<PAGE>
For Asset Allocation
FOUNDATION FUNDS
GROWTH PORTFOLIO
BALANCED PORTFOLIO
INCOME PORTFOLIO
service and guidance
professional management
1998
Annual Report
DELAWARE(SM)
INVESTMENTS
- ----------------------
Philadelphia o London
<PAGE>
goals
A TRADITION OF SOUND INVESTING
commitment
A Commitment
To Our Investors
Delaware Investments has a money management tradition that dates back to 1929.
We have a long and distinguished history of helping individuals reach their
financial goals through a full range of investment opportunities that include
equity and fixed-income mutual funds.
Headquartered in Philadelphia with an international affiliate in London, the
Delaware organization has managed domestic stock and bond mutual fund portfolios
since 1938 and international investments since 1990.
Delaware Investments manages more than $40 billion in mutual fund assets and
institutional advisory accounts. We offer a wide variety of equity and
fixed-income investments, retirement plan accounts, IRAs, investment accounts
for variable annuities and closed-end funds.
Complete information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.
FUND OBJECTIVES
GROWTH PORTFOLIO
To seek long-term capital growth.
BALANCED PORTFOLIO
To seek capital appreciation with current income as a secondary objective.
INCOME PORTFOLIO
To seek a combination of current income and preservation of capital with capital
appreciation.
Table of Contents
LETTER TO SHAREHOLDERS Page 1
PORTFOLIO MANAGER'S REVIEW Page 3
FOUNDATION FUNDS POSITIONING Page 4
FUND ALLOCATIONS Page 7
PERFORMANCE SUMMARY Page 8
STATEMENTS OF NET ASSETS Page 9
FINANCIAL HIGHLIGHTS Page 15
asset
allocation
tradition
<PAGE>
October 16, 1998
for asset
allocation
1
Dear Shareholder:
FOUNDATION FUNDS' INAUGURAL FISCAL year was completed on September 30, 1998.
During the Funds' initial nine months of operations, U.S. and global financial
markets weakened substantially as economic and financial problems gripped
developing countries. This past summer, the placid, mid-1990s era of easy
capital appreciation turned into turbulent waters for most equity investors.
The Funds' total returns for fiscal 1998 were disappointing. We faced the
difficult task of building long-term portfolios during a period of heightened
short-term stock market volatility, rapidly rising investment grade bond prices
and increasing credit risks for high-yield bonds. We met the challenge by
sticking with time-tested asset allocation approaches that we believe have the
potential to provide rewarding long-term fruit for investors.
Below, we compare the Funds' performance since December 1997 with that of
unmanaged indexes representing different asset classes. Despite substantial
losses in August and September, the Standard & Poor's 500 Index, an unmanaged
index of large, blue chip stocks, rose +6.02% for the nine months ended
September 30 with dividends reinvested. To put third quarter losses in
perspective, consider that
- --------------------------------------------------------------------------------
We faced the difficult task of building long-term portfolios during a period of
heightened short-term stock market volatility, rapidly rising investment grade
bond prices and increasing credit risks for high-yield bonds.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
December 31, 1997
Foundation Funds to September 30, 1998
- --------------------------------------------------------------------------------
Growth Portfolio A Class -3.88%
Balanced Portfolio A Class -3.68%
Income Portfolio A Class -1.21%
- --------------------------------------------------------------------------------
Unmanaged Equity Indexes
Standard & Poor's 500 Index +6.02%
Morgan Stanley Europe, Australia and Far East (EAFE) Index -0.34%
Russell 2000 Index -16.21%
Morgan Stanley Emerging Markets Free Index -36.72%
- --------------------------------------------------------------------------------
Unmanaged Fixed Income Indexes
Lehman Brothers Aggregate Bond Index +8.32%
Salomon Brothers High Yield Bond Index +0.96%
- --------------------------------------------------------------------------------
All performance shown above is at net asset value and assumes reinvestment of
distributions. See page 8 for portfolio performance for all Classes. Performance
of other Fund classes varies due to different expenses. The Russell 2000 Index
is an unmanaged measure of 2000 smaller companies as compiled by the Frank
Russell Co. The Morgan Stanley EAFE index is an unmanaged measure of
international stocks in established markets. The Morgan Stanley Emerging Markets
Free Index is an unmanaged measure of international stocks in emerging markets.
The Lehman Brothers Aggregate Bond Index is an unmanaged measure of investment
grade domestic bonds. The Salomon Brothers High Yield Bond Index is an unmanaged
measure of lower rated domestic corporate bonds. Past performance does not
guarantee future results.
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for asset
allocation
2
the S&P 500 rose +17.7% during the first six months of calendar 1998.
A similar story unfolded in foreign equity markets. The Morgan Stanley EAFE
Index, an unmanaged index of international stocks in established markets, saw
its six-month return of +15.1% as of June 30 erode to -0.34% by September 30.
Emerging market stocks, meanwhile, also suffered substantial losses.
Beginning with the dog days of August, many investors who had chased the
largest, fastest growing stocks learned about investment risk the hard way. Some
took a "hold and see" approach, while others simply fled the market, incurring
substantial capital losses.
We contend that diversification is the most sensible path to building wealth
over the long term because it helps reduce volatility. In our view, asset
allocation can be more important to the long-term performance of an investment
than choosing specific securities or trying to "time" the markets.
Diversification is the basis of each of the Foundation Funds' portfolios.
Since we reported to you in April, the three Foundation Funds' portfolios
remained invested in a diversified mix of Delaware Investments' mutual funds,
representing three asset classes: U.S. stocks, foreign stocks and U.S. fixed
income securities. As of September 30, foreign bonds were absent from the
portfolios. We felt this asset class offered little added value to compensate
investors for possible currency fluctuations.
On the pages that follow, J. Paul Dokas, Foundation Funds' manager, reviews
the economic and market events of the past nine months, and how these events
influenced the strategic asset mixes and mutual fund allocations of the three
portfolios.
We thank you for choosing Foundation Funds for your long-term investment
program, and we look forward to reporting to you again next spring.
Sincerely,
/s/ WAYNE A. STORK
- --------------------------
WAYNE A. STORK
Chairman
/s/ JEFFREY J. NICK
- --------------------------
JEFFREY J. NICK
President and Chief Executive Officer
About Foundation Funds' Portfolio Manager
J. Paul Dokas has more than a decade of investment experience. Prior to joining
Delaware Management Company in February 1997, he was a Director of Trust
Investments for Bell Atlantic Corp.'s $20 billion pension fund. Mr. Dokas holds
an MBA from the University of Maryland and a bachelor's degree in business from
Loyola College. He is a Chartered Financial Analyst.
<PAGE>
for asset
allocation
3
Portfolio Manager's Review
J. PAUL DOKAS
Vice President/Senior Portfolio Manager
October 16, 1998
U.S. STOCKS STIFLED BY
GLOBAL FINANCIAL CRISIS
AS WE LAUNCHED FOUNDATION FUNDS ON
the eve of 1998, the U.S. economy was entering its eighth consecutive year of
expansion. Fueled by low interest rates and benign inflation, the economy grew
at an annual rate of 5.4% in the first calendar quarter, only the fourth time in
history that growth exceeded 5%. Second quarter economic growth came in lower at
1.8%, due to cut backs in purchases of U.S. goods by foreign consumers and
businesses.
With this supportive backdrop, the stocks of large U.S. companies continued
to post tremendous returns as investors poured money into U.S. equities. By June
30, the S&P 500 had risen 18% for the year. The ebullient market environment
ended in late July, however, as investors became increasingly concerned that
U.S. markets might be affected by global economic weakness. This initiated a
sell-off in the broad stock market that made daily headlines through the third
quarter.
By early October, the Federal Reserve's Open Market Committee decided to
reduce its target for short-term interest rates, citing "increasing weakness in
foreign economies and less accommodative financial conditions domestically." The
federal funds rate (the interest rate charged between banks for overnight loans)
was lowered by 50 basis points (0.50%) to 5%. Some analysts anticipate that the
Federal Reserve may further reduce its target for short-term interest rates
again by year's end.
A CHAIN REACTION IN INTERNATIONAL MARKETS
Reports of the growing severity of Japan's economic and banking crisis spawned
economic troubles elsewhere in the world, including other East Asian economies.
In mid-August, Russia faced a renewed financial crisis stemming from heightened
perceptions of credit risk. And, most recently, global turmoil has been
pressuring several Latin American economies.
In a September 30 report, The International Monetary Fund (IMF), which
forecasts world economic growth, lowered
SOME ANALYSTS ANTICIPATE THAT THE FEDERAL RESERVE MAY FURTHER REDUCE ITS TARGET
FOR SHORT-TERM INTEREST RATES AGAIN BY YEAR'S END.
overview
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for asset
allocation
4
its projections for world growth in 1998 and 1999 because of global economic
turmoil. The revised growth projection for 1998 is 2% and for 1999 is 2.5%. The
IMF stated that "international economic and financial conditions have
deteriorated considerably in recent months, and chances of any significant
improvement in 1999 have also diminished."
U.S. BOND PRICES SOAR,
YIELDS HIT NEW LOW
The silver lining in the cloud over the U.S. equity market is that long-term
U.S. Treasury bonds remained a strong investment, returning +7.89% for the third
quarter. As investors sought a safe haven from stock price volatility, cash
flows shifted toward U.S. Treasury securities. This `flight to safety' boosted
U.S. government bond prices, and conversely drove bond yields to historic lows.
For the first time in recent history, the yield on the 30-year U.S. Treasury
bond broke the 5% mark, dropping from 5.92% in January to 4.97% on September 30.
As of mid-October, yields on all other Treasury maturities fell as well in
response to the Federal Reserve's 50 basis point cut in short-term interest
rates.
FOUNDATION FUNDS POSITIONING
GROWTH PORTFOLIO
Between March 31 and September 30, we increased Growth Portfolio's equity mutual
fund allocation to 89.6% of net assets from 58.6%. This repositioning
contributed to the portfolio's negative return for the period as stock prices
fell substantially. We re-allocated some of Growth Portfolio's international
stock fund holdings to four domestic stock funds: Decatur Total Return Fund and
U.S. Growth Fund (which both focus on large companies); Aggressive Growth Fund
(which invests in companies of all sizes) and Small Cap Value Fund (which
focuses on smaller, undervalued companies).
In our view, this summer's plunge in U.S. stock prices and surge in Treasury
bond prices has made domestic equities a more
growth
Foundation chart data
How Different Asset Classes Fared During 1998
Total Return December 31, 1997 to September 30, 1998
Morgan Stanley Merrill Lynch
Europe Australia High Yield Standard & Poor's
Far East Index Bond Index 500 Index
Dec. '97 0 % 0 % 0 %
Jan. '98 0.87% 1.46% 1.10%
Feb. '98 1.60% 1.88% 8.39%
Mar. '98 1.28% 2.79% 13.94%
Apr. '98 1.08% 3.27% 15.08%
May '98 1.85% 3.94% 13.11%
Jun. '98 1.25% 4.51% 17.70%
Jul. '98 1.13% 5.10% 16.45%
Aug. '98 1.53% 0.57% -0.37%
Sep. '98 +1.65% +0.77% +6.02%
Past performance does not guarantee future results. Index results do not
represent past or future performance of any Delaware Investments mutual fund.
Source: Bloomberg Business News.
<PAGE>
for asset
allocation
5
attractive asset class for long-term investors than U.S. government securities.
Since the 1920s, U.S. stocks have provided average annual returns of
approximately 10% per year, according to Ibbotson Associates, and we believe the
stock market's recent volatility signals a resumption of this historical
pattern. At the same time, we believe the total return potential from government
bonds has become more limited as yields have fallen below 5%.
Of the equity position, approximately 17% of the Growth Portfolio's assets
were invested in small company stocks, which lagged the broader market in 1998.
We believe this overweighting is prudent given what we believe are relatively
strong earnings prospects for small company stocks. We sold our 3% position in
REIT Fund this summer to focus more heavily on mutual funds investing in small
industrial and consumer stocks.
Selected small company stocks currently offer attractive value compared to
large company stocks, in our view. Historically, small company stocks have
offered much lower dividend yields than large company stocks. However, as of
September 30 the dividend yield of the S&P 500 and Russell 2000 Indexes were
nearly identical. We see this as a sign of small company stocks' capital
appreciation potential.
Balanced Portfolio
As we implemented a long-term investment strategy during the second half of
fiscal 1998, we gradually reduced the Balanced Portfolio's cash position from
6.3% in March to 1.5% as of September 30. We also sold a 2.8% position in REIT
Fund that the portfolio held in the spring. We reallocated these assets to other
domestic stock funds. This included a 13.2% position in Aggressive Growth Fund
and Small Cap Value Fund. Like the Growth Portfolio, we increased the Balanced
Portfolio's small company stock allocation to tap the market's long-term capital
appreciation potential.
balance
A DIVERSIFIED PORTFOLIO:
ATTRACTIVE RETURNS AND A REDUCED RISK PROFILE
10 YEARS ENDED SEPTEMBER 30, 1998
Average Annual Annual
Total Returns Volatility
Standard & Poor's 500 Index +16.3% 15.0%
Lehman Brothers Aggregate Bond Index +10.1% 6.8%
Morgan Stanley Europe Australia Far East Index +12.7% 17.4%
Diversified Portfolio* +14.7% 11.6%
*A mix of 60% S&P 500 Index, 20% Morgan Stanley EAFE Index and 20% Lehman
Brothers Aggregate Bond Index. Past performance does not guarantee future
results. Volatility is measured by standard deviation. This illustration of
unmanaged indexes is not intended to represent the performance or potential
volatility of any Foundation Fund portfolio. Source: Ibbotson Associates.
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for asset
allocation
6
In fiscal 1998, the Balanced Portfolio underperformed the average of mutual
funds investing in a combination of stocks and bonds because the Portfolio had a
higher-than-average weighting in funds investing in international and small cap
securities, two asset classes that have performed poorly this year.
The Balanced Portfolio also suffered because we allocated more assets to
domestic equity funds employing a value investment discipline than funds
employing growth strategies. Returns from growth style investments significantly
outperformed value investments for the nine-month period ended September 30.
As of September 30, investments in U.S. Government Fund and Delchester Fund
totaled 28.2% of net assets. Our position in U.S. Government Fund helped the
Balanced Portfolio's fiscal 1998 performance by preserving capital this past
summer. Our Delchester position provided high income, but lost principal value
in August as investors grew concerned about the credit risks of the high-yield
bond market.
Income Portfolio
As we entered the summer of 1998, we had allocated more than 40% of the Income
Portfolio's net assets to U.S. and overseas equity markets, a percentage that
was near the high end of our equity target range. While we believe this made
sense in the context of a long-term investment strategy, our allocation decision
negatively affected the Portfolio's short-term returns, resulting in a net loss
for fiscal 1998.
As of September 30, equities represented nearly half of the portfolio's net
assets. We remain comfortable with this positioning. As we noted six months ago,
research conducted by the University of Pennsylvania's Wharton School of
Business showed that allocating as much as 45% of an income portfolio to stocks
can provide higher total return without any more portfolio volatility than
long-term bonds.
income
Dividend Yield
A SIGNAL OF EQUITY VALUE:
RELATIVELY HIGH YIELDS FROM SMALL STOCKS
SEPTEMBER 30, 1995 TO SEPTEMBER 30, 1998
Standard & Poor's Russell
500 Index 2000 Index
Sep. '95 2.33% 1.46%
Sep. '96 2.11% 1.5%
Sep. '97 1.60% 1.1%
Sep. '98 1.57% 1.5%
Source: Bloomberg Business News. This illustration is not intended to represent
the current SEC yield of any Delaware Investments mutual fund.
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for asset
allocation
7
As of year's end, we held a small position (2.3%) in REIT Fund because we
believe real estate offers attractive long-term income potential. The balance of
the Income Portfolio's assets were allocated as follows: 48% to U.S. government
and high-yield bonds - using U.S. Government and Delchester Fund - and 3.4% in
short-term cash equivalents. Over time, we believe that high yield bonds have
the potential to offer solid returns compared to other asset classes.
Two international funds previously held in the portfolio - Global Bond Fund
and Emerging Markets Fund - were sold to increase investments in U.S. stock and
bond funds. U.S. securities were generally more appealing since August, than
foreign securities. Our one remaining international investment as of September
30 was International Equity Fund, at 5.1% of portfolio assets.
SUMMARY OUTLOOK
If the financial markets' volatility over the past few months taught investors
anything, it is that reward cannot be separated from risk. We stand firm in our
belief that a diversified portfolio of U.S. and foreign stocks and bonds can
serve as a prudent recipe for achieving consistent returns over time at lower
levels of portfolio volatility. This philosophy, of course, is the premise of
the Foundation Funds' portfolios.
As we begin Foundation Funds' 1999 fiscal year, we believe that more
investors are beginning to see the potential benefits of portfolio
diversification and the tempering role of fixed-income investments. History has
shown that keeping one's eggs in many baskets is the best way to guard against a
sudden crack in any one basket.
outlook
<TABLE>
<CAPTION>
FUND ALLOCATIONS
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<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998
Growth Balanced Income
Fund Type/Style Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------
Decatur Total Return Fund Large-Cap Value Stocks 28.8% 23.3% 17.3%
- -----------------------------------------------------------------------------------------------------------
U.S. Growth Fund Large-Cap Growth Stocks 28.5% 23.5% 17.4%
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth Fund Multi-Cap Growth Stocks 9.9% 6.1% 3.8%
- -----------------------------------------------------------------------------------------------------------
Small Cap Value Fund Small-Cap Value Stocks 6.9% 7.1% 2.5%
- -----------------------------------------------------------------------------------------------------------
REIT Fund Real Estate Stocks 0 0 2.3%
- -----------------------------------------------------------------------------------------------------------
International Equity Fund Non-US Stocks 13.2% 8.2% 5.2%
- -----------------------------------------------------------------------------------------------------------
Emerging Markets Fund Developing Country Stocks 2.0% 2.1% 0
- -----------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Corporate Bonds 5.0% 14.0% 23.9%
- -----------------------------------------------------------------------------------------------------------
U.S. Government Fund Mortgages & Treasuries 5.0% 14.2% 24.2%
- -----------------------------------------------------------------------------------------------------------
Cash Equivalents 0.7% 1.5% 3.4%
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</TABLE>
All portfolio holdings are institutional class shares of each Fund.
A major reason for the Funds' weak performance this year has been their exposure
to small U.S. and emerging market stocks. The average combined exposure to these
categories during the period had been roughly 10%, 15% and 20%, respectively, in
the Income, Balanced, and Growth Portfolios.
<PAGE>
for asset
allocation
8
Performance Summary
Performance of a $10,000 Investment
December 31, 1997 to September 30, 1998
<TABLE>
<CAPTION>
Lehman Brothers
Aggregate Standard & Poor's Income Portfolio Balanced Portfolio Growth Portfolio
Bond Index 500 Index A Class A Class A Class
---------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Dec. '97 $10,000 $10,000 $ 9,508 $ 9,508 $ 9,508
Jan. '98 $10,128 $10,111 $ 9,541 $ 9,508 $ 9,508
Feb. '98 $10,120 $10,840 $ 9,821 $ 9,899 $10,056
Mar. '98 $10,154 $11,395 $10,067 $10,235 $10,492
Apr. '98 $10,201 $11,510 $10,101 $10,280 $10,559
May '98 $10,305 $11,312 $ 9,978 $10,067 $10,257
Jun. '98 $10,393 $11,771 $10,029 $10,135 $10,336
Jul. '98 $10,414 $11,646 $ 9,961 $ 9,944 $10,123
Aug. '98 $10,584 $ 9,962 $ 9,162 $ 8,810 $ 8,714
Sep. '98 $10,832 $10,602 $ 9,311 $ 9,078 $ 9,059
</TABLE>
Chart assumes $10,000 invested on December 31, 1997 and includes the effect of a
5.75% maximum front-end sales charge and the reinvestment of all distributions.
Performance of other classes of each Portfolio will vary due to differing
charges and expenses. Past performance does not guarantee future results.
Performance for the short time shown may not be indicative of future results.
Effective November 2, 1998, the maximum sales charge on Class A shares was
raised from 4.75% to 5.75% for investments of less than $50,000 made after this
date.
<TABLE>
<CAPTION>
FOUNDATION FUNDS PERFORMANCE
LIFETIME CUMULATIVE RETURNS
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DECEMBER 31, 1997 THROUGH SEPTEMBER 30, 1998
Growth Portfolio Balanced Portfolio Income Portfolio
<S> <C> <C> <C>
Class A (Est. 12/31/97)
Excluding Sales Charge -3.88% -3.68% -1.21%
Including Sales Charge -9.42% -9.23% -6.91%
- -------------------------------------------------------------------------------------------
Class B (Est. 12/31/97)
Excluding Sales Charge -4.24% -4.02% -1.56%
Including Sales Charge -9.02% -8.80% -6.43%
- -------------------------------------------------------------------------------------------
Class C (Est. 12/31/97)
Excluding Sales Charge -4.24% -3.90% -1.56%
Including Sales Charge -5.19% -4.86% -2.53%
- -------------------------------------------------------------------------------------------
Institutional Class* -3.77% -3.56% -1.10%
</TABLE>
Return and share value will fluctuate so that shares, when redeemed, may be
worth more or less than the original cost. Results include the effect of sales
charges as shown below. Lifetime performance for B and C shares excluding sales
charge assumes contingent sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results. Performance for
the short time shown may not be indicative of future results.
Class A shares have a 5.75% maximum front-end sales charge and a 12b-1 fee.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are subject to a deferred sales charge
of up to 5% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
*Available without sales charge or asset-based distribution charges only to
eligible institutional accounts.
<PAGE>
for asset allocation 9
Financial Statements
DELAWARE GROUP FOUNDATION FUNDS
GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1998
NUMBER OF MARKET
SHARES VALUE
--------- ------
INVESTMENT COMPANIES - 99.32%
EQUITY FUNDS - 89.31%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ................................... 39,631 $443,071
Delaware Group Equity Funds II, Inc. -
Decatur Total Return Fund .......................... 26,108 447,225
Delaware Group Equity Funds V, Inc. -
Small Cap Value Fund ............................... 4,484 107,250
Delaware Group Global & International Funds, Inc. -
Emerging Markets Series ............................ 5,412 31,064
Delaware Group Global & International Funds, Inc. -
International Equity Series ........................ 14,912 204,437
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund ............................. 8,950 154,480
------------
1,387,527
------------
FIXED INCOME FUNDS - 10.01%
Delaware Group Government Fund, Inc. -
Government Income Series ........................... 9,795 78,166
Delaware Group Income Funds, Inc. -
Delchester Fund .................................... 12,943 77,397
------------
155,563
------------
Total Investment Companies (cost $1,690,918) .......... 1,543,090
------------
PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENTS - 2.00%
With Chase Manhattan 5.35% 10/01/98
(dated 09/30/98, collateralized by $5,000
U.S. Treasury Notes 5.375% due 01/31/00,
market value $5,283 and $1,000 U.S. Treasury
Notes 5.875% due 08/31/99, market value
$1,498 and $4,000 U.S. Treasury Notes 6.75%
due 04/30/00, market value $4,767) ................. $11,300 11,300
With J.P. Morgan Securities 5.25% 10/01/98
(dated 09/30/98, collateralized by $3,000
U.S. Treasury Notes 6.00% due 08/15/00,
market value $3,578 and $5,000 U.S. Treasury
Notes 6.25% due 05/31/99, market value
$5,305 and $1,000 U.S. Treasury Notes 6.25%
due 04/30/01, market value $998) ................... 9,700 9,700
With PaineWebber 5.30% 10/01/98 (dated
09/30/98, collateralized by $10,000 U.S.
Treasury Notes 4.50% due 09/30/00,
market value $10,229) .............................. 10,000 10,000
------------
Total Repurchase Agreements (cost $31,000) ............ 31,000
------------
<PAGE>
MARKET
VALUE
------
TOTAL MARKET VALUE OF SECURITIES - 101.32%
(COST $1,721,918) ......................................... $1,574,090
LIABILITIES NET OF RECEIVABLES & OTHER ASSETS - (1.32%) ...... (20,528)
------------
NET ASSETS APPLICABLE TO 190,587 SHARES
OUTSTANDING - 100.00% ..................................... $1,553,562
============
NET ASSET VALUE - GROWTH PORTFOLIO A CLASS
($546,507 / 66,883 SHARES) ................................ $8.17
============
NET ASSET VALUE - GROWTH PORTFOLIO B CLASS
($884,889 / 108,732 SHARES) ............................... $8.14
============
NET ASSET VALUE - GROWTH PORTFOLIO C CLASS
($74,033 / 9,090 SHARES) .................................. $8.14
============
NET ASSET VALUE - GROWTH PORTFOLIO INSTITUTIONAL CLASS
($48,133 / 5,882 SHARES) .................................. $8.18
============
COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 1998:
Capital shares (unlimited authorization-no par) .............. $1,712,126
Undistributed net investment income .......................... 3,004
Accumulated net realized loss on investments ................. (13,740)
Net unrealized depreciation of investments ................... (147,828)
------------
Total net assets ............................................. $1,553,562
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
GROWTH PORTFOLIO A CLASS
Net asset value A Class (A) .................................. $8.17
Sales charge (4.75% of offering price or 5.02%
of the amount invested per share)(B) ........................ 0.41
------------
Offering price ............................................... $8.58
============
- ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of $50,000 or
more. See notes to financial statements for change in front-end sales
charge effective November 2, 1998.
See accompanying notes
<PAGE>
10 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1998
NUMBER OF MARKET
SHARES VALUE
--------- ------
INVESTMENT COMPANIES - 98.47%
EQUITY FUNDS - 70.27%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ................................... 44,523 $497,762
Delaware Group Equity Funds II, Inc. -
Decatur Total Return Fund .......................... 28,892 494,913
Delaware Group Equity Funds V, Inc. -
Small Cap Value Fund ............................... 6,286 150,358
Delaware Group Global & International Funds, Inc. -
Emerging Markets Series ............................ 7,596 43,603
Delaware Group Global & International Funds, Inc. -
International Equity Series ........................ 12,732 174,555
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund ............................. 7,528 129,925
------------
1,491,116
------------
FIXED INCOME FUNDS - 28.20%
Delaware Group Government Fund, Inc. -
Government Income Series ........................... 37,659 300,518
Delaware Group Income Funds, Inc. -
Delchester Fund .................................... 49,811 297,870
------------
598,388
------------
Total Investment Companies
(cost $2,265,735) 2,089,504
------------
PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENTS - 4.15%
With Chase Manhattan 5.35% 10/01/98
(dated 09/30/98, collateralized by $15,000
U.S. Treasury Notes 5.375% due 01/31/00,
market value $14,996 and $4,000 U.S.
Treasury Notes 5.875% due 08/31/99,
market value $4,253 and $13,000 U.S.
Treasury Notes 6.75% due 04/30/00,
market value $13,532) .............................. $32,100 32,100
With J.P. Morgan Securities 5.25% 10/01/98
(dated 09/30/98, collateralized by $10,000
U.S. Treasury Notes 6.00% due 08/15/00,
market value $10,158 and $15,000
U.S. Treasury Notes 6.25% due 05/31/99,
market value $15,059 and $3,000 U.S.
Treasury Notes 6.25% due 04/30/01,
market value $2,833) ............................... 27,500 27,500
With PaineWebber 5.30% 10/01/98 (dated
09/30/98, collateralized by $29,000 U.S.
Treasury Notes 4.50% due 09/30/00, market
value $29,038) ..................................... 28,400 28,400
------------
Total Repurchase Agreements (cost $88,000) ............ 88,000
------------
<PAGE>
MARKET
VALUE
------
TOTAL MARKET VALUE OF SECURITIES - 102.62%
(COST $2,353,735) ......................................... $2,177,504
LIABILITIES NET OF RECEIVABLES & OTHER ASSETS - (2.62%) ...... (55,503)
------------
NET ASSETS APPLICABLE TO 260,841 SHARES
OUTSTANDING - 100.00% ..................................... $2,122,001
============
NET ASSET VALUE - BALANCED PORTFOLIO A CLASS
($971,753 / 119,515 SHARES) ............................... $8.13
============
NET ASSET VALUE - BALANCED PORTFOLIO B CLASS
($407,796 / 50,162 SHARES) ................................ $8.13
============
NET ASSET VALUE - BALANCED PORTFOLIO C CLASS
($694,215 / 85,233 SHARES) ................................ $8.14
============
NET ASSET VALUE - BALANCED PORTFOLIO INSTITUTIONAL CLASS
($48,237 / 5,931 SHARES) .................................. $8.13
============
COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 1998:
Capital shares (unlimited authorization-no par) .............. $2,300,701
Undistributed net investment income .......................... 4,091
Accumulated net realized loss on investments ................. (6,560)
Net unrealized depreciation of investments ................... (176,231)
------------
Total net assets ............................................. $2,122,001
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
BALANCED PORTFOLIO A CLASS
Net asset value A Class (A) .................................. $8.13
Sales charge (4.75% of offering price or 5.04%
of the amount invested per share)(B) ........................ 0.41
------------
Offering price ............................................... $8.54
============
- ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How To Buy Shares in the current Prospectus for purchases of $50,000 or
more. See notes to financial statements for change in front-end sales
charge effective November 2, 1998.
See accompanying notes
<PAGE>
for asset allocation 11
DELAWARE GROUP FOUNDATION FUNDS
INCOME PORTFOLIO
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1998
NUMBER OF MARKET
SHARES VALUE
--------- ------
INVESTMENT COMPANIES - 96.59%
EQUITY FUNDS - 48.51%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ................................... 9,284 $103,791
Delaware Group Equity Funds II, Inc. -
Decatur Total Return Fund .......................... 6,021 103,133
Delaware Group Equity Funds V, Inc. -
Small Cap Value Fund ............................... 621 14,856
Delaware Group Global & International Funds, Inc. -
International Equity Series ........................ 2,234 30,629
Delaware Pooled Trust, Inc. -
The Real Estate Investment Trust Portfolio ......... 1,046 13,977
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund ............................. 1,324 22,858
------------
289,244
------------
FIXED INCOME FUNDS - 48.08%
Delaware Group Government Fund, Inc. -
Government Income Series ........................... 18,057 144,098
Delaware Group Income Funds, Inc. -
Delchester Fund .................................... 23,836 142,538
------------
286,636
------------
Total Investment Companies (cost $606,449) ............ 575,880
------------
PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENTS - 3.52%
With Chase Manhattan 5.35% 10/01/98 (dated
09/30/98, collateralized by $3,000 U.S.
Treasury Notes 5.375% due 01/31/00,
market value $3,579 and $1,000 U.S. Treasury
Notes 5.875% due 08/31/99, market value
$1,015 and $3,000 U.S. Treasury Notes 6.75%
due 04/30/00, market value $3,229) ................. $7,660 7,660
With J.P. Morgan Securities 5.25% 10/01/98
(dated 09/30/98, collateralized by $2,000
U.S. Treasury Notes 6.00% due 08/15/00,
market value $2,424 and $3,000 U.S. Treasury
Notes 6.25% due 05/31/99, market value
$3,594 and $1,000 U.S. Treasury Notes 6.25%
due 04/30/01, market value $676) ................... 6,550 6,550
With PaineWebber 5.30% 10/01/98 (dated
09/30/98, collateralized by $7,000 U.S.
Treasury Notes 4.50% due 09/30/00, market
value $6,929) ...................................... 6,790 6,790
------------
Total Repurchase Agreements (cost $21,000) ............ 21,000
------------
<PAGE>
MARKET
VALUE
------
TOTAL MARKET VALUE OF SECURITIES - 100.11%
(COST $627,449) ........................................... $596,880
LIABILITIES NET OF RECEIVABLES & OTHER ASSETS - (0.11%) ...... (694)
------------
NET ASSETS APPLICABLE TO 71,936 SHARES
OUTSTANDING - 100.00% ..................................... $596,186
============
NET ASSET VALUE - INCOME PORTFOLIO A CLASS
($398,032 / 48,027 SHARES) ................................ $8.29
============
NET ASSET VALUE - INCOME PORTFOLIO B CLASS
($25,614 / 3,088 SHARES) .................................. $8.29
============
NET ASSET VALUE - INCOME PORTFOLIO C CLASS
($123,084 / 14,849 SHARES) ................................ $8.29
============
NET ASSET VALUE - INCOME PORTFOLIO INSTITUTIONAL CLASS
($49,456 / 5,972 SHARES) .................................. $8.28
============
COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 1998:
Capital shares (unlimited authorization-no par) .............. $623,083
Undistributed net investment income .......................... 3,078
Accumulated net realized gain on investments ................. 594
Net unrealized depreciation of investments ................... (30,569)
------------
Total net assets ............................................. $596,186
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
INCOME PORTFOLIO A CLASS
Net asset value A Class (A) .................................. $8.29
Sales charge (4.75% of offering price or 4.95%
of the amount invested per share)(B) ........................ 0.41
------------
Offering price ............................................... $8.70
============
- ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of $50,000 or
more. See notes to financial statements for change in front-end sales
charge effective November 2, 1998.
See accompanying notes
<PAGE>
12 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ---------
ASSETS:
<S> <C> <C> <C>
Investments at market $1,574,090 $2,177,504 $596,880
Dividends and interest receivable 4 13 3
Deferred organization costs 19,759 19,759 19,759
Subscriptions receivable 6,900 1,388 15
Prepaid and other assets 35,129 35,129 36,819
---------- ---------- ----------
Total assets 1,635,882 2,233,793 653,476
---------- ---------- ----------
LIABILITIES:
Liquidations payable -- 10,157 --
Other accounts payable and accrued expenses 82,320 101,635 57,290
---------- ---------- ----------
Total liabilities 82,320 111,792 57,290
---------- ---------- ----------
TOTAL NET ASSETS $1,553,562 $2,122,001 $596,186
========== ========== ==========
Investments at cost $1,721,918 $2,353,735 $627,449
========== ========== ==========
</TABLE>
See accompanying notes
<PAGE>
for asset allocation 13
DELAWARE GROUP FOUNDATION FUNDS
STATEMENTS OF OPERATIONS
FOR THE PERIOD DECEMBER 31, 1997* TO SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
INVESTMENT INCOME:
<S> <C> <C> <C>
Interest ............................................. $868 $1,737 $804
Dividends ............................................ 8,348 17,888 10,466
--------- --------- ---------
9,216 19,625 11,270
--------- --------- ---------
EXPENSES:
Management fees ...................................... 522 623 244
Custodian fees ....................................... 240 250 190
Dividend disbursing and transfer agent
fees and expenses ................................... 4,493 5,484 1,938
Distribution expenses ................................ 3,167 4,179 714
Registration fees .................................... 50,893 54,640 57,681
Reports and statements to shareholders ............... 8,928 8,833 9,899
Accounting and administration fees ................... 204 244 96
Professional fees .................................... 4,493 4,586 5,812
Directors' fees ...................................... 370 370 370
Taxes (other than taxes on income) ................... 213 216 211
Amortization of organization expenses ................ 3,458 3,458 3,458
Other ................................................ 216 210 145
--------- --------- ---------
77,197 83,093 80,758
Less expenses absorbed by Delaware
Management Company .................................. (70,985) (75,473) (78,684)
--------- --------- ---------
Total expenses ....................................... 6,212 7,620 2,074
--------- --------- ---------
NET INVESTMENT INCOME ................................ 3,004 12,005 9,196
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital gain distributions from investment
companies ........................................... 1,651 1,204 413
Net realized gain (loss) on investment
transactions ........................................ (15,391) (7,764) 181
Net change in unrealized appreciation/
depreciation of investments ......................... (147,828) (176,231) (30,569)
--------- --------- ---------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ...... (161,568) (182,791) (29,975)
--------- --------- ---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . $(158,564) $(170,786) $(20,779)
========= ========= =========
</TABLE>
- ----------------------
* Date of commencement of trading.
See accompanying notes
<PAGE>
14 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD DECEMBER 31, 1997* TO SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ---------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ............................... $3,004 $12,005 $9,196
Net realized gain (loss) on investments ............. (13,740) (6,560) 594
Net change in unrealized appreciation/
depreciation of investments ........................ (147,828) (176,231) (30,569)
---------- ---------- ---------
Net decrease in net assets resulting
from operations .................................... (158,564) (170,786) (20,779)
---------- ---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class .......................................... -- (4,474) (4,448)
B Class .......................................... -- (1,113) (224)
C Class .......................................... -- (1,914) (679)
Institutional Class .............................. -- (413) (767)
---------- ---------- ---------
-- (7,914) (6,118)
---------- ---------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class .......................................... 631,110 1,049,741 469,501
B Class .......................................... 986,205 511,331 27,226
C Class .......................................... 82,896 849,953 124,824
Institutional Class .............................. 50,000 50,000 50,000
Net asset value of shares issued upon reinvestment
of dividends from net investment income:
A Class .......................................... -- 4,474 4,448
B Class .......................................... -- 1,113 23
C Class .......................................... -- 1,867 679
Institutional Class .............................. -- 413 767
---------- ---------- ---------
1,750,211 2,468,892 677,468
---------- ---------- ---------
Cost of shares repurchased:
A Class .......................................... (35,100) (21,365) (54,264)
B Class .......................................... (2,495) (66,282) --
C Class .......................................... (490) (80,544) (121)
Institutional Class .............................. -- -- --
--------- --------- ---------
(38,085) (168,191) (54,385)
---------- ---------- ---------
Increase in net assets derived from capital
share transactions ................................. 1,712,126 2,300,701 623,083
---------- ---------- ---------
NET INCREASE IN NET ASSETS .......................... 1,553,562 2,122,001 596,186
NET ASSETS:
Beginning of period ................................. -- -- --
---------- ---------- ---------
End of period ....................................... $1,553,562 $2,122,001 $596,186
=========- ========== =========
</TABLE>
- ----------------------
* Date of commencement of trading.
See accompanying notes
<PAGE>
for asset allocation 15
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout the period were
as follows:
<TABLE>
<CAPTION>
GROWTH
GROWTH GROWTH GROWTH PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO INSTITUTIONAL
A CLASS B CLASS C CLASS CLASS
----------- ----------- ----------- -----------
12/31/97(1) 12/31/97(1) 12/31/97(1) 12/31/97(1)
to to to to
9/30/98 9/30/98 9/30/98 9/30/98
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................... $8.500 $8.500 $8.500 $8.500
Income from investment operations:
Net investment income(2) ............................ 0.062 0.014 0.013 0.078
Net realized and unrealized loss on investments ..... (0.392) (0.374) (0.373) (0.398)
-------- -------- -------- --------
Total from investment operations .................... (0.330) (0.360) (0.360) (0.320)
-------- -------- -------- --------
Net asset value, end of period ......................... $8.170 $8.140 $8.140 $8.180
======== ======== ======== ========
Total return(3) ........................................ (3.88%) (4.24%) (4.24%) (3.77%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............. $547 $885 $74 $48
Ratio of expenses to average net assets ............. 0.80% 1.55% 1.55% 0.55%
Ratio of expenses to average net assets
prior to expense limitation ........................ 14.36% 15.11% 15.11% 14.11%
Ratio of net investment income to average
net assets ......................................... 0.96% 0.21% 0.21% 1.21%
Ratio of net investment loss to average
net assets prior to expense limitation ............. 12.60%) (13.35%) (13.35%) (12.35%)
Portfolio turnover .................................. 77% 77% 77% 77%
</TABLE>
- ----------------------
(1) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
See accompanying notes
<PAGE>
16 for asset allocation
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout the period were
as follows:
<TABLE>
<CAPTION>
BALANCED
BALANCED BALANCED BALANCED PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO INSTITUTIONAL
A CLASS B CLASS C CLASS CLASS
----------- ----------- ----------- -----------
12/31/97(1) 12/31/97(1) 12/31/97(1) 12/31/97(1)
to to to to
9/30/98 9/30/98 9/30/98 9/30/98
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................. $8.500 $8.500 $8.500 $8.500
Income from investment operations:
Net investment income(2) .......................... 0.153 0.104 0.104 0.169
Net realized and unrealized loss
on investments ................................... (0.463) (0.444) (0.434) (0.469)
-------- -------- -------- --------
Total from investment operations .................. (0.310) (0.340) (0.330) (0.300)
-------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income .............. (0.060) (0.030) (0.030) (0.070)
-------- -------- -------- --------
Total dividends and distributions ................. (0.060) (0.030) (0.030) (0.070)
-------- -------- -------- --------
Net asset value, end of period ....................... $8.130 $8.130 $8.140 $8.130
-------- -------- -------- --------
Total return(3) ...................................... (3.68%) (4.02%) (3.90%) (3.56%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........... $972 $408 $694 $48
Ratio of expenses to average net assets ........... 0.80% 1.55% 1.55% 0.55%
Ratio of expenses to average net assets
prior to expense limitation ...................... 12.87% 13.62% 13.62% 12.62%
Ratio of net investment income to average
net assets ....................................... 2.34% 1.59% 1.59% 2.59%
Ratio of net investment loss to average
net assets prior to expense limitation ........... (9.73%) (10.48%) (10.48%) (9.48%)
Portfolio turnover ................................ 73% 73% 73% 73%
</TABLE>
- ----------------------
(1) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
See accompanying notes
<PAGE>
for asset allocation 17
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout the period were
as follows:
<TABLE>
<CAPTION>
INCOME
INCOME INCOME INCOME PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO INSTITUTIONAL
A CLASS B CLASS C CLASS CLASS
----------- ----------- ----------- -----------
12/31/97(1) 12/31/97(1) 12/31/97(1) 12/31/97(1)
to to to to
9/30/98 9/30/98 9/30/98 9/30/98
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................. $8.500 $8.500 $8.500 $8.500
Income from investment operations:
Net investment income(2) .......................... 0.250 0.201 0.204 0.266
Net realized and unrealized loss
on investments ................................... (0.350) (0.331) (0.334) (0.356)
-------- -------- -------- --------
Total from investment operations .................. (0.100) (0.130) (0.130) (0.090)
-------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income .............. (0.110) (0.080) (0.080) (0.130)
-------- -------- -------- --------
Total dividends and distributions ................. (0.110) (0.080) (0.080) (0.130)
-------- -------- -------- --------
Net asset value, end of period ....................... $8.290 $8.290 $8.290 $8.280
======== ======== ======== ========
Total return(3) ...................................... (1.21%) (1.56%) (1.56%) (1.10%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........... $398 $26 $123 $49
Ratio of expenses to average net assets ........... 0.80% 1.55% 1.55% 0.55%
Ratio of expenses to average net assets
prior to expense limitation ...................... 32.95% 33.70% 33.70% 32.70%
Ratio of net investment income to
average net assets ............................... 3.80% 3.05% 3.05% 4.05%
Ratio of net investment loss to average net
assets prior to expense limitation ............... (28.35%) (29.10%) (29.10%) (28.10%)
Portfolio turnover ................................ 81% 81% 81% 81%
</TABLE>
- ----------------------
(1) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
See accompanying notes
<PAGE>
18 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Delaware Group Foundation Funds (the "Trust") is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Trust is organized as a Delaware business trust under a
Certificate of Trust dated October 24, 1997 and offers three portfolios: the
Growth Portfolio, the Balanced Portfolio and the Income Portfolio (individually
a "Portfolio" and collectively, the "Portfolios"). Each portfolio of the Trust
is diversified, as defined by the 1940 Act, and offers four classes of shares.
Class A carries a front-end sales charge which was raised from 4.75% to 5.75% as
of November 2, 1998. Class B carries a back-end deferred sales charge, Class C
carries a level load deferred sales charge and the Institutional Class has no
sales charge. The Portfolios will invest in open-end investment companies
(mutual funds) that are members of the Delaware Investments Family of Funds
(collectively, the "Underlying Funds"). The Underlying Funds include funds
investing in U.S. and foreign stocks, bonds and money market instruments.
The investment objective of each Portfolio is as follows:
Growth Portfolio: To seek long-term capital growth.
Balanced Portfolio: To seek capital appreciation with current income as a
secondary objective.
Income Portfolio: To seek a combination of current income and preservation of
capital with capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Portfolios.
Security Valuation - The market value of the Portfolios' investments in the
Underlying Funds is based on the published net asset value of each share of an
Underlying Fund computed as of the close of regular trading on the New York
Stock Exchange on days when the Exchange is open.
Federal Income Taxes - Each Portfolio intends to qualify 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. Income and capital gain distributions are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Portfolios' 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 Portfolios 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 Portfolios' custodian bank until the maturity of the respective
repurchase agreements. Each repurchase agreement is at least 100%
collateralized. However, in the event of default or bankruptcy by the
counterparty to the agreement, realization of the collateral may be subject to
legal proceedings.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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.
<PAGE>
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. Each Portfolio declares and pays distributions,
if any, from net realized gain on investment transactions annually, and from net
investment income as follows: the Income Portfolio and the Balanced Portfolio,
quarterly and the Growth Portfolio annually.
Certain expenses of the Portfolios are paid through "soft dollar" arrangements
with brokers. The amount of these expenses is less than 0.01% of the Portfolios'
average daily net assets.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, each
Portfolio pays Delaware Management Company (DMC), the Investment Manager of each
Portfolio, an annual asset allocation fee which is calculated at the rate of
0.25% (currently waived to 0.10%) of each of the Portfolios' average daily net
assets.
DMC has elected to waive its fees and reimburse each Portfolio to the extent
that annual operating expenses, exclusive of taxes, interest, brokerage
commissions, extraordinary expenses and distribution expenses, exceed 0.55% of
average daily net assets of the Portfolios through June 30, 1999.
The Portfolios have engaged Delaware Service Company, Inc. (DSC), an affiliate
of DMC, to provide dividend disbursing, transfer agent and accounting services.
Each Portfolio pays DSC a monthly fee based on the number of shareholder
accounts, shareholder transactions and average net assets, subject to certain
minimums.
On September 30, 1998, the Portfolios had payables to DMC and affiliates as
follows:
GROWTH BALANCE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
$31,162 $24,132 $10,814
Pursuant to the Distribution Agreement, the Portfolios pay Delaware
Distributors, L.P. (DDLP), the Distributor and an affiliate of DMC, an annual
fee not to exceed 0.25% of the average daily net assets of the A Class and 1.00%
of the average daily net assets of the B and C Class.
For the period ended September 30, 1998, DDLP earned commissions on sales of the
A Class shares for each Portfolio as follows:
GROWTH BALANCE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
$1,313 $3,333 $192
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Portfolios. These officers, directors and employees are paid no compensation
by the Portfolios.
<PAGE>
for asset allocation 19
NOTE TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
3. Investments
During the period ended September 30, 1998, the Portfolios' made purchases and
sales of investment securities, including shares of the Underlying Funds, other
than U.S. government securities and temporary cash investments as follows:
GROWTH BALANCE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
Purchases ........................ $2,127,498 $2,764,542 $800,779
Sales ............................ 421,190 491,044 194,510
At September 30, 1998, the aggregate cost of securities and unrealized
appreciation and (depreciation) for federal income tax purposes for each
Portfolio were as follows:
GROWTH BALANCE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
Cost of investments .............. $1,745,236 $2,371,874 $ 629,145
========== ========== ==========
Aggregate unrealized
appreciation ................... $2,051 $8,040 $3,912
Aggregate unrealized
depreciation ................... (173,197) (202,409) (36,177)
---------- ---------- ----------
Net unrealized appreciation
(depreciation) ................. $ (171,146) $ (194,369) $ (32,265)
========== ========== ==========
4. Capital Stock
Transactions in capital stock shares were as follows:
GROWTH BALANCE INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
12/31/97* 12/31/97* 12/31/97*
to to to
9/30/98 9/30/98 9/30/98
Shares sold:
A Class ........................ 70,740 121,481 53,642
B Class ........................ 109,008 57,342 3,085
C Class ........................ 9,145 95,236 14,782
Institutional Class ............ 5,882 5,882 5,882
Shares issued upon reinvestment
of dividends from net
investment income:
A Class ........................ -- 540 523
B Class ........................ -- 133 3
C Class ........................ -- 222 81
Institutional Class ............ -- 49 90
--------- --------- ---------
194,775 280,885 78,088
--------- --------- ---------
Shares redeemed:
A Class ........................ (3,857) (2,506) (6,138)
B Class ........................ (276) (7,313) --
C Class ........................ (55) (10,225) (14)
Institutional Class ............ -- -- --
--------- --------- ---------
(4,188) (20,044) (6,152)
--------- --------- ---------
Net increase ...................... 190,587 260,841 71,936
========= ========= =========
- ----------------------
* Date of commencement of trading.
<PAGE>
for asset
allocation
20
DELAWARE GROUP FOUNDATION FUNDS
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
DELAWARE GROUP FOUNDATION FUNDS
We have audited the accompanying statements of net assets and the statements of
assets and liabilities, of Delaware Group Foundation Funds (the "Trust")
(comprised of the Growth, Balanced and Income Portfolios) as of September 30,
1998, and the related statements of operations, statements of changes in net
assets and financial highlights for the period December 31, 1997 (commencement
of operations) through September 30, 1998. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of September 30, 1998, by correspondence with the Trust's custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Delaware Group Foundation Funds at
September 30, 1998, and the results of their operations, the changes in their
net assets and their financial highlights for the period December 31, 1997
(commencement of operations) through September 30, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
October 30, 1998
<PAGE>
THIS ANNUAL REPORT IS FOR THE INFORMATION OF FOUNDATION FUNDS SHAREHOLDERS, BUT
IT MAY BE used with prospective investors when preceded or accompanied by a
current Prospectus, which sets forth details about charges, expenses, investment
objectives and operating policies of each Portfolio. You should read the
prospectus carefully before you invest. Summary investment results are
documented in each Portfolio's current Statement of Additional Information. The
figures in this report represent past results which are not a guarantee of
future results. The return and principal value of an investment in each
Portfolio will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost.
Board of Directors
WAYNE A. STORK
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
JEFFREY J. NICK
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
WALTER P. BABICH
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
JOHN H. DURHAM
Partner, Complete Care Services
Horsham, PA
ANTHONY D. KNERR
Consultant, Anthony Knerr & Associates
New York, NY
ANN R. LEVEN
Treasurer, National Gallery of Art
Washington, DC
W. THACHER LONGSTRETH
City Councilman
Philadelphia, PA
THOMAS F. MADISON
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
CHARLES E. PECK
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
<PAGE>
Affiliated Officers
DAVID K. DOWNES
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA
GEORGE M. CHAMBERLAIN, JR.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
BRUCE D. BARTON
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
directors
& officers
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
<PAGE>
When used with prospective investors, this report must be preceded or
accompanied by a current Foundation Funds Prospectus and the Delaware
Investments Performance Update for the most recently completed calendar quarter.
For a prospectus of any other mutual fund from Delaware Investments, contact
your financial adviser or Delaware.
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.com
Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan; however, shares of the Fund are
not FDIC or NCUSIF insured, are not guaranteed by any bank or any credit union,
and involve investment risk, including the possible loss of the principal amount
invested. Shares of the Fund are not bank or credit union deposits.
(C) Delaware Distributors, L.P.
DELAWARE
INVESTMENTS
- ---------------------
Philadelphia o London
Printed in the USA
on recycled paper
(1209)
AR-444[9/98]TKO11/98
