160,000 166,400 ------------ 166,400 ------------ Retail J Crew Operating 10.375% 10/15/07 140,000 126,700 Lowe's 7.50% 12/15/05 65,000 73,775 Office Depot 10.00% 7/15/08 160,000 186,400 Petco Animal Supplies 10.75% 11/1/11 138,000 155,940 #Remington Arms 144A 10.50% 2/1/11 174,000 188,790 Saks 7.25% 12/1/04 111,000 116,550 ------------ 848,155 ------------ Telecommunications Alamosa Delaware 12.50% 2/1/11 180,000 119,700 #American Tower Escrow Amount 144A 8.274% 8/1/08 50,000 35,250 AT&T 6.50% 11/15/06 30,000 32,200 Citizens Communications 6.375% 8/15/04 30,000 31,424 Crown Castle International ##10.625% 11/15/07 100,000 103,750 10.75% 8/1/11 170,000 175,950 Level 3 Communications 9.125% 5/1/08 80,000 65,200 Nextel Communications 9.375% 11/15/09 135,000 146,475 ##9.95% 2/15/08 75,000 79,125 Nextel Partners 12.50% 11/15/09 80,000 87,600 ##14.00% 2/1/09 150,000 153,000 Nortel Networks Capital 7.40% 6/15/06 105,000 102,900 #Qwest Services 144A 13.50% 1/1/08 265,000 295,474 Sprint Capital 6.375% 5/1/09 10,000 10,250 7.625% 1/30/11 5,000 5,400 Star Choice Communications 13.00% 12/15/05 95,000 101,175 Time Warner Telecommunications 9.75% 7/15/08 180,000 152,100 US West Communications 7.20% 11/1/04 58,000 58,870 Verizon Virginia 4.625% 3/15/13 115,000 114,517 Verizon Wireless Capital 5.375% 12/15/06 25,000 26,967 ------------ 1,897,327 ------------ Textiles, Apparel & Furniture J Crew 13.125% 10/15/08 180,000 128,700 #Levi Strauss 144A 12.25% 12/15/12 140,000 116,900 #Phillips Van-Heusen 144A 8.125% 5/1/13 135,000 135,000 ------------ 380,600 ------------ Transportation & Shipping American Airlines 6.817% 5/23/11 30,000 21,539 Continental Airlines 7.033% 6/15/11 18,555 9,726 CP Ships Limited 10.375% 7/15/12 175,000 190,312 Delta Air Lines 7.299% 9/18/06 30,000 19,389 HORNBECK-LEEVAC Marine Services 10.625% 8/1/08 105,000 113,925 Kansas City Southern Railway 9.50% 10/1/08 146,000 162,060 #Overseas Shipholding 144A 8.25% 3/15/13 180,000 186,525 Stena AB 9.625% 12/1/12 115,000 127,075 ------------ 830,551 ------------
8
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Utilities 3.64% Amerada Hess 7.30% 8/15/31 15,000 16,848 10,000 11,232 Avista 7.75% 1/1/07 15,000 16,590 25,000 27,650 9.75% 6/1/08 98,000 109,270 85,000 94,775 Calpine 10.50% 5/15/06 87,000 73,950 70,000 59,500 Carolina Power & Light 6.50% 7/15/12 35,000 39,699 10,000 11,342 Consumers Energy 6.20% 5/1/08 50,000 50,064 - - Detroit Edison 5.05% 10/1/05 20,000 21,314 15,000 15,985 FPL Group Capital 3.25% 4/11/06 105,000 106,276 20,000 20,243 #Gazprom 144A 9.625% 3/1/13 60,000 64,050 160,000 170,800 Great Lakes Power 9.00% 8/1/04 5,000 5,265 10,000 10,530 #Illinois Power 144A 11.50% 12/15/10 35,000 39,375 20,000 22,500 Midland Funding II 11.75% 7/23/05 68,000 72,930 120,000 128,700 Midwest Generation 8.30% 7/2/09 90,000 88,467 70,000 68,807 Mirant Americas Generation 7.625% 5/1/06 36,000 31,140 30,000 25,950 8.30% 5/1/11 85,000 62,475 70,000 51,450 #National Waterworks 144A 10.50% 12/1/12 53,000 58,035 40,000 43,800 #Nevada Power 144A 10.875% 10/15/09 57,000 63,270 85,000 94,350 NiSource Finance 7.50% 11/15/03 70,000 72,190 - - Orion Power Holdings 12.00% 5/1/10 70,000 76,300 60,000 65,400 Peco Energy 3.50% 5/1/08 70,000 70,747 20,000 20,213 #PSE&G Energy Holdings 144A 7.75% 4/16/07 195,000 204,469 65,000 68,157 PSE&G National Energy 8.625% 2/15/08 30,000 32,138 - - Southern Company Capital 5.30% 2/1/07 10,000 10,658 20,000 21,316 #Southern Energy 144A 7.40% 7/15/04 30,000 26,250 25,000 21,875 #Star Gas Partner 144A 10.25% 2/15/13 75,000 76,688 55,000 56,238 Texas Utilities 7.875% 3/1/23 5,000 5,219 - - Transcontinental Gas Pipeline 8.875% 7/15/12 50,000 55,250 - - #TXU Energy 144A 7.00% 3/15/13 80,000 88,532 - - ----------- ------------ 1,637,459 1,110,813 ----------- ------------ Total Corporate Bonds 15,654,521 10,359,210 Foreign Bonds 29.32% Australia 1.28% New South Wales Treasury 8.00% 3/1/08 AUD 250,000 175,904 - - Queensland Treasury 6.00% 6/14/11 215,000 139,518 1,000,000 648,919 * ----------- ------------ 315,422 648,919 ----------- ------------ Austria 0.90% Oesterreich Kontrollbank 1.80% 3/22/10 JPY 2,000,000 18,509 - - Republic of Austria 5.25% 1/4/11 EUR 380,000 462,797 - - Republic of Austria 7.25% 5/3/07 DEM - - 300,000 196,569 * ----------- ------------ 481,306 196,569 ----------- ------------ Belgium 0.71% Kingdom of Belgium 5.50% 9/28/17 EUR 140,000 171,192 300,000 366,840 ----------- ------------ 171,192 366,840 ----------- ------------ Brazil 0.82% Brazil 10.00% 1/16/07 USD 95,000 95,190 80,000 80,160 Federal Republic of Brazil 11.00% 8/17/40 140,000 122,500 130,000 113,750 Government of Brazil C - Bond 8.00% 4/15/14 233,968 206,139 - - ----------- ------------ 423,829 193,910 ----------- ------------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Utilities Amerada Hess 7.30% 8/15/31 25,000 28,080 Avista 7.75% 1/1/07 40,000 44,240 9.75% 6/1/08 183,000 204,045 Calpine 10.50% 5/15/06 157,000 133,450 Carolina Power & Light 6.50% 7/15/12 45,000 51,041 Consumers Energy 6.20% 5/1/08 50,000 50,064 Detroit Edison 5.05% 10/1/05 35,000 37,299 FPL Group Capital 3.25% 4/11/06 125,000 126,519 #Gazprom 144A 9.625% 3/1/13 220,000 234,850 Great Lakes Power 9.00% 8/1/04 15,000 15,795 #Illinois Power 144A 11.50% 12/15/10 55,000 61,875 Midland Funding II 11.75% 7/23/05 188,000 201,630 Midwest Generation 8.30% 7/2/09 160,000 157,274 Mirant Americas Generation 7.625% 5/1/06 66,000 57,090 8.30% 5/1/11 155,000 113,925 #National Waterworks 144A 10.50% 12/1/12 93,000 101,835 #Nevada Power 144A 10.875% 10/15/09 142,000 157,620 NiSource Finance 7.50% 11/15/03 70,000 72,190 Orion Power Holdings 12.00% 5/1/10 130,000 141,700 Peco Energy 3.50% 5/1/08 90,000 90,960 #PSE&G Energy Holdings 144A 7.75% 4/16/07 260,000 272,626 PSE&G National Energy 8.625% 2/15/08 30,000 32,138 Southern Company Capital 5.30% 2/1/07 30,000 31,974 #Southern Energy 144A 7.40% 7/15/04 55,000 48,125 #Star Gas Partner 144A 10.25% 2/15/13 130,000 132,926 Texas Utilities 7.875% 3/1/23 5,000 5,219 Transcontinental Gas Pipeline 8.875% 7/15/12 50,000 55,250 #TXU Energy 144A 7.00% 3/15/13 80,000 88,532 ------------- 2,748,272 ------------- Total Corporate Bonds 26,013,731 Foreign Bonds Australia New South Wales Treasury 8.00% 3/1/08 250,000 175,904 Queensland Treasury 6.00% 6/14/11 1,215,000 788,437 ------------- 964,341 ------------- Austria Oesterreich Kontrollbank 1.80% 3/22/10 2,000,000 18,509 Republic of Austria 5.25% 1/4/11 380,000 462,797 Republic of Austria 7.25% 5/3/07 300,000 196,569 ------------- 677,875 ------------- Belgium Kingdom of Belgium 5.50% 9/28/17 440,000 538,032 ------------- 538,032 ------------- Brazil Brazil 10.00% 1/16/07 175,000 175,350 Federal Republic of Brazil 11.00% 8/17/40 270,000 236,250 Government of Brazil C - Bond 8.00% 4/15/14 233,968 206,139 ------------- 617,739 -------------
9
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Canada 2.90% Ainsworth Lumber 12.50% 7/15/07 USD 60,000 66,300 75,000 82,875 13.875% 7/15/07 20,000 22,400 - - Alcan 7.25% 3/15/31 - - 25,000 30,598 Canada Government - - 4.50% 9/1/07 CAD - - 520,000 367,473 * 5.25% 6/1/12 - - 480,000 343,187 * 5.50% 6/1/09 140,000 102,641 - - 5.50% 6/1/10 125,000 91,414 - - Fairfax Financial Holdings 7.75% 12/15/03 USD 95,000 95,000 115,000 115,000 Ontario Province NZD - - 740,000 420,150 Rogers Cablesystems 10.00% 3/15/05 USD 85,000 91,588 165,000 177,788 Western Oil Sands 8.375% 5/1/12 84,000 90,300 90,000 96,750 ----------- ----------- 559,643 1,633,821 ----------- ----------- Chile 0.04% Republic of Chile 5.125% 7/25/05 EUR - - 25,000 29,013 ----------- ----------- - 29,013 ----------- ----------- Columbia 0.00% Republic of Colombia 9.75% 4/9/11 USD 1,944 2,173 - - ----------- ----------- 2,173 ----------- ----------- Dominican Republic 0.23% #Federal Republic of Dominican Republic 144A 9.04% 4/1/13 USD 95,000 95,594 80,000 80,500 ----------- ----------- 95,594 80,500 ----------- ----------- Ecuador 0.46% ##Republic of Ecuador 5.00% 8/15/30 USD 285,000 172,220 295,000 178,263 ----------- ----------- 172,220 178,263 ----------- ----------- Finland 0.32% Finnish Government 5.00% 4/25/09 EUR 200,000 240,868 - - ----------- ----------- 240,868 - ----------- ----------- France 1.36% France Government O.A.T. 5.50% 4/25/10 EUR 300,000 370,122 460,000 567,519 ##France Telecom 10.00% 3/1/31 USD 45,000 60,059 20,000 26,693 ----------- ----------- 430,181 594,212 ----------- ----------- Germany 2.73% Deutschland Republic 4.125% 7/4/08 EUR 300,000 346,316 - - 4.75% 7/4/28 180,000 196,461 340,000 371,092 5.00% 7/4/11 210,000 250,946 400,000 477,993 6.00% 1/4/07 240,000 294,758 - - Kredit Fuer Wiederaufbau 5.25% 7/4/12 100,000 121,733 - - ----------- ----------- 1,210,214 849,085 ----------- ----------- Greece 1.00% Hellenic Republic 8.60% 3/26/08 EUR 200,000 275,199 205,429 282,669 Republic of Greece 8.70% 4/8/05 - - 160,000 200,890 ----------- ----------- 275,199 483,559 ----------- ----------- Ireland 0.24% #MDP Acquisitions 144A 9.625% 10/1/12 USD 90,000 98,100 75,000 81,750 ----------- ----------- 98,100 81,750 ----------- ----------- Italy 1.03% Republic of Italy 3.75% 6/8/05 JPY 40,000,000 361,514 - - 5.125% 7/29/03 5,000,000 42,431 - - 5.75% 7/25/16 EUR - - 300,000 375,340 ----------- ----------- 403,945 375,340 ----------- -----------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Canada Ainsworth Lumber 12.50% 7/15/07 135,000 149,175 13.875% 7/15/07 20,000 22,400 Alcan 7.25% 3/15/31 25,000 30,598 Canada Government 4.50% 9/1/07 520,000 367,473 5.25% 6/1/12 480,000 343,187 5.50% 6/1/09 140,000 102,641 5.50% 6/1/10 125,000 91,414 Fairfax Financial Holdings 7.75% 12/15/03 210,000 210,000 Ontario Province 740,000 420,150 Rogers Cablesystems 10.00% 3/15/05 250,000 269,376 Western Oil Sands 8.375% 5/1/12 174,000 187,050 ------------ 2,193,464 ------------ Chile Republic of Chile 5.125% 7/25/05 25,000 29,013 ------------ 29,013 ------------ Columbia Republic of Colombia 9.75% 4/9/11 1,944 2,173 ------------ 2,173 ------------ Dominican Republic #Federal Republic of Dominican Republic 144A 9.04% 4/1/13 175,000 176,094 ------------ 176,094 ------------ Ecuador ##Republic of Ecuador 5.00% 8/15/30 580,000 350,483 ------------ 350,483 ------------ Finland Finnish Government 5.00% 4/25/09 200,000 240,868 ------------ 240,868 ------------ France France Government O.A.T. 5.50% 4/25/10 760,000 937,641 ##France Telecom 10.00% 3/1/31 65,000 86,752 ------------ 1,024,393 ------------ Germany Deutschland Republic 4.125% 7/4/08 300,000 346,316 4.75% 7/4/28 520,000 567,553 5.00% 7/4/11 610,000 728,939 6.00% 1/4/07 240,000 294,758 Kredit Fuer Wiederaufbau 5.25% 7/4/12 100,000 121,733 ------------ 2,059,299 ------------ Greece Hellenic Republic 8.60% 3/26/08 405,429 557,868 Republic of Greece 8.70% 4/8/05 160,000 200,890 ------------ 758,758 ------------ Ireland #MDP Acquisitions 144A 9.625% 10/1/12 165,000 179,850 ------------ 179,850 ------------ Italy Republic of Italy 3.75% 6/8/05 40,000,000 361,514 5.125% 7/29/03 5,000,000 42,431 5.75% 7/25/16 300,000 375,340 ------------ 779,285 ------------
10
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Mexico 1.43% United Mexican States 7.375% 3/13/08 EUR - - 250,000 311,164 7.50% 4/8/33 USD 310,000 323,950 50,000 52,250 8.25% 2/24/09 DEM - - 600,000 391,203 ----------- ----------- 323,950 754,617 ----------- ----------- Netherlands 0.49% #Kazkommerts 144A 8.50% 4/16/13 USD 75,000 74,531 65,000 64,594 Netherlands Government 5.50% 7/15/10 EUR 190,000 234,230 - - ----------- ----------- 308,761 64,594 ----------- ----------- New Zealand 1.25% New Zealand Government 6.00% 11/15/11 NZD 410,000 231,689 130,000 73,463 6.50% 4/15/13 430,000 251,357 - - 7.00% 7/15/09 340,000 203,088 - - 8.00% 4/15/04 40,000 22,951 - - 8.00% 11/15/06 270,000 163,548 - - ----------- ----------- 872,633 73,463 ----------- ----------- Norway 0.17% Norsk Hydro 6.70% 1/15/18 USD 15,000 16,481 - - Ocean Rig Norway 10.25% 6/1/08 70,000 63,350 55,000 49,775 ----------- ----------- 79,831 49,775 ----------- ----------- Peru 0.67% Republic of Peru 4.00% 3/7/17 USD 498,000 411,654 113,000 93,407 ----------- ----------- 411,654 93,407 ----------- ----------- Poland 1.63% Poland Government 5.00% 10/24/13 PLZ - - 3,200,000 824,128 12.00% 10/12/03 - - 1,500,000 405,345 ----------- ----------- - 1,229,473 ----------- ----------- Philippines 0.14% Republic of Philippines 10.625% 3/16/25 USD 50,000 54,125 50,000 54,125 ----------- ----------- 54,125 54,125 ----------- ----------- Singapore 0.33% #Singapore Telecommunications 144A 6.375% 12/1/11 USD 15,000 16,688 15,000 16,688 7.375% 12/1/31 155,000 182,827 25,000 29,488 ----------- ----------- 199,515 46,176 ----------- ----------- South Africa 1.00% Republic of South Africa 13.00% 8/31/10 ZAR - - 2,500,000 397,420 Transnet 16.50% 4/1/10 - - 2,000,000 358,133 ----------- ----------- - 755,553 ----------- ----------- Spain 1.32% Kingdom of Spain 3.10% 9/20/06 JPY 45,000,000 415,525 - - Kingdom of Spain 5.15% 7/30/09 EUR - - 480,000 581,933 ----------- ----------- 415,525 581,933 ----------- -----------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Mexico United Mexican States 7.375% 3/13/08 250,000 311,164 7.50% 4/8/33 360,000 376,200 8.25% 2/24/09 600,000 391,203 ------------ 1,078,567 ------------ Netherlands #Kazkommerts 144A 8.50% 4/16/13 140,000 139,125 Netherlands Government 5.50% 7/15/10 190,000 234,230 ------------ 373,355 ------------ New Zealand New Zealand Government 6.00% 11/15/11 540,000 305,152 6.50% 4/15/13 430,000 251,357 7.00% 7/15/09 340,000 203,088 8.00% 4/15/04 40,000 22,951 8.00% 11/15/06 270,000 163,548 ------------ 946,096 ------------ Norway Norsk Hydro 6.70% 1/15/18 15,000 16,481 Ocean Rig Norway 10.25% 6/1/08 125,000 113,125 ------------ 129,606 ------------ Peru Republic of Peru 4.00% 3/7/17 611,000 505,061 ------------ 505,061 ------------ Poland Poland Government 5.00% 10/24/13 3,200,000 824,128 12.00% 10/12/03 1,500,000 405,345 ------------ 1,229,473 ------------ Philippines Republic of Philippines 10.625% 3/16/25 100,000 108,250 ------------ 108,250 ------------ Singapore #Singapore Telecommunications 144A 6.375% 12/1/11 30,000 33,376 7.375% 12/1/31 180,000 212,315 ------------ 245,691 ------------ South Africa Republic of South Africa 13.00% 8/31/10 2,500,000 397,420 Transnet 16.50% 4/1/10 2,000,000 358,133 ------------ 755,553 ------------ Spain Kingdom of Spain 3.10% 9/20/06 45,000,000 415,525 Kingdom of Spain 5.15% 7/30/09 480,000 581,933 ------------ 997,458 ------------
11
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Supranational 2.32% European Investment Bank 0.875% 11/8/04 JPY 47,000,000 399,241 - - Inter-American Development Bank 1.90% 7/8/09 12,000,000 110,522 - - International Bank Reconstruction & Development 5.50% 11/3/08 NZD - - 1,200,000 662,124 International Finance 6.75% 7/15/09 - - 1,000,000 579,649 ----------- ----------- 509,763 1,241,773 ----------- ----------- Sweden 3.70% #Nordea Bank 144A 5.25% 11/30/12 USD 95,000 99,524 15,000 15,714 Swedish Government 5.00% 1/28/09 SEK 3,800,000 482,316 - - 5.50% 10/8/12 2,600,000 337,146 - - 6.75% 5/5/14 900,000 127,988 5,000,000 711,044 8.00% 8/15/07 - - 7,200,000 1,016,950 ----------- ----------- 1,046,974 1,743,708 ----------- ----------- United Kingdom 0.73% Halifax 5.625% 7/23/07 DEM - - 900,000 554,672 * ----------- ----------- - 554,672 ----------- ----------- Venezuela 0.12% Republic of Venezuela 2.875% 12/18/07 USD 119,048 88,463 - - ----------- ----------- 88,463 - ----------- ----------- Total Foreign Bonds 9,191,080 12,955,050 ----------- ----------- Municipal Bonds 0.20% Forsyth Montana Pollution Control Revenue (Portland General A Remarking 5.20% 5/1/33 55,000 55,964 10,000 10,175 Long Island, New York Power Authority Series A 5.00% 6/1/08 65,000 70,339 15,000 16,232 ----------- ----------- Total Municipal Bonds 126,303 26,407 ----------- -----------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Supranational European Investment Bank 0.875% 11/8/04 47,000,000 399,241 Inter-American Development Bank 1.90% 7/8/09 12,000,000 110,522 International Bank Reconstruction & Development 5.50% 11/3/08 1,200,000 662,124 International Finance 6.75% 7/15/09 1,000,000 579,649 ------------ 1,751,536 ------------ Sweden #Nordea Bank 144A 5.25% 11/30/12 110,000 115,238 Swedish Government 5.00% 1/28/09 3,800,000 482,316 5.50% 10/8/12 2,600,000 337,146 6.75% 5/5/14 5,900,000 839,032 8.00% 8/15/07 7,200,000 1,016,950 ------------ 2,790,682 ------------ United Kingdom Halifax 5.625% 7/23/07 900,000 554,672 ------------ 554,672 ------------ Venezuela Republic of Venezuela 2.875% 12/18/07 119,048 88,463 ------------ 88,463 ------------ Total Foreign Bonds 22,146,130 ------------ Municipal Bonds Forsyth Montana Pollution Control Revenue (Portland General A Remarking 5.20% 5/1/33 65,000 66,139 Long Island, New York Power Authority Series A 5.00% 6/1/08 80,000 86,571 ------------ Total Municipal Bonds 152,710 ------------
12
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- U.S. Treasury Obligations 6.52% U.S. Treasury Bond 1.50% 2/28/05 - - 5,000 5,008 5.375% 2/15/31 325,000 354,733 330,000 360,190 8.125% 8/15/19 - - 65,000 91,193 ^^11.625% 11/15/04 205,000 236,967 - - U.S. Treasury Inflation Index Notes 3.00% 7/15/12 375,831 403,783 75,793 81,430 3.375% 4/15/32 61,420 70,460 20,473 23,487 3.625% 1/15/08 - - 28,118 31,101 U.S. Treasury Notes 2.00% 11/30/04 5,000 5,053 10,000 10,107 3.00% 2/15/08 55,000 55,584 - - 3.25% 8/15/07 835,000 858,028 - - 3.875% 2/15/13 1,930,000 1,933,168 215,000 215,353 ^U.S. Treasury Strip - Tiger 3.611% 11/15/09 170,000 133,506 65,000 51,046 ----------- ------------ Total U.S. Treasury Obligations 4,051,282 868,915 ----------- ------------ Common Stock 1.40% Equity One - - 9,900 157,311 Hilton Hotels - - 5,200 69,264 Keystone Property Trust - - 5,600 96,320 Lasalle Hotel Properties - - 6,200 86,738 Mills - - 8,700 278,052 ProLogis - - 9,400 241,956 Ramco-Gershenson Properties - - 5,700 130,245 ----------- ------------ - 1,059,886 ----------- ------------ Preferred Stock 0.82% #Centaur 144A 9.08% 105 122,751 35 40,917 CSC Holdings 1,075 112,875 1,050 110,250 Host Marriott 10.00% - - 3,600 89,100 Intermedia Communications Preferred PIK 13.50% 1 64 1 83 LaSalle Hotel Properties 10.25% - - 5,300 141,510 ----------- ------------ Total Preferred Stock 235,690 381,860 ----------- ------------ Warrants 0.05% ++Solutia - - 3,226 1 ++XM Satellite Radio 27 16,605 2,550 18,450 ----------- ------------ Total Warrants 16,605 18,451 ----------- ------------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- U.S. Treasury Obligations 6.52% U.S. Treasury Bond 1.50% 2/28/05 5,000 5,008 5.375% 2/15/31 655,000 714,923 8.125% 8/15/19 65,000 91,193 ^^11.625% 11/15/04 205,000 236,967 U.S. Treasury Inflation Index Notes 3.00% 7/15/12 451,624 485,213 3.375% 4/15/32 81,893 93,947 3.625% 1/15/08 28,118 31,101 U.S. Treasury Notes 2.00% 11/30/04 15,000 15,160 3.00% 2/15/08 55,000 55,584 3.25% 8/15/07 835,000 858,028 3.875% 2/15/13 2,145,000 2,148,521 ^U.S. Treasury Strip - Tiger 3.611% 11/15/09 235,000 184,552 ------------ Total U.S. Treasury Obligations 4,920,197 ------------ Common Stock Equity One 9,900 157,311 Hilton Hotels 5,200 69,264 Keystone Property Trust 5,600 96,320 Lasalle Hotel Properties 6,200 86,738 Mills 8,700 278,052 ProLogis 9,400 241,956 Ramco-Gershenson Properties 5,700 130,245 ------------ 1,059,886 ------------ Preferred Stock #Centaur 144A 9.08% 140 163,668 CSC Holdings 2,125 223,125 Host Marriott 10.00% 3,600 89,100 Intermedia Communications Preferred PIK 13.50% 2 147 LaSalle Hotel Properties 10.25% 5,300 141,510 ------------ Total Preferred Stock 617,550 ------------ Warrants ++Solutia 3,226 1 ++XM Satellite Radio 2,577 35,055 ------------ Total Warrants 35,056 ------------
13
Delaware Diversified Delaware Strategic Income Fund Income Fund ------------------------------------ ---------------------------------- % of Net Market Value Market Value Assets Shares/Par** (U.S. $) Shares/Par** (U.S. $) ----------- -------------------- ----------------- ---------------- ------------- Repurchase Agreements 14.78% With BNP Paribas 1.26% 5/1/03 USD (dated 4/30/03, collateralized by $2,898,000 U.S. Treasury Bills due 5/8/03, market value $2,896,961) 2,840,000 2,840,000 With BNP Paribas 1.26% 5/1/03 (dated 4/30/03, collateralized by $1,383,000 U.S. Treasury Bills due 5/8/03, market value $1,382,553) 1,355,000 1,355,000 With J. P. Morgan Securities 1.20% 5/1/03 (dated 4/30/03, collateralized by $1,922,000 U.S. Treasury Bills due 5/22/03, market value $1,920,810) 1,878,000 1,878,000 With J. P. Morgan Securities 1.20% 5/1/03 (dated 4/30/03, collateralized by $917,000 U.S. Treasury Bills due 5/22/03, market value $916,693) 897,000 897,000 With UBS Warburg 1.25% 5/1/03 (dated 4/30/03, collateralized by $2,858,000 U.S. Treasury Notes 3.625% due 8/31/03, market value $2,897,515) 2,840,000 2,840,000 With UBS Warburg 1.25% 5/1/03 (dated 4/30/03, collateralized by $1,364,000 U.S. Treasury Notes 3.625% due 8/31/03, market value $1,382,818) 1,355,000 1,355,000 ------------ ------------ Total Repurchase Agreements 7,558,000 3,607,000 ------------ ------------ Total Investments at Market 106.48% $47,791,106 $32,626,463 ------------ ------------ Total Investments at Cost $46,811,148 $30,367,181 ------------ ------------
[RESTUBBED TABLE]
Delaware Diversified Income Fund Pro Forma Combined -------------------------------------- Market Value Shares/Par** (U.S. $) -------------------------------------- Repurchase Agreements With BNP Paribas 1.26% 5/1/03 (dated 4/30/03, collateralized by $2,898,000 U.S. Treasury Bills due 5/8/03, market value $2,896,961) 2,840,000 2,840,000 With BNP Paribas 1.26% 5/1/03 (dated 4/30/03, collateralized by $1,383,000 U.S. Treasury Bills due 5/8/03, market value $1,382,553) 1,355,000 1,355,000 With J. P. Morgan Securities 1.20% 5/1/03 (dated 4/30/03, collateralized by $1,922,000 U.S. Treasury Bills due 5/22/03, market value $1,920,810) 1,878,000 1,878,000 With J. P. Morgan Securities 1.20% 5/1/03 (dated 4/30/03, collateralized by $917,000 U.S. Treasury Bills due 5/22/03, market value $916,693) 897,000 897,000 With UBS Warburg 1.25% 5/1/03 (dated 4/30/03, collateralized by $2,858,000 U.S. Treasury Notes 3.625% due 8/31/03, market value $2,897,515) 2,840,000 2,840,000 With UBS Warburg 1.25% 5/1/03 (dated 4/30/03, collateralized by $1,364,000 U.S. Treasury Notes 3.625% due 8/31/03, market value $1,382,818) 1,355,000 1,355,000 ------------ Total Repurchase Agreements 11,165,000 ------------ Total Investments at Market $80,417,569 ------------ Total Investments at Cost $77,178,329 ------------
- ------------- * 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. ** Principal amount is stated in the currency in which each bond is denominated. AUD - Australian Dollar CAD - Canadian Dollar DEM - German Mark EUR - European Monetary Unit JPY - Japanese Yen NZD - New Zealand Dollar PLZ - Polish Zloty SEK - Swedish Krona USD - U.S. Dollar ZAR - South African Rand + Non-income producing security. Security is currently in default. ++ Non-income producing security for the period ending April 30, 2003. ^ Zero coupon bond. The interest rate shown is the step-up rate. ^^ Fully or partially pledged as collateral for financial futures contracts. # Securities exempt from registration under Rule 144A of the Securities Act of 1933. See Note #11 in "Notes to Financial Statements." ## Step coupon bond. GNMA - Government National Mortgage Association PIK - Pay-in-kind TBA - To be announced See Pro Forma Note to Financial Statements 14 Delaware Diversified Income Fund Pro Forma Combined Statement of Assets and Liabilities As of April 30, 2003 (Unaudited)
Delaware Diversified Delaware Delaware Income Fund Diversified Strategic Pro Forma Pro Forma Income Fund Income Fund Adjustments Combined ------------- ------------- --------- ------------- Assets Securities, at market value $ 47,791,106 $ 32,626,463 $ - $ 80,417,569 Cash and foreign currencies 392,147 103,435 - 495,582 Receivable for fund shares sold 2,695,478 144,762 - 2,840,240 Receivable for securities sold 5,780,779 2,599,455 - 8,380,234 Dividend and Interest receivable 618,982 657,387 - 276,369 Swap agreement mark to market receivable 1,551 3,015 - 4,566 Expense reimbursement 124,003 22,667 - 146,670 Other Assets - 1 - 1 ------------- ------------- --------- ------------- Total Assets 57,404,046 36,157,185 - 93,561,231 ------------- ------------- --------- ------------- Liabilities Payable for fund shares repurchased 14,231 58,768 - 72,999 Payable for securities purchased 13,674,489 4,074,320 - 17,748,809 Distributions payable 35,287 - - 35,287 Written options (including premiums received of $51,101) 30,984 3,297 - 34,281 Futures variation margin payable 9,473 3,233 - 12,706 Other accounts payable and accrued expenses 33,906 100,515 - 134,421 ------------- ------------- --------- ------------- Total Liabilities 13,798,370 4,240,133 - 18,038,503 ------------- ------------- --------- ------------- Net Assets $ 43,605,676 $ 31,917,052 $ - $ 75,522,728 ============= ============= ========= ============= Analysis of Net Assets Accumulated paid in capital $ 42,175,749 $ 41,831,344 $ 84,007,093 Distributions in excess of net investment income* (11,304) (495,163) (506,467) Accumulated net realized gain (loss) on investments 461,091 (11,704,882) (11,243,791) Unrealized appreciation of investments and foreign currencies 980,140 2,285,753 3,265,893 ------------- ------------- --------- ------------- Net Assets $ 43,605,676 $ 31,917,052 $ - $ 75,522,728 ============= ============= ========= =============
*Distributions in excess of 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. 15
Delaware Diversified Delaware Delaware Income Fund Diversified Strategic Pro Forma Pro Forma Income Fund Income Fund Adjustments Combined ------------- ------------- --------- ------------- Assets Outstanding Shares Retail Class A Shares 2,894,377 2,475,983 (1,217,978) 4,152,382 Retail Class B Shares 751,494 3,162,264 (1,555,692) 2,358,066 Retail Class C Shares 1,506,532 833,694 (410,696) 1,929,530 Institutional Shares 629 953,993 (468,867) 485,755 Net asset value per share: Retail Class A Shares $8.46 $4.30 $8.46 Retail Class B Shares $8.46 $4.30 $8.46 Retail Class C Shares $8.46 $4.29 $8.46 Institutional Shares $8.46 $4.30 $8.46
See Pro Forma Note to Financial Statements 16 Delaware Diversified Income Fund Pro Forma Combined Statement of Operations For the Twelve Months Ended April 30, 2003 (Unaudited)
Delaware Diversified Delaware Delaware Income Fund Diversified Strategic Pro Forma Pro Forma Income Fund* Income Fund Adjustments Combined ------------- ------------- --------- ------------- Investment Income Dividend Income $ 4,046 $ 53,633 $ - $ 57,679 Interest Income 604,615 1,926,665 - 2,531,280 ------------- ------------- --------- ------------- Total Income 608,661 1,980,298 - 2,588,959 ------------- ------------- --------- ------------- Expenses Management Fees 59,711 178,744 (8,226)(A) 230,229 Distribution expenses - Class A 28,963 (B) 23,992 4,294 (D) 57,249 Distribution expenses - Class B 18,167 (B) 122,501 - 140,668 Distribution expenses - Class C 28,803 (B) 31,642 - 60,445 Dividend disbursing and transfer agent fees and expenses 12,181 (C) 108,028 (C) - 120,209 Accounting and administration expenses 2,665 12,441 2,085 (D) 17,191 Reports and statements to shareholders 20,176 66,017 (35,733)(E) 50,460 Registration fees 70,000 46,739 (40,000)(E) 76,739 Professional fees 4,978 9,743 12,992 (D) 27,713 Trustees' fees 1,916 1,762 2,280 (F) 5,958 Custodian fees 15,577 4,463 3,787 (D) 23,827 Other expenses 1,718 (13,638) 21,000 (D) 9,080 ------------- ------------- --------- ------------- 264,855 592,434 (37,521) 819,768 Less expenses absorbed or waived by manager (109,517) (208,610) 70,670 (E) (247,457) Less expenses absorbed or waived by distributor (4,827)(B) (422) (4,294)(D) (9,543) Less expenses paid indirectly (479) (874) 213 (E) (1,140) ------------- ------------- --------- ------------- Total expense 150,032 382,528 29,068 561,628 ------------- ------------- --------- ------------- Net Investment Income 458,629 1,597,770 (29,068) 2,027,331 ------------- ------------- --------- ------------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) on: Investments 760,379 (313,250) 447,129 Futures contracts (18,475) (103,780) (122,255) Options written (2,597) 17,061 14,464 Foreign currencies 92,039 - 92,039 ------------- ------------- --------- ------------- Net realized gain (loss) 831,346 (399,969) - 431,377 Change in unrealized appreciation/(depreciation) of investments 895,166 3,681,076 - 4,576,242 ------------- ------------- --------- ------------- Net Realized and Unrealized Gain on Investments 1,726,512 3,281,107 - 5,007,619 ------------- ------------- --------- ------------- Change in Net Assets Resulting from Operations $ 2,185,141 $ 4,878,877 $ - $ 7,034,950 ============= ============= ========= =============
* The operations presented prior to October 28, 2002 reflect the operating results of the Delaware Pooled Trust -- Diversified Core Fixed Income Portfolio, which merged into the Fund effective October 28, 2002. (A) Decrease due to the impact of lower break point levels being implemented by merging the funds. (B) Expense level was increased to reflect appropriate distribution expenses of Delaware Diversified Income Fund by merging with Delaware Pooled Trust - The Diversified Core Fixed Income Portfolio, effective October 28, 2002. (C) Expense level was increased/decreased from historical levels due to the fee schedule change effective June 1, 2003. (D) Increase to reflect appropriate expense level by merging the funds. (E) Decrease to reflect appropriate expense level by merging the funds. (F) Based on Trustees' compensation plan for the surviving fund. See Pro Forma Note to Financial Statements 17 Delaware Diversified Income Fund Pro Forma Combined Annual Fund Operating Expenses As of April 30, 2003 (Unaudited)
Delaware Diversified Income Fund(A) Delaware Strategic Income Fund ------------------------------------------------ ------------------------------------------------ Retail Retail Retail Institutional Retail Retail Retail Institutional Class A Class B Class C Class Class A Class B Class C Class Shares Shares Shares Shares Shares Shares Shares Shares ------------------------------------------------ ------------------------------------------------ Management fees 0.55% 0.55% 0.55% 0.55% 0.65% 0.65% 0.65% 0.65% Rule 12b-1 fees 0.30% 1.00% 1.00% N/A 0.30% 1.00% 1.00% N/A Other expenses 0.90% 0.90% 0.90% 0.90% 0.86% 0.86% 0.86% 0.86% ------------------------------------------------ ------------------------------------------------ Total fund operating expenses 1.75% 2.45% 2.45% 2.45% 1.81% 2.51% 2.51% 1.51% ------------------------------------------------ ------------------------------------------------ Fee waivers & payments -0.75% -0.70% -0.70% -0.70% -0.81% -0.76% -0.76% -0.76% Expense Limit 1.00% 1.75% 1.75% 0.75% 1.00% 1.75% 1.75% 0.75% ================================================ ================================================ (A) The annual fund operating expenses presented above reflect the higher operating expenses of Delaware Diversified Income Fund incurred after the merge with Delaware Pooled Trust - The Diversified Core Fixed Income Portfolio, effective October 28, 2002. Delaware Diversified Income Fund Pro Forma Combined ------------------------------------------------ Retail Retail Retail Institutional Class A Class B Class C Class Shares Shares Shares Shares ------------------------------------------------ Management fees 0.55% 0.55% 0.55% 0.55% Rule 12b-1 fees 0.30% 1.00% 1.00% N/A Other expenses 0.79% 0.79% 0.79% 0.79% ------------------------------------------------ Total fund operating expenses 1.64% 2.34% 2.34% 1.34% ------------------------------------------------ Fee waivers & payments -0.64% -0.59% -0.59% -0.59% Expense Limit 1.00% 1.75% 1.75% 0.75% ================================================
18 Delaware Diversified Income Fund Pro Forma Notes to Financial Statements April 30, 2003 (Unaudited) Delaware Group Adviser Funds (the "Trust") is organized as a Delaware business trust and offers two series: Delaware Diversified Income Fund and Delaware U.S. Growth Fund. These financial statements and related notes pertain to the Delaware Diversified 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. The Fund 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 4.50%. Prior to November 18, 2002, Class A shares were sold with a front-end sales charge of up to 4.75%. Class B shares are sold with a contingent deferred sales charge that declines from 4.00% to zero depending upon the period of time the shares are 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% 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. As of April 30, 2003, Class R shares had not commenced operations. The investment objective of the Fund is to seek maximum long-term total return, consistent with reasonable risk. The financial information presented for the period prior to October 28, 2002, reflect the operating results of the Delaware Pooled Trust - The Diversified Core Fixed Income Portfolio ("The Core Portfolio") which was merged into the Fund effective October 28, 2002. See Note 4 for further discussion. 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 Strategic Income Fund by the Delaware Diversified Income Fund, as if such acquisition had taken place as of May 1, 2002. Under the terms of the Plan of Reorganization, the combination of the Delaware Strategic Income Fund and the Delaware Diversified 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 Strategic Income Fund in exchange for shares of the Delaware Diversified Income Fund at net asset value. The statement of assets and liabilities and the related statement of operations of the Delaware Strategic Income Fund and the Delaware Diversified Income Fund have been combined for the twelve months ended April 30, 2003. The accompanying pro forma financial statements should be read in conjunction with the financial statements of the Delaware Diversified Income Fund semiannual report dated April 30, 2003, the Delaware Strategic Income Fund semiannual report dated January 31, 2003 and the Delaware Strategic Income Fund annual report dated July 31, 2003. The following notes refer to the accompanying pro forma financial statements as if the above-mentioned acquisition of the Delaware Strategic Income Fund by the Delaware Diversified Income Fund had taken place as of May 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. 19 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 sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will normally be used. Securities listed on a foreign exchange are normally valued at the last quoted sales price before the Fund is valued. U.S. government and agency securities are valued at the mean between bid and asked prices. Other long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Exchange traded options are valued at the last reported sale price or, if no sales are reported, at the mean between the last reported bid and asked prices. 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 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 and common expenses are allocated to the classes of the Fund on the basis of "settled shares" of each class in relation to the net assets of the Fund. 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. Foreign Currency Transactions - Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date. The value of all assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Fund isolates that portion of gains and losses on investments in debt securities, which are due to changes in the foreign exchange rates from that which are due to changes in market prices of debt securities. The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, where such components are treated as ordinary income (loss) for federal income tax purposes. 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. Premiums and discounts on all debt securities are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage and asset-backed securities are classified as interest income. Withholding taxes on foreign interest have been provided for in accordance with the Fund's understanding of the applicable country's tax rules and rates. 20 The Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays 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 $1,005 for the year ended April 30, 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 year ended April 30, 2003 were approximately $135. 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 its 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 0.55% on the first $500 million of average daily net assets of the Fund, 0.50% on the next $500 million, 0.45% on the next $1.5 billion and 0.425% on average daily net assets in excess $2.5 billion. DMC has entered into a sub-advisory agreement with Delaware International Advisors Ltd. (DIAL), an affiliate of DMC, related to the foreign securities portion of the Fund. For the services provided, DMC pays DIAL sub-advisory fees equal to that portion of the management fee paid to DMC that is attributable to the foreign assets in the Fund's investment portfolio. The Fund does not pay any fees directly to DIAL. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, and extraordinary expenses do not exceed 0.75% of average daily net assets of the Fund through December 31, 2004. 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 and DIAL, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares and 1.00% of the average daily net assets of the Class B and C shares and 0.60% of Class R shares. DDLP has contracted to waive a portion of the distribution and service fee through December 31, 2004 in order to prevent total distribution and service fees for Class A shares from exceeding 0.25% of average daily net assets. Institutional Class shares pay no distribution expenses. Certain officers of DMC, DSC, DDLP and DIAL are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund. 4. Fund Merger Effective October 28, 2002, the Fund acquired all of the assets and assumed all of the liabilities of The Core Portfolio pursuant to an Agreement and Plan of Reorganization (the "Reorganization") dated October 22, 2002 and approved by The Core Portfolio's shareholders (The "Pooled Trust" Class) on October 22, 2002. The shareholders of The Core Portfolio received Class A shares of the Fund equal in number and aggregate net asset value of their shares in The Core Portfolio prior to the Reorganization. The Reorganization was treated as a non-taxable event and accordingly the Fund's basis in the securities acquired reflected the historical cost basis of the date of transfer. The Core Portfolio's investment objectives, policies and limitations were identical to those of the Fund, which had no operations prior to October 28, 2002. For financial reporting purposes, The Core Portfolio's operating history prior to the acquisition is reflected in the financial information of the Fund. 5. 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 amount outstanding as of April 30, 2003, or at any time during the period. 21 6. Foreign Exchange Contracts The Fund may enter into forward foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Fund may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. Forward foreign currency exchange contracts are valued at the mean between the bid and asked prices of the contracts and are marked-to-market daily. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. The change in market value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although forward foreign currency exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. No forward foreign currency exchange contracts were outstanding at April 30, 2003. 7. Futures Contracts The Fund may invest in financial futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Fund deposits cash or pledges U.S. government securities to a broker, equal to the minimum "initial margin" requirements of the exchange on which the contract is traded. (In some cases, due to the form of the futures agreement, initial margin is held in a segregated account with the Fund's custodian, rather than directly with the broker.) Subsequent payments are received from the broker or paid to the broker (or added to the segregated account) each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as "variation margin" and are recorded daily by the Fund as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risk of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. Financial futures contracts open at April 30, 2003 were as follows: Contracts to Notional Expiration Unrealized Buy (Sell) Cost Date Gain (loss) - ---------------------------------------------------------------------------- 8 90 Day Euro Dollar $1,976,080 9/03 $420 12 90 Day Euro Dollar 2,920,833 9/04 15,719 (5) 90 Day Euro Dollar (1,203,700) 9/05 (3,425) (13) 90 day Euro Dollar (3,204,970) 12/03 (3,593) (1) U.S. Treasury 5 Year Notes (113,787) 6/03 37 (30) U.S. Treasury 10 Year Notes (3,429,003) 6/03 (24,747) 13 U.S. Treasury Long Bond 1,475,575 6/03 6,832 The use of futures contracts involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional amount presented above represents the Fund's total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund's net assets. 22 8. Options Written During the period ended April 30, 2003, the Fund entered into options contracts in accordance with its investment objectives. When the Fund writes an option, a premium is received and a liability is recorded and adjusted on a daily basis to reflect the current market value of the options written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the security purchased by the Fund. The Fund, as writer of an option, bears the market risk of an unfavorable change in price of the security underlying the written option. Transactions in options written during the period ended April 30, 2003 for the Fund were as follows:
Number of Contracts Premiums - ----------------------------------------------------------------------------------------------- Options outstanding at April 30, 2002 - $- Options written 155 93,730 Options terminated in closing purchase transaction (52) (38,629) ------------------- --------------- Options outstanding at April 30, 2003 103 $55,101 =================== ===============
At April 30, 2003, the Fund had the following options written outstanding:
Number of Notional Amount of Excise Expiration Net Appreciation Description Contracts Futures Price Date (Depreciation) - ----------------------------------------------------------------------------------------------------------------------------- Call Options Written U.S. Treasury 10 Year Future 87 $8,700,000 $116 6/03 $19,146 U.S. Treasury 10 Year Future 8 800,000 116 7/03 (205) Put Options Written U.S. Treasury 10 Year Future 8 800,000 110 7/03 1,920 ----------- $20,861 ===========
Writing options involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional amount presented above represents the Fund's total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund's net assets. 9. Swap Agreements During the period April 30, 2003, The Fund entered into total return swap agreements in accordance with its investment objectives. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Total return swaps involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Fund will make a payment to the counterparty. Total return swaps are marked-to-market daily based upon the fair valuation methodology established by the Board of Trustees. The change in value of swap agreements outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap agreement. 23 At April 30, 2003, the Fund had the following total return swap agreements outstanding:
Notional Amount Expiration Date Description Unrealized Gain - ---------------------------------------------------------------------------------------------------------------------------- $265,000 July 1, 2003 Agreement with Goldman Sachs to receive the notional amount $4,566 multiplied by the return on the Lehman Brothers Commercial MBS index AAA and to pay the notional amount multiplied by the 1 month BBA LIBOR adjusted by a spread of minus 0.40%.
Because there is no organized market for these swap agreements, the value of open swaps may differ from that which would be realized in the event the Fund terminated its position in the agreement. Risks of entering into these agreements include potential inability of the counterparty to meet the terms of the agreements. This type of risk is generally limited to the amount of favorable movements in the value of the underlying security, instrument or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the related amounts shown above. 10. Credit and Market Risks Some countries in which the Fund may invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country's balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Fund may be inhibited. In addition, a significant portion of the aggregate market value of equity securities listed on the major securities exchanges in emerging markets are held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Fund. The Fund may invest up to 60% of net assets in high-yield fixed income securities, which carry ratings of BB or lower by S&P and/or Ba or lower by Moody's. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities. The Fund invests in fixed-income securities whose value is derived from an underlying pool of mortgages or consumer loans. Investors receive principal and interest payments as the underlying mortgages and consumer loans are paid back. Some of these securities are collateralized mortgage obligations (CMOs). CMOs are debt securities issued by U.S. government agencies or by financial institutions and other mortgage lenders, which are collateralized by a pool of mortgages held under an indenture. Prepayment of mortgages may shorten the stated maturity of the obligations and can result in a loss of premium, if any has been paid. Certain of these securities may be stripped (securities, which provide only the principal or interest feature of the underlying security). The yield to maturity on an interest-only CMO is extremely sensitive not only to changes in prevailing interest rates, but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets. A rapid rate of principal payments may have a material adverse affect on the Fund's yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities even if the securities are rated in the highest rating categories. The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. 24 PART C OTHER INFORMATION Item 15. Indemnification. Article VI of the By-Laws is incorporated into this filing by reference to Post-Effective Amendment No. 12 filed November 22, 1999. Item 16. Exhibits. The following exhibits are incorporated by reference to the previously filed Registration Statement on Form N-1A indicated below, except Exhibits 7(a), 7(b), 9(a)(ii), 9(b)(ii), 13(a)(iii), 13(b)(i), 14(a), 16(a) and 17(b): (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. 12 filed November 22, 1999. (b) Certificate of Trust (December 17, 1998) incorporated into this filing by reference to Post-Effective Amendment No. 12 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. 12 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 Proxy Statement/Prospectus. (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. 12 filed November 22, 1999. (b) By-Laws. Article II of By-Laws incorporated into this filing by reference to Post-Effective Amendment No. 12 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 (a series of Delaware Management Business Trust) and the Registrant on behalf of Delaware U.S. Growth Fund incorporated into this filing by reference to Post-Effective Amendment No. 16 filed March 1, 2001. (b) Executed Amendment No. 1 (June 28, 2002) to Exhibit A of the Investment Management Agreement (November 23, 1999) between the Registrant and Delaware Management Company (a series of Delaware Management Business Trust) adding Delaware Diversified Income Fund incorporated into this filing by reference to Post-Effective Amendment No. 20 filed December 31, 2002. (c) Form of Sub-Advisory Agreement (June 2002) between Delaware Management Company (a series of Delaware Management Business Trust) and Delaware International Advisers Ltd. on behalf of Delaware Diversified Income Fund incorporated into this filing by reference to Post-Effective Amendment No. 20 filed December 31, 2002. (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) Dealer's Agreement (January 2001) incorporated into this filing by reference to Post-Effective Amendment No. 19 filed June 28, 2002. (d) Vision Mutual Fund Gateway Agreement (November 2000) incorporated into this filing by reference to Post-Effective Amendment No. 19 filed June 28, 2002. (e) Registered Investment Advisers Agreement (January 2001) incorporated into this filing by reference to Post-Effective Amendment No. 19 filed June 28, 2002. (f) Bank/Trust Agreement (January 2001) incorporated into this filing by reference to Post-Effective Amendment No. 19 filed June 28, 2002. (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 Investment Company Act of 1940, as amended (the "1940 Act") for securities and similar investments of the Registrant, including the schedule of remuneration; (a) Executed Custodian Agreement (May 1, 1996) between JPMorgan Chase Bank and the Registrant incorporated into this filing by reference to Post-Effective Amendment No. 7 filed February 27, 1997 and Post-Effective Amendment No. 8 filed December 23, 1997. (i) Executed Amendment (July 1, 2001) to the Custodian Agreement between JPMorgan Chase Bank and the Registrant incorporated into this filing by reference to Post-Effective Amendment No. 19 filed June 28, 2002. (ii) Executed 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 Securities Lending Agreement (December 22, 1998) between JPMorgan Chase Bank and the Registrant incorporated into this filing by reference to Post-Effective Amendment No. 16 filed March 1, 2001. (i) Executed Amendment (October 1, 2002) to the Securities Lending Agreement between JPMorgan Chase Bank and the Registrant incorporated into this filing by reference to Post-Effective Amendment No. 20 filed December 31, 2002. (ii) Executed Amendment No.1 to Schedule A (July 17, 2003) of the Securities Lending Agreement between JPMorgan Chase Bank and the Registrant is filed electronically herewith as Exhibit No. EX.99.9.b.(ii). (10) Copies of any plan entered into by Registrant pursuant to Rule 12b-1 under 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 for A Class (April 19, 2001) incorporated into this filing by reference to Post-Effective Amendment No. 17 filed December 28, 2001. (b) Plan under Rule 12b-1 for B Class (April 19, 2001) incorporated into this filing by reference to Post-Effective Amendment No. 17 filed December 28, 2001. (c) Plan under Rule 12b-1 for C Class (April 19, 2001) incorporated into this filing by reference to Post-Effective Amendment No. 17 filed December 28, 2001. (d) Plan under Rule 12b-1 for R Class (May 1, 2003) incorporated into this filing by reference to Post-Effective Amendment No. 21 filed April 30, 2003. (e) Plan under Rule 18f-3 (May 1, 2003) incorporated into this filing by reference to Post-Effective Amendment No. 21 filed 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 incorporated into this filing by reference to Post-Effective Amendment No. 17 filed December 28, 2001. (i) Executed Amended Schedule A (June 28, 2002) to Shareholder Services Agreement incorporated into this filing by reference to Post-Effective Amendment No. 20 filed December 31, 2002. (ii) Executed Schedule B (May 16, 2002) to the Shareholder Services Agreement incorporated into this filing by reference to Post-Effective Amendment No. 19 filed June 28, 2002. (iii) Executed Amendment Letter (August 23, 2002) to the Shareholder Services Agreement is filed electronically herewith as Exhibit No. EX.99.13.a.(iii). (b) Executed Fund Accounting Agreement (August 19, 1996) between Delaware Service Company, Inc. and the Registrant incorporated into this filing by reference to Post-Effective Amendment No. 7 filed February 27, 1997. (i) Executed Amendment No. 27 (October 1, 2003) to Schedule A of Delaware Family of Funds Fund Accounting Agreement is filed herewith as Exhibit No. EX.99.13.b.(i). (ii) Executed Schedule B (May 16, 2002) to the Delaware Family of Funds Fund Accounting Agreement incorporated into this filing by reference to Post-Effective Amendment No. 19 filed June 28, 2002. (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, as amended (the "1933 Act" or "Securities 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 statement; and (a) 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 Delaware Investments Family of Funds incorporated into this filing by reference to Post-Effective Amendment No. 20 filed December 31, 2002. (b) Codes of Ethics for Delaware Management Company (a series of Delaware Management Business Trust) and Delaware Distributors, L.P. are 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. 21 filed April 30, 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 reofferings 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 shall be deemed to be the initial bona fide offering of them. (3) The undersigned Registrant agrees to file by Post-Effective Amendment the opinion of counsel regarding the tax consequences of the proposed reorganization required by Item 16(12) of Form N-14 within a reasonable time after receipt of such opinion. SIGNATURES As required by the Securities Act of 1933, as amended, (the "1933 Act") the registration statement has been signed on behalf of the registrant in the City of Philadelphia, and the Commonwealth of Pennsylvania on the 8th day of October, 2003. DELAWARE GROUP ADVISER FUNDS 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 Executive Officer) October 8, 2003 - ------------------------------------ and Trustee Jude T. Driscoll * Trustee October 8, 2003 - --------------------------------------------- Walter P. Babich * Trustee October 8, 2003 - --------------------------------------------- John H. Durham * Trustee October 8, 2003 - --------------------------------------------- John A. Fry * Trustee October 8, 2003 - --------------------------------------------- Anthony D. Knerr * Trustee October 8, 2003 - --------------------------------------------- Ann R. Leven * Trustee October 8, 2003 - --------------------------------------------- Thomas F. Madison * Trustee October 8, 2003 - --------------------------------------------- Janet L. Yeomans * Executive Vice President/Chief Financial October 8, 2003 - --------------------------------------------- Officer (Principal Accounting Officer) Joseph H. Hastings * By: Jude T. Driscoll ------------------------- Jude T. Driscoll as Attorney-in-Fact for each of the persons indicated
EXHIBIT NO. DESCRIPTION EX.99.7.a Executed Distribution Agreement (May 15, 2003) between Delaware Distributors, L.P. and the Registrant on behalf of each Class EX.99.7.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 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.b.(ii) Executed Amendment No.1 to Schedule A (July 17, 2003) of 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.(iii) Executed Amendment Letter (August 23, 2002) to the Shareholder Services Agreement EX.99.13.b.(i) Executed Amendment No. 27 to Schedule A (October 1, 2003) of the Delaware Family of Funds Fund Accounting Agreement. EX.99.14.a Consent of Ernst & Young LLP, independent auditors EX.99.16.a Power of Attorney EX.99.17.b Codes of Ethics for Delaware Management Company (a series of Delaware Management Business Trust) and Delaware Distributors, L.P. EX-99 3 ex99-7a.txt EXHIBIT 99.7.A DELAWARE GROUP ADVISER FUNDS DISTRIBUTION AGREEMENT Distribution Agreement (the "Agreement") made as of this 15th day of May, 2003 by and between DELAWARE GROUP ADVISER FUNDS, a Delaware business trust (the "Trust"), for the series identified on Schedule I attached hereto, as from time to time amended (the "Series"), and DELAWARE DISTRIBUTORS, L.P. (the "Distributor"), a Delaware limited partnership. WITNESSETH ---------- WHEREAS, the Trust is an investment company regulated by Federal and State regulatory bodies, and WHEREAS, the Distributor is engaged in the business of promoting the distribution of the securities of investment companies and, in connection therewith and acting solely as agent for such investment companies and not as principal, advertising, promoting, offering and selling their securities to the public, and WHEREAS, the Trust desires to enter into an agreement with the Distributor as of the date hereof, pursuant to which the Distributor shall serve as the national distributor of each class of each Series identified on Schedule I hereto, as from time to time amended, which Trust, Series and classes may do business under the names set forth on Schedule I hereto or such other names as the Board of Trustees may designate from time to time, on the terms and conditions set forth below. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. The Trust hereby engages the Distributor to promote the distribution of the shares of each Series and, in connection therewith and as agent for the Trust and not as principal, to advertise, promote, offer and sell shares of each Series to the public. 2. (a) The Distributor agrees to serve as distributor of each Series' shares and, as agent for the Trust and not as principal, to advertise, promote and use its best efforts to sell each Series' shares wherever their sale is legal, either through dealers or otherwise, in such places and in such manner, not inconsistent with the law and the provisions of this Agreement and the Trust's Registration Statement under the Securities Act of 1933, including the Prospectuses contained therein and the Statements of Additional Information contained therein, as may be mutually determined by the Trust and the Distributor from time to time. (b) For the Institutional Class Shares of each Series, the Distributor will bear all costs of financing any activity which is primarily intended to result in the sale of that class of shares, including, but not necessarily limited to, advertising, compensation of underwriters, dealers and sales personnel, the printing and mailing of sales literature and distribution of that class of shares. (c) For its services as agent for the Class A Shares, Class B Shares, Class C Shares and Class R Shares of each Series, the Distributor shall be entitled to compensation on each sale or redemption, as appropriate, of shares of such classes equal to any front-end or deferred sales charge described in the Prospectus for such Series, as amended and supplemented from time to time and may allow concessions to dealers in such amounts and on such terms as are therein set forth. (d) For the Class A Shares, Class B Shares, Class C Shares and Class R Shares of each Series, the Trust shall, in addition, compensate the Distributor for its services as provided in the Distribution Plan as adopted on behalf of the Class A Shares, Class B Shares, Class C Shares and Class R Shares, respectively, pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Plans"), copies of which as presently in force are attached hereto as Exhibits and at the rates set forth on Schedule I hereto, as from time to time amended, or at such lower rates as may be set from time to time by the Board in agreement with the Trust. 3. (a) The Trust agrees to make available for sale by the Trust through the Distributor all or such part of the authorized but unissued shares of beneficial interest of the Series as the Distributor shall require from time to time and, except as provided in Paragraph 3(b) hereof, the Trust will not sell Series' shares other than through the efforts of the Distributor. (b) The Trust reserves the right from time to time (1) to sell and issue shares other than for cash; (2) to issue shares in exchange for substantially all of the assets of any corporation or trust, or in exchange of shares of any corporation or trust; (3) to pay stock dividends to its shareholders, or to pay dividends in cash or shares of beneficial interest at the option of its shareholders, or to sell shares of beneficial interest to existing shareholders to the extent of dividends payable from time to time in cash, or to split up or combine its outstanding shares; (4) to offer shares for cash to its shareholders as a whole, by the use of transferable rights or otherwise, and to sell and issue shares pursuant to such offers; and (5) to act as its own distributor in any jurisdiction in which the Distributor is not registered as a broker-dealer. 4. The Distributor may, at its expense, select and contract with one or more registered broker-dealers to perform some or all of the services for a Series for which it is responsible under this agreement. The Distributor will be responsible for paying the compensation, if any, to any such broker-dealer for its services with respect to the Series. The Distributor may terminate the services of any such broker-dealer at any time in its sole discretion, and shall at such time assume the responsibilities of such broker-dealer unless or until a replacement is selected and approved by the Board of Trustees. The Distributor will continue to have responsibility for all distribution-related services furnished by any such broker-dealer. 5. The Trust warrants the following: (a) The Trust is, or will be, a properly registered investment company, and any and all Series' shares which it will sell through the Distributor are, or will be, properly registered with the Securities and Exchange Commission ("SEC"). (b) The provisions of this Agreement do not violate the terms of any instrument by which the Trust is bound, nor do they violate any law or regulation of any body having jurisdiction over the Trust or its property. 2 6. (a) The Trust will supply to the Distributor a conformed copy of the Registration Statement and all amendments thereto, including all exhibits and each Prospectus and Statement of Additional Information. (b) The Trust will register or qualify the Series' shares for sale in such states as is deemed desirable. (c) The Trust, without expense to the Distributor: (1) will give and continue to give such financial statements and other information as may be required by the SEC or the proper public bodies of the states in which the Series' shares may be qualified; (2) from time to time, will furnish to the Distributor as soon as reasonably practicable true copies of its periodic reports to shareholders; (3) will promptly advise the Distributor in person or by telephone or telegraph, and promptly confirm such advice in writing, (a) when any amendment or supplement to the Registration Statement becomes effective, (b) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectuses or for additional information, and (c) of the issuance by the SEC of any Stop Order suspending the effectiveness of the Registration Statement, or the initiation of any proceedings for that purpose; (4) if at any time the SEC shall issue any Stop Order suspending the effectiveness of the Registration Statement, will make every reasonable effort to obtain the lifting of such order at the earliest possible moment; (5) before filing any further amendment to the Registration Statement or to any Prospectus, will furnish to the Distributor copies of the proposed amendment and will not, at any time, whether before or after the effective date of the Registration Statement, file any amendment to the Registration Statement or supplement to any Prospectus of which the Distributor shall not previously have been advised or to which the Distributor shall reasonably object (based upon the accuracy or completeness thereof) in writing; (6) will continue to make available to its shareholders (and forward copies to the Distributor) of such periodic, interim and any other reports as are now, or as hereafter may be, required by the provisions of the Investment Company Act of 1940, as amended; and (7) will, for the purpose of computing the offering price of each class of each Series' shares, advise the Distributor within two hours after the close of the New York Stock Exchange (or as soon as practicable thereafter) on each business day upon which the New York Stock Exchange may be open of the net asset value per share of each class of each Series' shares of beneficial interest outstanding, determined in accordance with any applicable provisions of law and the provisions of the Agreement and Declaration of Trust, as amended, of the Trust as of the close of business on such business day. In the event that prices are to be calculated more than once daily, the Trust will promptly advise the Distributor of the time of each calculation and the price computed at each such time. 3 7. The Distributor agrees to submit to the Trust, prior to its use, the form of all sales literature proposed to be generally disseminated by or for the Distributor, all advertisements proposed to be used by the Distributor, all sales literature or advertisements prepared by or for the Distributor for such dissemination or for use by others in connection with the sale of the Series' shares, and the form of dealers' sales contract the Distributor intends to use in connection with sales of the Series' shares. The Distributor also agrees that the Distributor will submit such sales literature and advertisements to the NASD, SEC or other regulatory agency as from time to time may be appropriate, considering practices then current in the industry. The Distributor agrees not to use such form of dealers' sales contract or to use or to permit others to use such sales literature or advertisements without the written consent of the Trust if any regulatory agency expresses objection thereto or if the Trust delivers to the Distributor a written objection thereto. 8. The purchase price of each share sold hereunder shall be the offering price per share mutually agreed upon by the parties hereto and, as described in the Trust's Prospectuses, as amended from time to time, determined in accordance with any applicable provision of law, the provisions of its Agreement and Declaration of Trust and the Conduct Rules of NASD Regulation, Inc. 9. The responsibility of the Distributor hereunder shall be limited to the promotion of sales of Series' shares. The Distributor shall undertake to promote such sales solely as agent of the Trust, and shall not purchase or sell such shares as principal. Orders for Series' shares and payment for such orders shall be directed to the Trust's agent, Delaware Service Company, Inc., for acceptance on behalf of the Trust. The Distributor is not empowered to approve orders for sales of Series' shares or accept payment for such orders. Sales of Series' shares shall be deemed to be made when and where accepted by Delaware Service Company, Inc. on behalf of the Trust. 10. With respect to the apportionment of costs between the Trust and the Distributor of activities with which both are concerned, the following will apply: (a) The Trust and the Distributor will cooperate in preparing the Registration Statements, the Prospectuses, the Statements of Additional Information, and all amendments, supplements and replacements thereto. The Trust will pay all costs incurred in the preparation of the Trust's Registration Statement, including typesetting, the costs incurred in printing and mailing Prospectuses and Annual, Semi-Annual and other financial reports to its own shareholders and fees and expenses of counsel and accountants. (b) The Distributor will pay the costs incurred in printing and mailing copies of Prospectuses to prospective investors. (c) The Distributor will pay advertising and promotional expenses, including the costs of literature sent to prospective investors. (d) The Trust will pay the costs and fees incurred in registering or qualifying the Series' shares with the various states and with the SEC. 4 (e) The Distributor will pay the costs of any additional copies of Trust financial and other reports and other Trust literature supplied to the Distributor by the Trust for sales promotion purposes. 11. The Distributor may engage in other business, provided such other business does not interfere with the performance by the Distributor of its obligations under this Agreement. 12. The Trust agrees to indemnify, defend and hold harmless from the assets of the relevant Series the Distributor and each person, if any, who controls the Distributor within the meaning of Section 15 of the Securities Act of 1933, from and against any and all losses, damages, or liabilities to which, jointly or severally, the Distributor or such controlling person may become subject, insofar as the losses, damages or liabilities arise out of the performance of its duties hereunder, except that the Trust shall not be liable for indemnification of the Distributor or any controlling person thereof for any liability to the Trust or its shareholders to which they would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of their duties under this Agreement. 13. Copies of financial reports, Registration Statements and Prospectuses, as well as demands, notices, requests, consents, waivers, and other communications in writing which it may be necessary or desirable for either party to deliver or furnish to the other will be duly delivered or furnished, if delivered to such party at its address shown below during regular business hours, or if sent to that party by registered mail or by prepaid telegram filed with an office or with an agent of Western Union or another nationally recognized telegraph service, in all cases within the time or times herein prescribed, addressed to the recipient at One Commerce Square, Philadelphia, Pennsylvania 19103, or at such other address as the Trust or the Distributor may designate in writing and furnish to the other. 14. This Agreement shall not be assigned, as that term is defined in the Investment Company Act of 1940, by the Distributor and shall terminate automatically in the event of its attempted assignment by the Distributor. This Agreement shall not be assigned by the Trust without the written consent of the Distributor signed by its duly authorized officers and delivered to the Trust. Except as specifically provided in the indemnification provision contained in Paragraph 11 herein, this Agreement and all conditions and provisions hereof are for the sole and exclusive benefit of the parties hereto and their legal successors and no express or implied provision of this Agreement is intended or shall be construed to give any person other than the parties hereto and their legal successors any legal or equitable right, remedy or claim under or in respect of this Agreement or any provisions herein contained. 15. (a) This Agreement shall be executed and become effective as of the date first written above, and shall become effective with respect to a particular Series as of the effective date set forth in Schedule I for that Series. It shall remain in force for a period of two years from the date hereof for each Series and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by the Board of Trustees or, with respect to each Series, by vote of a majority of the outstanding voting securities of that Series and only if the terms and the renewal thereof have been approved by the vote of a majority of the Trustees of the Trust who are not parties hereto or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. 5 (b) The Distributor may terminate this Agreement as to any Series on written notice to the Trust at any time in case the effectiveness of the Registration Statement shall be suspended, or in case Stop Order proceedings are initiated by the SEC in respect of the Registration Statement and such proceedings are not withdrawn or terminated within thirty days. The Distributor may also terminate this Agreement as to any Series at any time by giving the Trust written notice of its intention to terminate the Agreement at the expiration of three months from the date of delivery of such written notice of intention to the Trust. (c) The Trust may terminate this Agreement as to any Series at any time on at least thirty days' prior written notice to the Distributor (1) if proceedings are commenced by the Distributor or any of its partners for the Distributor's liquidation or dissolution or the winding up of the Distributor's affairs; (2) if a receiver or trustee of the Distributor or any of its property is appointed and such appointment is not vacated within thirty days thereafter; (3) if, due to any action by or before any court or any federal or state commission, regulatory body, or administrative agency or other governmental body, the Distributor shall be prevented from selling securities in the United States or because of any action or conduct on the Distributor's part, sales of the shares are not qualified for sale. The Trust may also terminate this Agreement as to any Series at any time upon prior written notice to the Distributor of its intention to so terminate at the expiration of three months from the date of the delivery of such written notice to the Distributor. 16. The validity, interpretation and construction of this Agreement, and of each part hereof, will be governed by the laws of the Commonwealth of Pennsylvania. 17. In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of the Agreement, which shall continue to be in force. DELAWARE DISTRIBUTORS, L.P. DELAWARE DISTRIBUTORS, INC., General Partner By: Jude T. Driscoll --------------------------------------- Name: Jude T. Driscoll Title: President/Chief Executive Officer DELAWARE GROUP ADVISER FUNDS on behalf of the Series listed on Schedule I By: David K. Downes ---------------------------------------- Name: David K. Downes Title: President/Chief Executive Officer/ Chief Financial Officer 6 EXHIBIT A CLASS A DISTRIBUTION PLAN The following Distribution Plan (the "Plan") has been adopted pursuant to Rule l2b-l under the Investment Company Act of 1940, as amended (the "Act"), by Delaware Group Adviser Funds (the "Trust"), separately for each Series of the Trust identified on Schedule I as amended from time to time (the "Series") on behalf of the A Class shares of each such Series identified on Schedule I as amended from time to time (the "Class"), which Trust, Series and Classes may do business under these or such other names as the Board of Trustees of the Trust may designate from time to time. The Plan has been approved by a majority of the Board of Trustees, including a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related thereto ("non-interested Trustees"), cast in person at a meeting called for the purpose of voting on such Plan. Such approval by the Trustees included a determination that in the exercise of reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit each such Series and shareholders of each such Class. The Trust is a business trust organized under the laws of the State of Delaware, is authorized to issue different series and classes of securities and is an open-end management investment company registered under the Act. Delaware Distributors, L.P. (the "Distributor") is the principal underwriter and national distributor for the Series' shares, including shares of the Class, pursuant to the Distribution Agreement between the Distributor and the Trust on behalf of each Series ("Distribution Agreement"). The Plan provides that: l. The Trust shall pay to the Distributor, out of the assets of a particular Class, a monthly fee not to exceed the fee rate set forth on Schedule I for such Class as may be determined by the Trust's Board of Trustees from time to time. Such monthly fee shall be reduced by the aggregate sums paid by the Trust on behalf of the Series to persons other than broker-dealers (the "Service Providers") who may, pursuant to servicing agreements, provide to the Series services in the Series' marketing of shares of the Class. 2. (a) The Distributor shall use the monies paid to it pursuant to paragraph l above to furnish, or cause or encourage others to furnish, services and incentives in connection with the promotion, offering and sale of the relevant Class shares and, where suitable and appropriate, the retention of such Class shares by shareholders. (b) The Service Providers shall use the monies paid respectively to them to reimburse themselves for the actual costs they have incurred in confirming that their customers have received the Prospectus and Statement of Additional Information, if applicable, and as a fee for (l) assisting such customers in maintaining proper records with the Trust, (2) answering questions relating to their respective accounts, and (3) aiding in maintaining the investment of their respective customers in the Class. 3. The Distributor shall report to the Trust at least monthly on the amount and the use of the monies paid to it under the Plan. The Service Providers shall inform the Trust monthly and in writing of the amounts each claims under the Plan; both the Distributor and the Service Providers shall furnish the Board of Trustees of the Trust with such other information as the Board may reasonably request in connection with the payments made under the Plan and the use thereof by the Distributor and the Service Providers, respectively, in order to enable the Board to make an informed determination of the amount of the Trust" payments with respect to each Class and whether the Plan should be continued with respect to each Class. A-1 4. The officers of the Trust shall furnish to the Board of Trustees of the Trust, for their review, on a quarterly basis, a written report of the amounts expended under the Plan with respect to each Class and the purposes for which such expenditures were made. 5. This Plan shall take effect with respect to the A Class of a particular Series as of the effective date set forth on Schedule I (the "Commencement Date"); thereafter, the Plan shall continue in effect with respect to the A Class of a particular Series for a period of more than one year from the Commencement Date only so long as such continuance is specifically approved at least annually by a vote of the Board of Trustees of the Trust, and of the non-interested Trustees, cast in person at a meeting called for the purpose of voting on such Plan. 6. (a) The Plan may be terminated as to the A Class of any particular Series at any time by vote of a majority of the non-interested Trustees or by vote of a majority of the outstanding voting securities of such Class. (b) The Plan may not be amended as to the A Class of any particular Series to increase materially the amount to be spent for distribution pursuant to paragraph l hereof without approval by the shareholders of such Class. 7. All material amendments to this Plan shall be approved by the non-interested Trustees in the manner described in paragraph 5 above. 8. So long as the Plan is in effect, the selection and nomination of the Trust's non-interested Trustees shall be committed to the discretion of such non-interested Trustees. 9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the Act shall govern the meaning of "interested person(s)" and "vote of a majority of the outstanding voting securities," respectively, for the purposes of this Plan. This Plan shall take effect on the Commencement Date, as previously defined. April 19, 2001 A-2 EXHIBIT B CLASS B DISTRIBUTION PLAN The following Distribution Plan (the "Plan") has been adopted pursuant to Rule l2b-l under the Investment Company Act of 1940, as amended (the "Act"), by Delaware Group Adviser Funds (the "Trust"), separately for each Series of the Trust identified on Schedule I as amended from time to time (the "Series") on behalf of the B Class shares of each such Series identified on Schedule I as amended from time to time (the "Class"), which Trust, Series and Classes may do business under these or such other names as the Board of Trustees of the Trust may designate from time to time. The Plan has been approved by a majority of the Board of Trustees, including a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related thereto ("non-interested Trustees"), cast in person at a meeting called for the purpose of voting on such Plan. Such approval by the Trustees included a determination that in the exercise of reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit each such Series and shareholders of each such Class. The Trust is a business trust organized under the laws of the State of Delaware, is authorized to issue different series and classes of securities and is an open-end management investment company registered under the Act. Delaware Distributors, L.P. (the "Distributor") is the principal underwriter and national distributor for the Series' shares, including shares of the Class, pursuant to the Distribution Agreement between the Distributor and the Trust on behalf of each Series ("Distribution Agreement"). The Plan provides that: l. (a) The Trust shall pay to the Distributor, out of the assets of a particular Class, a monthly fee not to exceed the fee rate set forth on Schedule I for such Class as may be determined by the Trust's Board of Trustees from time to time. (b) In addition to the amounts described in (a) above, the Trust shall pay (i) to the Distributor for payment to dealers or others, or (ii) directly to others, an amount not to exceed the service fee rate set forth on Schedule I for such Class, as a service fee pursuant to dealer or servicing agreements. 2. (a) The Distributor shall use the monies paid to it pursuant to paragraph l (a) above to assist in the distribution and promotion of shares of the relevant Class. Payments made to the Distributor under the Plan may be used for, among other things, preparation and distribution of advertisements, sales literature and prospectuses and reports used for sales purposes, as well as compensation related to sales and marketing personnel, and holding special promotions. In addition, such fees may be used to pay for advancing the commission costs to dealers with respect to the sale of the relevant Class shares. (b) The monies to be paid pursuant to paragraph 1(b) above shall be used to pay dealers or others for, among other things, furnishing personal services and maintaining shareholder accounts, which services include confirming that customers have received the Prospectus and Statement of Additional Information, if applicable; assisting such customers in maintaining proper records with the Trust; answering questions relating to their respective accounts; and aiding in maintaining the investment of their respective customers in the relevant Class. B-1 3. The Distributor shall report to the Trust at least monthly on the amount and the use of the monies paid to it under paragraph 1(a) above. In addition, the Distributor and others shall inform the Trust monthly and in writing of the amounts paid under paragraph 1(b) above; both the Distributor and any others receiving fees under the Plan shall furnish the Board of Trustees of the Trust with such other information as the Board may reasonably request in connection with the payments made under the Plan with respect to each Class and the use thereof by the Distributor and others in order to enable the Board to make an informed determination of the amount of the Trust's payments and whether the Plan should be continued with respect to each Class. 4. The officers of the Trust shall furnish to the Board of Trustees of the Trust, for their review, on a quarterly basis, a written report of the amounts expended under the Plan with respect to each Class and the purposes for which such expenditures were made. 5. This Plan shall take effect with respect to the B Class of a particular Series as of the effective date set forth on Schedule I (the "Commencement Date"); thereafter, the Plan shall continue in effect with respect to the B Class of a particular Series for a period of more than one year from the Commencement Date only so long as such continuance is specifically approved at least annually by a vote of the Board of Trustees of the Trust, and of the non-interested Trustees, cast in person at a meeting called for the purpose of voting on such Plan. 6. (a) The Plan may be terminated as to the B Class of any particular Series at any time by vote of a majority of the non-interested Trustees or by vote of a majority of the outstanding voting securities of such Class. (b) The Plan may not be amended as to the B Class of any particular Series to increase materially the amount to be spent for distribution pursuant to paragraph l hereof without approval by the shareholders of such Class. 7. All material amendments to this Plan shall be approved by the non-interested Trustees in the manner described in paragraph 5 above. 8. So long as the Plan is in effect, the selection and nomination of the Trust's non-interested Trustees shall be committed to the discretion of such non-interested Trustees. 9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the Act shall govern the meaning of "interested person(s)" and "vote of a majority of the outstanding voting securities," respectively, for the purposes of this Plan. This Plan shall take effect on the Commencement Date, as previously defined. April 19, 2001 B-2 EXHIBIT C CLASS C DISTRIBUTION PLAN The following Distribution Plan (the "Plan") has been adopted pursuant to Rule l2b-l under the Investment Company Act of 1940, as amended (the "Act"), by Delaware Group Adviser Funds (the "Trust"), separately for each Series of the Trust identified on Schedule I as amended from time to time (the "Series") on behalf of the C Class shares of each such Series identified on Schedule I as amended from time to time (the "Class"), which Trust, Series and Classes may do business under these or such other names as the Board of Trustees of the Trust may designate from time to time. The Plan has been approved by a majority of the Board of Trustees, including a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related thereto ("non-interested Trustees"), cast in person at a meeting called for the purpose of voting on such Plan. Such approval by the Trustees included a determination that in the exercise of reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit each such Series and shareholders of each such Class. The Trust is a business trust organized under the laws of the State of Delaware, is authorized to issue different series and classes of securities and is an open-end management investment company registered under the Act. Delaware Distributors, L.P. (the "Distributor") is the principal underwriter and national distributor for the Series' shares, including shares of the Class, pursuant to the Distribution Agreement between the Distributor and the Trust on behalf of each Series ("Distribution Agreement"). The Plan provides that: l. (a) The Trust shall pay to the Distributor, out of the assets of a particular Class, a monthly fee not to exceed the fee rate set forth on Schedule I for such Class as may be determined by the Trust's Board of Trustees from time to time. (b) In addition to the amounts described in (a) above, the Trust shall pay (i) to the Distributor for payment to dealers or others, or (ii) directly to others, an amount not to exceed the service fee rate set forth on Schedule I for such Class, as a service fee pursuant to dealer or servicing agreements. 2. (a) The Distributor shall use the monies paid to it pursuant to paragraph l (a) above to assist in the distribution and promotion of shares of the relevant Class. Payments made to the Distributor under the Plan may be used for, among other things, preparation and distribution of advertisements, sales literature and prospectuses and reports used for sales purposes, as well as compensation related to sales and marketing personnel, and holding special promotions. In addition, such fees may be used to pay for advancing the commission costs to dealers with respect to the sale of the relevant Class shares. (b) The monies to be paid pursuant to paragraph 1(b) above shall be used to pay dealers or others for, among other things, furnishing personal services and maintaining shareholder accounts, which services include confirming that customers have received the Prospectus and Statement of Additional Information, if applicable; assisting such customers in maintaining proper records with the Trust; answering questions relating to their respective accounts; and aiding in maintaining the investment of their respective customers in the relevant Class. 3. The Distributor shall report to the Trust at least monthly on the amount and the use of the monies paid to it under paragraph 1(a) above. In addition, the Distributor and others shall inform the Trust monthly and in writing of the amounts paid under paragraph 1(b) above; both the Distributor and any others receiving fees under the Plan shall furnish the Board of Trustees of the Trust with such other information as the Board may reasonably request in connection with the payments made under the Plan with respect to each Class and the use thereof by the Distributor and others in order to enable the Board to make an informed determination of the amount of the Trust's payments and whether the Plan should be continued with respect to each Class. C-1 4. The officers of the Trust shall furnish to the Board of Trustees of the Trust, for their review, on a quarterly basis, a written report of the amounts expended under the Plan with respect to each Class and the purposes for which such expenditures were made. 5. This Plan shall take effect with respect to the C Class of a particular Series as of the effective date set forth on Schedule I (the "Commencement Date"); thereafter, the Plan shall continue in effect with respect to the C Class of a particular Series for a period of more than one year from the Commencement Date only so long as such continuance is specifically approved at least annually by a vote of the Board of Trustees of the Trust, and of the non-interested Trustees, cast in person at a meeting called for the purpose of voting on such Plan. 6. (a) The Plan may be terminated as to the C Class of any particular Series at any time by vote of a majority of the non-interested Trustees or by vote of a majority of the outstanding voting securities of such Class. (b) The Plan may not be amended as to the C Class of any particular Series to increase materially the amount to be spent for distribution pursuant to paragraph l hereof without approval by the shareholders of such Class. 7. All material amendments to this Plan shall be approved by the non-interested Trustees in the manner described in paragraph 5 above. 8. So long as the Plan is in effect, the selection and nomination of the Trust's non-interested Trustees shall be committed to the discretion of such non-interested Trustees. 9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the Act shall govern the meaning of "interested person(s)" and "vote of a majority of the outstanding voting securities," respectively, for the purposes of this Plan. This Plan shall take effect on the Commencement Date, as previously defined. April 19, 2001 C-2 EXHIBIT D CLASS R DISTRIBUTION PLAN The following Distribution Plan (the "Plan") has been adopted pursuant to Rule l2b-l under the Investment Company Act of 1940, as amended (the "Act"), by Delaware Group Adviser Funds (the "Trust"), separately for each Series of the Trust identified on Schedule I as amended from time to time (the "Series") on behalf of the R Class shares of each such Series identified on Schedule I as amended from time to time (the "Class"), which Trust, Series and Classes may do business under these or such other names as the Board of Trustees of the Trust may designate from time to time. The Plan has been approved by a majority of the Board of Trustees, including a majority of the Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related thereto ("non-interested Trustees"), cast in person at a meeting called for the purpose of voting on such Plan. Such approval by the Trustees included a determination that in the exercise of reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit each such Series and shareholders of each such Class. The Trust is a business trust organized under the laws of the State of Delaware, is authorized to issue different series and classes of securities and is an open-end management investment company registered under the Act. Delaware Distributors, L.P. (the "Distributor") is the principal underwriter and national distributor for the Series' shares, including shares of the Class, pursuant to the Distribution Agreement between the Distributor and the Trust on behalf of each Series ("Distribution Agreement"). The Plan provides that: l. The Trust shall pay to the Distributor, out of the assets of a particular Class, a monthly fee not to exceed the fee rate set forth on Schedule I for such Class as may be determined by the Trust's Board of Trustees from time to time. Such monthly fee shall be reduced by the aggregate sums paid by the Trust on behalf of the Series to persons other than broker-dealers (the "Service Providers") who may, pursuant to servicing agreements, provide to the Series services in the Series' marketing of shares of the Class. 2. (a) The Distributor shall use the monies paid to it pursuant to paragraph l above to furnish, or cause or encourage others to furnish, services and incentives in connection with the promotion, offering and sale of the relevant Class shares and, where suitable and appropriate, the retention of such Class shares by shareholders. (b) The Service Providers shall use the monies paid respectively to them to reimburse themselves for the actual costs they have incurred in confirming that their customers have received the Prospectus and Statement of Additional Information, if applicable, and as a fee for (l) assisting such customers in maintaining proper records with the Trust, (2) answering questions relating to their respective accounts, and (3) aiding in maintaining the investment of their respective customers in the Class. 3. The Distributor shall report to the Trust at least monthly on the amount and the use of the monies paid to it under the Plan. The Service Providers shall inform the Trust monthly and in writing of the amounts each claims under the Plan; both the Distributor and the Service Providers shall furnish the Board of Trustees of the Trust with such other information as the Board may reasonably request in connection with the payments made under the Plan and the use thereof by the Distributor and the Service Providers, respectively, in order to enable the Board to make an informed determination of the amount of the Trust" payments with respect to each Class and whether the Plan should be continued with respect to each Class. D-1 4. The officers of the Trust shall furnish to the Board of Trustees of the Trust, for their review, on a quarterly basis, a written report of the amounts expended under the Plan with respect to each Class and the purposes for which such expenditures were made. 5. This Plan shall take effect with respect to the R Class of a particular Series as of the effective date set forth on Schedule I (the "Commencement Date"); thereafter, the Plan shall continue in effect with respect to the R Class of a particular Series for a period of more than one year from the Commencement Date only so long as such continuance is specifically approved at least annually by a vote of the Board of Trustees of the Trust, and of the non-interested Trustees, cast in person at a meeting called for the purpose of voting on such Plan. 6. (a) The Plan may be terminated as to the R Class of any particular Series at any time by vote of a majority of the non-interested Trustees or by vote of a majority of the outstanding voting securities of such Class. (b) The Plan may not be amended as to the R Class of any particular Series to increase materially the amount to be spent for distribution pursuant to paragraph l hereof without approval by the shareholders of such Class. 7. All material amendments to this Plan shall be approved by the non-interested Trustees in the manner described in paragraph 5 above. 8. So long as the Plan is in effect, the selection and nomination of the Trust's non-interested Trustees shall be committed to the discretion of such non-interested Trustees. 9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the Act shall govern the meaning of "interested person(s)" and "vote of a majority of the outstanding voting securities," respectively, for the purposes of this Plan. This Plan shall take effect on the Commencement Date, as previously defined. May 15, 2003 D-2 SCHEDULE I This Schedule to the Distribution Agreement between Delaware Group Adviser Funds and Delaware Distributors, L.P. entered into as of May 15, 2003 (the "Agreement") lists the Series and Classes for which Delaware Distributors, L.P. provides distribution services pursuant to this Agreement, along with the 12b-1 Plan rates, if applicable, for each class and the date on which the Agreement became effective for each Series.
- -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- Portion designated as Total 12b-1 Plan Fee Service Fee Rate (per Rate (per annum of the annum of the Series' Series' average daily average daily net net assets represented assets represented by Series Name Class Names by shares of the Class) shares of the Class) Effective Date - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- Delaware Diversified Income Fund A Class .30% June 28, 2002 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- B Class .75% .25% June 28, 2002 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- C Class .75% .25% June 28, 2002 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- R Class .60% May 15, 2003 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- Institutional Class June 28, 2002 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- Delaware U.S. Growth Fund A Class .35% April 19, 2001 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- B Class 1.00% .25% April 19, 2001 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- C Class 1.00% .25% April 19, 2001 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- R Class .60% May 15, 2003 - -------------------------------------- --------------------- -------------------------- ------------------------- ----------------- Institutional Class April 19, 2001 - -------------------------------------- --------------------- -------------------------- ------------------------- -----------------
I-1 EX-99 4 ex99-7b.txt EXHIBIT 99.7.B SECOND AMENDED AND RESTATED FINANCIAL INTERMEDIARY DISTRIBUTION AGREEMENT Second Financial Intermediary Distribution Agreement (the "Agreement") made as of this 21st day of August, 2003, by and between DELAWARE DISTRIBUTORS, L.P. ("DDLP"), Delaware limited partnership, and LINCOLN FINANCIAL DISTRIBUTORS, INC. ("LFD"), a Connecticut corporation. WITNESSETH WHEREAS, DDLP serves as the distributor of a number of investment companies (individually a "Fund" and, collectively, the "Funds") registered under the Investment Company Act of 1940, as amended (the "1940 Act"), pursuant to distribution agreements between each Fund and DDLP; and WHEREAS, pursuant to the aforementioned distribution agreements, each Fund has engaged DDLP to promote the distribution of its shares and, in connection therewith and as agent for the Fund and not as principal, to advertise, promote, offer and sell the Fund's shares to the public; and WHEREAS, DDLP desires to enter into an agreement with LFD pursuant to which LFD shall: (i) promote the sale of the Funds' shares through broker/dealers, financial advisers and other financial intermediaries (collectively "Financial Intermediaries"); (ii) create messaging and packaging for certain non-regulatory sales and marketing materials related to the Funds; and (iii) produce such non-regulatory sales and marketing materials related to the Funds. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. DDLP hereby engages LFD to promote the sale of shares of each Fund and each investment portfolio thereof listed in Appendix A hereto (as revised from time to time) through Financial Intermediaries, and to create and produce non-regulatory sales and marketing materials related to the Funds as set forth herein. 2. LFD agrees to use its best efforts to promote the sale of the Funds' shares designated by DDLP to retail investors through Financial Intermediaries wherever their sale is legal, in such places and in such manner, not inconsistent with the law and the provisions of this Agreement and the Funds' Registration Statements under the Securities Act of 1933, including the Prospectuses and Statements of Additional Information contained therein. 3. LFD represents and warrants that it is, and shall remain at all times during the effectiveness of this Agreement, a broker/dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and qualified under applicable state securities laws in each jurisdiction in which LFD may be required to be qualified to act as a broker/dealer in securities, and a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"). DDLP represents and warrants that it is, and shall remain at all times during the effectiveness of this Agreement, a broker/dealer registered under the Exchange Act and qualified under applicable state securities laws in each jurisdiction in which DDLP may be required to be qualified to act as a broker/dealer in securities, and a member in good standing of the NASD. 4. DDLP will provide LFD with: (a) copies of the current Prospectuses and Statements of Additional Information for each Fund, including all supplements thereto; (b) copies of each Fund's periodic reports to shareholders as soon as reasonably practicable after DDLP receives such reports from the Fund; (c) technical language, data, and product content, product positioning recommendations and sales ideas with respect to the Funds; (d) Fund-related materials prepared by DDLP and designated for internal use only (subject to the terms and conditions established from time to time by DDLP); and (e) prompt notice of the issuance by the Securities and Exchange Commission (the "SEC") of any stop order suspending the effectiveness of the Registration Statement of any Fund, or the initiation of any proceedings for that purpose. 5. LFD shall create and produce non-regulatory, non-shareholder materials for, about, or related to, the Funds ("Advertising Materials"). DDLP shall provide product information to LFD, including information related to product descriptions, strategic positioning and product management. LFD shall use such information when developing the creative messaging, look and feel, layout and packaging of the advertising materials. LFD agrees to submit to DDLP, prior to its use, the form of any Advertising Materials prepared by LFD and proposed to be generally disseminated by or for LFD, all Advertising Materials prepared by LFD and proposed to be used by LFD, and all Advertising Materials prepared by or for LFD for such dissemination or for use by others in connection with the sale of the Funds' shares. LFD also agrees that LFD will file or submit such Advertising Materials to the NASD, SEC or other regulatory agency as from time to time may be appropriate, considering practices then current in the industry. LFD agrees not to use or to permit others to use such Advertising Materials without the prior written consent of DDLP if any regulatory agency expresses objection thereto or if DDLP delivers to LFD a written objection thereto. LFD shall not be responsible for or authorized to prepare materials relating to the Funds for the purpose of satisfying regulatory requirements, including, but not limited to, Prospectuses and Statements of Additional Information and periodic shareholder reports. DDLP and LFD agree to work together in good faith to resolve any disagreements between DDLP and LFD about or objections by DDLP to Advertising Materials prepared by LFD. 6. The responsibility of LFD hereunder shall be limited to the promotion of sales of the Funds' shares through Financial Intermediaries, and the creation and production of non-regulatory sales and marketing materials. LFD is not empowered to approve orders for sales of the Funds' shares or to accept payment for such orders. Sales of a Fund's shares shall be deemed to be made when and where accepted by the Fund's transfer agent on behalf of the Fund. 7. In consideration for the services provided by LFD under this Agreement, DDLP shall pay LFD the compensation set forth on Schedule A to this Agreement. 8. With respect to the apportionment of costs between DDLP and LFD associated with activities with which both are concerned, the following will apply: (a) DDLP will pay the costs incurred in printing and mailing copies of Fund Prospectuses and shareholder reports to prospective investors; (b) DDLP will pay the costs of any additional copies of Fund financial and other reports and other Fund literature supplied to DDLP by the Fund for sales promotion purposes; (c) DDLP will bear the expense of the Advertising Materials that relate exclusively to the Funds; 2 (d) DDLP and LFD will jointly bear the expense of advertising and promotional activities and materials relating both to the Funds and to the other products distributed by LFD, the apportionment of such expenses to be agreed upon by DDLP and LFD from time to time; and (e) The parties will agree to apportion other costs and expenses between DDLP and LFD as necessary and as mutually agreed from time to time. 9. Both DDLP and LFD may engage in other business, provided such other business does not interfere with the performance by DDLP and LFD of their respective obligations under this Agreement. 10. DDLP agrees to indemnify, defend and hold LFD harmless from and against any and all losses, damages, or liabilities to which LFD may become subject by reason of DDLP's willful misfeasance, bad faith, or gross negligence in the performance of its duties under this Agreement. LFD agrees to indemnify, defend and hold DDLP harmless from and against any and all losses, damages, or liabilities to which DDLP may become subject by reason of LFD's willful misfeasance, bad faith, or gross negligence in the performance of its duties under this Agreement. 11. Copies of financial reports, Registration Statements and Prospectuses, as well as demands, notices, requests, consents, waivers, and other communications in writing which it may be necessary or desirable for either party to deliver or furnish to the other will be duly delivered or furnished, if delivered to such party at 2005 Market Street, Philadelphia, Pennsylvania 19103-7094, or at such other address as DDLP or LFD may designate in writing and furnish to the other. 12. This Agreement shall not be assigned, as that term is defined in the 1940 Act, by LFD and shall terminate automatically in the event of its attempted assignment by LFD. This Agreement will automatically terminate with respect to a Fund upon the termination of the distribution agreement between DDLP and the Fund. This Agreement will automatically terminate with respect to all Funds in the event that LFD ceases to be a broker/dealer registered under the Exchange Act or a member in good standing of the NASD. Except as specifically provided in the indemnification provision contained in Paragraph 10 herein, this Agreement and all conditions and provisions hereof are for the sole and exclusive benefit of the parties hereto and their legal successors and no express or implied provision of this Agreement is intended or shall be construed to give any person other than the parties hereto and their legal successors any legal or equitable right, remedy or claim under or in respect of this Agreement or any provisions herein contained. 13. (a) This Agreement shall remain in force with respect to a Fund for a period of two year from the date hereof and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by the Board of Directors/Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Fund and only if the terms and the renewal thereof have been approved by the vote of a majority of the Directors/Trustees of the Fund who are not parties hereto or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. 3 (b) LFD may terminate this Agreement at any time by giving DDLP written notice of its intention to terminate the Agreement at the expiration of three months from the date of delivery of such written notice of intention to DDLP. (c) DDLP may terminate this Agreement at any time upon prior written notice to LFD of its intention to so terminate at the expiration of three months from the date of the delivery of such written notice to LFD. (d) The Board of Directors/Trustees of a Fund may terminate this Agreement with respect to the Fund at any time upon prior written notice to DDLP and/or LFD of its intention to so terminate at the expiration of three months from the date of delivery of such written notice to DDLP and/or LFD. 14. The validity, interpretation and construction of this Agreement, and of each part hereof, will be governed by the laws of the Commonwealth of Pennsylvania. 15. In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of the Agreement, which shall continue to be in force. DELAWARE DISTRIBUTORS, L.P. LINCOLN FINANCIAL DISTRIBUTORS, By: DELAWARE DISTRIBUTORS, INC., INC. General Partner By: By: --------------------------------- ------------------------------ Name: Name: Title: Title: 4 SCHEDULE A to SECOND AMENDED AND RESTATED FINANCIAL INTERMEDIARY DISTRIBUTION AGREEMENT The fees payable by DDLP to LFD under this Schedule A shall be calculated and paid monthly. I. Fees with respect to sales of shares of Funds other than Delaware VIP Trust With respect to each sale through Financial Intermediaries on or after the date of this Agreement, a non-recurring fee equal to the amount shown below will be paid by DDLP to LFD. Basis points On Sales --------------- Retail Mutual Funds except as noted below (1) .50% Merrill Lynch Connect Program .25% Registered Investment Advisers and .45% H.D. Vest Institutional Classes Citigroup Global Capital Markets, Inc. 0 (formerly Salomon Smith Barney) International Equity Fund I Class (1) - A, B, & C classes excluding money market, house accounts, market timers In addition to the non-recurring fee set forth above, a fee at the annual rate set forth below of the average daily net assets of Fund shares outstanding and beneficially owned by shareholders through Financial Intermediaries, including those Fund shares sold before the date of this Agreement, will be paid by DDLP to LFD. Basis points On Assets --------------- Retail Mutual Funds (including money market, house .04% accounts and market timers) Merrill Lynch Connect Program 0 Registered Investment Advisers and .04% H.D. Vest Institutional Classes Citigroup Global Capital Markets, Inc. .04% (formerly Salomon Smith Barney) International Equity Fund I Class II. Fees with respect to the Sale of Delaware VIP Trust shares through Allmerica Variable Products. With respect to each sale of Delaware VIP Trust shares on or after the date of this Agreement through variable annuity and variable life insurance products for which Allmerica Investments, Inc. ("Allmerica") is the principal underwriter ("Allmerica Variable Products"), a non-recurring fee equal to the entire distribution allowance received by DDLP from Allmerica with respect to such sale. No other fees will be payable to LFD with respect to sales of Delaware VIP Trust shares. 5 APPENDIX A to SECOND AMENDED AND RESTATED FINANCIAL INTERMEDIARY DISTRIBUTION AGREEMENT
Delaware Group Adviser Funds Delaware Group Income Funds Delaware Diversified Income Fund Delaware Corporate Bond Fund Delaware U.S. Growth Fund Delaware Delchester Fund Delaware Extended Duration Bond Fund Delaware Group Cash Reserve Delaware High-Yield Opportunities Fund Delaware Cash Reserve Fund Delaware Strategic Income Fund Delaware Group Equity Funds I Delaware Group Limited-Term Government Funds Delaware Balanced Fund Delaware Limited-Term Government Fund Delaware Devon Fund Delaware Group State Tax-Free Income Trust II Delaware Group Equity Funds II Delaware Tax-Free Pennsylvania Fund Delaware Decatur Equity Income Fund Delaware Diversified Value Fund Delaware Group Tax-Free Fund Delaware Growth and Income Fund Delaware Tax-Free Insured Fund Delaware Social Awareness Fund Delaware Tax-Free USA Fund Delaware Tax-Free USA Intermediate Delaware Group Equity Funds III Delaware American Services Fund Delaware Group Tax-Free Money Fund Delaware Focused Growth Fund Delaware Tax-Free Money Fund Delaware Focused Value Fund Delaware Health Care Fund Delaware Pooled Trust Delaware Small Cap Growth Fund The International Equity Portfolio Delaware Technology and Innovation Fund The Real Estate Investment Trust Portfolio II Delaware Trend Fund Delaware VIP Trust Delaware Group Equity Funds IV Delaware VIP Balanced Series Delaware Diversified Growth Fund Delaware VIP Capital Reserves Series Delaware Growth Opportunities Fund Delaware VIP Cash Reserve Series Delaware VIP Emerging Markets Series Delaware Group Equity Funds V Delaware VIP Global Bond Series Delaware Retirement Income Fund Delaware VIP Growth Opportunities Series Delaware Small Cap Contrarian Fund Delaware VIP High Yield Series Delaware Small Cap Value Fund Delaware VIP International Value Equity Series Delaware VIP REIT Series Delaware Group Foundation Funds Delaware VIP Select Growth Series Delaware Balanced Allocation Portfolio Delaware VIP Small Cap Value Series Delaware Growth Allocation Portfolio Delaware VIP Social Awareness Series Delaware Income Allocation Portfolio Delaware Trend Fund Delaware S&P 500 Index Fund Delaware U.S. Growth Fund
Delaware Group Global & International Funds Voyageur Insured Funds Delaware Emerging Markets Fund Delaware Tax-Free Minnesota Insured Fund Delaware International Small Cap Value Fund Delaware Tax-Free Arizona Insured Fund Delaware International Value Equity Fund Voyageur Intermediate Tax-Free Funds Delaware Group Government Fund Delaware Tax-Free Minnesota Intermediate Fund Delaware American Government Bond Fund Voyageur Mutual Funds II Voyageur Investment Trust Delaware Tax-Free Colorado Fund Delaware Tax-Free California Insured Fund Delaware Tax-Free Florida Fund Voyageur Mutual Funds III Delaware Tax-Free Florida Insured Fund Delaware Core Equity Fund Delaware Tax-Free Missouri Insured Fund Delaware Select Growth Fund Delaware Tax-Free Oregon Insured Fund Voyageur Tax Free Funds Voyageur Mutual Funds Delaware Tax-Free Minnesota Fund Delaware Minnesota High-Yield Municipal Bond Fund Delaware National High-Yield Municipal Bond Fund Delaware Tax-Free Arizona Fund Delaware Tax-Free California Fund Delaware Tax-Free Idaho Fund Delaware Tax-Free New York Fund
Agreed to and accepted: DELAWARE DISTRIBUTORS, L.P. LINCOLN FINANCIAL DISTRIBUTORS, By: DELAWARE DISTRIBUTORS, INC., INC. General Partner By: By: ---------------------------------- --------------------------------- Name: Name: Title: Title: A-2 EX-99 5 ex99-9a_ii.txt EXHIBIT 99.9A.(II) JPMORGAN CHASE BANK GLOBAL CUSTODY AGREEMENT AMENDMENT NO. 1 TO SCHEDULE A THIS AMENDMENT, dated July 17, 2003, amends the Schedule A of the Global Custody Agreement, dated May 1, 1996 as amended on July 1, 2001 ("Agreement"), between those registered investment companies to the Agreement (each a "Customer"), having a place of business at 2005 Market Street, Philadelphia, PA 19103, and JPMorgan Chase Bank ("Bank"), having a place of business at 270 Park Ave., New York, N.Y. 10017-2070.
Delaware Group Adviser Funds Delaware Group Foundation Funds Delaware Diversified Income Fund Delaware Balanced Allocation Portfolio Delaware U.S. Growth Fund Delaware Growth Allocation Portfolio Delaware Income Allocation Portfolio Delaware Group Cash Reserve Delaware S&P 500 Index Fund Delaware Cash Reserve Fund Delaware Group Global & International Funds Delaware Group Equity Funds I Delaware Emerging Markets Fund Delaware Balanced Fund Delaware International Small Cap Value Fund Delaware Devon Fund Delaware International Value Equity Fund Delaware Group Equity Funds II Delaware Group Government Fund Delaware Decatur Equity Income Fund Delaware American Government Bond Fund Delaware Diversified Value Fund Delaware Growth and Income Fund Delaware Group Income Funds Delaware Social Awareness Fund Delaware Corporate Bond Fund Delaware Delchester Fund Delaware Group Equity Funds III Delaware Extended Duration Bond Fund Delaware American Services Fund Delaware High-Yield Opportunities Fund Delaware Focused Growth Fund Delaware Strategic Income Fund Delaware Focused Value Fund Delaware Technology and Innovation Fund Delaware Group Limited-Term Government Funds Delaware Trend Fund Delaware Limited-Term Government Fund Delaware Group Equity Funds IV Delaware Group State Tax-Free Income Trust Delaware Diversified Growth Fund Delaware Tax-Free Pennsylvania Fund Delaware Growth Opportunities Fund Delaware Group Tax-Free Fund Delaware Group Equity Funds V Delaware Tax-Free Insured Fund Delaware Retirement Income Fund Delaware Tax-Free USA Fund Delaware Small Cap Contrarian Fund Delaware Tax-Free USA Intermediate Fund Delaware Small Cap Value Fund Delaware Group Tax-Free Money Fund Delaware Tax-Free Money Fund
Delaware Pooled Trust Delaware VIP Trust The All-Cap Growth Equity Portfolio Delaware VIP Balanced Series The Core Fixed Income Portfolio(1) Delaware VIP Capital Reserves Series The Core Plus Fixed Income Portfolio Delaware VIP Cash Reserve Series The Emerging Markets Portfolio Delaware VIP Emerging Markets Series The Global Equity Portfolio Delaware VIP Global Bond Series The Global Fixed Income Portfolio Delaware VIP Large Cap Value Series The High-Yield Bond Portfolio Delaware VIP Growth Opportunities Series The Intermediate Fixed Income Portfolio Delaware VIP High Yield Series The International Equity Portfolio Delaware VIP International Value Equity Series The International Fixed Income Portfolio Delaware VIP REIT Series The International Large-Cap Equity Portfolio Delaware VIP Select Growth Series The International Small-Cap Portfolio Delaware VIP Small Cap Value Series The Labor Select International Equity Portfolio Delaware VIP Social Awareness Series The Large-Cap Growth Equity Portfolio Delaware VIP Trend Series The Large-Cap Value Equity Portfolio Delaware VIP U.S. Growth Series The Mid-Cap Growth Equity Portfolio The Real Estate Investment Trust Portfolio Optimum Fund Trust The Real Estate Investment Trust Portfolio II Optimum Fixed Income Fund The Small-Cap Growth Equity Portfolio Optimum International Fund The Small-Cap Value Equity Portfolio Optimum Large Cap Growth Fund Optimum Large Cap Value Fund Delaware Investments Dividend and Income Optimum Small Cap Growth Fund Fund, Inc. Optimum Small Cap Value Fund Delaware Investments Global Dividend and Income Fund, Inc.
(1) The Core Fixed Income Portfolio of Delaware Pooled Trust will be liquidated on or about the end of July 2003. AGREED AND ACCEPTED: CUSTOMER JPMORGAN CHASE BANK By: Michael P. Bishof By: Rosemary M. Stidmon ----------------------------------- ---------------------- Name: Michael P. Bishof Name: Rosemary M. Stidmon Title: Senior Vice President/Treasurer Title: Vice President EX-99 6 ex99-b_ii.txt EXHIBIT 99.B(II) JPMORGAN CHASE BANK SECURITIES LENDING AGREEMENT AMENDMENT NO. 1 TO SCHEDULE A THIS AMENDMENT, dated July 17, 2003, amends the Schedule A of the Securities Lending Agreement, dated December 22, 1998 as amended on October 1, 2002 ("Agreement"), between those registered investment companies listed on Schedule A to the Agreement (each a "Customer"), having a place of business at 2005 Market Street, Philadelphia, PA 19103, and JPMorgan Chase Bank ("Bank"), having a place of business at 270 Park Ave., New York, N.Y. 10017-2070.
Currently Lending: ----------------- Domestic Approved ----------------- Titan Yes No - ----- --- -- -------- -------- P50665 VIP LARGE CAP VALUE SERIES X -------- -------- P50669 VIP BALANCED SERIES X -------- -------- P50670 VI[P GROWTH OPPORTUNITIES SERIES X -------- -------- P50671 DELAWARE DELCHESTER FUND X -------- -------- P50672 VIP TREND SERIES X -------- -------- P50676 DELAWARE BALANCED FUND X -------- -------- P50677 DELAWARE DEVON FUND X -------- -------- P50684 DELAWARE GROWTH OPPORTUNITIES FUND X -------- -------- P50685 DELAWARE SMALL-CAP VALUE FUND X -------- -------- P82406 DELAWARE TREND FUND X -------- -------- P82404 DELAWARE DECATUR EQUITY INCOME FUND X -------- -------- P82405 DELAWARE GROWTH & INCOME FUND X -------- -------- P50679 DELAWARE REIT FUND X -------- -------- P50673 (Subject to Restriction 1) VIP SMALL CAP VALUE SERIES X -------- -------- P50683 DELAWARE INVESTMENTS DIVIDEND AND INCOME, INC. X -------- -------- -------- -------- N/A OPTIMUM FIXED INCOME FUND X -------- -------- N/A OPTIMUM INTERNATIONAL FUND X -------- -------- N/A OPTIMUM LARGE CAP GROWTH FUND X -------- -------- N/A OPTIMUM LARGE CAP VALUE FUND X -------- -------- N/A OPTIMUM SMALL CAP GROWTH FUND X -------- -------- N/A OPTIMUM SMALL CAP VALUE FUND X -------- -------- ----------------- International Approved -------- -------- Titan GTI Yes No - ----- --- --- -- -------- -------- P81294 7689 VIP INTERNATIONAL EQUITY SERIES X -------- -------- P81295 7690 DPT INTERNATIONAL EQUITY PORTFOLIO X -------- -------- P81296 7691 DPTGLOBAL FIXED INCOME PORTFOLIO X -------- -------- P81297 7692 DPT LABOR SELECT INT'L EQUITY PORTFOLIO X -------- -------- P81298 7693 DELAWARE INTERNATIONAL VALUE EQUITY FUND X -------- --------
----------------- International (Continued) Approved -------- -------- Titan GTI Yes No - ----- --- --- -- -------- -------- P81776 (Subject to 9849 DPT EMERGING MARKETS PORTFOLIO X Restriction 2) -------- -------- P82424 13852 DELAWARE GLOBAL DIVIDEND AND INCOME FUND, INC. X -------- --------
AGREED AND ACCEPTED: CUSTOMER JPMORGAN CHASE BANK By: Michael P. Bishof By: Gene Gemelli ----------------------------------- ----------------------- Name: Michael P. Bishof Name: Gene Gemilli Title: Senior Vice President/Treasurer Title: Vice President Date: July 17, 2003 Date: September 8, 2003 EX-99 7 ex99-12a.txt EXHIBIT 99.12.A ______________, 2003 Board of Trustees [Surviving] Trust One Commerce Square Philadelphia, PA 19103 Board of Directors [Target] Trust One Commerce Square Philadelphia, PA 19103 Re: Agreement and Plan of Reorganization (the "Agreement") made as of the ____ day of ______, 2003, by and between Delaware Group [ ] (the "[Surviving] Trust"), a statutory trust created under the laws of the State of Delaware, on behalf of its series, Delaware [ ] Fund ("[Surviving] Fund"), and [Delaware Group] [ ] [Fund/Trust] (the "[Target] Trust"), a statutory trust created under the laws of the State of Delaware, on behalf of its series Delaware [ ] Fund ("[Target] Fund") Gentlemen: You have requested our opinion concerning certain federal income tax consequences of the reorganization of the [Target] Fund (the "Reorganization"), which will consist of: (i) the acquisition by the [Surviving] Trust on behalf of the [Surviving] Fund of substantially all of the property, assets and goodwill of the [Target] Fund in exchange solely for shares of beneficial interest, no par value, of the [Surviving] Fund - Class A ("[Surviving] Fund Class A Shares"), shares of beneficial interest, no par value, of the [Surviving] Fund - Class B ("[Surviving] Fund Class B Shares"), shares of beneficial interest, no par value, of the [Surviving] Fund - Class C shares ("[Surviving] Fund Class C Shares"), and shares of beneficial interest, no par value of the [Surviving] Fund -- Institutional Class ("[Surviving] Fund Institutional Class Shares" and together with the [Surviving] Fund Class A Shares, [Surviving] Fund Class B Share and [Surviving] Fund Class C Shares, which are all voting securities, the "[Surviving] Fund Shares" ), and the assumption by the [Surviving] Trust on behalf of the [Surviving] Fund of all of the liabilities of the [Target] Fund; (ii) the distribution of (a) [Surviving] Fund Class A shares to the shareholders of [Target] Fund - Class A Shares ("[Target] Fund Class A Shares"), (b) [Surviving] Fund Class B Shares to the shareholders of [Target] Fund - Class B Shares ("[Target] Fund Class B Shares"), (c) [Surviving] Fund Class C Shares to the shareholders of [Target] Fund -- Class C Shares ("[Target] Fund Class C Shares") and (d) [Surviving] Fund Institutional Class Shares to the shareholders of [Target] Fund - Institutional Class Shares ("[Target] Fund Institutional Class Shares" and together with the [Target] Fund Class A Shares, [Target] Fund Class B Shares and [Target] Fund Class C Shares, the "[Target] Fund Shares"), according to their respective interests in complete liquidation of the [Target] Fund; and (iii) the dissolution of the [Target] Fund as soon as practicable after the closing (the "Closing"), all upon and subject to the terms and conditions of the Agreement. Board of Trustees [Surviving] Trust Board of Trustees [Target] Fund _______________, 2003 In rendering our opinion, we have reviewed and relied upon: (a) the Agreement, made as of the __ day of ____, 2003, by and between the [Surviving] Trust, on behalf of the [Surviving] Fund, and the [Target] Trust, on behalf of the [Target] Fund; (b) the proxy materials provided to shareholders of the [Target] Fund in connection with the Special Shareholders' Meeting of the [Target] Fund held on _________, 2003; (c) certain representations concerning the Reorganization made to us by the [Surviving] Trust, on behalf of the [Surviving] Fund, and the [Target] Trust, on behalf of the [Target] Fund, in a letter dated _________, 2003 (the "Representation Letter"); (d) all other documents, financial and other reports and corporate minutes we deemed relevant or appropriate; and (e) such statutes, regulations, rulings and decisions as we deemed material in rendering this opinion. All terms used herein, unless otherwise defined, are used as defined in the Agreement. For purposes of this opinion, we have assumed that the [Target] Fund, on the Closing of the Reorganization, satisfies, and immediately following the Closing, the [Surviving] Fund will continue to satisfy, the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company. Based on the foregoing, and provided the Reorganization is carried out in accordance with the applicable laws of the State of Delaware, the terms of the Agreement and the statements in the Representation Letter with regard to matters of fact, it is our opinion that: 1. The acquisition by the [Surviving] Fund of substantially all of the assets and the assumption of the liabilities of the [Target] Fund as provided for in the Agreement in exchange solely for the [Surviving] Fund Shares, followed by the distribution by the [Target] Fund to its shareholders of the [Surviving] Fund Shares in complete liquidation of the [Target] Fund, will qualify as a reorganization within the meaning of Section 368(a)(1) of the Code, and the [Target] Fund and the [Surviving] Fund each will 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 [Target] Fund upon the transfer of substantially all of its assets to and the assumption of the liabilities by the [Surviving] Fund in exchange solely for the [Surviving] Fund Shares pursuant to Section 361(a) and Section 357(a) of the Code. 3. No gain or loss will be recognized by the [Surviving] Fund upon the receipt by it of substantially all of the assets to and the assumption of the liabilities of the [Target] Fund in exchange solely for the [Surviving] Fund Shares pursuant to Section 1032(a) of the Code. 2 Board of Trustees [Surviving] Trust Board of Trustees [Target] Fund _______________, 2003 4. No gain or loss will be recognized by the [Target] Fund upon the distribution of the [Surviving] Fund Shares to its shareholders in complete liquidation of the [Target] Fund (in pursuance of the Agreement) pursuant to Section 361(c)(1) of the Code. 5. The basis of the assets of the [Target] Fund received by the [Surviving] Fund will be the same as the basis of these assets to the [Target] Fund immediately prior to the exchange pursuant to Section 362(b) of the Code. 6. The holding period of the assets of the [Target] Fund received by the [Surviving] Fund will include the period during which such assets were held by the [Target] Fund pursuant to Section 1223(2) of the Code. 7. No gain or loss will be recognized by the shareholders of the [Target] Fund upon the exchange of their [Target] Fund Shares for the [Surviving] Fund Shares (including fractional shares to which they may be entitled), pursuant to Section 354(a) of the Code. 8. The basis of the [Surviving] Fund Shares received by the shareholders of the [Target] Fund (including fractional shares to which they may be entitled) will be the same as the basis of the [Target] Fund Shares exchanged therefor pursuant to Section 358(a)(1) of the Code. 9. The holding period of the [Surviving] Fund Shares received by the shareholders of the [Target] Fund (including fractional shares to which they may be entitled) will include the holding period of the [Target] Fund Shares surrendered in exchange therefor, provided that the [Target] Fund Shares were held as a capital asset on the Closing of the Reorganization pursuant to Section 1223(1) of the Code. 10. The [Surviving] 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 income tax regulations issued by the United States Department of the Treasury (the "Treasury Regulations"), the items of the [Target] 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. Our opinion is based upon the Code, the applicable Treasury Regulations, the present positions of the Internal Revenue Service (the "Service") as are set forth in published revenue rulings and revenue procedures, present administrative positions of the Service, and existing judicial decisions, all of which are subject to change either prospectively or retroactively. We do not undertake to make any continuing analysis of the facts or relevant law following the Closing of the Reorganization. 3 Board of Trustees [Surviving] Trust Board of Trustees [Target] Fund _______________, 2003 Our opinion is conditioned upon the performance by the [Surviving] Trust, on behalf of the [Surviving] Fund, and the [Target] Trust, on behalf of the [Target] Fund, of their undertakings in the Agreement and the Representation Letter. Our opinion is limited to the transactions incident to the Reorganization described herein, and no opinion is rendered with respect to (i) any other transaction or (ii) the effect, if any, of the Reorganization (and/or the transactions incident thereto) on any other transaction and/or the effect, if any, of any such other transaction on the Reorganization. This opinion is being rendered to the [Surviving] Trust, on behalf of the [Surviving] Fund, and the [Target] Trust, on behalf of the [Target] Fund, and may be relied upon only by such funds and the shareholders of each. We hereby consent to the use of this opinion as an exhibit to the Registration Statement of the [Target] Fund on Form N-14, and any amendments thereto, covering the registration of the shares of the [Target] Fund under the Securities Act of 1933, as amended, to be issued in the Reorganization. Very truly yours, STRADLEY, RONON, STEVENS & YOUNG, LLP By: --------------------------------------- , a partner 4 EX-99 8 ex99-13a_iii.txt EXHIBIT 99.13.A.(III) August 23, 2002 Delaware Service Company, Inc. 2005 Market Street Philadelphia, PA 19103 To Whom It May Concern: Delaware Service Company, Inc. ("DSC") and each of the registered investment companies listed on Schedule A hereto (each a "Fund", and together, the "Funds") have entered into a Shareholder Services Agreement dated as of April 19, 2001 (as amended, supplemented or otherwise modified from time to time, the "Agreement"). Each capitalized term used herein and not otherwise defined shall have the meaning given such term in the Agreement. For good and adequate consideration, the receipt and sufficiency of which are hereby acknowledged, DSC and the Funds hereby agree to amend each Agreement to add a Section 6.1(f) as follows: "(f) Implement and operate the Fund's anti-money laundering program as described in the Fund's Risk Management Procedures, as amended from time to time; consent to and ensure that federal examiners will be able to obtain information and records relating to the Fund's anti-money laundering program and be able to inspect DSC for purposes of such program; and, as necessary, assist the Fund as it periodically monitors the operation of its anti-money laundering program and assesses the effectiveness of the program's procedures and controls." Except as expressly amended hereby, all provisions of the Agreement shall remain in full force and effect. This letter amendment to the Agreement may be executed by the parties hereto in any number of counterparts, each of which counterparts when so executed shall be an original but all the counterparts taken together shall constitute one and the same instrument. Kindly acknowledge your agreement to the foregoing and intention to be legally bound hereby by signing below in the space provided. Very truly yours, By: Lisa O. Brinkley , -------------------------- on behalf of the Funds listed on Exhibit A Name: Lisa O. Brinkley Title: Senior Vice President AGREED TO AND ACCEPTED this 23rd day of August 2002: DELAWARE SERVICE COMPANY, INC. By: Douglas L. Anderson --------------------- Name: Douglas L. Anderson Title: Senior Vice President Schedule A Delaware Group Adviser Funds Delaware Group Cash Reserve Delaware Group Equity Funds I Delaware Group Equity Funds II Delaware Group Equity Funds III Delaware Group Equity Funds IV Delaware Group Equity Funds V Delaware Group Foundation Funds Delaware Group Global & International Funds Delaware Group Government Fund Delaware Group Income Funds Delaware Group Limited-Term Government Funds Delaware Group Tax-Free Fund Delaware Pooled Trust Delaware Group State Tax-Free Income Trust Delaware Group Tax-Free Money Fund Delaware VIP Trust Voyageur Insured Funds Voyageur Intermediate Tax-Free Funds Voyageur Investment Trust Voyageur Mutual Funds Voyageur Mutual Funds II Voyageur Mutual Funds III Voyageur Tax-Free Funds EX-99 9 ex99-13b_i.txt EXHIBIT 99.13.B.(I) AMENDMENT NO. 27 to SCHEDULE A of DELAWARE INVESTMENTS FAMILY OF FUNDS* FUND ACCOUNTING AGREEMENT Delaware Group Adviser Funds Delaware Diversified Income Fund (New) Delaware U.S. Growth Fund Delaware Group Cash Reserve Delaware Cash Reserve Fund Delaware Group Equity Funds I (formerly Delaware) Delaware Balanced Fund (formerly Delaware Fund) Delaware Devon Fund Delaware Group Equity Funds II (formerly Decatur) Delaware Decatur Equity Income Fund (formerly Decatur Income Fund) Delaware Diversified Value Fund (New) Delaware Growth and Income Fund (formerly Decatur Total Return Fund) Delaware Social Awareness Fund (formerly Quantum Fund) (New) Delaware Group Equity Funds III (formerly Trend) Delaware American Services Fund (New) Delaware Focused Value Fund (formerly Delaware Research Fund) (New) Delaware Focused Growth Fund (formerly Large Cap Growth Fund) (New) Delaware Health Care Fund (New) Delaware Small Cap Growth Fund (New) Delaware Technology and Innovation Fund (New) Delaware Trend Fund Delaware Group Equity Funds IV (formerly DelCap) Delaware Diversified Growth Fund (formerly Capital Appreciation Fund) (New) Delaware Growth Opportunities Fund (formerly DelCap Fund) Delaware Group Equity Funds V (formerly Value) Delaware Dividend Income Fund (formerly Delaware Retirement Income Fund) (New) Delaware Small Cap Contrarian Fund (New) Delaware Small Cap Value Fund (formerly Value Fund) - ----------------- *Except as otherwise noted, all Portfolios included on this Schedule A are Existing Portfolios for purposes of the compensation described on Schedule B to that Fund Accounting Agreement between Delaware Service Company, Inc. and the Delaware Investments Family of Funds dated as of August 19, 1996 ("Agreement"). All portfolios added to this Schedule A by amendment executed by a Company on behalf of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to the Agreement. Delaware Group Foundation Funds (New) Delaware Balanced Allocation Portfolio (formerly Delaware Balanced Portfolio) (New) Delaware Growth Allocation Portfolio (formerly Delaware Growth Portfolio) (New) Delaware Income Allocation Portfolio (formerly Delaware Income Portfolio) (New) Delaware S&P 500 Index Fund (New) Delaware Group Global & International Funds Delaware Emerging Markets Fund (New) Delaware International Small Cap Value Fund (formerly Delaware International Small Cap Fund) (New) Delaware International Value Equity Fund (formerly Delaware International Equity Fund) Delaware Group Government Fund Delaware American Government Bond Fund (formerly, Government Income Series and U.S. Government Fund) Delaware Group Income Funds (formerly Delchester) Delaware Corporate Bond Fund (New) Delaware Delchester Fund Delaware Extended Duration Bond Fund (New) Delaware High-Yield Opportunities Fund (New) Delaware Strategic Income Fund (New) Delaware Group Limited-Term Government Funds Delaware Limited-Term Government Fund Delaware Group State Tax-Free Income Trust (formerly DMCT Tax-Free Income Trust-Pennsylvania) Delaware Tax-Free Pennsylvania Fund Delaware Group Tax-Free Fund Delaware Tax-Free Insured Fund Delaware Tax-Free USA Fund Delaware Tax-Free USA Intermediate Fund Delaware Group Tax-Free Money Fund Delaware Tax-Free Money Fund Delaware Pooled Trust The All-Cap Growth Equity Portfolio (New) The Core Plus Fixed Income Portfolio (New) The Emerging Markets Portfolio (New) The Global Equity Portfolio (New) The Global Fixed Income Portfolio The High-Yield Bond Portfolio (New) The Intermediate Fixed Income Portfolio (formerly The Fixed Income Portfolio) The International Equity Portfolio The International Fixed Income Portfolio (New) The International Large-Cap Equity Portfolio (New) The International Small-Cap Portfolio (New) The Labor Select International Equity Portfolio The Large-Cap Growth Equity Portfolio (New) The Large-Cap Value Equity Portfolio (formerly The Defensive Equity Portfolio) The Mid-Cap Growth Equity Portfolio (formerly The Aggressive Growth Portfolio) The Real Estate Investment Trust Portfolio The Real Estate Investment Trust Portfolio II (New) The Small-Cap Growth Equity Portfolio (New) The Small-Cap Growth II Equity Portfolio (New) The Small-Cap Value Equity Portfolio (New) 2 Delaware VIP Trust (formerly Delaware Group Premium Fund) Delaware VIP Balanced Series (formerly Delaware Balanced Series and Delaware Series) Delaware VIP Capital Reserves Series Delaware VIP Cash Reserve Series Delaware VIP Diversified Income Series (New) Delaware VIP Emerging Markets Series (New) Delaware VIP Global Bond Series (New) Delaware VIP Growth Opportunities Series (formerly DelCap Series) Delaware VIP High Yield Series (formerly Delchester Series) Delaware VIP International Value Equity Series (formerly International Equity Series) Delaware VIP REIT Series (New) Delaware VIP Select Growth Series (formerly Aggressive Growth Series)(New) Delaware VIP Small Cap Value Series (formerly Value Series) Delaware VIP Social Awareness Series (formerly Quantum Series) (New) Delaware VIP Trend Series Delaware VIP U.S. Growth Series (New) Voyageur Insured Funds Delaware Tax-Free Arizona Insured Fund (New) Delaware Tax-Free Minnesota Insured Fund (New) Voyageur Intermediate Tax Free Funds Delaware Tax-Free Minnesota Intermediate Fund (New) Voyageur Investment Trust Delaware Tax-Free California Insured Fund (New) Delaware Tax-Free Florida Fund (New) Delaware Tax-Free Florida Insured Fund (New) Delaware Tax-Free Missouri Insured Fund (New) Delaware Tax-Free Oregon Insured Fund (New) Voyageur Mutual Funds Delaware Minnesota High-Yield Municipal Bond Fund (New) Delaware National High-Yield Municipal Bond Fund (New) Delaware Tax-Free Arizona Fund (New) Delaware Tax-Free California Fund (New) Delaware Tax-Free Idaho Fund (New) Delaware Tax-Free New York Fund (New) Voyageur Mutual Funds II Delaware Tax-Free Colorado Fund (New) Voyageur Mutual Funds III Delaware Core Equity Fund (formerly Delaware Growth Stock Fund) (New) Delaware Select Growth Fund (formerly Delaware Aggressive Growth Fund) (New) Voyageur Tax Free Funds Delaware Tax-Free Minnesota Fund (New) 3 Dated as of October 1, 2003 DELAWARE SERVICE COMPANY, INC. DELAWARE GROUP ADVISER FUNDS DELAWARE GROUP CASH RESERVE DELAWARE GROUP EQUITY FUNDS I By: Michael P. Bishof DELAWARE GROUP EQUITY FUNDS II ------------------------ DELAWARE GROUP EQUITY FUNDS III Name: Michael P. Bishof DELAWARE GROUP EQUITY FUNDS IV Title: Senior Vice President/ DELAWARE GROUP EQUITY FUNDS V Investment Accounting DELAWARE GROUP FOUNDATION FUNDS DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS DELAWARE GROUP GOVERNMENT FUND DELAWARE GROUP INCOME FUNDS DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS DELAWARE GROUP STATE TAX-FREE INCOME TRUST DELAWARE GROUP TAX-FREE FUND DELAWARE GROUP TAX-FREE MONEY FUND DELAWARE POOLED TRUST DELAWARE VIP TRUST VOYAGEUR INSURED FUNDS VOYAGEUR INTERMEDIATE TAX FREE FUNDS VOYAGEUR INVESTMENT TRUST VOYAGEUR MUTUAL FUNDS VOYAGEUR MUTUAL FUNDS II VOYAGEUR MUTUAL FUNDS III By: Jude T. Driscoll -------------------- Name: Jude T. Driscoll Title: Chairman 4 EX-99 10 ex99-14a.txt EXHIBIT 99.14A Consent of Ernst & Young LLP, Independent Auditors We consent to the references to our firm under the captions "Financial Highlights" in the Prospectuses of Delaware Diversified Income Fund dated December 31, 2002 and Delaware Strategic Income Fund dated September 30, 2002 (as supplemented September 29, 2003), to the use of our report dated December 6, 2002, included in the Delaware Diversified Income Fund 2002 Annual Report to shareholders, and to the incorporation by reference of our report dated September 12, 2003, included in the Delaware Strategic Income Fund 2003 Annual Report to shareholders in this Registration Statement (Form N-14)(No. 33-67490) of Delaware Group Adviser Funds. ERNST & YOUNG LLP Philadelphia, Pennsylvania October 10, 2003 EX-99 11 ex99-16a.txt EXHIBIT 99.16A Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. Jude T. Driscoll - ----------------------------- Jude T. Driscoll
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Delaware Group Tax-Free Fund Delaware Group Cash Reserve Delaware Group Tax-Free Money Fund Delaware Group Equity Funds I Delaware Pooled Trust Delaware Group Equity Funds II Delaware VIP Trust Delaware Group Equity Funds III Delaware Investments Dividend and Income Fund, Inc. Delaware Group Equity Funds IV Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Equity Funds V Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Foundation Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group Government Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Group State Tax-Free Income Trust
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. Walter P. Babich - -------------------- Walter P. Babich
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Voyageur Insured Funds Delaware Group Cash Reserve Voyageur Intermediate Tax-Free Funds Delaware Group Equity Funds I Voyageur Investment Trust Delaware Group Equity Funds II Voyageur Mutual Funds Delaware Group Equity Funds III Voyageur Mutual Funds II Delaware Group Equity Funds IV Voyageur Mutual Funds III Delaware Group Equity Funds V Voyageur Tax Free Funds Delaware Group Foundation Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Government Fund Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group State Tax-Free Income Trust Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Tax-Free Fund Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Tax-Free Money Fund Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Pooled Trust Delaware VIP Trust
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. John H. Durham - ---------------- John H. Durham
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Voyageur Insured Funds Delaware Group Cash Reserve Voyageur Intermediate Tax-Free Funds Delaware Group Equity Funds I Voyageur Investment Trust Delaware Group Equity Funds II Voyageur Mutual Funds Delaware Group Equity Funds III Voyageur Mutual Funds II Delaware Group Equity Funds IV Voyageur Mutual Funds III Delaware Group Equity Funds V Voyageur Tax Free Funds Delaware Group Foundation Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Government Fund Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group State Tax-Free Income Trust Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Tax-Free Fund Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Tax-Free Money Fund Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Pooled Trust Delaware VIP Trust
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. John A. Fry - ----------------- John A. Fry
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Delaware Group Tax-Free Fund Delaware Group Cash Reserve Delaware Group Tax-Free Money Fund Delaware Group Equity Funds I Delaware Pooled Trust Delaware Group Equity Funds II Delaware VIP Trust Delaware Group Equity Funds III Delaware Investments Dividend and Income Fund, Inc. Delaware Group Equity Funds IV Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Equity Funds V Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Foundation Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group Government Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Group State Tax-Free Income Trust
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. Anthony D. Knerr - ------------------ Anthony D. Knerr
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Voyageur Insured Funds Delaware Group Cash Reserve Voyageur Intermediate Tax-Free Funds Delaware Group Equity Funds I Voyageur Investment Trust Delaware Group Equity Funds II Voyageur Mutual Funds Delaware Group Equity Funds III Voyageur Mutual Funds II Delaware Group Equity Funds IV Voyageur Mutual Funds III Delaware Group Equity Funds V Voyageur Tax Free Funds Delaware Group Foundation Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Government Fund Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group State Tax-Free Income Trust Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Tax-Free Fund Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Tax-Free Money Fund Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Pooled Trust Delaware VIP Trust
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. Ann R. Leven - --------------- Ann R. Leven
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Voyageur Insured Funds Delaware Group Cash Reserve Voyageur Intermediate Tax-Free Funds Delaware Group Equity Funds I Voyageur Investment Trust Delaware Group Equity Funds II Voyageur Mutual Funds Delaware Group Equity Funds III Voyageur Mutual Funds II Delaware Group Equity Funds IV Voyageur Mutual Funds III Delaware Group Equity Funds V Voyageur Tax Free Funds Delaware Group Foundation Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Government Fund Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group State Tax-Free Income Trust Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Tax-Free Fund Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Tax-Free Money Fund Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Pooled Trust Delaware VIP Trust
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. Thomas F. Madison - -------------------- Thomas F. Madison
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Voyageur Insured Funds Delaware Group Cash Reserve Voyageur Intermediate Tax-Free Funds Delaware Group Equity Funds I Voyageur Investment Trust Delaware Group Equity Funds II Voyageur Mutual Funds Delaware Group Equity Funds III Voyageur Mutual Funds II Delaware Group Equity Funds IV Voyageur Mutual Funds III Delaware Group Equity Funds V Voyageur Tax Free Funds Delaware Group Foundation Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Government Fund Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group State Tax-Free Income Trust Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Tax-Free Fund Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Tax-Free Money Fund Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Pooled Trust Delaware VIP Trust
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. Jan L. Yeomans - ------------------ Jan L. Yeomans
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Voyageur Insured Funds Delaware Group Cash Reserve Voyageur Intermediate Tax-Free Funds Delaware Group Equity Funds I Voyageur Investment Trust Delaware Group Equity Funds II Voyageur Mutual Funds Delaware Group Equity Funds III Voyageur Mutual Funds II Delaware Group Equity Funds IV Voyageur Mutual Funds III Delaware Group Equity Funds V Voyageur Tax Free Funds Delaware Group Foundation Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Government Fund Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group State Tax-Free Income Trust Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Tax-Free Fund Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Tax-Free Money Fund Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Pooled Trust Delaware VIP Trust
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) POWER OF ATTORNEY I, the Chief Financial Officer of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after August 21, 2003. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 21st day of August 2003. Joseph H. Hastings - -------------------- Joseph H. Hastings
- ---------------------------------------------------------------------------------------------------------------------------------- Delaware Investments Family of Funds - ---------------------------------------------------------------------------------------------------------------------------------- Delaware Group Adviser Funds Voyageur Insured Funds Delaware Group Cash Reserve Voyageur Intermediate Tax-Free Funds Delaware Group Equity Funds I Voyageur Investment Trust Delaware Group Equity Funds II Voyageur Mutual Funds Delaware Group Equity Funds III Voyageur Mutual Funds II Delaware Group Equity Funds IV Voyageur Mutual Funds III Delaware Group Equity Funds V Voyageur Tax Free Funds Delaware Group Foundation Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Group Global & International Funds Delaware Investments Global Dividend and Income Fund, Inc. Delaware Group Government Fund Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Group Income Funds Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Group Limited-Term Government Funds Delaware Investments Florida Insured Municipal Income Fund Delaware Group State Tax-Free Income Trust Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Group Tax-Free Fund Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Group Tax-Free Money Fund Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Pooled Trust Delaware VIP Trust
EX-99 12 ex99-17b.txt EXHIBIT 99.17B CODE OF ETHICS -------------- DELAWARE INVESTMENTS CREDO - ----- It is the duty of all Delaware Investment employees, officers and directors to conduct themselves with integrity, and at all times to place the interests of shareholders first. In the interest of this credo, all personal securities transactions will be conducted consistent with the Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility. The fundamental standard of this Code is that personnel should not take any inappropriate advantage of their positions. Rule 17j-1 under the Investment Company Act of 1940 (the "Rule") makes it unlawful for certain persons, including any employee, officer or director, any investment adviser and any principal underwriter, in connection with the purchase or sale by such person of a security held or to be acquired by a Fund or account: (1) To employ any device, scheme or artifice to defraud; (2) To make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances in which they are made, not misleading; (3) To engage in any act, practice or course of business that operates or would operate as a fraud or deceit; or (4) To engage in any manipulative practice. The Rule also requires that each Delaware Investments' Adviser, sub-adviser, and principal underwriter adopt a written code of ethics containing provisions reasonably necessary to prevent certain persons from engaging in acts in violation of the above standard and shall use reasonable diligence and institute procedures reasonably necessary to prevent violations of the Code. This Code of Ethics is being adopted by the following Delaware Investment companies (collectively "Delaware") in compliance with the requirement of Rule 17j-1 and to effect the purpose of the Credo set forth above and to comply with the recommendations of the Investment Company Institute's Advisory Group on Personal Investing: o DELAWARE MANAGEMENT BUSINESS TRUST o DELAWARE CAPITAL MANAGEMENT, INC. o DELAWARE MANAGEMENT COMPANY o RETIREMENT FINANCIAL SERVICES, INC. o DELAWARE INVESTMENT ADVISERS o DELAWARE SERVICE COMPANY, INC. o DELAWARE LINCOLN CASH MANAGEMENT o DELAWARE MANAGEMENT TRUST COMPANY o DELAWARE DISTRIBUTORS, L.P. DEFINITIONS: - ----------- "Access person" means any director, officer, general partner or Advisory Person of a fund or of a fund's investment adviser, or any employee of a fund or of a fund's investment adviser who, in connection with his or her regular functions or duties, participates in the selection of a fund's portfolio securities or who has access to information regarding a fund's future purchases or sales of portfolio securities. Those persons deemed Access Persons will be notified of this designation. "Advisory person" means any employee of the fund or investment adviser who, in connection with his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by a Fund, or whose functions relate to the making of any recommendations with respect to the purchase or sales. "Affiliated person" means any officer, director, partner, or employee of a Delaware Fund or any subsidiary of Delaware Management Holdings, Inc. and any other person so designated by the Compliance Department. "Beneficial ownership" shall be as defined in Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder. Generally speaking, a person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in a security, is a "beneficial owner" of the security. For example, a person is normally regarded as the beneficial owner of securities held by members of his or her immediate family sharing the same household. Additionally, ownership of derivative securities such as options, warrants or convertible securities which confer the right to acquire the underlying security at a fixed price constitutes beneficial ownership of the underlying security itself. "Control" shall mean investment discretion in whole or in part of an account regardless of beneficial ownership, such as an account for which a person has power of attorney or authority to effect transactions. "De Minimis Purchases or Sales" shall mean purchases or sales by covered persons of up to 500 shares of stock in a company that is in the Standard and Poor's 500 Index provided that Delaware has not traded more than 10,000 shares of that same stock during the last two trading days and there are no open orders for that stock on the Trading Desk. "High Quality Short-Term Debt Instruments" shall mean any instrument that has a maturity at issuance of less that 366 days and that is rated in one of the two highest rating categories by a Nationally Recognized Statistical Rating Organization. "Investment Personnel" means any employee, other than a Portfolio Manager who, in connection with his/her regular functions or duties, makes or participates in, the making of investment decisions affecting an investment company. Investment Personnel also include the staff who support a Portfolio Manager including analysts, administrative assistants, etc. Investment Personnel by definition are Access Persons. "Managed Accounts" means an account that is professionally managed through a wrap program. Managed Accounts require pre-approval through the Compliance Department prior to starting up the account. The Compliance Department will consider the facts and circumstances of the account, including the functions and duties of the employees, when approving or denying such accounts. In addition, preclearance is exempt with Managed Accounts, however, all trades still require reporting and duplicate statements and confirmations are required to be sent to the Compliance Department. Preclearance is only exempt for trades initiated by the wrap manager. All trades initiated by the employee require preclearance. 2 "Portfolio Manager" means any person who, in connection with his/her regular functions or duties, makes or participates in, the making of investment decisions effecting an investment company. Portfolio Managers by definition are access persons. "Security" shall have the meaning as set forth in Section 2(a)(36) of the Investment Company Act of 1940, except that it shall not include securities issued or guaranteed by the government of the United States or by any of its federal agencies, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments including repurchase agreements, unit investment trusts, shares of open-end registered investment and municipal fund securities (i.e. 529 Plans). In addition, the purchase, sale or exercise of a derivative security shall constitute the purchase or sale of the underlying security. However, the purchase or sale of the debt instrument of an issuer which does not give the holder the right to purchase the issuer's stock at a fixed price, does not constitute a purchase or sale of the issuer's stock. Security being "considered for purchase or sale" or "being purchased or sold" means when a recommendation to purchase or sell the security has been made and communicated to the Trading Desk and with respect to the person making the recommendation, when such person seriously considers making, or when such person knows or should know that another person is seriously considering making, such a recommendation. Security "held or to be acquired" by an account means (i) any covered security which, within the most recent fifteen days (a) is or has been held by the account; or (b) is being, or has been, considered by the account or its investment adviser for purchase by the account; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a covered security. PROHIBITED ACTIVITIES - --------------------- I. The following restrictions apply to all Affiliated Persons, Access Persons, Investment Personnel and Portfolio Managers. (a) No Affiliated Person, Access Person, Investment Person or Portfolio Manager shall engage in any act, practice or course of conduct, which would violate the provisions of Rule 17j-1 set forth above. (b) No Affiliated Person, Access Person, Investment Person or Portfolio Manager shall purchase or sell, directly or indirectly, any security which to his/her knowledge is being actively considered for purchase or sale by Delaware; except that this prohibition shall not apply to: (A) purchases or sales that are nonvolitional on the part of either the Person or the Account; (B) purchases which are part of an automatic dividend reinvestment plan; (C) purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; (D) other purchases and sales specifically approved by the President or Chief Executive Officer, with the advice of the General Counsel and/or the Compliance Director, and deemed appropriate because of unusual or unforeseen circumstances. A list of securities excepted will be maintained by the Compliance Department. 3 (E) purchases or sales made by a wrap manager in an Affiliated Person's or Access Person's managed account, provided that such purchases or sales do not reflect a pattern of conflict. (c) Except for trades that meet the definition of de minimis, no Affiliated Person, Access Person, Investment Person or Portfolio Manager may execute a buy or sell order for an account in which he or she has beneficial ownership or control until the third trading day following the execution of a Delaware buy or sell order in that same security. (d) Despite any fault or impropriety, any Affiliated Person, Access Person, Investment Person or Portfolio Manager who executes a buy or sell for an account in which he/she has beneficial ownership or control either (i) before the third trading day following the execution of a Delaware order in the same security, or (ii) when there are pending orders for a Delaware transaction as reflected on the open order blotter, shall forfeit any profits made (in the event of purchases) or loss avoided (in the event of sales), whether realized or unrealized, in the period from the date of the personal transaction to the end of the proscribed trading period. Payment of the amount forfeited shall be made by check or in cash to a charity of the person's choice and a copy of the check or receipt must be forwarded to the Compliance Department. (e) Except for Managed Accounts meeting the provisions of Section I(b)(E) above, each Affiliated Person or Access Person's personal transactions must be precleared by using the Personal Transaction System. The information must be submitted prior to entering any orders for personal transactions. Preclearance is only valid for the day the request is submitted. If the order is not executed the same day, the preclearance request must be resubmitted. Regardless of preclearance, all transactions remain subject to the provisions of (d) above. II. In addition to the requirements noted in Section I, the following additional restrictions apply to all Investment Personnel and Portfolio Managers. (a) All Investment Personnel and Portfolio Managers are prohibited from purchasing any initial public offering. (b) All Investment Personnel and Portfolio Managers are prohibited from purchasing any private placement without express PRIOR written consent by the Compliance Department. All private placement holdings are subject to disclosure to the Compliance Department. Any Investment Person or Portfolio Manager that holds a private placement must receive permission from the Compliance or Legal Departments prior to any participation by such person in Delaware's consideration of an investment in the same issuer. (c) Short term trading resulting in a profit is prohibited. All opening positions must be held for a period of 60 days, in the aggregate, before they can be closed at a profit. Any short term trading profits are subject to the disgorgement procedures outlined above and at the maximum level of profit obtained. The closing of positions at a loss is not prohibited. (d) All Investment Personnel and Portfolio Managers are prohibited from receiving anything of more than a de minimis value from any person or entity that does business with or on behalf of any account or client. Things of value may include, but not be limited to, travel expenses, special deals or incentives. 4 (e) All Investment Personnel and Portfolio Managers require PRIOR written approval from the Legal or Compliance Department before they may serve on the board of directors of any public company. III. In addition to the requirements noted in Sections I and II, the following additional restrictions apply to all Portfolio Managers. (a) No Portfolio Manager may execute a buy or sell order for an account for which he/she has beneficial ownership within seven calendar days before or after an investment company or separate account that he/she manages trades in that security. (b) Despite any fault or impropriety, any Portfolio Manager who executes a personal transaction within seven calendar days before or after an investment company or separate account that he/she manages trades in that security, shall forfeit any profits made (in the event of purchases) or loss avoided (in the event of sales), whether realized or unrealized, in the period from the date of the personal transaction to the end of the prescribed trading period. Payment of the amount forfeited shall be made by check or in cash to a charity of the person's choice and a copy of the check or receipt must be forwarded to the Compliance Department. REQUIRED REPORTS - ---------------- I. The following reports are required to be made by all Affiliated Persons, Access Persons, Investment Personnel, Portfolio Managers. (a) Disclose brokerage relationships at employment and at the time of opening any new account. (b) Direct their brokers to supply to the Compliance Department, on a timely basis, duplicate copies of all confirmations and statements for all securities accounts and Managed Accounts. (In the U.K., all contract notes and periodic statements) (c) Each quarter, no later than the tenth day after the end of the calendar quarter, submit to the Compliance Department a personal transaction summary showing all transactions in securities in accounts which such person has or acquires any direct or indirect beneficial ownership. Each Director who is not an interested person shall submit the quarterly reports only for transactions where at the time of the transaction the director knew, or in the ordinary course of fulfilling his official duties as a director should have known, that during the fifteen day period immediately preceding the date of the transaction by the director, such security was purchased or sold by the Account's or was being considered for purchase or sale by the Account's. Every report will contain the following information: (i) the date of the transaction, the name and the number of shares and the principal amount of each security involved; (ii) the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (iii) the price at which the transaction was effected; (iv) the name of the broker, dealer or bank effecting the transaction. (d) All Affiliated Persons must annually certify that they have read and complied with this Code of Ethics and all disclosure and reporting requirements contained therein. 5 II. In addition to the above reporting requirements, all Access Persons, Investment Personnel and Portfolio Managers must: (a) Provide an initial holdings report no later than 10 days upon commencement of employment that discloses all personal securities holdings. (b) Provide an annual holdings report containing information regarding all personal securities holdings. This report must be current as of a date no more than 30 days before the report is submitted. ADMINISTRATIVE PROCEDURES - ------------------------- (a) The Compliance Department of Delaware will identify all Affiliated Persons, Access Persons, Investment Personnel and Portfolio Managers and will notify them of this classification and their obligations under this Code. The Compliance Department will also maintain procedures regarding the review of all reports required to be made under Rule 17j-1. (b) The Legal or Compliance Department shall report to the President or Chief Executive Officer any apparent violations of the prohibitions or reporting requirements contained in this Code of Ethics. Such Chief Executive Officer or President, or both, will review the reports made and determine whether or not the Code of Ethics has been violated and shall determine what sanctions, if any, should be imposed in addition to any that may already have been imposed. On a quarterly basis, a summary report of material violations of the Code and the sanctions imposed will be made to the Board of Directors or Committee of Directors created for that purpose. In reviewing this report, the Board will consider whether the appropriate sanctions were imposed. When the Legal Department finds that a transaction otherwise reportable above could not reasonably be found to have resulted in a fraud, deceit or manipulative practice in violation of Rule 17j-1(b), it may, in its discretion, lodge a written memorandum of such finding in lieu of reporting the transaction. (c) All material purchases and sales specifically approved by the President or Chief Executive Officer in accordance with Section (I)(b)(D) of Prohibited Activities, as described herein, shall be reported to the Board at its next regular meeting. (d) The Board of Directors, including a majority of independent directors, must approve the Fund's Code, as well as the Code of any adviser and principal underwriter. If an adviser or underwriter makes a material changes to its code, the Board must approve the material change within six months. The Board must base its approval of a code of ethics, or a material change to a code, upon a determination that the code contains provisions reasonable necessary to prevent "access persons" from violating the anti-fraud provisions of the Rule 17j-1. (e) At least once a year, the Board must be provided a written report from each Rule 17j-1 organization that (1) describes issues that arose during the previous year under the code or procedures applicable to the Rule 17j-1 organization, including, but not limited to, information about material code or procedure violations and sanctions imposed in response to those material violations and (2) certifies to the Fund's board that the Rule 17j-1 organization has adopted procedures reasonably necessary to prevent its access persons from violating its Code of Ethics. 6 Addendum to Delaware Investments Code of Ethics Effective April 1, 2001, the Delaware Investments Code of Ethics (the "Code") is being amended to reflect the integration of the former Lincoln 401K Group into Retirement Financial Services, Inc. All employees of this Fort Wayne based unit are "affiliated persons" under the Code and consequently are subject to all applicable requirements except that they will not be subject to requirements specified in Part I, Prohibited Activities, Sections (b) through (e) inclusive. 7 -----END PRIVACY-ENHANCED MESSAGE-----