<PAGE>
For Asset Allocation
Foundation Funds
Growth Portfolio
Balanced Portfolio
Income Portfolio
(photo of illustration from Asset Allocation Brochure)
service and guidance
professional management
goals
1998
Semi-Annual
Report
DELAWARE
INVESTMENTS
===========
Philadelphia o London
<PAGE>
for
asset
allocation
2
April 10, 1998
Dear Shareholder:
ASSET ALLOCATION IS AN IMPORTANT element of managing an investment portfolio.
History shows that various classes of investments perform differently
throughout an economic or investment cycle, and that diversification can
therefore help reduce risk.
We are pleased to present the initial semi-annual report* for
Delaware's three Foundation Funds. The Foundation portfolios offer a
convenient way to diversify one's holdings for long-term growth, inflation
protection or income. Think of the portfolios as an opportunity to build and
protect a nest egg using many baskets.
During the brief period since the Foundation Funds' inception on
December 31, 1997 through March 31, 1998, the Funds' portfolio manager -
J. Paul Dokas - took steps to create a mix of mutual funds from Delaware
Investments that allow shareholders to participate in the capital appreciation
and income potential of many asset classes.
Domestic stock market weakness in January provided an opportunity to
allocate resources in each portfolio to Funds that focus on large-cap U.S.
equities. For the Growth and Balanced portfolios, market weakness in small
company stocks also provided an attractive buying opportunity.
Within the Income and Balanced portfolios, Mr. Dokas sought to
assemble an attractive mix of Delaware bond funds investing in U.S.
government securities, high-yield corporate bonds and international bonds.
During the first quarter of calendar 1998, performance of the Income portfolio
was enhanced by a 45% weighting in equities.
WE BELIEVE LONG-TERM INVESTORS ARE BETTER SERVED BY STRATEGIES THAT AIM TO
PROVIDE CONSISTENT, LESS VOLATILE RETURNS.
CUMULATIVE RETURN
- --------------------------------------------------------------------------------
December 31, 1997
Foundation Funds to March 31, 1998
- --------------------------------------------------------------------------------
Growth Portfolio A Class +10.35%
Balanced Portfolio A Class +7.65%
Income Portfolio A Class +5.88%
- --------------------------------------------------------------------------------
S&P 500 Index +13.95%
Morgan Stanley Europe Australia Far East Index +14.30%
Russell 2000 Index +10.31%
Lehman Brothers Aggregate Bond Index +1.56%
Salomon Brothers World Government Bond Index +0.78%
- --------------------------------------------------------------------------------
All performance shown above is at net asset value. 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 Lehman Brothers
Aggregate Bond Index is an unmanaged measure of investment grade domestic
bonds. The Morgan Stanley EAFE Index is an unmanaged measure of international
stocks in established markets. Past performance does not guarantee future
results.
*The Funds' fiscal year ends September 30.
<PAGE>
for
asset
allocation
3
On the pages that follow in this report, you'll see how your
portfolio was allocated among different asset classes and within different
mutual funds from Delaware Investments. The Foundation Funds' manager
continually monitors each portfolio to assure that asset class weightings
reflect global economic and market trends and are consistent with each
portfolio's objective.
Given the ebullient domestic stock market results of the past few
years, it may be fashionable to "reach for the moon" by putting most of one's
nest egg in one asset class. We believe long-term investors are better served
by strategies that aim to provide consistent, less volatile returns over many
moons.
Research has shown that the mix of asset classes chosen can have more
effect on a portfolio's long-term total return than selection of specific
securities or market timing. By dividing your investments among various asset
classes, you may reduce long-term portfolio volatility as well as help improve
return over time.
Having a choice of three portfolios gives you an opportunity to
achieve different objectives as your investing goals change. We suggest you
review your goals with your financial adviser regularly.
In our view, the portfolios may be appropriate for investors who have
the option to choose Delaware's investment opportunities as part of an
employer-sponsored retirement program. They may also be suitable for a Roth
IRA or a traditional IRA developed with the help of your adviser.
We'd like to thank you for being the Foundation Funds' charter
shareholders. We look forward to reporting to you again this autumn and
serving your investment needs for many years to come.
Sincerely,
/S/ Wayne A. Stork
- ------------------
Wayne A. Stork
Chairman
/S/ Jeffrey J. Nick
- -------------------
Jeffrey J. Nick
President and Chief Executive Officer
Introducing 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
4
Portfolio Manager's Review
U.S. STOCKS -
DEJA VU ALL OVER AGAIN
The Foundation Funds' initial fiscal period was a remarkable time of capital
appreciation for stocks of large U.S. companies. Many investors expected the
U.S. equity market would take a breather in 1998 after an unprecedented three
years of annual returns in excess of 20%. But domestic equity prices
continued to surge ahead.
U.S. stocks were powered by enormous liquidity and low inflation.
Portfolio managers favoring a growth investment style did especially well
during the first calendar quarter. Large companies in sectors enjoying strong
earnings growth - such as the pharmaceutical industry - were especially
prized because overall corporate earnings growth slowed. Most securities
analysts expected first-quarter profits among Standard & Poor's 500 Index
companies to rise just 1%, far below year-earlier levels. For all of calendar
1998, many analysts anticipate corporate earnings will grow between 6% and 8%.
INTERNATIONAL STOCKS -
A RUNNING OF THE BULLS
International stocks in established European markets have soared since
January, a refreshing development after a long period of underperformance
compared to U.S. stocks. Most Continental markets gained between 15% and 20%
for the quarter even after adjusting for currency fluctuations. This was
remarkable given that the U.S. dollar's value continued to climb against most
European currencies with the exception of the British pound.
Stock markets in Spain and other Mediterranean countries were
especially robust. Europe is benefiting from financial reforms at the
corporate and country level that may lead to acceleration of economic growth.
Stocks in European emerging markets such as Poland performed well. Russian
stocks retreated, however.
DOMESTIC BONDS -
PRICES RISE, YIELDS FALL
In January, yields on 30-year Treasuries reached a record low of 5.73%.
ASSET ALLOCATION
- --------------------------------------------------------------------------------
MARCH 31, 1998
Growth Portfolio Balanced Portfolio Income Portfolio
- --------------------------------------------------------------------------------
Domestic Equities 58.6% 50.8% 35.3%
International Equities 27.3% 13.2% 10.1%
- --------------------------------------------------------------------------------
High-Yield U.S. Bonds 6.8% 14.3% 25.0%
U.S. Government Bonds 4.9% 15.4% 14.9%
Global Bonds 0 0 9.8%
- --------------------------------------------------------------------------------
Cash 2.4% 6.3% 4.9%
<PAGE>
for
asset
allocation
5
Government bonds benefited from low inflation, a big rally in the value of
the U.S. dollar and a flight to quality by Asian investors concerned about
economic turmoil.
Since 1997, increased tax revenues and a disappearing federal budget
deficit have reduced the amount of new U.S. Treasury bonds issued. Conversely,
issuance of high quality corporate debt increased 60% during the first quarter
compared to a year earlier according to THE BOND BUYER. Investor demand for
higher yielding bonds has been heavy, leading to a narrowing in the yield
difference between corporates and Treasuries. Selected Yankee bonds and sectors
such as credit card debt offered somewhat more value for investors willing to
accept a modest increase in risk. Mortgage securities have grown more attractive
as prepayment risks appear to have diminished.
GROWTH PORTFOLIO
As of March 31, more than 40% of the Growth Portfolio's net assets were
invested in two mutual funds that focus on different types of large company
domestic stocks - U.S. Growth Fund and Decatur Total Return Fund. This
provided an attractive combination of growth and value investment styles. Both
Funds performed well during the Growth Portfolio's initial fiscal period.
Our positioning was complemented by holdings in three funds that have
stock portfolios with a relatively smaller median market capitalization -
Aggressive Growth Fund, Small Cap Value Fund and REIT Fund. This gave us a
14.8% weighting in small and midcap stock categories.
Your Fund's returns were enhanced by the Growth Portfolio's strong
27.3% foreign stock positioning, achieved through a combination of
International Equity Fund and Emerging Markets Fund. Owning foreign stocks
involves special risks, including economic and political change and currency
fluctuations. However, research at the University of Pennsylvania's Wharton
School of Business and elsewhere has shown that allocating
RESEARCH HAS SHOWN THAT ALLOCATING AS MUCH AS ONE-THIRD OF AN INVESTMENT
PORTFOLIO TO FOREIGN SECURITIES CAN REDUCE VOLATILITY AND POTENTIALLY PROVIDE
COMPETITIVE RETURNS.
FUND ALLOCATION
MARCH 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio Balanced Portfolio Income Portfolio
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Decatur Total Return Fund 21.3% 22.6% 13.9%
U.S. Growth Fund 22.5% 16.6% 12.0%
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth Fund 7.9% 5.2% 5.1%
Small Cap Value Fund 3.9% 3.5% 0
REIT Fund 3.0% 2.8% 4.2%
- -----------------------------------------------------------------------------------------------------------
International Equity Fund 19.6% 8.9% 7.6%
Emerging Markets Fund 7.7% 4.3% 2.5%
- -----------------------------------------------------------------------------------------------------------
Delchester Fund 6.8% 14.3% 25.0%
U.S. Government Fund 4.9% 15.4% 14.9%
Global Bond Fund 0 0 9.8%
- -----------------------------------------------------------------------------------------------------------
Cash 2.4% 6.3% 4.9%
</TABLE>
All portfolio holdings are institutional class shares of each Fund. The
Balanced and Income Portfolios allocated 0.1% and 0.1% of their net assets,
respectively, to Trend Fund as of March 31, 1998.
<PAGE>
for
asset
allocation
6
as much as one-third of an investment portfolio to foreign securities can
reduce volatility and potentially provide competitive returns.
To further temper possible equity market volatility and benefit from
rising bond prices during the first quarter, we allocated about 11.7% of the
Growth Portfolio's net assets to two fixed-income funds offering attractive
yields - Delchester Fund and U.S. Government Fund.
BALANCED PORTFOLIO
History shows that a balanced approach to investing has provided strong total
returns with a relatively low level of volatility. Research by Ibbotson
Associates shows that a two-to-one mix of stocks to bonds has been the
proverbial asset allocation sweet spot since the 1920s.
As of March 31, the Balanced Portfolio was fully invested with a 63.9%
allocation to a combination of U.S. and foreign stocks and 29.7% allocation to
U.S. high-yield and U.S. government bonds. The portfolio had a 13.2%
positioning in foreign stocks through International Equity Fund and Emerging
Markets Fund and 14.3% allocation to domestic high-yield bonds through
Delchester Fund.
Compared to our target ranges, the Balanced Portfolio remains
slightly underweighted in large company stocks and U.S. government securities,
which we consider somewhat overvalued, and slightly overweighted in the small
cap and high-yield bond sectors because of the respective capital appreciation
and income potential we believe these two asset classes exhibit.
INCOME PORTFOLIO
Just because investors may seek income does not mean they can afford to ignore
the long-term effects of inflation. In our opinion, any income-oriented
portfolio should have inflation protection built in. During the Foundation
Funds initial fiscal period, we took advantage of total return opportunities
in the U.S. and overseas by allocating 45% of the Income Portfolio to
equities.
We are comfortable with this positioning because research has shown
that allocating as much as 45% of an income portfolio to stocks can result in
a higher total return without any more portfolio volatility than long-term
bonds, according to research at the University of Pennsylvania's Wharton
School of Business.
A TWO-TO-ONE MIX OF STOCKS TO BONDS HAS BEEN THE PROVERBIAL ASSET ALLOCATION
SWEET SPOT SINCE THE 1920S.
<PAGE>
for
asset
allocation
7
Unlike the Growth and Balanced Portfolios, the Income Portfolio owned
foreign bonds through Global Bond Fund. The first quarter of 1998 was a
difficult period for this asset class because a rise in the value of the U.S.
dollar against many currencies negatively affected returns. We believe this
situation is temporary and that foreign bonds can provide attractive total
returns over the long term.
SUMMARY OUTLOOK
In our view, the pace of corporate earnings growth is likely to be the single
biggest risk factor in the U.S. stock market in 1998. With the nation's
unemployment rate at lows not seen since the 1960s, some industries are facing
labor shortages that are reducing productivity. Others, though profitable, are
losing market share, have inadequate management or weak financial resources.
The Foundation Funds' multiple fund approach allows us to invest in
both U.S. and overseas equities through eight of Delaware's equity fund
portfolio managers in Philadelphia, London and New York. Each portfolio
manager has a solid track record of distinguishing between companies likely
to do well over the long term and those that are simply riding the current
wave of prosperity.
In the fixed-income area, our approach gives us access to multiple
markets through four of Delaware's veteran bond fund managers. The positive
economic conditions that have sparked the U.S. bond market's strong results
over the past three years are clearly entering a mature phase. However, we
believe 1998 will be another year when fixed-income securities, particularly
high-yield bonds, could deliver attractive returns. In our view, recession in
Pacific Rim countries should keep U.S. inflation and interest rates at current
modest levels without impairing U.S. economic growth or credit quality.
J. PAUL DOKAS
Vice President and
Senior Portfolio Manager
April 10, 1998
IN OUR VIEW, THE PACE OF CORPORATE EARNINGS GROWTH IS LIKELY TO BE THE SINGLE
BIGGEST RISK FACTOR IN THE U.S. STOCK MARKET IN 1998.
<PAGE>
for
asset
allocation
8
A DIVERSIFIED PORTFOLIO CAN OFFER
ATTRACTIVE RETURNS AND A REDUCED RISK PROFILE
- --------------------------------------------------------------------------------
20 YEARS THROUGH DECEMBER 31, 1997
Average Annual
Total Return Volatility
Standard & Poor's 500 Index 16.70% 13.90%
Lehman Brothers Aggregate Bond Index 9.80% 8.30%
Morgan Stanley Europe Australia Far East Index 14.40% 21.30%
Diversified Portfolio+ 15.20% 10.90%
+ 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FOUNDATION FUNDS PERFORMANCE
LIFETIME CUMULATIVE RETURNS
DECEMBER 31, 1997 THROUGH MARCH 31, 1998
Growth Portfolio Balanced Portfolio Income Portfolio
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Est. 12/31/97)
Excluding Sales Charge +10.35% +7.65% +5.88%
Including Sales Charge +5.16% +2.58% +0.90%
- -------------------------------------------------------------------------------------------------------
Class B (Est. 12/31/97)
Excluding Sales Charge +10.24% +7.65% +5.88%
Including Sales Charge +6.24% +3.65% +1.88%
- -------------------------------------------------------------------------------------------------------
Class C (Est. 12/31/97)
Excluding Sales Charge +10.35% +7.65% +5.88%
Including Sales Charge +9.35% +6.65% +4.88%
- -------------------------------------------------------------------------------------------------------
Institutional Class* +10.35% +7.65% +5.88%
</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.
Class A shares have a 4.75% maximum front-end sales charge and a 12b-1 fee of
0.25%.
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 4% 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
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 97.64%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ...................................... 6,483 $81,169
Delaware Group Equity Funds II, Inc. --
Decatur Total Return Fund ............................. 3,929 77,196
Delaware Group Equity Funds V, Inc. -
Small Cap Value Fund .................................. 475 14,219
Delaware Group Global & International Funds, Inc. -
Emerging Markets Series ............................... 2,724 27,788
Delaware Group Global & International Funds, Inc. -
International Equity Series ........................... 4,409 70,724
Delaware Group Government Fund, Inc.-
Government Income Series .............................. 2,274 17,555
Delaware Group Income Funds, Inc. -
Delchester Fund ....................................... 3,656 24,752
Delaware Pooled Trust, Inc. -
The Real Estate Investment Trust Portfolio ............ 701 10,968
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund ................................ 1,427 28,730
-------
Total Investment Companies (cost $336,498) ............. 353,101
-------
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 0.28%
With JP Morgan Securities 5.85% 04/01/98
(dated 03/31/98, collateralized by $300
U.S. Treasury Notes 6.75% due 05/31/99
market value $298) .................................. $290 290
With PaineWebber 5.875% 04/01/98
(dated 03/31/98, collateralized by $100
U.S. Treasury Notes 6.25% due 06/30/98
market value $148 and $200
U.S. Treasury Notes 6.625% due
06/30/01 market value $172) ......................... 310 310
With Prudential Bache Securites 5.90% 04/01/98
(dated 03/31/98, collateralized by
$400 U.S. Treasury Bills market value $404) ......... 400 400
------
Total Repurchase Agreements (cost $1,000) ............ 1,000
------
<PAGE>
MARKET
VALUE
- --------------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES - 97.92%
(cost $337,498) ..................................................... $354,101
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.08% .......................................... 7,517
--------
NET ASSETS APPLICABLE TO 38,569 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% .............................. $361,618
========
NET ASSET VALUE - GROWTH PORTFOLIO A CLASS
($254,061 / 27,096 shares) .......................................... $9.38
=====
NET ASSET VALUE - GROWTH PORTFOLIO B CLASS
($52,389 / 5,590 shares) ............................................ $9.37
=====
NET ASSET VALUE - GROWTH PORTFOLIO C CLASS
($9.38 / 1 share) ................................................... $9.38
=====
NET ASSET VALUE - GROWTH PORTFOLIO INSTITUTIONAL CLASS
($55,159 / 5,882 shares) ............................................ $9.38
=====
COMPONENTS OF NET ASSETS AT MARCH 31, 1998:
Capital shares (unlimited authorization-no par) ...................... $344,224
Undistributed net investment income .................................. 534
Accumulated net realized gain on investments ......................... 257
Net unrealized appreciation of investments ........................... 16,603
--------
Total net assets ..................................................... $361,618
========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
GROWTH PORTFOLIO A CLASS:
Net asset value A Class (A) .......................................... $9.38
Sales charge (4.75% of offering price or 5.01% of the
amount invested per share)(B) ....................................... 0.47
-----
Offering price ....................................................... $9.85
=====
- ----------
(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 $100,000
or more.
See accompanying notes
<PAGE>
10 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS -
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 93.68%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ......................................... 5,151 $64,495
Delaware Group Equity Funds II, Inc. -
Decatur Total Return Fund ................................ 4,467 87,770
Delaware Group Equity Funds V, Inc. -
Small Cap Value Fund ..................................... 455 13,620
Delaware Group Equity Funds III, Inc. -
Trend Fund ............................................... 31 586
Delaware Group Global & International Funds, Inc. -
Emerging Markets Series .................................. 1,656 16,889
Delaware Group Global & International Funds, Inc. -
International Equity Series .............................. 2,146 34,422
Delaware Group Government Fund, Inc.-
Government Income Series ................................. 7,729 59,668
Delaware Group Income Funds, Inc. -
Delchester Fund .......................................... 8,206 55,556
Delaware Pooled Trust, Inc. -
The Real Estate Investment Trust Portfolio ............... 683 10,682
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund ................................... 1,002 20,164
--------
Total Investment Companies (cost $352,042) ................ 363,852
--------
MARKET
VALUE
- --------------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES - 93.68%
(cost $352,042) ................................................ $363,852
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 6.32% ..................................... 24,537
--------
NET ASSETS APPLICABLE TO 42,451 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% .......................... $388,389
========
NET ASSET VALUE - BALANCED PORTFOLIO A CLASS
($172,842 / 18,891 shares) ..................................... $9.15
=====
NET ASSET VALUE - BALANCED PORTFOLIO B CLASS
($113,292 / 12,385 shares) ..................................... $9.15
=====
NET ASSET VALUE - BALANCED PORTFOLIO C CLASS
($48,426 / 5,293 shares) ....................................... $9.15
=====
NET ASSET VALUE - BALANCED PORTFOLIO INSTITUTIONAL
CLASS ($53,829/ 5,882 shares) .................................. $9.15
=====
COMPONENTS OF NET ASSETS AT MARCH 31, 1998:
Capital shares (unlimited authorization-no par) .................. $374,631
Undistributed net investment income .............................. 770
Accumulated net realized gain on investments ..................... 1,178
Net unrealized appreciation of investments ....................... 11,810
--------
Total net assets ................................................. $388,389
========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
BALANCED PORTFOLIO A CLASS:
Net asset value A Class (A) ..................................... $9.15
Sales charge (4.75% of offering price or 5.03%
of the amount invested per share)(B) ............................ 0.46
-----
Offering price ................................................... $9.61
=====
- ----------
(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 $100,000
or more.
See accompanying notes
<PAGE>
for asset allocation 11
DELAWARE GROUP FOUNDATION FUNDS -
INCOME PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 95.04%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ........................................ 2,631 $32,946
Delaware Group Equity Funds II, Inc. -
Decatur Total Return Fund ............................... 1,940 38,124
Delaware Group Equity Funds III, Inc. -
Trend Fund .............................................. 7 140
Delaware Group Global & International Funds, Inc. -
Global Bond Series ...................................... 2,533 26,783
Delaware Group Global & International Funds, Inc. -
Emerging Markets Series ................................. 681 6,950
Delaware Group Global & International Funds, Inc. -
International Equity Series ............................. 1,292 20,724
Delaware Group Government Fund, Inc. -
Government Income Series ................................ 5,277 40,742
Delaware Group Income Funds, Inc. -
Delchester Fund ......................................... 10,106 68,424
Delaware Pooled Trust, Inc. -
The Real Estate Investment Trust Portfolio .............. 726 11,365
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund .................................. 689 13,876
-------
Total Investment Companies (cost $253,840 ) .............. 260,074
-------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENTS - 8.40%
With JP Morgan Securities 5.85% 04/01/98
(dated 03/31/98, collateralized by
$7,000 U.S. Treasury Notes 6.75%
due 05/31/99 market value $6,845) ..................... $6,700 6,700
With PaineWebber 5.875% 04/01/98
(dated 03/31/98, collateralized by
$3,000 U.S. Treasury Notes 6.25%
due 06/30/98 market value
$3,394 and $4,000
U.S. Treasury Notes 6.625% due
06/30/01 market value $3,957) ......................... 7,200 7,200
With Prudential Bache Securites 5.90% 04/01/98
(dated 03/31/98, collateralized by $9,000
U.S. Treasury Bills market value $9,290) .............. 9,100 9,100
-------
Total Repurchase Agreements (cost $23,000) ............. 23,000
-------
<PAGE>
MARKET
VALUE
TOTAL MARKET VALUE OF SECURITIES - 103.44%
(cost $276,840) ................................................ $ 283,074
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (3.44%) ........ (9,423)
---------
NET ASSETS APPLICABLE TO 30,412 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% .......................... $ 273,651
=========
NET ASSET VALUE - INCOME PORTFOLIO A CLASS
($220,704 / 24,528 shares) ..................................... $9.00
=====
NET ASSET VALUE - INCOME PORTFOLIO B CLASS
($9 / 1 share) ................................................. $9.00
=====
NET ASSET VALUE - INCOME PORTFOLIO C CLASS
($9 / 1 share) ................................................. $9.00
=====
NET ASSET VALUE - INCOME PORTFOLIO INSTITUTIONAL CLASS
($52,929 / 5,882 shares) ....................................... $9.00
=====
COMPONENTS OF NET ASSETS AT MARCH 31, 1998:
Capital shares (unlimited authorization-no par) .................. $ 264,213
Undistributed net investment income .............................. 1,428
Accumulated net realized gain on investments ..................... 1,776
Net unrealized appreciation of investments ....................... 6,234
---------
Total net assets ................................................. $ 273,651
=========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
INCOME PORTFOLIO A CLASS:
Net asset value A Class (A) ..................................... $9.00
Sales charge (4.75% of offering price or 5.00% of the amount
invested per share)(B) ......................................... 0.45
-----
Offering price ................................................... $9.45
=====
- ----------
(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 $100,000
or more.
See accompanying notes
<PAGE>
12 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS -
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
BALANCED
PORTFOLIO
---------
ASSETS:
Investments at market (cost $352,042) .............................. $363,852
Subscriptions receivable ............................................ 76,837
-------
Total assets ....................................................... 440,689
-------
LIABILITIES:
Payable for securities purchased .................................... 27,000
Other accounts payable and accrued expenses ......................... 25,300
-------
Total liabilities .................................................. 52,300
-------
TOTAL NET ASSETS .................................................... $388,389
========
See accompanying notes
<PAGE>
for asset allocation 13
DELAWARE GROUP FOUNDATION FUNDS -
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 31, 1997* TO MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
INVESTMENT INCOME:
<S> <C> <C> <C>
Dividends..................................................... $ 741 $ 1,014 $ 1,464
Interest...................................................... 90 96 226
------- ------- -------
831 1,110 1,690
------- ------- -------
EXPENSES:
Management fees............................................... 38 38 37
Custodian fees................................................ 180 125 115
Dividend disbursing and transfer agent fees and expenses...... 388 287 257
Distribution expense.......................................... 77 132 60
Registration fees............................................. 9,532 7,794 7,648
Reports and statements to shareholders........................ 420 552 1,031
Accounting and administration................................. 16 16 16
Professional fees............................................. 2,571 4,714 4,563
Trustees' fees................................................ 201 201 201
Taxes (other than taxes on income)............................ 2 0 2
Other......................................................... 65 38 51
------- ------- -------
13,490 13,897 13,981
Less expenses absorbed by Delaware Management Company ........ (13,193) (13,557) (13,719)
------- ------- -------
297 340 262
------- ------- -------
NET INVESTMENT INCOME......................................... 534 770 1,428
------- ------- -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions.................. 257 1,178 1,776
Net change in unrealized appreciation on investments.......... 16,603 11,810 6,234
------- ------- -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:.............. 16,860 12,988 8,010
------- ------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $17,394 $13,758 $ 9,438
======= ======= =======
</TABLE>
- ----------------------
*Date of commencement of trading.
See accompanying notes
<PAGE>
14 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS -
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12/31/97* 12/31/97* 12/31/97*
TO 3/31/98 TO 3/31/98 TO 3/31/98
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- ---------
<S> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ......................................... $ 534 $ 770 $ 1,428
Net realized gain on investments .............................. 257 1,178 1,776
Net change in unrealized appreciation
on investments during the period ............................ 16,603 11,810 6,234
-------- -------- --------
Net increase in net assets
resulting from operations ................................... 17,394 13,758 9,438
-------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ..................................................... 243,678 166,933 234,195
B Class ..................................................... 50,537 110,066 9
C Class ..................................................... 9 48,232 9
Institutional Class ......................................... 50,000 50,000 50,000
-------- -------- --------
344,224 375,231 284,213
-------- -------- --------
Cost of shares repurchased:
A Class ..................................................... 0 0 (20,000)
B Class ..................................................... 0 (600) 0
C Class ..................................................... 0 0 0
Institutional Class ......................................... 0 0 0
-------- -------- --------
0 (600) (20,000)
-------- -------- --------
Increase in net assets derived from capital
share transactions .......................................... 344,224 374,631 264,213
-------- -------- --------
NET INCREASE IN NET ASSETS .................................... 361,618 388,389 273,651
NET ASSETS:
Beginning of period ........................................... 0 0 0
-------- -------- --------
End of period. ................................................ $361,618 $388,389 $273,651
======== ======== ========
- ------------------
*Date of commencement of trading.
</TABLE>
See accompanying notes
<PAGE>
for asset allocation 15
DELAWARE GROUP FOUNDATION FUNDS -
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Portfolio outstanding throughout each
period were as follows:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
---------------------------------------------------
A CLASS B CLASS INSTITUTIONAL CLASS
12/31/97(1) 12/31/97(1) 12/31/97(1)
to to to
3/31/98 3/31/98 3/31/98
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . $8.500 $8.500 $8.500
Income from investment operations:
Net investment income(2). . . . . . . . . . . . . . . . . . . . . . 0.031 0.014 0.037
Net realized and unrealized gain on investments . . . . . . . . . . 0.849 0.856 0.843
------ ------ ------
Total from investment operations. . . . . . . . . . . . . . . . . . 0.880 0.870 0.880
------ ------ ------
Net asset value, end of period. . . . . . . . . . . . . . . . . . . . . . $9.380 $9.370 $9.380
====== ====== ======
Total return(3). . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 10.35% 10.24% 10.35%
Ratios and supplemental data:
Net assets, end of period (000 omitted). . . . . . . . . . . . . . . $254 $52 $55
Ratio of expenses to average net assets. . . . . . . . . . . . . . . 0.80% 1.55% 0.55%
Ratio of expenses to average net assets prior to expense limitation 35.38% 36.13% 35.13%
Ratio of net investment income to average net assets . . . . . . . . 1.38% 0.63% 1.63%
Ratio of net investment loss to average net assets prior
to expense limitation . . . . . . . . . . . . . . . . . . . . . . . (33.20%) (33.95%) (32.95%)
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . . . . . 5% 5% 5%
</TABLE>
_______________
(1) Date of commencement of trading; ratios have been annualized and total
returns have not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Does not include maximum sales charge of 4.75% nor the 1% limited contingent
deferred sales charge that would apply in the event of certain redemptions
within 12 months of purchase of A Class. Does not include contingent
deferred sales charge which varies from 1-4% depending upon the holding
period for B Class and 1% for C Class.
For the period December 31, 1997 through March 31, 1998, there was no
shareholder activity in C Class besides the initial seed purchase of 1 share.
This shareholder data is not being disclosed because the data is not believed to
be meaningful.
<PAGE>
16 for asset allocation
FINANCIAL HIGHLIGHTS (CONTINUED)
________________________________________________________________________________
Selected data for each share of the Portfolio outstanding throughout each
period were as follows:
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
----------------------------------------------------------------------
A CLASS B CLASS C CLASS INSTITUTIONAL CLASS
12/31/97(1) 12/31/97(1) 12/31/97(1) 12/31/97(1)
to to to to
3/31/98 3/31/98 3/31/98 3/31/98
<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) ............................... 0.047 0.031 0.030 0.053
Net realized and unrealized gain on investments ........ 0.603 0.619 0.620 0.597
------ ------ ------ ------
Total from investment operations ....................... 0.650 0.650 0.650 0.650
------ ------ ------ ------
Net asset value, end of period ........................... $9.150 $9.150 $9.150 $9.150
====== ====== ====== ======
Total return(3) .......................................... 7.65% 7.65% 7.65% 7.65%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $173 $113 $48 $54
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 ................................... 36.70% 37.45% 37.45% 36.45%
Ratio of net investment income to average net assets ... 2.14% 1.39% 1.39% 2.39%
Ratio of net investment loss to average net assets prior
to expense limitation ................................ (33.76%) (34.51%) (34.51%) (33.51%)
Portfolio turnover ..................................... 34% 34% 34% 34%
</TABLE>
- --------------------
(1) Date of commencement of trading; ratios have been annualized and total
returns have not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase of A Class. Does not include
contingent deferred sales charge which varies from 1-4% depending upon the
holding period for B Class and 1% for C Class.
<PAGE>
for asset allocation 17
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Portfolio outstanding throughout each
period were as follows:
<TABLE>
<CAPTION>
INCOME PORTFOLIO
---------------------------------------
A CLASS INSTITUTIONAL CLASS
12/31/97(1) 12/31/97(1)
to to
3/31/98 3/31/98
<S> <C> <C>
Net asset value, beginning of period.......................................... $8.500 $8.500
Income from investment operations:
Net investment income(2).................................................... 0.083 0.089
Net realized and unrealized gain on investments............................. 0.417 0.411
------ ------
Total from investment operations............................................ 0.500 0.500
------ ------
Net asset value, end of period................................................ $9.000 $9.000
====== ======
Total return(3)............................................................... 5.88% 5.88%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................................... $221 $53
Ratio of expenses to average net assets..................................... 0.80% 0.55%
Ratio of expenses to average net assets prior to expense limitation......... 38.19% 37.94%
Ratio of net investment income to average net assets........................ 3.81% 4.06%
Ratio of net investment loss to average net assets prior
to expense limitation..................................................... (33.58%) (33.33%)
Portfolio turnover.......................................................... 82% 82%
</TABLE>
- --------------------
(1) Date of commencement of trading; ratios have been annualized and total
returns have not been annualized.
(2) Per share information was based on the average shares outstanding
method.
(3) Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of
certain redemptions within 12 months of purchase of A Class. Does not
include contingent deferred sales charge which varies from 1-4%
depending upon the holding period for B Class and 1% for C Class.
For the period December 31, 1997 through March 31, 1998, there was no
shareholder activity in B Class and C Class besides the initial seed
purchase of 1 share. This shareholder data is not being disclosed
because the data is not believed to be meaningful.
<PAGE>
18 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS -
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
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 of 4.75%, 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 Mutual 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: Seeks long-term capital growth.
Balanced Portfolio: Seeks capital appreciation with current income as a
secondary objective.
Income Portfolio: Seeks 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 Portfolio's 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 - The Portfolios intend 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 Portfolio 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 Mutual 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.
<PAGE>
Other - Expenses common to all Funds within the Delaware Investments Family of
Mutual 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
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 Fund expenses 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.
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.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the
Portfolios pay Delaware Management Company (DMC) the Investment Manager of the
Portfolios, an annual Asset Allocation fee which is calculated at the rate of
0.25% (currently waived to 0.10%) of each of the Portfolio's average daily net
assets.
DMC has elected to waive that portion if any of the management fee and reimburse
the Portfolios 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, 1998.
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
Total expenses absorbed by DMC.......... $13,193 $13,557 $13,719
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent and accounting services for the
Portfolios. For the period ended March 31, 1998, the Portfolios expensed the
following:
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
Dividend disbursing, transfer agent
fees and other expense................. $388 $287 $257
Accounting fees......................... 15 15 15
<PAGE>
for asset allocation 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
On March 31, 1998, the Portfolios had payables to affiliates as follows:
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
Other expenses payable to DMC
and affiliates........................ $54,544 $53,965 $53,825
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 March 31, 1998, DDLP earned commissions on sales of the A
Class shares for each Portfolio as follows:
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
$219 $37 $7
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Portfolios. These officers, trustees and employees are paid no compensation
by the Portfolios.
3. Investments
During the period ended March 31, 1998, the Portfolios made purchases and sales
of investment securities, including shares of underlying funds, other than U.S.
government securities and temporary cash investments were as follows:
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
Purchases........................... $338,241 $365,764 $281,764
Sales............................... 2,000 14,900 29,700
At March 31, 1998, the aggregate cost of securities and unrealized appreciation
(depreciation) for federal income tax purposes for each Portfolio was as
follows:
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
Cost of Investments.................... $337,498 $352,042 $276,840
======== ======== ========
Aggregate unrealized appreciation...... $16,655 $12,001 $6,922
Aggregate unrealized depreciation...... (52) (201) (720)
-------- -------- --------
Net realized appreciation.............. $16,603 $11,800 $6,202
======== ======== ========
4. Capital Stock
Transactions in capital stock shares were as follows:
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
12/31/97* 12/31/97* 12/31/97*
to 3/31/98 to 3/31/98 to 3/31/98
Shares sold:
A Class............................ 27,096 18,891 26,803
B Class............................ 5,590 12,451 1
C Class............................ 1 5,293 1
Institutional Class................ 5,882 5,882 5,882
------ ------ ------
38,569 42,517 32,687
------ ------ ------
Shares redeemed
A Class............................ - - (2,275)
B Class............................ - (66) -
C Class............................ - - -
Institutional Class................ - - -
------ ------ ------
- (66) (2,275)
------ ------ ------
Net Increase.......................... 38,569 42,451 30,412
====== ====== ======
- -------------------------
* Date of commencement of trading.
<PAGE>
THIS SEMI-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 for Foundation Funds, which sets forth details about charges,
expenses, investment objectives and operating policies of the Funds. You should
read the prospectus carefully before you invest. Summary investment results are
documented in the Funds' 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 the Funds
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware Investment 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
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
DELAWARE
INVESTMENTS
Philadelphia o London
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 Funds 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 Funds are not bank or credit union deposits.
Copy Right Delaware Distributors, L.P.
Printed in the USA
on recycled paper
SA-444 [3/98] PP5/98
(638)
