<PAGE>
1996
Annual
Report
------
DELAWARE
GROUP
DELAWARE
FUND
-----
[PHOTO OF VARIOUS PHILADELPHIA SITES APPEARS HERE]
A Tradition of Sound Investing Since 1929
DELAWARE
GROUP
=========
Philadelphia . London
<PAGE>
DELAWARE FUND
- -------------------------------------------------------------------------------
INVESTMENT
- -------------------------------------------------------------------------------
OBJECTIVE
- -------------------------------------------------------------------------------
To seek a balance of capital
appreciation, income and
preservation of capital.
[PHOTO OF VARIOUS PHILADELPHIA HISTORIC SITES APPEARS HERE]
ABOUT OUR COVER
- -------------------------------------------------------------------------------
Headquartered in Philadelphia, Pennsylvania, Delaware Group shares in the
tradition of a city built on the vision of opportunity. Amidst the city's
historic sites, symbolic of our nation's freedom and prosperity, Delaware Group
provides both individual and institutional investors with a conservative,
disciplined approach to money management.
DELAWARE GROUP
- -------------------------------------------------------------------------------
A TRADITION OF
- -------------------------------------------------------------------------------
SOUND INVESTING
- -------------------------------------------------------------------------------
Delaware Management Company's investment experience dates back to 1929. Delaware
Fund was our first mutual fund, and was established in 1938.
Headquartered in Philadelphia with an affiliate in London, Delaware today
manages a full range of mutual fund and annuity investments and also offers
retirement plan services to individuals and companies. Delaware International
Advisers Ltd., our London-based international affiliate, was established in
1990.
Delaware Group manages mutual funds with the same time-tested, disciplined
strategies demanded by the large public and private pension plans, foundations
and endowments that are among our clients. With over 60 years of experience, we
have demonstrated our commitment to quality investment management and service.
Today, Delaware manages more than $31 billion in mutual funds and
institutional investment advisory accounts. We measure our success by the
financial success and satisfaction of our nearly 500,000 shareholders.
<PAGE>
November 11, 1996
Dear
- --------------------------------------------------------------------------------
Shareholder:
- --------------------------------------------------------------------------------
Delaware Fund provided a total return of +16.07% (capital change plus income
based on net asset value for A Class shares) for the 12 months ended October 31,
1996, a fiscal year when bond prices fluctuated as much as stock prices.
Your Fund, which offers a mix of stocks and bonds, achieved fiscal year
results superior to the returns provided by many other balanced funds, as
measured by the Lipper Balanced Fund Average. Delaware Fund also outpaced the
average of its peers for the five-year period ended October 31, 1996, as shown
below.
In 1996, Delaware Fund provided more than two-thirds of the total return of
the unmanaged S&P 500 Index with a portfolio containing between 57% and 60%
stocks. It was a challenging period given that the stock and bond markets moved
in opposite directions from February to June.
Delaware Fund aims to provide a balance of current income, capital
appreciation and principal preservation, and as such is more conservative than
funds that invest solely in equities. Our bond strategy focuses primarily on
income while the Fund's management selects stocks of companies we believe are
likely to increase dividends. We believe this strategy can lead to less
volatility than balanced funds whose stock investment strategy does not consider
dividend growth.
While the past five years have provided exceptionally strong returns from
stocks, we believe investors should not expect double digit gains year after
year. Our six decades of managing Delaware Fund through various market cycles
have taught us to be prepared for market fluctuations. We have also learned that
when stock gains are hard to come by, dividends from stocks and the income
produced by bonds take on a greater role in generating total return.
Your Fund is managed by George H. Burwell, who is responsible for stock
selection and asset allocation, and Gary A. Reed, who focuses on high-quality
government and corporate bonds. In the pages that follow, both managers discuss
how the Fund was positioned in 1996 and provide an outlook for the stock and
bond markets.
We thank you for being among the more than 25,000 shareholders who have
chosen Delaware Group's namesake fund, which has one of the longest track
records in the mutual fund industry.
Sincerely,
/s/ Wayne A. Stork
Wayne A. Stork
Chairman, President and Chief Executive Officer
<TABLE>
<CAPTION>
================================================================================================
Average Annual Total Return
12 Months Ended Five Years Ended
October 31, 1996 October 31, 1996
<S> <C> <C>
Delaware Fund A Class +16.07% +11.55%
- -------------------------------------------------------------------------------------------------
Lipper Balanced Fund Average +14.84% (267 funds) +11.11% (74 funds)
Lehman Brothers Aggregate Bond Index +5.85% +7.70%
Standard & Poor's 500 Index +24.10% +15.51%
=================================================================================================
</TABLE>
Delaware Fund performance and that of Lipper Balanced Fund Average is based on
net asset value without effect of sales charge. Performance for all Fund classes
can be found on page 7.
================================================================================
1
<PAGE>
Portfolio
- --------------------------------------------------------------------------------
Managers'
- --------------------------------------------------------------------------------
Review
- --------------------------------------------------------------------------------
It was a year of deja vu. Despite a minor setback in July, the stock market
provided robust returns that, while not as pronounced as in 1995, were strong by
historical standards. The bond market, meanwhile, reenacted the volatile
conditions of 1994, fortunately to a much lesser degree.
Returns this year were influenced by investor expectations in three
areas: inflation, corporate earnings and Washington's political makeup. Last
winter it appeared that U.S. economic growth and consumer prices were about to
accelerate, and require the Federal Reserve Board to significantly tighten
credit. Instead, the economy slowed and inflation remained in check.
Corporate earnings growth in 1996, while not as strong as earlier in the
1990s, continued with no sign of recession on the horizon. Finally, the status
quo was endorsed by voters in this fall's elections, ending fears that the
federal government's slow progress toward sounder fiscal policy would be undone.
[PHOTO OF GEORGE H. BURWELL AND GARY A. REED APPEARS HERE]
GEORGE H. BURWELL AND GARY A. REED HAVE MANAGED DELAWARE FUND FOR THE PAST
TWO YEARS.
During the year, we made modest adjustments to your Fund's asset
allocation as market conditions warranted. Prior to the stock market's short-
term decline this past summer, for example, we had reduced our weighting in
stocks to about 57%, and then increased our position after stock prices dropped.
Your Fund has the option of allocating up to 75% of its net assets to stocks.
Our positioning helped your Fund's performance, primarily because it
gave us flexibility and resources to buy attractively priced stocks with
dividend growth potential. Many of these stocks did well when the market
recovered in the late summer and fall.
Our slightly reduced weighting in stocks compared to a year ago reflects
the fact that we believe U.S. economic growth, and therefore earnings growth,
will be modest in 1997 while interest rates may decline.
2
<PAGE>
Delaware Fund's Stock Focus
In 1996, stock investors valued consistency above all else. Companies that
posted consistent earnings saw their stock prices benefit while companies whose
results were erratic or did not meet expectations suffered. For the 12 months
ended October 31, 1996, the S&P 500 Index rose +24.10%, almost twice as much as
the average annual increase during the past two decades.
A trend we've noticed in recent months is that there has been a gradual
narrowing of market leadership. Investors have tended to favor a smaller number
of high profile companies with strong track records. In fact, 30 large companies
accounted for nearly one-third of the S&P 500 Index's market capitalization as
of October 31, 1996.
Your Fund has benefited from this narrowing in two ways. First, the
shares of several large, stable growth companies we owned such as General
Electric Co. appreciated substantially. In some cases, we sold or reduced
positions in these stocks. We added to our holdings of some large consumer
growth companies such as Philip Morris Cos. that we believe have further capital
appreciation potential.
Secondly, to the extent that the market "ignored" mid-cap companies, it
allowed the Fund to buy high-quality, mid-size businesses with strong dividend
growth potential at prices we believe reflect below average risk. These included
regional banks, capital goods and providers of business services such as Wallace
Computer Services.
In fiscal 1996, companies in your Fund's stock portfolio increased their
cash dividends by an average of +11.6%. Many of your Fund's holdings also
provided double digit total returns during the year. However, we did have a few
disappointments, notably some health care selections such as Pharmacia & Upjohn,
whose earnings did not meet our expectations.
Fund Highlights
================================================================================
<TABLE>
<CAPTION>
Portfolio Mix
October 31, 1996
[PIE CHART APPEARS HERE]
Consumer Growth Stocks 17.9%
Capital Goods Stocks 6.3%
Consumer Staples Stocks 6.4%
Banks/ Insurance Stocks 8.5%
Utilities Stocks/ REITS 8.2%
Energy Stocks 3.3%
Other Stocks 8.4%
Corporate Bonds 10.5%
Mortgages 15.5%
Treasury/Agency Bonds 4.3%
Asset-Backed Bonds 4.0%
Cash 6.7%
Asset Allocation
October 31, 1995 October 31, 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Stocks 61.9% 58.9%
Bonds 32.1% 34.4%
Cash 6.0% 6.7%
Beta* 0.66 0.66
Yield** 2.96% 3.03%
</TABLE>
* A measure of risk relative to the S&P 500 Index.
A number less than 1.0 means less historical price volatility than the index.
A number higher than 1.0 means more historical volatility.
** For A Class shares measured according to Securities and Exchange Commission
guidelines. Yields for B and C Class shares were, respectively, 2.37% and
2.38% as of October 31, 1996. B Class yield was 2.32% as of October 31, 1995.
3
<PAGE>
===============================================================================
Stock Portfolio Highlights
(October 31, 1996)
Median Market Capitalization $4.1 billion
Number of Stocks 47
Average Stock
Price-to-Earnings Ratio** 15.1x
TOP SECTOR - CONSUMER GROWTH 22.1%
STOCK PORTFOLIO ANNUAL RETURN +12.96%*
* For Class A shares with dividends reinvested.
** P/E ratio based on analysts' earnings estimates for 1997.
For complete Fund performance, see page 7.
===============================================================================
As we research stocks, we look for businesses that we believe can
perform reasonably well in most economic environments. We ask whether a company
is generating excess cash and reinvesting in the business in a relatively low-
risk manner such as an acquisition that increases market share. We then examine
the long-term potential for dividend increases.
Some mutual funds tend to "sell early" to preserve a moderate level of
price appreciation rather than stick with a stock that may have further
potential. Our strategy is a bit different because Delaware Fund generally holds
stocks until they reach higher prices relative to a company's earnings. We
believe this strategy has the potential to maximize total return with only a
modest increase in risk. It also can result in reduced portfolio turnover.
Our investment discipline requires us to begin selling company's shares
when its stock price relative to profits is more than 20% higher than that of
stocks making up the S&P 500 Index.
Delaware Fund's Bond Focus
To maximize your Fund's income potential with only a moderate increase in risk
from interest rate changes, we decided in December 1995 to gradually extend the
average effective duration of your Fund's bond portfolio by about 18 months to
4.5 years.
Duration measures a bond's sensitivity to interest rates and indicates
the likely change in a bond's price given a 1% movement in interest rates. A
longer duration increases the chance an investment can appreciate in value when
interest rates fall as well as the possibility of principal loss when rates
rise.
Our goal is to approximate the duration of the Lehman Brothers Aggregate
Bond Index, a broad and unmanaged benchmark of intermediate and long-term
government, corporate and mortgage securities. Prior to December 31, we kept the
duration in line with the Lehman Brothers Intermediate Government Corporate Bond
Index, which generally has a somewhat shorter duration.
Given the sharp interest rate rise in February 1996, the timing of our
policy change wasn't the most fortuitous. However, we began to harvest the
fruits of our approach in late summer and fall when bond prices rose as
inflation fears abated.
We believe a strategy that provides you with high current income from
bonds can help offset any negative effects of stock market volatility on the
Fund's equity portfolio. As of October 31, 1996, we had a greater percentage of
mortgage-related securities and corporate bonds than the Lehman Aggregate Index
because these securities offered superior income potential relative to U.S.
Treasuries.
WE BELIEVE A STRATEGY THAT PROVIDES YOU WITH HIGH CURRENT INCOME FROM
BONDS CAN HELP OFFSET ANY NEGATIVE EFFECTS OF STOCK MARKET VOLATILITY ON THE
FUND'S EQUITY PORTFOLIO.
4
<PAGE>
===============================================================================
Bond Portfolio Highlights
(October 31, 1996)
Average Effective Duration 4.5 years
Average Maturity 7.8 years
Average Quality AA1
Yield (before expenses)** 7.19%
Largest Sector Focus Mortgages
Bond Portfolio Annual Return +3.03%*
* based on Class A shares at net asset value with income reinvested. For
complete Fund performance, see page 7.
** See page 3 for SEC yields.
================================================================================
Our mortgage focus is primarily on residential property loans. We also
have a significant position in securities that finance commercial property such
as industrial and office sites. We believe this helps reduce pre-payment risks
associated with mortgage portfolios. Generally, commercial mortgages have become
more attractive as the property developer excesses and high credit risk of the
1980s have been "wrung out" of the system.
Your Fund benefited from holding mortgage-related securities and high-
quality corporate bonds during the winter months of fiscal 1996 because prices
of these bonds did not decline as much as long-term Treasuries. Conversely, in
October, when interest rates fell sharply, your Fund's bond portfolio
experienced more modest price appreciation than long-term Treasuries. Given bond
market volatility since late 1993, we believe that reducing risk is worth
foregoing a bit "on the upside."
Outlook
For the year ahead, we favor multinational companies whose stock prices, in our
opinion, do not yet reflect the companies' earnings and dividend growth
potential. Generally, we believe these stocks can benefit from overseas business
growth and a favorable interest rate environment in the U.S. in 1997. Two of
your Fund's top 10 holdings as of October 31 were such firms - American
International Group and Chubb Corp. At fiscal year end, our top 10 stock
holdings represented 27.8% of the Fund's net assets.
We believe companies with a consistent level of earnings growth will
perform well in 1997. In the past, when U.S. economic growth slowed, these
companies -- especially consumer growth businesses -- have tended to outperform
others such as steel, paper and auto makers, whose sales and profits are more
dependent on the overall fortunes of the U.S. economy.
In our opinion, the high-quality bonds in your Fund's portfolio have the
potential to perform relatively well in 1997 because interest rates could
decline. As of October 31, the yield on 30-year Treasury Bonds stood at 6.64%,
some 70 basis points (0.70%) higher than the low point reached during December
1995. As of this writing the U.S. Consumer Price Index, meanwhile, was
increasing at about a 3% annual rate, marginally higher than a year ago.
If inflation expectations remain mild, U.S. economic growth continues at
a slow pace and our "divided government" reaches a compromise regarding federal
fiscal policy, there is good reason to believe that bond prices can head higher.
/s/ George H. Burwell /s/ Gary A. Reed
GEORGE H. BURWELL GARY A. REED
VICE PRESIDENT AND VICE PRESIDENT AND
SENIOR PORTFOLIO MANAGER SENIOR PORTFOLIO MANAGER
EQUITIES FIXED-INCOME
NOVEMBER 11, 1996
5
<PAGE>
A Lifetime
================================================================================
of Performance
================================================================================
On October 25, 1997, Delaware Fund will turn 59-and-a-half years old --
the same age the government allows investors in Individual Retirement Accounts
to begin making withdrawals without the burden of a 10% income tax penalty.
IRAs didn't exist in 1938 when Delaware Fund was born, but if an
18-year-old worker back then invested just $250 a year in the Fund's A Class
shares until October 31, 1985, when he or she reached age 65, that investment
portfolio would be worth $489,208 before taxes with all distributions
reinvested.
Let's say that this 65-year-old had retired in 1985, and began to take
cash dividends from Delaware Fund while reinvesting capital gains. As of October
31, 1996, the portfolio would have grown to more than $1,168,085. In addition,
this person who would today be age 77, would have received more than $315,338 in
cash dividends -- all from salting away less than a $1 a day when he or she was
working.
In fact, our investor would have received more than $35,000 in dividends
during the 12 months ended October 31, 1996 -- almost $3,000 a month. That's
nearly twice as much per year as Social Security would pay even to those
qualifying for maximum retiree and survivor benefits.
Our point in providing this hypothetical illustration is to show the
potential rewards of patient, long-term investing and the importance of
investing early in life. By setting aside a small sum regularly when you are
young, you have an opportunity to build a more secure retirement than the
government can provide as well as a substantial legacy for your heirs.
================================================================================
A Lifetime Investment Program in Delaware Fund*
April 25, 1938 to October 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Total Amount Invested ($250 per year, 1938-1985) $ 12,000
- ---------------------------------------------------------------------------------------
Account Value October 31, 1996
Dividends & capital gains reinvested until age 65 (October 31, 1985);
Dividends taken in cash afterward; all capital gains reinvested $1,168,085
Cash dividends paid 1985-1996 $ 315,338
- ---------------------------------------------------------------------------------------
Total value of investment & cash dividends (October 31, 1996) $1,483,423
</TABLE>
Past performance does not guarantee future results. *For A Class shares with a
4.75% sales charge.
For complete performance and sales charges for all classes, see the next page.
================================================================================
6
<PAGE>
A balanced mix of stocks and bonds has the potential to substantially outpace
inflation over time.
<TABLE>
<CAPTION>
DELAWARE FUND'S 10-YEAR PERFORMANCE
Growth of a $10,000 investment October 31, 1986 to October 31, 1996
[LINE GRAPH APPEARS HERE]
DATE DELAWARE FUND STANDARD & POOR'S LEHMAN BROTHERS CONSUMER PRICE
A CLASS 500 INDEX AGGREGATE BOND INDEX INDEX
- ----- ------------- ------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
10/86 $ 9,525 $ 10,000 $ 10,000 $ 10,000
10/87 $ 8,654 $ 10,635 $ 10,236 $ 10,488
10/88 $ 10,561 $ 12,214 $ 11,409 $ 10,892
10/89 $ 12,849 $ 15,419 $ 12,766 $ 11,381
10/90 $ 12,442 $ 14,265 $ 13,572 $ 12,097
10/91 $ 15,467 $ 19,038 $ 15,718 $ 12,450
10/92 $ 17,380 $ 20,924 $ 17,264 $ 12,849
10/93 $ 19,449 $ 24,046 $ 19,313 $ 13,203
10/94 $ 19,799 $ 24,962 $ 18,604 $ 13,547
10/95 $ 23,018 $ 31,526 $ 21,515 $ 13,928
10/96 $ 26,718 $ 39,080 $ 22,774 $ 14,347
</TABLE>
ALL PERFORMANCE SHOWN ABOVE ASSUMES REINVESTMENT OF DISTRIBUTIONS. DELAWARE
FUND INVESTMENT ASSUMES A 4.75% SALE CHARGE. PERFORMANCE OF OTHER CLASSES OF
DELAWARE FUND WILL VARY DUE TO DIFFERING CHARGES AND EXPENSES.
DELAWARE FUND PERFORMANCE
Average Annual Return through October 31, 1996
<TABLE>
<CAPTION>
LIFETIME 10 YEARS FIVE YEARS ONE YEAR
Class A (Est. 1938) +11.09% +10.33% +10.47% +10.58%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B (Est. 1994)
Excluding Sales Charge +13.49% +15.15%
Including Sales Charge +12.28% +11.15%
- -----------------------------------------------------------------------------------------------------------------------
Class C* (Est. 1995)
Excluding Sales Charge +12.13%
Including Sales Charge +11.13%
*aggregate return through October 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
DELAWARE FUND'S RETURN AND SHARE VALUE FLUCTUATE SO THAT SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS. RETURNS REFLECT REINVESTMENT OF ANY DISTRIBUTIONS
AND ANY APPLICABLE SALES CHARGES AS NOTED BELOW. B AND C CLASS RESULTS EXCLUDING
SALES CHARGE ASSUME INVESTMENT WAS NOT REDEEMED.
CLASS A returns reflect the effect of the 4.75% maximum front-end sales charge;
sales charges have varied during the life of the Fund.
CLASS B shares, initially offered September 6, 1994, do not carry a front-end
sales charge, but are subject to a 1% annual distribution and service fee. They
are subject to a contingent deferred sales charge if redeemed before the end of
the sixth year.
CLASS C shares, initially offered November 29, 1995, have a 1% annual
distribution and service fee and a 1% contingent deferred sales charge if
redeemed within 12 months of purchase.
The average annual total returns for Delaware Fund's Institutional Class, which
is available without sales or asset-based distribution charges only to certain
eligible institutional accounts, were +10.94%, +11.70% and +16.25%,
respectively, for the 10-, five- and one-year periods ended October 31, 1996.
The Institutional Class was initially made available on November 9, 1992.
Performance for the Institutional Class for periods prior to this date are based
on Class A performance, adjusted to eliminate the sales charge, but not the
asset-based distribution charge.
7
<PAGE>
DELAWARE FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT
APRIL 25,1938 TO OCTOBER 31, 1996
Lifetime Mountain Chart
Delaware and Consumer Price Index
[CHART APPEARS HERE]
DATE DELAWARE FUND A CLASS U.S. CONSUMER PRICE INDEX
(with capital gains and
dividends Reinvested)
5/38 $ 9,523 $10,000
10/38 $ 10,633 $ 9,905
10/39 $ 11,190 $ 9,905
10/40 $ 11,255 $ 9,905
10/41 $ 11,731 $10,801
10/42 $ 12,382 $11,768
10/43 $ 16,538 $12,311
10/44 $ 17,531 $12,523
10/45 $ 24,367 $12,759
10/46 $ 22,573 $14,716
10/47 $ 23,194 $16,249
10/48 $ 24,354 $17,240
10/49 $ 24,222 $16,758
10/50 $ 29,411 $17,358
10/51 $ 35,365 $18,537
10/52 $ 37,327 $18,891
10/53 $ 38,786 $19,080
10/54 $ 50,706 $18,915
10/55 $ 62,613 $18,965
10/56 $ 69,642 $19,457
10/57 $ 64,269 $20,023
10/58 $ 86,379 $20,448
10/59 $ 99,961 $20,754
10/60 $ 63,755 $21,037
10/61 $125,282 $21,202
10/62 $ 99,017 $21,485
10/63 $130,363 $21,745
10/64 $155,516 $22,004
10/65 $191,592 $22,382
10/66 $197,441 $23,231
10/67 $271,929 $23,820
10/68 $318,403 $24,929
10/69 $285,179 $26,320
10/70 $248,320 $27,853
IT TAKES MORE THAN $11 TO BUY WHAT $1 BOUGHT JUST BEFORE WORLD WAR II.
FORTUNATELY, THE GOOD NEWS IS $1 INVESTED IN DELAWARE FUND WOULD HAVE GROWN TO
$471 DURING THE SAME TIME.
8
<PAGE>
Lifetime Mountain Chart
Delaware and Consumer Price Index
[CHART APPEARS HERE]
10/71 $ 300,417 $ 28,867
10/72 $ 330,323 $ 29,858
10/73 $ 284,533 $ 32,217
10/74 $ 224,773 $ 36,085
10/75 $ 287,953 $ 38,820
10/76 $ 363,715 $ 40,872
10/77 $ 360,552 $ 43,514
10/78 $ 376,737 $ 47,335
10/79 $ 438,732 $ 53,160
10/80 $ 592,036 $ 59,882
10/81 $ 639,999 $ 66,014
10/82 $ 905,735 $ 69,363
10/83 $ 1,069,337 $ 71,368
10/84 $ 1,096,993 $ 74,363
10/85 $ 1,323,952 $ 76,768
10/86 $ 1,679,390 $ 77,947
10/87 $ 1,525,882 $ 81,437
10/88 $ 1,862,054 $ 84,923
10/89 $ 2,265,455 $ 88,735
10/90 $ 2,193,640 $ 94,320
10/91 $ 2,727,087 $ 97,075
10/92 $ 3,064,345 $ 100,184
10/93 $ 3,429,205 $ 102,939
10/94 $ 2,490,790 $ 105,624
10/95 $ 4,058,461 $ 108,591
10/96 $ 4,710,772 $ 111,347
Delaware Fund's return and share value fluctuate so that shares, when redeemed,
may be worth more or less than their original cost. Past performance is not a
guarantee of future results.
All performance shown above assumes reinvestment of distributions. Delaware Fund
investment assumes a 4.75% sales charge. Performance of other classes of
Delaware Fund will vary due to differing charges and expenses. The U.S. Consumer
Price Index is the government's main measure of inflation. For performance and
expenses for all classes, see page 7.
The above chart is based on a logarithmic scale, which reflects annual
percentage change rather than nominal dollar increases. That's why the U.S.
Consumer Price Index figure is visually "high" although it is very small
compared to the dollar return provided by Delaware Fund.
9
<PAGE>
Financial
- -------------------------------------------------------------------------------
Statements
- -------------------------------------------------------------------------------
DELAWARE GROUP DELAWARE FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Number Market
of Shares Value
<S> <C> <C>
COMMON STOCK - 58.48%
AEROSPACE & DEFENSE - 2.83%
GenCorp ........................................ 250,000 $ 4,125,000
LOCKHEED MARTIN ................................ 151,300 13,560,263
-----------
17,685,263
-----------
AUTOMOBILES & AUTOMOTIVE PARTS - 1.48%
Danaher ........................................ 226,000 9,237,750
-----------
9,237,750
-----------
BANKING, FINANCE & INSURANCE - 8.47%
AMERICAN INTERNATIONAL GROUP ................... 225,100 24,451,488
CHUBB .......................................... 232,400 11,620,000
State Street Boston ............................ 166,000 10,520,250
UNUM ........................................... 100,500 6,318,938
-----------
52,910,676
-----------
BUILDINGS & MATERIALS - 1.10%
Foster Wheeler ................................. 167,500 6,867,500
-----------
6,867,500
-----------
CABLE, MEDIA & PUBLISHING - 2.32%
Banta .......................................... 290,000 6,108,125
Reynolds & Reynolds Class A .................... 318,600 8,403,075
-----------
14,511,200
-----------
CHEMICALS - 0.62%
Witco .......................................... 125,000 3,875,000
-----------
3,875,000
-----------
COMPUTERS & TECHNOLOGY - 1.92%
Hewlett-Packard ................................ 72,500 3,199,063
Wallace Computer Services ...................... 300,000 8,812,500
-----------
12,011,563
-----------
CONSUMER PRODUCTS - 2.17%
General Electric ............................... 52,200 5,050,350
Masco .......................................... 11,900 373,363
Procter & Gamble ............................... 82,400 8,157,600
-----------
13,581,313
-----------
ELECTRONICS & ELECTRICAL - 1.79%
Raychem ........................................ 66,300 5,179,688
Teleflex ....................................... 124,300 5,981,938
-----------
11,161,626
-----------
ENERGY - 3.27%
Kerr-McGee ..................................... 165,000 10,353,750
Royal Dutch Petroleum ADR ...................... 26,300 4,349,362
TOTAL S.A. ADR ................................. 147,223 5,741,696
-----------
20,444,808
===========
FARMING & AGRICULTURE - 3.24%
CONAGRA ...................................... 405,300 20,214,338
===========
20,214,338
===========
FOOD, BEVERAGE & TOBACCO - 3.14%
PHILIP MORRIS ................................ 211,500 19,590,187
-----------
19,590,187
-----------
HEALTHCARE & PHARMACEUTICALS - 11.12%
American Home Products ....................... 73,200 4,483,500
Baxter International ......................... 97,000 4,037,624
COLUMBIA/HCA HEALTHCARE ...................... 562,500 20,109,375
Olsten ....................................... 200,000 4,000,000
Pharmacia & Upjohn ........................... 136,000 4,896,000
SCHERING-PLOUGH .............................. 246,400 15,769,600
SMITHKLINE BEECHAM ADR UNIT .................. 258,400 16,182,300
-----------
69,478,399
===========
REAL ESTATE - 3.84%
Associated Estates Realty .................... 122,400 2,509,200
Developers Diversified Realty ................ 121,100 4,071,987
Health Care Property Investors ............... 167,000 5,865,874
Nationwide Health Properties ................. 229,800 5,170,500
Storage Trust Realty ......................... 45,200 1,045,250
Storage USA .................................. 54,000 1,876,500
Sun Communities .............................. 121,700 3,483,662
===========
24,022,973
===========
RETAIL - 1.99%
May Department Stores ........................ 129,200 6,120,850
Rite Aid ..................................... 184,900 6,286,600
-----------
12,407,450
===========
TELECOMMUNICATIONS - 1.26%
ALLTEL ....................................... 257,700 7,859,850
===========
7,859,850
-----------
UTILITIES - 3.09%
CMS Energy ................................... 305,000 9,645,624
Edison International ......................... 160,000 3,160,000
Illinova ..................................... 239,000 6,512,750
-----------
19,318,374
===========
MISCELLANEOUS - 4.83%
Service International ........................ 145,400 4,143,900
Tompkins plc ADR ............................. 270,000 4,556,250
Tyco International ........................... 432,400 21,457,850
-----------
30,158,000
-----------
TOTAL COMMON STOCK
(COST $296,421,672) ........................ 365,336,270
-----------
CONVERTIBLE PREFERRED STOCKS - 0.45%
Freeport-McMoRan Copper & Gold
5.00% pfd cv ............................... 103,400 2,817,650
-----------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $2,299,511) .......................... 2,817,650
-----------
</TABLE>
- --------------------------
Top 10 holdings, representing 27.98% of net assets, are in bold face.
10
<PAGE>
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
<S> <C> <C>
CORPORATE BONDS - 10.53%
Celulosa Arauco 7.00% 12/15/07 ................. $ 3,200,000 $3,148,000
Celulosa Arauco 7.25% 06/11/98 ................. 1,750,000 1,756,563
China International Trust & Investments
9.00% 10/15/06 ............................... 1,000,000 1,101,250
Columbia/HCA Healthcare 7.50%
12/15/23 ..................................... 3,000,000 3,026,250
Compania Telecom Chile 7.625%
07/15/06 ..................................... 3,000,000 3,090,000
Credit Foncier de France 8.00%
01/14/02 ..................................... 2,415,000 2,547,825
Darden Restaurants 6.375% 02/01/06 ............. 1,000,000 938,750
Federal Express 7.85% 01/30/15 ................. 4,205,000 4,357,431
Ford Motor Credit 7.00% 09/25/01 ............... 2,485,000 2,540,913
HF Ahmanson 6.35% 09/01/98 ..................... 3,735,000 3,753,675
Key Bank of Washington 7.125%
08/15/06 ..................................... 2,750,000 2,780,938
Kohls 6.70% 02/01/06 ........................... 2,900,000 2,816,625
Lehman Brothers Holdings 6.84%
09/25/98 ..................................... 3,865,000 3,903,650
*Liberty Mutual 7.875% 10/15/26 ................. 2,900,000 2,947,125
Lockheed Martin 7.65% 05/01/16 ................. 3,700,000 3,824,875
May Department Stores 7.50%
06/01/15 ..................................... 4,000,000 4,050,000
MBNA 6.00% 12/26/00 ............................ 1,840,000 1,810,100
MEPC Finance 7.50% 05/01/03 .................... 1,150,000 1,188,813
NCNB 10.20% 07/15/15 ........................... 2,925,000 3,718,406
Nationwide Mutual Insurance 9.875%
02/15/25 ..................................... 2,000,000 2,247,500
News America Holdings 9.125%
10/15/99 ..................................... 2,785,000 2,986,913
Pep Boys 7.00% 06/01/05 ........................ 2,940,000 2,932,650
Santander Financial Issuances 6.80%
07/15/05 ..................................... 3,000,000 2,962,500
Ultramar Credit 8.625% 07/01/02 ................ 1,265,000 1,370,944
----------
TOTAL CORPORATE BONDS
(COST $64,763,268) ........................... 65,801,696
----------
ASSET-BACKED SECURITIES - 4.02%
ADVANTA 5.95% 05/25/09 ......................... 1,053,844 1,012,955
American Finance Home Equity
Series 94-2 A1 6.95% 06/25/24 ................ 1,811,555 1,820,613
Series 92-5 A 7.20% 02/15/08 ................. 518,033 522,540
Series 92-1 A 7.50% 03/15/07 ................. 619,590 628,575
Series 91-1 A 8.00% 07/25/06 ................. 451,987 463,874
Case Equipment Loan Trust Series
95-B A3 6.15% 09/15/02 ....................... 4,440,000 4,461,301
FirstBank Auto Receivables Grantor
Trust Series 95-B A 6.40%
07/17/00 ..................................... 2,921,229 2,935,364
NationsCredit Grantor Trust Series
96-1 A 5.85% 09/15/11 ........................ 2,030,231 2,000,589
Neiman Marcus Group Credit Card
Master Trust Series 95-1 A 7.60%
06/15/03 ..................................... 960,000 999,360
Nomura Asset Securities Corporation
Series 95-2 2A2 6.25% 01/25/26 ............... 1,353,183 1,349,800
Olympic Automobile Receivables Trust
Series 95-B A2 7.35% 10/15/01 ................ 2,576,371 2,610,895
World Omni Automobile Lease
Securitization Trust
Series 95-A A 6.05% 11/25/01 ................. 2,200,000 2,205,577
Series 94-B A 7.95% 01/25/01 ................. 222,991 226,285
UCFC Home Equity Loan Series
96-B1 A3 7.30% 04/15/14 ...................... 3,835,000 3,900,579
----------
TOTAL ASSET-BACKED SECURITIES
(COST $25,011,650) ........................... 25,138,307
----------
COLLATERILIZED MORTGAGE
OBLIGATIONS - 6.17%
Asset Securitization Corporation
Series 96-D2 A1 6.92%
02/14/29 ................................... 3,130,620 3,127,196
Series 95-MD4 A1 7.10%
08/13/29 ................................... 3,504,253 3,542,581
Series 96-D3 A1B 7.21%
10/13/26 ................................... 3,060,000 3,132,197
Mortgage Capital Funding
Series 96-MC1 D 7.80%
07/01/06 ................................... 2,690,000 2,761,453
Nomura Asset Securities Corporation
Series 93-1 A1 6.68% 12/15/01 ................ 2,032,973 2,030,114
Series 96-MD5 A3 7.637%
04/13/36 ................................... 3,300,000 3,404,672
Residential Accredit Loans
Series 96-QS2 A3 7.05%
03/25/19 ................................... 3,785,000 3,800,377
Series 96-QS3 AI3 7.29%
06/25/26 ................................... 1,770,000 1,787,977
Series 95-QS1 A3 7.30%
06/25/21 ................................... 1,540,000 1,546,978
Series 96-QS2 A6 7.45%
04/25/23 ................................... 3,345,000 3,355,453
Residential Asset Securitization Trust
Series 96-A4 A5 7.50%
09/25/26 ................................... 5,300,000 5,333,125
Resolution Trust Corporation
Series 95-C1 A2B 6.55%
02/25/27 ................................... 3,328,402 3,319,041
Travelers Mortgage Securities Corporation
Series 1-Z1 12.00% 03/01/14 .................. 1,218,601 1,387,681
----------
TOTAL COLLATERILIZED MORTGAGE
OBLIGATIONS (COST $37,828,481) ............... 38,528,845
----------
</TABLE>
11
<PAGE>
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
<S> <C> <C>
MORTGAGED-BACKED SECURITIES -
9.34%
Federal Home Loan Mortgage
Corporation 6.00% 02/01/11 .................. $ 2,451,665 $ 2,366,623
Federal National Mortgage Association
6.50% 04/01/11 to 02/01/26 .................. 19,419,976 18,905,901
Federal National Mortgage Association
7.00% 07/01/17 to
05/01/26 .................................... 5,392,868 5,316,551
Federal National Mortgage
Association 8.00% 12/01/09
to 09/01/16 ................................. 4,157,932 4,286,567
Federal Home Loan Mortgage
Corporation 8.50% 09/01/08
to 06/01/14 ................................. 4,228,884 4,408,022
Federal National Mortgage
Association 9.50% 02/01/17
to 02/01/25 ................................. 6,316,247 6,815,826
Government National Mortgage
Association 7.50% 02/15/23
to 05/15/23 ................................. 4,277,989 4,294,156
Government National Mortgage
Association 9.00% 01/15/20 to
11/15/21 .................................... 10,448,663 11,178,355
Government National Mortgage
Association 9.50% 01/15/20 .................. 347,799 377,579
Government National Mortgage
Association 10.00% 11/15/16 ................. 297,061 327,788
Government National Mortgage
Association 12.50% 12/15/10 ................. 46,829 54,321
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $57,471,181) .......................... 58,331,689
-----------
U.S. TREASURY OBLIGATIONS - 4.32%
U.S. Treasury Note 6.25% 04/30/01 ............. 2,405,000 2,422,725
U.S. Treasury Bond 6.25%
08/15/23 .................................... 6,300,000 5,918,724
U.S. Treasury Note 6.375%
06/30/97 .................................... 930,000 935,924
U.S. Treasury Notes 6.375%
01/15/00 .................................... 11,705,000 11,863,836
U.S. Treasury Notes 6.375%
08/15/02 .................................... 5,200,000 5,263,180
U.S.Treasury Notes 6.50%
08/31/01 .................................... 600,000 610,098
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $26,542,802) .......................... 27,014,487
===========
REPURCHASE AGREEMENTS - 5.42%
With Chase Manhattan 5.50%
11/01/96 (dated 10/31/96,
collateralized by $10,615,000
U.S. Treasury Notes 5.50% due
11/15/98, market value
($10,821,530)................................ 10,597,000 10,597,000
REPURCHASE AGREEMENTS
(Continued)
With PaineWebber 5.52% 11/01/96
(dated 10/31/96, collateralized
by $11,852,000 U.S. Treasury
Notes 5.875% due 10/31/98,
market value $11,874,385) ................... 11,633,000 11,633,000
With Prudential Securities 5.50%
11/01/96 (dated 10/31/96,
collateralized by $11,532,000
U.S. Treasury Notes 6.125%
due 05/31/97, market value
$11,868,987) ................................ 11,633,000 11,633,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $33,863,000) .......................... 33,863,000
-----------
TOTAL MARKET VALUE OF SECURITIES
OWNED - 98.73% (cost $544,201,565) ........................... $616,831,944
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.27% ................................... 7,930,912
-----------
NET ASSETS APPLICABLE TO 29,380,347 SHARES
OUTSTANDING - 100.00% ........................................ $624,762,856
===========
NET ASSET VALUE - DELAWARE FUND A CLASS
($490,150,147/23,058,229 SHARES) .................................... $21.26
======
NET ASSET VALUE - DELAWARE FUND B CLASS
($6,872,291/324,181 SHARES) ......................................... $21.20
======
NET ASSET VALUE - DELAWARE FUND C CLASS
($1,989,702/93,924 SHARES) .......................................... $21.18
=====
NET ASSET VALUE - DELAWARE FUND INSTITUTIONAL
CLASS ($125,750,716/5,904,013 SHARES) ............................... $21.30
=====
</TABLE>
- ----------------------
* Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
<TABLE>
<S> <C>
COMPONENTS OF NET ASSETS AT OCTOBER 31, 1996
Common stock, $1 par value, 200,000,000 shares
authorized to the Delaware Fund ........................... $ 491,035,724
Accumulated undistributed income:
Net investment income ..................................... 4,879,763
Net realized gain on investments .......................... 56,216,990
Net unrealized appreciation of investments ................ 72,630,379
-------------
Total net assets ............................................ $ 624,762,856
=============
</TABLE>
See accompanying notes
12
<PAGE>
DELAWARE GROUP DELAWARE FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest ....................................... $16,572,891
Dividends ...................................... 10,345,222 $26,918,113
-----------
EXPENSES:
Management fees ($3,164,486) and
directors' fees ($12,688) .................... 3,177,174
Dividend disbursing and transfer agent
fees and expenses ............................ 1,151,696
Distribution expenses .......................... 981,791
Accounting services and salaries ............... 168,190
Reports to shareholders ........................ 117,814
Federal and state registration fees ............ 56,230
Taxes, other than taxes on income .............. 51,437
Professional fees .............................. 49,912
Custodian fees ................................. 24,825
Other .......................................... 123,539 5,902,608
----------- -----------
NET INVESTMENT INCOME .......................... 21,015,505
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain from
security transactions .................................. 56,652,521
Net unrealized appreciation of
investments during the period .......................... 14,064,318
----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS ................................... 70,716,839
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .............................. 91,732,344
==========
COMPUTATION OF NET ASSET VALUE
AND OFFERING PRICE-DELAWARE
FUND A CLASS:
Net asset value per share (A) ............................ $21.26
Sales charges (4.75% of offering price,
or 4.99% of amount invested per
share) (B) ............................................. 1.06
------
Offering price ........................................... $22.32
======
</TABLE>
- -----------------------------
(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 Purchasing Shares in the current Prospectus for purchases of $100,000
or more and purchase options not including the payment of a front-end sales
charge.
See accompanying notes
Delaware Group Delaware Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/96 10/31/95
<S> <C> <C>
OPERATIONS:
Net investment income ....................... $ 21,015,505 $ 20,370,834
Net realized gain from security
transactions .............................. 56,652,521 33,206,692
Net appreciation during the period .......... 14,064,318 33,674,467
------------ ------------
Net increase in net assets resulting from
operations ................................ 91,732,344 87,251,993
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Delaware Fund A Class ..................... (15,676,617) (15,844,023)
Delaware Fund B Class ..................... (124,247) (47,613)
Delaware Fund C Class ..................... (23,243) --
Delaware Fund Institutional Class ......... (4,004,834) (3,528,785)
Net realized gain from security transactions:
Delaware Fund A Class ..................... (26,400,790) (6,294,837)
Delaware Fund B Class ..................... (191,178) (11,657)
Delaware Fund C Class ..................... (270) --
Delaware Fund Institutional Class ......... (6,170,061) (1,332,622)
------------- -------------
(52,591,240) (27,059,537)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Delaware Fund A Class ..................... 21,859,484 28,758,712
Delaware Fund B Class ..................... 4,091,428 2,646,689
Delaware Fund C Class ..................... 2,098,384 --
Delaware Fund Institutional Class ......... 32,320,993 24,654,943
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on security transactions:
Delaware Fund A Class ..................... 32,527,346 16,717,134
Delaware Fund B Class ..................... 302,927 57,857
Delaware Fund C Class ..................... 21,730 --
Delaware Fund Institutional Class ......... 10,157,754 4,844,558
------------- -------------
103,380,046 77,679,893
------------- -------------
Cost of shares repurchased:
Delaware Fund A Class ..................... (88,614,808) (57,791,089)
Delaware Fund B Class ..................... (1,269,060) (115,464)
Delaware Fund C Class ..................... (217,457) --
Delaware Fund Institutional Class ......... (33,029,784) (25,224,771)
------------- -------------
(123,131,109) (83,131,324)
------------- -------------
Decrease in net assets derived from
capital share transactions .............. (19,751,063) (5,451,431)
------------- -------------
NET INCREASE IN NET ASSETS .................. 19,390,041 54,741,025
NET ASSETS:
Beginning of period ......................... 605,372,815 550,631,790
------------- -------------
End of period (including undistributed
net investment income of $4,879,763
and $3,693,045 respectively) .............. $624,762,856 $605,372,815
============= =============
</TABLE>
See accompanying notes
13
<PAGE>
DELAWARE GROUP DELAWARE FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
Delaware Group Delaware Fund, Inc. (the "Company") is registered as a
diversified open-end investment company under the Investment Company Act of
1940, as amended. The Company currently offers two Series, Delaware Fund (the
"Fund") and Devon Fund. The Company is organized as a Maryland corporation. The
Fund offers four classes of shares.
The investment objective of the Fund is to seek a balance of capital
appreciation, income and preservation of capital.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
SECURITY VALUATION - Securities listed on an exchange are valued at the last
quoted sales price as of 4:00 pm EST on the valuation date. Securities not
traded or securities not listed on an exchange are valued at the last mean of
the quoted bid and asked prices. Long-term debt securities are valued by an
independent pricing service when such prices are believed to reflect the fair
value of such securities. Money market instruments having less than 60 days to
maturity are valued at amortized cost which approximates market value.
FEDERAL INCOME TAXES - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes is required in the financial
statements.
REPURCHASE AGREEMENTS - The Fund may invest in a pooled cash account along with
other members of the Delaware Group of Funds. The aggregate daily balance of the
pooled cash account is invested in repurchase agreements secured by obligations
of the U.S. government. The respective collateral is held by the Fund's
custodian bank until the maturity of the respective repurchase agreements. Each
repurchase agreement is 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.
CLASS ACCOUNTING - Investment income, common expenses, and gain (loss) on
investments are allocated to the various classes of the Fund on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
OTHER - Expenses common to all Funds within the Delaware Group 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 an
accrual basis. Original issue discounts are accreted to interest income over the
lives of the respective securities.
2. INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company, Inc. (DMC), the Investment Manager of the
Fund, a fee which is calculated daily at the annual rate of 0.60% on the first
$100 million of average daily net assets of the Fund, 0.525% on the next $150
million, 0.50% on the next $250 million and 0.475% on the average daily net
assets over $500 million, less fees paid to the Independent Directors. At
October 31, 1996, the Fund had a liability for Investment Management fees and
other expenses payable to DMC for $120,082.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of A Class and 1.00% of the average
daily net assets of B Class and C Class. No distribution expenses are paid by
the Institutional class. At October 31, 1996, the Fund had a liability for
distribution fees and other expenses payable to DDLP for $18,969. For the year
ended October 31, 1996, the Fund paid DDLP $64,398 for commissions earned on
sales of Delaware Fund A Class shares.
The Fund has engaged Delaware Service Company Inc. (DSC), an affiliate of DMC,
to serve as dividend disbursing and transfer agent for the Fund. For the year
ended October 31, 1996, the Fund has expensed $1,151,696 for these services.
Effective August 19, 1996, the Fund also engaged DSC to provide accounting
services for the Fund. For the period from August 19, 1996, to October 31, 1996,
the Fund has expensed $32,761 for these services. Previously, Fund personnel
provided these services and the related costs were recorded in salaries and
other expense categories in the statement of operations. At October 31, 1996,
the Fund had a liability for dividend disbursing, transfer agent and accounting
service fees and other expenses payable to DSC for $13,568.
Certain fund expenses are paid directly by brokers. The amount of these expenses
is less than 0.01% of the Fund's average net assets.
3. INVESTMENTS
During the year ended October 31, 1996, the Fund made purchases of $405,018,034
and sales of $470,889,076 of investment securities other than U.S. government
securities and temporary cash investments.
At October 31, 1996, unrealized appreciation for federal income tax purposes
aggregated $71,998,612 of which $78,065,951 related to unrealized appreciation
of securities and $6,067,339 related to unrealized depreciation of securities.
The realized gain for federal income tax was $57,238,769 for the year ended
October 31, 1996.
On October 31, 1996, the Fund had a receivable for investment securities sold of
$9,807,959 and a payable for investment securities purchased of $3,393,180.
4. CAPITAL STOCK
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
10/31/96 10/31/95
<S> <C> <C>
Shares sold:
Delaware Fund A Class ..................... 1,080,212 1,589,185
Delaware Fund B Class ..................... 201,616 141,318
Delaware Fund C Class ..................... 103,606 --
Delaware Fund Institutional Class ......... 1,580,497 1,324,391
Shares issued upon reinvestment of dividends from net
investment income and net realized gain on
security transactions:
Delaware Fund A Class ..................... 1,633,576 925,046
Delaware Fund B Class ..................... 15,187 3,127
Delaware Fund C Class ..................... 1,060 --
Delaware Fund Institutional Class ......... 509,546 268,511
---------- ----------
5,125,300 4,251,578
Shares repurchased:
Delaware Fund A Class ..................... (4,386,405) (3,123,004)
Delaware Fund B Class ..................... (62,659) (5,983)
Delaware Fund C Class ..................... (10,742) --
Delaware Fund Institutional Class ......... (1,629,980) (1,363,009)
---------- ----------
(6,089,786) (4,491,996)
---------- ----------
Net decrease ................................ (964,486) (240,418)
========== ==========
</TABLE>
14
<PAGE>
Notes to Financial Statements (Continued)
5. LINES OF CREDIT
The Fund has a committed line of credit for $10,000,000. No amount was
outstanding at October 31, 1996, or at any time during the last fiscal period.
6. CONCENTRATION OF CREDIT RISK
The Fund invests in securities whose value is derived from an underlying pool of
mortgages or consumer loans. Prepayment of these loans may shorten the stated
maturity of the respective obligation and may result in a loss of premium, if
any has been paid.
The Fund may invest up to 10% of its total assets in illiquid securities which
include securities with contractual restrictions on resale, securities exempt
from registration under Rule 144A of the Securities Act of 1933, as amended, and
other securities which may not be readily marketable. The relative illiquidity
of some of these securities may adversely affect the Fund's ability to dispose
of such securities in a timely manner and at a fair price when it is necessary
to liquidate such securities. These securities have been denoted in the
Statement of Net Assets.
7. FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
DELAWARE FUND A CLASS
------------------------------------------------
Year Ended October 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period....................................... $19.940 $18.000 $19.430 $18.720 $18.810
Income from investment operations:
Net investment income.................................................... 0.706 0.664 0.615 0.631 0.660
Net realized and unrealized gain (loss) from security transactions....... 2.349 2.156 (0.285) 1.509 1.490
------- ------- ------- ------- -------
Total from investment operations......................................... 3.055 2.820 0.330 2.140 2.150
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income..................................... (0.655) (0.630) (0.600) (0.660) (0.700)
Distributions from net realized gain on security transactions............ (1.080) (0.250) (1.160) (0.770) (1.540)
------- ------- ------- ------- -------
Total distributions...................................................... (1.735) (0.880) (1.760) (1.430) (2.240)
------- ------- ------- ------- -------
Net asset value, end of period............................................. $21.260 $19.940 $18.000 $19.430 $18.720
======= ======= ======= ======= =======
Total return/1/............................................................ 16.07% 16.26% 1.80% 11.91% 12.37%
Ratios/supplemental data:
Net assets, end of period (000 omitted).................................. $490,150 $493,243 $456,074 $507,528 $487,343
Ratio of expenses to average net assets.................................. 0.99% 0.97% 0.97% 0.89% 0.79%/2/
Ratio of net investment income to average net assets..................... 3.39% 3.55% 3.31% 3.27% 3.64%
Portfolio turnover....................................................... 92% 94% 142% 160% 144%
Average commission rate paid............................................. $0.060 N/A N/A N/A N/A
</TABLE>
- ------------------
/1/ Does not include maximum sales charge that is or was in effect nor the 1%
limited contingent deferred sales charge that would apply in the event of
certain redemptions within 12 months of purchase.
/2/ Includes 12b-1 distribution expenses effective June 1, 1992.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
DELAWARE FUND DELAWARE FUND DELAWARE FUND
B CLASS C CLASS INSTITUTIONAL CLASS
---------------------------- ----------- --------------------------------------
Year Year 9/6/94/1/ 11/29/95/1/ Year Year Year 11/09/92/2/
Ended Ended to to Ended Ended Ended to
10/31/96 10/31/95 10/31/94 10/31/96 10/31/96 10/31/95 10/31/94 10/31/93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.900 $17.980 $18.340 $20.500 $19.980 $18.030 $19.460 $18.820
Income (loss) from investment operations:
Net investment income.................. 0.525 0.567 0.070 0.583 0.727 0.694 0.653 0.632
Net realized and unrealized gain (loss)
from security transactions........... 2.350 2.113 (0.280) 1.757 2.363 2.166 (0.293) 1.438
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations....... 2.875 2.680 (0.210) 2.340 3.090 2.860 0.360 2.070
------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income..... (0.495) (0.510) (0.150) (0.580) (0.690) (0.660) (0.630) (0.660)
Distribution from net realized gain
on security transactions............... (1.080) (0.250) none (1.080) (1.080) (0.250) (1.160) (0.770)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions...................... (1.575) (0.760) (0.150) (1.660) (1.770) (0.910) (1.790) (1.430)
------- ------- ------- ------- ------- ------- ------- -------
Net assets value, end of period........... $21.200 $19.900 $17.980 $21.180 $21.300 $19.980 $18.030 $19.460
======= ======= ======= ======= ======= ======= ======= =======
Total return/3/........................... 15.15% 15.36% (1.14%) 12.13% 16.25% 16.50% 1.96% 11.76%
Ratios/supplemental data:
Net assets, end of period (000 omitted).. $6,872 $3,383 $568 $1,990 $125,751 $108,747 $93,990 $72,052
Ratio of expenses to average net assets.. 1.80% 1.79% 1.81% 1.80% 0.80% 0.79% 0.81% 0.77%
Ratio of net investment income
to average net assets.................. 2.58% 2.73% 2.47% 2.58% 3.58% 3.73% 3.47% 3.39%
Portfolio turnover........................ 92% 94% 142% 92% 92% 94% 142% 160%
Average commission rate paid.............. $0.060 N/A N/A $0.060 $0.060 N/A N/A N/A
</TABLE>
- ------------------
/1/ Date of initial public offering; ratios have been annualized and total
return has not been annualized.
/2/ Date of initial public offering; ratios and total return have been
annualized.
/3/ Does not include contingent deferred sales charge which varies from 1%-4%
depending upon the holding period for Delaware Fund B Class and C Class.
- --------------------------------------------------------------------------------
DELAWARE GROUP DELAWARE FUND, INC.
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
DELAWARE GROUP DELAWARE FUND, INC. - DELAWARE FUND
We have audited the accompanying statement of net assets of the Delaware Group
Delaware Fund, Inc. - Delaware Fund as of October 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Delaware Fund, Inc. - Delaware Fund at October 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with general
accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
December 16, 1996
16
<PAGE>
DELAWARE GROUP
- --------------
OF FUNDS
- --------------
FOR GROWTH OF CAPITAL
Trend Fund
Enterprise Fund
DelCap Fund
Value Fund
U.S. Growth Fund
FOR TOTAL RETURN
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
Delaware Fund
FOR INTERNATIONAL DIVERSIFICATION
Emerging Markets Fund
New Pacific Fund
World Growth Fund
International Equity Fund
Global Assets Fund
Global Bond Fund
FOR CURRENT INCOME
Delchester Fund
Strategic Income Fund
Corporate Income Fund
Federal Bond Fund
U.S. Government Fund
Limited-Term Government Fund
FOR TAX-FREE CURRENT INCOME
Tax-Free Pennsylvania Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
MONEY MARKET FUNDS
Delaware Cash Reserve
U.S. Government Money Fund
Tax-Free Money Fund
CLOSED-END EQUITY/INCOME*
Dividend and Income Fund
Global Dividend and Income Fund
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT DELAWARE FUND
PROSPECTUS AND THE DELAWARE GROUP FUND PERFORMANCE UPDATE FOR THE MOST RECENTLY
COMPLETED CALENDAR QUARTER. FOR A PROSPECTUS OF ANY OTHER DELAWARE GROUP FUND,
CONTACT YOUR FINANCIAL ADVISER OR DELAWARE GROUP.
* Delaware Group Dividend and Income Fund and Delaware Group Global Dividend and
Income Fund purchases can be made through any registered broker.
DELAWARE
GROUP
=====================
Philadelphia . London
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENT DECISIONS.
MUTUAL FUNDS CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF
THE DELAWARE FUND ARE NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK
OR ANY CREDIT UNION, ARE NOT ABLIGATIONS OF OR DEPOSITS OF ANY BANK OR ANY
CREDIT UNION, AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL. SHARES OF THE FUND ARE NOT BANK OR CREDIT UNION DEPOSITS.
INVESTMENT MANAGER
Delaware Management Company, Inc.
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
Nationwide (800) 523-4640
SECURITIES DEALERS ONLY
Nationwide (800) 362-7500
FINANCIAL INSTITUTIONS REPRESENTATIVES ONLY
NATIONWIDE (800) 659-2265
(C) Delaware Distributors, L.P.
[LOGO OF RECYCLED
PAPER APPEARS HERE] Printed in the U.S.A. on recycled paper.
AR-002 [10/96] TK012/96
