<PAGE>
FOR ASSET ALLOCATION
DELAWARE INVESTMENTS
FOUNDATION FUNDS
GROWTH PORTFOLIO
BALANCED PORTFOLIO
INCOME PORTFOLIO
(photo of illustration Investor standing on steps overlooking representation of
Wall Street)
SERVICE AND GUIDANCE
PROFESSIONAL MANAGEMENT
GOALS
1999
SEMI-ANNUAL
REPORT
DELAWARE(SM)
INVESTMENTS
- ---------------------
PHILADELPHIA o LONDON
<PAGE>
(various photos demonstrating service and guidance, professional management
and goals)
PROFESSIONAL MANAGEMENT
PROFESSIONAL MANAGEMENT
MORE THAN 70 YEARS
of investment experience has taught us that disciplined strategies and prudent
risk management are a sound approach to any market environment.
GOALS
GOALS
WHATEVER YOUR GOALS,
the years ahead will be shaped by choices you make today. Delaware offers many
options that can be an appropriate part of a sound investment plan.
SERVICE AND
GUIDANCE
SERVICE AND GUIDANCE
DELAWARE BELIEVES THAT THE GUIDANCE
of a professional financial adviser is vital to your long-term success. We are
committed to providing you and your adviser with the highest quality information
and service.
<PAGE>
April 12, 1999
for asset
allocation
1
DEAR SHAREHOLDER:
THE LARGEST AND FASTEST-GROWING companies continued to drive U.S. stock
performance during the past six months. Investors favored large-cap growth
stocks for their exceptional earnings growth, perceived safety and high
liquidity. This drove the Dow Jones Industrial Average to a record high of
10,000 in late March.
The Standard & Poor's 500 Index, an unmanaged index of large-company stocks,
also climbed to a new high. The Index rose 27.32% for the six months ended March
31 with dividends reinvested. By comparison, small-cap stocks remained the
underdogs. The small company Russell 2000 Index gained 10.12% as a result of a
brief rally late in 1998. During the first three months of 1999, the Russell
2000 declined 5.8%. In the bond market, investors sold the safety of Treasuries
for the yields of corporate and mortgage bonds. This pushed the yield on the
30-Year U.S. Treasury up to 5.62%, its highest level since August 1998.
Delaware Investments' three Foundation Funds delivered solid results for the
first half of fiscal 1999. On page 3 we list the Funds' returns as well as the
returns for several unmanaged indexes. The Foundation Fund portfolios invest in
a mix of mutual funds that focus on different asset classes--U.S. stocks, U.S.
corporate and government bonds, and foreign stocks. The indexes shown on page 3
measure the performance of these asset classes. We have provided the index
returns to give you some perspective on your Fund's performance. Keep in mind
that your Fund follows an asset allocation approach and includes a mix of asset
classes, some of which have performed well in the past six-month period and
others that have underperformed.
Since last fall, the financial turmoil that shook foreign equity markets
appears to have subsided. Some of last year's worst performing stock markets,
such as Japan, Malaysia, Singapore and Hong Kong, led world performance through
March 31. Financial
DURING THE PAST SIX MONTHS, INVESTORS FAVORED LARGE-CAP GROWTH STOCKS FOR THEIR
EXCEPTIONAL EARNINGS GROWTH, PERCEIVED SAFETY AND HIGH LIQUIDITY.
<PAGE>
for asset
allocation
2
backing by the International Monetary Fund, lower interest rates worldwide and
corporate restructuring in Asia have contributed to a more positive global
investing environment.
In the U.S. bond market, corporate bonds began to recover from a credit
shortage last year. The Federal Reserve's three interest rate reductions in late
autumn restored market liquidity and improved trading conditions. High-yield
bonds outperformed other segments of the bond market for the six months ended
March 31. (Source: Lipper Analytical Services, Inc.)
At the beginning of the fiscal period, we had tilted the portfolios more
heavily toward equities because we found great opportunities as other investors
sold stocks. Later in the six-month period we shifted a portion of each
Foundation Funds assets out of large company stock mutual funds and into bond
investments. This reflected our belief that the risk/reward profile of stocks
and bonds had returned to a more normal relationship.
On the pages that follow, J. Paul Dokas, Foundation Funds' portfolio manager,
explains this reallocation. He also gives his outlook for the financial markets
and the Funds as we approach the new millennium.
With many opportunities still ahead, we look forward to working with you to
make the most of your mutual fund investments. Your future awaits and we're
committed to helping you get there.
Sincerely,
/s/ Wayne A. Stork
- --------------------------------------
WAYNE A. STORK
Director of the Fund
Chairman, Delaware Management
Holdings, Inc.
/s/ David K. Downes
- --------------------------------------
DAVID K. DOWNES
Executive Vice President and
Chief Operating Officer
Delaware Investments Family of Funds
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
OCTOBER 1, 1998
FOUNDATION FUNDS TO MARCH 31, 1999
- --------------------------------------------------------------------------------
GROWTH PORTFOLIO CLASS A +15.85%
BALANCED PORTFOLIO CLASS A +12.29%
INCOME PORTFOLIO CLASS A +7.73%
- --------------------------------------------------------------------------------
Unmanaged Equity Indexes
S&P 500 Index +27.32%
Morgan Stanley Europe, Australia and Far East (EAFE) Index +21.45%
Russell 2000 Index +10.12%
Morgan Stanley Emerging Markets Free Index +32.66%
- --------------------------------------------------------------------------------
Unmanaged Fixed Income Indexes
Lehman Brothers Aggregate Bond Index -0.16%
Salomon Brothers High Yield Index +4.73%
- --------------------------------------------------------------------------------
All performance shown above is at net asset value and assumes reinvestment of
distributions. See pages 8 & 9 for performance information for all Classes.
Performance of other Fund classes varies due to different expenses. The indexes
mentioned above are unmanaged and are not available for direct investment. The
S&P 500 is an index of 500 stocks, primarily stock of large companies. The
Russell 2000 Index is a measure of 2000 smaller companies as compiled by the
Frank Russell Co. The Morgan Stanley EAFE index is a measure of international
stocks in established markets. The Morgan Stanley Emerging Markets Free Index is
a measure of international stocks in emerging markets. The Lehman Brothers
Aggregate Bond Index is a measure of investment grade domestic bonds. The
Salomon Brothers High Yield Index is a measure of lower rated domestic corporate
bonds. Past performance does not guarantee future results.
<PAGE>
for asset
allocation
3
PORTFOLIO MANAGER'S REVIEW
J. PAUL DOKAS
Vice President/Senior Portfolio Manager
April 12, 1999
U.S. STOCKS - BIG NAMES DROVE BIG GAINS
Since 1994, "bigger" has translated into "better" returns from U.S. stocks. Even
within the Standard and Poor's 500 Index, which consists of 500 of the nation's
largest companies based on market capitalization, only a select group of the
largest stocks have been responsible for driving the Index's gains.
This phenomenon isn't new. In the early 1970s, an elite group of stocks
driving the stock market included Xerox, IBM and McDonald's. Today, an even
smaller group of stocks--including such companies as Microsoft and America
Online--has been leading performance. In the first quarter of 1999, roughly
20 of the S&P 500 Index's stocks were primarily responsible for the Index's
strong total return.
As the most visible, fastest-growing companies have been gaining investor
attention, smaller companies--many of which currently offer comparable earnings
growth--have been overlooked. As a result, small-cap stocks are trading at their
lowest prices relative to large-cap stocks in nearly two decades. (Source: The
Leuthould Group)
We believe this makes small company stocks extremely attractive. Therefore,
we have continued to include them in all three of the Foundation Fund
portfolios. We discuss this in more detail under each Fund's positioning update.
TWENTY STOCKS DRIVE S&P 500'S INDEX RETURN
OCTOBER 1, 1998 - MARCH 31, 1999
30.00% CUMULATIVE RETURN
27.32%
- ---------------------------------------------------------------
25.00%
- ---------------------------------------------------------------
20,00%
- ---------------------------------------------------------------
15.00% 13.13%
- ---------------------------------------------------------------
10.00%
- ---------------------------------------------------------------
5.00%
- ---------------------------------------------------------------
0%
- ---------------------------------------------------------------
S&P 500 Index S&P 500 Index Return
Return without 20 largest stocks
UNPRECEDEDENTED RETURNS FROM LARGE-CAP U.S. STOCKS HAVE BEEN PRIMARILY DRIVEN BY
A RELATIVELY SMALL NUMBER OF INDIVIDUAL COMPANIES.
Source: Lipper Analytical Services, Inc. and S&P 500 Index. Past performance is
not a guarantee of future results.
<PAGE>
for asset
allocation
4
U.S. BONDS - LOWER INTEREST RATES RESTORED LIQUIDITY
Last September, the yield on the 30-Year U.S. Treasury fell below 5% for the
first time in recent history. This happened as investors, concerned about credit
risk in the face of global economic uncertainty, eagerly bought Treasuries for
their safety and liquidity. As Treasury prices rose, their yields fell.
Investors' preference for Treasuries reduced demand for non-government bonds.
Following the Federal Reserve Board's three interest rate cuts through November,
activity in most segments of the bond market increased.
Corporate bonds gradually attracted investors with their above-average yields
relative to Treasuries. For the six months ended March 31, high-yield corporate
bonds--those rated BB or less--outperformed other areas of the fixed income
market, including investment-grade corporate bonds-- those rated BBB or higher.
(Source: Salomon Smith Barney)
We believe corporate bonds offer significant value and the potential for
attractive risk-adjusted returns. Therefore, we increased each Fund's allocation
to corporate bonds, which is detailed under each Fund's positioning discussion.
WORLD MARKETS - CRISIS CALMS, BUT EUROPEAN GROWTH SLOWS
Last year's global financial crisis in Asia, Russia and Latin America has shown
some signs of improvement. Since last October, many foreign economies have
implemented financial reform and several currencies have gained strength against
the U.S. dollar.
The MSCI EAFE Index, an unmanaged index of international stocks in developed
markets, returned +21.45% for the six months ended March 31. During the same
period the MSCI Emerging Markets Free Index rose +32.66% led by strong stock
performance in Korea and Malaysia. This advance came after emerging markets, as
represented by the Index, lost about 25% in 1998.
Japan, Finland and Singapore delivered strong results. Core European markets
such as Germany, France and Italy did not perform well due to slowing economic
growth and currency weakness in Europe. The continent's new unified currency,
the euro, lost value against the dollar since its introduction in January.
<PAGE>
for asset
allocation
5
FOUNDATION FUNDS POSITIONING GROWTH PORTFOLIO
Early in the fiscal period we took advantage of opportunities in the stock
market that were created by excessive selling. In our view, stocks offered
better than normal return potential, so we increased our stock allocation. Since
then, large cap stocks in particular have appreciated significantly and we
benefited from a higher allocation to them.
We subsequently reduced the Growth Portfolio's equity mutual fund allocation
from 89% to 73% of net assets by reallocating a portion of the portfolio's U.S.
large company stock holdings to a diversified mix of Delaware Investments' fixed
income funds.
We slightly increased the Growth Portfolio's allocation to Small Cap
Value Fund, which focuses on smaller, undervalued companies. As investors have
continued to chase large company stocks, the Growth Portfolio's small company
stock allocation has been a source of underperformance. However, we think
investors will ultimately favor small stocks because of their attractive prices
relative to large stocks. If they do, the Growth Portfolio will be positioned to
benefit from any price appreciation.
We reduced positions in Growth and Income Fund and U.S. Growth Fund to
add investments in Delchester Fund and Delaware's new Extended Duration
Bond Fund. Extended Duration Bond Fund invests primarily in investment grade
corporate bonds and has a long duration that we expect will offer us strong
return potential over time.
We maintained a 19.6% position in international stocks--primarily stocks in
established countries, with a small percentage allocated to emerging markets.
Investor confidence in foreign stocks has been strenghthening and we believe
international stocks offer important diversification opportunities.
BALANCED PORTFOLIO
The Balanced Portfolio was in a similar position to the Growth Portfolio, having
increased equity holdings to take advantage of attractive valuations. As stocks
appreciated and their return potential appeared more normal to us, we decreased
the Balanced Portfolio's equity position from 70% of net assets to 56%.
In reallocating those assets, we added to the Balanced Portfolio's fixed
income investments in a diversified manner. We doubled the portfolio's
<PAGE>
for asset
allocation
6
investment in U.S. Government Fund and added to the corporate bond allocation
with a 3% position in Extended Duration Bond Fund, while maintaining an 11%
position in Delchester Fund. Both Delchester and Extended Duration Bond Fund
invest in corporate bonds, but each focuses on bonds of different credit
quality. Delchester Fund invests primarily in high-yield, higher risk corporate
bonds rated just below investment grade-- bonds primarily rated BB and B.
Extended Duration Bond Fund invests primarily in investment grade corporate
bonds with ratings of BBB or higher.
Extended Duration Bond Fund also has an average duration longer than
Delaware's other corporate bond funds. Duration measures a bond's price
sensitivity to changes in interest rates. We have chosen to add Extended
Duration Bond Fund to our portfolio because over time we expect that this longer
duration will offer the potential for greater returns.
We also allocated more assets to foreign equities by adding to the
Portfolio's position in International Equity Fund. The Emerging Markets Fund
allocation remained the same. As Japan and other countries along the Pacific Rim
have shown marginal improvement over the past six months, investor confidence in
the region is slowly returning. This has helped boost returns on these two
international funds, enhancing our performance.
INCOME PORTFOLIO
You may recall that last September equities represented nearly half of the
Income Portfolio's net assets. This reflected our view that stocks offered
return potential far above normal due to excessive stock selling in the wake of
global instability.
As of March 31, stock funds represented just 36%. We reduced the Income
Portfolio's large company stock fund allocation for the same reasons that we
decreased equities in the Growth and Balanced Portfolios. We believe that the
potential rewards of investing in large-cap stocks are now more in line with
historical expectations. Therefore, we have adjusted the Portfolio accordingly.
U.S. corporate and government bonds, in our opinion, currently offer better
opportunities to achieve the portfolio's goal of providing current income and
capital appreciation while still preserving capital.
<PAGE>
for asset
allocation
7
We continued to hold a small position in REIT Fund--1.9% as of March 31.
While this had a negative impact on performance--REIT Fund was down 5.43% for
the six-month period--we remain confident that real estate offers attractive
income potential over the long term.
LOOKING AHEAD
When the Dow Jones Industrial Average crossed the 10,000 mark in March, many
equity investors undoubtedly saw it as sign of good things still to come. We,
too, are confident about the long-term potential for stocks, but we also
recognize the potential benefits of asset allocation. In our view, a portfolio
that is diversified among U.S. and foreign stocks and bonds can provide a more
stable means of achieving consistent results over time.
Our belief in diversification and asset allocation is the "foundation" of the
Foundation Funds, and we think it will serve investors well in the 21st Century.
Stock returns in the 1990s were unprecedented. Looking ahead, we believe that
stocks will return between 8% and 10% annually--solid returns on a historic
basis, particularly given our low inflation environment. The Foundation Funds'
diversified approach should allow you to share in the market's long-term
potential at lower levels of volatility.
<TABLE>
<CAPTION>
FUND ALLOCATIONS
- -----------------------------------------------------------------------------------------------------------
MARCH 31, 1999
GROWTH BALANCED INCOME
FUND TYPE/STYLE PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth and Income Fund Large-Cap Value Stocks 19.6% 16.9% 11.4%
U.S. Growth Fund Large-Cap Growth Stocks 19.1% 16.1% 10.5%
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth Fund Multi-Cap Growth Stocks 7.3% 5.4% 3.2%
Small Cap Value Fund Small-Cap Value Stocks 7.5% 5.9% 2.8%
REIT Fund Real Estate Stocks 0 0 1.9%
- -----------------------------------------------------------------------------------------------------------
International Equity Fund Non-U.S. Stocks 16.7% 9.8% 6.2%
Emerging Markets Fund Developing Country Stocks 2.9% 2.1% 0
- -----------------------------------------------------------------------------------------------------------
Delchester Fund High-Yield Corporate Bonds 7.5% 10.6% 19.2%
U.S. Government Fund Mortgages & Treasuries 9.6% 25.2% 36.1%
Extended Duration Bond Fund Investment Grade Corporate Bonds 2.8% 3.0% 3.0%
- -----------------------------------------------------------------------------------------------------------
Cash 7.0% 5.0% 5.7%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
All portfolio holdings are institutional class shares of each Fund.
<PAGE>
for asset
allocation
8
PERFORMANCE SUMMARY
GROWTH PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH MARCH 31, 1999
LIFETIME SIX MONTHS
Class A (Est. 12/31/97)
Excluding Sales Charge +8.98% +15.85%
Including Sales Charge +3.93% +9.17%
- --------------------------------------------------------------------------------
Class B (Est. 12/31/97)
Excluding Sales Charge +8.35% +15.42%
Including Sales Charge +5.20% +10.42%
- --------------------------------------------------------------------------------
Class C (Est. 12/31/97)
Excluding Sales Charge +8.44% +15.55%
Including Sales Charge +8.44% +14.55%
BALANCED PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH MARCH 31, 1999
LIFETIME SIX MONTHS
- --------------------------------------------------------------------------------
Class A (Est. 12/31/97)
Excluding Sales Charge +6.48% +12.29%
Including Sales Charge +1.54% +5.79%
- --------------------------------------------------------------------------------
Class B (Est. 12/31/97)
Excluding Sales Charge +5.90% +11.92%
Including Sales Charge +2.73% +6.92%
- --------------------------------------------------------------------------------
Class C (Est. 12/31/97)
Excluding Sales Charge +6.08% +12.03%
Including Sales Charge +6.08% +11.03%
RETURNS REFLECT REINVESTMENT OF DISTRIBUTIONS AND ANY APPLICABLE SALES CHARGES
AS NOTED BELOW. RETURN AND SHARE VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS B AND C
RESULTS EXCLUDING SALES CHARGE ASSUMES EITHER THAT 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 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.
Average Annual Institutional Class Returns Through March 31, 1999
Lifetime Six Months
Growth Portfolio (Est. 12/31/97) 9.28% 16.10%
Balanced Portfolio (Est. 12/31/97) 6.72% 12.48%
Income Portfolio (Est. 12/31/97) 5.35% 7.92%
Institutional Class shares are available without sales or asset-based
distribution charges only to certain eligible institutional accounts.
<PAGE>
for asset
allocation
9
INCOME PORTFOLIO PERFORMANCE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH MARCH 31, 1999
LIFETIME SIX MONTHS
- --------------------------------------------------------------------------------
Class A (Est. 12/31/97)
Excluding Sales Charge +5.11% +7.73%
Including Sales Charge +0.23% +1.49%
- --------------------------------------------------------------------------------
Class B (Est. 12/31/97)
Excluding Sales Charge +4.67% +7.54%
Including Sales Charge +1.49% +2.54%
- --------------------------------------------------------------------------------
Class C (Est. 12/31/97)
Excluding Sales Charge +4.48% +7.30%
Including Sales Charge +4.48% +6.30%
RETURNS REFLECT REINVESTMENT OF DISTRIBUTIONS AND ANY APPLICABLE SALES CHARGES
AS NOTED BELOW. RETURN AND SHARE VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CLASS B AND C
RESULTS EXCLUDING SALES CHARGE ASSUMES EITHER THAT 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 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.
See page 8 for Institutional Class Returns.
<PAGE>
10 for asset allocation
FINANCIAL STATEMENTS
DELAWARE GROUP FOUNDATION FUNDS -
GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 93.17%
EQUITY FUNDS - 73.24%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ............................... 200,686 $2,944,063
Delaware Group Equity Funds II, Inc. - ............
Growth and Income Fund ......................... 178,466 3,012,503
Delaware Group Equity Funds V, Inc. -
Small Cap Value Fund ........................... 48,250 1,158,472
Delaware Group Global & International Funds, Inc. -
Emerging Markets Series ........................ 71,360 448,141
Delaware Group Global & International Funds, Inc. -
International Equity Series .................... 164,590 2,570,896
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund ......................... 44,542 1,126,459
-----------
11,260,534
-----------
FIXED INCOME FUNDS - 19.93%
Delaware Group Government Fund, Inc. -
Government Income Series ....................... 194,017 1,478,409
Delaware Group Income Funds, Inc. -
Delchester Fund ................................ 198,516 1,147,422
Delaware Group Income Funds, Inc. -
Extended Duration Bond Fund .................... 80,166 437,707
-----------
3,063,538
-----------
TOTAL INVESTMENT COMPANIES
(COST $14,383,142) ........................................... 14,324,072
-----------
TOTAL MARKET VALUE OF SECURITIES - 93.17%
(COST $14,383,142) ........................................... $14,324,072
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 6.83% ................................... 1,049,417
-----------
NET ASSETS APPLICABLE TO 1,641,586 SHARES
OUTSTANDING - 100.00% ........................................ $15,373,489
===========
NET ASSET VALUE - GROWTH PORTFOLIO A CLASS
($13,483,661 / 1,439,921 SHARES) ............................. $9.36
=====
NET ASSET VALUE - GROWTH PORTFOLIO B CLASS
($1,504,673 / 160,582 SHARES) ................................ $9.37
=====
NET ASSET VALUE - GROWTH PORTFOLIO C CLASS
($329,308 / 35,121 SHARES) ................................... $9.38
=====
NET ASSET VALUE - GROWTH PORTFOLIO
INSTITUTIONAL CLASS
($55,847 / 5,962 SHARES) ..................................... $9.37
=====
<PAGE>
- --------------------------------------------------------------------------------
MARKET
VALUE
- --------------------------------------------------------------------------------
COMPONENTS OF NET ASSETS AT MARCH 31, 1999:
Capital shares (unlimited authorization-no par) ................. $15,262,369
Undistributed net investment income ............................. 41,569
Accumulated net realized gain on investments .................... 128,621
Net unrealized depreciation of investments ...................... (59,070)
-----------
Total net assets ................................................ $15,373,489
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
GROWTH PORTFOLIO A CLASS
Net asset value A Class (A) ..................................... $9.36
Sales charge (5.75% of offering price or 6.09%
of the amount invested per share)(B) ......................... 0.57
-----
Offering price .................................................. $9.93
=====
- ----------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See How to Buy Shares in the current prospectus for purchases of $50,000 or
more.
See accompanying notes
DELAWARE GROUP FOUNDATION FUNDS -
GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS:
Investments at market ........................................... $14,324,072
Dividends and interest receivable ............................... 4,910
Subscriptions receivable ........................................ 1,024,517
Other assets .................................................... 180,597
-----------
Total assets .................................................... 15,534,096
-----------
LIABILITIES:
Liquidations payable ............................................ 3,325
Other accounts payable and accrued expenses ..................... 157,282
-----------
Total liabilities ............................................... 160,607
-----------
TOTAL NET ASSETS ................................................ $15,373,489
===========
Investments at cost ............................................. $14,383,142
===========
See accompanying notes
<PAGE>
for asset allocation 11
DELAWARE GROUP FOUNDATION FUNDS -
BALANCED PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 94.74%
EQUITY FUNDS - 56.08%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ................................... 239,063 $3,507,060
Delaware Group Equity Funds II, Inc. -
Growth and Income Fund ............................. 218,420 3,686,935
Delaware Group Equity Funds V, Inc. -
Small Cap Value Fund ............................... 53,514 1,284,881
Delaware Group Global & International Funds, Inc. -
Emerging Markets Series ............................ 71,902 451,546
Delaware Group Global & International Funds, Inc. -
International Equity Series ........................ 136,128 2,126,312
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund ............................. 46,663 1,180,114
-----------
12,236,848
-----------
FIXED INCOME FUNDS - 38.66%
Delaware Group Government Fund, Inc. -
Government Income Series ........................... 720,049 5,486,780
Delaware Group Income Funds, Inc. -
Delchester Fund .................................... 400,656 2,315,792
Delaware Group Income Funds, Inc. -
Extended Duration Bond Fund ........................ 115,775 632,131
-----------
8,434,703
-----------
TOTAL INVESTMENT COMPANIES
(COST $20,856,055) ........................................... 20,671,551
-----------
TOTAL MARKET VALUE OF SECURITIES - 94.74%
(COST $20,856,055) ........................................... $20,671,551
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 5.26% ................................... 1,146,733
-----------
NET ASSETS APPLICABLE TO 2,428,368 SHARES
OUTSTANDING - 100.00% ........................................ $21,818,284
===========
NET ASSET VALUE - BALANCED PORTFOLIO A CLASS
($20,115,917 / 2,239,343 SHARES) ............................. $8.98
=====
NET ASSET VALUE - BALANCED PORTFOLIO B CLASS
($908,956 / 100,998 SHARES) .................................. $9.00
=====
NET ASSET VALUE - BALANCED PORTFOLIO C CLASS
($739,168 / 81,987 SHARES) ................................... $9.02
=====
NET ASSET VALUE - BALANCED PORTFOLIO
INSTITUTIONAL CLASS
($54,243 / 6,040 SHARES) ..................................... $8.98
=====
<PAGE>
- --------------------------------------------------------------------------------
MARKET
VALUE
- --------------------------------------------------------------------------------
COMPONENTS OF NET ASSETS AT MARCH 31, 1999:
Capital shares (unlimited authorization-no par) ................. $21,894,055
Undistributed net investment income ............................. 30,920
Accumulated net realized gain on investments .................... 77,813
Net unrealized depreciation of investments ...................... (184,504)
-----------
Total net assets ................................................ $21,818,284
-----------
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
BALANCED PORTFOLIO A CLASS
Net asset value A Class (A) ..................................... $8.98
Sales charge (5.75% of offering price or 6.12%
of the amount invested per share)(B) ......................... 0.55
-----
Offering price .................................................. $9.53
=====
- ----------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See How To Buy Shares in the current prospectus for purchases of $50,000 or
more.
See accompanying notes
DELAWARE GROUP FOUNDATION FUNDS -
BALANCED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999 (UNAUDITED)
ASSETS:
Investments at market ........................................... $20,671,551
Dividends and interest receivable ............................... 13,682
Subscriptions receivable ........................................ 698,262
Other assets .................................................... 490,587
-----------
Total assets .................................................... 21,874,082
-----------
LIABILITIES:
Liquidations payable ............................................ 22,529
Other accounts payable and accrued expenses ..................... 33,269
-----------
Total liabilities ............................................... 55,798
-----------
TOTAL NET ASSETS ................................................ $21,818,284
===========
Investments at cost ............................................. $20,856,055
===========
See accompanying notes
<PAGE>
12 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS -
INCOME PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 94.25%
EQUITY FUNDS - 35.99%
Delaware Group Adviser Funds, Inc. -
U.S. Growth Fund ................................... 140,512 $2,061,305
Delaware Group Equity Funds II, Inc. -
Growth and Income Fund ............................. 132,549 2,237,424
Delaware Group Equity Funds V, Inc. -
Small Cap Value Fund ............................... 23,059 553,636
Delaware Group Global & International Funds, Inc. -
International Equity Series ........................ 77,175 1,205,481
Delaware Pooled Trust, Inc. -
The Real Estate Investment Trust Portfolio ......... 31,515 362,425
Voyageur Mutual Funds III, Inc. -
Aggressive Growth Fund ............................. 24,810 627,456
-----------
7,047,727
-----------
FIXED INCOME FUNDS - 58.26%
Delaware Group Government Fund, Inc. -
Government Income Series ........................... 927,096 7,064,473
Delaware Group Income Funds, Inc. -
Delchester Fund .................................... 649,690 3,755,210
Delaware Group Income Funds, Inc. -
Extended Duration Bond Fund ........................ 107,934 589,317
-----------
11,409,000
-----------
TOTAL INVESTMENT COMPANIES
(COST $18,712,664).................................. 18,456,727
-----------
PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENTS - 2.64%
With JP Morgan Securities 4.80% 04/01/99
(dated 03/31/99, collateralized by $74,000
U.S. Treasury Notes 4.50% due 01/31/01,
market value $73,478 and $104,000
U.S. Treasury Notes 7.75% due 02/15/01,
market value $109,638) ............................. $179,500 179,500
With PaineWebber 4.80% 04/01/99
(dated 03/31/99, collateralized by $179,000
U.S. Treasury Notes 4.625% due 11/30/00,
market value $180,247) ............................. 176,500 176,500
With Prudential Securities 4.77% 04/01/99
(dated 03/31/99, collateralized by $11,000
U.S. Treasury Notes 6.125% due 12/31/01,
market value $11,728 and $147,000
U.S. Treasury Notes 6.25% due 02/15/03,
market value $153,573) ............................. 162,000 162,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $518,000) .................................... 518,000
-----------
<PAGE>
- --------------------------------------------------------------------------------
MARKET
VALUE
- --------------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES - 96.89%
(COST $19,230,664) ............................................ $18,974,727
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 3.11% .................................... 608,208
-----------
NET ASSETS APPLICABLE TO 2,241,512 SHARES
OUTSTANDING - 100.00% ......................................... $19,582,935
===========
NET ASSET VALUE - INCOME PORTFOLIO A CLASS
($18,799,992 / 2,152,243 SHARES) .............................. $8.74
=====
NET ASSET VALUE - INCOME PORTFOLIO B CLASS
($579,455 / 66,021 SHARES) .................................... $8.78
=====
NET ASSET VALUE - INCOME PORTFOLIO C CLASS
($150,142 / 17,142 SHARES) .................................... $8.76
=====
NET ASSET VALUE - INCOME PORTFOLIO
INSTITUTIONAL CLASS
($53,346 / 6,106 SHARES) ...................................... $8.74
=====
COMPONENTS OF NET ASSETS AT MARCH 31, 1999:
Capital shares (unlimited authorization-no par) .................. $19,805,335
Undistributed net investment income .............................. 38,526
Accumulated net realized loss on investments ..................... (4,989)
Net unrealized depreciation of investments ....................... (255,937)
-----------
Total net assets ................................................. $19,582,935
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
INCOME PORTFOLIO A CLASS
Net asset value A Class (A) ...................................... $8.74
Sales charge (5.75% of offering price or 6.06%
of the amount invested per share)(B) .......................... 0.53
-----
Offering price ................................................... $9.27
=====
- ----------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See How to Buy Shares in the current prospectus for purchases of $50,000 or
more.
See accompanying notes
<PAGE>
for asset allocation 13
DELAWARE GROUP FOUNDATION FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest .......................................................... $ 5,711 $ 15,140 $ 8,650
Dividends ......................................................... 87,263 183,231 221,495
-------- -------- --------
92,974 198,371 230,145
-------- -------- --------
EXPENSES:
Management fees ................................................... 4,050 5,840 4,799
Custodian fees .................................................... 120 130 90
Dividend disbursing and transfer agent fees and expenses .......... 29,706 18,640 23,684
Distribution expense .............................................. 15,422 19,479 13,070
Registration fees ................................................. 23,571 18,469 17,140
Reports and statements to shareholders ............................ 13,000 15,000 8,384
Accounting and administration ..................................... 1,590 2,293 1,884
Professional fees ................................................. 2,750 2,537 2,837
Directors' fees ................................................... 277 304 295
Taxes (other than taxes on income) ................................ 130 155 57
Amortization of organization expenses ............................. 16,273 16,273 16,028
Other ............................................................. 4,352 807 852
-------- -------- --------
111,241 99,927 89,120
Less expenses absorbed or waived .................................. (74,007) (49,014) (50,685)
-------- -------- --------
Total expenses .................................................... 37,234 50,913 38,435
-------- -------- --------
NET INVESTMENT INCOME ............................................. 55,740 147,458 191,710
-------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Capital gain distributions from investment companies .............. 75,566 76,606 19,635
Net realized gain (loss) on investment transactions ............... 76,595 19,482 (21,418)
Net change in unrealized appreciation/depreciation of investments . 88,758 (8,273) (225,368)
-------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ............ 240,919 87,815 (227,151)
-------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ... $296,659 $235,273 $(35,441)
======== ======== ========
</TABLE>
See accompanying notes
<PAGE>
14 for asset allocation
DELAWARE GROUP FOUNDATION FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO BALANCED PORTFOLIO INCOME PORTFOLIO
--------------------------------------------------------------------------------
SIX MONTHS PERIOD ENDED SIX MONTHS PERIOD ENDED SIX MONTHS PERIOD ENDED
ENDED 12/31/97* ENDED 12/31/97* ENDED 12/31/97*
3/31/99 TO 9/30/98 3/31/99 TO 9/30/98 3/31/99 TO 9/30/98
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ............................. $ 55,740 $ 3,004 $ 147,458 $ 12,005 $ 191,710 $ 9,196
Net realized gain (loss) on investments ........... 152,161 (13,740) 96,088 (6,560) (1,783) 594
Net change in unrealized appreciation/depreciation
of investments ................................. 88,758 (147,828) (8,273) (176,231) (225,368) (30,569)
----------- ---------- ----------- ---------- ----------- --------
Net increase (decrease) in net assets
resulting from operations ...................... 296,659 (158,564) 235,273 (170,786) (35,441) (20,779)
----------- ---------- ----------- ---------- ----------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class ........................................ (16,587) - (107,908) (4,474) (147,740) (4,448)
B Class ........................................ - - (5,576) (1,113) (5,694) (224)
C Class ........................................ - - (6,341) (1,914) (1,807) (679)
Institutional Class ............................ (588) - (804) (413) (1,021) (767)
Net realized gain on investment transactions:
A Class ........................................ (5,317) - (6,916) - (2,256) -
B Class ........................................ (3,737) - (1,985) - (994) -
C Class ........................................ (599) - (2,648) - (401) -
Institutional Class ............................ (147) - (166) - (149) -
----------- ---------- ----------- ---------- ----------- --------
(26,975) - (132,344) (7,914) (160,062) (6,118)
----------- ---------- ----------- ---------- ----------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ........................................ 14,361,989 631,110 21,318,103 1,049,742 19,899,723 469,501
B Class ........................................ 493,023 986,205 457,479 511,331 691,566 27,226
C Class ........................................ 282,497 82,896 211,292 849,953 97,335 124,824
Institutional Class ............................ - 50,000 - 50,000 - 50,000
Net asset value of shares issued upon reinvestment
of distributions from net investment income and
net realized gain on investments:
A Class ........................................ 21,965 - 114,834 4,474 149,996 4,448
B Class ........................................ 3,675 - 7,516 1,113 5,720 23
C Class ........................................ 597 - 8,687 1,867 2,208 679
Institutional Class ............................ 735 - 970 413 1,171 767
----------- ---------- ----------- ---------- ----------- --------
15,164,481 1,750,211 22,118,881 2,468,893 20,847,719 677,468
----------- ---------- ----------- ---------- ----------- --------
Cost of shares repurchased:
A Class ........................................ (1,522,080) (35,100) (2,256,392) (21,365) (1,438,499) (54,264)
B Class ........................................ (42,152) (2,495) (15,869) (66,283) (149,406) -
C Class ........................................ (50,006) (490) (253,266) (80,544) (77,562) -
Institutional Class ............................ - - - - - (121)
----------- ---------- ----------- ---------- ----------- --------
(1,614,238) (38,085) (2,525,527) (168,192) (1,665,467) (54,385)
----------- ---------- ----------- ---------- ----------- --------
Increase in net assets derived from capital
share transactions ............................. 13,550,243 1,712,126 19,593,354 2,300,701 19,182,252 623,083
----------- ---------- ----------- ---------- ----------- --------
NET INCREASE IN NET ASSETS ........................ 13,819,927 1,553,562 19,696,283 2,122,001 18,986,749 596,186
NET ASSETS:
Beginning of period ............................... 1,553,562 - 2,122,001 - 596,186 -
----------- ---------- ----------- ---------- ----------- --------
End of period ..................................... $15,373,489 $1,553,562 $21,818,284 $2,122,001 $19,582,935 $596,186
=========== ========== =========== ========== =========== ========
- ----------------
*Date of commencement of trading.
</TABLE>
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 PORTFOLIO GROWTH PORTFOLIO GROWTH PORTFOLIO
A CLASS B CLASS C CLASS
-------------------------------------------------------------------------------
SIX MONTHS 12/31/97(2) SIX MONTHS 12/31/97(2) SIX MONTHS 12/31/97(2)
ENDED TO ENDED TO ENDED TO
3/31/99(1) 9/30/98 3/31/99(1) 9/30/98 3/31/99(1) 9/30/98
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 8.170 $ 8.500 $8.140 $8.500 $8.140 $8.500
Income from investment operations:
Net investment income(3)...................... 0.101 0.083 0.217 0.035 0.145 0.034
Net realized and unrealized loss
on investments ............................. 1.192 (0.413) 1.038 (0.395) 1.120 (0.394)
------- ------- ------ ------ ------ ------
Total from investment operations ............. 1.293 (0.330) 1.255 (0.360) 1.265 (0.360)
------- ------- ------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment income ......... (0.078) - - - - -
Distributions from net realized gain
on investment transactions ................. (0.025) - (0.025) - (0.025) -
------- ------- ------ ------ ------ ------
Total dividends and distributions ............ (0.103) - (0.025) - (0.025) -
------- ------- ------ ------ ------ ------
Net asset value, end of period .................. $9.360 $ 8.170 $9.370 $8.140 $9.380 $8.140
======= ======= ====== ====== ====== ======
Total return(4) ................................. 15.85% (3.88%) 15.42% (4.24%) 15.55% (4.24%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) .............................. $13,484 $ 547 $1,505 $885 $329 $74
Ratio of expenses to average
net assets ................................. 0.80% 0.80% 1.55% 1.55% 1.55% 1.55%
Ratio of expenses to average net
assets prior to expense limitation ......... 2.65% 16.14% 3.40% 16.89% 3.40% 16.89%
Ratio of net investment income to
average net assets ......................... 1.52% 1.28% 0.77% 0.53% 0.77% 0.53%
Ratio of net investment loss to average
net assets prior to
expense limitation ......................... (0.33%) (14.06%) (1.08%) (14.81%) (1.08%) (14.81%)
Portfolio turnover ........................... 34% 77% 34% 77% 34% 77%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
INSTITUTIONAL CLASS
------------------------
SIX MONTHS 12/31/97(2)
ENDED TO
3/31/99(1) 9/30/98
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period ............ $8.180 $8.500
Income from investment operations:
Net investment income(3)...................... 0.382 0.099
Net realized and unrealized loss
on investments ............................. 0.933 (0.419)
------ ------
Total from investment operations ............. 1.315 (0.320)
------ ------
Less dividends and distributions:
Dividends from net investment income ......... (0.100) -
Distributions from net realized gain
on investment transactions ................. (0.025) -
------ ------
Total dividends and distributions ............ (0.125) -
------ ------
Net asset value, end of period .................. $9.370 $8.180
====== ======
Total return(4).................................. 16.10% (3.77%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) .............................. $56 $48
Ratio of expenses to average
net assets ................................. 0.55% 0.55%
Ratio of expenses to average net
assets prior to expense limitation ......... 2.40% 15.89%
Ratio of net investment income to
average net assets ......................... 1.77% 1.53%
Ratio of net investment loss to average
net assets prior to
expense limitation ......................... (0.08%) (13.81%)
Portfolio turnover ........................... 34% 77%
</TABLE>
- ----------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and total return
has not been annualized.
3 Per share information was based on the average shares outstanding method.
4 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 PORTFOLIO BALANCED PORTFOLIO BALANCED PORTFOLIO
A CLASS B CLASS C CLASS
-------------------------------------------------------------------------------
SIX MONTHS 12/31/97(2) SIX MONTHS 12/31/97(2) SIX MONTHS 12/31/97(2)
ENDED TO ENDED TO ENDED TO
3/31/99(1) 9/30/98 3/31/99(1) 9/30/98 3/31/99(1) 9/30/98
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $8.130 $8.500 $8.130 $8.500 $8.140 $8.500
Income from investment operations:
Net investment income(3)......................... 0.117 0.165 0.085 0.116 0.085 0.116
Net realized and unrealized loss
on investments ................................ 0.881 (0.465) 0.883 (0.471) 0.893 (0.461)
------ ------ ------ ------ ------ ------
Total from investment operations ................ 0.998 (0.300) 0.968 (0.355) 0.978 (0.345)
------ ------ ------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment income ............ (0.120) (0.070) (0.070) (0.015) (0.070) (0.015)
Distributions from net realized gain
on investment transactions .................... (0.028) - (0.028) - (0.028) -
------ ------ ------ ------ ------ ------
Total dividends and distributions ............... (0.148) (0.070) (0.098) (0.015) (0.098) (0.015)
------ ------ ------ ------ ------ ------
Net asset value, end of period ..................... $8.980 $8.130 $9.000 $8.130 $9.020 $8.140
====== ====== ====== ====== ====== ======
Total return(4)..................................... 12.29% (3.68%) 11.92% (4.02%) 12.03% (3.90%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ................................. $20,116 $972 $909 $408 $739 $694
Ratio of expenses to average
net assets .................................... 0.80% 0.80% 1.55% 1.55% 1.55% 1.55%
Ratio of expenses to average net
assets prior to expense limitation ............ 1.65% 14.36% 2.40% 15.11% 2.40% 15.11%
Ratio of net investment income to
average net assets ............................ 2.64% 2.53% 1.89% 1.78% 1.89% 1.78%
Ratio of net investment loss to average
net assets prior to
expense limitation ............................ 1.79% (11.03%) 1.04% (11.78%) 1.04% (11.78%)
Portfolio turnover .............................. 88% 73% 88% 73% 88% 73%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
INSTITUTIONAL CLASS
------------------------
SIX MONTHS 12/31/97(2)
ENDED TO
3/31/99(1) 9/30/98
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period ..................... $8.130 $8.500
Income from investment operations:
Net investment income(3) .............................. 0.128 0.181
Net realized and unrealized loss
on investments ...................................... 0.885 (0.516)
------ ------
Total from investment operations ...................... 1.013 (0.335)
------ ------
Less dividends and distributions:
Dividends from net investment income .................. (0.135) (0.035)
Distributions from net realized gain
on investment transactions .......................... (0.028) -
------ ------
Total dividends and distributions ..................... (0.163) (0.035)
------ ------
Net asset value, end of period ........................... $8.980 $8.130
====== ======
Total return(4) .......................................... 12.48% (3.56%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ....................................... $54 $48
Ratio of expenses to average
net assets .......................................... 0.55% 0.55%
Ratio of expenses to average net
assets prior to expense limitation .................. 1.40% 14.11%
Ratio of net investment income to
average net assets .................................. 2.89% 2.78%
Ratio of net investment loss to average
net assets prior to
expense limitation .................................. 2.04% (10.78%)
Portfolio turnover .................................... 88% 73%
</TABLE>
- ----------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and total return
has not been annualized.
3 Per share information was based on the average shares outstanding method.
4 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 PORTFOLIO INCOME PORTFOLIO INCOME PORTFOLIO
A CLASS B CLASS C CLASS
-------------------------------------------------------------------------------
SIX MONTHS 12/31/97(2) SIX MONTHS 12/31/97(2) SIX MONTHS 12/31/97(2)
ENDED TO ENDED TO ENDED TO
3/31/99(1) 9/30/98 3/31/99(1) 9/30/98 3/31/99(1) 9/30/98
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............. $8.290 $8.500 $8.290 $8.500 $8.290 $8.500
Income from investment operations:
Net investment income(3) ...................... 0.178 0.261 0.146 0.212 0.146 0.215
Net realized and unrealized loss
on investments .............................. 0.462 (0.361) 0.479 (0.342) 0.459 (0.345)
------ ------ ------ ------ ------ ------
Total from investment operations .............. 0.640 (0.100) 0.625 (0.130) 0.605 (0.130)
------ ------ ------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment income .......... (0.165) - (0.110) - (0.110) -
Distributions from net realized gain
on investment transactions .................. (0.025) (0.110) (0.025) (0.080) (0.025) (0.080)
------ ------ ------ ------ ------ ------
Total dividends and distributions ............. (0.190) (0.110) (0.135) (0.080) (0.135) (0.080)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................... $8.740 $8.290 $8.780 $8.290 $8.760 $8.290
====== ====== ====== ====== ====== ======
Total return(4) .................................. 7.73% (1.21%) 7.54% (1.56%) 7.30% (1.56%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ............................... $18,800 $398 $579 $26 $150 $123
Ratio of expenses to average
net assets .................................. 0.80% 0.80% 1.55% 1.55% 1.55% 1.55%
Ratio of expenses to average net assets
prior to expense limitation ................. 1.87% 36.76% 2.62% 37.51% 2.62% 37.51%
Ratio of net investment income to
average net assets .......................... 4.07% 3.97% 3.32% 3.22% 3.32% 3.22%
Ratio of net investment income to
average net assets prior to
expense limitation .......................... 3.00% (31.99%) 2.25% (32.74%) 2.25% (32.74%)
Portfolio turnover ............................ 63% 81% 63% 81% 63% 81%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME PORTFOLIO
INSTITUTIONAL CLASS
-------------------------
SIX MONTHS 12/31/97(2)
ENDED TO
3/31/99(1) 9/30/98
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period ..................... $8.280 $8.500
Income from investment operations:
Net investment income(3) .............................. 0.189 0.277
Net realized and unrealized loss
on investments ...................................... 0.466 (0.367)
------ ------
Total from investment operations ...................... 0.655 (0.090)
------ ------
Less dividends and distributions:
Dividends from net investment income .................. (0.170) -
Distributions from net realized gain
on investment transactions .......................... (0.025) (0.130)
------ ------
Total dividends and distributions ..................... (0.195) (0.130)
------ ------
Net asset value, end of period ........................... $8.740 $8.280
====== ======
Total return(4) .......................................... 7.92% (1.10%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ....................................... $53 $49
Ratio of expenses to average
net assets .......................................... 0.55% 0.55%
Ratio of expenses to average net assets
prior to expense limitation ......................... 1.62% 36.51%
Ratio of net investment income to
average net assets .................................. 4.32% 4.22%
Ratio of net investment income to
average net assets prior to
expense limitation .................................. 3.25% (31.74%)
Portfolio turnover .................................... 63% 81%
</TABLE>
- ----------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and total return
has not been annualized.
3 Per share information was based on the average shares outstanding method.
4 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
MARCH 31, 1999
(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 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.
<PAGE>
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.
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
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 Portfolio's 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.
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, 1999, DDLP earned commissions on sales of the A
Class shares for each Portfolio as follows:
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------
$24,239 $19,312 $21,180
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
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
3. INVESTMENTS
During the period ended March 31, 1999, 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 were as follows:
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
Purchases ..................... $15,227,329 $23,304,838 $20,784,632
Sales ......................... 2,611,700 4,734,000 2,657,000
The cost of investments for federal income tax purposes approximates cost for
book purposes. At March 31, 1999 the aggregate cost of securities and unrealized
appreciation and (depreciation) for each portfolio were as follows.
GROWTH BALANCED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
Cost of investments .............. $14,383,142 $20,856,055 $19,230,664
=========== =========== ===========
Aggregate unrealized appreciation. $200,509 $204,651 $112,944
Aggregate unrealized depreciation. (259,579) (389,155) (368,881)
----------- ----------- -----------
Net unrealized depreciation ...... $ (59,070) $ (184,504) $ (255,937)
=========== =========== ===========
4. CAPITAL STOCK
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO BALANCED PORTFOLIO INCOME PORTFOLIO
-------------------------------------------------------------------------------------------
SIX MONTHS PERIODS ENDED SIX MONTHS PERIODS ENDED SIX MONTHS PERIODS ENDED
ENDED 12/31/97* ENDED 12/31/97* ENDED 12/31/97*
3/31/99 TO 9/30/98 3/31/99 TO 9/30/98 3/31/99 TO 9/30/98
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
A Class .................... 1,535,237 70,740 2,359,878 121,481 2,251,572 53,642
B Class .................... 55,959 109,008 51,779 57,342 80,300 3,085
C Class .................... 31,485 9,145 24,295 95,236 11,296 14,782
Institutional Class ........ 0 5,882 0 5,883 0 5,882
Net asset value of shares issued
upon reinvestment of
distributions from net
investment income and net
realized gain on investments:
A Class .................... 2,382 0 12,818 540 17,177 523
B Class .................... 398 0 839 133 651 3
C Class .................... 64 0 969 222 252 81
Institutional Class ........ 80 0 109 48 134 90
--------- ------- --------- ------- --------- ------
1,625,605 194,775 2,450,687 280,885 2,361,382 78,088
--------- ------- --------- ------- --------- ------
Shares repurchased:
A Class .................... (164,581) (3,857) (252,868) (2,506) (164,533) (6,138)
B Class .................... (4,507) (276) (1,782) (7,313) (18,018) 0
C Class .................... (5,518) (55) (28,510) (10,225) (9,255) (14)
Institutional Class ........ 0 0 0 0 0 0
--------- ------- --------- ------- --------- ------
(174,606) (4,188) (283,160) (20,044) (191,806) (6,152)
Net Increase ............... 1,450,999 190,587 2,167,527 260,841 2,169,576 71,936
========= ======= ========= ======= ========= ======
</TABLE>
- ----------------
*Commencement of trading.
PROXY RESULTS (UNAUDITED)
<PAGE>
20 for asset allocation
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
For the six months ended March 31, 1999, The Delaware Group Foundation Funds
shareholders voted on the following proposals at the annual meeting of
shareholders on March 17, 1999 or as adjourned. The description of each proposal
and number of shares voted are as follows:
1. To elect the Delaware Group Foundation Funds Board of Directors.
SHARES SHARES VOTED
VOTED WITHHELD
FOR AUTHORITY
------ ------------
Jeffrey J. Nick ......................... 602,451 20,928
Walter P. Babich ........................ 602,451 20,928
John H. Durham .......................... 602,451 20,928
Anthony D. Knerr ........................ 602,451 20,928
Ann R. Leven ............................ 602,451 20,928
W. Thacher Longstreth ................... 602,451 20,928
Thomas F. Madison ....................... 602,451 20,928
Charles E. Peck ......................... 602,451 20,928
Wayne A. Stork .......................... 602,451 20,928
Jan R. Yeomans .......................... 602,451 20,928
2. To approve standardized fundamental investment restrictions for the Funds
(proposal involves separate votes on seven sub-proposals 2A-2G).
2A.To adopt a new fundamental investment restriction concerning concentration
of the Portfolio's investments in the same industry.
FOR AGAINST ABSTAIN
--- ------- -------
Balanced Portfolio ......... 212,481 5,913 15,353
Growth Portfolio ........... 257,383 3,072 8,066
Income Portfolio ........... 85,530 2,345 2,090
2B.To adopt a new fundamental investment restriction concerning borrowing money
and issuing senior securities.
FOR AGAINST ABSTAIN
--- ------- -------
Balanced Portfolio ......... 212,484 5,909 15,353
Growth Portfolio ........... 248,970 3,072 16,479
Income Portfolio ........... 85,530 2,345 2,090
2C.To adopt a new fundamental investment restriction concerning underwriting.
FOR AGAINST ABSTAIN
--- ------- -------
Balanced Portfolio ......... 211,420 6,974 15,353
Growth Portfolio ........... 252,910 3,072 12,540
Income Portfolio ........... 85,530 1,990 2,445
<PAGE>
2D.To adopt a new fundamental investment restriction concerning investments in
real estate.
FOR AGAINST ABSTAIN
--- ------- -------
Balanced Portfolio ......... 212,484 5,909 15,353
Growth Portfolio ........... 254,686 614 13,221
Income Portfolio ........... 85,530 2,345 2,090
2E.To adopt a new fundamental investment restriction concerning investments in
commodities.
FOR AGAINST ABSTAIN
--- ------- -------
Balanced Portfolio ......... 201,852 16,541 15,353
Growth Portfolio ........... 251,816 8,176 8,529
Income Portfolio ........... 85,530 2,345 2,090
2F.To adopt a new fundamental investment restriction concerning lending by the
Portfolios.
FOR AGAINST ABSTAIN
--- ------- -------
Balanced Portfolio ......... 212,245 6,148 15,353
Growth Portfolio ........... 257,383 3,072 8,066
Income Portfolio ........... 85,530 2,345 2,090
2G.To reclassify all current fundamental investment restrictions as
non-fundamental.
FOR AGAINST ABSTAIN
--- ------- -------
Balanced Portfolio ......... 211,420 6,974 15,353
Growth Portfolio ........... 247,301 3,195 18,025
Income Portfolio ........... 81,879 5,641 2,445
3. To approve a new investment management agreement with Delaware Management
Company for the Portfolios.
FOR AGAINST ABSTAIN
--- ------- -------
Balanced Portfolio ......... 228,165 - -
Growth Portfolio ........... 274,360 2,458 12,525
Income Portfolio ........... 88,036 355 2,093
4.To ratify the selection of Ernst & Young LLP, as the independent auditors for
the Delaware Group Foundation Funds.
FOR AGAINST ABSTAIN
--- ------- -------
591,055 548 31,774
<PAGE>
DELAWARE INVESTMENTS FAMILY OF FUNDS
FOR GROWTH OF CAPITAL
Aggressive Growth Fund
Trend Fund
DelCap Fund
Small Cap Value Fund
U.S. Growth Fund
Growth Stock Fund
Tax-Efficient Equity Fund
Social Awareness Fund
FOR TOTAL RETURN
Blue Chip Fund
Devon Fund
Growth and Income Fund
Decatur Equity Income Fund
REIT Fund
Delaware Balanced Fund
FOR INTERNATIONAL DIVERSIFICATION
Emerging Markets Fund
New Pacific Fund
Overseas Equity Fund
International Equity Fund
Global Equity Fund
Global Bond Fund
FOR CURRENT INCOME
Delchester Fund
High-Yield Opportunities Fund
Strategic Income Fund
Corporate Bond Fund
Extended Duration Bond Fund
U.S. Government Fund
US Government Securities Fund
Limited-Term Government Fund
FOR TAX-EXEMPT INCOME
National High Yield Municipal Bond Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
State Tax-Free Funds*
MONEY MARKET FUNDS
Delaware Cash Reserve
Tax-Free Money Fund
ASSET ALLOCATION FUNDS
Growth Portfolio
Balanced Portfolio
Income Portfolio
* Available for the following states: Arizona, California, Colorado, Florida,
Idaho, Iowa, Kansas, Minnesota, Missouri, North Dakota, New Jersey, New Mexico,
New York, Ohio, Oregon, Pennsylvania, Utah, Washington, Wisconsin. Insured and
intermediate bond funds are available in selected states.
FUNDS
(photo of computer keyboard)
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.
<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 Foundation Funds Prospectus and the Delaware Investments Performance
Update for the most recently completed calendar quarter. The prospectus sets
forth details about charges, expenses, investment objectives and operating
policies of each Fund. You should read the prospectus carefully before you
invest or send money. Summary investment results are documented in each Fund'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 Fund 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 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
(photo of globes)
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS
REPRESENTATIVES ONLY
1.800.659.2265
www.delawareinvestments.com
DELAWARE
INVESTMENTS(TM)
- ---------------------
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.
(C) Delaware Distributors, L.P.
Printed in the USA
on recycled paper
SA-444 [3/99] PP5/99
(1711)
