<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 33-14363
File No. 811-5162
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 26 /X/
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 26
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DELAWARE GROUP PREMIUM FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 751-2923
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George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
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(Name and Address of Agent for Service)
Approximate Date of Public Offering: May 1, 1999
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It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on May 1, 1999 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485
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If appropriate:
this post-effective amendment designates a new effective date for a
- ----- previously filed post-effective amendment
Title of Securities Being Registered
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Decatur Total Return Series, Delchester Series, Capital Reserves Series,
Cash Reserve Series, DelCap Series, Delaware Series,
International Equity Series, Small Cap Value Series, Trend Series,
Global Bond Series, Strategic Income Series, Devon Series,
Emerging Markets Series, Convertible Securities Series,
Social Awareness Series, REIT Series, Aggressive Growth Series
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--- C O N T E N T S ---
This Post-Effective Amendment No. 26 to Registration File No. 33-14363 includes
the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectus
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
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CROSS-REFERENCE SHEET
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PART A
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Item No. Description Location in Prospectus
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1 Front and Back Cover Pages Same
2 Risk/Return Summary: Profiles
Investments, Risks and Performance
3 Risk/Return Summary: Profiles
Fee Table
4 Investment Objectives, Principal How we manage the
Investment Strategies, and Related Series; Our investment
Risks strategies; The risks of
investing in the series
5 Management's Discussion of N/A
Performance
6 Management, Organization, and Investment manager
Capital Structure under How we manage
the Series; Who's who
7 Shareholder Information Purchase and redemption
of shares; Valuation of
shares; Dividends,
distributions and taxes
8 Distribution Arrangements Purchase and redemption
of shares
9 Financial Highlights Information Financial highlights
under How we manage
the Series
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CROSS-REFERENCE SHEET
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PART B
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Location in Statement of Additional
Item No. Description Information
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10 Cover Page and Table of Contents Same
11 Fund History General Information
12 Description of the Fund and Its Investment Objectives and Policies
Investments and Risks
13 Management of the Fund Officers and Directors
14 Control Persons and Principal Officers and Directors
Holders of Securities
15 Investment Advisory and Other Officers and Directors; Investment
Services Management Agreements and Sub-
Advisory Agreements; General
Information; Financial Statements
16 Brokerage Allocation and Other Trading Practices and Brokerage
Practices
17 Capital Stock and Other Securities Capitalization and Noncumulative
Voting (under General Information)
18 Purchase, Redemption, and Pricing Offering Price
of Shares
19 Taxation of the Fund Accounting and Tax Issues; Taxes
20 Underwriters Investment Management Agreements
and Sub-Advisory Agreements
21 Calculation of Performance Data Performance Information
22 Financial Statements Financial Statements
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CROSS-REFERENCE SHEET
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PART C
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Item No. Description Location in Part C
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23 Exhibits Item 23
24 Persons Controlled by or under Common Item 24
Control with Registrant
25 Indemnification Item 25
26 Business and Other Connections of the Item 26
Investment Adviser
27 Principal Underwriters Item 27
28 Location of Accounts and Records Item 28
29 Management Services Item 29
30 Undertakings Item 30
</TABLE>
<PAGE>
DELAWARE(SM)
INVESTMENTS
----------------------
PHILADELPHIA O LONDON
DELAWARE GROUP
PREMIUM FUND, INC.
1818 Market Street,
Philadelphia, PA 19103
PROSPECTUS May 1, 1999
This Prospectus offers 17 Portfolios. Each Portfolio (Series) is in effect a
separate fund issuing its own shares. The shares of the Series are sold only to
separate accounts of life insurance companies (life companies). The separate
accounts are used in conjunction with variable annuity contracts and variable
life insurance policies (variable contracts). The separate accounts invest in
shares of the various Series in accordance with allocation instructions received
from contract owners. The investment objectives and principal policies of the
Series are described below.
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AS WITH ALL MUTUAL FUNDS, THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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AGGRESSIVE GROWTH SERIES - seeks long-term capital appreciation. The Series
attempts to achieve its investment objective by investing primarily in equity
securities of companies which the manager believes have the potential for high
earnings growth. This Series has the same objective and investment discipline as
Aggressive Growth Fund of Voyageur Mutual Funds III, Inc., a separate fund in
the Delaware Investments family.
CAPITAL RESERVES SERIES - seeks a high stable level of current income while
minimizing fluctuations in principal by investing in a diversified portfolio of
short- and intermediate-term securities.
CASH RESERVE SERIES - a money market fund which seeks the highest level of
income consistent with preservation of capital and liquidity through investments
in short-term money market instruments. This Series has the same objective and
investment disciplines as Delaware Group Cash Reserve, Inc., a separate fund in
the Delaware Investments family. THE SHARES OF CASH RESERVE SERIES ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE
SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10.00 PER SHARE.
CONVERTIBLE SECURITIES SERIES - seeks a high level of total return on its assets
through a combination of capital appreciation and current income. The Series
intends to pursue its investment objective by investing primarily in convertible
securities.
DELAWARE BALANCED SERIES (FORMERLY DELAWARE SERIES) - seeks a balance of capital
appreciation, income and preservation of capital. As a "balanced" fund, the
Series invests at least 25% of its assets in fixed-income securities and the
remainder primarily in equity securities. This Series has the same objective and
investment disciplines as Delaware Balanced Fund of Delaware Group Equity Funds
I, Inc., a separate fund in the Delaware Investments family.
DELCAP SERIES - seeks long-term capital appreciation by investing its assets in
a diversified portfolio of securities exhibiting the potential for significant
growth. This Series has the same objective and investment disciplines as DelCap
Fund of Delaware Group Equity Funds IV, Inc., a separate fund in the Delaware
Investments family.
DELCHESTER SERIES - seeks as high a current income as possible by investing in
rated and unrated corporate bonds (including high-yield bonds commonly known as
junk bonds), U.S. government securities and commercial paper. This Series has
the same objective and investment disciplines as Delchester Fund of Delaware
Group Income Funds, Inc., a separate fund in the Delaware Investments family. An
investment in this Series may involve greater risks than an investment in a
portfolio comprised primarily of investment grade bonds.
<PAGE>
DEVON SERIES - seeks current income and capital appreciation. The Series will
seek to achieve its objective by investing primarily in income-producing common
stocks, with a focus on common stocks that the investment manager believes have
the potential for above-average dividend increases over time. This Series has
the same objective and investment disciplines as Devon Fund of Delaware Group
Equity Funds I, Inc., a separate fund in the Delaware Investments family.
EMERGING MARKETS SERIES - seeks to achieve long-term capital appreciation. The
Series seeks to achieve its objective by investing primarily in equity
securities of issuers located or operating in emerging countries. This Series
has the same objective and investment disciplines as Emerging Markets Series of
Delaware Group Global & International Funds, Inc., a separate fund in the
Delaware Investments family.
GLOBAL BOND SERIES - seeks current income consistent with preservation of
principal by investing primarily in fixed-income securities that may also
provide the potential for capital appreciation. The Series will invest in
fixed-income securities of issuers from at least three different countries, one
of which may be the United States. This Series has the same objective and
investment disciplines as Global Bond Series of Delaware Group Global &
International Funds, Inc., a separate fund in the Delaware Investments family.
GROWTH AND INCOME SERIES (FORMERLY DECATUR TOTAL RETURN SERIES) - seeks the
highest possible total rate of return by selecting issues that exhibit the
potential for capital appreciation while providing higher than average dividend
income. This Series has the same objective and investment disciplines as Growth
and Income Fund of Delaware Group Equity Funds II, Inc., a separate fund in the
Delaware Investments family.
INTERNATIONAL EQUITY SERIES - seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income. This Series has the
same objective and investment disciplines as International Equity Series of
Delaware Group Global & International Funds, Inc., a separate fund in the
Delaware Investments family.
REIT SERIES - seeks to achieve maximum long-term total return. Capital
appreciation is a secondary objective. It seeks to achieve its objectives by
investing in securities of companies primarily engaged in the real estate
industry. This Series has the same objective and investment discipline as The
Real Estate Investment Trust Portfolio and The Real Estate Investment Trust
Portfolio II of Delaware Pooled Trust, Inc., separate funds in the Delaware
Investments family.
SMALL CAP VALUE SERIES - seeks capital appreciation by investing primarily in
small cap common stocks whose market value appears low relative to their
underlying value or future earnings and growth potential. This Series has the
same objective and investment disciplines as Small Cap Value Fund of Delaware
Group Equity Funds V, Inc., a separate fund in the Delaware Investments family.
SOCIAL AWARENESS SERIES - seeks to achieve long-term capital appreciation. The
Series seeks to achieve its objective by investing primarily in equity
securities of medium to large-sized companies expected to grow over time that
meet the Series' "Social Criteria" strategy. This Series has the same objective
and investment disciplines as Social Awareness Fund of Delaware Group Equity
Funds II, Inc., a separate fund in the Delaware Investments family.
STRATEGIC INCOME SERIES - seeks high current income and total return. The Series
seeks to achieve its objective by using a multi-sector investment approach,
investing primarily in three sectors of the fixed-income securities markets:
high-yield, higher risk securities; investment grade fixed-income securities;
and foreign government and other foreign fixed-income securities. This Series
has the same objective and investment disciplines as Strategic Income Fund of
Delaware Group Income Funds, Inc., a separate fund in the Delaware Investments
family.
TREND SERIES - seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. This Series has the same objective and investment
disciplines as Trend Fund of Delaware Group Equity Funds III, Inc., a separate
fund in the Delaware Investments family.
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TABLE OF CONTENTS
<TABLE>
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PROFILES HOW WE MANAGE THE SERIES
(Strategies, Risks, Portfolio managers,
Financial highlights)
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Aggressive Growth Series Page 2 Page 19
Capital Reserves Series 3 22
Cash Reserve Series 4 26
Convertible Securities Series 5 28
Delaware Balanced Series 6 33
DelCap Series 7 38
Delchester Series 8 42
Devon Series 9 47
Emerging Markets Series 10 51
Global Bond Series 11 58
Growth and Income Series 12 65
International Equity Series 13 69
REIT Series 14 74
Small Cap Value Series 15 79
Social Awareness Series 16 83
Strategic Income Series 17 87
Trend Series 18 94
IMPORTANT INFORMATION ABOUT ALL SERIES
Fund administration (Who's who) Page 98
Purchase and redemption of shares 99
Valuation of shares 99
Dividends, distributions and taxes 99
Year 2000 100
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1
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PROFILE: AGGRESSIVE GROWTH SERIES
WHAT ARE THE SERIES' GOALS?
Aggressive Growth Series seeks long-term capital appreciation. Although the
Series will strive to meet its goals, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in common
stocks of companies that we believe have the potential for high earnings growth.
We consider companies of any size, as long as they are larger than $300 million
in market capitalization. We look for companies that are undervalued, but still
have the potential for high earnings growth. Aggressive Growth Series will use
the same investment strategy as Aggressive Growth Fund, a separate fund in the
Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected by declines in stock prices. In addition, because
Aggressive Growth Series invests in companies of all sizes, some of the
companies it chooses may involve greater risk due to their smaller size, narrow
product lines and limited financial resources. For a more complete discussion of
risk, please turn to "The risks of investing in Aggressive Growth Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities across a
broad range of industry sectors and company sizes.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
2
<PAGE>
PROFILE: CAPITAL RESERVES SERIES
WHAT ARE THE SERIES' GOALS?
Capital Reserves Series seeks a high stable level of current income while
attempting to minimize fluctuations in principal and provide maximum
liquidity. Although the Series will strive to achieve its goal, there is no
assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? Capital Reserves Series invests
primarily in short- and intermediate-term securities, including securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
instruments secured by U.S. government securities and debt securities issued by
U.S. corporations.
Capital Reserves Series is not a money market fund. A money market fund is
designed for stability of principal; consequently, the level of income
fluctuates. The Series is designed for greater stability of income at a
relatively higher level; consequently, the principal value will fluctuate over
time. The Series will attempt to provide investors with yields higher than those
available in money market vehicles by extending the average maturity of the
bonds in its portfolio beyond what is typically associated with money market
funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected primarily by adverse changes in interest rates or,
in the case of corporate bonds, by poor performance in specific industries or
companies. For a more complete discussion of risk, please turn to "The risks of
investing in Capital Reserves Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking for relatively stable and high income flow.
o Investors looking for the security associated with a portfolio of high quality
fixed-income securities.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
HOW HAS CAPITAL RESERVES SERIES PERFORMED?
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THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Capital Reserves Series. We show how returns for Capital Reserves Series have
varied over the past ten calendar years, as well as average annual returns for
one, five and ten years. The Series' past performance does not necessarily
indicate how it will perform in the future. The returns reflect applicable
voluntary expense caps. The returns would be lower without the voluntary caps.
Moreover, the performance presented does not reflect any separate account fees,
which would reduce the returns.
As of March 31, 1999, Capital Reserves Series had a year-to-date return of
0.17%. During the periods illustrated in this bar chart, Capital Reserves
Series' highest return was 4.35% for the quarter ended June 30, 1995 and its
lowest return was -2.21% for the quarter ended March 31, 1994.
YEAR-BY-YEAR TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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8.86% 8.23% 8.84% 7.20% 7.85% -2.68% 14.08% 4.05% 7.60% 6.78%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Capital Reserves Lehman Brothers Intermediate
Series Government Corporate Index
1 year 6.78% 8.44%
5 years 5.82% 6.60%
10 years 7.00% 8.52%
The Series returns are compared to the performance of the Lehman Brothers
Intermediate Government Corporate Index. Lehman Brothers Intermediate Government
Corporate Index is based on all publicly issued intermediate government and
corporate debt securities with an average maturity of 4 to 5 years. You should
remember that unlike the Series, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
3
<PAGE>
PROFILE: CASH RESERVE SERIES
WHAT ARE THE SERIES' GOALS?
Cash Reserve Series seeks to provide maximum current income, while
preserving principal and maintaining liquidity, by investing its assets in
a diversified portfolio of money market securities and managing the
portfolio to maintain a constant net asset value of $10 per share. Although
the Series will strive to achieve its goal, there is no assurance that it
will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? Cash Reserve Series invests
primarily in short-term money market securities, including securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
short-term debt instruments of banks and corporations.
Cash Reserve Series is a money market fund. A money market fund is designed for
stability of principal; consequently, the level of income fluctuates.
We typically maintain an average maturity of 90 days or less. Also, we do not
purchase any instruments with an effective remaining maturity of more than 13
months. We intend to hold our investments until maturity, but we may sell them
prior to maturity in order to shorten or lengthen the average maturity of the
bonds in the portfolio, increase the yield, maintain the quality of the
portfolio or maintain a stable share value.
Cash Reserve Series uses the same investment strategy as Delaware Group Cash
Reserve, Inc. a separate fund in the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Cash Reserve Series will be
affected primarily by declines in interest rates that would reduce the income
provided by the Series. For a more complete discussion of risk, please turn to
"The risks of investing in Cash Reserve Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Although the Series seeks to preserve the value of your
investment at $10 per share, it is possible to lose money by investing in the
Series.
WHO SHOULD INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
o Investors who are looking for a short-term, relatively safe investment to
complement more long-term investments in their portfolio.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking for relatively high income flow.
HOW HAS CASH RESERVE SERIES PERFORMED?
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THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Cash Reserve Series. We show how returns for Cash Reserve Series have varied
over the past ten calendar years, as well as average annual returns for one,
five and ten years. The Series' past performance does not necessarily indicate
how it will perform in the future. The returns reflect applicable voluntary
expense caps. The returns would be lower without the voluntary caps. Moreover,
the performance presented does not reflect any separate account fees, which
would reduce the returns.
As of March 31, 1999, Cash Reserve Series had a year-to-date return of 1.12%.
During the periods illustrated in this bar chart, Cash Reserve Series' highest
return was 2.22% for the quarter ended June 30, 1989 and its lowest return was
0.58% for the quarter ended June 30, 1993.
YEAR-BY-YEAR TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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8.61% 7.56% 5.58% 3.25% 2.48% 3.68% 5.48% 4.93% 5.10% 5.08%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Cash Reserve
Series
1 year 5.08%
5 years 4.85%
10 years 5.16%
4
<PAGE>
PROFILE: CONVERTIBLE SECURITIES SERIES
WHAT ARE THE SERIES' GOALS?
Convertible Securities Series seeks a high level of total return on its
assets through a combination of current income and capital appreciation.
Although the Series will strive to achieve its goal, there is no assurance
that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in
convertible securities. A convertible security is a bond, debenture, note,
preferred stock or other security which may be converted into a prescribed
amount of common stock of the same or a different issuer at a specified price or
using a specified pricing formula. A convertible security entitles the holder to
receive interest paid on convertible debt or the dividend paid on a preferred
stock until the convertible security matures, is redeemed or is converted.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected primarily by declines in convertible securities
prices, which can be caused by a drop in the stock or bond market, an adverse
change in interest rates or poor performance in specific industries or
companies. Convertible securities are often rated below investment grade and, as
a result, are subject to a higher credit risk that the issuer will be unable to
meet payments of interest and principal, particularly under adverse economic
conditions. For a more complete discussion of risk, please turn to "The risks of
investing in Convertible Securities Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking for appreciation potential combined with the potential for
current income which could act as a cushion for the portfolio's performance.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
HOW HAS CONVERTIBLE SECURITIES SERIES PERFORMED?
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THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Convertible Securities Series. We show returns for Convertible Securities
Series for the past calendar year, as well as average annual returns for one
year and since inception. The Series' past performance does not necessarily
indicate how it will perform in the future. The returns reflect applicable
voluntary expense caps. The returns would be lower without the voluntary caps.
Moreover, the performance presented does not reflect any separate account fees,
which would reduce the returns.
As of March 31, 1999, Convertible Securities Series had a year-to-date return of
- -1.32%. During the period illustrated in this bar chart, Convertible Securities
Series' highest return was 8.14% for the quarter ended December 31, 1998 and its
lowest return was -10.65% for the quarter ended September 30, 1998.
TOTAL RETURN
1998
----
-1.17%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Convertible Securities Merill Lynch
Series Convertible Securities Index
1 year -1.17% 8.21%
Since Inception (5/1/97) 8.91% 15.20%
The Series returns are compared to the performance of the Merrill Lynch
Convertible Securities Index. The Merrill Lynch Convertible Securities Index is
an unmanaged index representative of the convertible securities market. You
should remember that unlike the Series, the index is unmanaged and doesn't
reflect the actual costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities.
5
<PAGE>
PROFILE: DELAWARE BALANCED SERIES
(FORMERLY DELAWARE SERIES)
WHAT ARE THE SERIES' GOALS?
Delaware Balanced Series seeks a balance of capital appreciation, income
and preservation of capital. Although the Series will strive to achieve its
goal, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in common
stocks of established companies we believe have the potential for long-term
capital appreciation. In addition, we invest at least 25% of the Series' assets
in various types of fixed-income securities, including U.S. government
securities and corporate bonds. Funds with this mix of stocks and bonds are
commonly known as balanced funds. Delaware Balanced Series uses the same
investment strategy as Delaware Balanced Fund, a separate fund in the Delaware
Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected primarily by declines in stock and bond prices,
which can be caused by a drop in the stock or bond market, an adverse change in
interest rates or poor performance in specific industries or companies. For a
more complete discussion of risk, please turn to "The risks of investing in
Delaware Balanced Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking for stocks and bonds combined in a single investment.
o Investors seeking a measure of capital preservation.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
HOW HAS DELAWARE BALANCED SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Delaware Balanced Series. We show how returns for Delaware Balanced Series
have varied over the past ten calendar years, as well as average annual returns
for one, five and ten years. The Series' past performance does not necessarily
indicate how it will perform in the future. The returns reflect applicable
voluntary expense caps. The returns would be lower without the voluntary caps.
Moreover, the performance presented does not reflect any separate account fees,
which would reduce the returns.
As of March 31, 1999, Delaware Balanced Series had a year-to-date return of
- -6.16%. During the period illustrated in this bar chart, Delaware Balanced
Series' highest return was 15.89% for the quarter ended December 31, 1998 and
its lowest return was -12.93% for the quarter ended September 30, 1990.
YEAR-BY-YEAR TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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16.60% -0.18% 26.59% 13.85% 8.18% -0.15% 26.58% 15.91% 26.40% 18.62%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Delaware Balanced S&P Lehman Brothers
Series 500 Aggregate Bond Index
1 year 18.62% 28.60% 8.69%
5 years 17.04% 24.05% 7.27%
10 years 14.83% 19.19% 9.26%
The Series returns are compared to the performance of the S&P 500 Index and the
Lehman Brothers Aggregate Bond Index. The Standard & Poor's 500 Composite Stock
Index is an unmanaged index of 500 widely held common stocks that is often used
to represent performance of the U.S. stock market. The Lehman Brothers Aggregate
Bond Index is an index that measures the performance of about 6,500 U.S.
corporate and government bonds. Neither index is a perfect comparison to
Delaware Balanced Series since the S&P 500 does not include fixed-income
securities and the Lehman Brothers Aggregate Bond Index does not include stocks.
You should remember that unlike the Series, the indexes are unmanaged and don't
reflect the actual costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities.
6
<PAGE>
PROFILE: DELCAP SERIES
WHAT ARE THE SERIES' GOALS?
DelCap Series seeks long-term capital appreciation. Although the Series
will strive to meet its goals, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in stocks
of medium-sized companies that are of superior quality and which we believe will
grow more rapidly than the average of stocks listed in the S&P 500 Stock Index.
DelCap Series uses the same investment strategy as DelCap Fund, a separate fund
in the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the DelCap Series'
portfolio. This Series will be affected by declines in stock prices. In
addition, the companies that DelCap Series invests in may involve greater risk
due to their size, narrow product lines and limited financial resources. For a
more complete discussion of risk, please turn to "The risks of investing in
DelCap Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities of
medium-sized companies.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
HOW HAS DELCAP SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in DelCap Series. We show how returns for DelCap Series have varied over the
past seven calendar years, as well as average annual returns for one and five
years and since inception. The Series' past performance does not necessarily
indicate how it will perform in the future. The returns reflect applicable
voluntary expense caps. The returns would be lower without the voluntary caps.
Moreover, the performance presented does not reflect any separate account fees,
which would reduce the returns.
As of March 31, 1999, DelCap Series had a year-to-date return of 1.19%. During
the periods illustrated in this bar chart, DelCap Series' highest return was
24.58% for the quarter ended December 31, 1998 and its lowest return was -16.07%
for the quarter ended September 30, 1998.
YEAR-BY-YEAR TOTAL RETURN
1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
1.99% 11.56% -3.54% 29.53% 14.46% 14.90% 18.81%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
DelCap Russell Midcap
Series Growth Index
1 year 18.81% 17.86%
5 years 14.32% 17.34%
Since Inception (7/12/91) 12.74% 17.08%
The Series returns are compared to the performance of the Russell Midcap Growth
Index. Russell Midcap Growth Index contains Russell Midcap (800) securities with
a greater-than-average growth orientation. Companies in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend yields
and higher forecasted growth values than the value universe. You should remember
that unlike the Series, the index is unmanaged and doesn't reflect the actual
costs of operating a mutual fund, such as the costs of buying, selling, and
holding securities.
7
<PAGE>
PROFILE: DELCHESTER SERIES
WHAT ARE THE SERIES' GOALS?
Delchester Series seeks the highest current income, which the manager
believes is consistent with prudent investment management. Although the
Series will strive to achieve its goal, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in
fixed-income securities having a liberal and consistent yield and those tending
to reduce the risk of market fluctuations. These include:
o Corporate Bonds. We expect to invest the majority of the Series' assets
primarily in bonds rated BBB or lower by S&P. These are commonly known as
high-yield bonds or junk bonds and involve greater risks than investment grade
bonds. The Series will also invest in unrated bonds. Unrated bonds may be more
speculative in nature than rated bonds;
o Government Securities. Securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities; and
o Commercial Paper. Commercial paper of companies rated A-1 or A-2 by Standard &
Poor's Ratings Group or rated P-1 or P-2 by Moody's Investors Service, Inc.,
which are the two highest commercial paper ratings.
Delchester Series uses the same investment strategy as Delchester Fund, a
separate fund in the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected primarily by declines bond prices, which can be
caused by an adverse change in interest rates, adverse economic conditions or
poor performance from specific industries or bond issuers. Bonds rated below
investment grade are subject to a higher credit risk that the issuer will be
unable to make payments on interest and principal, particularly under adverse
economic conditions. For a more complete discussion of risk, please turn to "The
risks of investing in Delchester Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking a fixed-income investment that offers potential for very
high current income.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
HOW HAS DELCHESTER SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Delchester Series. We show how returns for Delchester Series have varied over
the past ten calendar years, as well as average annual returns for one, five and
ten years. The Series' past performance does not necessarily indicate how it
will perform in the future. The returns reflect applicable voluntary expense
caps. The returns would be lower without the voluntary caps. Moreover, the
performance presented does not reflect any separate account fees, which would
reduce the returns.
<PAGE>
As of March 31, 1999, Delchester Series had a year-to-date return of 1.37%.
During the periods illustrated in this bar chart, Delchester Series' highest
return was 15.95% for the quarter ended March 31, 1991 and its lowest return was
- -7.20% for the quarter ended September 30, 1998.
YEAR-BY-YEAR TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
4.62% -7.13% 37.54% 13.44% 16.36% -2.87% 15.50% 12.79% 13.63% -1.83%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Delchester Salomon Smith Barney
Series Cash Pay High-Yield Index
1 year -1.83% 4.43%
5 years 7.14% 9.13%
10 years 9.55% 10.57%
The Series returns are compared to the performance of the Salomon Smith Barney
Cash Pay High-Yield Index. The Salomon Smith Barney Cash Pay High-Yield Index
includes cash-pay bonds and excludes deferred-interest and bankrupt bonds. When
an issuer misses or expects to miss an interest payment or enters into Chapter
11, the corresponding bonds exit the index at month end, reflecting the loss of
the coupon payment or accrued interest. You should remember that unlike the
Series, the index is unmanaged and doesn't reflect the actual costs of operating
a mutual fund, such as the costs of buying, selling, and holding securities.
8
<PAGE>
PROFILE: DEVON SERIES
WHAT ARE THE SERIES' GOALS?
Devon Series seeks current income and capital appreciation. Although the
Series will strive to achieve its goal, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in
income-producing common stocks. We focus on common stocks that we believe have
the potential for above-average dividend increases over time. Devon Series uses
the same investment strategy as Devon Fund, a separate fund in the Delaware
Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be particularly affected by changes in stock prices. Stock
prices may be negatively affected by declines in the stock market or poor
performance in specific industries or companies. For a more complete discussion
of risk, please turn to "The risks of investing in Devon Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors seeking long-term capital appreciation.
o Investors seeking an investment primarily in common stocks.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors seeking an investment primarily in fixed-income securities.
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
HOW HAS DEVON SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Devon Series. We show returns for Devon Series over the past calendar year,
as well as average annual returns for one year and since inception. The Series'
past performance does not necessarily indicate how it will perform in the
future. The returns reflect applicable voluntary expense caps. The returns would
be lower without the voluntary caps. Moreover, the performance presented below
does not reflect any separate account fees, which would reduce the returns.
As of March 31, 1999, Devon Series had a year-to-date return of
- -8.35%. During the period illustrated in this bar chart, Devon Series' highest
return was 20.81% for the quarter ended December 31, 1998 and its lowest return
was -8.19% for the quarter ended September 30, 1998.
TOTAL RETURN
1998
----
24.05%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Devon S&P 500
Series Index
1 year 24.05% 28.60%
Since Inception (5/1/97) 31.44% 31.31%
The Series returns are compared to the performance of the S&P 500 Index. The
Standard & Poor's 500 Composite Stock Index is an unmanaged index of 500 widely
held common stocks that is often used to represent performance of the U.S. stock
market. You should remember that unlike the Series, the index is unmanaged and
doesn't reflect the actual costs of operating a mutual fund, such as the costs
of buying, selling, and holding securities.
9
<PAGE>
PROFILE: EMERGING MARKETS SERIES
WHAT ARE THE SERIES' GOALS?
The Emerging Markets Series seeks long-term capital appreciation. Although
the Series will strive to achieve its goal, there is no assurance that it
will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? The Series invests primarily in
equity securities of issuers located or operating in emerging countries. The
Series is an international fund. Under normal market conditions, at least 65% of
the Series' total assets will be invested in equity securities of companies in
at least three different countries that are considered to be emerging or
developing. An issuer is considered to be from the country where it is located,
where the majority of its assets are or where it generates the majority of its
operating income. Emerging Markets Series uses the same investment strategy as
Emerging Markets Series of Delaware Group Global & International Funds, Inc., a
separate fund in the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities held in the Series'
portfolio. This Series will be affected primarily by declines in stock prices,
which can be caused by a drop in foreign stock markets or poor performance in
specific industries or companies. Because the Series invests primarily in
international securities in emerging market countries as well as in established
countries, it will be affected by international investment risks related to
changes in currency valuations, political instability, economic instability, or
inadequate regulatory standards. The Series may invest up to 35% of its net
assets in high-yield, high risk foreign fixed-income securities, which are
subject to substantial risks, particularly during periods of economic downturns
or rising interest rates. The Series is considered "non-diversified" under
federal laws and regulations that regulate mutual funds. Thus, adverse effects
on the Series' investments may affect a larger portion of its overall assets and
subject the Series to greater risks. For a more complete discussion of risk,
please turn to "The risks of investing in Emerging Markets Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking for a portfolio of securities of emerging markets which may
offer high return potential but can be substantially more risky than
investments in either the U.S. or established foreign countries.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors who do not understand the significant risks associated with
investing in emerging markets.
HOW HAS EMERGING MARKETS SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Emerging Markets Series. We show returns for Emerging Markets Series for the
past calendar year, as well as average annual returns for one year and since
inception. The Series' past performance does not necessarily indicate how it
will perform in the future. The returns reflect applicable voluntary expense
caps. The returns would be lower without the voluntary caps. Moreover, the
performance presented does not reflect any separate account fees, which would
reduce the returns.
<PAGE>
As of March 31, 1999, Emerging Markets Series had a year-to-date return of
3.62%. During the period illustrated in this bar chart, Emerging Markets Series
highest return was 7.61% for the quarter ended March 31, 1998 and its lowest
return was -22.25% for the quarter ended June 30, 1998.
TOTAL RETURN
1998
----
-32.48%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Emerging Markets Morgan Stanley International
Series Emerging Markets Free Index
1 year -32.48% -25.34%
Since inception (5/1/97) -26.37% -25.80%
The Series returns are compared to the performance of the Morgan Stanley
International Emerging Markets Free Index. The Morgan Stanley International
Emerging Markets Free Index is a U.S. dollar dominated index comprised of stocks
of countries with below average per capita GDP as defined by the World Bank,
foreign ownership restrictions, a tax regulatory environment, and greater
perceived market risk than in the developed countries. Within this index, MSCI
aims to capture an aggregate of 60% of local market capitalization. You should
remember that unlike the Series, the index is unmanaged and doesn't reflect the
actual costs of operating a mutual fund, such as the costs of buying, selling,
and holding securities.
10
<PAGE>
PROFILE: GLOBAL BOND SERIES
WHAT ARE THE SERIES' GOALS?
Global Bond Series seeks current income consistent with preservation of
principal. Although the Series will strive to achieve its goal, there is no
assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? The Global Bond Series invests
primarily in fixed-income securities that may also provide the potential for
capital appreciation. The Series is a global fund. Therefore, at least 65% of
the Series' total assets will be invested in fixed-income securities of issuers
from at least three different countries, one of which may be the United States.
An issuer is considered to be from the country where it is located, where the
majority of its assets are or where it generates the majority of its operating
income. Global Bond Series uses the same investment strategy as Global Bond
Series, a separate fund in the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities held in the Series'
portfolio. This Series will be affected primarily by declines in bond prices
that can be caused by a drop in the bond market or an adverse change in interest
rates. Because the Series invests in international securities in both
established and developing countries, it will be affected by international
investment risks related to changes in currency valuations, political
instability, economic instability, or inadequate regulatory standards. The
Series may invest in high-yield, high risk foreign fixed-income securities,
which are subject to substantial risks, particularly during periods of economic
downturns or rising interest rates. Additionally, the Series is considered
"non-diversified" under federal laws that regulate mutual funds. Thus, adverse
effects on the Series' investments may affect a larger portion of its overall
assets and subject the Series to greater risks. For a more complete discussion
of risk, please turn to "The risks of investing in Global Bond Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking for a portfolio that includes both U.S. and foreign
fixed-income securities.
o Investors seeking a measure of capital appreciation.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to accept risks of investing in foreign
fixed-income securities.
HOW HAS GLOBAL BOND SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Global Bond Series. We show how returns varied for Global Bond Series for the
past two calendar years, as well as average annual returns for one year and
since inception. The Series' past performance does not necessarily indicate how
it will perform in the future. The returns reflect applicable voluntary expense
caps. The returns would be lower without the voluntary caps. Moreover, the
performance presented does not reflect any separate account fees, which would
reduce the returns.
<PAGE>
As of March 31, 1999, Global Bond Series had a year-to-date return of -0.78%.
During the periods illustrated in this bar chart, Global Bond Series' highest
return was 4.25% for the quarter ended September 30, 1998 and its lowest return
was -3.07% for the quarter ended March 31, 1997.
YEAR-BY-YEAR TOTAL RETURN
1997 1998
---- ----
0.88% 7.82%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Global Bond Salomon Smith Barney
Series World Government Bond Index
1 year 7.82% 15.31%
Since inception (5/2/96) 7.61% 7.91%
The Series returns are compared to the performance of the Salomon Smith Barney
World Government Bond Index. Salomon Smith Barney World Government Bond Index is
a market-capitalization weighted benchmark that tracks the performance of the 18
Government bond markets of Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal,
Spain, Sweden, Switzerland, the United Kingdom, and the United States. You
should remember that unlike the Series, the index is unmanaged and doesn't
reflect the actual costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities.
11
<PAGE>
PROFILE: GROWTH AND INCOME SERIES
(FORMERLY DECATUR TOTAL RETURN SERIES)
WHAT ARE THE SERIES' GOALS?
The Growth and Income Series seeks the highest possible total rate of
return by selecting issues that exhibit the potential for capital
appreciation while providing higher than average dividend income. Although
the Series will strive to meet its goals, there is no assurance that it
will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in
dividend-paying stocks of large, well-established companies. Typically, we
consider buying a stock when its dividend yield is higher than the average of
the unmanaged S&P 500 Index. The manager then considers the financial strength
of the company, the nature of its management and any developments affecting the
security, the company or its industry. If the yield on a stock already in the
portfolio falls below the average of the S&P 500, we generally sell that stock.
Growth and Income Series uses the same investment strategy as Growth and Income
Fund, a separate fund in the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected by declines in stock prices, which could be caused
by a drop in the stock market or poor performance from particular companies or
sectors. For a more complete discussion of risk, please turn to "The risks of
investing in Growth and Income Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors seeking long-term capital appreciation.
o Investors seeking an investment primarily in common stocks.
o Investors seeking moderate quarterly income with the opportunity for inflation
protection.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors seeking an investment primarily in fixed-income securities.
o Investors with short-term financial goals.
o Investors who are unwilling to accept that the value of their investment may
fluctuate, sometimes significantly over the short term.
HOW HAS GROWTH AND INCOME SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Growth and Income Series. We show how returns for Growth and Income Series
have varied over the past ten calendar years, as well as average annual returns
for one, five and ten years. The Series' past performance does not necessarily
indicate how it will perform in the future. The returns reflect applicable
voluntary expense caps. The returns would be lower without the voluntary caps.
Moreover, the performance presented does not reflect any separate account fees,
which would reduce the returns.
As of March 31, 1999, Growth and Income Series had a year-to-date return of
- -0.83%. During the periods illustrated in this bar chart, Growth and Income
Series' highest return was 13.46% for the quarter ended December 31, 1998 and
its lowest was -15.79% for the quarter ended September 30, 1990.
YEAR-BY-YEAR TOTAL RETURN
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
13.04% -13.31% 22.32% 8.83% 15.45% -0.20% 36.12% 20.72% 31.00% 11.35%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Growth and Income S&P 500
Series Index
1 year 11.35% 28.60%
5 years 19.06% 24.05%
10 years 13.67% 19.19%
The Series returns are compared to the performance of the S&P 500 Index. The
Standard & Poor's 500 Composite Stock Index is an unmanaged index of 500 widely
held common stocks that is often used to represent performance of the U.S. stock
market.You should remember that unlike the Series, the index is unmanaged and
doesn't reflect the actual costs of operating a mutual fund, such as the costs
of buying, selling, and holding securities.
12
<PAGE>
PROFILE: INTERNATIONAL EQUITY SERIES
WHAT ARE THE SERIES' GOALS?
The International Equity Series seeks long-term growth without undue risk
to principal. Although the Series will strive to achieve its goal, there is
no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? The Series invests primarily in
equity securities that provide the potential for capital appreciation and
income. The Series is an international fund. As such, at least 65% of the
Series' total assets will be invested in equity securities of companies from at
least three foreign countries. A company is considered to be from the country
where it is located, where the majority of its assets are or where it generates
the majority of its operating income. International Equity Series uses the same
investment strategy as International Equity Series, a separate fund in the
Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected primarily by declines in stock prices, which can be
caused by a drop in foreign stock markets or poor performance in specific
industries or companies. Because the Series invests in international securities
in both established and developing countries, it will be affected by
international investment risks related to changes in currency valuations,
political instability, economic instability, or inadequate regulatory standards.
For a more complete discussion of risk, please turn to "The risks of investing
in International Equity Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals
o Investors looking for a portfolio of international equity securities.
o Investors seeking a measure of capital appreciation and income.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to accept the risks of investing in foreign equity
and fixed-income securities.
o Investors looking for an investment that provides a high level of income.
HOW HAS INTERNATIONAL EQUITY SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in International Equity Series. We show how returns for International Equity
Series have varied over the past six calendar years, as well as average annual
returns for one and five years and since inception. The Series' past performance
does not necessarily indicate how it will perform in the future. The returns
reflect applicable voluntary expense caps. The returns would be lower without
the voluntary caps. Moreover, the performance presented does not reflect any
separate account fees, which would reduce the returns.
<PAGE>
As of March 31, 1999, International Equity Series had a year-to-date return of
2.28%. During the periods illustrated in this bar chart, International Equity
Series' highest return was 14.44% for the quarter ended December 31, 1998 and
its lowest return was -14.24% for the quarter ended September 30, 1998.
YEAR-BY-YEAR TOTAL RETURN
1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
15.97% 2.57%$ 13.98% 20.03% 6.60% 10.33%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
International Equity Morgan Stanley Capital International
Series EAFE (Europe, Australia, Far East) Index
1 year 10.33% 20.33%
5 years 10.54% 9.50%
Since inception (10/29/92) 11.14% 13.00%
The Series returns are compared to the performance of the Morgan Stanley Capital
International EAFE (Europe, Australia, Far East) Index. Morgan Stanley Capital
International EAFE (Europe, Australia, Far East) Index is an international index
including stocks traded on 16 exchanges in Europe, Australia and the Far East,
weighted by capitalization. You should remember that unlike the Series, the
index is unmanaged and doesn't reflect the actual costs of operating a mutual
fund, such as the costs of buying, selling, and holding securities.
13
<PAGE>
PROFILE: REIT SERIES
WHAT ARE THE SERIES' GOALS?
The REIT Series seeks maximum long-term total return, with capital
appreciation as a secondary objective. Although the Series will strive to
achieve its goal, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? The REIT Series invests in
securities of companies principally engaged in the real estate industry. Under
normal circumstances, we will invest at least 65% of the Series' total assets in
equity securities of real estate investment trusts, commonly known as REITs. The
REIT Series is considered "non-diversified" under the federal laws and
regulations that regulate mutual funds. That means that with respect to 50% of
its assets, the Series may invest more than 5% of net assets in a single
security. Thus, adverse effects on an investment held by the Series may affect a
larger portion of overall assets and subject the Series to greater risks. REIT
Series uses the same investment strategy as The Real Estate Investment Trust
Portfolio and The Real Estate Investment Trust Portfolio II, separate funds in
the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the REIT Series will increase and
decrease according to changes in the value of the securities held in the
portfolio. The Series' value and yields will fluctuate in response to movements
in stock prices.
Because we concentrate our investments in the real estate industry, the Series
may be subject to certain risks associated with direct ownership of real estate
and with the real estate industry in general. See "The risks of investing in
REIT Series" for further information about these and other risks.
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Series is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Series with your financial adviser to
determine whether it is an appropriate investment for you.
WHO SHOULD INVEST IN THE SERIES
o Investors seeking a high level of total return.
o Investors willing to invest in equity securities of companies principally
engaged in the real estate industry.
o Investors looking to diversify their equity holdings by adding exposure to the
real estate markets.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors seeking current income.
o Investors unwilling to accept the risks of investing in the real estate
industry as well as in a non-diversified fund.
o Investors who are unwilling to accept that the value of their investment may
fluctuate, sometimes significantly, over the short term.
14
<PAGE>
PROFILE: SMALL CAP VALUE SERIES
WHAT ARE THE SERIES' GOALS?
Small Cap Value Series seeks capital appreciation. Although the Series will
strive to meet its goals, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in stocks
of small companies whose stock prices appear low relative to their underlying
value or future potential. Among other factors, we consider the financial
strength of a company, its management, the prospects for its industry and any
anticipated changes within the company, which might suggest a more favorable
outlook going forward. Small Cap Value Series uses the same investment strategy
as Small Cap Value Fund, a separate fund in the Delaware Investments Family of
Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected by declines in stock prices. In addition, the
companies that Small Cap Value Series invests in may involve greater risk due to
their size, narrow product lines and limited financial resources. For a more
complete discussion of risk, please turn to "The risks of investing in Small Cap
Value Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities of small
companies.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
HOW HAS SMALL CAP VALUE SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Small Cap Value Series. We show how returns for Small Cap Value Series have
varied over the past five calendar years, as well as average annual returns for
one and five years and since inception. The Series' past performance does not
necessarily indicate how it will perform in the future. The returns reflect
applicable voluntary expense caps. The returns would be lower without the
voluntary caps. Moreover, the performance presented does not reflect any
separate account fees, which would reduce the returns.
As of March 31, 1999, Small Cap Value Series had a year-to-date return of
- -9.94%. During the periods illustrated in this bar chart, Small Cap Value
Series' highest return was 12.59% for the quarter ended December 31, 1998 and
its lowest return was -16.13% for the quarter ended September 30, 1998.
YEAR-BY-YEAR TOTAL RETURN
1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
0.78% 23.85% 22.55% 32.91% -4.79%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Small Cap Value Russell 2000
Series Index
1 year -4.79% -2.55%
5 years 14.12% 11.87%
Since inception (12/27/93) 14.55% 11.87%
The Series returns are compared to the performance of the Russell 2000 Index.
The Russell 2000 Index measures the performance of the 2000 smallest companies
in the Russell 3000 Index. You should remember that unlike the Series, the index
is unmanaged and doesn't reflect the actual costs of operating a mutual fund,
such as the costs of buying, selling, and holding securities.
15
<PAGE>
PROFILE: SOCIAL AWARENESS SERIES
WHAT ARE THE SERIES' GOALS?
Social Awareness Series seeks long-term capital appreciation. Although the
Series will strive to achieve its goal, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in stocks
of medium to large-sized companies that meet certain socially responsible
criteria and which we expect to grow over time. Our socially responsible
criteria exclude companies that:
o engage in activities likely to result in damage to the natural environment
o produce nuclear power, design or construct nuclear power plants or
manufacture equipment for the production of nuclear power
o manufacture or contract for military weapons
o are in the liquor, tobacco or gambling industries
o conduct animal testing for cosmetic or personal care products.
Social Awareness Series uses the same investment strategy as Social Awareness
Fund, a separate fund in the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of an investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected by declines in stock prices, which can be caused by
a drop in the stock market or poor performance in specific industries or
companies. Because the Series avoids certain companies not considered socially
responsible, it could miss out on strong performance from those companies. For a
more complete discussion of risk, please turn to "The risks of investing in
Social Awareness Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking for capital growth potential.
o Investors who would like an investment that incorporates social responsibility
into its security selection process.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short term.
o Investors whose primary goal is to receive current income.
HOW HAS SOCIAL AWARENESS SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Social Awareness Series. We show returns for Social Awareness Series over the
past calendar year, as well as average annual returns for one year and since
inception. The Series' past performance does not necessarily indicate how it
will perform in the future. The returns reflect applicable voluntary expense
caps. The returns would be lower without the voluntary caps. Moreover, the
performance presented does not reflect any separate account fees, which would
reduce the returns.
As of March 31, 1999, Social Awareness Series had a year-to-date return of
- -0.27%. During the period illustrated in this bar chart, Social Awareness
Series' highest return was 21.45% for the quarter ended December 31, 1998 and
its lowest return was -17.21% for the quarter ended September 30, 1998.
TOTAL RETURN
1998
----
15.45%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Social Awareness S&P 500
Series Index
1 year 15.45% 28.60%
Since Inception (5/1/97) 26.56% 31.31%
The Series returns are compared to the performance of the S&P 500 Index. The
Standard & Poor's 500 Composite Stock Index is an unmanaged index of 500 widely
held common stocks that is often used to represent performance of the U.S. stock
market. You should remember that unlike the Series, the index is unmanaged and
doesn't reflect the actual costs of operating a mutual fund, such as the costs
of buying, selling, and holding securities.
16
<PAGE>
PROFILE: STRATEGIC INCOME SERIES
WHAT ARE THE SERIES' GOALS?
Strategic Income Series seeks high current income and total return.
Although the Series will strive to achieve its goal, there is no assurance
that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in bonds
allocated among three sectors of the fixed-income market. These include:
o a High-Yield Sector, consisting of high-yielding, higher risk, lower-rated or
unrated fixed-income securities (commonly known as "junk bonds") issued by
U.S. companies;
o an Investment Grade Sector, consisting of investment grade debt obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or by U.S. companies; and
o an International Sector, consisting of obligations of foreign governments,
their agencies and instrumentalities, and other fixed-income securities of
issuers in foreign countries and denominated in foreign currencies. An issuer
is considered to be from the country where it is located, where the majority
of its assets are or where it generates the majority of its operating income.
We determine the amount of the Series' assets that will be allocated to each of
the three sectors based on our analysis of economic and market conditions and
our assessment of the returns and potential for appreciation from each sector.
We will periodically reallocate the Series' assets.
Strategic Income Series uses the same investment strategy as Strategic Income
Fund, a separate fund in the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected primarily by declines bond prices, which can be
caused by an adverse change in interest rates, adverse economic conditions or
poor performance from specific industries or bond issuers. The Series is also
subject to the special risks associated with high-yield bond investing and with
foreign investing. In particular, bonds rated below investment grade are subject
to a higher credit risk that issuers will be unable to make payments of interest
or principal, particularly under adverse economic conditions. For a more
complete discussion of risk, please turn to "The risks of investing in Strategic
Income Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors looking for a fixed-income investment that offers potential for high
current income and total return.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors who are unwilling to own an investment whose value may fluctuate,
sometimes significantly, over the short term.
HOW HAS STRATEGIC INCOME SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE can help you evaluate the potential risks of investing
in Strategic Income Series. We show returns for Strategic Income Series over the
past calendar year, as well as average annual returns for one year and since
inception. The Series' past performance does not necessarily indicate how it
will perform in the future. The returns reflect applicable voluntary expense
caps. The returns would be lower without the voluntary caps. Moreover, the
performance presented does not reflect any separate account fees, which would
reduce the returns.
<PAGE>
As of March 31, 1999, Strategic Income Series had a year-to-date return of
0.42%. During the period illustrated in this bar chart, Strategic Income Series'
highest return was 2.05% for the quarter ended March 31, 1998 and its lowest
return was -0.95% for the quarter ended September 30, 1998.
TOTAL RETURN
1998
----
2.63%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Strategic Income Leham Brothers Aggregate
Bond Index
1 year 2.63% 8.69%
Since Inception (5/1/97) 5.29% 10.46%
The Series returns are compared to the performance of the Lehman Brothers
Aggregate Bond Index. Lehman Brothers Aggregate Bond Index is comprised of
approximately 6000 publicly traded bonds including U.S. government,
mortgage-backed, corporate and Yankee bonds with an average maturity of
approximately 10 years. The index is weighted by the market value of the bonds
weighted in the index. You should remember that unlike the Series, the index is
unmanaged and doesn't reflect the actual costs of operating a mutual fund, such
as the costs of buying, selling, and holding securities.
17
<PAGE>
PROFILE: TREND SERIES
WHAT ARE THE SERIES' GOALS?
Trend Series seeks long-term capital appreciation. Although the Series will
strive to meet its goals, there is no assurance that it will.
WHAT ARE THE SERIES' MAIN INVESTMENT STRATEGIES? We invest primarily in stocks
of small, growth-oriented companies that we believe are responsive to changes
within the marketplace and which we believe have the fundamental characteristics
to support continued growth.
Trend Series uses the same investment strategy as Trend Fund, a separate fund in
the Delaware Investments Family of Funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE SERIES? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment in the Series will increase and decrease
according to changes in the value of the securities in the Series' portfolio.
This Series will be affected by declines in stock prices. In addition, the
companies that Trend Series invests in may involve greater risk due to their
size, narrow product lines and limited financial resources. For a more complete
discussion of risk, please turn to "The risks of investing in Trend Series."
An investment in the Series is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
WHO SHOULD INVEST IN THE SERIES
o Investors with long-term financial goals.
o Investors seeking an investment primarily in common stocks.
o Investors seeking exposure to the capital appreciation opportunities of small
companies.
WHO SHOULD NOT INVEST IN THE SERIES
o Investors with short-term financial goals.
o Investors whose primary goal is current income.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly over the short term.
HOW HAS THE TREND SERIES PERFORMED?
- --------------------------------------------------------------------------------
THIS BAR CHART AND TABLE help you evaluate the potential risks of investing in
Trend Series. We show how returns for Trend Series have varied over the past
five calendar years, as well as average annual returns for one and five years
and since inception. The Series' past performance does not necessarily indicate
how it will perform in the future. The returns reflect applicable voluntary
expense caps. The returns would be lower without the voluntary caps. Moreover,
the performance presented does not reflect any separate account fees, which
would reduce the returns.
As of March 31, 1999, Trend Series had a year-to-date return of 2.54%. During
the periods illustrated in this bar chart, Trend Series' highest return was
23.75% for the quarter ended December 31, 1998 and its lowest return was -15.51%
for the quarter ended September 30, 1998.
YEAR-BY-YEAR TOTAL RETURN
1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
-0.39% 39.21% 11.00% 21.37% 16.04%
AVERAGE ANNUAL RETURNS for the period ending 12/31/98
Trend Russell 2000
Series Growth Index
1 year 16.04% 1.23%
5 years 16.73% 10.22%
Since inception (12/27/93) 17.15% 10.22%
The Series returns are compared to the performance of the Russell 2000 Growth
Index. The Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth
values. You should remember that unlike the Series, the index is unmanaged and
doesn't reflect the actual costs of operating a mutual fund, such as the costs
of buying, selling, and holding securities.
18
<PAGE>
HOW WE MANAGE THE SERIES
AGGRESSIVE GROWTH SERIES
OUR INVESTMENT STRATEGIES
We strive to identify companies that offer the potential for long-term price
appreciation because they are likely to experience high earnings growth. The
companies we choose for the portfolio will typically exhibit one or more of the
following characteristics:
o A history of high growth in earnings-per-share
o Projections for high future growth or acceleration in earnings-per-share
o A price-to-earnings ratio that is low relative to other stocks
o Discounted cash flows that are high relative to other stocks.
Once we identify stocks that have these characteristics, we further evaluate the
company, looking at capability of the management team, strength of the company's
position within its industry, whether its internal structure can support
continued growth, how high is the company's return on equity, how much of the
company's profits are reinvested into the company to fuel additional growth, and
how stringent are the company's financial and accounting policies.
All of these give us insight into the outlook for the company, helping us to
identify companies poised for high earnings growth. We believe that this high
earnings growth, if it occurs, would result in price appreciation for the
company's stock.
Because some of the smaller companies we select may still be in their early
developmental stages and therefore involve greater risks, we maintain a
well-diversified portfolio, typically holding a mix of different stocks,
representing a wide array of industries. We generally balance our holdings of
small companies with investments in medium-size and large companies.
THE SECURITIES WE Stocks ofer investors the potential for capital
TYPICALLY INVEST IN appreciation, and may pay dividends as well.
<TABLE>
<CAPTION>
SECURITIES HOW WE USE THEM
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<S> <C>
Aggressive Growth Series
COMMON STOCKS: Securities that represent shares of Generally, we invest 90% to 100% of net assets in common stock.
ownership in a corporation. Stockholders
participate in the corporation's profits and
losses, proportionate to the number of shares they
own.
REPURCHASE AGREEMENTS: An agreement between a Typically, we use repurchase agreements as a short-term
buyer and seller of securities in which the seller investment for the Series' cash position. In order to enter into
agrees to buy the securities back within a these repurchase agreements, the Series must have collateral of
specified time at the same price the buyer paid at least 102% of the repurchase price.
for them, plus an amount equal to an agreed upon
interest rate. Repurchase agreements are often
viewed as equivalent to cash.
RESTRICTED SECURITIES: Privately placed securities We may invest in privately placed securities that are eligible
whose resale is restricted under securities law. for resale only among certain institutional buyers without
registration. These are commonly known as Rule 144A Securities.
Restricted securities that are determined to be illiquid may not
exceed the Series' 15% limit on illiquid securities, which is
described below.
ILLIQUID SECURITIES: Securities that do not have a We may invest up to 15% of net assets in illiquid securities,
ready market, and cannot be easily sold, if at including repurchase agreements with maturities of over seven
all, at approximately the price that the Series days.
has valued them.
</TABLE>
19
<PAGE>
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AGGRESSIVE GROWTH SERIES (continued)
Aggressive Growth Series may also invest in other securities including preferred
stocks, convertible securities, warrants, rights, and debt securities of
government or corporate issuers. Aggressive Growth Series may invest a portion
of its net assets in foreign securities; however, the manager has no present
intention of doing so. Please see the Statement of Additional Information for
additional descriptions and risk information on these securities as well as
those listed in the table above. You will be able to find additional information
about the investments in the Series' portfolio in the annual or semi-annual
shareholder report.
LENDING SECURITIES Aggressive Growth Series may lend up to 25% of its assets to
qualified dealers and investors for their use in security transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Aggressive
Growth Series may buy or sell securities on a when-issued or delayed delivery
basis; that is, paying for securities before delivery or taking delivery at a
later date.
BORROWING FROM BANKS Aggressive Growth Series may borrow money as a temporary
measure for extraordinary purposes or to facilitate redemptions. To the extent
that it does so, the Series may be unable to meet its investment objective. It
will not borrow money in excess of one-third of the value of its net assets.
PORTFOLIO TURNOVER We anticipate that Aggressive Growth Series' annual portfolio
turnover may be greater than 100%. A turnover rate of 100% would occur if the
Series sold and replaced securities valued at 100% of its net assets within one
year. High turnover can result in increased transaction costs and tax liability.
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN AGGRESSIVE the risk that you may receive little or no return on
GROWTH SERIES your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. An
investment in the Series typically provides the best
results when held for a number of years. The following
are the chief risks you assume when investing in
Aggressive Growth Series. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
<TABLE>
<CAPTION>
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RISKS HOW WE STRIVE TO MANAGE THEM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Aggessive Growth Series
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market - like the stock or bond stocks we believe can appreciate over an extended time frame
market will decline in value because of factors such as regardless of interim market fluctuations. We do not try to
economic conditions, future expectations or investor predict overall stock market movements and though we may
confidence. hold securities for any amount of time, we typically do not
trade for short-term purposes.
We may hold a substantial part of Aggressive Growth Series'
assets in cash or cash equivalents as a temporary, defensive
strategy.
INDUSTRY AND SECURITY RISK is the risk that the value of We limit the amount of Aggressive Growth Series' assets
securities in a particular industry or the value of an invested in any one industry and in any individual security.
individual stock or bond will decline because of changing We also follow a rigorous selection process before choosing
expectations for the performance of that industry or for the securities and continuously monitor them while they remain
individual company issuing the stock. in the portfolio.
COMPANY SIZE RISK is the risk that prices of small and Aggressive Growth Series seeks out opportunities among
medium-size companies may be more volatile than larger companies of all sizes. Because its portfolio does not
companies because of limited financial resources or concentrate specifically on small or medium size companies,
dependence on narrow product lines. this risk may be balanced by our holdings of large
companies.
INTEREST RATE RISK is the risk that securities will decrease We analyze each company's financial situation and its cash
in value if interest rates rise. The risk is generally flow to determine the company's ability to finance future
associated with bonds; however, because small and expansion and operations. The potential affect that rising
medium-size companies often borrow money to finance their interest rates might have on a stock is taken into
operations, they may be adversely affected by rising consideration before the stock is purchased.
interest rates.
LIQUIDITY RISK is the possibility that securities cannot be We limit exposure to illiquid securities.
readily sold, if at all, at approximately the price that the
Series values them.
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</TABLE>
20
<PAGE>
INVESTMENT MANAGER The Series is managed by Delaware Management Company.
Delaware Management Company makes investment decisions for
the Series, manages the Series' business affairs and
provides daily administrative services. The Series will pay
the manager the following fee on an annual basis: 0.75% on
the first $500 million of average daily net assets; 0.70%
on the next $500 million; 0.65% on the next $1.5 billion
and 0.60% on assets in excess of $2.5 billion.
PORTFOLIO MANAGERS Gerald S. Frey has primary responsibility for making
day-to-day investment decisions for the Aggressive Growth
Series. When making investment decisions for the Series,
Mr. Frey regularly consults with Marshall T. Bassett, John
A. Heffern, Jeffrey W. Hynoski and Lori P. Wachs.
GERALD S. FREY
Vice President/Senior Portfolio Manager
Mr. Frey has 22 years' experience in the money management
business and holds a BA in Economics from Bloomsburg
University and attended Wilkes College and New York
University. Prior to joining Delaware Investments in 1996,
he was a Senior Director with Morgan Grenfell Capital
Management in New York. Mr. Frey has been senior portfolio
manager for the Series since its inception.
MARSHALL T. BASSETT
Vice President
Mr. Bassett joined Delaware Investments in 1997. In his
most recent position, he served as Vice President in Morgan
Stanley Asset Management's Emerging Growth Group, where he
analyzed small growth companies. Prior to that, he was a
trust officer at Sovran Bank and Trust Company. He received
his bachelor's degree and MBA from Duke University.
JOHN A. HEFFERN
Vice President
Mr. Heffern holds a bachelor's degree and an MBA from the
University of North Carolina at Chapel Hill. He joined
Delaware Investments in 1997. Previously, he was a Senior
Vice President, Equity Research at NatWest Securities
Corporation's Specialty Finance Services unit. Prior to
that, he was a Principal and Senior Regional Bank Analyst
at Alex. Brown & Sons.
JEFFREY W. HYNOSKI
Vice President
Mr. Hynoski joined Delaware Investments in 1998. Previously
he served as a Vice President at Bessemer Trust Company in
the mid and large capitalization growth group, where he
specialized in the areas of science, technology, and
telecommunications. Prior to that, Mr. Hynoski held
positions at Lord Abbett & Co. and Cowen Asset Management.
Mr. Hynoski holds a BS in Finance from the University of
Delaware and an MBA with a concentration in
Investments/Portfolio Management and Financial Economics
from Pace University.
LORI P. WACHS
Vice President
Ms. Wachs joined Delaware Investments in 1992 from Goldman
Sachs, where she was an equity analyst for two years. She
is a graduate of the University of Pennsylvania's Wharton
School, where she majored in Finance and Oriental Studies.
21
<PAGE>
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HOW WE MANAGE THE SERIES (continued)
CAPITAL RESERVES SERIES
OUR INVESTMENT STRATEGIES
Capital Reserves Series is a type of current income fund that invests in high
quality fixed-income securities. The Series will invest in a variety of high
quality fixed-income securities which provide high income potential.
We will strive to reduce the effects of interest rate volatility on principal by
maintaining an intermediate average maturity for the Series. The average
weighted maturity of the Series' portfolio will normally range from five to
seven years. It will not exceed ten years. We will decide where to position the
portfolio within this permissible maturity range based on our perception of the
direction of interest rates and the risks in the fixed-income markets. If, in
our judgment, interest rates are relatively high and borrowing requirements in
the economy are weakening, we will generally extend the average weighted
maturity of the Series. Conversely, if we believe interest rates are relatively
low and borrowing requirements appear to be strengthening, we may shorten the
average weighted maturity. We have the ability to purchase individual securities
with a remaining maturity of up to 15 years.
THE SECURITIES WE Fixed-income securities offer the potential for greater
TYPICALLY INVEST IN income payments than stocks, and also may provide capital
appreciation.
<TABLE>
<CAPTION>
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SECURITIES HOW WE USE THEM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Capital Reserves Series
DIRECT U.S. TREASURY OBLIGATIONS include Treasury bills, We may invest without limit in U.S. Treasury securities,
notes and bonds of varying maturities. U.S. Treasury though they are typically not our largest holding because
securities are backed by the "full faith and credit" of the they generally do not offer as high a level of current
United States. income as other fixed-income securities.
MORTGAGE-BACKED SECURITIES: Fixed-income securities that There is no limit on government-related mortgage-backed
represent pools of mortgages, with investors receiving securities or on fully collateralized privately issued
principal and interest payments as the underlying mortgage mortgage-backed securities.
loans are paid back. Many are issued and guaranteed against
default by the U.S. government or its agencies or We may invest up to 20% of net assets in mortgage-backed
instrumentalities, such as the Federal Home Loan Mortgage securities issued by private companies whether or not the
Corporation, Fannie Mae and the Government National Mortgage securities are 100% collateralized. However, these
Association. Others are issued by private financial securities must be rated at the time of purchase in one of
institutions, with some fully collateralized by certificates the four highest categories by a nationally recognized
issued or guaranteed by the U.S. government or its agencies statistical rating organization such as S&P or Moody's. They
or instrumentalities. must also represent interests in whole-loan mortgages,
multi-family mortgages, commercial mortgages and other
mortgage collateral supported by a first mortgage lien on
real estate. The privately issued securities we invest in
are either CMOs or REMICs (see below).
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS): Privately issued See mortgage-backed securities above.
mortgage-backed bonds whose underlying value is the
mortgages that are grouped into different pools according to
their maturity.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS (REMICS): Privately See mortgage-backed securities above.
issued mortgage-backed bonds whose underlying value is a
fixed pool of mortgages secured by an interest in real
property. Like CMOs, REMICs offer different pools.
ASSET-BACKED SECURITIES: Bonds or notes backed by accounts We invest only in asset-backed securities rated in one of
receivables including home equity, automobile or credit the four highest categories by a nationally recognized
loans. statistical ratings organization (NRSRO).
CORPORATE BONDS: Debt obligations issued by a corporation. We focus bonds with investment grade ratings, that is bonds
rated BBB or better by S&P or Baa or better by Moody's. We
may invest in bonds that are unrated, if we believe the
quality of the securities is comparable to the ratings
above.
CERTIFICATES OF DEPOSIT AND OBLIGATIONS OF BOTH U.S. AND We may invest in certificates of deposit from banks that
FOREIGN BANKS: Debt instrument issued by a bank, that pay have assets of at least one billion dollars.
interest.
CORPORATE COMMERCIAL PAPER: short-term debt obligations with We may invest in commercial paper that is rated P-1 or P-2
maturities ranging from 2 to 270 days, issued by companies. by Moody's and/or A-1 or A-2 by S&P.
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</TABLE>
22
<PAGE>
THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
<TABLE>
<CAPTION>
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SECURITIES HOW WE USE THEM
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<S> <C>
Capital Reserves Series
REPURCHASE AGREEMENTS: An agreement between a buyer, such as Typically, we use repurchase agreements as a short-term
the Series, and seller of securities in which the seller investment for the Series' cash position. In order to enter
agrees to buy the securities back within a specified time at into these repurchase agreements, the Series must have
the same price the buyer paid for them, plus an amount equal collateral of at least 102% of the repurchase price.
to an agreed upon interest rate. Repurchase agreements are
often viewed as equivalent to cash.
RESTRICTED AND ILLIQUID SECURITIES: Restricted securities We may invest up to 10% of net assets in illiquid
are privately placed securities whose resale is restricted securities. For this Series, the 10% limit includes
under securities law. restricted securities such as privately placed securities
that are eligible for resale only among certain
Illiquid securities are securities that do not have a ready institutional buyers without registration, which are
market, and cannot be easily sold, if at all, at commonly known as "Rule 144A Securities" and repurchase
approximately the price that the Series has valued them. agreements with maturities of over seven days.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please see the Statement of Additional Information for additional descriptions
on these securities as well as those listed in the table above.
LENDING SECURITIES Capital Reserves Series may lend up to 25% of its assets to
qualified brokers, dealers and investors for their use in security transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Capital
Reserves Series may buy or sell securities on a when-issued or delayed delivery
basis; that is, paying for securities before delivery or taking delivery at a
later date.
BORROWING FROM BANKS Capital Reserves Series may borrow money as a temporary
measure for extraordinary purposes or to facilitate redemptions. To the extent
that it does so, the Series may be unable to meet its investment objective. It
will not borrow money in excess of one-third of the value of its net assets.
PORTFOLIO TURNOVER We anticipate that Capital Reserves Series' annual portfolio
turnover will be greater than 100%. A turnover rate of 100% would occur if the
Series sold and replaced securities valued at 100% of its net assets within one
year. High turnover can result in increased transaction costs and tax liability.
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN CAPITAL RESERVES the risk that you may receive little or no return on
SERIES your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. An
investment in the Series typically provides the best
results when held for a number of years. The following
are the chief risks you assume when investing in
Capital Reserves Series. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Capital Reserves Series
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market--like the stock or bond fixed-income securities that we believe can continue to make
market--will decline in value because of factors such as interest and principal payments over an extended time frame
economic conditions, future expectations or investor regardless of interim market fluctuations. We do not try to
confidence. predict overall bond market movements and do not trade for
short-term purposes.
INDUSTRY AND SECURITY RISK is the risk that the value of We diversify the Series' portfolio. We also follow a
securities in a particular industry or the value of an rigorous selection process before choosing securities for
individual stock or bond will decline because of changing the portfolio.
expectations for the performance of that industry or for the
individual company issuing the stock or bond.
INTEREST RATE RISK is the risk that securities, particularly We do not try to increase return by predicting and
bonds with longer maturities, will decrease in value if aggressively capitalizing on interest rate moves.
interest rates rise.
CREDIT RISK is the risk that there is the possibility that a We may hold securities rated in the fourth category of
bond's issuer (or an entity that insures the bond) will be investment grade; however, we carefully evaluate their
unable to make timely payments of interest and principal. creditworthiness before purchasing the security.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
==========================================
CAPITAL RESERVES SERIES (continued)
THE RISKS OF
INVESTING IN CAPITAL
RESERVES SERIES
(continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Capital Reserves Series
DEBT SECURITIES rated in the fourth category of If the rating of a corporate debt security held by
investment grade (e.g., BBB by S&P or Baa by the Series falls below the fourth rating grade or
Moody's) may have speculative characteristics. if we determine that an unrated security is no
Changes in economic conditions or other longer of comparable quality, we will dispose of
circumstances are more likely to affect issuers the security as soon as practical, unless we think
ability to make principal and interest payments. that would be detrimental in light of market
conditions.
PREPAYMENT RISK is the risk that homeowners will We take into consideration the likelihood of
prepay mortgages during periods of low interest prepayment when we select mortgages. We may look
rates, forcing an investor to reinvest their money for mortgage securities that have characteristics
at interest rates that might be lower than those that make them less likely to be prepaid, such as
on the prepaid mortgage. low outstanding loan balance or below-market
interest rates.
LIQUIDITY RISK is the possibility that securities We limit exposure to illiquid securities.
cannot be readily sold, if at all, at
approximately the price that the Series values
them.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT MANAGER The Series is managed by Delaware Management Company.
Delaware Management Company makes investment decisions for
the Series, manages the Series' business affairs and
provides daily administrative services. For its services to
the Series, the manager was paid 0.60% of average daily net
assets for the last fiscal year.
PORTFOLIO MANAGER Gary A. Reed has primary responsibility for making
day-to-day investment decisions for the Capital Reserves
Series.
GARY A. REED
Vice President/Senior Portfolio Manager
He holds an AB in Economics from the University of Chicago
and an MA in Economics from Columbia University. He began
his career in 1978 with the Equitable Life Assurance
Company in New York City, where he specialized in credit
analysis. Prior to joining Delaware Investments in 1989,
Mr. Reed was Vice President and Manager of the fixed-income
department at Irving Trust Company in New York. Mr. Reed
has been Capital Reserves Series' senior portfolio manager
since 1989.
24
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
<TABLE>
<CAPTION>
Capital Reserves Series
- -----------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.790 $9.690 $9.930 $9.300 $10.260
Income (loss) from investment operations
Net investment income 0.556 0.613 0.623 0.643 0.636
Net realized and unrealized gain (loss) on investments 0.090 0.100 (0.240) 0.630 (0.905)
------ ------ ------ ------ ------
Total from investment operations 0.646 0.713 0.383 1.273 (0.269)
------ ------ ------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.556) (0.613) (0.623) (0.643) (0.636)
Distributions from net realized gain on investments none none none none (0.055)
------ ------ ------ ------ ------
Total dividends and distributions (0.556) (0.613) (0.623) (0.643) (0.691)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $9.880 $9.790 $9.690 $9.930 $ 9.300
====== ====== ====== ====== =======
Total return(1) 6.78% 7.60% 4.05% 14.08% (2.68%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $41,711 $29,177 $27,768 $27,935 $25,975
Ratio of expenses to average net assets 0.79% 0.75% 0.72% 0.71% 0.74%
Ratio of expenses to average net assets
prior to expense limitation 0.79% 0.75% 0.72% 0.71% 0.74%
Ratio of net investment income to average net assets 5.62% 6.31% 6.43% 6.64% 6.57%
Ratio of net investment income to average net assets
prior to expense limitation 5.62% 6.31% 6.43% 6.64% 6.57%
Portfolio turnover 166% 120% 122% 145% 219%
</TABLE>
(1) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown.
25
<PAGE>
CASH RESERVE SERIES
THE SECURITIES WE
TYPICALLY INVEST IN
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash Reserve Series
DIRECT U.S. TREASURY OBLIGATIONS: include Treasury We may invest without limit in U.S. Treasury
bills, notes and bonds of varying maturities. U.S. securities. We would typically invest in Treasury
Treasury securities are backed by the "full faith bills or longer term Treasury securities whose
and credit" of the United States. remaining effective maturity is less than 13
months.
CERTIFICATES OF DEPOSIT AND OBLIGATIONS OF BOTH We may invest in certificates of deposit from
U.S. AND FOREIGN BANKS: Debt instruments issued by banks that have assets of at least one billion
a bank that pay interest. dollars.
Investments in foreign banks and overseas branches
of U.S. banks may be subject to less stringent
regulations and different risks than U.S. domestic
banks.
Corporate commercial paper: short-term debt We may invest in commercial paper that is rated
obligations with maturities ranging from 2 to 270 P-1 or P-2 by Moody's and/or A-1 or A-2 by S&P.
days, issued by companies. The Series will not invest more than 5% of its
total assets in securities rated in the second
highest category by a ratings organization.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Please see the Statement of Additional Information for additional descriptions
on these securities as well as those listed in the table above.
BORROWING FROM BANKS Cash Reserve Series may borrow money as a temporary measure
for extraordinary purposes or to facilitate redemptions. To the extent that it
does so, the Series may be unable to meet its investment objective. The Series
will not borrow money in excess of one-third of the value of its net assets.
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN CASH RESERVE the risk that you may receive little or no return on
SERIES your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. The
following are the chief risks you assume when investing
in Cash Reserve Series. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- ----------------------------------------------------------------------------------------------------------------------
Cash Reserve Series
<S> <C>
INTEREST RATE RISK is the risk that securities, Because Cash Reserve Series invests in short-term
particularly bonds with longer maturities, will securities, the value of its investments is
decrease in value if interest rates rise. generally not affected by interest rate risk.
However, a decline in interest rates would
adversely affect the level of income provided by
the Series.
CREDIT RISK is the risk that there is the Cash Reserve Series holds only high quality
possibility that a bond's issuer (or an entity short-term securities. Therefore it is generally
that insures the bond) will be unable to make not subject to significant credit risk.
timely payments of interest and principal.
We limit our investments to those which the Board
of Directors has determined to involve minimal
credit risks and to be of high quality and which
will otherwise meet the maturity, quality and
diversification conditions with which taxable
money market funds must comply.
If there were a national credit crisis or an
issuer were to become insolvent, principal values
could be adversely affected.
INFLATION RISK is the risk that the return from Cash Reserve Series is designed for short-term
your investments will be less than the increase in investment goals and therefore may not outpace
the cost of living due to inflation, thus inflation over longer time periods. For this
preventing you from reaching your financial goals. reason, Cash Reserve Series is not recommended as
a primary investment for people with long-term
goals.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT MANAGER The Series is managed by Delaware Management Company.
Delaware Management Company makes investment decisions for
the Series, manages the Series' business affairs and
provides daily administrative services. For its services to
the Series, the manager was paid 0.50% of average daily net
assets for the last fiscal year.
26
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
<TABLE>
<CAPTION>
Cash Reserve Series
- -----------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.000 $10.000 $10.000 $10.000 $10.000
Income from investment operations
Net investment income 0.497 0.497 0.482 0.535 0.361
------ ------ ------ ------ ------
Total from investment operations 0.497 0.497 0.482 0.535 0.361
------ ------ ------ ------ ------
LESS DIVIDENDS
Dividends from net investment income (0.497) (0.497) (0.482) (0.535) (0.361)
------ ------ ------ ------ ------
Total dividends (0.497) (0.497) (0.482) (0.535) (0.361)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $10.000 $10.000 $10.000 $10.000 $10.000
======= ======= ======= ======= =======
TOTAL RETURN(1) 5.08% 5.10% 4.93% 5.48% 3.68%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $42,893 $30,711 $26,479 $16,338 $20,125
Ratio of expenses to average net assets 0.59% 0.64% 0.61% 0.62% 0.66%
Ratio of expenses to average net assets
prior to expense limitation 0.59% 0.64% 0.61% 0.62% 0.66%
Ratio of net investment income to average net assets 4.96% 4.98% 4.82% 5.35% 3.79%
Ratio of net investment income to average net assets
prior to expense limitation 4.96% 4.98% 4.82% 5.35% 3.79%
</TABLE>
(1) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown.
27
<PAGE>
CONVERTIBLE SECURITIES SERIES
OUR INVESTMENT STRATEGIES
Convertible Securities Series is a type of total return fund that invests in
convertible securities to pursue a two-pronged investment objective: capital
appreciation and current income.
We invest primarily in convertible securities. Our strategy is based on the
belief that characteristics of these securities make them particularly
appropriate investments in seeking both capital appreciation and current income.
These characteristics include:
o the potential for capital appreciation as the value of the underlying common
stock increases,
o the relatively high yield received from interest or dividend payments on
convertible securities as compared to common stock dividends; and,
o reduced price decline risk relative to the underlying common stock due to the
income features of a convertible security.
A convertible security's price depends on both its "investment value" (its value
with the conversion privilege), and its "conversion value" (its market value if
it were exchanged for the underlying security according to its conversion
privilege).
When a convertible security's investment value is greater than its conversion
value, its price will primarily reflect its investment value. In this scenario,
price will probably be most affected by interest rate changes, increasing when
interest rates fall and decreasing when interest rates rise, similar to a
fixed-income security. Additionally, the credit standing of the issuer and other
factors may also have an effect on the convertible security's value.
Conversely, when the conversion value approaches or exceeds the investment
value, the price of the convertible security will rise above its investment
value. The higher the convertible security's price relative to its investment
value, the more direct the relationship between the changes in its price and
changes in the price of the underlying equity security.
A convertible security's price will typically provide a premium over the
conversion value. This represents the additional price investors are willing to
pay for a security that offers income, ranks ahead of common stock in a
company's capital structure and also has the possibility of capital appreciation
due to the conversion privilege.
Because a convertible security has fixed interest or dividend payments, when the
underlying stock declines, the convertible security's price is increasingly
determined by its yield. For this reason, the convertible security may not
decline as much as the underlying common stock. The extent of the price decline
will also depend on the amount of the premium over its conversion value.
We may also invest in preferred and common stock, warrants, U.S. government
securities, non-convertible fixed-income securities and money market securities.
Securities or assets obtained upon the conversion of convertible securities may
be retained, subject to the Series' investment objective. There are no size
limits on corporations in whose securities the Series may invest.
28
<PAGE>
THE SECURITIES WE Stocks offer investors the potential for capital
TYPICALLY INVEST IN appreciation, and may pay dividends as well. Fixed-income
securities offer the potential for greater income payments
than stocks, and also may provide capital appreciation.
Convertible securities often blend the potential benefits
of stocks and fixed-income securities.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -------------------------------------------------------------------------------------------------------------------
Convertible Securities Series
<S> <C>
CONVERTIBLE SECURITIES: Usually preferred stocks Under normal conditions, the Series intends to
or corporate bonds that can be exchanged for a set invest at least 65% of its total assets in
number of shares of common stock at a convertible securities, which may include
predetermined price. These securities offer higher privately placed convertible securities.
appreciation potential than nonconvertible bonds
and greater income potential than nonconvertible We will invest in convertible securities without
preferred stocks. regard to rating categories. To the extent that
securities we hold are not investment grade or are
Convertible securities rank ahead of common stock not rated, there may be a greater risk as to the
in a corporation's capital structure and therefore timely payment of interest and principal.
entail less risk than the corporation's common
stock. However, convertible securities typically If a convertible security held by the Series is
rank behind non-convertible securities of the same called for redemption, the Series will be required
issuer. to redeem the security, convert it into the
underlying common stock or sell it to a third
Convertible securities may be rated below party.
investment grade, that is, not rated within the
four highest categories by S&P and Moody's. Debt
securities rated below investment grade are often
referred to as "high-yield bonds" or "junk bonds,"
although these terms are not generally used in
reference to convertible debt securities.
A convertible security may be subject to
redemption at the option of the issuer at a price
established in the instrument under which the
convertible security was issued.
ZERO COUPON BONDS AND PAY IN KIND BONDS: zero The Series may invest in zero coupon bonds and
coupon securities are debt obligations which do payment in kind bonds, though this is not expected
not entitle the holder to any periodic payments of to be a significant component of its strategy. The
interest prior to maturity or a specified date market prices of these bonds are generally more
when the securities begin paying current interest. volatile than the market prices of securities that
Therefore, they are issued and traded at a pay interest periodically and are likely to react
discount from their face amounts or par value. changes in interest rates to a greater degree than
Payment-in-kind bonds pay interest or dividends in interest-paying bonds having similar maturities
the form of additional bonds or preferred stock. and credit quality. They may have certain tax
consequences which, under certain conditions,
could be adverse to the Series.
PRIVATE PLACEMENTS: For various reasons, an issuer What portion of the Series' portfolio is invested
may prefer or be required as a practical matter to in convertible securities purchased in private
obtain private financing. Adverse conditions in placements depends upon the relative
the public securities markets may preclude a attractiveness of those securities compared to
public offering of an issuer's securities. An convertible securities, which are publicly
issuer is often willing to provide more attractive offered. Ordinarily, the Series expects that 50%
features in securities issued privately, because of its portfolio may be invested in convertible
it has avoided the expense and delay involved in a securities purchased in private placements, but
public offering. Private placements of debt the percentage may be substantially greater or
securities have frequently resulted in higher less than 50%, depending upon prevailing market
yields and restrictive covenants that provide conditions.
greater protection for the purchaser, such as
longer call or refunding protection than would We anticipate that substantially all of the
typically be available with publicly offered private placements we purchase will be subject to
securities of the same type. Securities acquired Rule 144A under the 1933 Act and therefore, may be
through private placements may also have special traded freely among qualified institutional
features not usually characteristic of similar buyers. Subject to procedures approved by the
securities offered to the public, such as Series' Board of Directors, we may treat Rule 144A
contingent interest or warrants for the purchase securities as liquid and therefore not subject to
of the issuer's stock. the 15% limitation on illiquid securities
described below. The private placements we
purchase will typically include registration
rights for the convertible security and the
underlying common stock. This requires the
underlying common stock to be registered with the
SEC, generally filed within one year of the
private placement, consequently allowing us to
trade the underlying common stock upon conversion.
Such trading may be subject to certain contractual
or legal restrictions.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
==========================================
CONVERTIBLE SECURITIES SERIES (continued)
THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -------------------------------------------------------------------------------------------------------------------
Convertible Securities Series
<S> <C>
EQUITY LINKED SECURITIES: Convertible securities We may invest in equity linked securities when we
that offer enhanced yield features, such as PRIDES believe they offer suitable income and capital
(Preferred Redeemable Increased Dividend Equity appreciation potential in keeping with the Series'
Securities) and DECS (Dividend Enhanced investment objective.
Convertible Securities). These securities
typically have the following features: (a) the We may also invest in other types of convertible
issuer's common stock will be received in the securities similar to those described here.
event the convertible preferred stock is
converted; (b) they do not have a capital An investment in an equity-linked security may
appreciation limit; (c) they seek to provide the involve additional risks. Unlike conventional
investor with high current income with some convertible securities, equity-linked securities
prospect of future capital appreciation; (d) they do not usually have a fixed maturity (par) value.
are typically issued with three to four year Rather, equity-linked securities generally provide
maturities; (e) they typically have some built-in only for a mandatory conversion into cash or
call protection for the first two to three years; common stock. As a result, the Series risks loss
(f) investors have the right to convert them into of principal if the cash received or the price of
shares of common stock at a preset conversion the underlying common stock at the time of
formula or hold them until maturity; and (g) upon conversion is less than the price paid for the
maturity they will automatically convert into equity-linked security. Equity-linked securities
either cash or a specified number of shares of may be more or less liquid than conventional
common stock. convertible securities or non-convertible debt
securities. We primarily intend to acquire liquid
equity-linked securities since any purchases of
Preferred Equity Redemption Cumulative Stock illiquid equity-linked securities would be subject
("PERCS") is a preferred stock convertible into to the Series' 15% limit on illiquid securities
common stock of the issuer which generally described below.
features a mandatory conversion date (typically
three years) as well as a capital appreciation
limit usually expressed in terms of a stated
price.
REPURCHASE AGREEMENTS: An agreement between a Typically, we use repurchase agreements as a
buyer, such as the Series, and a seller of short-term investment for the Series' cash
securities in which the seller agrees to buy the position. In order to enter into these repurchase
securities back within a specified time at the agreements, the Series must have collateral of at
same price the buyer paid for them, plus an amount least 102% of the repurchase price.
equal to an agreed upon interest rate. Repurchase
agreements are often viewed as equivalent to cash.
FOREIGN SECURITIES, EURODOLLAR CONVERTIBLE The Series may invest in securities of foreign
SECURITIES AND AMERICAN DEPOSITARY RECEIPTS issuers, including issuers located in emerging
Securities of foreign entities issued directly or, markets. Such foreign securities may be traded on
in the case of American Depositary Receipts, a foreign exchange, or they may be in the form of
through a U.S. bank. ADRs are issued by a U.S. depositary receipts or notes, such as American
bank and represent the bank's holding of a stated Depositary Receipts (ADRs), American Depositary
number of shares of a foreign corporation. An ADR Notes (ADNs), European Depositary Receipts (EDRs),
entitles the holder to all dividends and capital European Depositary Notes (EDNs), Global
gains earned by the underlying foreign shares. Depositary Receipts (GDRs) or Global Depositary
ADRs are bought and sold the same as U.S. Notes (GDNs). The Series may also invest in
securities. Eurodollar convertible securities are Eurodollar securities.
fixed-income securities of a U.S. issuer which are
convertible into equity securities of that issuer.
These Eurodollar securities are payable in U.S.
dollars outside of the United States.
RESTRICTED SECURITIES: Privately placed securities We may invest in privately placed securities that
whose resale is restricted under securities law. are eligible for resale only among certain
institutional buyers without registration. These
are commonly known as Rule 144A Securities that
are determined to be illiquid may not exceed the
Series' 15% limit on illiquid securities, which is
described below.
ILLIQUID SECURITIES: Securities that do not have a We may invest up to 15% of net assets in illiquid
ready market, and cannot be easily sold, if at securities, including repurchase agreements with
all, at approximately the price that the Series maturities of over seven days.
has valued them.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Please see the Statement of Additional Information for additional descriptions
on these securities as well as those listed in the table above.
LENDING SECURITIES Convertible Securities Series may lend up to 25% of its
assets to qualified brokers, dealers and investors for their use in security
transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Convertible
Securities Series may buy or sell securities on a when-issued or delayed
delivery basis; that is, paying for securities before delivery or taking
delivery at a later date.
PORTFOLIO TURNOVER We anticipate that Convertible Securities Series' annual
portfolio turnover will be less than 100%. A turnover rate of 100% would occur
if the Series sold and replaced securities valued at 100% of its net assets
within one year.
BORROWING FROM BANKS Convertible Securities Series may borrow money as a
temporary measure for extraordinary purposes or to facilitate redemptions. To
the extent that it does so, the Series may be unable to meet its investment
objective. The Series will not borrow money in excess of one-third of the value
of its net assets.
SHORT SALES AGAINST THE BOX The Series may engage in short sales "against the
box." While a short sale is made by selling a security the Series does not own,
a short sale is "against the box" if the Series contemporaneously owns or has
the right to obtain securities identical to those sold short, at no added cost.
30
<PAGE>
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN CONVERTIBLE the risk that you may receive little or no return on
SECURITIES SERIES your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. An
investment in the Series typically provides the best
results when held for a number of years. The following
are the chief risks you assume when investing in
Convertible Securities Series. Please see the Statement
of Additional Information for further discussion of
these risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -------------------------------------------------------------------------------------------------------------------
Convertible Securities Series
<S> <C>
MARKET RISK is the risk that all or a majority of We maintain a long-term investment approach and
the securities in a certain market--like the stock focus on securities we believe can continue to pay
or bond market--will decline in value because of income and appreciate over an extended time frame
factors such as economic conditions, future regardless of interim market fluctuations. We do
expectations or investor confidence. not try to predict overall stock market movements
and though we may hold securities for any period
of time, we do not typically trade for short-term
purposes.
We may hold a substantial part of Convertible
Securities Series' assets in cash or cash
equivalents as a temporary defensive strategy.
INDUSTRY AND SECURITY RISK is the risk that the We limit the amount of Convertible Securities
value of securities in a particular industry or Series' assets invested in any one industry and in
the value of an individual stock or bond will any individual security. We also follow a rigorous
decline because of changing expectations for the selection process before choosing securities for
performance of that industry or for the individual the portfolio.
company issuing the security.
CREDIT RISK The possibility that a security's This risk may be reduced because of the ability to
issuer (or an entity that insures the security) convert these securities into common stock.
will be unable to make timely payments of
interest, dividends and principal.
Investing in securities rated below investment
grade entails greater risk of principal loss than
associated with investment grade bonds. It is
likely that protracted periods of economic
uncertainty would cause increased volatility in
the market prices of non-investment grade
securities and corresponding volatility in the
Series' net asset value.
INTEREST RATE RISK is the risk that securities, We will monitor interest rate trends and their
particularly bonds with longer maturities, will potential impact on the Series. Though convertible
decrease in value if interest rates rise. securities may be sensitive to interest rate
movements, an individual security's link to the
underlying common stock may reduce that
sensitivity.
FOREIGN RISK is the risk that foreign securities Most of the foreign securities that we invest in
may be adversely affected by political are denominated in U.S. dollars.
instability, changes in currency exchange rates,
foreign economic conditions or inadequate
regulatory and accounting standards.
LIQUIDITY RISK is the possibility that securities We limit exposure to illiquid securities.
cannot be readily sold, if at all, at
approximately the price that the Series values
them.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTMENT MANAGER The Series is managed by Delaware Management Company.
Delaware Management Company makes investment decisions for
the Series, manages the Series' business affairs and
provides daily administrative services. For its services to
the Series, the manager was paid 0.75% of average daily net
assets for the last fiscal year.
PORTFOLIO MANAGER Damon Andres has primary responsibility for making
day-to-day investment decisions for the Convertible
Securities Series.
DAMON ANDRES
Assistant Vice President/Portfolio Manager
Mr. Andres earned a BS in Business Administration with an
emphasis in Finance and Accounting from the University of
Richmond. Prior to joining Delaware Investments in 1994,
Mr. Andres performed investment consulting services as a
Consulting Associate with Cambridge Associates, Inc. in
Arlington, Virginia. Mr. Andres has been managing the
Convertible Securities Series since February 1999.
31
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS table is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
<TABLE>
<CAPTION>
Convertible Securities Series
- -------------------------------------------------------------------------------------------
Year Ended 12/31 Period 5/1/97(1)
1998 through 12/31/97
- -------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.660 $10.000
Income (loss) from investment operations
Net investment income 0.386 0.318
Net realized and unrealized gain (loss) on investments (0.511) 1.342
------- -------
Total from investment operations (0.125) 1.660
------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.305) none
------- -------
Distributions from net realized gain on investments (0.070) none
------- -------
Total dividends and distributions (0.375) none
------- -------
NET ASSET VALUE, END OF PERIOD $11.160 $11.660
======= =======
TOTAL RETURN(2) (1.17%) 16.60%(3)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,133 $3,921
Ratio of expenses to average net assets 0.82% 0.80%
Ratio of expenses to average net assets
prior to expense limitation 0.82% 2.30%
Ratio of net investment income to average net assets 4.78% 5.68%
Ratio of net investment income to average net assets
prior to expense limitation 4.78% 4.18%
Portfolio turnover 77% 209%
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown.
(3) Total return reflects expense limitations in effect for the Series.
32
<PAGE>
DELAWARE BALANCED SERIES
OUR INVESTMENT STRATEGIES
Delaware Balanced Series is a type of total return fund that invests in both
stocks and bonds to pursue a three-pronged investment objective: capital
appreciation, current income and preservation of principal. We blend several
investment strategies to manage this Series.
We seek capital appreciation by investing primarily in the common stocks of
established companies that we believe have long-term capital growth potential.
We focus on dividend-paying, undervalued stocks.
To seek current income and help preserve capital, we generally invest at least
25% of the Series' net assets in various types of fixed-income securities,
including U.S. government and government agency securities and corporate bonds.
We generally invest in bonds that have bond ratings in the top four grades
according to a nationally recognized statistical rating organization (NRSRO) at
the time we buy them. We buy unrated bonds only if we determine them to be
equivalent to one of the top four grades. Each bond in the portfolio will have a
maturity between five and 30 years, and the average maturity of the portfolio
will typically be between five and ten years.
We conduct ongoing analysis of the different markets to determine the
appropriate mix of stocks and bonds for the current economic and investment
environment.
In selecting stocks for Delaware Balanced Series, we consider factors such as
how much the stock's dividend has grown in the past, the frequency of the
stock's prior dividend increases, the company's potential for strong positive
cash flow, and the price/earnings ratio of the stock compared to other stocks in
the market. We avoid stocks that we think are overvalued. We seek stocks that we
believe have the potential for above-average dividend growth.
THE SECURITIES WE Stocks offer investors the potential for capital
TYPICALLY INVEST IN appreciation, and may pay dividends as well. Fixed-income
securities offer the potential for greater income payments
than stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Delaware Balanced Series
COMMON STOCKS: Securities that represent shares of Generally, we invest up to 75% of net assets in
ownership in a corporation. Stockholders dividend-paying stocks.
participate in the corporation's profits and
losses, proportionate to the number of shares they
own.
CONVERTIBLE SECURITIES: Usually preferred stocks The Series may invest in convertible securities;
or corporate bonds that can be exchanged for a set however, we will not invest more than 5% of net
number of shares of common stock at a assets in convertible securities that are rated
predetermined price. These securities offer higher below investment grade by an NRSRO or in
appreciation potential than nonconvertible bonds securities that are unrated but deemed equivalent
and greater income potential than nonconvertible to non-investment grade
preferred stocks.
MORTGAGE-BACKED SECURITIES: Fixed-income There is no limit on government-related
securities that represent pools of mortgages, with mortgage-backed securities or on fully
investors receiving principal and interest collateralized privately issued mortgage-backed
payments as the underlying mortgage loans are paid securities.
back. Many are issued and guaranteed against
default by the U.S. government or its agencies or We may invest up to 20% of net assets in
instrumentalities, such as the Federal Home Loan mortgage-backed securities issued by private
Mortgage Corporation, Fannie Mae and the companies whether or not the securities are 100%
Government National Mortgage Association. Others collateralized. However, these securities must be
are issued by private financial institutions, with rated at the time of purchase in one of the four
some fully collateralized by certificates issued highest categories by an NRSRO. The privately
or guaranteed by the government or its agencies or issued securities we invest in are either CMOs or
instrumentalities. REMICs (see below).
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
=======================================
DELAWARE BALANCED SERIES (continued)
THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Delaware Balanced Series
COLLATERALIZED MORTAGE OBLIGATIONS (CMOS): See mortgage-backed securities above.
Privately issued mortgage-backed bonds whose
underlying value is mortgages that are grouped
into different pools according to thier maturity.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS (REMICS): See mortgage-backed securities above.
Privately issued mortgage-backed bonds whose
underlying value is a fixed pool of mortgages
secured by an interest in real property. Like
CMOs, REMICs offer different pools.
ASSET-BACKED SECURITIES: Bonds or notes backed by We invest only in asset-backed securities rated in
accounts receivables including home equity, one of the four highest categories by an NRSRO.
automobile or credit loans.
CORPORATE BONDS: Debt obligations issued by a We focus on bonds rated in one of the four highest
corporation. categories by an NRSRO (or deemed equivalent),
with maturities between five and 30 years.
REPURCHASE AGREEMENTS: An agreement between a Typically, we use repurchase agreements as a
buyer, such as the Series, and a seller of short-term investment for the Series' cash
securities in which the seller agrees to buy the position. In order to enter into these repurchase
securities back within a specified time at the agreements, the Series must have collateral of at
same price the buyer paid for them, plus an amount least 102% of the repurchase price. (The Series
equal to an agreed upon interest rate. Repurchase may not have more than 10% of its total assets in
agreements are often viewed as equivalent to cash. repurchase agreements with maturities of over
seven days.)
AMERICAN DEPOSITARY RECEIPTS (ADRS): Certificates We may invest without limitation in ADRs.
issued by a U.S. bank that represent the bank's
holding of a stated number of shares of a foreign
corporation. An ADR entitles the holder to all
dividends and capital gains earned by the
underlying foreign shares. An ADR is bought and
sold the same as U.S. securities.
RESTRICTED AND ILLIQUID SECURITIES: Restricted We may invest up to 10% of net assets in illiquid
securities are privately placed securities whose securities. For this Series, the 10% limit
resale is restricted under securities law. includes restricted securities such as privately
placed securities that are eligible for resale
Illiquid securities are securities that do not only among certain institutional buyers without
have a ready market, and cannot be easily sold, if registration, which are commonly known as "Rule
at all, at approximately the price that the Series 144A Securities," and repurchase agreements with
has valued them. maturities of over seven days.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Series may also invest in other securities including real estate investment
trusts, rights and warrants to purchase common stock, futures contracts,
options, U.S. Treasury securities, Yankee and Euro bonds. Please see the
Statement of Additional Information for additional descriptions on these
securities as well as those listed in the table above.
LENDING SECURITIES Delaware Balanced Series may lend up to 25% of its assets to
qualified brokers, dealers and investors for their use in security transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Delaware
Balanced Series may buy or sell securities on a when-issued or delayed delivery
basis; that is, paying for securities before delivery or taking delivery at a
later date.
BORROWING FROM BANKS Delaware Balanced Series may borrow money as a temporary
measure for extraordinary purposes or to facilitate redemptions. To the extent
that it does so, the Series may be unable to meet its investment objective. The
Series will not borrow money in excess of one-third of the value of its net
assets.
PORTFOLIO TURNOVER We anticipate that Delaware Balanced Series' annual portfolio
turnover will be less than 100%. A turnover rate of 100% would occur if the
Series sold and replaced securities valued at 100% of its net assets within one
year.
34
<PAGE>
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN DELAWARE the risk that you may receive little or no return on
BALANCED SERIES your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. An
investment in the Series typically provides the best
results when held for a number of years. The following
are the chief risks you assume when investing in
Delaware Balanced Series. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Delaware Balanced Series
MARKET RISK is the risk that all or a majority of We maintain a long-term investment approach and
the securities in a certain market--like the stock focus on stocks we believe can appreciate over an
or bond market--will decline in value because of extended time frame regardless of interim market
factors such as economic conditions, future fluctuations. We do not try to predict overall
expectations or investor confidence. stock market movements and do not trade for
short-term purposes.
We may hold a substantial part of Delaware
Balanced Series' assets in cash or cash
equivalents as a temporary defensive strategy.
We diversify the Series' assets among two major
categories of investments--stocks and bonds--which
tend to increase and decline in value in different
economic or investment conditions.
INDUSTRY AND SECURITY RISK is the risk that the We limit the amount of Delaware Balanced Series'
value of securities in a particular industry or assets invested in any one industry and in any
the value of an individual stock or bond will individual security. We also follow a rigorous
decline because of changing expectations for the selection process before choosing securities for
performance of that industry or for the individual the portfolio.
company issuing the stock or bond.
INTEREST RATE RISK is the risk that securities, Within Delaware Balanced Series' fixed-income
particularly bonds with longer maturities, will component, we do not try to increase return by
decrease in value if interest rates rise. predicting and aggressively capitalizing on
interest rate moves. Instead, we aim to keep the
interest rate risk similar to the Lehman Brothers
Aggregate Bond Index.
FOREIGN RISK is the risk that foreign securities We typically invest only a small portion of the
may be adversely affected by political Series' portfolio in foreign securities. When we
instability, changes in currency exchange rates, do purchase foreign securities, they are often
foreign economic conditions or inadequate denominated in U.S. dollars. We also tend to avoid
regulatory and accounting standards. markets where we believe accounting principles or
the regulatory structure are underdeveloped.
LIQUIDITY RISK is the possibility that securities We limit exposure to illiquid securities.
cannot be readily sold, if at all, at
approximately the price that the Series values
them.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
=========================================
DELAWARE BALANCED SERIES (continued)
INVESTMENT MANAGER The Series is managed by Delaware Management Company.
Delaware Management Company makes investment decisions for
the Series, manages the Series' business affairs and
provides daily administrative services. For its services to
the Series, the manager was paid 0.60% of average daily net
assets for the last fiscal year.
PORTFOLIO MANAGERS Frank X. Morris and Gary A. Reed have primary
responsibility for making day-to-day investment decisions
for the Delaware Balanced Series. In making investment
decisions for the Series, Mr. Morris regularly consults
with Andrea Giles and Christopher Driver.
FRANK X. MORRIS
Vice President/Senior
Portfolio Manager Mr. Morris holds a bachelor's degree in
finance from Providence College in Rhode Island and an MBA
from Widener University in Pennsylvania. Mr. Morris has
been managing institutional equity portfolios at Delaware
Investments since 1997. He has 16 years of investment
management experience. He came to Delaware Investments from
PNC Asset Management where he served as a securities
analyst from 1983 to 1991 and portfolio manager from 1991
to 1994. He was subsequently named Director of Equity
Research at PNC. He is a past president of the Philadelphia
Society of Financial Analysts. Mr. Morris has been a member
of Delaware Balanced Series' management team since March
1999.
GARY A. REED
Vice President/Senior Portfolio Manager
He holds an AB in Economics from the University of Chicago
and an MA in Economics from Columbia University. He began
his career in 1978 with the Equitable Life Assurance
Company in New York City, where he specialized in credit
analysis. Prior to joining Delaware Investments in 1989,
Mr. Reed was Vice President and Manager of the fixed-income
department at Irving Trust Company in New York. Mr. Reed
has been Delaware Balanced Series' senior portfolio manager
for fixed-income since 1989.
ANDREA GILES
Research Analyst
Ms. Giles holds a BSAD from the Massachusetts Institute of
Technology and an MBA in Finance from Columbia University.
Prior to joining Delaware Investments in 1996, she was an
account officer in the Leveraged Capital Group with
Citibank.
CHRISTOPHER DRIVER
Research Analyst
Mr. Driver holds a BS in Finance from the University of
Delaware. Prior to joining Delaware Investments in 1998, he
was a Research Analyst in the Equity Value group at
Blackrock, Inc. Prior to Blackrock, he was a partner at
Cashman Farrell & Associates. Mr. Driver is a CFA
charterholder.
36
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
<TABLE>
<CAPTION>
Delaware Balanced Series
(formerly Delaware Series)
- ------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $19.050 $16.640 $15.500 $12.680 $13.330
Income (loss) from investment operations
Net investment income 0.349 0.435 0.530 0.509 0.437
Net realized and unrealized gain (loss) on investments 2.831 3.575 1.765 2.761 (0.447)
-------- -------- -------- -------- --------
Total from investment operations 3.180 4.010 2.295 3.270 (0.010)
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.420) (0.530) (0.500) (0.450) (0.340)
Distributions from net realized gain on investments (1.770) (1.070) (0.655) none (0.300)
-------- -------- -------- -------- --------
Total dividends and distributions (2.190) (1.600) (1.155) (0.450) (0.640)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $20.040 $19.050 $16.640 $15.500 $12.680
======== ======== ======== ======== ========
TOTAL RETURN(1) 18.62% 26.40% 15.91% 26.58% (0.15%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $201,856 $127,675 $75,402 $63,215 $47,731
Ratio of expenses to average net assets 0.70% 0.67% 0.68% 0.69% 0.70%
Ratio of expenses to average net assets
prior to expense limitation 0.70% 0.67% 0.68% 0.69% 0.70%
Ratio of net investment income to average net assets 2.20% 2.85% 3.56% 3.75% 3.71%
Ratio of net investment income to average net assets
prior to expense limitation 2.20% 2.85% 3.56% 3.75% 3.71%
Portfolio turnover 94% 67% 92% 106% 140%
</TABLE>
(1) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown.
37
<PAGE>
DELCAP SERIES
OUR INVESTMENT STRATEGIES
We strive to identify mid-size companies that we believe will grow faster than
the average of stocks in the S&P 500 Index. We look for companies with
characteristics that will support such earnings growth. Factors in our decision
include:
o the financial strength of the company,
o management expertise,
o the growth potential of the company within its industry; and,
o the growth potential of the industry itself.
Our focus will be on companies that have established themselves within their
industry while maintaining growth potential.
DelCap Series invests primarily in medium-sized companies. Although these
companies do not involve as great a risk as small companies, they are still
somewhat riskier than large companies. Medium-sized companies may still exhibit
some characteristics typically associated with small companies such as limited
product lines and limited access to financial resources. In order to manage this
risk, we maintain a well-diversified portfolio, typically holding a mix of
different stocks, representing a wide array of industries.
THE SECURITIES WE Stocks offer investors the potential for capital
TYPICALLY INVEST IN appreciation, and may pay dividends as well.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- --------------------------------------------------------------------------------------------------------------------------
Delcap Series
<S> <C>
COMMON STOCKS: Securities that represent shares of Generally, we invest 90% to 100% of net assets in
ownership in a corporation. Stockholders common stock of medium-size, growth-oriented
participate in the corporation's profits and companies.
losses, proportionate to the number of shares they
own.
REPURCHASE AGREEMENTS: An agreement between a Typically, we use repurchase agreements as a
buyer, such as the Series, and a seller of short-term investment for the Series' cash
securities in which the seller agrees to buy the position. In order to enter into these repurchase
securities back within a specified time at the agreements, the Series must have collateral of at
same price the buyer paid for them, plus an amount least 102% of the repurchase price.
equal to an agreed upon interest rate. Repurchase
agreements are often viewed as equivalent to cash.
RESTRICTED AND ILLIQUID SECURITIES: Restricted We may invest up to 10% of net assets in illiquid
securities are privately placed securities whose securities. For this Series, the 10% limit
resale is restricted under securities law. includes restricted securities such as privately
placed securities that are eligible for resale
Illiquid securities are securities that do not only among certain institutional buyers without
have a ready market, and cannot be easily sold, if registration, which are commonly known as "Rule
at all, at approximately the price that the Series 144A Securities," and repurchase agreements with
has valued them. maturities of over seven days.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
DelCap Series may also invest in other securities including convertible
securities, warrants, preferred stocks, and bonds. DelCap Series may invest in
foreign securities; however, the manager has no present intention of doing so.
Please see the Statement of Additional Information for additional descriptions
and risk information on these securities as well as those listed in the table
above. You can find additional information about the investments in the Series'
portfolio in the annual or semi-annual shareholder report.
LENDING SECURITIES DelCap Series may lend up to 25% of its assets to qualified
dealers and investors for their use in security transactions.
BORROWING FROM BANKS DelCap Series may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. To the extent that it does
so, the Series may be unable to meet its investment objective. The Series will
not borrow money in excess of one-third of the value of its net assets.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS DelCap Series
may buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
PORTFOLIO TURNOVER We anticipate that DelCap Series' annual portfolio turnover
may be greater than 100%. A turnover rate of 100% would occur if the Series sold
and replaced securities valued at 100% of its net assets within one year. High
turnover can result in increased transaction costs and tax liability.
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN DELCAP SERIES the risk that you may receive little or no return on
your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. An
investment in the Series typically provides the best
results when held for a number of years. The following
are the chief risks you assume when investing in DelCap
Series. Please see the Statement of Additional
Information for further discussion of these risks and
the other risks not discussed here.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -------------------------------------------------------------------------------------------------------------------------
Delcap Series
<S> <C>
MARKET RISK is the risk that all or a majority of We maintain a long-term investment approach and
the securities in a certain market - like the focus on stocks we believe can appreciate over an
stock or bond market will decline in value because extended time frame regardless of interim market
of factors such as economic conditions, future fluctuations. We do not try to predict overall
expectations or investor confidence. stock market movements and though we may hold
securities for any amount of time, we typically do
not trade for short-term purposes.
We may hold a substantial part of DelCap Series'
assets in cash or cash equivalents as a temporary,
defensive strategy.
INDUSTRY AND SECURITY RISK is the risk that the We limit the amount of DelCap Series' assets
value of securities in a particular industry or invested in any one industry and in any individual
the value of an individual stock or bond will security. We also follow a rigorous selection
decline because of changing expectations for the process before choosing securities and
performance of that industry or for the individual continuously monitor them while they remain in the
company issuing the stock. portfolio.
COMPANY SIZE RISK is the risk that prices of small DelCap Series invests primarily in medium-size
or medium size companies may be more volatile than companies which tend to have somewhat broader
larger companies because of limited financial product lines and financial resources than small
resources or dependence on narrow product lines. companies, but are still riskier than large
companies. DelCap Series maintains a
well-diversified portfolio, selects stocks
carefully and monitors them continuosly in an
effort to manage this risk.
INTEREST RATE RISK is the risk that securities We analyze each company's financial situation and
will decrease in value if interest rates rise. The its cash flow to determine the company's ability
risk is generally associated with bonds; however, to finance future expansion and operations. The
because small and medium-size companies often potential affect that rising interest rates might
borrow money to finance their operations, they may have on a stock is taken into consideration before
be adversely affected by rising interest rates. the stock is purchased.
LIQUIDITY RISK is the possibility that securities We limit exposure to illiquid securities.
cannot be readily sold, if at all, at
approximately the price that the Series values
them.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
=================================
DELCAP SERIES (continued)
INVESTMENT MANAGER The Series is managed by Delaware Management Company.
Delaware Management Company makes investment decisions for
the Series, manages the Series' business affairs and
provides daily administrative services. For its services to
the Series, the manager was paid 0.69% of average daily net
assets for the last fiscal year.
PORTFOLIO MANAGERS Gerald S. Frey has primary responsibility for making
day-to-day investment decisions for DelCap Series. When
making investment decisions for the Series, Mr. Frey
regularly consults with Marshall T. Bassett, John A.
Heffern, Jeffrey W. Hynoski and Lori P. Wachs.
GERALD S. FREY
Vice President/Senior Portfolio Manager
Mr. Frey has 22 years' experience in the money management
business and holds a BA in Economics from Bloomsburg
University and attended Wilkes College and New York
University. Prior to joining Delaware Investments in 1996,
he was a Senior Director with Morgan Grenfell Capital
Management in New York. Mr. Frey has been senior portfolio
manager for DelCap Series since March 1997 and was
Co-Manager from June 1996 to March 1997.
MARSHALL T. BASSETT
Vice President
Mr. Bassett joined Delaware Investments in 1997. In his
most recent position, he served as Vice President in Morgan
Stanley Asset Management's Emerging Growth Group, where he
analyzed small growth companies. Prior to that, he was a
trust officer at Sovran Bank and Trust Company. He received
his bachelor's degree and MBA from Duke University.
JOHN A. HEFFERN
Vice President
Mr. Heffern holds a bachelor's degree and an MBA from the
University of North Carolina at Chapel Hill. He joined
Delaware Investments in 1997. Previously, he was a Senior
Vice President, Equity Research at NatWest Securities
Corporation's Specialty Finance Services unit. Prior to
that, he was a Principal and Senior Regional Bank Analyst
at Alex. Brown & Sons.
JEFFREY W. HYNOSKI
Vice President
Mr. Hynoski joined Delaware Investments in 1998. Previously
he served as a Vice President at Bessemer Trust Company in
the mid and large capitalization growth group, where he
specialized in the areas of science, technology, and
telecommunications. Prior to that, Mr. Hynoski held
positions at Lord Abbett & Co. and Cowen Asset Management.
Mr. Hynoski holds a BS in Finance from the University of
Delaware and an MBA with a concentration in
Investments/Portfolio Management and Financial Economics
from Pace University.
LORI P. WACHS
Vice President
Ms. Wachs joined Delaware Investments in 1992 from Goldman
Sachs, where she was an equity analyst for two years. She
is a graduate of the University of Pennsylvania's Wharton
School, where she majored in Finance and Oriental Studies.
40
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
<TABLE>
<CAPTION>
Delcap Series
- -----------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $17.270 $15.890 $15.130 $11.750 $12.240
Income (loss) from investment operations
Net investment income (loss) (1) (0.026) (0.010) (0.015) 0.072 0.069
Net realized and unrealized gain (loss) on investments 2.901 2.260 2.030 3.378 (0.499)
-------- -------- -------- -------- --------
Total from investment operations 2.875 2.250 2.015 3.450 (0.430)
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income none none (0.070) (0.070) (0.060)
Distributions from net realized gain on investments (1.595) (0.870) (1.185) none none
-------- -------- -------- -------- --------
Total dividends and distributions (1.595) (0.870) (1.255) (0.070) (0.060)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $18.550 $17.270 $15.890 $15.130 $11.750
======== ======== ======== ======== ========
TOTAL RETURN(2) 18.81% 14.90% 14.46% 29.53% (3.54%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $130,548 $110,455 $79,900 $58,123 $39,344
Ratio of expenses to average net assets 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation 0.86% 0.87% 0.82% 0.85% 0.88%
Ratio of net investment income (loss)
to average net assets (0.16%) (0.06%) (0.11%) 0.61% 0.64%
Ratio of net investment income (loss) to average net assets
prior to expense limitation (0.22%) (0.13%) (0.13%) 0.56% 0.56%
Portfolio turnover 142% 134% 85% 73% 43%
</TABLE>
(1) Per share information for the years ended December 31, 1997 and 1998 was
based on the average shares outstanding method.
(2) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown. Total return reflects expense
limitations in effect for the Series.
41
<PAGE>
DELCHESTER SERIES
OUR INVESTMENT STRATEGIES
Delchester Series is a type of fixed income fund that invests in high yield
corporate bonds to pursue its investment objective of providing the highest
current income.
We expect to invest the majority of the Series' assets in bonds rated BBB or
lower by S&P, with emphasis on bonds rated Bb and B, the two relatively higher
credit tiers among non-investment grade bonds. High-yield bonds are issued by
corporations that have poor credit quality and may have difficulty repaying
principal and interest. We carefully evaluate an individual company's financial
situation, its management, the prospects for its industry and the technical
factors related to its bond offering. Our goal is to identify those companies
that we believe will be able to repay their debt obligations in spite of poor
ratings.
In addition, we maintain a very diversified portfolio with assets spread among a
variety of different industry sectors and different bond issuers. In this way,
we strive to minimize the impact that any poorly performing individual bond
would have on the overall performance of our portfolio.
Though high-yield bonds involve the risk that the issuing company may be unable
to pay interest or repay principal, they can offer high income potential which
we believe will help the Series achieve its investment objective.
THE SECURITIES WE Fixed-income securities offer the potential for greater
TYPICALLY INVEST IN income payments than stocks, and also may provide capital
appreciation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- ------------------------------------------------------------------------------------------------------------------------
Delchester Series
<S> <C>
HIGH-YIELD CORPORATE BONDS: Debt obligations Delchester Series may invest without limit in
issued by a corporation and rated lower than high-yield corporate bonds. Emphasis is typically
investment grade by an NRSRO such as S&P or on those rated BB or B by an NRSRO.
Moody's or, if unrated, that we believe are of
comparable quality. These securities are
considered to be of poor standing and
predominately speculative.
U.S. GOVERNMENT SECURITIES: Direct U.S. The Series may invest without limit in U.S.
obligations including bills, notes, bonds and government securities; however, they will
other debt securities issued by the U.S. Treasury typically be a small percentage of the portfolio
or securities of U.S. government agencies or because they generally do not offer as high a
instrumentalities which are backed by the full level of current income as high yield corporate
faith and credit of the United States. bonds.
REPURCHASE AGREEMENTS: An agreement between a Typically, we use repurchase agreements as a
buyer and seller of securities in which the seller short-term investment for the Series' cash
agrees to buy the securities back within a position. In order to enter into these repurchase
specified time at the same price the buyer paid agreements, the Series must have collateral of at
for them, plus an amount equal to an agreed upon least 102% of the repurchase price.
interest rate. Repurchase agreements are often
viewed as equivalent to cash.
RESTRICTED AND ILLIQUID SECURITIES: Restricted We may invest up to 10% of net assets in illiquid
securities are privately placed securities whose securities. For this Series, the 10% limit
resale is restricted under securities law. includes restricted securities such as privately
placed securities that are eligible for resale
Illiquid securities are securities that do not only among certain institutional buyers without
have a ready market, and cannot be easily sold, if registration, which are commonly known as "Rule
at all, at approximately the price that the Series 144A Securities," and repurchase agreements with
has valued them. maturities of over seven days.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
The Series may also invest in other income-producing securities, including
common stocks and preferred stocks, some of which may have convertible features
or attached warrants. Please see the Statement of Additional Information for
additional descriptions on these securities as well as those listed in the table
above.
LENDING SECURITIES Delchester Series may lend up to 25% of its assets to
qualified brokers, dealers and investors for their use in security transactions.
BORROWING FROM BANKS Delchester Series may borrow money as a temporary measure
for extraordinary purposes or to facilitate redemptions. To the extent that it
does so, the Series may be unable to meet its investment objective. The Series
will not borrow money in excess of one-third of the value of its net assets.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Delchester
Series may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
PORTFOLIO TURNOVER We anticipate that Delchester Series' annual portfolio
turnover will be less than 100%. A turnover rate of 100% would occur if the
Series sold and replaced securities valued at 100% of its net assets within one
year.
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN DELCHESTER SERIES the risk that you may receive little or no return on
your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. The
following are the chief risks you assume when investing
in Delchester Series. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Delchester Series
MARKET RISK is the risk that all or a majority of We maintain a long-term investment approach and
the securities in a certain market--like the stock focus on bonds that we believe will continue to
or bond market--will decline in value because of pay interest regardless of interim market
factors such as economic conditions, future fluctuations. We do not try to predict overall
expectations or investor confidence. bond market or interest rate movements and do not
trade for short-term purposes.
We may hold a substantial part of Delchester
Series' assets in cash or cash equivalents as a
temporary defensive strategy.
INDUSTRY AND SECURITY RISK is the risk that the We limit the amount of Delchester Series' assets
value of securities in a particular industry or invested in any one industry and in any individual
the value of an individual stock or bond will security. We also follow a rigorous selection
decline because of changing expectations for the process before choosing securities for the
performance of that industry or for the individual portfolio.
company issuing the stock or bond.
INTEREST RATE RISK is the risk that securities Delchester Series is subject to interest rate
will decrease in value if interest rates rise. The risk. We cannot eliminate that risk, but we do
risk is greater for bonds with longer maturities strive to manage it by monitoring economic
than for those with shorter maturities. conditions.
CREDIT RISK is the risk that there is the Our careful, credit-oriented bond selection and
possibility that a bond's issuer will be unable to our commitment to hold a diversified selection of
make timely payments of interest and principal. high-yield bonds are designed to manage this risk.
Investing in so-called "junk" or "high-yield"
bonds entails the risk of principal loss, which
may be greater than the risk involved in
investment grade bonds. High-yield bonds are
sometimes issued by companies whose earnings at
the time of issuance are less than the projected
debt service on the junk bonds.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
===================================
DELCHESTER SERIES (continued)
THE RISKS OF INVESTING
IN DELCHESTER SERIES
(continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Delchester Series
RECESSION RISK Although the market for high-yield It is likely that protracted periods of economic
bonds existed through periods of economic uncertainty would cause increased volatility in
downturns, the high-yield market grew rapidly the market prices of high-yield bonds, an increase
during the long economic expansion which took in the number of high-yield bond defaults and
place in the United States during the 1980s. corresponding volatility in the Series' net asset
During that economic expansion, the use of value. In the past, uncertainty and volatility in
high-yield debt securities to finance highly the high-yield market have resulted in volatility
leveraged corporate acquisitions and in the Series' net asset value.
restructurings increased dramatically. As a
result, the high-yield market grew substantially. In striving to manage this risk, we allocate
Although experts disagree on the impact assets across a wide range of industry sectors. We
recessionary periods have had and will have on the may emphasize industries that have been less
high-yield market, some analysts believe a susceptible to economic cycles in the past,
protracted economic downturn would severely particularly if we believe that the economy may be
disrupt the market for high-yield bonds, adversely entering into a period of slower growth.
affect the value of outstanding bonds and
adversely affect the ability of high-yield issuers
to repay principal and interest.
FOREIGN RISK is the risk that foreign securities We typically invest only a small portion, if any,
may be adversely affected by political of the Series' portfolio in foreign securities.
instability, changes in currency exchange rates,
foreign economic conditions or inadequate
regulatory and accounting standards.
LIQUIDITY RISK is the possibility that securities A less liquid secondary market may have an adverse
cannot be readily sold, if at all, at effect on the Series' ability to dispose of
approximately the price that the Series values particular issues, when necessary, to meet the
them. Series' liquidity needs or in response to a
specific economic event, such as the deterioration
The secondary market for high-yield securities is in the creditworthiness of the issuer. In striving
currently dominated by institutional investors, to manage this risk, we evaluate the size of a
including mutual funds and certain financial bond issuance as a way to anticipate its likely
institutions. There is generally no established liquidity level.
retail secondary market for high-yield securities.
As a result, the secondary market for high-yield We may invest only 10% of net assets in illiquid
securities is more limited and less liquid than securities, including Rule 144A securities.
other secondary securities markets. The high-yield
secondary market is particularly susceptible to
liquidity problems when the institutions which
dominate it temporarily cease buying bonds for
regulatory, financial or other reasons, such as
the savings and loan crisis.
The secondary market for high-yield securities is
also generally considered to be more likely to be
disrupted by adverse publicity and investor
perceptions than the more established secondary
securities markets.
VALUATION RISK A less liquid secondary market as The Series' privately placed high-yield securities
described above makes it more difficult for the are particularly susceptible to the liquidity and
Series to obtain precise valuations of the valuation risks outlined here. We will strive to
high-yield securities in its portfolio. During manage this risk by carefully evaluating
periods of reduced liquidity, judgment plays a individual bonds and by limiting the amount of the
greater role in valuing high-yield securities. portfolio that can be allocated to privately
placed high-yield securities.
REDEMPTIONS If, as a result of volatility in the We strive to maintain a cash balance sufficient to
high-yield market or other factors, more shares of meet any redemptions. We may also borrow money, if
the Series are redeemed than are purchased for an necessary, to meet redemptions.
extended period of time, the Series may be
required to sell securities without regard to the
investment merits such actions. If the Series
sells a substantial number of securities to
generate proceeds for redemptions, the asset base
of the Series will decrease and the Series'
expense ratio may increase.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LEGISLATIVE AND REGULATORY RISK The United States We monitor the status of regulatory and
Congress has from time to time taken or considered legislative proposals to evaluate any possible
a variety of legislative actions that could effects they might have on the Series' portfolio.
adversely affect the high-yield bond market. For
example, Congressional legislation has, with some
exceptions, generally prohibited federally-insured
savings and loan institutions from investing in
high-yield securities. Regulatory actions have
also affected the high-yield market. For example,
many insurance companies have restricted or
eliminated their purchases of high-yield bonds
primarily as a result of actions taken by the
National Association of Insurance Commissioners.
Similar actions in the future could reduce
liquidity for high-yield issues, reduce the number
of new high-yield securities being issued and
could make it more difficult for the Series to
attain its investment objective.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
INVESTMENT MANAGER The Series is managed by Delaware Management Company.
Delaware Management Company makes investment decisions for
the Series, manages the Series' business affairs and
provides daily administrative services. For its services to
the Series, the manager was paid 0.60% of average daily net
assets for the last fiscal year.
PORTFOLIO MANAGERS Paul A. Matlack and Gerald T. Nichols have primary
responsibility for making day-to-day investment decisions
for Delchester Series.
PAUL A. MATLACK
Vice President/Senior Portfolio Manager
A CFA charterholder, Mr. Matlack is a graduate of the
University of Pennsylvania with an MBA in Finance from
George Washington University. He began his career at Mellon
Bank as a credit specialist, and later served as a
corporate loan officer for Mellon Bank and then Provident
National Bank. Mr. Matlack has been a member of the
Delchester Series team since 1990 and has been co-managing
the Delchester Series since January 1993.
GERALD T. NICHOLS
Vice President/Senior Portfolio Manager
Mr. Nichols is a graduate of the University of Kansas,
where he received a BS in Business Administration and an MS
in Finance. Prior to joining Delaware Investments, he was a
high-yield credit analyst at Waddell & Reed, Inc. and
subsequently the investment officer for a private merchant
banking firm. He is a CFA charterholder. Mr. Nichols has
been a member of the Delchester Series team since 1990 and
has been co-managing the Delchester Series since January
1993.
45
<PAGE>
FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
<TABLE>
<CAPTION>
Delchester Series
- -----------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.510 $9.170 $8.940 $8.540 $9.770
Income (loss) from investment operations
Net investment income 0.906 0.863 0.853 0.872 0.962
Net realized and unrealized gain (loss) on investments (1.048) 0.332 0.230 0.400 (1.230)
-------- -------- -------- -------- --------
Total from investment operations (0.142) 1.195 1.083 1.272 (0.268)
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.905) (0.855) (0.853) (0.872) (0.962)
Distributions from net realized gain on investments (0.003) none none none none
-------- -------- -------- -------- --------
Total dividends and distributions (0.908) (0.855) (0.853) (0.872) (0.962)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $8.460 $9.510 $9.170 $8.940 $8.540
======== ======== ======== ======== ========
TOTAL RETURN(1) (1.83%) 13.63% 12.79% 15.50% (2.87%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $120,708 $98,875 $67,665 $56,605 $43,686
Ratio of expenses to average net assets 0.70% 0.70% 0.70% 0.69% 0.72%
Ratio of expenses to average net assets
prior to expense limitation 0.70% 0.70% 0.70% 0.69% 0.72%
Ratio of net investment income to average net assets 9.85% 9.24% 9.54% 9.87% 10.56%
Ratio of net investment income to average net assets
prior to expense limitation 9.85% 9.24% 9.54% 9.87% 10.56%
Portfolio turnover 86% 121% 93% 74% 47%
</TABLE>
(1) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown.
46
<PAGE>
DEVON SERIES
OUR INVESTMENT STRATEGIES
Devon Series is a total return fund that invests the
majority of its assets in stocks. This Series has a dual
objective of capital appreciation and current income, but
since it invests primarily in stocks, its shareholders
should be comfortable accepting fluctuations of principal.
We invest primarily in common stocks that we believe have
the potential for above-average dividend increases over
time. Generally, at least 65% of the Series' assets will be
invested in dividend-paying stocks.
In selecting stocks for Devon Series, we consider factors
such as how much the stock's dividend has grown in the past,
the frequency of the stock's prior dividend increases, the
company's potential for strong positive cash flow, and the
price/earnings ratio of the stock compared to other stocks
in the market. We avoid stocks that we think are overvalued.
THE SECURITIES WE
TYPICALLY INVEST IN
Stocks offer investors the potential for capital
appreciation, and may pay dividends as well.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Devon Series
<S> <C>
COMMON STOCKS: Securities that represent shares of ownership Generally, 90% to 100% of the Series' assets will be
in a corporation. Stockholders participate in the invested in common stocks. Under normal market conditions we
corporation's profits and losses, proportionate to the will invest at least 65% of total assets in dividend-paying
number of shares they own. stocks.
- -----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES: Usually preferred stocks or Devon Series may invest in convertible securities; however,
corporate bonds that can be exchanged for a set number of we will not invest more than 5% of net assets in convertible
shares of common stock at a predetermined price. These securities that are rated below investment grade by an NRSRO
securities offer higher appreciation potential than or in securities that are unrated but deemed equivalent to
nonconvertible bonds and greater income potential than non-investment grade.
nonconvertible preferred stocks.
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: An agreement between a buyer, such as Typically, we use repurchase agreements as a short-term
the Series, and a seller of securities in which the seller investment for the Series' cash position. In order to enter
agrees to buy the securities back within a specified time at into these repurchase agreements, the Series must have
the same price the buyer paid for them, plus an amount equal collateral of at least 102% of the repurchase price.
to an agreed upon interest rate. Repurchase agreements are
often viewed as equivalent to cash.
- -----------------------------------------------------------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS (ADRS): Certificates We may invest without limitation in ADRs.
issued by a U.S. bank that represent the bank's
holdings of a stated number of shares of a foreign
corporation. An ADR entitles the holder to all
dividends and capital gains earned by the
underlying foreign shares. An ADR is bought and
sold the same as U.S. securities.
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRICTED AND ILLIQUID SECURITIES: Restricted securities We may invest up to 10% of net assets in illiquid
are privately placed securities whose resale is restricted securities. For this Series, the 10% limit includes
under securities law. restricted securities such as privately placed securities
that are eligible for resale only among certain
Illiquid securities are securities that do not have a ready institutional buyers without registration, which are
market, and cannot be easily sold, if at all, at commonly known as "Rule 144A Securities," and repurchase
approximately the price that the Series has valued them. agreements with maturities of over seven days.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
- ------------------------
DEVON SERIES (continued)
Devon Series may also invest in other securities including real estate
investment trusts, rights and warrants to purchase common stock, futures
contracts and options. Please see the Statement of Additional Information for
additional descriptions on these securities as well as those listed in the table
above.
LENDING SECURITIES Devon Series may lend up to 25% of its assets to qualified
brokers, dealers and investors for their use in security transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Devon Series
may buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
BORROWING FROM BANKS Devon Series may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. To the extent that it does
so, the Series may be unable to meet its investment objective. The Series will
not borrow money in excess of one-third of the value of its net assets.
PORTFOLIO TURNOVER We anticipate that Devon Series' annual portfolio turnover
will be less than 100%. A turnover rate of 100% would occur if the Series sold
and replaced securities valued at 100% of its net assets within one year.
THE RISKS OF INVESTING
IN DEVON SERIES
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Series you should
carefully evaluate the risks. An investment in the Series typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in Devon Series. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Devon Series
<S> <C>
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market--like the stock or bond stocks we believe can appreciate over an extended time frame
market--will decline in value because of factors such as regardless of interim market fluctuations. We do not try to
economic conditions, future expectations or investor predict overall stock market movements and do not trade for
confidence. short-term purposes.
We may hold a substantial part of Devon Series' assets in
cash or cash equivalents as a temporary defensive strategy.
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY AND SECURITY RISK is the risk that the value of We limit the amount of Devon Series' assets invested in any
securities in a particular industry or the value of an one industry and in any individual security. We also follow
individual stock or bond will decline because of changing a rigorous selection process before choosing securities for
expectations for the performance of that industry or for the the portfolio.
individual company issuing the stock or bond.
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN RISK is the risk that foreign securities may be We typically invest only a small portion of Devon Series'
adversely affected by political instability, changes in portfolio in foreign securities. When we do purchase foreign
currency exchange rates, foreign economic conditions or securities, they are often denominated in U.S. dollars. We
inadequate regulatory and accounting standards. also tend to avoid markets where we believe accounting
principles or the regulatory structure are underdeveloped.
- -----------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY RISK is the possibility that securities cannot be We limit exposure to illiquid securities.
readily sold, if at all, at approximately the price that the
Series values them.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
INVESTMENT MANAGER
The Series is managed by Delaware Management Company. Delaware Management
Company makes investment decisions for the Series, manages the Series' business
affairs and provides daily administrative services. For its services to the
Series, the manager was paid 0.60% of average daily net assets for the last
fiscal year.
PORTFOLIO MANAGERS
Frank X. Morris has primary responsibility for making day-to-day investment
decisions for the Devon Series. In making investment decisions for the Series,
Mr. Morris regularly consults with Andrea Giles and Christopher Driver.
FRANK X. MORRIS
Vice President/Senior Portfolio Manager
Mr. Morris holds a bachelor's degree in finance from Providence College in Rhode
Island and an MBA from Widener University in Pennsylvania. Mr. Morris has been
managing institutional equity portfolios at Delaware Investments since 1997. He
has 16 years of investment management experience. He came to Delaware
Investments from PNC Asset Management where he served as a securities analyst
from 1983 to 1991 and portfolio manager from 1991 to 1994. He was subsequently
named Director of Equity Research at PNC. He is a past president of the
Philadelphia Society of Financial Analysts. Mr. Morris has been a member of
Delaware Balanced Series' management team since March 1999.
ANDREA GILES
Research Analyst
Ms. Giles holds a BSAD from the Massachusetts Institute of Technology and an MBA
in Finance from Columbia University. Prior to joining Delaware Investments in
1996, she was an account officer in the Leveraged Capital Group with Citibank.
CHRISTOPHER DRIVER
Research Analyst
Mr. Driver holds a BS in Finance from the University of Delaware. Prior to
joining Delaware Investments in 1998, he was a Research Analyst in the Equity
Value group at Blackrock, Inc. Prior to Blackrock, he was a partner at Cashman
Farrell & Associates. Mr. Driver is a CFA charterholder.
49
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
<TABLE>
<CAPTION>
Devon Series
- --------------------------------------------------------------------------------------------
Year Ended 12/31 Period 5/1/97(1)
1998 through 12/31/97
- --------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.730 $10.000
Income from investment operations
Net investment income 0.106 0.080
Net realized and unrealized gain on investments 2.889 2.650
------- -------
Total from investment operations 2.995 2.730
------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.080) none
Distributions from net realized gain on investments (0.205) none
------- -------
Total dividends and distributions (0.285) none
------- -------
NET ASSET VALUE, END OF PERIOD $15.440 $12.730
======= =======
TOTAL RETURN(2) 24.05% 27.30%(3)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $68,714 $16,653
Ratio of expenses to average net assets 0.66% 0.80%
Ratio of expenses to average net assets prior to
expense limitation 0.66% 0.91%
Ratio of net investment income to average net assets 1.30% 2.01%
Ratio of net investment income to average net assets
prior to expense limitation 1.30% 1.90%
Portfolio turnover 34% 80%
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown.
(3) Total return reflects expense limitations in effect for the Series.
50
<PAGE>
EMERGING MARKETS SERIES
OUR INVESTMENT STRATEGIES
Emerging Markets Series seeks long-term capital appreciation. Under normal
circumstances, at least 65% of the Series' total assets will be invested in
equity securities of from at least three different countries that are considered
to be emerging or developing. The Series may invest in a broad range of equity
securities, including common stocks, preferred stocks, convertible securities
and warrants.
We consider an "emerging country" to be any country that is generally recognized
to be an emerging or developing country by the international financial
community, including the World Bank and the International Finance Corporation,
or any country that is classified by the United Nations as developing. In
addition, any country that is included in the IFC Free Index or MSCI Emerging
Market Free Index is considered to be an "emerging country." As of the date of
this Prospectus, more than 130 countries met our definition of an emerging
country. Approximately 40 of them currently have stock markets. This group of
developing or emerging countries includes almost every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western and Northern Europe.
Currently, investing in many emerging countries is not feasible, or may involve
significant political risks. We focus our investments in emerging countries
where we consider the economies to be developing strongly and where the markets
are becoming more sophisticated. We believe that investment opportunities may
result from an evolving long-term international trend favoring more
market-oriented economies, a trend that may particularly benefit certain
countries having developing markets. Local or international political, economic
or financial developments could support this trend and benefit the capital
markets in such countries.
In deciding where to invest we place particular emphasis on factors such as
economic conditions (including growth trends, inflation rates and trade
balances), regulatory and currency controls, accounting standards and political
and social conditions. The Series may invest in Argentina, Botswana, Brazil,
Chile, China, Colombia, Czech Republic, Estonia, Ghana, Greece, Hong Kong,
Hungary, India, Indonesia, Ivory Coast, Jamaica, Jordan, Kenya, Korea, Latvia,
Lithuania, Malaysia, Mauritius, Mexico, Morocco, Nigeria, Pakistan, Peru, the
Philippines, Poland, Portugal, Russia, Slovenia, South Africa, Sri Lanka,
Taiwan, Thailand, Turkey, Venezuela and Zimbabwe. This is a representative list;
we may invest in other countries, particularly as markets in other emerging
countries develop.
THE SECURITIES WE
TYPICALLY INVEST IN
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well. Fixed-income securities offer the potential for greater
income payments than stocks, and also may provide capital appreciation. The
following chart provides a brief description of the securities that the Series
may invest in. Please see the Statement of Additional Information for additional
descriptions of these as well as other investments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Series
<S> <C>
COMMON STOCKS OF EMERGING MARKET COMPANIES: Securities that The majority of Emerging Markets Series' assets will be
represent shares of ownership in a corporation. Stockholders invested in common stock of emerging market companies.
participate in the corporation's profits and losses,
proportionate to the number of shares they own. To be considered an emerging country equity security by us,
the security must be issued by a company that exhibits one
or more of the following characteristics: (1) its principal
securities trading market is an emerging country; (2) though
traded on a securities market that is not an emerging
market, the company, alone or on a consolidated basis,
derives 50% or more of its annual revenues from either goods
produced, sales made or services performed in emerging
countries; or (3) the company is organized under the laws
of, and has a principal office in, an emerging country. We
make our determinations on the basis of publicly available
information and by questioning the company.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
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EMERGING MARKETS SERIES (continued)
THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Series
<S> <C>
EMERGING MARKETS FIXED-INCOME SECURITIES: Fixed-income The Series may invest up to 35% of its net assets in
securities issued by companies in emerging countries or emerging market fixed-income securities. All of these may be
foreign governments, their agencies, instrumentalities or high yield, high risk fixed-income securities rated lower
political subdivisions. than BBB by S&P and Baa by Moody's or, if unrated, are
considered by us to be of equivalent quality.
Medium- and low-grade bonds held by the Series may be issued
as a consequence of corporate restructurings, such as
leveraged buy-outs, mergers, acquisitions, debt
recapitalizations or similar events. Also, these bonds are
often issued by smaller, less creditworthy companies or
firms with high debt levels, which are generally less able
to make scheduled payments of interest and principal than
more financially stable firms. Certain lower-rated debt
securities issued by foreign governments may reflect reduced
ability to make timely and ultimate payments or external
debt obligations. The risks posed by bonds issued under such
circumstances are substantial.
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ZERO COUPON BONDS: Zero coupon securities are debt Emerging Markets Series may invest in zero coupon bonds. The
obligations which do not entitle the holder to any periodic market prices of zero coupon bonds are generally more
payments of interest prior to maturity or a specified date volatile than the market prices of securities that pay
when the securities begin paying current interest, and interest periodically and are likely to respond to changes
therefore are issued and traded at a discount from their in interest rates to a greater degree than do non-zero
face amounts or par value. coupon securities having similar maturities and credit
quality.
- -----------------------------------------------------------------------------------------------------------------------------------
BRADY BONDS: These are debt securities issued under the The Emerging Markets Series may invest in Brady Bonds. We
framework of the Brady Plan, an initiative announced by the believe that the economic reforms undertaken by countries in
U.S. Treasury Secretary, Nicholas F. Brady in 1989, as a connection with the issuance of Brady Bonds makes the debt
mechanism for debtor nations to restructure their of countries that have issued or have announced plans to
outstanding external indebtedness (generally, commercial issue Brady Bonds an attractive opportunity for investment.
bank debt).
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY, FOREIGN CURRENCY CONTRACTS OR FORWARD The Series may invest in securities issued in any currency
CONTRACTS: A forward contract involves an obligation to and may hold foreign currency. Securities of issuers within
purchase or sell a specific currency at a future date at a a given country may be denominated in the currency of
price set at the time of the contract. Forward contracts are another country or in multinational currency units such as
used to "lock-in" the price of a security it has agreed to the Euro.
purchase or sell, in terms of U.S. dollars or other
currencies. We may invest in securities of foreign issuers and may hold
foreign currency. In addition, the Series may enter into
contracts to purchase or sell foreign currencies at a future
date. Although the Series values its assets daily in terms
of U.S. dollars, we do not convert our holdings of foreign
currencies into U.S. dollars on a daily basis. We may,
however, from time to time, purchase or sell foreign
currencies and/or engage in forward foreign currency
transactions in order to expedite settlement of portfolio
transactions and to minimize currency value fluctuations. We
may conduct foreign currency transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign
currency exchange market or through a forward foreign
currency contract or forward contract. The Series will
convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency
conversion. By entering into these transactions, the Series
attempts to protect against a possible loss resulting from
an adverse change in currency exchange rates during the
period between when a security is purchased or sold and the
date on which payment is made or received.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Series
<S> <C>
AMERICAN DEPOSITARY RECEIPTS (ADRS), EUROPEAN DEPOSITARY The Series may invest in sponsored and unsponsored ADRs,
RECEIPTS (EDRS), AND GLOBAL DEPOSITARY RECEIPTS (GDRS): ADRs EDRs and GDRs, generally focusing on underlying securities
are receipts issued by a U.S. depositary (usually a U.S. issued by foreign issuers.
bank) and EDRs and GDRs are receipts issued by a depositary
outside of the U.S. (usually a non-U.S. bank or trust
company or a foreign branch of a U.S. bank). Depositary
receipts represent an ownership interest in an underlying
security that is held by the depositary. Generally, the
underlying security represented by an ADR is issued by a
foreign issuer and the underlying security represented by an
EDR or GDR may be issued by a foreign or U.S. issuer.
Sponsored depositary receipts are issued jointly by the
issuer of the underlying security and the depositary, and
unsponsored depositary receipts are issued by the depositary
without the participation of the issuer of the underlying
security. Generally, the holder of the depositary receipt is
entitled to all payments of interest, dividends or capital
gains that are made on the underlying security.
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: An agreement between a buyer, such as Typically, we use repurchase agreements as a short-term
the Series, and a seller of securities in which the seller investment for the Series' cash position. In order to enter
agrees to buy the securities back within a specified time at into these repurchase agreements, the Series must have
the same price the buyer paid for them, plus an amount equal collateral of at least 102% of the repurchase price.
to an agreed upon interest rate. Repurchase agreements are
often viewed as equivalent to cash.
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES: Privately placed securities whose We may invest in privately placed securities that are
resale is restricted under securities law. eligible for resale only among certain institutional buyers
without registration. These are commonly known as Rule 144A
Securities. Restricted securities that are determined to be
illiquid may not exceed the Series' 10% limit on illiquid
securities, which is described below.
- -----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES: Securities that do not have a ready We may invest up to 10% of net assets in illiquid
market, and cannot be easily sold, if at all, at securities, including repurchase agreements with maturities
approximately the price that the Series has valued them. of over seven days.
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY SECURITIES: In some countries, We may invest in such closed-end investment companies if we
investments by a mutual fund may only be made through believe the country offers good investment opportunities for
investments in closed-end investment companies that in turn the Series. We may invest in either closed-end or open-end
invest in the securities of such countries. investment companies consistent with the 1940 Act
requirements. These investments involve an indirect payment
of a portion of the expenses, including advisory fees, of
such other investment companies.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Series may invest in futures contracts, and options. For temporary defensive
purposes or for cash management purposes, the Series may invest in high quality
U.S. or foreign debt securities, although to the extent it does so the Series
may be unable to meet its investment objective. Please see the Statement of
Additional Information for additional descriptions on these securities as well
as those listed in the table above.
PORTFOLIO TURNOVER The Series anticipates that its annual portfolio turnover
will be less than 100%. A turnover rate of 100% would occur if the Series sold
and replaced securities valued at 100% of its net assets within one year.
BORROWING FROM BANKS Emerging Markets Series may borrow money as a temporary
measure for extraordinary purposes or to facilitate redemptions. To the extent
that it does so, the Series may be unable to meet its investment objective. The
Series will not borrow money in excess of one-third of the value of its net
assets.
SECURITIES LENDING Emerging Market Series may loan up to 25% of its assets to
qualified broker/dealers or institutional investors for their use relating to
short-sales or other securities transactions. These transactions will generate
additional income for the Series.
53
<PAGE>
- ------------------
EMERGING MARKETS SERIES (continued)
THE RISKS OF
INVESTING IN EMERGING
MARKETS SERIES
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Series you should
carefully evaluate the risks. An investment in the Series typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in Emerging Markets Series. Please see the Statement
of Additional Information for further discussion of these risks and the other
risks not discussed here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Series
<S> <C>
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market--like the stock or bond stocks we believe can appreciate over an extended time frame
market--will decline in value because of factors such as regardless of interim market fluctuations. We do not try to
economic conditions, future expectations or investor predict overall stock market movements and do not trade for
confidence. short-term purposes.
We may hold a substantial part of the Series' assets in cash
or cash equivalents as a temporary defensive strategy.
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY RISK is the risk that the value of securities in a We limit the amount of the Series' assets invested in any
particular industry will decline because of changing one industry and in any individual security. We also follow
expectations for the performance of that industry. a rigorous selection process before choosing securities for
the portfolio.
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE RISK is the risk that securities, particularly In an attempt to protect Emerging Markets Series'
bonds with longer maturities, will decrease in value if investments from interest rate fluctuations, the Series may
interest rates rise. engage in interest rate swaps. Interest rate swaps involve
the exchange by the Series with another party of their
respective rights to receive interest. The Series intends to
use interest rate swaps as a hedge and not as a speculative
investment. The use of interest rate swaps involves
investment techniques and risks different from those
associated with ordinary portfolio securities transactions.
If the manager is incorrect in its forecast of market
values, interest rates and other applicable factors, the
investment performance of the Series will be less favorable
than it would have been if this investment technique were
never used.
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN RISK is the risk that foreign securities may be We carefully evaluate the overall situations in the
adversely affected by political instability, changes in countries where we invest in an attempt to reduce these
currency exchange rates, foreign economic conditions or risks. We also tend to avoid markets where we believe
inadequate regulatory and accounting standards. accounting principles or the regulatory structure are too
underdeveloped.
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENCY RISK is the risk that the value of the Series' The Series may try to hedge its currency risk by purchasing
investments may be negatively affected by changes in foreign foreign currency exchange contracts. By agreeing to purchase
currency exchange rates. Adverse changes in exchange rates or sell foreign securities at a pre-set price on a future
may reduce or eliminate any gains produced by investments date, the Series strive to protect the value of the stock
that are denominated in foreign currencies and may increase they own from future changes in currency rates. The Series
any losses. will use forward currency exchange contracts only for
defensive measures, not to enhance portfolio returns.
However, there is no assurance that a strategy such as this
will be successful.
- -----------------------------------------------------------------------------------------------------------------------------------
POLITICAL RISK is the risk that countries or the entire We carefully evaluate the political situations in the
region where we invest may experience political instability, countries where we invest and take into account any
which may cause greater fluctuation in the value of our potential risks before we select securities for the
investments due to changes in currency exchange rates, portfolio. However, there is no way to eliminate political
governmental seizures or nationalization of assets. risk when investing internationally.
- -----------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS RISK is the possibility that the risks The Emerging Markets Series carefully selects securities
associated with international investing will be greater in within emerging markets and strives to consider all relevant
emerging markets than in more developed foreign markets risks associated with an individual company. We cannot
because, among other things, emerging markets may have less eliminate emerging market risk and consequently encourage
stable political and economic environments. shareholders to invest in these Series only if they have a
long-term time horizon, over which the potential of
individual securities is more likely to be realized.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
THE RISKS OF
INVESTING IN EMERGING
MARKETS SERIES
(continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Series
<S> <C>
INEFFICIENT MARKET RISK is the risk that foreign markets may The Series will attempt to reduce these risks through
be less liquid, have greater price volatility, less investing in a number of different countries, credit
regulation and higher transaction costs than U.S. markets. analysis and attention to trends in the economy, industries
and financial markets.
- -----------------------------------------------------------------------------------------------------------------------------------
INFORMATION RISK is the possibility that foreign companies The Series conducts a great deal of fundamental research on
are subject to different accounting, auditing and financial the companies that it invests in rather than relying solely
reporting standards than U.S. companies. There may be less on information available through financial reporting. We
information available about foreign issuers than domestic believe this will help us to better uncover any potential
issuers. Furthermore, regulatory oversight of foreign weaknesses in individual companies.
issuers may be less stringent or less consistently applied
than in the United States.
- -----------------------------------------------------------------------------------------------------------------------------------
NON-DIVERSIFIED FUNDS are believed to be subject to greater While the Emerging Markets Series intends to seek to qualify
risks because adverse effects on their security holdings may as a "diversified" investment company under a provision of
affect a larger portion of their overall assets. Subchapter M of the Code, the Series will not be diversified
under the 1940 Act. Thus, 50% of the Series' total assets
will be divided among cash, cash items, U.S. government
securities, and other securities, with no more than 5% of
the Series' total assets invested with one issuer. However
this will not satisfy the 1940 Act definition of
diversification that 75% of the Series' assets be limited to
not more than 5% per issuer. In practice, however, the
Series does not intend to be heavily invested in any single
particular issuer.
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT SECURITIES RISKS involve the ability of a The Emerging Markets Series attempts to reduce the risks
foreign government or government related issuer to make associated with investing in foreign governments by setting
timely and ultimate payments on its external debt rating standards and by limiting the portion of portfolio
obligations. This ability to make payments will be strongly assets that may be invested in such securities.
influenced by the issuer's balance of payments, including
export performance, its access to international credits and
investments, fluctuations in interest rates and the extent
of its foreign reserves.
- -----------------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD, HIGH RISK FOREIGN FIXED-INCOME SECURITIES are The Emerging Markets Series may invest up to 35% of its net
those securities rated lower than BBB by S&P and Baa by assets in these securities.
Moody's. Securities of this type are considered to be of
poor standing and predominantly speculative as to the The economy and interest rates may affect these high yield,
ability to repay interest and principal. high risk securities differently than other securities.
Prices on these bonds have been less sensitive to interest
rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual
corporate developments. Also, during an economic downturn or
a substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which
would adversely affect their ability to make principal and
interest payments, to meet projected business goals and to
obtain additional financing. These bonds may also be more
affected when recognized rating agencies change their rating
of the security. Consequently, these changes will affect the
Series' investment value.
We believe that in the past, the high yields from these
bonds have more than compensated for their higher default
rates. There is no assurance, however, that yields will
continue to offset default rates on these bonds in the
future. We intend to maintain an adequately diversified
portfolio of these bonds. While diversification can help to
reduce the effect of an individual default on the Series,
there is no guarantee that diversification will protect the
Series from widespread bond defaults brought about by a
sustained economic downturn.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
- --------------------
EMERGING MARKETS SERIES (continued)
INVESTMENT MANAGER
The Series is managed by Delaware International Advisers Ltd. Delaware
International Advisers makes investment decisions for the Series, manages the
Series' business affairs and provides daily administrative services. For its
services to the Series, the manager was paid 1.08% of average daily net assets
for the last fiscal year, reflecting the waiver of fees by the manager.
PORTFOLIO MANAGERS
Clive A. Gillmore has primary responsibility for making day-to-day investment
decisions for Emerging Markets Series. In making investment decisions for the
Series, Mr. Gillmore regularly consults with an international equity team of 14
members, including co-managers, Robert Akester and Joshua A. Brooks.
CLIVE A. GILLMORE
Director, Senior Portfolio Manager, Delaware International Advisers Ltd.
Mr. Gillmore is a graduate of the University of Warwick and began his career at
Legal and General Investment Management, which is the asset management division
of Legal and General Assurance Society Ltd., a large U.K. life and pension
company. Mr. Gillmore joined Delaware International Advisers in 1990 after eight
years of investment experience. His most recent position prior to joining
Delaware International was as a Pacific Basin equity analyst and senior
portfolio manager for Hill Samuel Investment Management Ltd. Mr. Gillmore
completed the London Business School Investment program. He has been managing
Emerging Markets Series since its inception.
ROBERT AKESTER
Senior Portfolio Manager, Delaware International Advisers Ltd.
Mr. Akester joined Delaware International Advisers in 1996 as a Senior Portfolio
Manager. Mr. Akester, who began his investment career in 1969, was most recently
a Director of Hill Samuel Investment Management Ltd., which he joined in 1985.
His prior experience included working as a Senior Analyst and head of the
South-East Asian Research team at James Capel, and as a Fund Manager at
Prudential Assurance Co., Ltd. Mr. Akester holds a BS in Statistics and
Economics from University College, London and is an associate of the Institute
of Actuaries, with a certificate in Finance and Investment.
JOSHUA A. BROOKS
Senior Portfolio Manager, Delaware International Advisers Ltd.
Mr. Brooks holds a bachelor's degree from Yale University and has undertaken
graduate studies at The London Business School. He began his investment career
with Delaware Investments in 1991. Prior to joining the emerging markets team in
London, he was based in Philadelphia with responsibilities that included equity
market analysis and liaison with Delaware International Advisers.
56
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
<TABLE>
<CAPTION>
Emerging Markets Series
- -------------------------------------------------------------------------------------------
Year Ended 12/31 Period 5/1/97(1)
1998 through 12/31/97
- -------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.880 $10.000
Income (loss) from investment operations
Net investment income(2) 0.171 0.060
Net realized and unrealized loss on
investments and foreign currencies (2.991) (1.180)
Total from investment operations (2.820) (1.120)
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.030) none
Distributions from net realized gain on investments (0.220) none
Total dividends and distributions (0.250) none
NET ASSET VALUE, END OF PERIOD $5.810 $8.880
TOTAL RETURN(3) (32.48%) (11.20%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $5,356 $5,776
Ratio of expenses to average net assets 1.50% 1.50%
Ratio of expenses to average net assets
prior to expense limitation 1.67% 2.45%
Ratio of net investment income to average net assets 2.34% 0.89%
Ratio of net investment income (loss) to average
net assets prior to expense limitation 2.17% (0.06%)
Portfolio turnover 38% 48%
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown. Total return reflects expense
limitations in effect for the Series.
57
<PAGE>
GLOBAL BOND SERIES
OUR INVESTMENT STRATEGIES
The Global Bond Series seeks current income consistent with the preservation of
investors' principal. The Global Bond Series invests primarily in fixed-income
securities that may also provide the potential for capital appreciation. Under
normal circumstances, at least 65% of the Series' total assets will be invested
in the fixed-income securities of issuers from at least three different
countries, one of which may be the United States.
The fixed-income securities in which Global Bond Series may invest include
o foreign and U.S. government securities
o debt obligations of foreign and U.S. companies which are generally rated A
or better by S&P and Baa by Moody's, or if unrated, are deemed to be of
comparable quality by the portfolio manager.
o securities of issuers in emerging markets countries, including Brady Bonds,
which tend to be of lower quality and more speculative than securities of
developed country issuers. Such securities may be rated lower than BBB by
S&P or Baa by Moody's, or if unrated, are considered by the manager to be of
equivalent quality. (See the section "The risks of investing in Global Bond
Series.")
o Zero-coupon bonds denominated in any currency
For increased safety, the Series currently anticipates that a large percentage
of its assets will be invested in securities of supranational entities and in
U.S. and foreign government securities.
Generally, the value of fixed-income securities rises when interest rates
decline and declines when interest rates rise. The value of your investment in
the Series will be affected by changes in interest rates. We anticipate that the
average weighted maturity of the portfolio will be in the five-to-ten year
range. If we anticipate a declining interest rate environment; however, the
average weighted maturity may be extended past ten years or if we anticipate a
rising rate environment, the average weighted maturity may be shortened to less
than five years.
While the Series may purchase securities of issuers in any foreign country,
developed and emerging, we currently anticipate investing in Australia, Belgium,
Canada, France, Germany, Hong Kong, Japan, Malaysia, the Netherlands, Singapore,
Spain, Switzerland and the United Kingdom, as well as Indonesia, Korea, New
Zealand, the Philippines, South Africa, Taiwan, and Thailand. This is a
representative list, and we may also invest in other countries.
58
<PAGE>
THE SECURITIES WE
TYPICALLY INVEST IN
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation. The following chart provides
a brief description of the securities that the Series may invest in. Please see
the Statement of Additional Information for additional descriptions of these as
well as other investments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Series
<S> <C>
FOREIGN GOVERNMENT securities: Fixed-income securities With respect to foreign government securities, the Series
issued by non-U.S. governments, their agencies or will generally invest only in those rated AAA or AA by S&P
instrumentalities or political sub-divisions. or Aaa or Aa by Moody's or, if unrated, considered to be of
comparable quality by the Series' portfolio manager.
However, a portion of the Series' assets may also be
invested in such foreign governmental securities issued by
emerging or developing countries, which may be lower rated,
including securities rated below investment grade.
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES: Debt obligations issued by the The Series may invest only in direct U.S. obligations
United States government, its agencies or instrumentalities. including bills, notes, bonds and other debt securities
issued by the U.S. Treasury or securities of U.S. government
agencies or instrumentalities which are backed by the full
faith and credit of the United States.
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. AND FOREIGN CORPORATE BONDS: Debt obligations issued by The Global Bond Series will invest in bonds generally rated
a corporation. A or better by S&P and Baa by Moody's.
- -----------------------------------------------------------------------------------------------------------------------------------
SUPRANATIONAL ENTITIES: Debt securities of supranational The Series expects to invest a large percentage of its
entities denominated in any currency. A supranational entity assets in supranational agencies, which are typically of
is an entity established or financially supported by the high grade quality.
national governments of one or more countries. The
International Bank for Reconstruction and Development (more
commonly known as the World Bank) would be one example of a
supranational entity.
- -----------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON BONDS: Zero coupon securities are debt Global Bond Series may invest in zero coupon bonds. The
obligations which do not entitle the holder to any periodic market prices of zero coupon bonds are generally more
payments of interest prior to maturity or a specified date volatile than the market prices of securities that pay
when the securities begin paying current interest, and interest periodically and are likely to respond to changes
therefore, are issued and traded at a discount from their in interest rates to a greater degree than do non-zero
face amounts or par value. coupon securities having similar maturities and credit
quality.
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY SECURITIES: In some countries, We may invest in either closed-end or open-end investment
investments by a mutual fund may only be made through companies consistent with the 1940 Act requirements. These
investments in closed-end investment companies that in turn investments involve an indirect payment of a portion of the
invest in the securities of such countries. expenses, including advisory fees, of such other investment
companies.
- -----------------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD, HIGH RISK FIXED-INCOME SECURITIES: Securities Medium- and low-grade bonds held by the Series may be issued
that are rated lower than BBB by S&P and Baa by Moody's or, as a consequence of corporate restructurings, such as
if unrated, are considered by us to be of equivalent leveraged buy-outs, mergers, acquisitions, debt
quality. recapitalizations or similar events. Also, these bonds are
often issued by smaller, less creditworthy companies or
firms with high debt levels, which are generally less able
to make scheduled payments of interest and principal than
more financially stable firms. Certain lower-rated debt
securities issued by foreign governments may reflect reduced
ability to make timely and ultimate payments on external
debt obligators. The risk posed by bonds issued under such
circumstances are substantial.
- -----------------------------------------------------------------------------------------------------------------------------------
BRADY BONDS: These are debt securities issued under the The Global Bond Series may invest in Brady Bonds consistent
framework of the Brady Plan, an initiative announced by the with its investment objective. We believe that the economic
U.S. Treasury Secretary, Nicholas F. Brady in 1989, as a reforms undertaken by countries in connection with the
mechanism for debtor nations to restructure their issuance of Brady Bonds makes the debt of countries that
outstanding external indebtedness (generally, commercial have issued or have announced plans to issue Brady Bonds an
bank debt). attractive opportunity for investment.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
- ----------------
GLOBAL BOND SERIES (continued)
THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Series
<S> <C>
FOREIGN CURRENCY, FOREIGN CURRENCY CONTRACTS OR FORWARD We may invest in securities issued in any currency and may
CONTRACTS: A forward contract involves an obligation to hold foreign currency. Securities of issuers within a given
purchase or sell a specific currency at a future date at a country may be denominated in the currency of another
price set at the time of the contract. Forward contracts are country or in multinational currency units such as the Euro.
used to "lock-in" the price of a security it has agreed to
purchase or sell, in terms of U.S. dollars or other We may invest in securities of foreign issuers and may hold
currencies. foreign currency. In addition, the Series may enter into
contracts to purchase or sell foreign currencies at a future
date. Although the Series values its assets daily in terms
of U.S. dollars, we do not convert our holdings of foreign
currencies into U.S. dollars on a daily basis. We may,
however, from time to time, purchase or sell foreign
currencies and/or engage in forward foreign currency
transactions in order to expedite settlement of portfolio
transactions and to minimize currency value fluctuations. We
may conduct foreign currency transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign
currency exchange market or through a forward foreign
currency contract or forward contract. The Series will
convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency
conversion. By entering into these transactions, the Series
attempts to protect against a possible loss resulting from
an adverse change in currency exchange rates during the
period between when a security is purchased or sold and the
date on which payment is made or received.
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: An agreement between a buyer, such as Typically, we use repurchase agreements as a short-term
the Series, and a seller of securities in which the seller investment for the Series' cash position. In order to enter
agrees to buy the securities back within a specified time at into these repurchase agreements, the Series must have
the same price the buyer paid for them, plus an amount equal collateral of at least 102% of the repurchase price.
to an agreed upon interest rate. Repurchase agreements are
often viewed as equivalent to cash.
- -----------------------------------------------------------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS (ADRS), EUROPEAN DEPOSITARY The Series may invest in sponsored and unsponsored ADRs,
RECEIPTS (EDRS), AND GLOBAL DEPOSITARY RECEIPTS (GDRS): ADRs EDRs and GDRs, generally focusing on underlying securities
are receipts issued by a U.S. depositary (usually a U.S. issued by foreign issuers.
bank) and EDRs and GDRs are receipts issued by a depositary
outside of the U.S. (usually a non-U.S. bank or trust
company or a foreign branch of a U.S. bank). Depositary
receipts represent an ownership interest in an underlying
security that is held by the depositary. Generally, the
underlying security represented by an ADR is issued by a
foreign issuer and the underlying security represented by an
EDR or GDR may be issued by a foreign or U.S. issuer.
Sponsored depositary receipts are issued jointly by the
issuer of the underlying security and the depositary, and
unsponsored depositary receipts are issued by the depositary
without the participation of the issuer of the underlying
security. Generally, the holder of the depositary receipt is
entitled to all payments of interest, dividends or capital
gains that are made on the underlying security.
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES: Privately placed securities whose We may invest in privately placed securities that are
resale is restricted under securities law. eligible for resale only among certain institutional buyers
without registration. These are commonly known as Rule 144A
Securities. Restricted securities that are determined to be
illiquid may not exceed the Series' 10% limit on illiquid
securities, which is described below.
- -----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES: Securities that do not have a ready We may invest up to 10% of net assets in illiquid
market, and cannot be easily sold, if at all, at securities, including repurchase agreements with maturities
approximately the price that the Series has valued them. of over seven days.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE>
The Series may also invest in futures contracts and options. Please see the
Statement of Additional Information for additional descriptions on these
securities as well as those listed in the table above.
PORTFOLIO TURNOVER The Series anticipates that its annual portfolio turnover
will be less than 100%. A turnover rate of 100% would occur if the Series sold
and replaced securities valued at 100% of its net assets within one year.
BORROWING FROM BANKS Global Bond Series may borrow money as a temporary measure
for extraordinary purposes or to facilitate redemptions. To the extent that it
does so, the Series may be unable to meet its investment objective. The Series
will not borrow money in excess of one-third of the value of its net assets.
SECURITIES LENDING Global Bond Series may loan up to 25% of its assets to
qualified broker/dealers or institutional investors for their use relating to
short-sales or other securities transactions. These transactions will generate
additional income for the Series.
THE RISKS OF INVESTING
IN GLOBAL BOND SERIES
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Series you should
carefully evaluate the risks. An investment in the Series typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in Global Bond Series. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Series
<S> <C>
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market--like the stock or bond securities that we believe can perform well over an extended
market--will decline in value because of factors such as time frame regardless of interim market fluctuations. We do
economic conditions, future expectations or investor not try to predict overall market movements and do not trade
confidence. for short-term purposes.
We may hold a substantial part of the Series' assets in cash
or cash equivalents as a temporary defensive strategy.
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY RISK is the risk that the value of securities in a We limit the amount of Global Bond Series' assets invested
particular industry will decline because of changing in any one industry. We also follow a rigorous selection
expectations for the performance of that industry. process before choosing securities for the portfolio.
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE RISK is the risk that securities, particularly We will maintain an intermediate average maturity, usually
bonds with longer maturities, will decrease in value if between five and 10 years.
interest rates rise.
In an attempt to protect Global Bond Series' investments
from interest rate fluctuations, the Series may engage in
interest rate swaps. Interest rate swaps occur when the
Series exchanges its rights to receive interest on a bond
for the rights of another party. The Series intends to use
interest rate swaps as a hedge and not as a speculative
investment. The use of interest rate swaps involves
investment techniques and risks different from those
associated with ordinary portfolio securities transactions.
If we use this strategy and are incorrect in our forecast of
market values, interest rates and other applicable factors,
the investment performance of the Series will be less
favorable than if this investment strategy were never used.
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN RISK is the risk that foreign securities may be We carefully evaluate the overall situations in the
adversely affected by political instability, changes in countries where we invest in an attempt to reduce these
currency exchange rates, foreign economic conditions or risks. We also tend to avoid markets where we believe
inadequate regulatory and accounting standards. accounting principles or the regulatory structure are too
underdeveloped.
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENCY RISK is the risk that the value of an investment Global Bond Series may try to hedge its currency risk by
may be negatively affected by changes in foreign currency purchasing foreign currency exchange contracts. By agreeing
exchange rates. Adverse changes in exchange rates may reduce to purchase or sell foreign securities at a preset price on
or eliminate any gains produced by investments that are a future date, the Series strive to protect the value of the
denominated in foreign currencies and may increase any stock they own from future changes in currency rates. The
losses. Series will use forward currency exchange contracts only for
defensive measures, not to enhance portfolio returns.
However, there is no assurance that a strategy such as this
will be successful.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
GLOBAL BOND SERIES (continued)
THE RISKS OF INVESTING
IN GLOBAL BOND SERIES
(continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Global Bond Series
<S> <C>
POLITICAL RISK is the risk that countries or the entire We carefully evaluate the political situations in the
region where we invest may experience political instability, countries where we invest and take into account any
which may cause greater fluctuation in the value of our potential risks before we select securities for the
investments due to changes in currency exchange rates, portfolio. However, there is no way to eliminate political
governmental seizures or nationalization of assets. risk when investing internationally.
- -----------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS RISK is the possibility that the risks Global Bond Series carefully selects securities within
associated with international investing will be greater in emerging markets and strives to consider all relevant risks
emerging markets than in more developed foreign markets associated with an individual company. We cannot eliminate
because, among other things, emerging markets may have less emerging market risk and consequently encourage shareholders
stable political and economic environments. to invest in these Series only if they have a long-term time
horizon, over which the potential of individual securities
is more likely to be realized.
- -----------------------------------------------------------------------------------------------------------------------------------
INEFFICIENT MARKET RISK is the risk that foreign markets may The Series will attempt to reduce these risks through
be less liquid, have greater price volatility, less investing in a number of different countries, credit
regulation and higher transaction costs than U.S. markets. analysis and attention to trends in the economy, industries
and financial markets.
- -----------------------------------------------------------------------------------------------------------------------------------
INFORMATION RISK is the possibility that foreign companies We conduct a great deal of fundamental research on the bond
are subject to different accounting, auditing and financial issuers rather than relying solely on information available
reporting standards than U.S. companies. There may be less through financial reporting. We believe this will help us to
information available about foreign issuers than domestic better uncover any potential weaknesses.
issuers. Furthermore, regulatory oversight of foreign
issuers may be less stringent or less consistently applied
than in the United States.
- -----------------------------------------------------------------------------------------------------------------------------------
NON-DIVERSIFIED FUNDS are believed to be subject to greater The Global Bond Series will not be a diversified fund
risks because adverse effects on their security holdings may according to the 1940 Act. In a diversified fund, 75% of the
affect a larger portion of their overall assets. portfolio must be diversified, meaning the fund or series
cannot invest more than 5% of total assets in an individual
security. When a fund is non-diversified, it does not have
to limit the percentage of assets invested in individual
securities. However, the Global Bond Series does intend to
satisfy the Internal Revenue Code's diversification
requirement, which says that for 50% of the Series' assets,
no more than 5% of total assets can be invested in any one
individual security. The bottom line for shareholders is
that 50% of the Global Bond Series must be spread among
various securities, with no more than 5% of total assets
invested in any single security. The other 50% can be more
concentrated with greater than 5% invested in individual
securities. In practice, however, the Series does not intend
to be heavily invested in any single particular issuer.
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT SECURITIES RISKS involve the ability of a The Global Bond Series attempts to reduce the risks
foreign government or government related issuer to make associated with investing in foreign governments by
timely and ultimate payments on its external debt carefully monitoring the countries in which its invests.
obligations. This ability to make payments will be strongly
influenced by the issuer's balance of payments, including
export performance, its access to international credits and
investments, fluctuations in interest rates and the extent
of its foreign reserves.
- -----------------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD, HIGH RISK FOREIGN FIXED-INCOME SECURITIES are The Global Bond Series may invest in these securities. The
those securities rated lower than BBB by S&P and Baa by economy and interest rates may affect these high yield, high
Moody's. Securities of this type are considered to be of risk securities differently than other securities. Prices on
poor standing and predominantly speculative as to the these bonds have been less sensitive to interest rate
ability to repay interest and principal. changes than higher rated investments, but more sensitive to
adverse economic changes or individual corporate
developments. Also, during an economic downturn or a
substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which
would adversely affect their ability to make principal and
interest payments, to meet projected business goals and to
obtain additional financing. These bonds may also be more
affected when recognized rating agencies change their rating
of the security. Consequently, these changes will affect the
Series' investment value.
We believe that in the past, the high yields from these
bonds have more than compensated for their higher default
rates. There is no assurance, however, that yields will
continue to offset default rates on these bonds in the
future. We intend to maintain an adequately diversified
portfolio of these bonds. While diversification can help to
reduce the effect of an individual default on the Series,
there is no guarantee that diversification will protect the
Series from widespread bond defaults brought about by a
sustained economic downturn.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
INVESTMENT MANAGER
The Series is managed by Delaware International Advisers Ltd. Delaware
International Advisers makes investment decisions for the Series, manages the
Series' business affairs and provides daily administrative services. For its
services to the Series, the manager was paid 0.66% of average daily net assets
for the last fiscal year, reflecting the waiver of fees by the manager.
PORTFOLIO MANAGERS
Ian G. Sims and Christopher Moth and have primary responsibility for making
day-to-day investment decisions for Global Bond Series. In making investment
decisions for the Series, Mr. Sims and Mr. Moth regularly consult with W. Hywel
Morgan.
IAN G. SIMS
Deputy Managing Director/Chief Investment Officer,
Global Fixed Income and Director of Delaware International Advisers Ltd.
Mr. Sims has been the senior portfolio manager for this Series since its
inception. Mr. Sims is a graduate of the University of Newcastle-Upon-Tyne. He
joined Delaware International Advisers in 1990 as a senior international
fixed-income and currency manager. Mr. Sims began his investment career with the
Standard Life Assurance Co., and subsequently moved to the Royal Bank of Canada
Investment Management International Company, where he was an international
fixed-income manager. Prior to joining Delaware International Advisers, he was a
senior fixed-income and currency portfolio manager with Hill Samuel Investment
Management Ltd.
CHRISTOPHER MOTH
Senior Portfolio Manager, Delaware International Advisers Ltd.
Mr. Moth became Co-Manager of Global Bond Series in January 1997. Mr. Moth is a
graduate of The City University London. Mr. Moth joined Delaware International
Advisers in 1992. He previously worked at the Guardian Royal Exchange in an
actuarial capacity where he was responsible for technical analysis, quantitative
models and projections. Mr. Moth has been awarded the certificate in Finance &
Investment from the Institute of Actuaries in London.
W. HYWEL MORGAN
Senior Portfolio Manager, Delaware International Advisers Ltd.
Mr. Morgan was educated at the University of Wales and was subsequently an
Economics Lecturer at Dundee University. Prior to joining Delaware International
Advisers, he was Associate Director of the international fixed-income department
and head of the credit review committee at Hill Samuel Investment Management
responsible for over $500 million in multi-currency fixed interest accounts. His
prior experience included working as an economic adviser for Credit Suisse and
the Economic Intelligence Unit. Mr. Morgan started his business career as a
Corporate Economist & Strategist at Ford of Europe and Esso Petroleum.
63
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global Bond Series
- -----------------------------------------------------------------------------------------------------------
Year Ended 12/31 Period 5/2/96(1)
1998 1997 through 12/31/96
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.500 $10.960 $10.000
Income from investment operations
Net investment income(2) 0.608 0.636 0.339
Net realized and unrealized gain (loss)
on investments and foreign currencies 0.182 (0.551) 0.831
------- ------- -------
Total from investment operations 0.790 0.085 1.170
------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.600) (0.460) (0.210)
Distributions from net realized gain on investments (0.010) (0.085) none
------- ------- -------
Total dividends and distributions (0.610) (0.545) (0.210)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.680 $10.500 $10.960
======= ======= =======
TOTAL RETURN(3) 7.82% 0.88% 11.79%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $21,711 $16,876 $9,471
Ratio of expenses to average net assets 0.83% 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation 0.92% 1.08% 1.19%
Ratio of net investment income to average net assets 5.83% 6.03% 6.51%
Ratio of net investment income to average net assets
prior to expense limitation 5.74% 5.75% 6.12%
Portfolio turnover 79% 97% 56%
</TABLE>
THE FINANCIAL
HIGHLIGHTS TABLE is intended to help you understand the
Series' financial performance. This represents the rate that
an investor would have earned or lost on an investment in
the Series (assuming reinvestment of all dividends and
distributions). All "per share" information reflects
financial results for a single Series share. This
information has been audited by Ernst & Young LLP, whose
report, along with the Series' financial statements, is
included in the Series' annual report, which is available
upon request by calling 800.523.1918.
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Per share information for the years ended December 31, 1997 and 1998 was
based on the average shares outstanding method.
(3) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown. Total return reflects expense
limitations in effect for the Series.
64
<PAGE>
GROWTH AND INCOME SERIES
OUR INVESTMENT STRATEGIES
The Growth and Income Series seeks the highest possible total rate of return.
The Growth and Income Series invests primarily in the common stocks of
established companies that we believe have long-term total return potential.
These stocks offer both current income through dividends and capital growth
potential through possible increases in stock prices. A focus on stocks with
high dividend yields, such as the one we use, is generally considered to be a
value-oriented investment approach.
We first identify companies that have above-average dividend yields compared to
the unmanaged S&P 500 Index, a commonly used measure of U.S. stocks. We then
research individual companies and analyze economic and market conditions,
seeking to identify the securities that we think are the best investments for
the Series.
THE SECURITIES WE
TYPICALLY INVEST IN
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well. High-yield bonds offer the potential for greater income
payments than stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Growth and Income Series
<S> <C>
COMMON STOCKS: Securities that represent shares of ownership Generally, 90% to 100% of the Series' net assets will be
in a corporation. Stockholders participate in the invested in dividend-paying common stocks.
corporation's profits and losses, proportionate to the
number of shares they own.
- -----------------------------------------------------------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS: Certificates issued by a U.S. We may invest without limitation in ADRs. We use them when
bank which represent the bank's holdings of a stated number we believe they offer better total return opportunities than
of shares of a foreign corporation. An ADR entitles the U.S. securities.
holder to all dividends and capital gains earned by the
underlying foreign shares, and an ADR is bought and sold the
same as U.S. securities.
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: An agreement between a buyer, such as Typically, we use repurchase agreements as a short-term
the Series, and a seller of securities in which the seller investment for the Series' cash position. In order to enter
agrees to buy the securities back within a specified time at into these repurchase agreements, the Series' must have
the same price the buyer paid for them, plus an amount equal collateral of at least 102% of the repurchase price.
to an agreed upon interest rate. Repurchase agreements are
often viewed as equivalent to cash.
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRICTED AND ILLIQUID SECURITIES: Restricted securities We may invest up to 10% of net assets in illiquid
are privately placed securities whose resale is restricted securities. For this Series, the 10% limit includes
under securities law. restricted securities such as privately placed securities
that are eligible for resale only among certain
Illiquid securities are securities that do not have a ready institutional buyers without registration, which are
market, and cannot be easily sold, if at all, at commonly known as "Rule 144A Securities," and repurchase
approximately the price that the Series has valued them. agreements with maturities of over seven days.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
- ---------------
GROWTH AND INCOME SERIES (continued)
The Series is permitted to invest in all available types of equity securities
including preferred stock, rights and warrants and convertible securities. It
may also invest in fixed-income securities and enter into futures and options
transactions for defensive purposes. It may invest in global and European
depositary receipts and directly in foreign securities; however, the manager has
no present intention of doing so. Growth and Income Series reserves the right to
hold a substantial part of its assets in cash or cash equivalents as a
temporary, defensive strategy, although to the extent it does so it may be
unable to meet its investment objective. You can find additional information
about the investments in the Series' portfolio in the annual or semi-annual
shareholder report.
LENDING SECURITIES The Series may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for their use in security
transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS The Series may
buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
PORTFOLIO TURNOVER We anticipate that annual portfolio turnover for the Series
will be less than 100%. A turnover rate of 100% would occur if the Series sold
and replaced securities valued at 100% of its net assets within one year.
BORROWING FROM BANKS Growth and Income Series may borrow money as a temporary
measure for extraordinary purposes or to facilitate redemptions. To the extent
that it does so, the Series may be unable to meet its investment objective. The
Series will not borrow money in excess of one-third of the value of its net
assets.
THE RISKS OF INVESTING
IN GROWTH AND
INCOME SERIES
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest, you should carefully
evaluate the risks. An investment in the Series typically provides the best
results when held for a number of years. The following are the chief risks you
assume when investing in Growth and Income Series. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
Growth and Income Series
<S> <C>
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market - like the stock or bond stocks we believe can appreciate over an extended time frame
market - will decline in value because of factors such as regardless of interim market fluctuations. We do not try to
economic conditions, future expectations or investor predict overall stock market movements and do not trade for
confidence. short-term purposes.
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY AND SECURITY RISK is the risk that the value of We limit the amount of the Series' assets invested in any
securities in a particular industry or the value of an one industry and in any individual security. We also follow
individual stock or bond will decline because of changing a rigorous selection process designed to identify
expectations for the performance of that industry or for the undervalued securities before choosing securities for the
individual company issuing the stock or bond. portfolio.
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN RISK is the risk that foreign securities may be We typically invest only a small portion of the Series'
adversely affected by political instability, changes in portfolio in foreign corporations through American
currency exchange rates, foreign economic conditions or Depositary Receipts. We do not invest directly in foreign
inadequate regulatory and accounting standards. securities. When we do purchase ADRs, they are generally
denominated in U.S. dollars and traded on a U.S. exchange.
- -----------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY RISK is the possibility that securities cannot be We limit exposure to illiquid securities.
readily sold, if at all, at approximately the price that the
Series values them.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
INVESTMENT MANAGER
The Series is managed by Delaware Management Company. Delaware Management
Company makes investment decisions for the Series, manages the Series' business
affairs and provides daily administrative services. For its services to the
Series, the manager was paid 0.60% of average daily net assets for the last
fiscal year.
PORTFOLIO MANAGER
John B. Fields has primary responsibility for making day-to-day investment
decisions for Growth and Income Series.
JOHN B. FIELDS
Vice President and Senior Portfolio Manager
Mr. Fields, who has 28 years' experience in investment management, earned a
bachelor's degree and an MBA from Ohio State University. Before joining Delaware
Investments in 1992, he was Director of Domestic Equity Risk Management at
DuPont. Prior to that time, he was Director of Equity Research at Comerica Bank.
Mr. Fields is a member of the Financial Analysts Society of Wilmington,
Delaware. In making investment decisions for Growth and Income Series, Mr.
Fields works with a team of Delaware portfolio managers utilizing the same
investment strategy. He has been managing Growth and Income Series since 1992.
67
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth and Income Series
(Formerly Decatur Total Return Series)
- -----------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $18.800 $15.980 $14.830 $11.480 $12.510
Income (loss) from investment operations
Net investment income 0.361 0.324 0.377 0.416 0.412
Net realized and unrealized gain (loss) on investments 1.636 4.216 2.398 3.574 (0.422)
-------- -------- -------- -------- -------
Total from investment operations 1.997 4.540 2.775 3.990 (0.010)
-------- -------- -------- -------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.327) (0.370) (0.420) (0.430) (0.420)
Distributions from net realized gain on investments (1.050) (1.350) (1.205) (0.210) (0.600)
-------- -------- -------- -------- -------
Total dividends and distributions (1.377) (1.720) (1.625) (0.640) (1.020)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF YEAR $19.420 $18.800 $15.980 $14.830 $11.480
======== ======== ======== ======== =======
TOTAL RETURN(1) 11.35% 31.00% 20.72% 36.12% (0.20%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $579,907 $401,402 $166,647 $109,003 $72,725
Ratio of expenses to average net assets 0.71% 0.71% 0.67% 0.69% 0.71%
Ratio of expenses to average net assets
prior to expense limitation 0.71% 0.71% 0.67% 0.69% 0.71%
Ratio of net investment income to average net assets 2.00% 2.02% 2.66% 3.24% 3.63%
Ratio of net investment income to average net assets
prior to expense limitation 2.00% 2.02% 2.66% 3.24% 3.63%
Portfolio turnover 81% 54% 81% 85% 91%
</TABLE>
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
(1) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown.
68
<PAGE>
INTERNATIONAL EQUITY SERIES
OUR INVESTMENT STRATEGIES
International Equity Series seeks long-term growth without undue risk to
principal. The Series invests primarily in securities that provide the potential
for capital appreciation and income. The Series is an international fund. Under
normal circumstances, at least 65% of the Series' total assets will be invested
in the securities of issuers from at least three different countries outside of
the United States. We may invest in a broad range of equity securities including
common stocks, preferred stocks, convertible securities and warrants. We may
also invest in sponsored or unsponsored Depositary Receipts.
We use a dividend discount analysis to evaluate opportunities in various
countries. This means we look at future anticipated dividends and try to
determine what the value of those dividends would be if they were being paid
today. This helps us compare the current value of different investments, even in
different countries.
We also use what is called a purchasing power parity approach to help us
determine what currencies and what markets are overvalued or undervalued
relative to the U.S. dollar. We first identify the amount of goods and services
that a dollar will buy in the United States. We then compare see how much of a
foreign currency is required to buy that same amount of goods and services in
another country. We believe that eventually all currencies should trade at
levels that would make it possible for the dollar to buy the same amount of
goods and services overseas as in the United States. When the dollar buys less,
we consider the foreign currency to be overvalued. When the dollar buys more, we
consider the currency to be undervalued.
We may purchase securities in any foreign country, developed or emerging;
however we currently anticipate investing in Australia, Belgium, Canada,
Finland, France, Germany, Hong Kong, Italy, Japan, Malaysia, the Netherlands,
Singapore, Spain, Switzerland and the United Kingdom. This is a representative
list; the Series may invest in countries not listed here.
THE SECURITIES WE
TYPICALLY INVEST IN
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well. Fixed-income securities offer the potential for greater
income payments than stocks, and also may provide capital appreciation. The
following chart provides a brief description of the securities that the Series
may invest in. Please see the Statement of Additional Information for additional
descriptions of these as well as other investments.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity Series
<S> <C>
COMMON STOCKS: Securities that represent shares of ownership We generally invest 90% to 100% of the Series' assets in
in a corporation. Stockholders participate in the common stock of companies located in foreign countries.
corporation's profits and losses, proportionate to the
number of shares they own.
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY CONTRACTS OR FORWARD CONTRACTS: A forward The Series may invest in securities issued in any currency
contract involves an obligation to purchase or sell a and may hold foreign currency. Securities of issuers within
specific currency at a future date at a price set at the a given country may be denominated in the currency of
time of the contract. Forward contracts are used to another country or in multinational currency units such as
"lock-in" the price of a security it has agreed to purchase the Euro.
or sell, in terms of U.S. dollars or other currencies.
We may invest in securities of foreign issuers and may hold
foreign currency. In addition, the Series may enter into
contracts to purchase or sell foreign currencies at a future
date. Although the Series values its assets daily in terms
of U.S. dollars, we do not convert our holdings of foreign
currencies into U.S. dollars on a daily basis. We may,
however, from time to time, purchase or sell foreign
currencies and/or engage in forward foreign currency
transactions in order to expedite settlement of portfolio
transactions and to minimize currency value fluctuations. We
may conduct foreign currency transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign
currency exchange market or through a forward foreign
currency contract or forward contract. The Series will
convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency
conversion. By entering into these transactions, the Series
attempts to protect against a possible loss resulting from
an adverse change in currency exchange rates during the
period between when a security is purchased or sold and the
date on which payment is made or received.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
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INTERNATIONAL EQUITY SERIES (continued)
THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity Series
<S> <C>
AMERICAN DEPOSITARY RECEIPTS (ADRS), EUROPEAN DEPOSITARY The Series may invest in sponsored and unsponsored ADRs,
RECEIPTS (EDRS), AND GLOBAL DEPOSITARY RECEIPTS (GDRS): ADRs EDRs and GDRs, generally focusing on underlying securities
are receipts issued by a U.S. depositary (usually a U.S. issued by foreign issuers.
bank) and EDRs and GDRs are receipts issued by a depositary
outside of the U.S. (usually a non-U.S. bank or trust
company or a foreign branch of a U.S. bank). Depositary
receipts represent an ownership interest in an underlying
security that is held by the depositary. Generally, the
underlying security represented by an ADR is issued by a
foreign issuer and the underlying security represented by an
EDR or GDR may be issued by a foreign or U.S. issuer.
Sponsored depositary receipts are issued jointly by the
issuer of the underlying security and the depositary, and
unsponsored depositary receipts are issued by the depositary
without the participation of the issuer of the underlying
security. Generally, the holder of the depositary receipt is
entitled to all payments of interest, dividends or capital
gains that are made on the underlying security.
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY SECURITIES: In some countries, We may invest in either closed-end or open-end investment
investments by a mutual fund may only be made through companies consistent with requirements of the Investment
investments in closed-end investment companies that in turn Company Act of 1940. These investments involve an indirect
invest in the securities of such countries. We may invest in payment of a portion of the expenses, including advisory
such closed-end investment companies if we believe the fees, of such other investment companies.
country offers good investment opportunities for the Series.
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: An agreement between a buyer, such as Typically, we use repurchase agreements as a short-term
the Series, and a seller of securities in which the seller investment for the Series' cash position. In order to enter
agrees to buy the securities back within a specified time at into these repurchase agreements, the Series must have
the same price the buyer paid for them, plus an amount equal collateral of at least 102% of the repurchase price.
to an agreed upon interest rate. Repurchase agreements are
often viewed as equivalent to cash.
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES: Privately placed securities whose We may invest in privately placed securities that are
resale is restricted under securities law. eligible for resale only among certain institutional buyers
without registration. These are commonly known as Rule 144A
Securities. Restricted securities that are determined to be
illiquid may not exceed the Series' 10% limit on illiquid
securities, which is described below.
- -----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES: Securities that do not have a ready We may invest up to 10% of net assets in illiquid
market, and cannot be easily sold, if at all, at securities, including repurchase agreements with maturities
approximately the price that the Series has valued them. of over seven days.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Series may invest in futures contracts, and options. For temporary defensive
purposes or for cash management purposes, the Series may invest in high quality
U.S. or foreign debt securities, although to the extent it does so the Series
may be unable to meet its investment objective. Please see the Statement of
Additional Information for additional descriptions on these securities as well
as those listed in the table above.
PORTFOLIO TURNOVER We anticipate that International Equity Series' annual
portfolio turnover will be less than 100%. A turnover rate of 100% would occur
if the Series sold and replaced securities valued at 100% of its net assets
within one year.
BORROWING FROM BANKS International Equity Series may borrow money as a temporary
measure for extraordinary purposes or to facilitate redemptions. To the extent
that it does so, the Series may be unable to meet its investment objective. The
Series will not borrow money in excess of one-third of the value of its net
assets.
SECURITIES LENDING International Equity Series may loan up to 25% of its assets
to qualified broker/dealers or institutional investors for their use relating to
short-sales or other securities transactions. These transactions will generate
additional income for the Series.
70
<PAGE>
THE RISKS OF INVESTING
IN INTERNATIONAL
EQUITY SERIES
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Series you should
carefully evaluate the risks. An investment in the Series typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in International Equity Series. Please see the
Statement of Additional Information for further discussion of these risks and
the other risks not discussed here.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity Series
<S> <C>
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market--like the stock or bond stocks we believe can appreciate over an extended time frame
market--will decline in value because of factors such as regardless of interim market fluctuations. We do not try to
economic conditions, future expectations or investor predict overall stock market movements and do not trade for
confidence. short-term purposes.
We may hold a substantial part of the Series' assets in cash
or cash equivalents as a temporary defensive strategy.
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRY AND SECURITY RISK is the risk that the value of We limit the amount of the Series' assets invested in any
securities in a particular industry or the value of an one industry and in any individual security. We also follow
individual stock or bond will decline because of changing a rigorous selection process before choosing securities for
expectations for the performance of that industry or for the the portfolio.
individual company issuing the stock or bond.
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN RISK is the risk that foreign securities may be We carefully evaluate the overall situations in the
adversely affected by political instability, changes in countries where we invest in an attempt to reduce these
currency exchange rates, foreign economic conditions or risks. We also tend to avoid markets where we believe
inadequate regulatory and accounting standards. accounting principles or the regulatory structure are
underdeveloped.
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENCY RISK is the risk that the value of the Series' We may try to hedge our currency risk by purchasing foreign
investments may be negatively affected by changes in foreign currency exchange contracts. By agreeing to purchase or sell
currency exchange rates. Adverse changes in exchange rates foreign securities at a pre-set price on a future date, we
may reduce or eliminate any gains produced by investments strive to protect the value of the stock in the portfolio
that are denominated in foreign currencies and may increase from future changes in currency rates. We will use forward
any losses. currency exchange contracts only for defensive measures, not
to enhance portfolio returns. However, there is no assurance
that a strategy such as this will be successful.
- -----------------------------------------------------------------------------------------------------------------------------------
POLITICAL RISK is the risk that countries or the entire We carefully evaluate the political situations in the
region where we invest may experience political instability, countries where we invest and take into account any
which may cause greater fluctuation in the value of our potential risks before we select securities for the
investments due to changes in currency exchange rates, portfolio. However, there is no way to eliminate political
governmental seizures or nationalization of assets. risk when investing internationally.
- -----------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS RISK is the possibility that the risks International Equity Series does not invest a significant
associated with international investing will be greater in portion of its assets in emerging markets, so this is not a
emerging markets than in more developed foreign markets major risk for the Series. However, if we were to invest in
because, among other things, emerging markets may have less any emerging market, we would carefully select securities
stable political and economic environments. and consider all relevant risks associated with an
individual company.
- -----------------------------------------------------------------------------------------------------------------------------------
INEFFICIENT MARKET RISK is the risk that foreign markets may We will attempt to reduce these risks through portfolio
be less liquid, have greater price volatility, less diversification, credit analysis and attention to trends in
regulation and higher transaction costs than U.S. markets. the economy, industries and financial markets.
- -----------------------------------------------------------------------------------------------------------------------------------
INFORMATION RISK is the possibility that foreign companies We conduct a great deal of fundamental research on the
are subject to different accounting, auditing and financial companies that we invest in rather than relying solely on
reporting standards than U.S. companies. There may be less information available through financial reporting. We
information available about foreign issuers than domestic believe this will help us to better uncover any potential
issuers. Furthermore, regulatory oversight of foreign weaknesses in individual companies.
issuers may be less stringent or less consistently applied
than in the United States.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
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HOW WE MANAGE THE SERIES (continued)
INVESTMENT MANAGER
The Series is managed by Delaware International Advisers Ltd. Delaware
International Advisers makes investment decisions for the Series, manages the
Series' business affairs and provides daily administrative services. For its
services to the Series, the manager was paid 0.74% of average daily net assets
for the last fiscal year, reflecting the waiver of fees by the manager.
PORTFOLIO MANAGERS
Clive A. Gillmore and Nigel G. May have primary responsibility for making
day-to-day investment decisions for the International Equity Series. In making
investment decisions for the Series, Mr. Gillmore and Mr. May regularly consult
with an international equity team of fourteen members.
CLIVE A. GILLMORE
Director, Senior Portfolio Manager, Delaware International Advisers Ltd.
Mr. Gillmore is a graduate of the University of Warwick and began his career at
Legal and General Investment Management, which is the asset management division
of Legal and General Assurance Society Ltd., a large U.K. life and pension
company. Mr. Gillmore joined Delaware International Advisers in 1990 after eight
years of investment experience. His most recent position prior to joining
Delaware International Advisers was as a Pacific Basin equity analyst and senior
portfolio manager for Hill Samuel Investment Management Ltd. Mr. Gillmore
completed the London Business School Investment program. He has been managing
the Series since its inception.
NIGEL G. MAY
Director, Senior Portfolio Manager, Delaware International Advisers Ltd.
Mr. May joined Mr. Gillmore as Co-Manager of the Series on December 22, 1997.
Mr. May is a graduate of Sidney Sussex College, Cambridge. He joined Delaware
International Advisers in 1991, assuming portfolio management responsibilities
and sharing analytical responsibilities for continental Europe. He previously
had been with Hill Samuel Investment Management Ltd. for five years.
72
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Series
- -----------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.520 $15.110 $13.120 $11.840 $11.620
Income from investment operations
Net investment income(1) 0.386 0.359 0.557 0.419 0.220
Net realized and unrealized gain on investments
and foreign currencies 1.169 0.596 1.966 1.191 0.080
-------- -------- -------- ------- -------
Total from investment operations 1.555 0.955 2.523 1.610 0.300
-------- -------- -------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.595) (0.545) (0.420) (0.240) (0.070)
Distributions from net realized gain on investments none none (0.113) (0.090) (0.010)
-------- -------- -------- ------- -------
Total dividends and distributions (0.595) (0.545) (0.533) (0.330) (0.080)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF YEAR $16.480 $15.520 $15.110 $13.120 $11.840
======== ======== ======== ======= =======
TOTAL RETURN(2) 10.33% 6.60% 20.03% 13.98% 2.57%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $243,536 $198,863 $131,428 $81,548 $57,649
-------- -------- -------- ------- -------
Ratio of expenses to average net assets 0.87% 0.85% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation 0.88% 0.90% 0.91% 0.89% 1.01%
Ratio of net investment income to average net assets 2.41% 2.28% 4.71% 3.69% 2.63%
Ratio of net investment income to average net assets
prior to expense limitation 2.40% 2.23% 4.60% 3.60% 2.42%
Portfolio turnover 5% 7% 8% 19% 13%
</TABLE>
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
(1) Per share information for the years ended December 31, 1997 and 1998 was
based on the average shares outstanding method.
(2) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown. Total return reflects expense
limitations in effect for the Series.
73
<PAGE>
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HOW WE MANAGE THE SERIES (continued)
REIT SERIES
OUR INVESTMENT STRATEGIES
The REIT Series strives to achieve maximum long-term total return. Capital
appreciation is a secondary objective. The Series invests in securities of
companies principally engaged in the real estate industry. Under normal
circumstances, at least 65% of the Series' total assets will be invested in
equity securities of real estate investment trusts (REITs). The Series may also
invest in equity securities of real estate industry operating companies known as
REOCs.
The Series may also purchase preferred stock, convertible securities and
mortgage-backed securities.
While we do not intend to invest the Series' assets directly in real estate,
under certain circumstances it could own real estate directly as a result of a
default on securities in the portfolio. If the Series has rental income or
income from the direct disposition of real property, the receipt of such income
may adversely affect the Series' ability to retain its tax status as a regulated
investment company.
The Series may also, to a limited extent, enter into futures contracts on
stocks, purchase or sell options on such futures, engage in certain options
transactions on stocks and enter into closing transactions with respect to those
activities. However, futures, options and related activities will not be used
for speculative purposes but rather to quickly put money into the stock market
at times when the Series' assets are not fully invested in equity securities.
Positions in options or futures will generally be eliminated when the Series is
able to invest in appropriate securities.
We do not normally intend to acquire securities for the purpose of short-term
trading; however, we may take advantage of short-term opportunities that are
consistent with the Series' investment objectives.
<PAGE>
THE SECURITIES WE TYPICALLY INVEST IN
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- ------------------------------------------------------------ ---------------------------------------------------------------------
REIT Series
---------------------------------------------------------------------
<S> <C>
REAL ESTATE INVESTMENT TRUSTS: A company, usually traded The Series may invest without limitation in shares of REITs.
publicly, that manages a portfolio of real estate to earn
profits for shareholders.
REITs are generally classified as equity REITs, mortgage
REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real
property, derive income primarily from the collection of
rents and can realize capital gains by selling properties
that have appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive
income from the collection of interest payments. By
investing in REITs indirectly through the Series, a
shareholder bears not only a proportionate share of the
expenses of the Series, but also, indirectly, similar
expenses of the REITs.
- ------------------------------------------------------------ ---------------------------------------------------------------------
REAL ESTATE INDUSTRY OPERATING COMPANIES: A company that We may invest without limit in REOCs.
derives at least 50% of its gross revenues or net profits
from:
(1) Ownership, development, construction, financing,
management or sale of commercial, industrial or
residential real estate, or
(2) products or services related to the real estate
industry, such as building supplies or mortgage
servicing.
- ------------------------------------------------------------ ---------------------------------------------------------------------
FOREIGN SECURITIES AND AMERICAN DEPOSITARY RECEIPTS: The Series' investments in equity securities of REITs and
Securities of foreign entities issued directly or, in the REOCs may include, from time to time, sponsored or
case of American Depositary Receipts, through a U.S. bank. unsponsored American Depositary Receipts actively traded in
ADRs are issued by a U.S. bank and represent the bank's the United States. Equity securities for this purpose
holding of a stated number of shares of a foreign include common stocks, securities convertible into common
corporation. An ADR entitles the holder to all dividends and stocks and securities having common stock characteristics,
capital gains earned by the underlying foreign shares. ADRs such as rights and warrants to purchase common stocks.
are bought and sold the same as U.S. securities.
We may invest up to 10% of the Series' assets in foreign securities.
- ----------------------------------------------------------- ---------------------------------------------------------------------
</TABLE>
74
- --
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- ------------------------------------------------------------ ---------------------------------------------------------------------
REIT Series
---------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENTS: An agreement between a buyer, such as Typically, we use repurchase agreements as a short-term
the Series, and a seller of securities in which the seller investment for the Series' cash position. In order to enter
agrees to buy the securities back within a specified time at into these repurchase agreements, the Series must have
the same price the buyer paid for them, plus an amount equal collateral of at least 102% of the repurchase price. Except
to an agreed upon interest rate. Repurchase agreements are when the manager believes a temporary defensive approach is
often viewed as equivalent to cash. appropriate, the Series will not hold more than 5% of its
total assets in cash or such short-term investments. All
short-term investments will be of the highest quality as
determined by a nationally-recognized statistical rating
organization (e.g. AAA by S&P or Aaa by Moody's) or be of
comparable quality as determined by the manager.
- ------------------------------------------------------------ ---------------------------------------------------------------------
RESTRICTED SECURITIES: Privately placed securities whose We may invest in privately placed securities that are
resale is restricted under securities law. eligible for resale only among certain institutional buyers
without registration. These are commonly known as Rule 144A
Securities. Restricted securities that are determined to be
illiquid may not exceed the Series' 15% limit on illiquid
securities, which is described below.
- ------------------------------------------------------------ ---------------------------------------------------------------------
ILLIQUID SECURITIES: Securities that do not have a ready We may invest up to 15% of net assets in illiquid
market, and cannot be easily sold, if at all, at securities, including repurchase agreements with maturities
approximately the price that the Series has valued them. of over seven days.
- ------------------------------------------------------------ ---------------------------------------------------------------------
</TABLE>
LENDING SECURITIES REIT Series may lend up to 25% of its assets to qualified
dealers and investors for their use in security transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS REIT Series may
buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
BORROWING FROM BANKS REIT Series may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. To the extent that it does
so, the Series may be unable to meet its investment objective. The Series will
not borrow money in excess of one-third of the value of its net assets.
PORTFOLIO TURNOVER rates reflect the amount of securities that are replaced from
the beginning of the year to the end of the year by the Series. The degree of
portfolio activity may affect brokerage costs and other transaction costs of the
Series. We anticipate that the annual turnover rate of the REIT Series will
generally not exceed 100%.
75
--
<PAGE>
- -----------------------
REIT SERIES (continued)
THE RISKS OF
INVESTING IN
REIT SERIES
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Series you should
carefully evaluate the risks. An investment in the Series typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in REIT Series. Please see the Statement of Additional
Information for further discussion of these risks and other risks not discussed
here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- ------------------------------------------------------------ ---------------------------------------------------------------------
REIT Series
---------------------------------------------------------------------
<S> <C>
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market - like the stock or bond stocks we believe can appreciate over an extended time frame
market will decline in value because of factors such as regardless of interim market fluctuations. We do not try to
economic conditions, future expectations or investor predict overall stock market movements and do not trade for
confidence. short-term purposes.
We may hold a substantial part of the Series' assets in cash
or cash equivalents as a temporary, defensive strategy.
- ------------------------------------------------------------ ---------------------------------------------------------------------
INDUSTRY AND SECURITY RISK is the risk that the value of In the REIT Series we concentrate on the real estate
securities in a particular industry or the value of an industry. As a consequence, the share price of the Series
individual stock or bond will decline because of changing may fluctuate in response to factors affecting that
expectations for the performance of that industry or for the industry, and may fluctuate more widely than a Portfolio
individual company issuing the stock or bond. that invests in a broader range of industries. The Series
may be more susceptible to any single economic, political or
regulatory occurrence affecting the real estate industry.
In addition, because the Series is non-diversified, it may
invest a greater proportion of its assets in the securities
of a single industry than diversified Series. See
"Non-diversified risk" below.
- ------------------------------------------------------------ ---------------------------------------------------------------------
INTEREST RATE RISK is the risk that securities will decrease The REIT Series is subject to interest rate risk. As
in value if interest rates rise. interest rates decline, the value of the Series' investments
in real estate investment trusts that hold fixed rate
obligations can be expected to rise. Conversely, when
interest rates rise, the value of the Series' investments in
real estate investment trusts holding fixed rate obligations
can be expected to decline. However, lower interest rates
tend to increase the level of refinancing, which can hurt
the returns of REITs that hold fixed rate obligations.
- ------------------------------------------------------------ ---------------------------------------------------------------------
REAL ESTATE INDUSTRY RISK includes among others: possible Since the Series invests principally in REITs it is subject
declines in the value of real estate; risks related to to risks associated with the real estate industry. Investors
general and local economic conditions; possible lack of should carefully consider these risks before investing in
availability of mortgage funds; overbuilding; extended the Series.
vacancies of properties; increases in competition; and
changes in interest rates. REITS are subject to substantial
cash flow dependency, defaults by borrowers,
self-liquidation, and the risk of failing to qualify for
tax-free pass-through of income under the Internal Revenue
Code or to maintain exemptions from the Investment Company
Act of 1940.
- ------------------------------------------------------------ ---------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NON-DIVERSIFIED RISK affects portfolios with a greater Though the REIT Series will hold a number of different
percentage of assets invested in fewer securities. Adverse securities, technically, it is considered a non-diversified
effects on individual holdings may have a greater impact on fund according to the definition in the 1940 Act. In a
performance. diversified fund, 75% of the portfolio must be diversified,
meaning the fund or series cannot invest more than 5% of
total assets in an individual security. When a fund is
non-diversified, it does not have to limit the percentage of
assets invested in individual securities. However, the REIT
Series does intent to satisfy the Internal Revenue Code's
diversification requirement, which says that for 50% of the
Series' assets, no more than 5% of total assets can be
invested in any one individual security. The bottom line for
shareholders is that 50% of the REIT Series must be spread
among various securities, with no more than 5% of total
assets invested in any single security. The other 50% can be
more concentrated with greater than 5% invested in
individual securities.
- ------------------------------------------------------------ ---------------------------------------------------------------------
</TABLE>
76
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- ------------------------------------------------------------ ---------------------------------------------------------------------
REIT Series
---------------------------------------------------------------------
<S> <C>
FOREIGN RISK is the risk that foreign securities may be We may invest up to 10% of the REIT Series' total assets in
adversely affected by political instability, changes in foreign securities; however we typically invest only a small
currency exchange rates, foreign economic conditions or portion of assets in foreign securities.
inadequate regulatory and accounting standards.
If the Series holds international securities, currency
considerations may present risks. The Series may try to
reduce this risk by investing in forward foreign currency
exchange contracts to neutralize currency risks associated
with the purchase of individual securities denominated in a
particular currency. See "Futures and options risk" below.
- ------------------------------------------------------------ ---------------------------------------------------------------------
LIQUIDITY RISK is the possibility that securities cannot be We limit exposure to illiquid securities.
readily sold, if at all, at approximately the price that the
Series values them.
- ------------------------------------------------------------ ---------------------------------------------------------------------
FUTURES AND OPTIONS RISK Futures contracts, options on The REIT Series may use futures contracts and options on
futures contracts, forward contracts, and certain other futures contracts, as well as options on securities for
options involve risks. For example, there may be no defensive purposes and not for speculation. The Series will
correlation between price changes of an option or futures enter into futures contracts and options only as long as no
contract and the assets being hedged. This could render the more than 5% of the Series' assets are required as futures
hedging strategy unsuccessful and could result in losses. contract margin deposits and premiums on options.
Options and futures contracts on foreign currencies, and Obligations under such futures contracts and options on
forward contracts, entail particular risks related to those futures contracts may not exceed 20% of the Series'
conditions affecting the underlying currency. total assets.
- ------------------------------------------------------------ ---------------------------------------------------------------------
</TABLE>
INVESTMENT
MANAGER AND
SUB-ADVISER
The Series is managed by Delaware Management Company. Delaware Management
Company makes investment decisions for the Series, manages the Series' business
affairs and provides daily administrative services. Lincoln Investment
Management, Inc. (Lincoln) is the Series' sub-adviser. As sub-adviser, Lincoln
provides Delaware with investment recommendations, asset allocation advice,
research, economic analysis and other investment services regarding the types of
securities in which we invest. For its services to the Series, the Series will
pay the manager a fee of 0.75% on the first $500 million of average daily net
assets; 0.70% on the next $500 million; 0.65% on the next $1.5 billion and 0.60%
on assets in excess of $2.5 billion on an annual basis.
Lincoln is a wholly owned subsidiary of Lincoln National Corporation and was
incorporated in 1930. Lincoln's primary activity is institutional fixed-income
investment management and consulting. These activities include fixed-income
portfolios, private placements, real estate debt and equity, and asset/liability
management. As of November 30, 1998, Lincoln had approximately $41 billion in
assets under management. Lincoln provides investment management services to
Lincoln National Corporation, its principal subsidiaries and affiliated
registered investment companies, and acts as investment adviser to other
unaffiliated clients.
PORTFOLIO MANAGER
Babak Zenouzi has primary responsibility for making day-to-day investment
decisions for the REIT Series.
BABAK ZENOUZI
Vice President/Senior Portfolio Manager
Mr. Zenouzi holds a BS in Finance and Economics from Babson College in
Wellesley, Massachusetts, and an MS in Finance from Boston College. Prior to
joining Delaware Investments in 1992, he was with The Boston Company where he
held the positions of assistant vice president, senior financial analyst,
financial analyst and portfolio accountant. He has responsibility for making
day-to-day investment decisions for this Series regarding its investments in
U.S. equity securities. Mr. Zenouzi has been a member of REIT Series' management
team since its inception.
77
--
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
- --------------------------------------------------------------------------------
REIT Series
- --------------------------------------------------------------------------------
Period 5/4/98(1)
through 12/31/98
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.000
Income (loss) from investment operations
Net investment income 0.217
Net realized and unrealized loss on investments (1.117)
-------
Total from investment operations (0.900)
-------
Net asset value, end of period $ 9.100
=======
TOTAL RETURN(2) (9.00%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $5,562
Ratio of expenses to average net assets 0.85%
Ratio of expenses to average net assets
prior to expense limitation 1.02%
Ratio of net investment income to average net assets 6.42%
Ratio of net investment income to average net assets
prior to expense limitation 6.25%
Portfolio turnover 39%
- -------------------
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Total return does not reflect expenses that apply to Separate Accounts or
to the related insurance policies and inclusion of these charges would
reduce total return figures for all periods shown. Total return reflects
expense limitations in effect for the Series.
78
- --
<PAGE>
SMALL CAP VALUE SERIES
OUR INVESTMENT STRATEGIES
We strive to identify small-companies that offer above-average opportunities for
long-term price appreciation because their current stock price does not
accurately reflect the companies' underlying value or future earning potential.
Under normal conditions, at least 65% of the Series' net assets will be invested
in the common stock of small cap companies, those having a market capitalization
generally less than $1.5 billion. Our focus will be on value stocks, defined as
stocks whose price is historically low based on a given financial measure such
as profits, book value or cashflow.
Companies may be undervalued for many reasons. They may be unknown to stock
analysts, they may have experienced poor earnings or their industry may be in
the midst of a period of weak growth.
We will carefully evaluate the financial strength of the company, the nature of
its management, any developments affecting the company or its industry,
anticipated new products or services, possible management changes, projected
takeovers or technological breakthroughs. Using this extensive analysis, our
goal is to pinpoint the companies within the universe of undervalued stocks,
whose true value is likely to be recognized and rewarded with a rising stock
price in the future.
Because there is added risk when investing in smaller companies, which may still
be in their early developmental stages, we maintain a well-diversified
portfolio, typically holding a mix of different stocks, representing a wide
array of industries.
THE SECURITIES WE TYPICALLY INVEST IN
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- ------------------------------------------------------------ ---------------------------------------------------------------------
Small Cap Value Series
---------------------------------------------------------------------
<S> <C>
COMMON STOCKS: Securities that represent shares of ownership Under normal market conditions, we will hold at least 65% of
in a corporation. Stockholders participate in the the Series' net assets in common stock of small companies
corporation's profits and losses, proportionate to the that we believe are selling for less than their true value.
number of shares they own. Generally, we invest 90% to 100% of net assets in these
stocks.
- ------------------------------------------------------------ ---------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS: A company, usually traded The Series is permitted to invest in REITs and would
publicly, that manages a portfolio of real estate to earn typically do so when this sector or specific companies
profits for shareholders. within the sector appeared to offer opportunities for price
appreciation.
- ------------------------------------------------------------ ---------------------------------------------------------------------
FOREIGN SECURITIES AND AMERICAN DEPOSITARY RECEIPTS: Although Small Cap Value Series may invest up to 25% of its
Securities of foreign entities issued directly or, in the net assets in foreign securities or depository receipts, the
case of American Depositary Receipts, through a U.S. bank. manager has no present intention of doing so. We may hold
ADRs are issued by a U.S. bank and represent a stated number ADRs when we believe they offer greater value and greater
of shares of a foreign corporation that the bank holds in appreciation potential than U.S. securities.
its vault. An ADR entitles the holder to all dividends and
capital gains earned by the underlying foreign shares. ADRs
are bought and sold the same as U.S. securities.
- ------------------------------------------------------------ ---------------------------------------------------------------------
REPURCHASE AGREEMENTS: An agreement between a buyer, such as Typically, we use repurchase agreements as a short-term
the Series, and a seller of securities in which the seller investment for the Series' cash position. In order to enter
agrees to buy the securities back within a specified time at into these repurchase agreements, the Series must have
the same price the buyer paid for them, plus an amount equal collateral of at least 102% of the repurchase price.
to an agreed upon interest rate. Repurchase agreements are
often viewed as equivalent to cash.
- ------------------------------------------------------------ ---------------------------------------------------------------------
RESTRICTED SECURITIES: Privately placed securities whose We may invest in privately placed securities that are
resale is restricted under securities law. eligible for resale only among certain institutional buyers
without registration. These are commonly known as Rule 144A
Securities. Restricted securities that are determined to be
illiquid may not exceed the Series' 10% limit on illiquid
securities, which is described below.
- ------------------------------------------------------------ ---------------------------------------------------------------------
ILLIQUID SECURITIES: Securities that do not have a ready We may invest up to 10% of net assets in illiquid
market, and cannot be easily sold, if at all, at securities, including repurchase agreements with maturities
approximately the price that the Series has valued them. of over seven days.
- ------------------------------------------------------------ ---------------------------------------------------------------------
</TABLE>
79
--
<PAGE>
- --------------------------------------
SMALL CAP VALUE SERIES (continued)
Small Cap Value Series may also invest in other securities including convertible
securities, warrants, preferred stocks, and bonds. Please see the Statement of
Additional Information for additional descriptions and risk information on these
securities as well as those listed in the table above. You can find additional
information about the investments in the Series' portfolio in the annual or
semi-annual shareholder report.
LENDING SECURITIES Small Cap Value Series may lend up to 25% of its assets to
qualified dealers and investors for their use in security transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Small Cap Value
Series may buy or sell securities on a when-issued or delayed delivery basis;
that is, paying for securities before delivery or taking delivery at a later
date.
BORROWING FROM BANKS Small Cap Value Series may borrow money as a temporary
measure for extraordinary purposes or to facilitate redemptions. To the extent
that it does so, the Series may be unable to meet its investment objective. The
Series will not borrow money in excess of one-third of the value of its net
assets.
PORTFOLIO TURNOVER We anticipate that Small Cap Value Series' annual portfolio
turnover will be less than 100%. A turnover rate of 100% would occur if the
Series sold and replaced securities valued at 100% of its net assets within one
year.
THE RISKS OF INVESTING IN SMALL CAP VALUE SERIES Investing in any mutual fund
involves risk, including the risk that you may receive little or no return on
your investment, and the risk that you may lose part or all of the money you
invest. Before you invest in the Series you should carefully evaluate the risks.
An investment in the Series typically provides the best results when held for a
number of years. The following are the chief risks you assume when investing in
Small Cap Value Series. Please see the Statement of Additional Information for
further discussion of these risks and the other risks not discussed here.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- ------------------------------------------------------------ ---------------------------------------------------------------------
Small Cap Value Series
---------------------------------------------------------------------
<S> <C>
MARKET RISK is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market - like the stock or bond stocks we believe can appreciate over an extended time frame
market - will decline in value because of factors such as regardless of interim market fluctuations. We do not try to
economic conditions, future expectations or investor predict overall stock market movements and do not trade for
confidence. short-term purposes.
We may hold a substantial part of Small Cap Value Series'
assets in cash or cash equivalents as a temporary, defensive
strategy.
- ------------------------------------------------------------ ---------------------------------------------------------------------
INDUSTRY AND SECURITY RISK is the risk that the value of We limit the amount of Small Cap Value Series' assets
securities in a particular industry or the value of an invested in any one industry and in any individual security.
individual stock or bond will decline because of changing We also follow a rigorous selection process before choosing
expectations for the performance of that industry or for the securities and continuously monitor them while they remain
individual company issuing the stock. in the portfolio.
- ------------------------------------------------------------ ---------------------------------------------------------------------
SMALL COMPANY RISK is the risk that prices of smaller Small Cap Value Series maintains a well-diversified
companies may be more volatile than larger companies because portfolio, selects stocks carefully and monitors them
of limited financial resources or dependence on narrow continuously. And, because we focus on stocks that are
product lines. already selling at relatively low prices, we believe we may
experience less price volatility than small-cap funds that
do not use a value-oriented strategy.
- ------------------------------------------------------------ ---------------------------------------------------------------------
INTEREST RATE RISK is the risk that securities will decrease We analyze each company's financial situation and its
in value if interest rates rise. The risk is generally cashflow to determine the company's ability to finance
associated with bonds; however, because smaller companies future expansion and operations. The potential affect that
often borrow money to finance their operations, they may be rising interest rates might have on a stock is taken into
adversely affected by rising interest rates. consideration before the stock is purchased.
- ------------------------------------------------------------ ---------------------------------------------------------------------
FOREIGN RISK is the risk that foreign securities may be We typically invest only a small portion of Small Cap Value
adversely affected by political instability, changes in Series' portfolio in foreign securities. When we do purchase
currency exchange rates, foreign economic conditions or foreign securities, they are often denominated in U.S.
inadequate regulatory and accounting standards. dollars. To the extent we invest in foreign securities, we
invest primarily in issuers of developed countries, which
are less likely to encounter these foreign risks than
issuers in developing countries. The Series may use hedging
techniques to help offset potential foreign currency losses.
- ------------------------------------------------------------ ---------------------------------------------------------------------
LIQUIDITY RISK is the possibility that securities cannot be We limit exposure to illiquid securities.
readily sold, if at all, at approximately the price that the
Series values them.
- ------------------------------------------------------------ ---------------------------------------------------------------------
</TABLE>
80
- --
<PAGE>
INVESTMENT MANAGER
The Series is managed by Delaware Management Company. Delaware Management
Company makes investment decisions for the Series, manages the Series' business
affairs and provides daily administrative services. For its services to the
Series, the manager was paid 0.73% of average daily net assets for the last
fiscal year, reflecting the waiver of fees by the manger.
PORTFOLIO MANAGERS
Christopher S. Beck has primary responsibility for making day-to-day investment
decisions for the Small Cap Value Series. In making investment decisions for the
Series, Mr. Beck consults with Andrea Giles.
CHRISTOPHER S. BECK
Vice President/Senior Portfolio Manager
Mr. Beck has been in the investment business for 18 years, starting with
Wilmington Trust in 1981. Later, he became Director of Research at Cypress
Capital Management in Wilmington and Chief Investment Officer of the University
of Delaware Endowment Fund. Prior to joining Delaware Investments in May 1997,
he managed the Small Cap Fund for two years at Pitcairn Trust Company. He holds
a BS from the University of Delaware, an MBA from Lehigh University and is a CFA
charterholder. Mr. Beck has been managing the Small Cap Value Series since May
1997.
ANDREA GILES
Research Analyst
Ms. Giles holds a BSAD from the Massachusetts Institute of Technology and an MBA
in Finance from Columbia University. Prior to joining Delaware Investments in
1996, she was an account officer in the Leveraged Capital Group with Citibank.
81
--
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Cap Value Series
- ------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 17.920 $14.500 $12.470 $10.290 $10.210
Income (loss) from investment operations
Net investment income 0.196 0.122 0.112 0.192 0.148
Net realized and unrealized gain (loss) on investments (1.036) 4.338 2.548 2.208 (0.068)
-------- -------- -------- -------- --------
Total from investment operations (0.840) 4.460 2.660 2.400 0.080
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.135) (0.110) (0.180) (0.150) none
Distributions from net realized gain on investments (0.495) (0.930) (0.450) (0.070) none
-------- -------- -------- -------- --------
Total dividends and distributions (0.630) (1.040) (0.630) (0.220) none
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.450 $17.920 $14.500 $12.470 $10.290
======== ======== ======== ======== ========
TOTAL RETURN(1) (4.79%) 32.91% 22.55% 23.85% 0.78%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $103,989 $84,071 $23,683 $11,929 $6,291
Ratio of expenses to average net assets 0.83% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation 0.85% 0.90% 0.99% 0.96% 1.41%
Ratio of net investment income to average net assets 1.32% 1.24% 1.28% 2.13% 2.62%
Ratio of net investment income to average net assets
prior to expense limitation 1.30% 1.14% 1.09% 1.97% 2.01%
Portfolio turnover 45% 41% 84% 71% 26%
</TABLE>
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
(1) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce total
return figures for all periods shown. Total return reflects expense limitations
in effect for the Series.
82
<PAGE>
SOCIAL AWARENESS SERIES
OUR INVESTMENT STRATEGIES
Social Awareness Series is a socially responsible fund that invests primarily in
stocks that meet certain socially responsible criteria. It strives to provide
long-term capital appreciation to its shareholders.
We use a computer-driven selection process designed to identify stocks of
companies that are likely to grow faster than the average of the companies in
the S&P 500. Aided by this technology, we evaluate and rank hundreds of stocks
daily, using a variety of factors such as dividend yield, earnings growth and
price to earnings ratios. Decisions to buy and sell stocks are determined by
this objective evaluation process.
We invest primarily in the common stocks of medium and large-sized companies
(generally $1.0 billion or more in market capitalization at the time of
purchase) that have met the established socially responsible criteria. We use
the Social Investment Database published by Kinder, Lyndberg, Domini & Company,
Inc. to determine which companies to exclude from our selection process. The
approved stocks are then evaluated using the computer selection process
described above.
Our goal is to seek stocks of companies that have the potential to grow
significantly faster than the average of the companies in the S&P 500. We
believe this growth, if achieved, will result in a rising share price that will
provide long-term appreciation to investors.
THE SECURITIES WE TYPICALLY INVEST IN
Stocks offer investors the potential for capital appreciation and may pay
dividends as well.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- --------------------------------------------------------------------------------------------
Social Awareness Series
<S> <C>
COMMON STOCKS: Securities that represent Generally, we invest 90% to 100% of net
shares of ownership in a corporation. assets in common stock of medium-to
Stockholders participate in the large-size companies.
corporation's profits and losses,
proportionate to the number of shares
they own.
- --------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: An agreement Typically, we use repurchase agreements
between a buyer, such as the Series, and as a short-term investment for the
a seller of securities in which the Series' cash position. In order to enter
seller agrees to buy the securities back into these repurchase agreements, the
within a specified time at the same Series must have collateral of at least
price the buyer paid for them, plus an 102% of the repurchase price.
amount equal to an agreed upon interest
rate. Repurchase agreements are often
viewed as equivalent to cash.
- --------------------------------------------------------------------------------------------
RESTRICTED AND ILLIQUID SECURITIES: We may invest up to 10% of net assets in
Restricted securities are privately illiquid securities. For this Series,
placed securities whose resale is the 10% limit includes restricted
restricted under securities law. securities such as privately placed
securities that are eligible for resale
Illiquid securities are securities that only among certain institutional buyers
do not have a ready market, and cannot without registration, which are commonly
be easily sold, if at all, at known as "Rule 144A Securities," and
approximately the price that the Series repurchase agreements with maturities of
has valued them. over seven days.
- --------------------------------------------------------------------------------------------
</TABLE>
83
<PAGE>
- -----------------------------------------
SOCIAL AWARENESS SERIES (CONTINUED)
Social Awareness Series is permitted to invest in all available types of equity
securities, including preferred stock, warrants and convertible securities. The
Series may also invest in foreign securities directly (although we have no
present intention to do so) or through depositary receipts. It may hold cash,
short-term debt securities and money market instruments and engage in futures
and options transactions for defensive purposes, although to the extent it does
so it may be unable to meet its investment objective. Please see the Statement
of Additional Information for additional descriptions on these securities as
well as those listed in the table above. You can find additional information
about the investments in the Series' portfolio in the annual or semi-annual
shareholder report.
LENDING SECURITIES Social Awareness Series may lend up to 25% of its assets to
qualified brokers, dealers and institutional investors for their use in security
transactions.
PORTFOLIO TURNOVER We anticipate that Social Awareness Series' annual portfolio
turnover will be less than 100%. A turnover rate of 100% would occur if the
Series sold and replaced securities valued at 100% of its net assets within one
year.
BORROWING FROM BANKS Social Awareness Series may borrow money as a temporary
measure for extraordinary purposes or to facilitate redemptions. To the extent
that it does so, the Series may be unable to meet its investment objective. The
Series will not borrow money in excess of one-third of the value of its net
assets.
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN SOCIAL AWARENESS the risk that you may receive little or no return on
SERIES your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. An
investment in the Series typically provides the best
results when held for a number of years. The following
are the chief risks you assume when investing in Social
Awareness Series. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
RISKS HOW WE STRIVE TO MANAGE THEM
- ------------------------------------------------------------------------------------------
Social Awareness Series
<S> <C>
MARKET RISK is the risk that all or a We maintain a long-term investment
majority of the securities in a certain approach and focus on stocks we believe
market - like the stock or bond market - can appreciate over an extended time
will decline in value because of factors frame regardless of interim market
such as economic conditions, future fluctuations. We do not try to predict
expectations or investor confidence. overall stock market movements and do
not trade for short-term purposes.
We may hold a substantial part of the
Series' assets in cash or cash
equivalents as a temporary, defensive
strategy.
- ------------------------------------------------------------------------------------------
INDUSTRY AND SECURITY RISK is the risk We limit the amount of Social
that the value of securities in a Awareness Series' assets invested in any
particular industry or the value of an one industry and in any individual
individual stock or bond will decline security.
because of changing expectations for the
performance of that industry or for the Because Social Awareness Series avoids
individual company issuing the stock or investing in companies that don't meet
bond. socially responsible criteria, its
exposure to certain industry sectors may
be greater or less than similar funds or
market indexes. This could affect its
performance positively or negatively,
depending on the performance of those
sectors.
- ------------------------------------------------------------------------------------------
LIQUIDITY RISK is the possibility that We limit exposure to illiquid securities.
securities cannot be readily sold, or
can only be sold at approximately the
price that the Series has valued them.
- ------------------------------------------------------------------------------------------
LIMITED MARKET RISK is the risk that Because the Series only invests in
because the Series avoids certain companies that meet its definition of
companies not considered socially "socially responsible," this risk is
responsible, it could miss out on strong unavoidable.
performance from those companies.
- ------------------------------------------------------------------------------------------
</TABLE>
84
<PAGE>
INVESTMENT The Series is managed by Delaware Management Company.
MANAGER AND Vantage Investment Advisors is the Series' sub-adviser. As
SUB-ADVISER sub-adviser, Vantage is responsible for day-to-day
management of the Series' assets. Delaware Management
Company administers the Series' affairs and has ultimate
responsibility for all investment advisory services for the
Series. Delaware Management Company also supervises the
sub-adviser's performance. For their services to the Series,
the manager and sub-adviser were paid an aggregate fee of
0.69% of average daily net assets for the last fiscal year,
reflecting the waiver of fees by the manager.
Vantage Investment Advisors was founded in 1979. It provides
investment advice to pension plans, endowments, insurance
and commingled products and had assets under management in
excess of $9.34 billion as of December 31, 1998.
PORTFOLIO MANAGERS T. Scott Wittman, Enrique Chang and Christopher P. Harvey
have primary responsibility for making day-to-day investment
decisions for Social Awareness Series.
T. SCOTT WITTMAN
President, Vantage Investment Advisors
His responsibilities with Vantage Investment Advisors
include both business administration and equity portfolio
management. Mr. Wittman is a Certified Financial Analyst
(CFA). He has spent his entire professional career in
quantitative investment firms, including TSA Capital
Management, where he was a managing director, and Mellon
Bank, where he was Vice President and Manager of
Quantitative Analysis and Systems. Mr. Wittman has had
primary responsibility for making day-to-day investment
decisions for the Social Awareness Series since its
inception.
ENRIQUE CHANG
Senior Vice President and Chief Investment Officer, Vantage
Investment Advisors
Mr. Chang became co-manager of the Series in January 1999.
Mr. Chang oversees the management of all equity portfolios
and directs Vantage's quantitative research efforts. He
received a BA in mathematics from Fairleigh Dickinson
University in May of 1985, an MBA in finance and
quantitative analysis from New York University in May of
1988, and an MS in statistics and operations research from
New York University in May of 1996. He was previously an
actuary with Prudential, Director of Quantitative Analysis
and Strategy with General Reinsurance Corporation, and
Senior Vice President and Director of Quantitative Analysis
with J&W Seligman.
CHRISTOPHER P. HARVEY
Vice President, Vantage Investment Advisors
Mr. Harvey became co-manager of the Series in January 1999.
Mr. Harvey manages portfolios, conducts investment research
and assists in equity trading. He graduated Bucknell
University with a BS degree in accounting. He received an
MBA from the Stern School of Business at New York
University. Prior to joining Vantage Investment Advisors,
Mr. Harvey was a financial analyst with Merrill Lynch.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Social Awareness Series
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31 Period 5/1/97(1)
1998 through 12/31/97
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.840 $10.000
Income from investment operations
Net investment income 0.065 0.051
Net realized and unrealized gain on investments 1.880 2.789
------- -------
Total from investment operations 1.945 2.840
------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.050) none
Distributions from net realized gain on investments (0.185) none
------- -------
Total dividends and distributions (0.235) none
------- -------
NET ASSET VALUE, END OF PERIOD $14.550 $12.840
======= =======
TOTAL RETURN(2) 15.45% 28.40%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $26,962 $7,800
Ratio of expenses to average net assets 0.83% 0.80%
Ratio of expenses to average net assets prior to expense limitation 0.89% 1.40%
Ratio of net investment income to average net assets 0.80% 1.13%
Ratio of net investment income to average net assets prior to expense limitation 0.74% 0.53%
Portfolio turnover 30% 52%
</TABLE>
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown. Total return reflects expense
limitations in effect for the Series.
86
<PAGE>
STRATEGIC INCOME SERIES
OUR INVESTMENT STRATEGIES
Strategic Income Series is a type of fixed income fund that invests in three
distinct sectors of the fixed income market as it pursues its investment
objective of providing the high current income and total return. In determining
how much of the portfolio to allocate to each sector, we review economic and
market conditions and interest rate trends as well as the potential risks and
rewards associated with each sector. As little as 20% or as much as 60% of the
Series' assets may be invested in each fixed-income sector. In addition, the
Series may invest up to 10% of its assets in U.S. equity securities.
THE SECURITIES WE Fixed-income securities offer the potential for greater
TYPICALLY INVEST IN income payments than stocks, and also may provide capital
appreciation.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SECURITIES HOW WE USE THEM
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Income Series
<S> <C>
HIGH-YIELD CORPORATE BONDS: Debt obligations Strategic Income Series may invest up to 60% of
issued by a corporation and rated lower than net assets in high-yield corporate bonds. Emphasis
investment grade by an NRSRO such as S&P or is typically on those rated BB or B by an NRSRO.
Moody's or, if unrated, that we believe are of
comparable quality. High-yield bonds are issued by We carefully evaluate an individual company's
corporations that have poor credit quality and may financial situation, its management, the prospects
have difficulty repaying principal and interest. for its industry and the technical factors related
to its bond offering. Our goal is to identify
those companies that we believe will be able to
repay their debt obligations in spite of poor
ratings. The Series will invest in both rated and
unrated bonds. Unrated bonds may be more
speculative in nature than rated bonds.
U.S. GOVERNMENT SECURITIES: Direct U.S. The Series may invest up to 60% of net assets in
obligations including bills, notes, bonds and direct U.S. government obligations; however, they
other debt securities issued by the U.S. Treasury will typically be a smaller percentage of the
or securities of U.S. government agencies or portfolio because they generally do not offer as
instrumentalities. high a level of current income as other
fixed-income securities the Series may invest in.
MORTGAGE-BACKED SECURITIES: Fixed-income There is no limit on government-related
securities that represent pools of mortgages, with mortgage-backed securities or on fully
investors receiving principal and interest collateralized privately issued mortgage-backed
payments as the underlying mortgage loans are paid securities.
back. Many are issued and guaranteed against
default by the U.S. government or its agencies or We may invest up to 20% of net assets in
instrumentalities, such as the Federal Home Loan mortgage-backed securities issued by private
Mortgage Corporation, Fannie Mae and the companies whether or not the securities are 100%
Government National Mortgage Association. Others collateralized. However, these securities must be
are issued by private financial institutions, with rated in one of the four highest categories by an
some fully collateralized by certificates issued NRSRO at the time of purchase. The privately
or guaranteed by the government or its agencies or issued securities we invest in are either CMOs or
instrumentalities. REMICs (see below).
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS): See mortgage-backed securities above.
Privately issued mortgage-backed bonds whose
underlying value is the mortgages that are grouped
into different pools according to their maturity.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS (REMICS): See mortgage-backed securities above.
Privately issued mortgage-backed bonds whose
underlying value is a fixed pool of mortgages
secured by an interest in real property. Like
CMOs, REMICs offer different pools.
ASSET-BACKED SECURITIES: Bonds or notes backed by We invest only in asset-backed securities rated in
accounts receivables including home equity, one of the four highest categories by an NRSRO.
automobile or credit loans.
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</TABLE>
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STRATEGIC INCOME SERIES (continued)
THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
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SECURITIES HOW WE USE THEM
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Strategic Income Series
<S> <C>
INVESTMENT GRADE CORPORATE BONDS: Debt obligations We focus on bonds rated in one of the four highest
issued by a corporation, rated in one of the four categories by an NRSRO (or deemed equivalent).
highest categories by an NRSRO (or, if unrated,
that we believe are of equal quality). Debt securities within the top three categories
comprise what are known as high-grade bonds and
are regarded as having a strong capacity to pay
principal and interest. Securities in the fourth
category are known as medium-grade bonds and
regarded as having an adequate capacity to pay
principal and interest but with greater
vulnerability to adverse economic conditions and
speculative characteristics.
FOREIGN GOVERNMENT SECURITIES: Securities issued We will generally invest only in foreign
by foreign governments or supranational entities. government securities rated AAA or AA by S&P or
A supranational entity is an entity established or Aaa or Aa by Moody's or, if unrated, considered to
financially supported by the national governments be of comparable quality by us. However, up to 15%
of one or more countries. The International Bank of the Series' assets may also be invested in
for Reconstruction and Development (more commonly foreign government securities issued by emerging
known as the World Bank) is one example of a or developing countries, which may be lower rated,
Supranational entity. including securities rated below investment grade.
We may also invest in securities issued by
supranational entities, which are typically of
higher quality.
FOREIGN CORPORATE BONDS: Debt obligations issued We may invest in both rated and unrated securities
by a foreign corporation. of foreign corporations. The rated securities that
the Series may include those rated BBB or lower by
S&P or Fitch, Baa or lower by Moody's, or
similarly rated by another nationally recognized
statistical rating organization.
ZERO COUPON BONDS AND PAY-IN-KIND BONDS: Zero We may invest in zero coupon bonds and payment in
coupon securities are debt obligations which do kind bonds, though this is not expected to be a
not entitle the holder to any periodic payments of significant component of our strategy. The market
interest prior to maturity or a specified date prices of these bonds are generally more volatile
when the securities begin paying current interest. than the market prices of securities that pay
Therefore, they are issued and traded at a interest periodically and are likely to react
discount from their face amounts or par value. changes in interest rates to a greater degree than
PAYMENT-IN-KIND BONDS pay interest or dividends in interest-paying bonds having similar maturities
the form of additional bonds or preferred stock. and credit quality. They may have certain tax
consequences which, under certain conditions,
could be adverse to the Series.
EQUITY SECURITIES: Common stocks, preferred stocks Up to 10% of the Series' assets may be invested in
(including adjustable rate preferred stocks) and U.S. equity securities.
other equity securities, such as convertible
securities and warrants. Such investments must be consistent with the
Series' objective of high current income and total
return.
INVESTMENT COMPANY SECURITIES: In some foreign We may invest in either closed-end or open-end
countries, investments by a mutual fund may only investment companies consistent with the 1940 Act
be made through investments in closed-end requirements. These investments involve an
investment companies that in turn invest in the indirect payment of a portion of the expenses,
securities of such countries. including advisory fees, of such other investment
companies.
BRADY BONDS: These are debt securities issued We may invest in Brady Bonds. We believe that the
under the framework of the Brady Plan, an economic reforms undertaken by countries in
initiative announced by the U.S. Treasury connection with the issuance of Brady Bonds makes
Secretary, Nicholas F. Brady in 1989, as a the debt of countries that have issued or have
mechanism for debtor nations to restructure their announced plans to issue Brady Bonds an attractive
outstanding external indebtedness (generally, opportunity for investment.
commercial bank debt).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FOREIGN CURRENCY, FOREIGN CURRENCY CONTRACTS OR We may invest in securities issued in any currency
FORWARD CONTRACTS: A forward contract involves an and may hold foreign currency.
obligation to purchase or sell a specific currency
at a future date at a price set at the time of the In addition, the Series may enter into contracts
contract. Forward contracts are used to "lock-in" to purchase or sell foreign currencies at a future
the price of a security it has agreed to purchase date. Although the Series values its assets daily
or sell, in terms of U.S. dollars or other in terms of U.S. dollars, we do not convert our
currencies. holdings of foreign currencies into U.S. dollars
on a daily basis. We may, however, from time to
time, purchase or sell foreign currencies and/or
engage in forward foreign currency transactions in
order to expedite settlement of portfolio
transactions and to minimize currency value
fluctuations. We may conduct foreign currency
transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency
exchange market or through a forward foreign
currency contract or forward contract. The Series
will convert currency on a spot basis from time to
time, and investors should be aware of the costs
of currency conversion. By entering into these
transactions, the Series attempts to protect
against a possible loss resulting from an adverse
change in currency exchange rates during the
period between when a security is purchased or
sold and the date on which payment is made or
received.
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THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
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SECURITIES HOW WE USE THEM
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Strategic Income Series
<S> <C>
REPURCHASE AGREEMENTS: An agreement between a Typically, we use repurchase agreements as a
buyer, such as the Series, and a seller of short-term investment for the Series' cash
securities in which the seller agrees to buy the position. In order to enter into these repurchase
securities back within a specified time at the agreements, the Series must have collateral of at
same price the buyer paid for them, plus an amount least 102% of the repurchase price.
equal to an agreed upon interest rate. Repurchase
agreements are often viewed as equivalent to cash.
RESTRICTED SECURITIES: Privately placed securities We may invest in privately placed securities that
whose resale is restricted under securities law. are eligible for resale only among certain
institutional buyers without registration. These
are commonly known as Rule 144A Securities.
Restricted securities that are determined to be
illiquid may not exceed the Series' 10% limit on
illiquid securities, which is described below.
ILLIQUID SECURITIES: Securities that do not have a We may invest up to 10% of net assets in illiquid
ready market, and cannot be easily sold, if at securities, including repurchase agreements with
all, at approximately the price that the Series maturities of over seven days.
has valued them.
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</TABLE>
The Series may also invest in futures contracts and options on futures contracts
subject to certain limitations. Please see the Statement of Additional
Information for additional descriptions on these securities as well as those
listed in the table above.
LENDING SECURITIES
Strategic Income Series may lend up to 25% of its assets to qualified brokers,
dealers and investors for their use in security transactions.
BORROWING FROM BANKS
Strategic Income Series may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. To the extent that it does
so, the Series may be unable to meet its investment objective. The Series will
not borrow money in excess of one-third of the value of its net assets.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
Strategic Income Series may buy or sell securities on a when-issued or delayed
delivery basis; that is, paying for securities before delivery or taking
delivery at a later date.
PORTFOLIO TURNOVER
We anticipate that Strategic Income Series' annual portfolio turnover will be
less than 100%. A turnover rate of 100% would occur if the Series sold and
replaced securities valued at 100% of its net assets within one year.
89
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STRATEGIC INCOME SERIES (continued)
THE RISKS OF INVESTING Investing in any mutual fund involves risk, including
IN STRATEGIC INCOME the risk that you may receive little or no return on
SERIES your investment, and the risk that you may lose part or
all of the money you invest. Before you invest in the
Series you should carefully evaluate the risks. An
investment in the Series typically provides the best
results when held for a number of years. The following
are the chief risks you assume when investing in
Strategic Income Series. Please see the Statement of
Additional Information for further discussion of these
risks and the other risks not discussed here.
<TABLE>
<CAPTION>
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RISKS HOW WE STRIVE TO MANAGE THEM
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Income Series
<S> <C>
MARKET RISK is the risk that all or a majority of We maintain a long-term investment approach and
the securities in a certain market--like the stock focus on bonds that we believe will continue to
or bond market--will decline in value because of pay interest regardless of interim market
factors such as economic conditions, future fluctuations. We do not try to predict overall
expectations or investor confidence. bond market or interest rate movements and do not
trade for short-term purposes.
We may hold a substantial part of Strategic Income
Series' assets in cash or cash equivalents as a
temporary defensive strategy.
INDUSTRY AND SECURITY RISK is the risk that the We diversify the Series assets across three
value of securities in a particular industry or distinct sectors of the bond market and among a
the value of an individual stock or bond will wide variety of individual issuers.
decline because of changing expectations for the
performance of that industry or for the individual
company issuing the stock or bond.
INTEREST RATE RISK is the risk that securities Strategic Income Series is subject to interest
will decrease in value if interest rates rise. The rate risk. We cannot eliminate that risk, but we
risk is greater for bonds with longer maturities do strive to manage it by monitoring economic
than for those with shorter maturities. conditions.
CREDIT RISK The possibility that a bond's issuer Our careful, credit-oriented bond selection and
(or an entity that insures the bond) will be our commitment to hold a diversified selection of
unable to make timely payments of interest and high-yield bonds are designed to manage this risk.
principal.
It is likely that protracted periods of economic
Investing in so-called "junk" or "high-yield" uncertainty would cause increased volatility in
bonds entails the risk of principal loss, which the market prices of high-yield bonds, an increase
may be greater than the risk involved in in the number of high-yield bond defaults and
investment grade bonds. High-yield bonds are corresponding volatility in the Series' net asset
sometimes issued by companies whose earnings at value.
the time of issuance are less than the projected
debt service on the junk bonds. Our holdings of high quality investment grade
bonds are less subject to interest rate risk and
Although experts disagree on the impact may help to balance any credit problems
recessionary periods have had and will have on the experienced by individual high yield bond issuers
high-yield market, some analysts believe a or foreign issuers.
protracted economic downturn would severely
disrupt the market for high-yield bonds, adversely
affect the value of outstanding bonds and
adversely affect the ability of high-yield issuers
to repay principal and interest.
FOREIGN RISK is the risk that foreign securities The Series will attempt to reduce foreign
may be adversely affected by political instability investing risks through portfolio diversification,
(including governmental seizures or credit analysis and attention to trends in the
nationalization of assets), changes in currency economy, industries and financial markets.
exchange rates, foreign economic conditions or
inadequate regulatory and accounting standards. We carefully evaluate the political and economic
Foreign markets may also be less efficient, less situations in the countries where we invest and
liquid, have greater price volatility, less take these risks into account before we select
regulation and higher transaction costs than U.S. securities for the portfolio. However, there is no
markets. way to eliminate foreign risks when investing
internationally.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FOREIGN GOVERNMENT SECURITIES RISKS involve the Strategic Income Series attempts to reduce the
ability of a foreign government or government risks associated with investing in foreign
related issuer to make timely and ultimate governments by limiting the portion of portfolio
payments on its external debt obligations. This assets that may be invested in such securities.
ability to make payments will be strongly
influenced by the issuer's balance of payments,
including export performance, its access to
international credits and investments,
fluctuations in interest rates and the extent of
its foreign reserves.
CURRENCY RISK is the risk that the value of an We may try to hedge currency risk by purchasing
investment may be negatively affected by changes foreign currency exchange contracts. By agreeing
in foreign currency exchange rates. Adverse to purchase or sell foreign securities at a
changes in exchange rates may reduce or eliminate pre-set price on a future date, the Series strive
any gains produced by investments that are to protect the value of the stock they own from
denominated in foreign currencies and may increase future changes in currency rates. We will use
any losses. forward currency exchange contracts only for
defensive measures, not to enhance portfolio
returns. However, there is no assurance that a
strategy such as this will be successful.
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90
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THE SECURITIES WE
TYPICALLY INVEST IN
(continued)
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RISKS HOW WE STRIVE TO MANAGE THEM
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Strategic Income Series
<S> <C>
EMERGING MARKETS RISK is the possibility that the While the Strategic Income Series may purchase
risks associated with international investing will securities of issuers in any foreign country,
be greater in emerging markets than in more developed and emerging, no more than 15% of the
developed foreign markets because, among other Series' assets may be invested in direct
things, emerging markets may have less stable obligations of issuers located in emerging market
political and economic environments. countries.
LIQUIDITY RISK The possibility that securities A less liquid secondary market may have an adverse
cannot be readily sold, if at all, at effect on our ability to dispose of particular
approximately the price that the Series values issues, when necessary, to meet the Series'
them. liquidity needs or in response to a specific
economic event, such as the deterioration in the
The secondary market for high-yield securities is creditworthiness of the issuer. In striving to
currently dominated by institutional investors, manage this risk, we evaluate the size of a bond
including mutual funds and certain financial issuance as a way to anticipate its likely
institutions. The high-yield secondary market is liquidity level.
particularly susceptible to liquidity problems
when the institutions which dominate it We may invest only 10% of net assets in illiquid
temporarily cease buying bonds for regulatory, securities, excluding Rule 144A securities
financial or other reasons, such as the savings described above.
and loan crisis.
VALUATION RISK A less liquid secondary market as We will strive to manage this risk by carefully
described above makes it more difficult for the evaluating individual bonds and by limiting the
Series to obtain precise valuations of the amount of the portfolio that can be allocated to
high-yield securities in its portfolio. During privately placed high-yield securities.
periods of reduced liquidity, judgment plays a
greater role in valuing high-yield securities.
LEGISLATIVE AND REGULATORY RISK The United States We monitor the status of regulatory and
Congress has from time to time taken or considered legislative proposals to evaluate any possible
legislative actions that could adversely affect effects they might have on the Series' portfolio.
the high-yield bond market. Such actions in the
future could reduce liquidity for high-yield
issues, reduce the number of new high-yield
securities being issued and could make it more
difficult for the Series to attain its investment
objective.
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91
<PAGE>
INVESTMENT MANAGER The Series is managed by Delaware Management Company.
AND SUB-ADVISER Delaware Management Company makes investment decisions for
the Series, manages the Series' business affairs and
provides daily administrative services. Delaware
International Advisers is the Series' sub-adviser. Subject
to the overall supervision of manager, the sub-adviser
manages the international sector of the Series' portfolio
and furnishes the manager with investment recommendations,
asset allocation advice, research and other investment
services regarding foreign securities. For its services to
the Series, the Series paid the manager and sub-adviser an
aggregate fee of 0.64% of average daily net assets for the
last fiscal year, reflecting the waiver of fees by the
manager.
PORTFOLIO MANAGERS Paul A. Matlack, Paul Grillo and Ian G. Sims have primary
responsibility for making day-to-day investment decisions
for Strategic Income Series.
PAUL A. MATLACK
Vice President/Senior Portfolio Manager
A CFA charterholder, Mr. Matlack is a graduate of the
University of Pennsylvania with an MBA in Finance from
George Washington University. He began his career at Mellon
Bank as a credit specialist, and later served as a
corporate loan officer for Mellon Bank and then Provident
National Bank. He has primary responsibility for allocating
Strategic Income Series' assets among the fixed-income and
equity sectors and for making day-to-day investment
decisions for the Series regarding its investments in the
high-yield sector. Mr. Matlack has been a member of
Strategic Income Series' management team since its
inception.
PAUL GRILLO
Vice President/Portfolio Manager
Mr. Grillo holds a BA in Business Management from North
Carolina State University and an MBA in Finance from Pace
University. Prior to joining Delaware Investments in 1993,
he served as mortgage strategist and trader at the Dreyfus
Corporation. He also served as a mortgage strategist and
portfolio manager for the Chemical Investment Group and as
financial analyst at the Chemical Bank. Mr. Grillo is a CFA
charterholder. He has primary responsibility for making
day-to-day investment decisions for the Series regarding
its investments in investment grade securities. Mr. Grillo
has been a member of Strategic Income Series' management
team since its inception.
IAN G. SIMS
Deputy Managing Director/Chief Investment Officer, Global
Fixed Income and Director, Delaware International Advisers
Ltd.
Mr. Sims is a graduate of the University of
Newcastle-Upon-Tyne. He joined Delaware International in
1990 as a senior international fixed-income and currency
manager. Mr. Sims began his investment career with the
Standard Life Assurance Co., and subsequently moved to the
Royal Bank of Canada Investment Management International
Company, where he was an international fixed-income
manager. Prior to joining Delaware International Advisers,
he was a senior fixed-income and currency portfolio manager
with Hill Samuel Investment Management Ltd. Mr. Sims has
primary responsibility for making day-to-day investment
decisions for Strategic Income Series regarding its
investments in foreign securities. He has been a member of
Strategic Income Series' management team since its
inception.
92
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Strategic Income Series
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Year Ended 12/31 Period 5/1/97(1)
1998 through 12/31/97
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.620 $10.000
Income from investment operations
Net investment income(2) 0.832 0.523
Net realized and unrealized gain (loss) on investments,
foreign currencies and futures contracts (0.557) 0.097
------- -------
Total from investment operations 0.275 0.620
------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.270) none
Distributions from net realized gain on investments (0.025) none
------- -------
Total dividends and distributions (0.295) none
------- -------
Net asset value, end of period $10.600 $10.620
======= =======
TOTAL RETURN(3) 2.63% 6.20%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $20,571 $8,606
Ratio of expenses to average net assets 0.80% 0.80%
Ratio of expenses to average net assets prior to expense limitation 0.81% 1.23%
Ratio of net investment income to average net assets 7.90% 7.44%
Ratio of net investment income to average net assets prior to expense limitation 7.89% 7.01%
Portfolio turnover 143% 70%
</TABLE>
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown. Total return reflects expense
limitations in effect for the Series.
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TREND SERIES
OUR INVESTMENT STRATEGIES
We strive to identify small-companies that offer above-average opportunities for
long-term price appreciation because they are poised to benefit from changing
and dominant trends within society or the political arena. In striving to
identify such companies, we will evaluate a company's managerial skills, product
development and sales and earnings.
Because there is added risk when investing in smaller companies, which may still
be in their early developmental stages, we maintain a well-diversified
portfolio, typically holding a mix of different stocks, representing a wide
array of industries.
THE SECURITIES WE TYPICALLY INVEST IN
Stocks offer investors the potential for capital appreciation, and may pay
dividends as well.
<TABLE>
<CAPTION>
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SECURITIES HOW WE USE THEM
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Trend Series
COMMON STOCKS: Securities that represent shares of ownership in a Generally, we invest 90% to 100% of net assets in
corporation. Stockholders participate in the corporation's profits and common stock of small growth-oriented companies
losses, proportionate to the number of shares they own.
AMERICAN DEPOSITARY RECEIPTS: ADRs are issued by a U.S. bank and We may hold ADRs when we believe they offer greater
represent the bank's holdings of a stated number of shares of a foreign appreciation potential than U.S. securities.
corporation. An ADR entitles the holder to all dividends and capital
gains earned by the underlying foreign shares. ADRs are bought and sold
the same as U.S. securities.
REPURCHASE AGREEMENTS: An agreement between a buyer, such as the Typically, we use repurchase agreements as a short-
Series, and a seller of securities in which the seller agrees to buy the term investment for the Series' cash position. In
securities back within a specified time at the same price the buyer paid for order to enter into these repurchase agreements, the
them, plus an amount equal to an agreed upon interest rate. Repurchase Series must have collateral of at least 102% of the
agreements are often viewed as equivalent to cash. repurchase price.
RESTRICTED SECURITIES: Privately placed securities whose resale is We may invest in privately placed securities that
restricted under securities law. are eligible for resale only among certain
institutional buyers without registration. These are
commonly known as Rule 144A Securities. Restricted
securities that are determined to be illiquid may
not exceed the Series' 10% limit on illiquid
securities, which is described below.
ILLIQUID SECURITIES: Securities that do not have a ready market, and We may invest up to 10% of net assets in illiquid
cannot be easily sold, if at all, at approximately the price that the Series securities, including repurchase agreements with
has valued them. maturities of over seven days.
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</TABLE>
Trend Series may also invest in other securities including convertible
securities, warrants, preferred stocks, and bonds. Trend Series may invest a
portion of its net assets in foreign securities; however, the manager has no
present intention of doing so. Please see the Statement of Additional
Information for additional descriptions and risk information on these securities
as well as those listed in the table above. You can find additional information
about the investments in the Series' portfolio in the annual or semi-annual
shareholder report.
LENDING SECURITIES Trend Series may lend up to 25% of its assets to qualified
dealers and investors for their use in security transactions.
PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS Trend Series
may buy or sell securities on a when-issued or delayed delivery basis; that is,
paying for securities before delivery or taking delivery at a later date.
BORROWING FROM BANKS Trend Series may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. To the extent that it does
so, the Series may be unable to meet its investment objective. The Series will
not borrow money in excess of one-third of the value of its net assets.
PORTFOLIO TURNOVER We anticipate that Trend Series' annual portfolio turnover
may be greater than 100%. A turnover rate of 100% would occur if the Series sold
and replaced securities valued at 100% of its net assets within one year. High
turnover can result in increased transaction costs and tax liability.
94
<PAGE>
THE RISKS OF INVESTING IN TREND SERIES
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Series you should
carefully evaluate the risks. An investment in the Series typically provides the
best results when held for a number of years. The following are the chief risks
you assume when investing in Trend Series. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
<TABLE>
<CAPTION>
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RISKS HOW WE STRIVE TO MANAGE THEM
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<S> <C>
Trend Series
MARKET RISK is the risk that all or a majority of the securities in a certain We maintain a long-term investment approach and
market - like the stock or bond market - will decline in value because of focus on stocks we believe can appreciate over an
factors such as economic conditions, future expectations or investor extended time frame regardless of interim market
confidence. fluctuations. We do not try to predict overall stock
market movements and though we may hold securities
for any amount of time, we typically do not trade
for short-term purposes.
We may hold a substantial part of Trend Series'
assets in cash or cash equivalents as a temporary,
defensive strategy.
INDUSTRY AND SECURITY RISK is the risk that the value of securities in a We limit the amount of Trend Series' assets invested
particular industry or the value of an individual stock or bond will in any one industry and in any individual security.
decline because of changing expectations for the performance of that We also follow a rigorous selection process before
industry or for the individual company issuing the stock. choosing securities and continuously monitor them
while they remain in the portfolio.
SMALL COMPANY RISK is the risk that prices of smaller companies may be Trend Series maintains a well-diversified portfolio,
more volatile than larger companies because of limited financial resources selects stocks carefully and monitors them
or dependence on narrow product lines. continuously.
INTEREST RATE RISK is the risk that securities will decrease in value if We analyze each company's financial situation and
interest rates rise. The risk is generally associated with bonds; however, its cash flow to determine the company's ability to
because smaller companies often borrow money to finance their finance future expansion and operations. The
operations, they may be adversely affected by rising interest rates. potential effect that rising interest rates might
have on a stock is taken into consideration before
the stock is purchased.
FOREIGN RISK is the risk that foreign securities may be adversely affected We typically invest only a small portion of the
by political instability, changes in currency exchange rates, foreign Series' portfolio in foreign corporations through
economic conditions or inadequate regulatory and accounting standards. American Depositary Receipts. We do not invest
directly in foreign securities. When we do purchase
ADRs, they are generally denominated in U.S. dollars
and traded on a U.S. exchange.
LIQUIDITY RISK is the possibility that securities cannot be readily sold, or We limit exposure to illiquid securities.
can only be sold at approximately the price that the Series has valued them.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
95
<PAGE>
- --------------------------------------
TREND SERIES (continued)
INVESTMENT MANAGER
The Series is managed by Delaware Management Company. Delaware Management
Company makes investment decisions for the Series, manages the Series' business
affairs and provides daily administrative services. For its services to the
Series, the manager was paid 0.71% of average daily net assets for the last
fiscal year, reflecting the waiver of fees by the manager.
PORTFOLIO MANAGERS
Gerald S. Frey has primary responsibility for making day-to-day investment
decisions for the Trend Series. When making investment decisions for the Series,
Mr. Frey regularly consults with Marshall T. Bassett, John A. Heffern, Jeffrey
W. Hynoski and Lori P. Wachs.
GERALD S. FREY
Vice President/Senior Portfolio Manager
Mr. Frey has 22 years' experience in the money management business and holds a
BA in Economics from Bloomsburg University and attended Wilkes College and New
York University. Prior to joining Delaware Investments in 1996, he was a Senior
Director with Morgan Grenfell Capital Management in New York. Mr. Frey has been
senior portfolio manager for the Series since March 1997 and was Co-Manager from
June 1996 to March 1997.
MARSHALL T. BASSETT
Vice President
Mr. Bassett joined Delaware Investments in 1997. In his most recent position, he
served as Vice President in Morgan Stanley Asset Management's Emerging Growth
Group, where he analyzed small growth companies. Prior to that, he was a trust
officer at Sovran Bank and Trust Company. He received his bachelor's degree and
MBA from Duke University.
JOHN A. HEFFERN
Vice President
Mr. Heffern holds a bachelor's degree and an MBA from the University of North
Carolina at Chapel Hill. He joined Delaware Investments in 1997. Previously, he
was a Senior Vice President, Equity Research at NatWest Securities Corporation's
Specialty Finance Services unit. Prior to that, he was a Principal and Senior
Regional Bank Analyst at Alex. Brown & Sons.
JEFFREY W. HYNOSKI
Vice President
Mr. Hynoski joined Delaware Investments in 1998. Previously he served as a Vice
President at Bessemer Trust Company in the mid and large capitalization growth
group, where he specialized in the areas of science, technology, and
telecommunications. Prior to that, Mr. Hynoski held positions at Lord Abbett &
Co. and Cowen Asset Management. Mr. Hynoski holds a BS in Finance from the
University of Delaware and an MBA with a concentration in Investments/Portfolio
Management and Financial Economics from Pace University.
LORI P. WACHS
Vice President
Ms. Wachs joined Delaware Investments in 1992 from Goldman Sachs, where she was
an equity analyst for two years. She is a graduate of the University of
Pennsylvania's Wharton School, where she majored in Finance and Oriental
Studies.
96
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREND SERIES
- -----------------------------------------------------------------------------------------------------------------------
Year Ended 12/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $17.380 $14.560 $14.020 $10.160 $10.200
Income (loss) from investment operations
Net investment income 0.006 0.019 0.050 0.098 0.079
Net realized and unrealized gain (loss) on investments 2.736 3.031 1.380 3.852 (0.119)
-------- -------- ------- ------- -------
Total from investment operations 2.742 3.050 1.430 3.950 (0.040)
-------- -------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (0.020) (0.050) (0.090) (0.090) none
Distributions from net realized gain on investments (0.342) (0.180) (0.800) none none
-------- -------- ------- ------- -------
Total dividends and distributions (0.362) (0.230) (0.890) (0.090) none
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $19.760 $17.380 $14.560 $14.020 $10.160
======== ======== ======= ======= =======
TOTAL RETURN(1) 16.04% 21.37% 11.00% 39.21% (0.39%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $168,251 $118,276 $56,423 $20,510 $7,087
Ratio of expenses to average net assets 0.81% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation 0.85% 0.88% 0.92% 0.96% 1.47%
Ratio of net investment income to average net assets 0.03% 0.16% 0.56% 1.03% 1.63%
Ratio of net investment income to average net assets
prior to expense limitation (0.01%) 0.08% 0.44% 0.87% 0.96%
Portfolio turnover 121% 125% 112% 76% 59%
</TABLE>
THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Series'
financial performance. This represents the rate that an investor would have
earned or lost on an investment in the Series (assuming reinvestment of all
dividends and distributions). All "per share" information reflects financial
results for a single Series share. This information has been audited by Ernst &
Young LLP, whose report, along with the Series' financial statements, is
included in the Series' annual report, which is available upon request by
calling 800.523.1918.
(1) Total return does not reflect expenses that apply to Separate Accounts or to
the related insurance policies and inclusion of these charges would reduce
total return figures for all periods shown. Total return reflects expense
limitations in effect for the Series.
97
<PAGE>
IMPORTANT INFORMATION ABOUT ALL SERIES
- --------------------------------------------------------------------------------
WHO'S WHO? The following describes the various organizations involved with
managing, administering, and servicing the Series.
BOARD OF DIRECTORS
A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business
affairs. Directors are expected to exercise sound business
judgment, establish procedures and oversee and review the
performance of the investment manager, the distributor and others
that perform services for the fund. At least 40% of the board of
directors must be independent of the fund's investment manager or
distributor. These independent fund directors, in particular, are
advocates for shareholder interests.
INVESTMENT MANAGERS
Delaware Management Company, One Commerce Square, Philadelphia, PA
19103 or Delaware International Advisers Ltd., Third Floor, 80
Cheapside London, England EC2V 6EE
An investment manager is a company responsible for selecting
portfolio investments consistent with objectives and policies
stated in the mutual fund's prospectus. The investment manager
places portfolio orders with broker/dealers and is responsible for
obtaining the best overall execution of those orders. A written
contract between a mutual fund and its investment manager specifies
the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a
percentage of the fund's average net assets. The manager is subject
to numerous legal restrictions, especially regarding transactions
between itself and the funds it advises.
Delaware Management Company and its predecessors have been managing
the funds in Delaware Investments since 1938. On December 31, 1998,
Delaware Management Company and its affiliates within Delaware
Investments, including Delaware International Advisers Ltd., were
managing in the aggregate more than $45 billion in assets in the
various institutional or separately managed (approximately
$26,429,550,000) and investment company (approximately
$18,817,530,000) accounts. Delaware International Advisers began
operating in 1990 and manages global and international
institutional and mutual fund accounts. Delaware Management Company
is a series of Delaware Management Business Trust, which is an
indirect, wholly owned subsidiary of Delaware Management Holdings,
Inc.
SUB-ADVISERS
Lincoln Investment Management, Inc., 200 E. Berry Street, Fort
Wayne, Indiana 46802 or Vantage Investment Advisors, 630 Fifth
Avenue, New York, NY 10111 Delaware International Advisers Ltd.,
Third Floor, 80 Cheapside London, England EC2V 6EE
A sub-adviser is a company generally responsible for the management
of the fund's assets. They are selected and supervised by the
investment manager.
PORTFOLIO MANAGERS
Portfolio managers are employed by the investment managers or
sub-advisers to make investment decisions for individual portfolios
on a day-to-day basis. See "Information about individual Series"
for information about the portfolio managers of the various series.
DISTRIBUTOR
Delaware Distributors, L.P., 1818 Market Street, Philadelphia, PA
19103
Shares of the Series are only sold to separate accounts of
insurance companies used in connection with variable annuity or
variable life products.
CUSTODIAN
The Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY
11245
Mutual funds are legally required to protect their portfolio
securities by placing them with a custodian, typically a qualified
bank custodian who segregates fund securities from other bank
assets.
98
<PAGE>
PURCHASE AND Shares are sold only to separate accounts of life companies at
REDEMPTION OF net asset value. (See Valuation of shares.) Redemptions will be
SHARES effected by the separate accounts at the net asset value next
determined after receipt of the order to meet obligations under
the variable contracts. Cash Reserve Series is managed to
maintain a constant $10 per share net asset value although there
is no assurance that this objective can be achieved. Contract
owners do not deal directly with the Fund with respect to the
acquisition or redemption of Series shares.
VALUATION OF The price you pay for shares will depend on when we receive your
SHARES purchase order. If we or an authorized agent receives your order
before the close of trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern Time) on a business day, you will
pay that day's closing share price which is based on the Series'
net asset value. If we receive your order after the close of
trading, you will pay the next business day's price. A business
day is any day that the New York Stock Exchange is open for
business. Currently the Exchange is closed when the following
holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. We
reserve the right to reject any purchase order.
We determine a Series' net asset value (NAV) per share at the
close of trading of the New York Stock Exchange each business
day that the Exchange is open. We calculate this value by adding
the market value of all the securities and assets a Series'
portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the
net asset value per share. We price securities and other assets
for which market quotations are available at their market value.
We price debt securities on the basis of valuations provided to
us by an independent pricing service that uses methods approved
by the board of directors. Any investments that have a maturity
of less than 60 days we price at amortized cost. We price all
other securities at their fair market value using a method
approved by the board of directors.
A significant portion of the portfolio securities of the
Emerging Markets, Global Bond, International Equity and
Strategic Income Series are listed on foreign exchanges. From
time to time, other Series may also hold securities that are
listed on foreign exchanges. These foreign exchanges may trade
on weekends or days when the Series do not price their shares.
As a result, the NAV of these Series may change on days when you
will not be able to purchase or redeem shares of the Series.
DIVIDENDS, For the Capital Reserves, Cash Reserve and Delchester Series,
DISTRIBUTIONS dividends, if any, are declared daily and paid monthly.
AND TAXES Short-term capital gains distributions, if any, may be paid with
the dividend; otherwise, any distributions from net realized
securities profits normally will be distributed following the
close of the fiscal year.
For the Delaware Balanced, Global Bond and Growth and Income
Series, dividends, if any, are paid quarterly. Capital gain
distributions, if any, normally will be made following the close
of the fiscal year.
For the Aggressive Growth, Convertible Securities, DelCap,
Devon, Emerging Markets, International Equity, REIT, Small Cap
Value, Social Awareness, Strategic Income and Trend Series,
dividends and capital gain distributions, if any, are
distributed annually.
We automatically reinvest all dividends and any capital gains.
A Series will not be subject to federal income tax to the extent
its earnings are distributed. The Fund intends to distribute
substantially all of the respective Series' net investment
income and net capital gains. Shareholders may be
proportionately liable for taxes on income and gains of the
Series
99
<PAGE>
IMPORTANT INFORMATION ABOUT ALL SERIES (CONTINUED)
DIVIDENDS, but shareholders not subject to tax on their income will not be
DISTRIBUTIONS required to pay tax on amounts distributed to them, and the Fund
AND TAXES will inform shareholders of the amount and nature of such income
(continued) or gains.
Please refer to the prospectus for the variable insurance
contract for additional tax information relevant to such
contracts.
YEAR 2000 As with other mutual funds, financial and business organizations
and individuals around the world, each Series could be adversely
affected if the computer systems used by its service providers
do not properly process and calculate date-related information
from and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." The Series is taking steps to obtain
satisfactory assurances that its major service providers are
taking steps reasonably designed to address the Year 2000
Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of each
Series. The Year 2000 Problem may also adversely affect the
issuers of securities in which each Series invests. Consistant
with the investment process utilized for the selection of
securities for the Social Awareness Series, the portfolio
managers focus solely on the quantitative characteristics of the
equity securities in which the Series invests. This process
assumes that the effect of the year 2000 problem on each company
is already reflected in those characteristics. Accordingly,
except for surveying widely reported information regarding the
companies in which the Series invests, no additional Year 2000
due diligence is performed. The portfolio managers and
investment professionals of the other Series consider Year 2000
compliance in the securities selection and investment process.
However, there can be no guarantee that, even with their due
diligence efforts, they will be able to predict the effect of
Year 2000 on any company or the performance of its securities.
100
<PAGE>
DELAWARE GROUP
PREMIUM FUND, INC. ADDITIONAL INFORMATION ABOUT THE SERIES' INVESTMENTS is
available in the Series' Annual and Semi-Annual Reports to
shareholders. In the Series annual reports you will find a
discussion of the market conditions and investment
strategies that significantly affected the Series'
performance during its last fiscal period. You can find
more detailed information about the Series' in the current
Statement of Additional Information (SAI), which we have
filed electronically with the Securities and Exchange
Commission (SEC) and which is legally a part of this
Prospectus. You may obtain a free copy of Statement of
Additional Information by writing to us at 1818 Market
Street, Philadelphia, PA 19103, or call toll-free
800.523.1918.
You can find reports and other information about the Series
on the SEC web site (http://www.sec.gov), or you can get
copies of this information, after payment of a duplicating
fee, by writing to the Public Reference Section of the SEC,
Washington, DC 20549-6009. Information about the Series,
including their Statement of Additional Information, can be
reviewed and copied at the SEC's Public Reference Room in
Washington, DC. You can get information on the public
reference room by calling the SEC at 1.800.SEC.0330.
Investment Company Act File Number: 811-5162
DELAWARE(SM)
INVESTMENTS
- ---------------------
PHILADELPHIA o LONDON
<PAGE>
INVESTMENT MANAGERS
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE
SUB-ADVISERS
Lincoln Investment Management, Inc.
200 E. Berry Street
Fort Wayne, Indiana 46802
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
<PAGE>
- --------------------------------
DELAWARE GROUP
- --------------------------------
- --------------------------------
PREMIUM FUND, INC.
- --------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------
MAY 1, 1999
DELAWARE
INVESTMENTS
- -----------
<PAGE>
- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
- --------------------------------------------------------------------------------
DELAWARE GROUP
- --------------------------------------------------------------------------------
PREMIUM FUND, INC.
- --------------------------------------------------------------------------------
1818 MARKET STREET
PHILADELPHIA, PA 19103
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
COVER PAGE
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
ACCOUNTING AND TAX ISSUES
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
TRADING PRACTICES AND BROKERAGE
- --------------------------------------------------------------------------------
OFFERING PRICE
- --------------------------------------------------------------------------------
DIVIDENDS AND REALIZED SECURITIES
PROFITS DISTRIBUTIONS
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT AGREEMENTS
AND SUB-ADVISORY AGREEMENTS
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
APPENDIX A--DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
-1-
<PAGE>
Delaware Group Premium Fund, Inc. ("Premium Fund" or the "Fund") is a
diversified, open-end management investment company which is intended to meet a
wide range of investment objectives with its separate Portfolios ("Series").
Each Series is in effect a separate fund issuing its own shares.
The shares of the Fund are sold only to separate accounts of life
insurance companies ("life companies"). The separate accounts are used in
conjunction with variable annuity contracts and variable life insurance policies
("variable contracts"). The separate accounts invest in shares of the various
Series in accordance with allocation instructions received from contract owners.
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectuses of
the Fund dated May 1, 1999, as they may be amended from time to time. It should
be read in conjunction with the prospectuses for the variable contracts and the
Fund. Part B is not itself a prospectus but is, in its entirety, incorporated by
reference into the Fund's Prospectuses. The Fund's Prospectuses may be obtained
by writing or calling your investment dealer or by contacting the Series'
national distributor, Delaware Distributors, L.P. (the "Distributor"), 1818
Market Street, Philadelphia, PA 19103. The Funds' financial statements, the
notes relating thereto, the financial highlights and the report of independent
auditors are incorporated by reference from the Annual Report into this Part B.
The Annual Report will accompany any request for Part B. The Annual Report can
be obtained, without charge, by calling 800-523-1918.
-2-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Series are below. There can be no
assurance that the objectives of any Series will be realized.
Aggressive Growth Series seeks long-term capital appreciation
which the Series attempts to achieve by investing primarily in
equity securities of companies which the manager believes have
the potential for high earnings growth. This Series has the
same objective and investment discipline as Aggressive Growth
Fund of Voyageur Mutual Funds III, Inc., a separate fund in
the Delaware Investments family.
Capital Reserves Series seeks a high stable level of current
income while minimizing fluctuations in principal by investing
in a diversified portfolio of short- and intermediate-term
securities.
Cash Reserve Series seeks the highest level of income
consistent with preservation of capital and liquidity through
investments in short-term money market instruments. This
Series has the same objective and investment disciplines as
Delaware Group Cash Reserve, Inc., a separate fund in the
Delaware Investments family.
Convertible Securities Series seeks a high level of total
return on its assets through a combination of capital
appreciation and current income. The Series intends to pursue
its investment objective by investing primarily in convertible
securities. Under normal conditions, the Series intends to
invest at least 65% of its total assets in convertible
securities, which may include privately placed convertible
securities. In pursuit of its investment objective, the Series
may invest the balance of its assets in, among other things,
preferred and common stock, U.S. Government securities,
non-convertible fixed income securities and money market
securities.
Delaware Balanced Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a
dividend-oriented valuation strategy to select securities
issued by established companies that are believed to
demonstrate potential for income and capital growth. This
Series has the same objective and investment disciplines as
Delaware Balanced Fund of Delaware Group Equity Funds I, Inc.,
a separate fund in the Delaware Investments family, in that,
as a "balanced" fund, the Series, consistent with its
objective, invests at least 25% of its assets in fixed-income
securities and the remainder primarily in equity securities.
DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities
exhibiting the potential for significant growth. This Series
has the same objective and investment disciplines as DelCap
Fund of Delaware Group Equity Funds IV, Inc., a separate fund
in the Delaware Investments family, in that it invests in
common stocks and other securities including, but not limited
to, convertible securities, warrants, preferred stocks, bonds
and foreign securities, consistent with the Series' objective.
Delchester Series seeks as high a current income as possible
by investing in rated and unrated corporate bonds (including
high-yield bonds commonly known as junk bonds), U.S.
government securities and commercial paper. This Series has
the same objective and investment disciplines as Delchester
Fund of Delaware Group Income Funds, Inc., a separate fund in
-3-
<PAGE>
the Delaware Investments family. An investment in the Series
may involve greater risks than an investment in a portfolio
comprised primarily of investment grade bonds.
Devon Series seeks current income and capital appreciation.
The Series will seek to achieve its objective by investing
primarily in income-producing common stocks, with a focus on
common stocks that the investment adviser believes have the
potential for above-average dividend increases over time.
Under normal circumstances, the Series will invest at least
65% of its total assets in dividend paying common stocks. This
Series has the same objective and investment disciplines as
Devon Fund of Delaware Group Equity Funds I, Inc., a separate
fund in the Delaware Investments family.
Emerging Markets Series seeks to achieve long-term capital
appreciation. The Series seeks to achieve its objective by
investing primarily in equity series of issuers located in
emerging countries. The Series is an international fund. As
such, under normal market conditions, at least 65% of the
Series' assets will be invested in equity securities of
issuers organized or having a majority of their assets or
deriving a majority of their operating income in at least
three countries that are considered to be emerging or
developing. This Series has the same objective and investment
disciplines as Emerging Markets Fund of Delaware Group Global
& International Funds, Inc., a separate fund in the Delaware
Investments family.
Global Bond Series seeks current income consistent with
preservation of principal by investing primarily in
fixed-income securities that may also provide the potential
for capital appreciation. This Series is a global fund, as
such, at least 65% of the Series' assets will be invested in
fixed-income securities of issuers organized or having a
majority of their assets in or deriving a majority of their
operating income in at least three different countries, one of
which may be the United States. This Series has the same
objective and investment disciplines as Global Bond Series of
Delaware Group Global & International Funds, Inc., a separate
fund in the Delaware Investments family.
Growth and Income Series (formerly named Decatur Total Return
Series) seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital
appreciation while providing higher than average dividend
income. This Series has the same objective and investment
disciplines as Growth and Income Fund of Delaware Group Equity
Funds II, Inc., a separate fund in the Delaware Investments
family, in that it invests generally, but not exclusively, in
common stocks and income-producing securities convertible into
common stocks, consistent with the Series' objective.
International Equity Series seeks long-term growth without
undue risk to principal by investing primarily in equity
securities of foreign issuers providing the potential for
capital appreciation and income. This Series has the same
objective and investment disciplines as International Equity
-4-
<PAGE>
Series of Delaware Group Global & International Funds, Inc., a
separate fund in the Delaware Investments family, in that it
invests in a broad range of equity securities of foreign
issuers including common stocks, preferred stocks, convertible
securities and warrants, consistent with the Series'
objective.
REIT Series seeks to achieve maximum long-term total return.
Capital appreciation is a secondary objective. It seeks to
achieve its objectives by investing in securities of companies
primarily engaged in the real estate industry. This Series has
the same objective and investment discipline as The Real
Estate Investment Trust Portfolio and The Real Estate
Investment Trust Portfolio II of Delaware Pooled Trust, Inc.,
separate funds in the Delaware Investments family, which also
invest in securities of companies primarily engaged in the
real estate industry.
Small Cap Value Series (formerly Value Series) seeks capital
appreciation by investing primarily in small cap common stocks
whose market value appears low relative to their underlying
value or future earnings and growth potential. Emphasis will
also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized
by the market. This Series has the same objective and
investment disciplines as Small Cap Value Fund of Delaware
Group Equity Funds V, Inc., a separate fund in the Delaware
Investments family.
Social Awareness Series (formerly Quantum Series) seeks to
achieve long-term capital appreciation. The Series seeks to
achieve its objective by investing primarily in equity
securities of medium to large-sized companies expected to grow
over time that meet the Series' "Social Criteria" strategy.
This Series has the same objective and investment disciplines
as Social Awareness Fund of Delaware Group Equity Funds II,
Inc., a separate fund in the Delaware Investments family.
Strategic Income Series seeks high current income and total
return. The Series seeks to achieve its objective by using a
multi-sector investment approach, investing primarily in three
sectors of the fixed-income securities markets: high yield,
higher risk securities; investment grade fixed-income
securities; and foreign government and other foreign
fixed-income securities. In addition, the Series may invest in
U.S. equity securities. This Series has the same objective and
investment disciplines as Strategic Income Fund of Delaware
Group Income Funds, Inc., a separate fund in the Delaware
Investments family.
Trend Series seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible
securities of emerging and other growth-oriented companies.
These securities will have been judged to be responsive to
changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective.
This Series has the same objective and investment disciplines
as Trend Fund of Delaware Group Trend Fund, Inc., a separate
fund in the Delaware Investments family.
INVESTMENT RESTRICTIONS
The Fund has the following restrictions for each Series (other than
Aggressive Growth, Strategic Income, Devon, Emerging Markets, Convertible
Securities, Social Awareness and REIT Series) which may not be amended without
approval of a majority of the outstanding voting securities of the affected
Series, which is the lesser of more than 50% of the outstanding voting
securities or 67% of the voting securities of the affected Series present at a
shareholder meeting if 50% or more of the voting securities are present in
person or represented by proxy. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities. Each such Series will not:
1. Invest more than 5% of the value of its assets in securities of any
one issuer (other than obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities). This restriction shall apply to only 75% of
the assets of International Equity, Small Cap Value and Trend Series and to only
50% of the assets of Global Bond Series.
-5-
<PAGE>
2. Purchase more than 10% of the voting securities of any company, or
invest in any company for the purpose of exercising control or management.
3. Purchase or retain securities of a company which has an officer or
director who is an officer or director of the Fund, or an officer or director of
its investment manager if such persons, each owning beneficially more than 1/2
of 1% of the shares of the company, own in the aggregate more than 5% thereof.
4. Purchase any security issued by any other investment company (except
in connection with a merger, consolidation or offer of exchange) if after such
purchase it would: (a) own more than 3% of the voting stock of such company, (b)
own securities of such company having a value in excess of 5% of a Series'
assets or (c) own securities of investment companies having an aggregate value
in excess of 10% of a Series' assets. Any such purchase shall be at the
customary brokerage commission. The limitations set forth in this restriction do
not apply to purchases by International Equity Series of securities issued by
closed-end investment companies, all of which must be at the customary brokerage
commission.
5. Make any investment in real estate unless necessary for office space
or the protection of investments already made. (This restriction does not
preclude a Series' purchase of securities secured by real estate or interests
therein, or securities issued by companies which invest in real estate or
interests therein, including real estate investment trusts.)
6. Purchase securities on margin, make short sales of securities or
maintain a net short position (except that a Series may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of portfolio
securities). This restriction shall not prohibit the Series from satisfying
margin requirements with respect to futures transactions.
7. Invest in interests in oil, gas or other mineral exploration or
development programs, commodities or commodities contracts. This restriction
shall not prohibit International Equity, Small Cap Value and Trend Series from
entering into futures contracts or options thereon, to the extent that not more
than 5% of its assets are required as futures contract margin deposits and
premiums on options and only to the extent that obligations under such contracts
and transactions represent not more than 20% of the Series' assets.
8. Borrow money in excess of one-third of the value of its net assets
and then only as a temporary measure for extraordinary purposes or to facilitate
redemptions. The Series have no intention of increasing their net income through
borrowing. Any borrowing will be done from a bank and to the extent that such
borrowing exceeds 5% of the value of a Series' assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any time
fall below 300%, the Series shall, within three days thereafter (not including
Sunday and holidays) or such longer period as the Securities and Exchange
Commission may prescribe by rules and regulations, reduce the amount of its
borrowings to an extent that the asset coverage of such borrowings shall be at
least 300%. A Series will not pledge more than 15% of its net assets. A Series
shall not issue senior securities as defined in the Investment Company Act of
1940 (the "1940 Act"), except for notes to banks.
9. Make loans, except to the extent that purchases of debt obligations
(including repurchase agreements) in accordance with each Series' investment
objective and policies are considered loans and except that each Series may loan
up to 25% of its assets to qualified broker/dealers or institutional investors
for their use relating to short sales or other security transactions.
10. Invest more than 5% of the value of its total assets in securities of
companies less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.
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11. Invest more than 25% of its total assets in any particular industry,
except that a Series may invest more than 25% of the value of its total assets
in obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, certificates of deposit and bankers' acceptances of banks
with over one billion dollars in assets or bank holding companies whose
securities are rated A-2 or better by Standard & Poor's Ratings Group ("S&P") or
P-2 or better by Moody's Investors Service, Inc. ("Moody's").
12. Act as an underwriter of securities of other issuers, except that a
Series may acquire restricted or not readily-marketable securities under
circumstances where, if such securities are sold, a Series might be deemed to be
an underwriter for the purposes of the Securities Act of 1933.
Investment restrictions 2, 3, 7 and 10 above are nonfundamental
policies of Global Bond Series. In addition, although not considered a
fundamental policy, Global Bond Series will not invest more than 10% of its net
assets in repurchase agreements maturing in more than seven days and other
illiquid assets. Securities of foreign issuers which are not listed on a
recognized domestic or foreign exchange or for which a bona fide market does not
exist at the time of purchase or subsequent valuation are included in the
category of illiquid assets.
In addition, the following investment restrictions of such Series may
be changed by the Board of Directors:
(a) Each Series will not invest in warrants valued at lower of cost or
market exceeding 5% of a Series' net assets. Included within that amount, but
not to exceed 2% of a Series' net assets, may be warrants not listed on the New
York Stock Exchange or American Stock Exchange. This restriction shall not apply
to International Equity Series.
(b) The Money Market Series will not invest more than 25% of its assets
in foreign banks which are subject to the same regulation as United States banks
or to foreign branches of United States banks where such a bank is liable for
the obligations of the branch.
While such Series are permitted under certain circumstances to borrow
money, they do not normally do so. No investment securities will be purchased
while a Series has an outstanding borrowing. The Fund has undertaken, for so
long as required by California Regulatory Authority and so long as insurance
policy premiums or proceeds of contracts sold in California are used to purchase
Fund shares, each Series will not borrow money in excess of 25% of the value of
its net assets.
The following restrictions are fundamental policies of Strategic
Income, Devon, Emerging Markets, Convertible Securities and Social Awareness
Series, which may not be changed without the approval of the holders of a
majority of the affected Series' outstanding voting securities:
1. Each such Series, other than Emerging Markets Series, will not with
respect to 75% of its total assets, purchase the securities of any issuer (other
than those of other investment companies or of the U.S. Government or its
agencies or instrumentalities), if immediately thereafter the Series would (a)
have more than 5% of the value of its total assets in the securities of such
issuer or (b) own more than 10% of the outstanding voting securities of such
issuer.
2. Each such Series will not invest 25% or more of its total assets in
any one industry provided that there is no limitation with respect to
investments in obligations issued or guaranteed as to principal or interest by
the U.S. Government, its agencies or instrumentalities.
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3. Each such Series will not make loans other than by the purchase of
all or a portion of a publicly or privately distributed issue of bonds,
debentures or other debt securities of the types commonly offered publicly or
privately and purchased by financial institutions (including repurchase
agreements), whether or not the purchase was made upon the original issuance of
the securities, and except that each Series may loan its assets to qualified
broker/dealers or institutional investors.
4. Each such Series will not engage in underwriting of securities of
other issuers, except that portfolio securities, including securities purchased
in private placements, may be acquired under circumstances where, if sold, the
Series might be deemed to be an underwriter under the Securities Act of 1933. No
limit is placed on the proportion of the Series' assets which may be invested in
such securities.
5. Each such Series will not borrow money or issue senior securities,
except to the extent permitted by the 1940 Act or any rule or order thereunder
or interpretation thereof. Subject to the foregoing, each Series may engage in
short sales, purchase securities on margin, and write put and call options.
6. Each such Series will not purchase or sell physical commodities or
physical commodity contracts, including physical commodity option or futures
contracts in a contract market or other futures market.
7. Purchase or sell real estate; provided that the Series may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
The Fund has adopted the following restrictions for the REIT Series
which may not be amended without approval of a majority of the outstanding
voting securities of the REIT Series, which is the lesser of more than 50% of
the outstanding voting securities or 67% of the voting securities of the REIT
Series present at a shareholder meeting if 50% or more of the voting securities
are present in person or represented by proxy. The percentage limitations
contained in the restrictions and policies set forth herein apply at the time of
purchase of securities.
1. The Series will concentrate its investments in the real estate
industry. The Series will not invest more than 25% of its total assets in any
other single industry, provided that there is no limitation with respect to
investments in obligations issued or guaranteed as to principal or interest by
the U.S. Government, its agencies or instrumentalities.
2. The Series will not make loans other than by the purchase of all or
a portion of a publicly or privately distributed issue of bonds, debentures or
other debt securities of the types commonly offered publicly or privately and
purchased by financial institutions (including repurchase agreements and loan
participations), whether or not the purchase was made upon the original issuance
of the securities, and except that the Series may loan its assets to qualified
broker/dealers or institutional investors.
3. The Series will not engage in underwriting of securities of other
issuers, except that portfolio securities, including securities purchased in
private placements, may be acquired under circumstances where, if sold, the
Series might be deemed to be an underwriter under the Securities Act of 1933. No
limit is placed on the proportion of the Series' assets which may be invested in
such securities.
4. The Series will not borrow money or issue senior securities, except
to the extent permitted by the 1940 Act or any rule or order thereunder or
interpretation thereof. Subject to the foregoing, the Series may engage in short
sales, purchase securities on margin, and write put and call options.
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5. The Series will not purchase or sell physical commodities or
physical commodity contracts, including physical commodity option or futures
contracts in a contract market or other futures market.
6. The Series will not purchase or sell real estate; provided, that the
Series may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein; provided
further, that the Series may own real estate directly as a result of a default
on securities the Series owns.
In addition to the above fundamental investment restrictions, the
Series has the following investment restrictions which may be amended or changed
without approval of shareholders.
1. The Series will not invest for the purpose of acquiring control of
any company.
2. To the extent that the Series invests in securities of other
investment companies, it will only do so in accordance with the provisions of
the Investment Company Act in effect at the time of the investment.
3. The Series will not invest in interests in oil, gas and other
mineral leases or other mineral exploration or development programs.
4. The Series will not purchase securities on margin except short-term
credits that may be necessary for the clearance of purchases and sales of
securities. This restriction does not apply to the purchase of futures or
options contracts.
The Fund has adopted the following restrictions for the Aggressive
Growth Series which may not be amended without approval of a majority of the
outstanding voting securities of the Aggressive Growth Series, which is the
lesser of more than 50% of the outstanding voting securities or 67% of the
voting securities of the Aggressive Growth Series present at a shareholder
meeting if 50% or more of the voting securities are present in person or
represented by proxy. The percentage limitations contained in the restrictions
and policies set forth herein apply at the time of purchase of securities.
Aggressive Growth Series shall not:
1. Make investments that will result in the concentration (as that term
may be defined in the 1940 Act, any rule or other thereunder, or U.S. Securities
and Exchange Commission ("SEC") staff interpretation thereof) of its investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit the Series from investing in obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or in certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that the Series
may engage in transactions involving the acquisition, disposition or resale of
its portfolio securities, under circumstances where it may be considered to be
an underwriter under the Securities Act of 1933.
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Series from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
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5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent the Series from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent the
Series from purchasing debt obligations, entering into repurchase agreements,
loaning its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
In applying the Series' fundamental policy concerning concentration
that is described above, it is a matter of non-fundamental policy that: (i)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (ii) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (iii) asset
backed securities will be classified according to the underlying assets securing
such securities.
In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
prospectus, the Aggressive Growth Series will be subject to the following
investment restrictions, which are considered non-fundamental and may be changed
by the Board of Directors without shareholder approval.
1. The Series is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, the Series may not operate as a "fund of funds"
which invests primarily in the shares of other investment companies as permitted
by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
2. The Series may not invest more than 15% of its net assets in
securities which it cannot sell or dispose of in the ordinary course of business
within seven days at approximately the value at which the Series has valued the
investment.
ADDITIONAL INFORMATION ON THE CASH RESERVE AND CAPITAL RESERVES SERIES
MONEY MARKET INSTRUMENTS
The Capital Reserves Series may, from time to time, invest all or part
of its available assets in money market instruments maturing in one year or
less. Cash Reserve Series will invest all of its available assets in instruments
which have a remaining maturity of 13 months or less at the time of acquisition
and which will otherwise meet the maturity, quality and diversification
conditions with which taxable money market funds must comply. The types of
instruments which these Series may purchase are described below:
1. U.S. Government Securities--Securities issued or guaranteed by the
U.S. government, including Treasury Bills, Notes and bonds.
2. U.S. Government Agency Securities--Obligations issued or guaranteed
by agencies or instrumentalities of the U.S. government whether supported by the
full faith and credit of the U.S. Treasury or the credit of a particular agency
or instrumentality.
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3. Bank Obligations--Certificates of deposit, bankers' acceptances and
other short-term obligations of U.S. commercial banks and their overseas
branches and foreign banks of comparable quality, provided each such bank
combined with its branches has total assets of at least one billion dollars, and
certificates and issues of domestic savings and loan associations of one billion
dollars in assets whose deposits are insured by the Federal Deposit Insurance
Corporation. Any obligations of foreign banks shall be denominated in U.S.
dollars. Obligations of foreign banks and obligations of overseas branches of
U.S. banks are subject to somewhat different regulations and risks than those of
U.S. domestic banks. In particular, a foreign country could impose exchange
controls which might delay the release of proceeds from that country. Such
deposits are not covered by the Federal Deposit Insurance Corporation. Because
of conflicting laws and regulations, an issuing bank could maintain that
liability for an investment is solely that of the overseas branch which could
expose the Series to a greater risk of loss. The Series will only buy short-term
instruments in nations where these risks are minimal. The Series will consider
these factors along with other appropriate factors in making an investment
decision to acquire such obligations and will only acquire those which, in the
opinion of management, are of an investment quality comparable to other debt
securities bought by the Series. Either Series may invest more than 25% of its
assets in foreign banks except that this limitation shall not apply to United
States branches of foreign banks which are subject to the same regulations as
United States banks or to foreign branches of United States banks where such a
bank is liable for the obligations of the branch. This policy may be changed by
the Board of Directors without shareholder approval.
Cash Reserve Series is subject to certain maturity, quality and
diversification conditions applicable to taxable money market funds. Thus, if a
bank obligation or, as relevant, its issuer is considered to be rated at the
time of the proposed purchase, it or, as relevant, its issuer must be so rated
in one of the two highest rating categories by at least two
nationally-recognized statistical rating organizations or, if such security or,
as relevant, its issuer is not so rated, the purchase of the security must be
approved or ratified by the Board of Directors in accordance with the maturity,
quality and diversification conditions with which taxable money market funds
must comply.
4. Commercial Paper--Short-term promissory notes issued by corporations
which at the time of purchase are rated A-2 or better by S&P or P-2 or better by
Moody's or which have received comparable ratings from a nationally-recognized
statistical rating organization approved by the Board of Directors or, if not
rated, issued or guaranteed by a corporation with outstanding debt rated AA, Aa
or better by S&P or Moody's. Cash Reserve Series invests in commercial paper in
accordance with the restrictions set forth in the Prospectuses.
5. Short-term Corporate Debt--In addition to the other debt securities
described in the Prospectuses, corporate notes, bonds and debentures which at
the time of purchase are rated AA or better by S&P or Aa or better by Moody's or
which have received comparable ratings from a nationally-recognized statistical
rating organization approved by the Board of Directors, provided such securities
have one year or less remaining to maturity. Such securities generally have
greater liquidity and are subject to considerably less market fluctuation than
longer issues. Cash Reserve Series invests in corporate notes, bonds and
debentures in accordance with the restrictions set forth in the Prospectuses.
The ratings of S&P, Moody's and other rating services represent their
opinions as to the quality of the money market instruments which they undertake
to rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. These ratings are the initial criteria for
selection of portfolio investments, but the Series will further evaluate these
securities. See Appendix A--Description of Ratings.
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ADDITIONAL INFORMATION ON THE CAPITAL RESERVES, CASH RESERVE, DELAWARE AND DEVON
SERIES
ASSET-BACKED SECURITIES
The Capital Reserves, Cash Reserve, Delaware and Devon Series may
invest a portion of their assets in asset-backed securities. The rate of
principal payment on asset-backed securities generally depends on the rate of
principal payments received on the underlying assets. Such rate of payments may
be affected by economic and various other factors such as changes in interest
rates or the concentration of collateral in a particular geographic area.
Therefore, the yield may be difficult to predict and actual yield to maturity
may be more or less than the anticipated yield to maturity. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entities issuing the securities
are insulated from the credit risk of the originator or affiliated entities, and
the amount of credit support provided to the securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
due on the underlying pool is timely. Protection against losses resulting from
ultimate default enhances the likelihood of payments of the obligations on at
least some of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The Series will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve against
future losses) and "over collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceeds that required to make
payments of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue.
ADDITIONAL INFORMATION ON THE CAPITAL RESERVES SERIES
AVERAGE WEIGHTED MATURITY
The Capital Reserves Series ordinarily maintains its average dollar
weighted portfolio maturity within the five to seven year range, but not in
excess of ten years. However, many of the securities in which the Series invests
will have remaining maturities in excess of seven years. The Series may purchase
individual securities with a remaining maturity of up to 15 years.
Some of the securities in the Series' portfolio may have periodic
interest rate adjustments based upon an index such as the 91-day Treasury Bill
rate. This periodic interest rate adjustment tends to lessen the volatility of
the security's price. With respect to securities with an interest rate
adjustment period of one year or less, the Series will, when determining average
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weighted maturity, treat such a security's maturity as the amount of time
remaining until the next interest rate adjustment.
Instruments such as GNMA, FNMA and FHLMC securities and similar
securities backed by amortizing loans generally have shorter effective
maturities than their stated maturities. This is due to changes in amortization
caused by demographic and economic forces such as interest rate movements. These
effective maturities are calculated based upon historical payment patterns. For
purposes of determining the Series' average weighted maturity, the maturities of
such securities will be calculated based upon the issuing agency's payment
factors using industry-accepted valuation models.
ADDITIONAL INFORMATION ON THE CASH RESERVE SERIES
The Series intends to achieve its objective by investing its assets in
a diversified portfolio of money market instruments. See Money Market
Instruments below and Appendix A--Description of Ratings.
The Series maintains its net asset value at $10 per share by valuing
its securities on an amortized cost basis. See Offering Price. The Series
maintains a dollar weighted average portfolio maturity of not more than 90 days
and does not purchase any issue having a remaining maturity of more than 13
months. In addition, the Series limits its investments, including repurchase
agreements, to those instruments which the Board of Directors determines present
minimal credit risks and which are of high quality. The Series may sell
portfolio securities prior to maturity in order to realize gains or losses or to
shorten the average maturity if it deems such actions appropriate to maintain a
stable net asset value. While the Series will make every effort to maintain a
fixed net asset value of $10 per share, there can be no assurance that this
objective will be achieved.
While the Series intends to hold its investments until maturity when
they will be redeemable at their full principal value plus accrued interest, it
may attempt, from time to time, to increase its yield by trading to take
advantage of market variations. Also, revised evaluations of the issuer or
redemptions may cause sales of portfolio investments prior to maturity or at
times when such sales might otherwise not be desirable. The Series' right to
borrow to facilitate redemptions may reduce but does not guarantee a reduction
in the need for such sales. The Series will not purchase new securities while
any borrowings are outstanding. See Dividends and Realized Securities Profits
Distributions and Taxes for effect of any capital gains distributions.
A shareholder's rate of return will vary with the general interest rate
levels applicable to the money market instruments in which the Series invests.
In the event of an increase in current interest rates, a national credit crisis
or if one or more of the issuers became insolvent prior to the maturity of the
instruments, principal values could be adversely affected. Investments in
obligations of foreign banks and of overseas branches of U.S. banks may be
subject to less stringent regulations and different risks than those of U.S.
domestic banks. The rate of return and the net asset value will be affected by
such other factors as sales of portfolio securities prior to maturity and the
Series' operating expenses.
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ADDITIONAL INFORMATION ON THE INTERNATIONAL EQUITY, VALUE, TREND, GLOBAL BOND,
STRATEGIC INCOME, DEVON, EMERGING MARKETS, CONVERTIBLE SECURITIES, SOCIAL
AWARENESS, REIT AND AGGRESSIVE GROWTH SERIES
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS--Each of International Equity, Small Cap Value, Trend, Global
Bond, Strategic Income, Devon, Emerging Markets, Convertible Securities, Social
Awareness, REIT and Aggressive Growth Series may enter into futures contracts
relating to securities, securities indices or interest rates. In addition,
International Equity, Global Bond, Strategic Income, Emerging Markets and
Convertible Securities Series may enter into foreign currency futures contracts.
(Unless otherwise specified, interest rate futures contracts, securities and
securities index futures contracts and foreign currency futures contracts are
collectively referred to as "futures contracts.") Such investment strategies
will be used as a hedge and not for speculation.
Purchases or sales of stock or bond index futures contracts are used
for hedging purposes to attempt to protect a Series' current or intended
investments from broad fluctuations in stock or bond prices. For example, a
Series may sell stock or bond index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Series' securities portfolio that might otherwise result. If such decline
occurs, the loss in value of portfolio securities may be offset, in whole or
part, by gains on the futures position. When a Series is not fully invested in
the securities market and anticipates a significant market advance, it may
purchase stock or bond index futures contracts in order to gain rapid market
exposure that may, in part or entirely, offset increases in the cost of
securities that the Series intends to purchase. As such purchases are made, the
corresponding positions in stock or bond index futures contracts will be closed
out.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Series' current or intended investments in fixed-income securities. For example,
if a Series owned long-term bonds and interest rates were expected to increase,
that Series might sell interest rate futures contracts. Such a sale would have
much the same effect as selling some of the long-term bonds in that Series'
portfolio. However, since the futures market is more liquid than the cash
market, the use of interest rate futures contracts as a hedging technique allows
a Series to hedge its interest rate risk without having to sell its portfolio
securities. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of that Series' interest rate futures
contracts would be expected to increase at approximately the same rate, thereby
keeping the net asset value of that Series from declining as much as it
otherwise would have. On the other hand, if interest rates were expected to
decline, interest rate futures contracts could be purchased to hedge in
anticipation of subsequent purchases of long-term bonds at higher prices.
Because the fluctuations in the value of the interest rate futures contracts
should be similar to those of long-term bonds, a Series could protect itself
against the effects of the anticipated rise in the value of long-term bonds
without actually buying them until the necessary cash became available or the
market had stabilized. At that time, the interest rate futures contracts could
be liquidated and that Series' cash reserve could then be used to buy long-term
bonds on the cash market.
As noted in the Prospectus, International Equity, Global Bond,
Strategic Income, Emerging Markets and Convertible Securities Series may each
purchase and sell foreign currency futures contracts for hedging purposes to
attempt to protect its current or intended investments from fluctuations in
currency exchange rates. Such fluctuations could reduce the dollar value of
portfolio securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant.
Each of International Equity, Global Bond, Strategic Income, Emerging Markets
and Convertible Securities Series may sell futures contracts on a foreign
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currency, for example, when a Series holds securities denominated in such
currency and it anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, the resulting adverse effect on
the value of foreign-denominated securities may be offset, in whole or in part,
by gains on the futures contracts. However, if the value of the foreign currency
increases relative to the dollar, the Series' loss on the foreign currency
futures contract may or may not be offset by an increase in the value of the
securities because a decline in the price of the security stated in terms of the
foreign currency may be greater than the increase in value as a result of the
change in exchange rates.
Conversely, each of International Equity, Global Bond, Strategic
Income, Emerging Markets and Convertible Securities Series could protect against
a rise in the dollar cost of foreign-denominated securities to be acquired by
purchasing futures contracts on the relevant currency, which could offset, in
whole or in part, the increased cost of such securities resulting from a rise in
the dollar value of the underlying currencies. When a Series purchases futures
contracts under such circumstances, however, and the price of securities to be
acquired instead declines as a result of appreciation of the dollar, the Series
will sustain losses on its futures position which could reduce or eliminate the
benefits of the reduced cost of portfolio securities to be acquired.
The Series may also engage in currency "cross hedging" when, in the
opinion of the Series' investment manager Delaware Management Company ("Delaware
Management") or Delaware International Advisers Ltd. ("Delaware International"),
as applicable, the historical relationship among foreign currencies suggests
that a Series may achieve protection against fluctuations in currency exchange
rates similar to that described above at a reduced cost through the use of a
futures contract relating to a currency other than the U.S. dollar or the
currency in which the foreign security is denominated. Such "cross hedging" is
subject to the same risks as those described above with respect to an
unanticipated increase or decline in the value of the subject currency relative
to the dollar.
OPTIONS ON FUTURES CONTRACTS--As noted in the Prospectus, each of International
Equity, Small Cap Value, Trend, Global Bond, Strategic Income, Emerging Markets,
Convertible Securities, REIT and Aggressive Growth Series may purchase and write
options on the types of futures contracts that Series could invest in.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in the Series'
portfolio. If the futures price at expiration of the option is below the
exercise price, a Series will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred in the
Series' portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the securities or other
instruments required to be delivered under the terms of the futures contract. If
the futures price at expiration of the put option is higher than the exercise
price, a Series will retain the full amount of the option premium, which
provides a partial hedge against any increase in the price of securities which
the Series intends to purchase. If a put or call option a Series has written is
exercised, the Series will incur a loss which will be reduced by the amount of
the premium it receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value of its options
on futures positions, a Series' losses from exercised options on futures may to
some extent be reduced or increased by changes in the value of portfolio
securities.
The Series may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected marketwide decline or changes in interest or exchange
rates, a Series could, in lieu of selling futures contracts, purchase put
options thereon. In the event that such decrease occurs, it may be offset, in
whole or in part, by a profit on the option. If the market decline does not
occur, the Series will suffer a loss equal to the price of the put. Where it is
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projected that the value of securities to be acquired by a Series will increase
prior to acquisition, due to a market advance or changes in interest or exchange
rates, a Series could purchase call options on futures contracts, rather than
purchasing the underlying futures contracts. If the market advances, the
increased cost of securities to be purchased may be offset by a profit on the
call. However, if the market declines, the Series will suffer a loss equal to
the price of the call, but the securities which the Series intends to purchase
may be less expensive.
OPTIONS ON FOREIGN CURRENCIES
International Equity, Global Bond, Strategic Income, Emerging Markets,
Convertible Securities and REIT Series may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in which futures
contracts on foreign currencies, or forward contracts, will be utilized. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, the Series may
purchase put options on the foreign currency. If the value of the currency does
decline, the Series will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Series may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movement in exchange rates. As in the case of other types of options,
however, the benefit to the Series deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Series could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Series may write options on foreign currencies for the same types
of hedging purposes. For example, where the Series anticipate a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates, they could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution in the value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against the
anticipated increase in the dollar cost of securities to be acquired, the Series
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Series to hedge such
increased costs up to the value of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Series would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Series also may be required to forego all or
a portion of the benefit which might otherwise have been obtained from favorable
movements in exchange rates.
Each Series intends to write covered call options on foreign
currencies. A call option written on a foreign currency by a Series is "covered"
if the Series owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by the Series' custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
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Series has a call on the same foreign currency and in the same principle amount
as the call written where the exercise price of the call held (a) is equal to
less than the exercise price of the call written, or (b) is greater than the
exercise price of the call written if the difference is maintained by the Series
in cash, U.S. government securities or other high-grade liquid debt securities
in a segregated account with its custodian bank.
With respect to writing put options, at the time the put is written, a
Series will establish a segregated account with its custodian bank consisting of
cash, U.S. government securities or other high-grade liquid debt securities in
an amount equal in value to the amount the Series will be required to pay upon
exercise of the put. The account will be maintained until the put is exercised,
has expired, or the Series has purchased a closing put of the same series as the
one previously written.
ADDITIONAL INFORMATION ON THE DEVON SERIES
MORTGAGE-BACKED SECURITIES--In addition to mortgage-backed securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
or government sponsored corporations, Devon Series may also invest its assets in
securities issued by certain private, nongovernment corporations, such as
financial institutions. Certain of these private-backed securities are fully
collateralized at the time of issuance by securities or certificates issued or
guaranteed by the U.S. government, its agencies or instrumentalities. Two
principal types of mortgage-backed securities are collateralized mortgage
obligations (CMOs) and real estate mortgage investment conduits (REMICs).
CMOs are debt securities issued by U.S. government agencies or by
financial institutions and other mortgage lenders and collateralized by a pool
of mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
CMOs and REMICs issued by private entities are not government
securities and are not directly guaranteed by any government agency. They are
secured by the underlying collateral of the private issuer. Devon Series will
invest in such private-backed securities only if they are 100% collateralized at
the time of issuance by securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities. The Series currently invests in
privately-issued CMOs and REMICs only if they are rated at the time of purchase
in the four highest grades by a nationally-recognized rating agency.
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CONVERTIBLE SECURITIES--The Series may invest in convertible
securities, including corporate debentures, bonds, notes and preferred stocks
that may be converted into or exchanged for common stock. While providing a
fixed-income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a non-convertible debt security), a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
the value of the underlying common stock. To obtain such a higher yield, the
Series may be required to pay for a convertible security an amount in excess of
the value of the underlying common stock. Common stock acquired by the Series
upon conversion of a convertible security will generally be held for so long as
Delaware Management anticipates such stock will provide the Series with
opportunities which are consistent with the Series' investment objectives and
policies.
The Series may invest in convertible debentures without regard to
rating categories. Investing in convertible debentures that are rated below
investment grade or unrated but of comparable quality entails certain risks,
including the risk of loss of principal, which may be greater than the risks
involved in investing in investment grade convertible debentures. Under rating
agency guidelines, lower rated securities and comparable unrated securities will
likely have some quality and protective characteristics that are outweighed by
large uncertainties or major risk exposures to adverse conditions.
The Series may have difficulty disposing of such lower rated
convertible debentures because the trading market for such securities may be
thinner than the market for higher rated convertible debentures. To the extent a
secondary trading market for these securities does exist, it generally is not as
liquid as the secondary trading market for higher rated securities. The lack of
a liquid secondary market as well as adverse publicity with respect to these
securities, may have an adverse impact on market price and the Series' ability
to dispose of particular issues in response to a specific economic event such as
a deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Series to obtain accurate market quotations for purposes of pricing the Series'
portfolio and calculating its net asset value. The market behavior of
convertible securities in lower rating categories is often more volatile than
that of higher quality securities. Lower quality convertible securities are
judged by Moody's and S&P to have speculative elements or characteristics; their
future cannot be considered as well assured and earnings and asset protection
may be moderate or poor in comparison to investment grade securities.
In addition, such lower quality securities face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions,
which could lead to inadequate capacity to meet timely payments. The market
values of securities rated below investment grade tend to be more sensitive to
company specific developments and changes in economic conditions than higher
rated securities. Issuers of these securities are often highly leveraged, so
that their ability to service their debt obligations during an economic downturn
or during sustained periods of rising interest rates may be impaired. In
addition, such issuers may not have more traditional methods of financing
available to them, and may be unable to repay debt at maturity by refinancing.
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ADDITIONAL INFORMATION ON THE STRATEGIC INCOME, EMERGING MARKETS, CONVERTIBLE
SECURITIES AND REIT SERIES
WHEN-ISSUED, "WHEN, AS AND IF ISSUED" AND DELAYED DELIVERY SECURITIES
AND FORWARD COMMITMENTS -- The Series may purchase securities on a when-issued
or delayed delivery basis or may purchase or sell securities on a forward
commitment basis. The Series may also purchase securities on a "when, as and if
issued" basis under which the issuance of the security depends upon the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. When such transactions are negotiated, the
price is fixed at the time of commitment, but delivery and payment can take
place a month or more after the date of the commitment. The Series will
establish a segregated account with its custodian bank in which it will
continually maintain cash or cash equivalents or other portfolio securities
equal in value to commitments to purchase securities on a when-issued, "when, as
and if issued," delayed delivery or forward commitment basis.
While the Series will only purchase securities on a when-issued, "when,
as and if issued," delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Series may sell the securities before
the settlement date if it is deemed advisable. The securities so purchased or
sold are subject to market fluctuation and no interest accrues to the purchaser
during this period. At the time a Series makes the commitment to purchase or
sell securities on a when-issued, "when, as and if issued," delayed delivery or
forward commitment basis, it will record the transaction and thereafter reflect
the value, each day, of the security purchased or, if a sale, the proceeds to be
received, in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price.
ENHANCED CONVERTIBLE SECURITIES -- Most PERCS expire three years from
the date of issue, at which time they are convertible into common stock of the
issuer (PERCS are generally not convertible into cash at maturity). Under a
typical arrangement, if after three years the issuer's common stock is trading
at a price below that set by the capital appreciation limit, the PERCS would
convert into one share of common stock. If, however, the issuer's common stock
is trading at a price above that set by the capital appreciation limit, the
holder of the PERCS would receive less than one full share of common stock. The
amount of that fractional share of common stock received by the PERCS holder is
determined by dividing the price set by the capital appreciation limit of the
PERCS by the market price of the issuer's common stock. PERCS can be called at
any time prior to maturity, and thus do not provide call protection. However, if
called early, the issuer must pay a premium over the market price to the
investor. This call premium declines at a preset rate daily, up to the maturity
date of the PERCS.
Strategic Income and Emerging Markets Series may also invest in other
enhanced convertible securities. See Enhanced Convertible Securities under
Convertible Securities Series in the Prospectus.
RESTRICTED SECURITIES
The Series may purchase privately-placed debt and other securities
whose resale is restricted under applicable securities laws. Such restricted
securities generally offer a higher return than comparable registered securities
but involve some additional risk since they can be resold only in
privately-negotiated transactions or after registration under applicable
securities laws. The registration process may involve delays which could result
in the Series obtaining a less favorable price on a resale. Aggressive Growth,
Strategic Income, Convertible Securities and REIT Series will not purchase
illiquid assets if more than 15% of its respective net assets would then consist
of such illiquid securities.
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ADDITIONAL INFORMATION ON THE SOCIAL AWARENESS SERIES
INVESTMENT COMPANY SECURITIES--Any investments that Social Awareness
Series makes in either closed-end or open-end investment companies will be
limited by the 1940 Act, and would involve an indirect payment of a portion of
the expenses, including advisory fees, of such other investment companies. Under
the 1940 Act's current limitations, the Series may not (1) own more than 3% of
the voting stock of another investment company; (2) invest more than 5% of the
Series' total assets in the shares of any one investment company; nor (3) invest
more than 10% of the Series' total assets in shares of other investment
companies. If a Series elects to limit its investment in other investment
companies to closed-end investment companies, the 3% limitation described above
is increased to 10%. These percentage limitations also apply to the Series'
investments in unregistered investment companies.
UNSEASONED COMPANIES--Social Awareness Series may invest in relatively
new or unseasoned companies which are in their early stages of development, or
small companies positioned in new and emerging industries where the opportunity
for rapid growth is expected to be above average. Securities of unseasoned
companies present greater risks than securities of larger, more established
companies. The companies in which the Series may invest may have relatively
small revenues, limited product lines, and may have a small share of the market
for their products or services. Small companies may lack depth of management,
they may be unable to internally generate funds necessary for growth or
potential development or to generate such funds through external financing or
favorable terms, or they may be developing or marketing new products or services
for which markets are not yet established and may never become established. Due
these and other factors, small companies may suffer significant losses as well
as realize substantial growth, and investments in such companies tend to be
volatile and are therefore speculative.
In addition, as a matter of non-fundamental policy, Social Awareness
Series will adhere to a Social Criteria strategy:
Vantage will utilize the Social Investment Database published by KLD in
determining whether a company is engaged in any activity precluded by the
Series' Social Criteria. The Social Investment Database reflects KLD's
determination of the extent to which a company's involvement in the activities
prohibited by the Social Criteria is significant enough to merit a concern or a
major concern. Significance may be determined on the basis of percentage of
revenue generated by, or the size of the operations attributable to, activities
related to such Social Criteria, or other factors selected by KLD. The social
screening undergoes continual refinement and modification.
Pursuant to the Social Criteria presently in effect, the Series will
not knowingly invest in or hold securities of companies which engage in:
1. Activities which result or are likely to result in damage to the
natural environment;
2. The production of nuclear power, the design or construction of
nuclear power plants, or the manufacture of equipment for the
production of nuclear power;
3. The manufacture of, or contracting for, military weapons; or
4. The liquor, tobacco or gambling industries.
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Because of its Social Criteria, the Series may not be able to take the
same advantage of certain investment opportunities as do funds which do not have
Social Criteria. Only securities of companies not excluded by any of the Social
Criteria will be eligible for consideration for purchase by the Series according
to its objective and policies described in the Prospectus.
The Series will commence the orderly sale of securities of a company
when it is determined by Vantage that such company no longer adheres to the
Social Criteria. The Series will sell such securities in a manner so as to
minimize any adverse affect on the Series' assets. Typically, such sales will be
made within 90 days from the date of Vantage's determination, unless a sale
within the 90 day period would produce a significant loss to the overall value
of the Series' assets.
REPURCHASE AGREEMENTS
Each of the Fund's 17 Series may, from time to time, enter into
repurchase transactions. Repurchase agreements are instruments under which
securities are purchased from a bank or securities dealer with an agreement by
the seller to repurchase the securities. Under a repurchase agreement, the
purchaser acquires ownership of the security but the seller agrees, at the time
of sale, to repurchase it at a mutually agreed-upon time and price. The Series
will take custody of the collateral under repurchase agreements. Repurchase
agreements may be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred. The resale price is in excess of
the purchase price and reflects an agreed-upon market rate unrelated to the
coupon rate or maturity of the purchase security. Such transactions afford an
opportunity for the Series to invest temporarily available cash. The Series'
risk is limited to the seller's ability to buy the security back at the
agreed-upon sum at the agreed-upon time, since the repurchase agreement is
secured by the underlying obligation. Should such an issuer default, the
investment managers believe that, barring extraordinary circumstances, the
Series will be entitled to sell the underlying securities or otherwise receive
adequate protection for its interest in such securities, although there could be
a delay in recovery. The Series consider the creditworthiness of the bank or
dealer from whom it purchases repurchase agreements. The Series will monitor
such transactions to assure that the value of the underlying securities subject
to repurchase agreements is at least equal to the repurchase price. The
underlying securities will be limited to those described above.
The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the Investment
Company Act of 1940 to allow the funds in the Delaware Investments family
jointly to invest cash balances. Each Series of the Fund may invest cash
balances in a joint repurchase agreement in accordance with the terms of the
Order and subject generally to the conditions described above.
PORTFOLIO LOAN TRANSACTIONS
Each of the Fund's 17 Series, except for Cash Reserve Series, may loan
up to 25% of its assets to qualified broker/dealers or institutional investors
for their use relating to short sales or other security transactions.
It is the understanding of the Series' respective investment manager
that the staff of the Securities and Exchange Commission permits portfolio
lending by registered investment companies if certain conditions are met. These
conditions are as follows: 1) each transaction must have 100% collateral in the
form of cash, short-term U.S. government securities, or irrevocable letters of
credit payable by banks acceptable to the Fund from the borrower; 2) this
collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Series; 3) the Series must be able to terminate the loan after notice, at any
time; 4) the Series must receive reasonable interest on any loan, and any
dividends, interest or other distributions on the lent securities, and any
increase in the market value of such securities; 5) the Series may pay
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reasonable custodian fees in connection with the loan; 6) the voting rights on
the lent securities may pass to the borrower; however, if the directors of the
Fund know that a material event will occur affecting an investment loan, they
must either terminate the loan in order to vote the proxy or enter into an
alternative arrangement with the borrower to enable the directors to vote the
proxy.
The major risk to which a Series would be exposed on a loan transaction
is the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, a Series will only enter into loan arrangements
after a review of all pertinent facts by the Series' respective investment
manager, under the supervision of the Board of Directors, including the
creditworthiness of the borrowing broker, dealer or institution and then only if
the consideration to be received from such loans would justify the risk.
Creditworthiness will be monitored on an ongoing basis by the Series' respective
investment manager.
FOREIGN SECURITIES
To the extent the Fund's 17 Series are authorized and intend to invest
in foreign securities, investors should recognize that investing in securities
of foreign issuers involves certain considerations, including those set forth in
the Prospectuses, which are not typically associated with investing in United
States issuers. Since the stocks of foreign companies are frequently denominated
in foreign currencies, and since the Series may temporarily hold uninvested
reserves in bank deposits in foreign currencies, the Series will be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, and may incur costs in connection with conversions between various
currencies. The investment policies of certain of the Series permit them to
enter into forward foreign currency exchange contracts and various related
currency transactions in order to hedge the Series' holdings and commitments
against changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract.
There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by a Series. Payment of
such interest equalization tax, if imposed, would reduce such Series' rate of
return on its investment. Dividends paid by foreign issuers may be subject to
withholding and other foreign taxes which may decrease the net return on such
investments as compared to dividends paid to the Series by United States
corporations. Special rules govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules generally
include the following: (i) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in Treasury
Regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instruments other than
any "regulated futures contract" or "nonequity option" marked to market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also
treated as a transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and non-equity options are
generally not subject to the special currency rules, if they are or would be
treated as sold for their fair market value at year-end under the marking to
market rules applicable to other futures contracts, unless an election is made
to have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. Certain transactions subject to the special
currency rules that are part of a "section 988 hedging transaction" (as defined
in the Internal Revenue Code of 1986 (the "Code"), as amended, and the Treasury
Regulations) will be integrated and treated as a single transaction or otherwise
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treated consistently for purposes of the Code. The income tax effects of
integrating and treating a transaction as a single transaction are generally to
create a synthetic debt instrument that is subject to the original discount
provisions. It is anticipated that some of the non-U.S. dollar denominated
investments and foreign currency contracts a Series may make or enter into will
be subject to the special currency rules described above.
FOREIGN CURRENCY TRANSACTIONS
In connection with a Series' investment in foreign securities, a Series
may purchase or sell currencies and/or engage in forward foreign currency
transactions in order to expedite settlement of portfolio transactions and to
minimize currency value fluctuations.
Forward foreign currency contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. A Series will account for
forward contracts by marking to market each day at daily exchange rates.
When a Series enters into a forward contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, the amount of foreign
currency approximating the value of some or all of that Series' assets
denominated in such foreign currency, the Series' custodian bank or subcustodian
will place cash or liquid high grade debt securities in a separate account of
the Series in an amount not less than the value of such Series' total assets
committed to the consummation of such forward contracts. If the additional cash
or securities placed in the separate account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Series' commitments with respect to
such contracts.
OPTIONS
Each of the Fund's 17 Series, except for Cash Reserve Series, may write
call options and purchase put options on a covered basis only. International
Equity, Global Bond, Emerging Markets, Convertible Securities, REIT and
Aggressive Growth Series may also purchase call options. The Series also may
enter into closing transactions with respect to such options transactions. No
Series will engage in option transactions for speculative purposes.
To the extent authorized to engage in option transactions, the Series
may invest in options that are Exchange listed and International Equity, Global
Bond, Emerging Markets, Convertible Securities, REIT and Aggressive Growth
Series may also invest in options that are traded over-the-counter. The other
Series reserve the right to invest in over-the-counter options upon written
notice to their shareholders. The Series will enter into an option position only
if there appears to be a liquid market for such options. However, there can be
no assurance that a liquid secondary market will be maintained. Thus, it may not
be possible to close option positions and this may have an adverse impact on a
Series' ability to effectively hedge its securities.
A. COVERED CALL WRITING--A Series may write covered call options from
time to time on such portion of its portfolio, without limit, as the respective
investment manager determines is appropriate in seeking to obtain the Series'
investment objective. A call option gives the purchaser of such option the right
to buy, and the writer, in this case the Series, has the obligation to sell the
underlying security at the exercise price during the option period. The
advantage to a Series of writing covered calls is that the Series receives a
premium which is additional income. However, if the security rises in value, the
Series may not fully participate in the market appreciation.
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During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
With respect to such options, the Series may enter into closing
purchase transactions. A closing purchase transaction is one in which the
Series, when obligated as a writer of an option, terminates its obligation by
purchasing an option of the same series as the option previously written.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Series to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Series may realize a
net gain or loss from a closing purchase transaction depending upon whether the
net amount of the original premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be partially or entirely offset by the
premium received from a sale of a different call option on the same underlying
security. Such a loss may also be wholly or partially offset by unrealized
appreciation in the market value of the underlying security. Conversely, a gain
resulting from a closing purchase transaction could be offset in whole or in
part by a decline in the market value of the underlying security.
If a call option expires unexercised, the Series will realize a
short-term capital gain in the amount of the premium on the option less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Series will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security plus the amount of the
premium on the option less the commission paid.
The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
A Series will write call options only on a covered basis, which means
that the Series will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Series would be required to continue to hold a security which it
might otherwise wish to sell or deliver a security it would want to hold.
Options written by the Series will normally have expiration dates between one
and nine months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written.
B. PURCHASING PUT OPTIONS--A Series may invest up to 2% of its total
assets in the purchase of put options. The Series will, at all times during
which it holds a put option, own the security covered by such option.
A put option purchased by the Series gives it the right to sell one of
its securities for an agreed price up to an agreed date. The Series intend to
purchase put options in order to protect against a decline in market value of
the underlying security below the exercise price less the premium paid for the
option ("protective puts"). The ability to purchase put options will allow a
Series to protect unrealized gain in an appreciated security in its portfolio
without actually selling the security. If the security does not drop in value,
the Series will lose the value of the premium paid. A Series may sell a put
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option which it has previously purchased prior to the sale of the securities
underlying such option. Such sales will result in a net gain or loss depending
on whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put option which is sold.
The Series may sell a put option purchased on individual portfolio
securities. Additionally, the Series may enter into closing sale transactions. A
closing sale transaction is one in which a Series, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.
C. PURCHASING CALL OPTIONS--International Equity, Global Bond, Emerging
Markets, Convertible Securities, REIT and Aggressive Growth Series may purchase
call options to the extent that premiums paid by the Series do not aggregate
more than 2% of the Series' total assets. When the Series purchases a call
option, in return for a premium paid by the Series to the writer of the option,
the Series obtains the right to buy the security underlying the option at a
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium upon writing the option, has the
obligation, upon exercise of the option, to deliver the underlying security
against payment of the exercise price. The advantage of purchasing call options
is that the Series may alter portfolio characteristics and modify portfolio
maturities without incurring the cost associated with portfolio transactions.
The Series may, following the purchase of a call option, liquidate its
position by effecting a closing sale transaction. This is accomplished by
selling an option of the same series as the option previously purchased. The
Series will realize a profit from a closing sale transaction if the price
received on the transaction is more than the premium paid to purchase the
original call option; the Series will realize a loss from a closing sale
transaction if the price received on the transaction is less than the premium
paid to purchase the original call option.
Although the Series will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an Exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
Exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the result that the Series would have
to exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Series may expire without any value
to the Series.
D. OPTIONS ON STOCK INDICES--The DelCap, International Equity, Small
Cap Value, Trend, Global Bond, Emerging Markets, Convertible Securities, REIT
and Aggressive Growth Series also may write call options and purchase put
options on certain stock indices and enter into closing transactions in
connection therewith. A stock index assigns relative values to the common stocks
included in the index with the index fluctuating with changes in the market
values of the underlying common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
-25-
<PAGE>
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Gain or loss to the Series on
transactions in stock index options will depend on price movements in the stock
market generally (or in a particular industry or segment of the market) rather
than price movements of individual securities.
As with stock options, DelCap, International Equity, Small Cap Value,
Trend, Global Bond, Emerging Markets, Convertible Securities, REIT and
Aggressive Growth Series may offset positions in stock index options prior to
expiration by entering into a closing transaction on an Exchange or may let the
option expire unexercised.
A stock index fluctuates with changes in the market values of the stock
so included. Some stock index options are based on a broad market index such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on the following Exchanges among others: The Chicago Board Options
Exchange, New York Stock Exchange and American Stock Exchange.
The Series' ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the Series' portfolio securities. Since the Series' portfolio will
not duplicate the components of an index, the correlation will not be exact.
Consequently, the Series bear the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
Positions in stock index options may be closed out only on an Exchange
which provides a secondary market. There can be no assurance that a liquid
secondary market will exist for any particular stock index option. Thus, it may
not be possible to close such an option. The inability to close options
positions could have an adverse impact on the Series' ability to effectively
hedge its securities. The Series will enter into an option position only if
there appears to be a liquid secondary market for such options.
DelCap, International Equity, Small Cap Value, Trend, Global Bond,
Emerging Markets, Convertible Securities, REIT and Aggressive Growth Series will
not engage in transactions in options on stock indices for speculative purposes
but only to protect appreciation attained, to offset capital losses and to take
advantage of the liquidity available in the option markets.
E. WRITING COVERED PUTS--Convertible Securities, REIT and Aggressive
Growth Series may purchase or sell (write) put options on securities as a means
of achieving additional return or of hedging the value of the Series' portfolio.
A put option is a contract that gives the holder of the option the right to sell
to the writer (seller), in return for a premium, the underlying security at a
specified price during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying security upon
exercise, at the exercise price during the option period. The Series will write
only "covered" options. In the case of a put option written (sold) by the
Series, the Series will, through its custodian, deposit and maintain cash and
short-term U.S. Treasury obligations with a securities depository or the
custodian having a value equal to or greater than the exercise price of the
underlying security.
-26-
<PAGE>
F. CLOSING TRANSACTIONS-- If a Series has written an option, it may
terminate its obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the option previously
written. There can be no assurance that either a closing purchase or sale
transaction can be effected when a Series so desires. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series. Although the Series will generally purchase or write only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option.
A Series will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; a Series will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Series.
If a Series purchases a put option, the loss to the Series is limited to the
premium paid for, and transaction costs in connection with, the put plus the
initial excess, if any, of the market price of the underlying security over the
exercise price. However, if the market price of the security underlying the put
rises, the profit a Series realizes on the sale of the security will be reduced
by the premium paid for the put option less any amount (net of transaction
costs) for which the put may be sold.
-27-
<PAGE>
ACCOUNTING AND TAX ISSUES
When a Series writes a call, or purchases a put option, an amount equal
to the premium received or paid by it is included in the Series' assets and
liabilities as an asset and as an equivalent liability.
In writing a call, the amount of the liability is subsequently "marked
to market" to reflect the current market value of the option written. The
current market value of a written option is the last sale price on the principal
Exchange on which such option is traded or, in the absence of a sale, the mean
between the last bid and asked prices. If an option which a Series has written
expires on its stipulated expiration date, a Series recognizes a capital gain.
If a Series enters into a closing purchase transaction with respect to an option
which a Series has written, a Series realizes a gain (or loss if the cost of the
closing transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a call option which a
Series has written is exercised, a Series realizes a capital gain or loss from
the sale of the underlying security and the proceeds from such sale are
increased by the premium originally received.
The premium paid by a Series for the purchase of a put option is
recorded in the Series' assets and liabilities as an investment and subsequently
adjusted daily to the current market value of the option. For example, if the
current market value of the option exceeds the premium paid, the excess would be
unrealized appreciation and, conversely, if the premium exceeds the current
market value, such excess would be unrealized depreciation. The current market
value of a purchased option is the last sale price on the principal Exchange on
which such option is traded or, in the absence of a sale, the mean between the
last bid and asked prices. If an option which a Series has purchased expires on
the stipulated expiration date, a Series realizes a short-term or long-term
capital loss for federal income tax purposes in the amount of the cost of the
option. If a Series exercises a put option, it realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid.
OPTIONS ON CERTAIN STOCK INDICES--Accounting for options on certain
stock indices will be in accordance with generally accepted accounting
principles. The amount of any realized gain or loss on closing out such a
position will result in a realized gain or loss for tax purposes. Such options
held by the DelCap, International Equity, Small Cap Value, Trend, Global Bond,
Emerging Markets, Convertible Securities and REIT Series at the end of each
fiscal year will be required to be "marked to market" for federal income tax
purposes. Sixty percent of any net gain or loss recognized on such deemed sales
or on any actual sales will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss.
OTHER TAX REQUIREMENTS--Each Series has qualified, or intends to
qualify, as a regulated investment company under Subchapter M of the Internal
Revenue Code (the "Code"). As such, a Series will not be subject to federal
income tax, or to any excise tax, to the extent its earnings are distributed as
provided in the Code and it satisfies other requirements relating to the sources
of its income and diversification of its assets.
In order to qualify as a regulated investment company for federal
income tax purposes, a Series must meet certain specific requirements,
including:
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<PAGE>
(i) The Series must maintain a diversified portfolio of securities,
wherein no security (other than U.S. government securities and securities of
other regulated investment companies) can exceed 25% of the Series' total
assets, and, with respect to 50% of the Series? total assets, no investment
(other than cash and cash items, U.S. government securities and securities of
other regulated investment companies) can exceed 5% of the Series' total assets;
(ii) The Series must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or disposition of stock and securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies;
(iii) The Series must distribute to its shareholders at least 90% of
its net investment income and net tax-exempt income for each of its fiscal
years, and
(iv) The Series must realize less than 30% of its gross income for each
fiscal year from gains from the sale of securities and certain other assets that
have been held by the Series for less than three months ("short-short income").
The Taxpayer Relief Act of 1997 (the "1997 Act") repealed the 30% short-short
income test for tax years of regulated investment companies beginning after
August 5, 1997; however, this rule may have continuing effect in some states for
purposes of classifying the Series as a regulated investment company.
The Code requires the Series to distribute at least 98% of its taxable
ordinary income earned during the calendar year and 98% of its capital gain net
income earned during the 12 month period ending October 31 (in addition to
amounts from the prior year that were neither distributed nor taxed to the
Series) to you by December 31 of each year in order to avoid federal excise
taxes. The Series intends as a matter of policy to declare and pay sufficient
dividends in December or January (which are treated by you as received in
December) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the year that unrealized losses exceed unrealized gains.
The 1997 Act has also added new provisions for dealing with
transactions that are generally called "Constructive Sale Transactions." Under
these rules, a Series must recognize gain (but not loss) on any constructive
sale of an appreciated financial position in stock, a partnership interest or
certain debt instruments. The Series will generally be treated as making a
constructive sale when it: 1) enters into a short sale on the same or
substantially identical property; 2) enters into an offsetting notional
principal contract; or 3) enters into a futures or forward contract to deliver
the same or substantially identical property. Other transactions (including
certain financial instruments called collars) will be treated as constructive
sales as provided in Treasury regulations to be published. There are also
certain exceptions that apply for transactions that are closed before the end of
the 30th day after the close of the taxable year.
INVESTMENT IN FOREIGN CURRENCIES AND FOREIGN SECURITIES--A Series is
authorized to invest a limited amount in foreign securities. Such investments,
if made, will have the following additional tax consequences to a Series:
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Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Series accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time the Series actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of its disposition are
also treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of the Series' net investment company taxable income, which, in turn, will
affect the amount of income to be distributed to you by the Series.
If the Series' Section 988 losses exceed the Series? other net
investment company taxable income during a taxable year, the Series generally
will not be able to make ordinary dividend distributions to you for that year,
or distributions made before the losses were realized will be recharacterized as
return of capital distributions of federal income tax purposes, rather than as
an ordinary dividend or capital gain distribution. If a distribution is treated
as a return of capital, your tax basis in your Series shares will be reduced by
a like amount (to the extent of such basis), and any excess of the distribution
over your tax basis in your Series shares will be treated as capital gain to
you.
The 1997 Act generally requires that foreign income be translated into
U.S. dollars at the average exchange rate for the tax year in which the
transactions are conducted. Certain exceptions apply to taxes paid more than two
years after the taxable year to which they relate. This new law may require the
Series to track and record adjustments to foreign taxes paid on foreign
securities in which it invests. Under the Series' current reporting procedure,
foreign security transactions are recorded generally at the time of each
transaction using the foreign currency spot rate available for the date of each
transaction. Under the new law, the Series will be required to record a fiscal
year end (and at calendar year end for excise tax purposes) an adjustment that
reflects the difference between the spot rates recorded for each transaction and
the year-end average exchange rate for all of the Series' foreign securities
transactions. There is a possibility that the mutual fund industry will be given
relief from this new provision, in which case no year-end adjustments will be
required.
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<PAGE>
The Series may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the total assets of the
Series at the end of its fiscal year are invested in securities of foreign
corporations, the Series may elect to pass-through to you your pro rata share of
foreign taxes paid by the Series. If this election is made, you will be: (i)
required to include in your gross income your pro rata share of foreign source
income (including any foreign taxes paid by the Series) and (ii) entitled to
either deduct your share of such foreign taxes in computing your taxable income
or to claim a credit for such taxes against your U.S. income tax, subject to
certain limitations under the Code. You will be informed by the Fund at the end
of each calendar year regarding the availability of any such foreign tax credits
and the amount of foreign source income (including any foreign taxes paid by the
Series). If the Series elects to pass-through to you the foreign income taxes
that it has paid, you will be informed at the end of the calendar year of the
amount of foreign taxes paid and foreign source income that must be included on
your federal income tax return. If the Series invests 50% or less of its total
assets in securities of foreign corporations, it will not be entitled to
pass-through to you your pro-rata shares of foreign taxes paid by the Series. In
this case, these taxes will be taken as a deduction by the Series, and the
income reported to you will be the net amount after these deductions. The 1997
Act also simplifies the procedures by which investors in funds that invest in
foreign securities can claim tax credits on their individual income tax returns
for the foreign taxes paid by the Series. These provisions will allow investors
who pay foreign taxes of $300 or less on a single return or $600 or less on a
joint return during any year (all of which must be reported on IRS Form 1099-DIV
from the Series to the investor) to claim a tax credit against their U.S.
federal income tax for the amount of foreign taxes paid by the Series. This
process will allow you, if you qualify, to bypass the burdensome and detailed
reporting requirements on the foreign tax credit schedule (Form 1116) and report
your foreign taxes paid directly on page 2 of Form 1040. You should note that
this simplified procedure will not be available until calendar year 1998.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANY SECURITIES--The Series
may invest in shares of foreign corporations which may be classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. If a Series receives an "excess distribution" with
respect to PFIC stock, the Series itself may be subject to U.S. federal income
tax on a portion of the distribution, whether or not the corresponding income is
distributed by the Series to you. In general, under the PFIC rules, an excess
distribution is treated as having been realized ratably over the period during
which the Series held the PFIC shares. The Series itself will be subject to tax
on the portion, if any, of an excess distribution that is so allocated to prior
Series taxable years, and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. In this case, you would not be
permitted to claim a credit on your own tax return for the tax paid by the
Series. Certain distributions from a PFIC as well as gain from the sale of PFIC
shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain distribution might have been classified as capital gain. This may
have the effect of increasing Series distributions to you that are treated as
ordinary dividends rather than long-term capital gain dividends.
A Series may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Series generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC during such period. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, the 1997 Act provides for
another election that would involve marking-to-market the Series' PFIC shares at
the end of each taxable year (and on certain other dates as prescribed in the
Code), with the result that unrealized gains would be treated as though they
were realized. The Series would also be allowed an ordinary deduction for the
excess, if any, of the adjusted basis of its investment in the PFIC stock over
its fair market value at the end of the taxable year. This deduction would be
limited to the amount of any net mark-to-market gains previously included with
respect to that particular PFIC security. If the Series were to make this second
PFIC election, tax at the Series level under the PFIC rules would generally be
eliminated.
The application of the PFIC rules may affect, among other things, the
amount of tax payable by the Series (if any), the amounts distributable to you
by the Series, the time at which these distributions must be made, and whether
these distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares
of a foreign corporation are acquired to ascertain that the foreign corporation
is a PFIC, and that there is always a possibility that a foreign corporation
will become a PFIC after the Series acquires shares in that corporation. While
the Series will generally seek to avoid investing in PFIC shares to avoid the
tax consequences detailed above, there are no guarantees that it will do so and
it reserves the right to make such investments as a matter of its fundamental
investment policy.
-31-
<PAGE>
Most foreign exchange gains are classified as ordinary income which
will be taxable to you as such when distributed. Similarly, you should be aware
that any foreign exchange losses realized by the Series, including any losses
realized on the sale of foreign debt securities, are generally treated as
ordinary losses for federal income tax purposes. This treatment could increase
or reduce the Series' income available for distribution to you, and may cause
some or all of the Series' previously distributed income to be classified as a
return of capital.
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<PAGE>
PERFORMANCE INFORMATION
Contract owners and prospective investors will be interested in
learning from time to time the current yield of Delchester, Capital Reserves,
Global Bond and Strategic Income Series and, in addition, the effective
compounded yield of Cash Reserve Series. Advertisements of performance of the
underlying Series, if any, will be accompanied by a statement of performance of
the separate account. As explained under Dividends and Realized Securities
Profits Distributions, dividends for Delchester, Capital Reserves, Strategic
Income and Cash Reserve Series are declared daily from net investment income and
dividends for Global Bond Series are declared quarterly. Yield will fluctuate as
income earned fluctuates.
From time to time, the Fund may state each Series' total return in
advertisements and other types of literature. Any statements of total return
performance data will be accompanied by information on the Series' average
annual total rate of return over the most recent one-, five- and ten-year
periods. Each Series may also advertise aggregate and average total return
information over additional periods of time.
Each Series' average annual total rate of return is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical $1,000 purchase
at the end of the period.
Aggregate total return is calculated in a similar manner, except that
the results are not annualized. Each calculation assumes all distributions are
reinvested at net asset value.
The performance of the Series, as shown below, is the average annual
total return quotations through December 31, 1998. Securities prices fluctuated
during the periods covered and past results should not be considered as
representative of future performance.
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR ENDED 3 YEARS ENDED 5 YEARS ENDED 10 YEARS ENDED LIFE OF FUND
12/31/98 12/31/98 12/31/98 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GROWTH AND INCOME 11.35% 20.76% 19.06% 13.67% 13.25%
(INCEPTION 7/28/88)
- ----------------------------------------------------------------------------------------------------------------------------------
DELCHESTER -1.83% 7.96% 7.14% 9.55% 9.49%
(INCEPTION 7/28/88)
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL RESERVES 6.78% 6.13% 5.82% 7.00% 7.01%
(INCEPTION 7/28/88)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH RESERVE 5.08% 5.04% 4.85% 5.16% 5.26%
(INCEPTION 7/28/88)
- ----------------------------------------------------------------------------------------------------------------------------------
DELAWARE BALANCED 18.62% 20.23% 17.04% 14.83% 14.35%
(INCEPTION 7/28/88)
- ----------------------------------------------------------------------------------------------------------------------------------
DELCAP 18.81% 16.04% 14.32% N/A 12.74%
(INCEPTION 7/12/91)
- ----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY 10.33% 12.18% 10.54% N/A 11.14%
(INCEPTION 10/29/92)
- ----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE -4.79% 15.75% 14.12% N/A 14.55%
(INCEPTION 12/27/93)
- ----------------------------------------------------------------------------------------------------------------------------------
TREND 16.04% 16.06% 16.73% N/A 17.15%
(INCEPTION 12/27/93)
- ----------------------------------------------------------------------------------------------------------------------------------
GLOBAL BOND 7.82% N/A N/A N/A 7.61%
(INCEPTION 5/2/96)
- ----------------------------------------------------------------------------------------------------------------------------------
STRATEGIC INCOME 2.63% N/A N/A N/A 5.29%
(INCEPTION 5/1/97)
- ----------------------------------------------------------------------------------------------------------------------------------
DEVON 24.05% N/A N/A N/A 31.44%
(INCEPTION 5/1/97)
- ----------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS -32.48% N/A N/A N/A -26.37%
(INCEPTION 5/1/97)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES -1.17% N/A N/A N/A 8.91%
(INCEPTION 5/1/97)
- ----------------------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS 15.45% N/A N/A N/A 26.56%
(INCEPTION 5/1/97)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The respective investment manager elected to waive voluntarily the portion of
its annual compensation under its Investment Management Agreement with each
Series to limit operating expenses of the Series to the amounts noted under
Investment Management Agreements and Sub-Advisory Agreements. In the absence
of such voluntary waiver, performance would have been affected negatively.
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<PAGE>
Delchester, Capital Reserves, Global Bond and Strategic Income Series
may also quote its current yield, calculated as described below, in
advertisements and investor communications.
The yield computation for Delchester, Capital Reserves, Global Bond and
Strategic Income Series is determined by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period and annualizing the resulting figure, according to the
following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends;
d = the maximum offering price per share on the last day
of the period.
The above formula will be used in calculating quotations of yield,
based on specific 30-day periods identified in advertising by the Series. The
yields of Delchester, Capital Reserves and Strategic Income Series as of
December 31, 1998 using this formula were 10.34%, 5.51% and 8.05%, respectively.
Yield quotations are based on the offering price determined by the
Series' net asset value on the last day of the period and will fluctuate
depending on the period covered.
Cash Reserve Series may also quote its current yield in advertisements
and investor communications.
Yield calculation for Cash Reserve Series begins with the value of a
hypothetical account of one share at the beginning of a seven-day period; this
is compared with the value of that same account at the end of the same period
(including shares purchased for the account with dividends earned during the
period). The net change in the account value is generally the net income earned
per share during the period, which consists of accrued interest income plus or
minus amortized purchase discount or premium, less all accrued expenses
(excluding expenses reimbursed by the investment manager) but does not include
realized gains or losses or unrealized appreciation or depreciation.
The current yield of Cash Reserve Series represents the net change in
this hypothetical account annualized over 365 days. In addition, a shareholder
may achieve a compounding effect through reinvestment of dividends which is
reflected in the effective yield shown below.
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The following is an example, for purposes of illustration only, of the
current and effective yield calculations for Cash Reserve Series for the
seven-day period ended December 31, 1998.
Value of a hypothetical account with one
share at the beginning of the period $10.00000000
Value of the same account at the end of the period 10.00937019
===========
Net change in account value .00937019*
Base period return = net change in account
value ) beginning account value .000937019
Current yield [base period return x (365 divided by 7)] 4.89%**
=====
365/7
Effective yield (1 + base period) - 1 5.00%***
=====
Weighted average life to maturity of the portfolio on December 31, 1998 was 56
days.
* This represents the net income per share for the seven calendar days ended
December 31, 1998.
** This represents the average of annualized net investment income per share
for the seven calendar days ended December 31, 1998.
*** This represents the current yield for the seven calendar days ended
December 31, 1998 compounded daily.
The yield quoted at any time represents the amount being earned on a
current basis and is a function of the types of instruments in Cash Reserve
Series' portfolio, their quality and length of maturity and the Series'
operating expenses. The length of maturity for the portfolio is the average
dollar weighted maturity of the portfolio. This means that the portfolio has an
average maturity of a stated number of days for its issues. The calculation is
weighted by the relative value of the investment.
The yield will fluctuate daily as the income earned on the investments
of Cash Reserve Series fluctuates. Accordingly, there is no assurance that the
yield quoted on any given occasion will remain in effect for any period of time.
It should also be emphasized that the Fund is an open-end investment company and
that there is no guarantee that the net asset value or any stated rate of return
will remain constant. Investment performance is not insured. Investors comparing
results of Cash Reserve Series with investment results and yields from other
sources such as banks or savings and loan associations should understand these
distinctions. Historical and comparative yield information may, from time to
time, be presented by Cash Reserve Series. Although Cash Reserve Series
determines the yield on the basis of a seven-calendar-day period, it may, from
time to time, use a different time span.
-37-
<PAGE>
Other funds of the money market type may calculate their yield on a
different basis and the yield quoted by the Series could vary upward or downward
if another method of calculation or base period were used.
Investors should note that income earned and dividends paid by
Delchester, Capital Reserves, Global Bond and Strategic Income Series will also
vary depending upon fluctuations in interest rates and performance of each
Series' portfolio. The net asset value of each Series may change. Unlike Cash
Reserve Series, Delchester, Capital Reserves, Global Bond and Strategic Income
Series invest in longer-term securities that fluctuate in value and do so in a
manner inversely correlated with changing interest rates. The Series' net asset
values will tend to rise when interest rates fall. Conversely, the Series' net
asset values will tend to fall as interest rates rise. Normally, fluctuations in
interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held in the Series will vary from day to day and
investors should consider the volatility of the Series' net asset values as well
as their yields before making a decision to invest.
COMPARATIVE INFORMATION
From time to time, each Series may also quote its actual total return
performance, dividend results and other performance information in advertising
and other types of literature. This information may be compared to that of other
mutual funds with similar investment objectives and to stock, bond and other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance of a Series may be compared to data prepared by
Lipper Analytical Services, Inc., Morningstar, Inc., or to the S&P 500 Index,
the Dow Jones Industrial Average, the Morgan Stanley Capital International
(MSCI), Europe, Australia and Far East (EAFE) Index, the MSCI Emerging Markets
Free Index, or the Salomon Brothers World Government Bond Index. Performance
also may be compared to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. or the performance of unmanaged indices compiled or maintained
by statistical research firms such as Lehman Brothers or Salomon Brothers, Inc.
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which a Series may
invest and the assumptions that were used in calculating the blended performance
will be described.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare a Series'
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The S&P 500 and
the Dow Jones Industrial Average are industry-accepted unmanaged indices of
generally-conservative securities used for measuring general market performance.
Similarly, the MSCI EAFE Index, the MSCI Emerging Markets Free Index, and the
Salomon Brothers World Government Bond Index are industry-accepted unmanaged
indices of equity securities in developed countries and global debt securities,
respectively, used for measuring general market performance. The total return
performance reported for these indices will reflect the reinvestment of all
distributions on a quarterly basis and market price fluctuations. The indices do
not take into account any sales charges or other fees. A direct investment in an
unmanaged index is not possible.
-38-
<PAGE>
Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. The Consumer Price Index, as
prepared by the U.S. Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of a representative
group of consumer goods. It does not represent a return from an investment.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H.15), may also be used. As well, current industry rate and yield
information on all industry available fixed-income securities, as reported
weekly by The Bond Buyer, may also be used in preparing comparative
illustrations.
Each Series may also promote its yield and/or total return performance
and use comparative performance information computed by and available from
certain industry and general market research and publications, such as Lipper
Analytical Services, Inc., IBC/Donoghue's Money Market Report and Morningstar,
Inc.
The performance of multiple indices compiled and maintained by
statistical research firms, such as Morgan Stanley, Salomon Brothers and Lehman
Brothers, may be combined to create a blended performance result for comparative
purposes. Generally, the indices selected will be representative of the types of
securities in which the Series may invest and the assumptions that were used in
calculating the blended performance will be described.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Series may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Series. The Series may also compare performance to that of other
compilations or indices that may be developed and made available in the future.
The Series may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Series (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments or global or international investments),
economic and political conditions, the relationship between sectors of the
economy and the economy as a whole, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury bills. From time to time advertisements, sales literature,
communications to shareholders or other materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Series), as well as the views as to current market, economic,
trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Series. In addition, selected indices may be used to illustrate
historic performance of selected asset classes. The Series may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings which illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, domestic and international stocks, and/or bonds, treasury bills and shares
of a Series. In addition, advertisements, sales literature, communications to
-39-
<PAGE>
shareholders or other materials may include a discussion of certain attributes
or benefits to be derived by an investment in a Series and/or other mutual
funds, shareholder profiles and hypothetical investor scenarios, timely
information on financial management and tax planning and investment alternatives
to certificates of deposit and other financial instruments. Such sales
literature, communications to shareholders or other materials may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
Materials may refer to the CUSIP numbers of the Series and may
illustrate how to find the listings of the Series in newspapers and periodicals.
Materials may also include discussions of other Series, products, and services.
The Series may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Series may compare these measures
to those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. A Series may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to a Series may include information
regarding the background and experience of its portfolio managers.
The following table is an example, for purposes of illustration only,
of cumulative total return performance for the Series through December 31, 1998.
For these purposes, the calculations assume the reinvestment of any realized
securities profits distributions and income dividends paid during the indicated
periods.
-40-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
3 MONTHS 6 MONTHS 9 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SERIES 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 LIFE OF FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH AND INCOME 13.46% 1.49% 0.14% 11.35% 76.09% 139.21% 260.22% 265.98%
(INCEPTION 7/28/88)
- -------------------------------------------------------------------------------------------------------------------------------
DELCHESTER 0.82% -6.44% -6.40% -1.83% 25.82% 41.15% 148.98% 157.48%
(INCEPTION 7/28/88)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL RESERVES 0.56% 3.50% 5.31% 6.78% 19.54% 32.71% 96.76% 102.72%
(INCEPTION 7/28/88)
- -------------------------------------------------------------------------------------------------------------------------------
CASH RESERVE 1.21% 2.50% 3.79% 5.08% 15.89% 26.73% 65.38% 70.73%
(INCEPTION 7/28/88)
- -------------------------------------------------------------------------------------------------------------------------------
DELAWARE BALANCED 15.89% 8.78% 8.66% 18.62% 73.79% 119.66% 298.57% 304.94%
(INCEPTION 7/28/88)
- -------------------------------------------------------------------------------------------------------------------------------
DELCAP 24.58% 4.57% 6.36% 18.81% 56.25% 95.23% N/A 145.01%
(INCEPTION 7/12/91)
- -------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY 14.44% -1.85% -1.91% 10.33% 41.16% 65.04% N/A 91.96%
(INCEPTION 10/29/92)
- -------------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE 12.59% -5.57% -10.26% -4.79% 55.07% 93.55% N/A 97.62%
(INCEPTION 12/27/93)
- -------------------------------------------------------------------------------------------------------------------------------
TREND 23.75% 4.55% 4.94% 16.04% 56.32% 116.76% N/A 121.10%
(INCEPTION 12/27/93)
- -------------------------------------------------------------------------------------------------------------------------------
GLOBAL BOND 2.58% 6.93% 6.83% 7.82% N/A N/A N/A 21.60%
(INCEPTION 5/2/96)
- -------------------------------------------------------------------------------------------------------------------------------
STRATEGIC INCOME 1.63% 0.67% 0.57% 2.63% N/A N/A N/A 8.99%
(INCEPTION 5/1/97)
- -------------------------------------------------------------------------------------------------------------------------------
DEVON 20.81% 10.92% 10.76% 24.05% N/A N/A N/A 57.91%
(INCEPTION 5/1/97)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EMERGING MARKETS 2.47% -19.31% -37.26% -32.48% N/A N/A N/A -40.04%
(INCEPTION 5/1/97)
- -------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES 8.14% -3.38% -8.45% -1.17% N/A N/A N/A 15.33%
(INCEPTION 5/1/97)
- -------------------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS 21.45% 0.55% 1.04% 15.45% N/A N/A N/A 48.24%
(INCEPTION 5/1/97)
- -------------------------------------------------------------------------------------------------------------------------------
REIT 0.89% -7.61% -9.00% N/A N/A N/A N/A -9.00%
(INCEPTION 5/4/98)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The respective investment manager elected to waive voluntarily the portion of
its annual compensation under its Investment Management Agreement with each
Series to limit operating expenses of the Series to the amounts noted under
Investment Management Agreements and Sub-Advisory Agreements. In the absence
of such voluntary waiver, performance would have been affected negatively.
Because every investor's goals and risk threshold are different,
certain advertising and other related literature may provide general information
about investment alternatives and scenarios that will allow investors to assess
their personal goals. This information will include general material about
investing as well as materials reinforcing various industry-accepted principles
of prudent and responsible personal financial planning. One typical way of
addressing these issues is to compare an individual's goals and the length of
time the individual has to attain these goals to his or her risk threshold. In
addition, information may be provided discussing the respective investment
manager's overriding investment philosophy and how that philosophy affects
investment disciplines of the Series and other funds in the Delaware Investments
family employed in meeting their objectives.
-42-
<PAGE>
DOLLAR-COST AVERAGING
For many people, deciding when to invest can be a difficult decision.
Prices of securities such as stocks and bonds tend to move up and down over
various market cycles and are generally intended for longer term investing.
Money market funds, which typically maintain stable prices, are generally
intended for your short-term investment needs and can often be used as a basis
for building a long-term investment plan.
Though logic says to invest when prices are low, even experts can't
always pick the highs and the lows. By using a strategy known as dollar-cost
averaging, you schedule your investments ahead of time. If you invest a set
amount on a regular basis, that money will always buy more shares when the price
is low and fewer when the price is high. You can choose to invest at any regular
interval--for example, monthly or quarterly--as long as you stick to your
regular schedule.
Dollar-cost averaging looks simple and it is, but there are important
things to remember. Dollar-cost averaging works best over longer time periods,
and it doesn't guarantee a profit or protect against losses in declining
markets. If you need to sell your investment when prices are low, you may not
realize a profit no matter what investment strategy you utilize. That's why
dollar-cost averaging can make sense for long-term goals. Since the potential
success of a dollar-cost averaging program depends on continuous investing, even
through periods of fluctuating prices, you should consider your dollar-cost
averaging program a long-term commitment and invest an amount you can afford and
probably won't need to withdraw.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
NUMBER
INVESTMENT PRICE PER OF SHARES
AMOUNT SHARE PURCHASED
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $5.00 20
Month 4 $100 $10.00 10
----------------------------------------------------
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of a Series.
THE POWER OF COMPOUNDING
As part of your VARIABLE ANNUITY contract, any earnings from your
investment selection are automatically reinvested to purchase additional shares
of a Series. This gives your investment yet another opportunity to grow. It's
called the Power of Compounding. Each Series may included illustrations showing
the Power of Compounding in advertisements and other types of literature.
-43-
<PAGE>
TRADING PRACTICES AND BROKERAGE
The Fund or, in the case of International Equity, Global Bond and
Emerging Markets Series, Delaware International, selects banks, brokers or
dealers to execute transactions on behalf of the Series for the purchase or sale
of portfolio securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have banks,
brokers or dealers execute transactions at best price and execution. Best price
and execution refers to many factors, including the price paid or received for a
security, the commission charged, the promptness and reliability of execution,
the confidentiality and placement accorded the order and other factors affecting
the overall benefit obtained by the account on the transaction. The Fund pays
reasonably competitive brokerage commission rates based upon the professional
knowledge of its trading department or, in the case of International Equity,
Global Bond and Emerging Markets Series, Delaware International, as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Fund pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Fund either buys the securities directly from the dealer or sells them to
the dealer. In these instances, there is no direct commission charged, but there
is a spread (the difference between the buy and sell price) which is in the
equivalent of a commission.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
aggregate dollar amounts of brokerage commissions were paid by the Series noted
below:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Growth and Income Series $302,434 $518,762 $1,020,668
Delaware Balanced Series $83,262 $120,307 $165,591
DelCap Series $101,211 $270,393 $308,645
International Equity Series $110,181 $215,242 $121,978
Small Cap Value Series $53,113 $119,689 $198,194
Trend Series $80,172 $182,867 $269,355
Devon Series* N/A $21,022 $83,285
Emerging Markets Series* N/A $28,640 $21,763
Convertible Securities Series* N/A $5,517 $10,155
Social Awareness Series* N/A $7,416 $25,636
REIT Series** N/A N/A $13,326
</TABLE>
*Commenced operations on May 1, 1997.
**Commenced operations on May 4, 1998.
The respective investment manager may allocate out of all commission
business generated by all of the funds and accounts under management by the
respective investment manager, brokerage business to brokers or dealers who
provide brokerage and research services. These services include advice, either
directly or through publications or writings, as to the value of securities, the
-44-
<PAGE>
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers; securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software and hardware used in security analyses;
and providing portfolio performance evaluation and technical market analyses.
Such services are used by the respective investment manager in connection with
its investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
During the fiscal year ended December 31, 1998, portfolio transactions
of the following Series in the amounts listed below, resulting in brokerage
commissions in the amounts listed below were directed to brokers for brokerage
and research services provided:
PORTFOLIO BROKERAGE
TRANSACTIONS COMMISSIONS
AMOUNTS AMOUNTS
------------- -----------
Growth and Income Series $327,836,919 $342,890
Delaware Balanced Series 65,237,810 96,002
DelCap Series 141,951,414 280,802
International Equity Series 4,692,866 9,996
Small Cap Value Series 61,036,311 169,029
Trend Series 96,415,713 228,844
Devon Series 30,028,617 45,396
Emerging Markets Series 20,266 151
Convertible Securities Series 819,288 2,532
Social Awareness Series 17,739,629 4,831
REIT Series* 974,654 2,902
*Commenced operations on May 4, 1998.
As provided in the Securities Exchange Act of 1934 and the Investment
Management Agreements, higher commissions are permitted to be paid to
broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Fund believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the respective investment manager which constitute in some part brokerage and
research services used by the respective investment manager in connection with
its investment decision-making process and constitute in some part services used
by the respective investment manager in connection with administrative or other
functions not related to its investment decision-making process. In such cases,
the respective investment manager will make a good faith allocation of brokerage
and research services and will pay out of its own resources for services used by
the respective investment manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Fund and to other funds in the Delaware
Investments family. Subject to best price and execution, commissions allocated
-45-
<PAGE>
to brokers providing such pricing services may or may not be generated by the
funds receiving the pricing service.
The respective investment manager may place a combined order for two or
more accounts or funds engaged in the purchase or sale of the same security if,
in its judgment, joint execution is in the best interest of each participant and
will result in best price and execution. Transactions involving commingled
orders are allocated in a manner deemed equitable to each account or fund. When
a combined order is executed in a series of transactions at different prices,
each account participating in the order may be allocated an average price
obtained from the executing broker. It is believed that the ability of the
accounts to participate in volume transactions will generally be beneficial to
the accounts and funds. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the security
that a particular account or fund may obtain, it is the opinion of the
respective investment manager and the Fund's Board of Directors that the
advantages of combined orders outweigh the possible disadvantages of separate
transactions.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to seeking best price and execution,
the Fund may place orders with broker/dealers which have agreed to defray
certain expenses of the funds in the Delaware Investments family, such as
custodian fees, and may, at the request of the Distributor, give consideration
to sales of such funds shares as a factor in the selection of brokers and
dealers to execute Series portfolio transactions.
PORTFOLIO TURNOVER
The rate of portfolio turnover will not be a limiting factor when
portfolio changes are deemed appropriate for each Series. Given the respective
Series' investment objectives, the Fund anticipates that the annual portfolio
turnover rates are not expected to exceed 100% for the Growth and Income,
International Equity, Global Bond, Strategic Income, Emerging Markets, Devon,
Social Awareness and REIT Series, 200% for the Capital Reserves, and Delaware
Balanced Series, and may exceed 100% for the Delchester, Small Cap Value and
Trend Series and 200% for the Convertible Securities Series. Although the DelCap
Series' portfolio turnover exceeded 100% for the previous fiscal year, it is not
expected to exceed 100% in the current fiscal year. It is possible that in any
particular year market conditions or other factors might result in portfolio
activity at a greater rate than anticipated. The portfolio turnover rate of each
Series is calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly average of the value of
the portfolio securities owned by the Series during the particular fiscal year,
exclusive of securities whose maturities at the time of acquisition are one year
or less.
The degree of portfolio activity may affect brokerage costs incurred by
each Series. A turnover rate of 100% would occur, for example, if all the
investments in a Series' portfolio at the beginning of the year were replaced by
the end of the year. In investing to achieve their respective objective, a
Series may hold securities for any period of time. Portfolio turnover will also
be increased if a Series writes a large number of call options which are
subsequently exercised. The turnover rate also may be affected by cash
requirements from redemptions and repurchases of Series' shares.
-46-
<PAGE>
The portfolio turnover rates for the Series noted below for the past
two fiscal years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SERIES DECEMBER 31, 1997 DECEMBER 31, 1998
------ ----------------- -----------------
<S> <C> <C>
Growth and Income Series 54% 81%
Delchester Series 121% 86%
Capital Reserves Series 120% 166%
Delaware Balanced Series 67% 94%
DelCap Series 134% 142%
International Equity Series 7% 5%
Small Cap Value Series 41% 45%
Trend Series 125% 121%
Global Bond Series 97% 79%
Strategic Income Series 70%* 143%
Devon Series 80%* 34%
Emerging Markets Series 48%* 38%
Convertible Securities Series 209%* 77%
Social Awareness Series 52%* 30%
REIT Series N/A 39%**
</TABLE>
* Annualized. Commenced operations on May 1, 1997.
** Annualized. Commenced operations on May 4, 1998.
-47-
<PAGE>
OFFERING PRICE
The offering price of shares is the net asset value per share next to
be determined after an order is received. The purchase of shares becomes
effective at the close of business on the day on which the investment is
received from the life company and after any dividend is declared. Dividends, if
any, begin to accrue on the next business day. There is no sales charge.
The purchase will be effected at the net asset value next computed
after the receipt of Federal Funds provided they are received by the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when such exchange is open. The New York Stock Exchange is
scheduled to be open Monday through Friday throughout the year except for New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the New York
Stock Exchange is closed, the Fund will generally be closed, pricing
calculations will not be made and purchase and redemption orders will not be
processed. In the event of changes in Securities and Exchange Commission
requirements or the Fund's change in time of closing, the Fund reserves the
right to price at a different time, to price more often than once daily or to
make the offering price effective at a different time.
An example showing how to calculate the net asset value per share is
included in the Series' financial statements which are incorporated by reference
into this Part B.
The net asset value per share is computed by adding the value of all
securities and other assets in a Series' portfolio, deducting any liabilities of
that Series and dividing by the number of that Series' shares outstanding.
Expenses and fees are accrued daily. Each Series' net asset value per share is
computed by adding the value of all the securities and other assets in the
Series' portfolio, deducting any liabilities of the Series, and dividing by the
number of Fund shares outstanding. Expenses and fees are accrued daily. In
determining a Series' total net assets, portfolio securities primarily listed or
traded on a national or foreign securities exchange, except for bonds, are
valued at the last sale price on that exchange. Exchange traded options are
valued at the last reported sale price or, if no sales are reported, at the mean
between bid and asked prices. Non-exchange traded options are valued at fair
value using a mathematical model. Futures contracts are valued at their daily
quoted settlement price. For valuation purposes, foreign currencies and foreign
securities denominated in foreign currency values will be converted into U.S.
dollar values at the mean between the bid and offered quotations of such
currencies against U.S. dollars based on rates in effect that day. Securities
not traded on a particular day, over-the-counter securities, and government and
agency securities are valued at the mean value between bid and asked prices.
Money market instruments having a maturity of less than 60 days are valued at
amortized cost. Debt securities (other than short-term obligations) are valued
on the basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Foreign securities and
the prices of foreign securities denominated in foreign currencies are
translated to U.S. dollars based on rates in effect as of 12 p.m., Eastern time.
Use of a pricing service has been approved by the Board of Directors. Prices
provided by a pricing service take into account appropriate factors such as
institutional trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, trading characteristics and other market data.
Subject to the foregoing, securities for which market quotations are not readily
available and other assets are valued at fair value as determined in good faith
and in a method approved by the Board of Directors.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Series of securities owned by it is not reasonably
-48-
<PAGE>
practical, or it is not reasonably practical for a Series fairly to value its
assets, or in the event that the Securities and Exchange Commission has provided
for such suspension for the protection of shareholders, the Fund may postpone
payment or suspend the right of redemption or repurchase. In such case, the
shareholder may withdraw a request for redemption or leave it standing as a
request for redemption at the net asset value next determined after the
suspension has been terminated.
MONEY MARKET SERIES
The Board of Directors has adopted certain procedures to monitor and
stabilize the price per share of Cash Reserve Series. Calculations are made each
day to compare part of the Series' value with the market value of instruments of
similar character. At regular intervals all issues in the portfolio are valued
at market value. Securities maturing in more than 60 days are valued more
frequently by obtaining market quotations from market makers. The portfolio will
also be valued by market makers at such other times as is felt appropriate. In
the event that a deviation of more than 1/2 of 1% exists between the Series' $10
per share offering and redemption prices and the net asset value calculated by
reference to market quotations, or if there is any other deviation which the
Board of Directors believes would result in a material dilution to shareholders
or purchasers, the Board of Directors will promptly consider what action, if
any, should be initiated, such as changing the price to more or less than $10
per share.
-49-
<PAGE>
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
Dividends for the Delchester and Capital Reserves Series are declared
daily and paid monthly. Short-term capital gains distributions, if any, may be
paid with the dividend; otherwise, any distributions from net realized
securities profits normally will be distributed following the close of the
fiscal year. The Fund's fiscal year ends on December 31.
For the Growth and Income, Delaware Balanced and Global Bond Series,
the Fund will make payments from the Series' net investment income quarterly.
Distributions from the respective Series' net realized securities profits, if
any, normally will be made following the close of the fiscal year.
For the Aggressive Growth, Convertible Securities, DelCap, Devon,
International Equity, Small Cap Value, Trend, Emerging Markets, Social
Awareness, Strategic Income and REIT Series, the Fund will make payments from
the Series' net income and net realized securities profits, if any, once a year.
All dividends and distributions are automatically reinvested in
additional Series shares.
CASH RESERVE SERIES
The Fund declares a dividend of this Series' net investment income on a
daily basis, to shareholders of record at the time of the previous calculation
of the Series' net asset value, each day that the Fund is open for business.
Payment of dividends will be made monthly. The amount of net investment income
will be determined at the time the offering price and net asset value are
determined (see Offering Price), and shall include investment income accrued,
less the estimated expenses of the Series incurred since the last determination
of net asset value. Gross investment income consists principally of interest
accrued and, where applicable, net pro-rata amortization of premiums and
discounts since the last determination. The dividend declared at the time the
offering price and net asset value are determined, as noted above, will be
deducted immediately before the net asset value calculation is made. See
Offering Price. Net investment income earned on days when the Fund is not open
will be declared as a dividend on the next business day. An investor begins
earning dividends when payments for shares purchased are converted into Federal
Funds and are available for investment.
To the extent necessary to maintain a $10 per share net asset value,
the Board of Directors will consider temporarily reducing or suspending payment
of daily dividends, or making a distribution of realized securities profits or
other distributions at the time the net asset value per share has changed.
-50-
<PAGE>
TAXES
Each Series has qualified, or intends to qualify, as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code").
As such, a Series will not be subject to federal income tax to the extent its
earnings are distributed and it satisfies other requirements relating to the
sources of its income and diversification of its assets.
Each Series of the Fund is treated as a single tax entity, and any
capital gains and losses for each series are calculated separately. It is the
Series' policy to pay out substantially all net investment income and net
realized gains to relieve the Fund of federal income tax liability on that
portion of its income paid to shareholders under the Internal Revenue Code.
The Series does not have a fixed policy with regard to distributions of
realized securities profits when such realized securities profits may be offset
by capital losses carried forward. Presently, however, the Series intends to
offset realized securities profits to the extent of the capital losses carried
forward.
All dividends out of net investment income, together with distributions
from short-term capital gains, will be taxable to those shareholders who are
subject to income taxes as ordinary income. (These distributions may be eligible
for the dividends-received deductions for corporations.) Any net long-term
capital gains distributed to those shareholders who are subject to income tax
will be taxable as such, regardless of the length of time a shareholder has
owned their shares.
Under the Taxpayer Relief Act of 1997, as revised by the Internal
Revenue Service Act of 1998 (the "1998 Act") and the Omnibus Consolidated and
Emergency Supplemental Appropriations Act, a Series is required to track its
sales of portfolio securities and to report its capital gain distributions to
you according to the following categories of holding periods:
"MID-TERM CAPITAL GAINS" OR "28 PERCENT RATE GAIN": securities sold by a
Series after July 28, 1997 that were held more than one year but not more
than 18 months. These gains will be taxable to individual investors at a
maximum rate of 28%. This category of gains applied only to gains and
distributions in 1997.
"1997 ACT LONG-TERM CAPITAL GAINS" OR "20 PERCENT RATE GAIN": securities
sold between May 7, 1997 and July 28, 1997 that were held for more than 12
months, and securities sold by the Series after July 28, 1997 that were
held for more than 18 months. As revised by the 1998 Act, this rate
applies to securities held for more than 12 months and sold in tax years
beginning after December 1, 1997. These gains will be taxable to
individual investors at a maximum rate of 20% for investors in the 28% or
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<PAGE>
higher federal income tax brackets, and at a maximum rate of 10% for
investors in the 15% federal income tax bracket. The Omnibus Consolidated
and Emergency Supplemental Appropriations Act passed in October of 1998
included technical corrections to the 1998 Act. The effect of this
correction is that essentially all capital gain distributions paid to
shareholders during 1998 will be taxed at a maximum rate of 20%.
"QUALIFIED 5-YEAR GAINS": For individuals in the 15% bracket, qualified
five-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individual who are subject to
tax at higher rate brackets, qualified five-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than five years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to recognize
gain on their shares in order to qualify such shares as qualified
five-year property. These gains will be taxable to individual investors at
a maximum rate of 18% for investors in the 28% or higher federal income
tax brackets, and at a maximum rate of 8% for investors in the 15% federal
income tax bracket when sold after the five-year holding period.
-52-
<PAGE>
INVESTMENT MANAGEMENT AGREEMENTS AND SUB-ADVISORY AGREEMENTS
Delaware Management Company ("Delaware Management"), located at One
Commerce Square, 2005 Market Street, Philadelphia, PA 19103, furnishes
investment management services to Growth and Income, Delchester, Capital
Reserves, Cash Reserve, DelCap, Delaware Balanced, Small Cap Value, Trend,
Strategic Income, Devon, Convertible Securities, Social Awareness and REIT
Series. Delaware International Advisers Ltd. ("Delaware International"), located
at Third Floor, 80 Cheapside, London, England EC2V 6EE, furnishes investment
management services to International Equity, Global Bond and Emerging Markets
Series. Such services are provided subject to the supervision and direction of
the Fund's Board of Directors. Delaware International is affiliated with
Delaware Management.
Delaware Management and its predecessors have been managing the funds
in Delaware Investments since 1938. On December 31, 1998, Delaware Management
and its affiliates within Delaware Investments, including Delaware
International, were supervising in the aggregate more than $45 billion in assets
in the various institutional or separately managed (approximately
$26,429,550,000) and investment company (approximately $18,817,530,000)
accounts. Delaware Management is a series of Delaware Management Business Trust.
Delaware Management changed its form of organization from a corporation to a
business trust on March 1, 1998.
The Investment Management Agreements for Growth and Income, Delchester,
Capital Reserves, Cash Reserve, DelCap, Delaware Balanced, International Equity,
Small Cap Value and Trend Series are dated April 3, 1995 and were approved by
shareholders on March 29, 1995. The Investment Management Agreement for Global
Bond Series is dated May 1, 1996 and was approved by the initial shareholder on
May 1, 1996 and will remain in effect for an initial period of two years. The
Investment Management Agreements for Strategic Income, Devon, Emerging Markets,
Convertible Securities and Social Awareness Series are dated May 1, 1997 and
were approved by the initial shareholder May 1, 1997 and will remain in effect
for an initial period of two years. The Investment Management Agreement for REIT
Series is dated May 1, 1998 and was approved by the initial shareholder on that
date and will remain in effect for an initial period of two years. The
Investment Management Agreement for Aggressive Growth Series is dated May 1,
1999 and was approved by the initial shareholder on that date and will remain in
effect for an initial period of two years. The Agreements may be renewed only if
such renewal and continuance are specifically approved at least annually by the
Board of Directors or by vote of a majority of the outstanding voting securities
of the Series, and only if the terms and the renewal thereof have been approved
by the vote of a majority of the directors of the Fund who are not parties
thereto or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreements are terminable
without penalty on 60 days' notice by the directors of the Fund or by the
respective investment manager. The Agreements will terminate automatically in
the event of their assignments.
-53-
<PAGE>
Delaware Management is paid an annual fee equal to the following
percentage rates of the average daily net assets of the Series noted below,
less, in the case of Growth and Income, Delchester, Capital Reserves, Cash
Reserve, DelCap and Delaware Balanced Series, a proportionate share of all
directors' fees paid to the unaffiliated directors of the Fund:
Growth and Income Series 0.60%
Delchester Series 0.60%
Capital Reserves Series 0.60%
Cash Reserve Series 0.50%
DelCap Series 0.75%
Delaware Balanced Series 0.60%
Small Cap Value Series 0.75%
Trend Series 0.75%
Strategic Income Series 0.65%
Devon Series 0.60%
Convertible Securities Series 0.75%
Social Awareness Series 0.75%
REIT Series 0.75%*
Aggressive Growth Series 0.75%*
*Assets up to $500 million: 0.75% of average daily net assets
Assets over $500 million - $1,000 million: 0.70% of average daily net
assets
Assets over $1,000 million - $2,500 million: 0.65% of average daily net
assets
Assets over $2,500 million: 0.60% of average daily net assets
Delaware International is paid an annual fee equal to the following
percentage rates of the average daily net assets of the Series, less, in the
case of International Equity Series, a proportionate share of all directors'
fees paid to the unaffiliated directors of the Fund:
International Equity Series 0.75%
Global Bond Series 0.75%
Emerging Markets Series 1.25%
The respective investment manager administers the affairs of and is
ultimately responsible for the investment management of each of the Series to
which it provides investment management services. In addition, Delaware
Management pays the salaries of all directors, officers and employees who are
affiliated with both it and the Fund.
Subject to the overall supervision of Delaware Management, Delaware
International manages the international sector of Strategic Income Series'
portfolio and furnishes Delaware Management with investment recommendations,
asset allocation advice, research and other investment services with respect to
foreign securities. For the services provided to Delaware Management, Delaware
Management pays the Sub-Adviser a fee equal to one- third of the fee paid to
Delaware Management under the terms of Strategic Income Series' Investment
Management Agreement.
Pursuant to the terms of Sub-Advisory Agreements with Delaware
Management, Vantage Global Advisors, Inc. ("Vantage") participates in the
management of Social Awareness Series' assets. Vantage is responsible for
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<PAGE>
day-to-day investment management of the Series, makes investment decisions for
the Series in accordance with the Series' investment objectives and stated
policies and places orders on behalf of the Series to effect the investment
decisions made. Delaware Management continues to have ultimate responsibility
for all investment advisory services in connection with the management of the
Series pursuant to the Investment Management Agreement and supervises Vantage's
performance of such services For the services provided to Delaware Management,
Delaware Management pays Vantage a fee equal to (i) 0.25% of average daily net
assets up to $20 million; (ii) 0.35% of average daily net assets between $20
million and $50 million; and (iii) 0.40% of average daily net assets over $50
million. Vantage's address is 630 Fifth Avenue, New York, NY 10111.
Lincoln Investment Management, Inc. ("Lincoln"), a wholly owned
subsidiary of Lincoln National Corporation ("Lincoln National"), acts as
sub-adviser to Delaware Management with respect to REIT Series. In its capacity
as sub-adviser, Lincoln furnishes Delaware Management with investment
recommendations, asset allocation advice, research, economic analysis and other
investment services with respect to the securities in which the Series may
invest. Lincoln receives 30% of the advisory fee paid to Delaware Management for
acting as sub-adviser to Delaware Management with respect to the Series.
Lincoln's address is 200 E. Berry Street, Fort Wayne, Indiana 46802.
On December 31, 1998, the total net assets of the Fund were
$1,790,408,316, broken down as follows:
Growth and Income Series $579,906,697
Delchester Series $120,708,272
Capital Reserves Series $41,711,484
Cash Reserve Series $42,893,055
DelCap Series $130,547,699
Delaware Balanced Series $201,855,524
International Equity Series $243,536,041
Small Cap Value Series $103,989,424
Trend Series $168,251,210
Global Bond Series $21,711,170
Strategic Income Series $20,570,764
Devon Series $68,714,265
Convertible Securities Series $8,132,953
Social Awareness Series $26,961,898
Emerging Markets Series $5,356,068
REIT Series $5,561,792
Aggressive Growth Series did not publicly offer shares prior to May 1,
1999.
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<PAGE>
Investment management fees were incurred with respect to the Series
noted below for the last three fiscal years.
<TABLE>
<CAPTION>
SERIES DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
- ------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Growth and Income Series $3,018,521 paid $1,640,377 paid $765,301 paid
Delchester Series $689,099 paid $483,877 paid $348,693 paid
Capital Reserves Series $208,577 paid $166,300 paid $164,296 paid
Cash Reserve Series $212,479 paid $149,023 paid $110,155 paid
DelCap Series $846,793 earned $716,228 earned $505,739 earned
$781,882 paid 646,908 paid $491,404 paid
$64,911 waived 69,320 waived $14,335 waived
Delaware Balanced Series $968,768 paid 595,126 paid $402,509 paid
International Equity Series $1,679,911 earned $1,304,340 earned $768,150 earned
$1,651,181 paid $1,207,677 paid $650,392 paid
$28,730 waived $96,663 waived $117,758 waived
Small Cap Value Series $706,066 earned $380,405 earned $117,000 earned
$680,359 paid $328,056 paid $87,687 paid
$25,707 waived $252,349 waived $29,313 waived
Trend Series $1,025,600 earned $622,149 earned $247,520 earned
$977,521 paid $558,331 paid $205,501 paid
$48,079 waived $63,818 waived $42,019 waived
Global Bond Series* $141,939 earned $109,310 earned $26,503 earned
$125,844 paid $68,076 paid $12,597 paid
$16,095 waived $41,234 waived $13,906 waived
Strategic Income Series** $101,453 earned $21,320 earned N/A
$100,002 paid $7,271 paid
$1,451 waived $14,049 waived
Devon Series** $218,772 earned $31,110 earned N/A
$216,267 paid $25,236 paid
$2,505 waived $5,8874 waived
Emerging Markets Series** $71,160 earned $26,327 earned N/A
$61,148 paid $8,587 paid
10,012 waived $27,740 waived
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SERIES DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
- ------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Convertible Securities Series** $46,042 earned $14,026 earned N/A
$46,042 paid -0- paid
-0- waived $14,026 waived
Social Awareness Series** $117,271 earned $20,293 earned N/A
$108,502 paid $3,692 paid
$8,769 waived $16,601 waived
REIT Series*** $15,449 earned N/A N/A
$11,895 paid
$3,554 waived
</TABLE>
* Commenced operations on May 2, 1996.
** Commenced operations on May 1, 1997.
*** Commenced operations on May 4, 1998.
During the period May 1, 1997 (date of commencement of operations)
through December 31, 1997, Delaware International received $2,424 from Delaware
Management for serving as Sub-Adviser to the Strategic Income Series and for the
fiscal year ended December 31, 1998, Delaware International received $33,334 for
such services. During the period May 1, 1997 (date of commencement of
operations) through December 31, 1997, Vantage received $5,449 from Delaware
Management for serving as Sub-Adviser to the Social Awareness Series and for the
fiscal year ended December 31, 1998, Vantage received $39,620 for such services.
During the period May 4, 1998 (date of commencement of operations through
December 31, 1998, Lincoln received $4,635 from Delaware Management for serving
as Sub-Adviser to the REIT Series.
Except for those expenses borne by the respective investment manager
under the Investment Management Agreements and the Distributor under the
Distribution Agreements, each Series is responsible for all of its own expenses.
Among others, these include the Series' proportionate share of rent and certain
other administrative expenses; the investment management fees; transfer and
dividend disbursing agent fees and costs; custodian expenses; federal securities
registration fees; proxy costs; and the costs of preparing prospectuses and
reports sent to shareholders.
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<PAGE>
Beginning May 1, 1998 (May 1, 1999 for Aggressive Growth Series),
Delaware Management elected voluntarily to waive its fee and pay the expenses of
a Series to the extent necessary to ensure that a Series' annual operating
expenses, exclusive of taxes, interest, brokerage commissions and extraordinary
expenses, do not exceed the following percentages of average daily net assets
through October 31, 1999:
Growth and Income Series 0.80%
Delchester Series 0.80%
Capital Reserves Series 0.80%
Cash Reserve Series 0.80%
DelCap Series 0.85%
Delaware Balanced Series 0.80%
Small Cap Value Series 0.85%
Trend Series 0.85%
Strategic Income Series 0.80%
Devon Series 0.80%
Convertible Securities Series 0.85%
Social Awareness Series 0.85%
REIT Series 0.85%
Aggressive Growth Series 0.85%
Beginning May 1, 1998, Delaware International elected voluntarily to
waive its fee and pay the expenses of a Series to the extent necessary to ensure
that a Series' annual operating expenses, exclusive of taxes, interest,
brokerage commissions and extraordinary expenses, do not exceed the following
percentages of average daily net assets through October 31, 1999:
International Equity Series 0.95%
Global Bond Series 0.85%
Emerging Markets Series 1.50%
Prior to May 1, 1998, Delaware Management elected voluntarily to waive
its fee and pay the expenses of a Series to the extent necessary to ensure that
a Series' annual operating expenses, exclusive of taxes, interest, brokerage
commissions and extraordinary expenses, did not exceed 0.80% of average daily
net assets from the commencement of operations through April 30, 1998 for the
Delchester, Capital Reserves, Cash Reserve, Small Cap Value, Trend, Strategic
Income, Devon, Convertible Securities and Social Awareness Series.
Prior to May 1, 1998, Delaware Management elected voluntarily to waive
its fee and pay the expenses of Growth and Income, Delaware and DelCap Series to
the extent necessary to ensure that a Series' annual operating expenses,
exclusive of taxes, interest, brokerage commissions and extraordinary expenses,
did not exceed 0.80% of average daily net assets for the period July 1, 1992
through April 30, 1998.
Prior to May 1, 1998, Delaware International elected voluntarily to
waive its fee and pay the expenses of International Equity and Global Bond
Series to the extent necessary to ensure that a Series' annual operating
expenses, exclusive of taxes, interest, brokerage commissions and extraordinary
expenses, did not exceed 0.80% of average daily net assets from the commencement
of operations through June 30, 1997. The waiver and payment commitment was
extended through April 30, 1998 for Global Bond Series. Beginning July 1, 1997,
Delaware International elected voluntarily to waive its fee and pay the expenses
of International Equity to the extent necessary to ensure that the Series'
annual operating expenses, exclusive of taxes, interest, brokerage commissions
and extraordinary expenses, did not exceed 0.95% of average daily net assets
through April 30, 1998.
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<PAGE>
Prior to May 1, 1998, Delaware International elected voluntarily to
waive its fee and pay the expenses of the Emerging Markets Series to the extent
necessary to ensure that the Series' annual operating expenses, exclusive of
taxes, interest, brokerage commissions and extraordinary expenses, did not
exceed 1.50% of average daily net assets from the commencement of operations
through April 30, 1998.
DISTRIBUTION AND SERVICE
Delaware Distributors, L.P., located at 1818 Market Street,
Philadelphia, PA 19103, serves as the Fund's national distributor under
Distribution Agreements dated as of April 3, 1995 for all Series other than
Global Bond, Strategic Income, Devon, Emerging Markets, Convertible Securities,
Social Awareness, REIT and Aggressive Growth Series. Global Bond Series'
Distribution Agreement is dated as of May 1, 1996. Strategic Income, Devon,
Emerging Markets, Convertible Securities and Social Awareness Series'
Distribution Agreements are dated as of May 1, 1997. REIT Series Distribution
Agreement is dated as of May 1, 1998. Aggressive Growth Series Distribution
Agreement is dated as of May 1, 1999.The Distributor is an affiliate of Delaware
Management and Delaware International and bears all of the costs of promotion
and distribution. Delaware Distributors, L.P. is an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
Delaware Service Company, Inc. (the "Transfer Agent"), another
affiliate of Delaware Management and Delaware International, is the Fund's
shareholder servicing, dividend disbursing and transfer agent for the Growth and
Income, Delchester, Capital Reserves, Delaware Balanced, DelCap, International
Equity, Small Cap Value, Trend, Global Bond, Strategic Income, Devon, Emerging
Markets, Convertible Securities, Social Awareness, REIT and Aggressive Growth
Series pursuant to the Amended and Restated Shareholders Services Agreement
dated May 1, 1999 and for Cash Reserve Series pursuant to the Shareholders
Services Agreement dated June 29, 1988. The Transfer Agent also provides
accounting services to the Series pursuant to the terms of a separate Fund
Accounting Agreement. The Transfer Agent is also an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
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<PAGE>
OFFICERS AND DIRECTORS
The business and affairs of the Fund are managed under the direction of
its Board of Directors.
Certain officers and directors of the Fund hold identical positions in
each of the other funds in the Delaware Investments family.
DMH Corp., Delvoy, Inc., Delaware Management Company, Inc., Delaware
Management Business Trust, Delaware Management Company, Delaware Investment
Advisers, Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware
Service Company, Inc., Delaware Management Trust Company, Delaware International
Holdings Ltd., Founders Holdings, Inc., Delaware International Advisers Ltd.,
Delaware Capital Management, Inc. and Delaware Investment & Retirement Services,
Inc. are direct or indirect, wholly owned subsidiaries of Delaware Management
Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a wholly
owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. In connection with the merger, new Investment Management Agreements
between the Fund on behalf of all of the Series, except Global Bond, Strategic
Income, Devon, Emerging Markets, Convertible Securities, Social Awareness and
REIT Series, and, as relevant, Delaware Management and Delaware International,
were executed following shareholder approval. DMH, Delaware Management and
Delaware International are now indirect, wholly owned subsidiaries, and subject
to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
Directors and principal officers of the Fund are noted below along with
their ages and their business experience for the past five years. Unless
otherwise noted, the address of each officer and director is One Commerce
Square, Philadelphia, PA 19103.
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------- --------------------------------------------------------------------------------------------------
DIRECTOR/OFFICER BUSINESS EXPERIENCE
- ----------------------------- --------------------------------------------------------------------------------------------------
<S> <C>
*JEFFREY J. NICK (46) Chairman of the Board, President, Chief Executive Officer and Director and/or Trustee of the
Fund, each of the other 33 investment companies in the Delaware Investments family, Delaware
Management Business Trust, Delvoy, Inc., DMH Corp. Delaware Management Company, Inc. and
Founders Holdings, Inc.
Chairman of the Board, Chief Executive Officer and Director of Delaware Distributors, Inc.,
Delaware International Holdings Ltd., Delaware International Advisers Ltd.
Chairman of the Board and Chief Executive Officer of Delaware Management Company (a series of
Delaware Management Business Trust) Chairman of the Board and Director of Delaware Capital
Management, Inc. and Retirement Financial Services, Inc.
Chairman of Delaware Investment Advisers (a series of Delaware Management Business Trust) and
Delaware Distributors, L.P.
President, Chief Executive Officer and Director of Delaware Management Holdings, Inc. and
Lincoln National Investment Companies, Inc.
Director of Delaware Service Company, Inc.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National UK plc and from 1989 to
1992, he was Senior Vice President responsible for corporate planning and development for
Lincoln National Corporation.
- ----------------------------- --------------------------------------------------------------------------------------------------
- ----------------------
* Director affiliated with the Fund's investment manager and considered an "interested person" as defined in the 1940 Act.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------- --------------------------------------------------------------------------------------------------
<S> <C>
*WAYNE A. STORK (61) Director and/or Trustee of the Fund and each of the other 33 investment companies in the Delaware
Investments family.
Chairman and Director of Delaware Management Holdings, Inc.
Prior to January 1, 1999, Mr. Stork was Chairman and Director and/or Trustee of The Fund and
each of the other 33 investment companies in the Delaware Investments family and Delaware
Capital Management, Inc.; Chairman, President, Chief Executive Officer and Director of DMH
Corp., Delaware Distributors, Inc. and Founders Holdings, Inc.; Chairman, President, Chief
Executive Officer, Chief Investment Officer and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust; Chairman, President, Chief Executive
Officer and Chief Investment Officer of Delaware Management Company (a series of Delaware
Management Business Trust); Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management Business Trust); Chairman, Chief
Executive Officer and Director of Delaware International Advisers Ltd., Delaware International
Holdings Ltd. and Delaware Management Holdings, Inc.; President and Chief Executive Officer of
Delvoy, Inc.; Chairman of Delaware Distributors, L.P.; Director of Delaware Service Company,
Inc. and Retirement Financial Services, Inc.
In addition, during the five years prior to January 1, 1999, Mr. Stork has served in various
executive capacities at different times within the Delaware organization.
- ----------------------------- --------------------------------------------------------------------------------------------------
- ----------------------
* Director affiliated with the Fund's investment manager and considered an "interested person" as defined in the 1940 Act.
- ----------------------------- --------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------- --------------------------------------------------------------------------------------------------
<S> <C>
RICHARD G. UNRUH, JR. (59) Executive Vice President and Chief Investment Officer, Equities of the Fund, each of the other
33 investment companies in the Delaware Investments family and Delaware Management Company (a
series of Delaware Management Business Trust)
Executive Vice President of Delaware Management Holdings, Inc. and Delaware Capital
Management, Inc. and Delaware Management Business Trust
Executive Vice President/Chief Investment Officer, Equities and Director of Delaware
Management Company, Inc.
Chief Executive Officer/Chief Investment Officer, Equities of Delaware Investment Advisers (a
series of Delaware Management Business Trust);
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive capacities at different
times within the Delaware organization.
- ----------------------------- --------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------- --------------------------------------------------------------------------------------------------
<S> <C>
DAVID K. DOWNES (59) Executive Vice President, Chief Operating Officer and Chief Financial Officer of the Fund and
each of the other 33 investment companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Founders CBO Corporation, Delaware Capital Management, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business Trust) and Delaware
Distributors, L.P.
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware Management Company, Inc., DMH Corp, Delaware Distributors, Inc., Founders Holdings,
Inc. and Delvoy, Inc.; Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
President, Chief Executive Officer, Chief Financial Officer and Director of Delaware Service
Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of Delaware
International Holdings Ltd.
Chairman, Chief Executive Officer and Director of Retirement Financial Services, Inc.
Chairman and Director of Delaware Management Trust Company
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various executive capacities at different
times within the Delaware organization.
- ----------------------------- --------------------------------------------------------------------------------------------------
</TABLE>
-65-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
RICHARD J. FLANNERY (41) Executive Vice President of the Fund and each of the other 33 investment companies in the
Delaware Investments family
Executive Vice President and General Counsel of Delaware Management Holdings, Inc., Delaware
Distributors, L.P., Delaware Management Trust Company, Delaware Capital Management, Inc.,
Delaware Service Company, Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware Management Business Trust)
and Founders CBO Corporation
Executive Vice President/General Counsel and Director of DMH Corp., Delaware Management
Company, Inc., Delaware Distributors, Inc., Delaware International Holdings Ltd., Founders
Holdings, Inc., Delvoy, Inc. and Retirement Financial Services, Inc.
Director of Delaware International Advisers Ltd.
Director, HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various executive capacities at
different times within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------------
WALTER P. BABICH (71) Director and/or Trustee of the Fund and each of the other 33 investment companies in the
Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from 1988 to 1991, he was a
partner of I&L Investors.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN H. DURHAM (61) Director and/or Trustee of the Fund and 18 other investment companies in the Delaware
Investments family.
Partner, Complete Care Services.
120 Gibraltar Road, Horsham, PA 19044.
Mr. Durham served as Chairman of the Board of each fund in the Delaware Investments family from
1986 to 1991; President of each fund from 1977 to 1990; and Chief Executive Officer of each
fund from 1984 to 1990. Prior to 1992, with respect to Delaware Management Holdings, Inc.,
Delaware Management Company, Delaware Distributors, Inc. and Delaware Service Company, Inc.,
Mr. Durham served as a director and in various executive capacities at different times.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-71-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ANTHONY D. KNERR (60) Director and/or Trustee of the Fund and each of the 33 other investment companies in the
Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and Treasurer of Columbia
University, New York. From 1987 to 1989, he was also a lecturer in English at the University.
In addition, Mr. Knerr was Chairman of The Publishing Group, Inc., New York, from 1988 to 1990.
Mr. Knerr founded The Publishing Group, Inc. in 1988.
- ------------------------------------------------------------------------------------------------------------------------------------
ANN R. LEVEN (58) Director and/or Trustee of the Fund and each of the other 33 investment companies in the
Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of the Smithsonian
Institution, Washington, DC, and from 1975 to 1992, she was Adjunct Professor of Columbia
Business School.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-72-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
THOMAS F. MADISON (62) Director and/or Trustee of the Fund and each of the other 33 investment companies in the
Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications Holdings, Inc. since 1996.
From February to September 1994, Mr. Madison served as Vice Chairman--Office of the CEO of The
Minnesota Mutual Life Insurance Company and from 1988 to 1993, he was President of U.S. WEST
Communications--Markets.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-73-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CHARLES E. PECK (73) Director and/or Trustee of the Fund and each of the other 33 investment companies in the
Delaware Investments family
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc. From 1981 to 1990, Mr. Peck was Chairman and Chief
Executive Officer of The Ryland Group, Inc., Columbia, MD.
- ------------------------------------------------------------------------------------------------------------------------------------
JAN L. YEOMANS (50) Director and/or Trustee of Limited-Term Funds, Inc. and 25 other investment companies in the
Delaware Investments family.
Building 220-13W-37, St. Paul, MN 55144
Vice President and Treasurer, 3M Corporation.
From 1987-1994, Ms. Yeomans was Director of Benefit Funds and Financial Markets for the 3M
Corporation; Manager of Benefit Fund Investments for the 3M Corporation, 1985-1987; Manager of
Pension Funds for the 3M Corporation, 1983-1985; Consultant--Investment Technology Group of
Chase Econometrics, 1982-1983; Consultant for Data Resources, 1980-1982; Programmer for the
Federal Reserve Bank of Chicago, 1970-1974.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-74-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
GEORGE M. CHAMBERLAIN, JR. (52) Senior Vice President, Secretary and General Counsel of the Fund and each of the other 33
investment companies in the Delaware Investments family
Senior Vice President and Secretary of Delaware Distributors, L.P., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, Inc., Delaware Service Company, Inc.,
Retirement Financial Services, Inc., Delaware Capital Management, Inc., Delvoy, Inc. and
Delaware Management Business Trust
Senior Vice President, Secretary and Director of Founders Holdings, Inc.
Executive Vice President, Secretary and Director of Delaware Management Trust Company
Senior Vice President of Delaware International Holdings Ltd.
During the past five years, Mr. Chamberlain has served in various executive capacities at
different times within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------------
JOSEPH H. HASTINGS (49) Senior Vice President/Corporate Controller of the Fund and each of the other 33 investment
companies in the Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware Management Holdings, Inc.,
DMH Corp., Delaware Management Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware
Service Company, Inc., Delaware Capital Management, Inc., Delaware International Holdings Ltd.,
Delvoy, Inc. and Delaware Management Business Trust.
Chief Financial Officer/Treasurer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
During the past five years, Mr. Hastings has served in various executive capacities at
different times within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-75-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
MICHAEL P. BISHOF (36) Senior Vice President and Treasurer of the Fund and each of the other 33 investment companies
in the Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware Management Business Trust) and Delaware Service
Company, Inc.;
Senior Vice President and Treasurer/Manager, Investment Accounting of Delaware Distributors,
L.P. and Delaware Investment Advisers (a series of Delaware Management Business Trust)
Senior Vice President and Assistant Treasurer of Founders CBO Corporation
Senior Vice President and Manager of Investment Accounting of Delaware International Holdings
Ltd.
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice President for Bankers Trust,
New York, NY from 1994 to 1995, a Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for Equitable Capital Management
Corporation, New York, NY from 1987 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-76-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
GERALD S. FREY (52) Vice President/Senior Portfolio Manager of the Fund and each of the Funds in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of series of Delaware Management Business
Trust).
Before joining Delaware Investments in 1996, Mr. Frey was a Senior Director with Morgan
Grenfell Capital Management, New York, NY from 1986 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. FIELDS (52) Vice President/Senior Portfolio Manager of the Fund and each of the Funds in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of series of Delaware Management Business Trust)
and Delaware Capital Management, Inc.
Trustee of Delaware Management Business Trust.
During the past five years, Mr. Fields has served in various capacities within the Delaware
organization.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-77-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
GARY A. REED (43) Vice President/Senior Portfolio Manager of the Fund and each of the Funds in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of series of Delaware Management Business Trust)
and Delaware Capital Management, Inc.
During the past five years, Mr. Reed has served in such capacities within the Delaware
organization.
- ------------------------------------------------------------------------------------------------------------------------------------
GERALD T. NICHOLS (40) Vice President/Senior Portfolio Manager of the Fund and each of the Funds in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of series of Delaware Management Business
Trust).
Vice President of Founders Holdings, Inc.
Treasurer/Assistant Secretary and Director of Founders CBO Corporation.
During the past five years, Mr. Nichols has served in various capacities at different times
within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-78-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
PAUL A. MATLACK (38) Vice President/Senior Portfolio Manager of the Fund and each of the Funds in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of series of Delaware Management Business
Trust).
Vice President of Founders Holdings, Inc.
President and Director of Founders CBO Corporation.
During the past five years, Mr. Matlack has served in various capacities at different times
within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------------
CHRISTOPHER S. BECK (40) Vice President/Senior Portfolio Manager of the Fund and each of the Funds in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of series of Delaware Management Business
Trust).
Before joining Delaware Investments in 1997, Mr. Beck managed the Small Cap Fund for two years
at Pitcairn Trust Company. Prior to 1995, he was Director of Research at Cypress Capital
Management in Wilmington and Chief Investment Officer of the University of Delaware Endowment
Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-79-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BABAK ZENOUZI (35) Vice President/Senior Portfolio Manager of the Fund and each of the Funds in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of series of Delaware Management Business
Trust).
During the past five years, Mr. Zenouzi has served in various capacities at different times
within the Delaware organization.
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK X. MORRIS (38) Vice President/Senior Portfolio Manager of the Fund and each of the Funds in the Delaware
Investments family, Delaware Management Company (a series of Delaware Management Business
Trust) and Delaware Investment Advisers (a series of series of Delaware Management Business
Trust).
Prior to joining Delaware Investments in 1997, Mr. Morris, served as a securities analyst from
1983 to 1991, portfolio manager from 1991 to 1994 and was subsequently named Director of Equity
Research for PNC Asset Management.
- ------------------------------------------------------------------------------------------------------------------------------------
DAMON J. ANDRES (29) Assistant Vice President/Portfolio Manager of the Fund and each of the other funds in the
Delaware Investments family, Delaware Management Company (a series of Delaware Management
Business Trust) and Delaware Investment Advisers (a series of series of Delaware Management
Business Trust).
Prior to joining Delaware Investments in 1994, Mr. Andres performed investment counseling
services as a Consulting Associate with Cambridge Associates, Inc. in Arlington Virginia.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-80-
<PAGE>
The following is a compensation table listing for each
director entitled to receive compensation, the aggregate
compensation received from the Fund and the total compensation
received from all Delaware Investments funds for the fiscal
year ended December 31, 1998 and an estimate of annual
benefits to be received upon retirement under the Delaware
Investments Retirement Plan for Directors/Trustees as of
December 31, 1998. Only the independent directors of the Fund
receive compensation from the Fund.
<TABLE>
<CAPTION>
PENSION OR TOTAL
AGGREGATE RETIREMENT ESTIMATED COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL FROM THE INVESTMENT
EXPECTED TO BE AS PART OF BENEFITS COMPANIES
RECEIVED FROM FUND UPON IN DELAWARE
THE FUND EXPENSES RETIREMENT(1) INVESTMENTS(2)
NAME
<S> <C> <C> <C> <C>
W. Thacher Longstreth $3,595 None $38,500 $60,463
Ann R. Leven $4,051 None $38,500 $66,463
Walter P. Babich $3,975 None $38,500 $65,463
Anthony D. Knerr $3,975 None $38,500 $65,463
Charles E. Peck $3,595 None $38,500 $60,463
Thomas F. Madison $3,817 None $38,500 $63,380
John H. Durham (3) $2,792 None $31,180 $34,854
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the
time of his or her retirement from the Board, has attained the age of
70 and served on the Board for at least five continuous years, is
entitled to receive payments from each investment company in the
Delaware Investments family for which he or she serves as a director or
trustee for a period equal to the lesser of the number of years that
such person served as a director or trustee or the remainder of such
person's life. The amount of such payments will be equal, on an annual
basis, to the amount of the annual retainer that is paid to
directors/trustees of each investment company at the time of such
person's retirement. If an eligible director/trustee retired as of
Decenber 31, 1998, he or she would be entitled to annual payments
totaling the amounts noted above, in the aggregate, from all of the
investment companies in the Delaware Investments family for which he or
she serves as a director or trustee, based on the number of investment
companies in the Delaware Investments family as of that date.
(2) Each independent director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,500 for serving as a
director or trustee for all 34 investment companies in Delaware
Investments, plus $3,145 for each Board Meeting attended. John H.
Durham currently receives a total annual retainer fee of $31,180 for
serving as a director or trustee for 19 investment companies in
Delaware Investments, plus $1,810 for each Board Meeting attended. Ann
R. Leven, Walter P. Babich, Anthony D. Knerr and Thomas F. Madison
serve on the Fund's audit committee; Ms. Leven is the chairperson.
Members of the audit committee currently receive additional annual
compensation of $5,000 from all investment companies, in the aggregate,
with the exception of the chairperson, who receives $6,000.
(3) John H. Durham joined the Board of Directors of the Fund and 18 other
investment companies in Delaware
Investments on April 16, 1998.
-83-
<PAGE>
As of April 13, 1999, management believes the following accounts held
5% of record or more of the outstanding shares of each series of the Fund.
Management has no knowledge of beneficial ownership of the Fund's shares:
<TABLE>
<CAPTION>
Series Name and Address of Account Share Amount Percentage
- ------ --------------------------- ------------ ----------
<S> <C> <C> <C>
Growth and Income Series SMA Life Assurance Company 21,799,385.269 67.85%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Lincoln National Life Company 8,330,577.351 25.93%
Separate Account - C
1300 South Clinton Street
P.O. Box 2340
Fort Wayne, IN 46801
Delchester Series SMA Life Assurance Company 13,962,780.133 92.01%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Capital Reserves Series SMA Life Assurance Company 3,982,498.782 92.75%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Delaware Balanced Series SMA Life Assurance Company 10,800,725.329 95.65%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Cash Reserve Series SMA Life Assurance Company 4,969,472.311 93.28%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
</TABLE>
-84-
<PAGE>
<TABLE>
<CAPTION>
Series Name and Address of Account Share Amount Percentage
- ------ --------------------------- ------------ ----------
<S> <C> <C> <C>
DelCap Series SMA Life Assurance Company 7,055,872.336 96.29%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
International Equity Series SMA Life Assurance Company 14,419,417.825 96.40%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Trend Series Lincoln National Life Company 4,719,850.991 54.14%
Separate Account - C
1300 South Clinton Street
P.O. Box 2340
Fort Wayne, IN 46801
SMA Life Assurance Company 3,679,314.983 42.21%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Small Cap Value Series SMA Life Assurance Company 5,929,478.419 93.79%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Global Bond Series Lincoln National Life Company 1,543,306.338 71.72%
Separate Account - C
1300 South Clinton Street
P.O. Box 2340
Fort Wayne, IN 46801
SMA Life Assurance Company 584,581.903 27.17%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
</TABLE>
-85-
<PAGE>
<TABLE>
<CAPTION>
Series Name and Address of Account Share Amount Percentage
- ------ --------------------------- ------------ ----------
<S> <C> <C> <C>
Strategic Income Series SMA Life Assurance Company 1,911,390.573 90.70%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
SMA Life Assurance Company 196,059.681 9.30%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Devon Series SMA Life Assurance Company 5,383,442.203 91.38%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Lincoln Life Variable Annuity 321,695.927 5.46%
Account N
1300 S. Clinton Street
Fort Wayne, IN 46801
Emerging Markets Series SMA Life Assurance Company 736,273.626 69.84%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Lincoln National Life Company 211,672.780 20.08%
Separate Account - C See Account
1300 South Clinton Street
P.O. Box 2340
Fort Wayne, IN 46801
</TABLE>
-86-
<PAGE>
<TABLE>
<CAPTION>
Series Name and Address of Account Share Amount Percentage
- ------ --------------------------- ------------ ----------
<S> <C> <C> <C>
Convertible Securities Series SMA Life Assurance Company 514,044.869 66.41%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Lincoln National Life Company 214,738.232 27.74%
Separate Account - C Seed Account
1300 South Clinton Street
P.O. Box 2340
Fort Wayne, IN 46801
Chicago Trust Company 45,263.146 5.85%
For the Sole Benefit of
Lincoln National Corp
Employee Ret. Plan
C/o Marshall and Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WI 53201
Social Awareness Series SMA Life Assurance Company 2,031,867.354 91.14%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
Lincoln National Life Company 152,081.047 6.82%
Separate Account - C Seed Account
1300 South Clinton Street
P.O. Box 2340
Fort Wayne, IN 46801
REIT Series The Travelers SEP Acct. TM2 for 305,525.046 39.08%
Variable Annuities of
The Travelers Insurance Co.
One Tower Square 5MS
Hartford, CT 06183
Lincoln National Life Company 204,439.252 26.15%
Separate Account - C Seed Account
1300 South Clinton Street
P.O. Box 2340
Fort Wayne, IN 46801
</TABLE>
-87-
<PAGE>
<TABLE>
<CAPTION>
Series Name and Address of Account Share Amount Percentage
- ------ --------------------------- ------------ ----------
<S> <C> <C> <C>
REIT Series SMA Life Assurance Company 156,049.528 19.96%
Separate Account VA-K
Attn: Jay Burke N344
440 Lincoln Street
Worcester, MA 01653
The Travelers SEP Acct. ABD2 for 78,380.533 10.03%
Variable Annuities of
The Travelers Insurance Co.
One Tower Square 5MS
Hartford, CT 06183
</TABLE>
GENERAL INFORMATION
The Fund, which was organized as a Maryland corporation in 1987, is an
open-end registered management investment company. With the exception of Global
Bond, Emerging Markets and REIT Series, each Series operates as a diversified
fund as defined by the Investment Company Act of 1940 (the "1940 Act"). Global
Bond, Emerging Markets and REIT Series operate as nondiversified funds as
defined by the 1940 Act.
Delaware Management is the investment manager of each Series of the
Fund other than International Equity, Global Bond and Emerging Markets Series.
Delaware International is the investment manager of International Equity, Global
Bond and Emerging Markets Series. Delaware Management or its affiliate, Delaware
International, manages the other funds in the Delaware Investments family. While
investment decisions for each Series are made independently from those of the
other funds and accounts, investment decisions for such other funds and accounts
may be made at the same time as investment decisions for the Series.
Access persons and advisory persons of the Delaware Investments family
of funds, as those terms are defined in SEC Rule 17j-1 under the 1940 Act, who
provide services to Delaware Management, Delaware International or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
Delaware Distributors, L.P. acts as national distributor for the Fund
and for the other mutual funds in the Delaware Investments family.
In addition, Delaware Service Company, Inc., an affiliate of Delaware
Management, acts as shareholder servicing, dividend disbursing and transfer
agent for the Fund and for the other mutual funds in the Delaware Investments
family. Compensation is fixed at a flat dollar amount each year and is approved
by the Board of Directors, including a majority of the disinterested directors.
The Transfer Agent also provides accounting services to the Series. Those
services include performing all functions related to calculating each Series'
net asset value and providing all financial reporting services, regulatory
compliance testing and other related accounting services. For its services, the
Transfer Agent is paid a fee based on total assets of all funds in the Delaware
Investments family for which it provides such accounting services. Such fee is
equal to 0.25% multiplied by the total amount of assets in the complex for which
the Transfer Agent furnishes accounting services, where such aggregate complex
assets are $10 billion or less, and 0.20% of assets if such aggregate complex
assets exceed $10 billion. The fees are charged to each fund, including the
Series, on an aggregate pro-rata basis. The asset-based fee payable to the
Transfer Agent is subject to a minimum fee calculated by determining the total
number of investment portfolios and associated classes.
Delaware Management and its affiliates own the name "Delaware Group."
Under certain circumstances, including the termination of the Fund's advisory
relationship with Delaware Management or its distribution relationship with
Delaware Distributors, L.P., Delaware Management and its affiliates could cause
the Fund to delete the words "Delaware Group" from the Fund's name.
-88-
<PAGE>
The initial public offering date for the Growth and Income, Delchester,
Capital Reserves, Cash Reserve and Delaware Balanced Series was July 28, 1988.
The initial public offering date for DelCap Series was July 2, 1991.
International Equity Series commenced operations on October 29, 1992. Small Cap
Value and Trend Series commenced operations on December 27, 1993. The initial
public offering date for Global Bond Series was May 1, 1996 and for Strategic
Income, Devon, Emerging Markets, Convertible Securities and Social Awareness
Series was May 1, 1997. REIT Series commenced on May 4, 1998. Aggressive Growth
Series did not commence operation prior to the date of this Part B.
EURO
Several European countries are participating in the European Economic
and Monetary Union, which established a common European currency for
participating countries. This currency is commonly known as the "Euro." Each
participating country replaced its previous currency with the Euro on January 1,
1999. Additional European countries may elect to participate after that date. In
addition, full implementation of the Euro will extend over a period of several
years. Initial implementation of the Euro occurred on January 1, 1999 without
disruption of services provided to each Series. Each Series' service providers
cooperated over the implementation weekend and following weeks to reconcile
their records and procedures. Going forward, if a Series is invested in
securities of participating countries or countries that elect to participate at
a later date, it could be adversely affected if the computer systems used by its
applicable service providers are not properly prepared to handle the
implementation of this single currency through completion of the process or the
adoption of the Euro by additional countries in the future.
CAPITALIZATION
The Fund has a present authorized capitalization of one billion shares
of capital stock with a $.01 par value per share. The Board of Directors has
allocated fifty million shares to each Series. While all shares have equal
voting rights on matters affecting the entire Fund, each Series would vote
separately on any matter which affects only that Series, such as investment
objective and policy or action to dissolve the Series, and as otherwise
prescribed by the 1940 Act. Shares of each Series have a priority in that
Series' assets, and in gains on and income from the portfolio of that Series.
Shares have no preemptive rights, are fully transferable and, when issued, are
fully paid and nonassessable. All shares participate equally in dividends, and
upon liquidation would share equally.
NONCUMULATIVE VOTING
SERIES SHARES HAVE NONCUMULATIVE VOTING RIGHTS WHICH MEANS THAT THE
HOLDERS OF MORE THAN 50% OF THE SHARES OF THE FUND VOTING FOR THE ELECTION OF
DIRECTORS CAN ELECT ALL THE DIRECTORS IF THEY CHOOSE TO DO SO, AND, IN SUCH
EVENT, THE HOLDERS OF THE REMAINING SHARES WILL NOT BE ABLE TO ELECT ANY
DIRECTORS.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission ("SEC"). Shareholders may obtain a copy of the Registration Statement
by contacting the SEC in Washington, DC.
-89-
<PAGE>
APPENDIX A--DESCRIPTION OF RATINGS
COMMERCIAL PAPER
Excerpts from S&P's description of its two highest commercial paper
ratings: A-1--judged to be the highest investment grade category possessing the
highest relative strength; A-2--investment grade category possessing less
relative strength than the highest rating.
Excerpts from Moody's description of its two highest commercial paper
ratings: P-1--the highest grade possessing greatest relative strength;
P-2--second highest grade possessing less relative strength than the highest
grade.
Excerpts from Duff and Phelps, Inc.'s description of its two highest
ratings: CATEGORY 1--TOP GRADE: Duff 1-Plus--Highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or ready
access to alternative sources of funds, is clearly outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations. Duff 1--Very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are minor. Duff 1-Minus--High
certainty of timely payment. Liquidity factors are strong and supported by good
fundamental protection factors. Risk factors are very small. CATEGORY 2--GOOD
GRADE: Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds' needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Excerpts from Fitch Investors Service, Inc.'s description of its two
highest ratings: F-1--Highest grade commercial paper assigned this rating is
regarded as having the strongest degree of assurance for timely payment.
F-2--Very good grade issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than the strongest issues.
BONDS
Excerpts from Moody's description of its bond ratings: AAA--judged to
be the best quality. They carry the smallest degree of investment risk;
AA--judged to be of high quality by all standards; A--possess favorable
attributes and are considered "upper medium" grade obligations; BAA--considered
as medium grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time; BA--judged to
have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; CAA--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
-90-
<PAGE>
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
-91-
<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditor for Delaware Group
Premium Fund, Inc. and, in its capacity as such, audits the annual financial
statements contained in the Series' Annual Reports. Each Series', other than
Aggressive Growth Series', Statement of Net Assets, Statement of Operations,
Statement of Changes in Net Assets, Financial Highlights and Notes to Financial
Statements, as well as the reports of Ernst & Young LLP, independent auditors,
for the fiscal year ended December 31, 1998 are included in the Series' Annual
Reports to shareholders. The financial statements and financial highlights, the
notes relating thereto and the reports of Ernst & Young LLP listed above are
incorporated by reference from the Annual Reports into this Part B. Aggressive
Growth Series did not commence operations prior to the date of this Part B.
-92-
<PAGE>
PART C - Other Information
(continued)
PART C
Other Information
-----------------
Item 23 Exhibits
(a) Articles of Incorporation.
(1) Articles of Incorporation, as amended and supplemented
through January 22, 1996, incorporated into this filing by
reference to Post-Effective Amendment No. 16 filed January
22, 1996.
(2) Executed Articles Supplementary to Articles of
Incorporation (April 23, 1996) incorporated into this
filing by reference to Post-Effective Amendment No. 18
filed October 29, 1996.
(3) Executed Articles Supplementary to Articles of
Incorporation (April 24, 1997) incorporated into this
filing by reference to Post-Effective Amendment No. 24
filed April 27, 1998.
(4) Executed Articles of Amendment to Articles of
Incorporation (April 24, 1997) incorporated into this
filing by reference to Post-Effective Amendment No. 24
filed April 27, 1998.
(5) Executed Articles Supplementary to Articles of
Incorporation (April 24, 1997) incorporated into this
filing by reference to Post-Effective Amendment No. 24
filed April 27, 1998.
(6) Form of Articles Supplementary to Articles of
Incorporation (March 1998) incorporated into this filing
by reference to Post-Effective Amendment No. 23 filed
March 16, 1998.
(7) Form of Articles Supplementary to Articles of
Incorporation (May 1999) to be filed by Amendment.
(b) By-Laws. By-Laws, as amended through April 27, 1995, incorporated
into this filing by reference to Post-Effective Amendment No. 15
filed April 27, 1995.
(c) Copies of All Instruments Defining the Rights of Holders.
(1) Articles of Incorporation, Articles of Amendment and
Articles Supplementary.
(i) Article Fifth, Article Seventh, Article Eighth and
Article Tenth of Articles of Incorporation (February
17, 1987), Article Second of Articles Supplementary
(January 29, 1988), Article One of Articles of
Amendment (July 27, 1989), Article Second of
Articles Supplementary (April 25, 1991), Article
Second of Articles Supplementary (July 28, 1992),
Article Second of Articles Supplementary (October
11, 1993) and Article Second of Articles
Supplementary (April 23, 1996) incorporated into
this filing by reference to Post-Effective Amendment
No. 16 filed January 22, 1996.
(ii) Executed Article Fourth to Articles Supplementary
(April 23, 1996) incorporated into this filing by
reference to Post-Effective Amendment No. 18 filed
October 29, 1996.
(iii) Executed Articles Supplementary (April 24, 1997)
incorporated into this filing by reference to
Post-Effective Amendment No. 24 filed April 27,
1998.
(iv) Form of Articles Supplementary (March 1998)
incorporated into this filing by reference to
Post-Effective Amendment No. 23 filed March 16,
1998.
(v) Form of Articles Supplementary (1999) to be filed by
Amendment.
<PAGE>
PART C - Other Information
(continued)
(2) By-Laws. Article II, Article III, as amended, and Article
XIII, which was subsequently designated as Article XIV,
incorporated into this filing by reference to
Post-Effective Amendment No. 15 filed April 27, 1995.
(d) Investment Management Agreements.
(1) Executed Investment Management Agreement (April 3, 1995)
between Delaware Management Company, Inc. and the
Registrant on behalf of Emerging Growth Series (renamed
Trend Series) incorporated into this filing by reference
to Post-Effective Amendment No. 15 filed April 27, 1995.
(2) Executed Investment Management Agreement (April 3, 1995)
between Delaware Management Company, Inc. and the
Registrant on behalf of Growth Series (renamed DelCap
Series) incorporated into this filing by reference to
Post-Effective Amendment No. 15 filed April 27, 1995.
(3) Executed Investment Management Agreement (April 3, 1995)
between Delaware International Advisers Ltd. and the
Registrant on behalf of International Equity Series
incorporated into this filing by reference to
Post-Effective Amendment No. 15 filed April 27, 1995.
(4) Executed Investment Management Agreement (April 3, 1995)
between Delaware Management Company, Inc. and the
Registrant on behalf of the Money Market Series (renamed
Cash Reserve Series) incorporated into this filing by
reference to Post-Effective Amendment No. 15 filed April
27, 1995.
(5) Executed Investment Management Agreement (April 3, 1995)
between Delaware Management Company, Inc. and the
Registrant on behalf of the Equity/Income Series (renamed
Decatur Total Return Series), High Yield Series (renamed
Delchester Series), Capital Reserves Series and Multiple
Strategy Series (renamed Delaware Series) incorporated
into this filing by reference to Post-Effective Amendment
No. 15 filed April 27, 1995.
(6) Executed Investment Management Agreement (April 3, 1995)
between Delaware Management Company, Inc. and the
Registrant on behalf of Value Series (renamed Small Cap
Value Series) incorporated into this filing by reference
to Post-Effective Amendment No. 15 filed April 27, 1995.
(7) Executed Investment Management Agreement (May 1, 1996)
between Delaware International Advisers Ltd. and the
Registrant on behalf of Global Bond Series incorporated
into this filing by reference to Post-Effective Amendment
No. 18 filed October 29, 1996.
(8) Executed Investment Management Agreement (May 1, 1997)
between Delaware Management Company, Inc. and the
Registrant on behalf of Strategic Income Series
incorporated into this filing by reference to
Post-Effective Amendment No. 24 filed April 27, 1998.
(9) Executed Investment Management Agreement (May 1, 1997)
between Delaware Management Company, Inc. and the
Registrant on behalf of Devon Series incorporated into
this filing by reference to Post-Effective Amendment No.
24 filed April 27, 1998.
(10) Form of Investment Management Agreement (May 1997) between
Delaware International Advisers Ltd. and the Registrant on
behalf of Emerging Markets Series incorporated into this
filing by reference to Post-Effective Amendment No. 20
filed April 29, 1997.
<PAGE>
PART C - Other Information
(continued)
(11) Executed Investment Management Agreement (May 1, 1997)
between Delaware Management Company, Inc. and the
Registrant on behalf of Convertible Securities Series
incorporated into this filing by reference to
Post-Effective Amendment No. 24 filed April 27, 1998.
(12) Executed Investment Management Agreement (May 1997)
between Delaware Management Company, Inc. and the
Registrant on behalf of Quantum Series (renamed Social
Awareness Series) incorporated into this filing by
reference to Post-Effective Amendment No. 24 filed April
27, 1998.
(13) Executed Investment Management Agreement (April 30, 1998)
between Delaware Management Company and the Registrant on
behalf of REIT Series incorporated into this filing by
reference to Post-Effective Amendment No. 25 filed
February 12, 1999.
(14) Form of Sub-Advisory Agreement (May 1997) between Delaware
Management Company, Inc. and Delaware International
Advisers Ltd. on behalf of Strategic Income Series
incorporated into this filing by reference to
Post-Effective Amendment No. 20 filed April 29, 1997.
(15) Executed Sub-Advisory Agreement (May 1, 1997) between
Delaware Management Company, Inc. and Vantage Global
Advisors, Inc. on behalf of Quantum Series (renamed Social
Awareness Series) incorporated into this filing by
reference to Post-Effective Amendment No. 24 filed April
27, 1998.
(17) Form of Sub-Advisory Agreement (May 1998) between Delaware
Management Company and Lincoln Investment Management, Inc.
on behalf of REIT Series incorporated into this filing by
reference to Post-Effective Amendment No. 22 filed January
15, 1998.
(18) Form of Investment Management Agreement (1999) between
Delaware Management Company and the Registrant on behalf
of Aggressive Growth Series incorporated into this filing
by reference to Post-Effective Amendment No. 25 filed
February 12, 1999.
(e) Distribution Agreements.
(1) Executed Distribution Agreement (April 3, 1995) between
Delaware Distributors, L.P. and the Registrant on behalf
of Equity/Income Series (renamed Decatur Total Return
Series), High Yield Series (renamed Delchester Series),
Capital Reserves Series and Multiple Strategy Series
(renamed Delaware Series) incorporated into this filing by
reference to Post-Effective Amendment No. 16 filed January
22, 1996.
(2) Executed Distribution Agreement (April 3, 1995) between
Delaware Distributors, L.P. and the Registrant on behalf
of Money Market Series (renamed Cash Reserve Series)
incorporated into this filing by reference to
Post-Effective Amendment No. 16 filed January 22, 1996.
(3) Executed Distribution Agreement (April 3, 1995) between
Delaware Distributors, L.P. and the Registrant on behalf
of Growth Series (renamed DelCap Series) incorporated into
this filing by reference to Post-Effective Amendment No.
16 filed January 22, 1996.
(4) Executed Distribution Agreement (April 3, 1995) between
Delaware Distributors, L.P. and the Registrant on behalf
of International Equity Series incorporated into this
filing by reference to Post-Effective Amendment No. 16
filed January 22, 1996.
(5) Executed Distribution Agreement (April 3, 1995) between
Delaware Distributors, L.P. and
<PAGE>
PART C - Other Information
(continued)
the Registrant on behalf of Value Series (renamed Small
Cap Value Series) incorporated into this filing by
reference to Post-Effective Amendment No. 16 filed January
22, 1996.
(6) Executed Distribution Agreement (April 3, 1995) between
Delaware Distributors, L.P. and the Registrant on behalf
of Emerging Growth Series (renamed Trend Series)
incorporated into this filing by reference to
Post-Effective Amendment No. 16 filed January 22, 1996.
(7) Executed Distribution Agreement (May 1, 1996) between
Delaware Distributors, L.P. and the Registrant on behalf
of Global Bond Series incorporated into this filing by
reference to Post-Effective Amendment No. 18 filed October
29, 1996.
(8) Executed Distribution Agreement (May 1, 1997) between
Delaware Distributors, L.P. and the Registrant on behalf
of Convertible Securities Series, Devon Series, Emerging
Markets Series, Quantum Series (renamed Social Awareness
Series) and Strategic Income Series incorporated into this
filing by reference to Post-Effective Amendment No. 24
filed April 27, 1998.
(9) Executed Distribution Agreement (April 30, 1998) between
Delaware Distributors, L.P. and the Registrant on behalf
of REIT Series incorporated into this filing by reference
to Post-Effective Amendment No. 25 filed February 12,
1999.
(10) Form of Distribution Agreement (1999) between Delaware
Distributors, L.P. and the Registrant on behalf of
Aggressive Growth Series incorporated into this filing by
reference to Post-Effective Amendment No. 25 filed
February 12, 1999.
(f) Bonus, Profit Sharing, Pension Contracts.
(1) Amended and Restated Profit Sharing Plan (November 17,
1994) incorporated into this filing by reference to
Post-Effective Amendment No. 15 filed April 27, 1995.
(2) Amendment to Profit Sharing Plan (December 21, 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 16 filed January 22, 1996.
(g) Custodian Agreements.
(1) Executed Custodian Agreement (1996) (Module) between The
Chase Manhattan Bank and the Registrant incorporated into
this filing by reference to Post-Effective Amendment No.
18 filed October 29, 1996.
(2) Amendment (November 20, 1997) to Custodian Agreement
between The Chase Manhattan Bank and the Registrant on
behalf of each Series incorporated into this filing by
reference to Post-Effective Amendment No. 22 filed January
15, 1998.
(4) Form of Securities Lending Agreement (1996) between The
Chase Manhattan Bank and the Registrant incorporated into
this filing by reference to Post-Effective Amendment No.
18 filed October 29, 1996.
(3) Letter of notice (May 1, 1997) to add Convertible
Securities Series, Devon Series, Emerging Markets Series,
Quantum Series (renamed Social Awareness Series) and
Strategic Income Series to Custodian Agreement between The
Chase Manhattan Bank and the Registrant incorporated into
this filing by reference to Post-Effective Amendment No.
24 filed April 27, 1998.
(4) Letter of notice (April 30, 1998) to add REIT Series to
Custodian Agreement between The
<PAGE>
PART C - Other Information
(continued)
Chase Manhattan Bank and the Registrant incorporated into
this filing by reference to Post-Effective Amendment No.
25 filed February 12, 1999.
(5) Form of Letter of notice (1999) to add Aggressive Growth
Series to Custodian Agreement between The Chase Manhattan
Bank and the Registrant incorporated into this filing by
reference to Post-Effective Amendment No. 25 filed
February 12, 1999.
(h) Other Material Contracts.
(1) Executed Shareholders Services Agreement (June 29, 1988)
between Delaware Service Company, Inc. and the Registrant
on behalf of Money Market Series (renamed Cash Reserve
Series) incorporated into this filing by reference to
Post-Effective Amendment No. 18 filed October 29, 1996.
(2) Executed Amended and Restated Shareholders Services
Agreement (May 1, 1997) between Delaware Service Company,
Inc. and the Registrant on behalf of High Yield Series
(renamed Delchester Series), Capital Reserves Series,
Equity/Income Series (renamed Decatur Total Return
Series), Multiple Strategy Series (renamed Delaware
Series), Growth Series (renamed DelCap Series),
International Equity Series, Value Series (renamed Small
Cap Value Series), Emerging Growth Series (renamed Trend
Series), Global Bond Series, Strategic Income Series,
Devon Series, Emerging Markets Series, Convertible
Securities Series and Quantum Series (renamed Social
Awareness Series) incorporated into this filing by
reference to Post-Effective Amendment No. 24 filed April
27, 1998.
(3) Executed Amended and Restated Shareholder Services
Agreement (April 30, 1998) between Delaware Service
Company, Inc. and the Registrant on behalf of High Yield
Series (renamed Delchester Series), Capital Reserves
Series, Equity/Income Series (renamed Decatur Total Return
Series), Multiple Strategy Series (renamed Delaware
Series), Growth Series (renamed DelCap Series),
International Equity Series, Value Series (renamed Small
Cap Value Series), Emerging Growth Series (renamed Trend
Series), Global Bond Series, Strategic Income Series,
Devon Series, Emerging Markets Series, Convertible
Securities Series, Quantum Series (renamed Social
Awareness Series) and REIT Series incorporated into this
filing by reference to Post-Effective Amendment No. 25
filed February 12, 1999.
(4) Form of Amended and Restated Shareholder Services
Agreement (1999) between Delaware Service Company, Inc.
and the Registrant on behalf of High Yield Series (renamed
Delchester Series), Capital Reserves Series, Equity/Income
Series (renamed Decatur Total Return Series), Multiple
Strategy Series (renamed Delaware Series), Growth Series
(renamed DelCap Series), International Equity Series,
Value Series (renamed Small Cap Value Series), Emerging
Growth Series (renamed Trend Series), Global Bond Series,
Strategic Income Series, Devon Series, Emerging Markets
Series, Convertible Securities Series, Quantum Series
(renamed Social Awareness Series), REIT and Aggressive
Growth Series incorporated into this filing by reference
to Post-Effective Amendment No. 25 filed February 12,
1999.
(5) Executed Delaware Group of Funds Fund Accounting Agreement
(August 19, 1996) (Module) between Delaware Service
Company, Inc. and the Registrant incorporated into this
filing by reference to Post-Effective Amendment No. 18
filed October 29, 1996 and Post-Effective Amendment No. 25
filed February 12, 1999.
(i) Opinion of Counsel. Incorporated into this filing by reference to
Post-Effective Amendment No. 25 filed February 12, 1999.
<PAGE>
PART C - Other Information
(continued)
(j) Consent of Auditors. Attached as Exhibit.
(k-m) Inapplicable.
(n) Financial Data Schedules. Attached as Exhibit.
(o) Inapplicable.
(p) Other: Directors' Power of Attorney.
(a) Incorporated into this filing by reference to
Post-Effective Amendment No. 23 filed March 16, 1998.
(b) Power of Attorney for John H. Durham incorporated into
this filing by reference to Post-Effective Amendment
No. 25 filed February 12, 1999.
(c) Power of Attorney for Jan L. Yeomans attached as
Exhibit.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. Indemnification. Incorporated into this filing by reference to
initial Registration Statement filed May 14, 1987 and Article VII
of the Amendment to By-Laws (February 16, 1989) incorporated into
this filing by reference to Post-Effective Amendment No. 15 filed
April 27, 1995.
Item 26. Business and Other Connections of Investment Adviser.
Delaware Management Company (the "Manager"), a series of Delaware
Management Business Trust, serves as investment manager to the Registrant and
also serves as investment manager or sub-adviser to certain of the other funds
in the Delaware Investments family (Delaware Group Equity Funds I, Inc.,
Delaware Group Equity Funds II, Inc., Delaware Group Equity Funds III, Inc.,
Delaware Group Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc.,
Delaware Group Government Fund, Inc., Delaware Group Income Funds, Inc.,
Delaware Group Limited-Term Government Funds, Inc., Delaware Group Cash Reserve,
Inc., Delaware Group Tax-Free Fund, Inc., Delaware Group State Tax-Free Income
Trust, Delaware Group Tax-Free Money Fund, Inc., Delaware Group Global &
International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group Adviser
Funds, Inc., Delaware Group Dividend and Income Fund, Inc., Delaware Group
Global Dividend and Income Fund, Inc., Delaware Group Foundation Funds, Voyageur
Tax-Free Funds, Inc., Voyageur Intermediate Tax-Free Funds, Inc., Voyageur
Insured Funds, Inc., Voyageur Funds, Inc., Voyageur Investment Trust, Voyageur
Investment Trust II, Voyageur Mutual Funds, Inc., Voyageur Mutual Funds II,
Inc., Voyageur Mutual Funds III, Inc., Voyageur Arizona Municipal Income Fund,
Inc., Voyageur Colorado Insured Municipal Income Fund, Inc., Voyageur Florida
Insured Municipal Income Fund, Voyageur Minnesota Municipal Fund, Inc., Voyageur
Minnesota Municipal Fund II, Inc. and Voyageur Minnesota Municipal Fund III,
Inc.). In addition, certain officers of the Manager also serve as
directors/trustees of the other Delaware Investments funds, and certain officers
are also officers of these other funds. A company indirectly owned by the
Manager's parent company acts as principal underwriter to the mutual funds in
the Delaware Investments family (see Item 29 below) and another such company
acts as the shareholder services, dividend disbursing, accounting servicing and
transfer agent for all of the mutual funds in the Delaware Investments family.
The following persons serving as directors or officers of the
Manager have held the following positions during the past two years:
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Jeffrey J. Nick(1) Chairman of the Board, President, Chief Executive
Officer and Director/Trustee of the Registrant and
each of the other investment
<PAGE>
PART C - Other Information
(continued)
companies in the Delaware Investments family, Delaware
Management Company, Inc., Delaware Management Business
Trust, Delvoy, Inc., DMH Corp. and Founders Holdings,
Inc.; Chairman and Chief Executive Officer and Director
of Delaware Management Company (a series of Delaware
Management Business Trust); Chairman and Director of
Delaware Capital Management, Inc. and Retirement
Financial Services, Inc.; Chairman of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
and Delaware Distributors, L.P.; Director of Delaware
Service Company, Inc.,
President, Chief Executive Officer and Director of
Lincoln National Investment Companies, Inc. and Delaware
Management Holdings, Inc.; Director of Vantage Global
Advisors, Inc. and Lynch & Mayer Inc.
David K. Downes Executive Vice President, Chief Operating Officer and
Chief Financial Officer of the Registrant and each of the
other funds in the Delaware Investments family, Delaware
Management Holdings, Inc., Founders CBO Corporation,
Delaware Capital Management, Inc., Delaware Management
Company (a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust) and Delaware Distributors,
L.P.; Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director of Delaware
Management Company, Inc., DMH Corp, Delaware
Distributors, Inc., Founders Holdings, Inc. and Delvoy,
Inc.; Executive Vice President, Chief Financial Officer,
Chief Administrative Officer and Trustee of Delaware
Management Business Trust; President, Chief Executive
Officer, Chief Financial Officer and Director of Delaware
Service Company, Inc.; President, Chief Operating
Officer, Chief Financial Officer and Director of Delaware
International Holdings Ltd.; Chairman, Chief Executive
Officer and Director of Retirement Financial Services,
Inc.; Chairman and Director of Delaware Management Trust
Company; and Director of Delaware International Advisers
Ltd.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Richard G. Unruh, Jr. Executive Vice President and Chief Investment
Officer, Equities of the Registrant, each of the
other funds in the Delaware Investments family and
Delaware Management Company (a series of Delaware
Management Business Trust); Executive Vice
President of Delaware Management Holdings, Inc.
and Delaware Capital Management, Inc. and Delaware
Management Business Trust; Executive Vice
President/Chief Investment Officer, Equities and
Director/Trustee of Delaware Management Company,
Inc.; Chief Executive Officer/Chief Investment
Officer, Equities of Delaware Investment Advisers
(a series of Delaware Management Business Trust);
and Director of Delaware International Advisers
Ltd.
Board of Directors, Chairman of Finance Committee,
Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors,
Chairman of Finance Committee, AAA Mid Atlantic,
Inc. since 1989, 2040 Market Street, Philadelphia,
PA; Board of Directors, Metron, Inc. since 1995,
11911 Freedom Drive, Reston, VA
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ ------------------------------------------------
Richard J. Flannery Executive Vice President and General Counsel of
Delaware Management Holdings,Inc., Delaware
Distributors, L.P., Delaware Management Trust Company,
Delaware Capital Management, Inc., Delaware Service
Company, Inc., Delaware Management Company (a series
of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management
Business Trust) and Founders CBO Corporation;
Executive Vice President/General Counsel and Director
of DMH Corp., Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware International
Holdings Ltd., Founders Holdings, Inc., Delvoy, Inc.
and Retirement Financial Services, Inc.; Executive
Vice President of the Registrant and each of the other
funds in the Delaware Investments family; Director of
Delaware International Advisers Ltd.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991,
Bulltown Rd., Elverton, PA; Director and Member of
Executive Committee of Stonewall Links, Inc. since
1991, Bulltown Rd., Elverton, PA
George M. Senior Vice President/Secretary and General Counsel of
Chamberlain, Jr. the Registrant and each of the investment companies in
the Delaware Investments family; Senior Vice President
and Secretary of Delaware Distributors, L.P., Delaware
Management Company (a series of Delaware Management
Business Trust) and Delaware Management Holdings,
Inc., DMH Corp., Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Service Company,
Inc., Retirement Financial Services, Inc., Delaware
Capital Management, Inc. and Delvoy, Inc.; Executive
Vice President, Secretary and Director of Delaware
Management Trust Company; Senior Vice President and
Director of Founders Holdings, Inc.; Senior Vice
President of Delaware International Holdings Ltd.
Michael P. Bishof Senior Vice President/Investment Accounting of
Delaware Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust) and Delaware Service Company, Inc.; Senior Vice
President and Treasurer of the Registrant, each of the
other funds in the Delaware Investments family and
Founders Holdings, Inc.; Senior Vice President and
Treasurer/Manager, Investment Accounting of Delaware
Distributors, L.P. and Delaware Investment Advisers (a
series of Delaware Management Business Trust); Senior
Vice President and Assistant Treasurer of Founders CBO
Corporation; and Senior Vice President and Manager of
Investment Accounting of Delaware International
Holdings Ltd.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Joseph H. Hastings Senior Vice President/Corporate Controller and
Treasurer of Delaware Management Holdings, Inc., DMH
Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc.,
Delaware Distributors, L.P., Delaware Service Company,
Inc., Delaware International Holdings Ltd., Delaware
Management Company (a series of Delaware Management
Business Trust) and Delvoy, Inc.; Senior Vice
President/Corporate Controller of the Registrant, each
of the other funds in the Delaware Investments family
and Founders Holdings, Inc.; Chief Financial Officer
and Treasurer of Retirement Financial Services, Inc.;
and Senior Vice President/Assistant Treasurer of
Founders CBO Corporation
Joanne O. Hutcheson Senior Vice President/Human Resources of Delaware
Management Company, Inc., Delaware Management
Holdings, Inc., Delaware Investment Advisers (a series
of Delaware Management Business Trust), Delaware
Distributors, Inc., Delaware Distributors, L.P.,
Delaware Service Company, Inc., the Registrant, each
of the other funds in the Delaware Investments family,
Delvoy, Inc. and Delaware Management Company (a series
of Delaware Management Business Trust)
Robert J. DiBraccio Senior Vice President/Head of Equity Trading of
Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business
Trust) and Delaware Capital Management, Inc.
John B. Fields Senior Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), Delaware Capital
Management, Inc. and each of the equity investment
companies in the Delaware Investments family, and
Trustee of Delaware Management Business Trust
Susan L. Hanson Senior Vice President/Global Marketing & Client
Services of Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware
Investment Advisers (a series of Delaware Management
Business Trust).
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Douglas L. Anderson Senior Vice President/Operations of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Retirement Financial Services, Inc. and Delaware
Service Company, Inc.; Senior Vice President/
Operations and Director of Delaware Management Trust
Company
James L. Shields Senior Vice President/Chief Information Officer of
Delaware Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Service Company, Inc. and Retirement
Financial Services, Inc.
Eric E. Miller Senior Vice President, Assistant Secretary and Deputy
General Counsel of the Registrant and each of the
other funds in the Delaware Investments family,
Delaware Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), Delaware
Management Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors Inc.,
Delaware Service Company, Inc., Founders Holdings,
Inc., Delaware Capital Management, Inc. and Retirement
Financial Services, Inc.; and Senior Vice President,
Assistant Secretary and Deputy General Counsel of
Delvoy, Inc.
Richelle S. Maestro Senior Vice President, Assistant Secretary and Deputy
General Counsel of the Registrant, each of the other
funds in the Delaware Investments family, Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Management
Holdings, Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc.,
DMH Corp., Delaware Capital Management, Inc.,
Retirement Financial Services, Inc., Founders
Holdings, Inc. and Delvoy, Inc.; Senior Vice
President, Deputy General Counsel and Secretary of
Delaware International Holdings Ltd.; and Secretary of
Founders CBO Corporation
General Partner of Tri-R Associates since 1989, 10001
Sandmeyer Lane, Philadelphia, PA.
Michael T. Taggart Vice President/Facilities Management and
Administrative Services of Delaware Management
Company, Inc. and Delaware Management Company (a
series of Delaware Management Business Trust)
Richard Salus Vice President/Assistant Controller of Delaware
Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a
series of Delaware Management Business Trust) and
Delaware Management Trust Company
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Bruce A. Ulmer Vice President/Year 2000 of the Registrant, each of
the other funds in the Delaware Investments family,
Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Management
Holdings, Inc. and Retirement Financial Services,
Inc., Delvoy, Inc. and Delaware Management Trust
Company
Joel A. Ettinger(2) Vice President/Taxation of the Registrant, each of the
other funds in the Delaware Investments family,
Delaware Management Company, Inc., Delaware Investment
Advisers (a series of Delaware Management Business
Trust), Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware
Management Holdings, Inc., Founders Holdings, Inc.,
Delaware Distributors, Inc., Delaware Distributors,
L.P., Delaware Service Company, Inc., Retirement
Financial Services, Inc., Delaware Capital Management,
Inc., Delvoy, Inc. and Founders CBO Corporation
Christopher Adams Vice President/Business Manager, Equity Department of
Delaware Investment Advisers (a series of Delaware
Management Business Trust) and Delaware Management
Company (a series of Delaware Management Business
Trust)
Scott Metzger Vice President/Business Development of Delaware
Distributors, L.P. and Delaware Service Company, Inc.
Lisa O. Brinkley Vice President/Compliance Director of Delaware
Management Company, Inc., the Registrant, each of the
other funds in the Delaware Investments family,
Delaware Management Company (a series of Delaware
Management Business Trust), DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Capital
Management, Inc., Delvoy, Inc., Retirement Financial
Services, Inc. and Delaware Management Business Trust;
and Vice President/Compliance Director and Assistant
Secretary of Delaware Management Trust Company
Mary Ellen Carrozza Vice President/Client Services of Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) and each of the
other investment companies in the Delaware Investments
family
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), the Registrant, and of the
fixed- income investment companies in the Delaware
Investments family; Vice President of Founders
Holdings, Inc.; and Treasurer, Assistant Secretary and
Director of Founders CBO Corporation
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), and of the fixed-income
investment companies in the Delaware Investments
family; Vice President of Founders Holdings, Inc.; and
President and Director of Founders CBO Corporation
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Capital
Management, Inc. and of the fixed-income investment
companies in the Delaware Investments family
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Capital
Management, Inc. and of the fixed-income investment
companies in the Delaware Investments family
Roger A. Early Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), the Registrant, and of the
fixed-income investment companies in the Delaware
Investments family
Mitchell L. Conery(3) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Capital
Management, Inc. and of the fixed-income investment
companies in the Delaware Investments family
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Gerald S. Frey Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust) and each of the equity
investment companies in the Delaware Investments
family
Christopher Beck(4) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust) and each of the investment
companies in the Delaware Investments family
Trustee of New Castle County Pension Board since
October 1992, Wilmington DE.
Elizabeth H. Howell(5) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust) and each of the
fixed-income investment companies in the Delaware
Investments family
Andrew M.
McCullagh, Jr.(6) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust) the
Registrant and each of the fixed-income investment
companies in the Delaware Investments family
Babak Zenouzi Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust) and each of the equity
investment companies in the Delaware Investments
family
J. Paul Dokas(7) Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust) and each of the equity
investment companies in the Delaware Investments
family
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Cynthia Isom Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust) and
of the fixed-income investment companies in the
Delaware Investments family; and Vice President/Senior
Trader of Delaware Investment Advisers (a series of
Delaware Management Business Trust)
Paul Grillo Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), and the fixed-income
investment companies in the Delaware Investments
family
Marshall T. Bassett(8) Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware
Management Business Trust), and each of the equity
investment companies in the Delaware Investments
family
John A. Heffern(9) Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust) and
each of the funds in the Delaware Investments family
Lori P. Wachs Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust) and
each of the equity investment companies in the
Delaware Investments family
Richard E. Beister Vice President/Trading Operations of and Delaware
Management Company (a series of Delaware Management
Business Trust)
Jeffrey W. Hynoski Vice President/Research Analyst of Delaware Management
Company (a series of Delaware Management Business
Trust)
Audrey E. Kohart Vice President/Assistant Controller/Corporate
Accounting of Delaware Management Company (a series of
Delaware Management Business Trust)
Steven T. Lampe Vice President/Research Analyst of Delaware Management
Company (a series of Delaware Management Business
Trust)
Richard D. Seidel Vice President/Assistant Controller/Manager, Payroll
of Delaware Management Company (a series of Delaware
Management Business Trust)
Karina J. Istvan Vice President/Strategic Planning of Delaware
Management Company (a series of Delaware Management
Business Trust)
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Steven R. Cianci Vice President/Portfolio Manager of the fixed income
investment companies in the Delaware Investments
family.
Michael D. Mabry(10) Vice President/Associate General Counsel/Assistant
Secretary of Delaware Management Company (a series of
Delaware Management Business Trust)
David P. O'Connor Vice President/Associate General Counsel/Assistant
Secretary of Delaware Management Company (a series of
Delaware Management Business Trust)
Philip Y. Lin Vice President/Associate General Counsel/Assistant
Secretary of Delaware Management Company (a series of
Delaware Management Business Trust)
1 MANAGING DIRECTOR, Lincoln National UK plc prior to 1996.
2 TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
3 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
4 SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997.
5 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.
6 SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset
Management LLC prior to May 1997.
7 DIRECTOR OF TRUST INVESTMENTS, Bell Atlantic Corporation prior to February
1997.
8 VICE PRESIDENT, Morgan Stanley Asset Management prior to March 1997.
9 SENIOR VICE PRESIDENT, EQUITY RESEARCH, NatWest Securities Corporation prior
to March 1997.
10 ATTORNEY, Ballard, Spahr, Andrews & Ingersoll prior to January 1997.
<PAGE>
PART C - Other Information
(continued)
(b) Vantage Global Advisors, Inc. ("Vantage"), 630 Fifth Avenue, New
York, NY 10111, is an indirect, wholly owned subsidiary of Lincoln National
Corporation and an affiliate of Delaware Management Company, Inc. Vantage
provides investment advice to pension plans, endowments, insurance and
commingled products. Vantage serves as sub-investment adviser to the Social
Awareness Series (formerly named Quantum Series). The directors and officers of
Vantage are listed below. Unless otherwise indicated, the principal business
address of each person is 630 Fifth Avenue, New York, NY 10111.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Vantage Global Advisors, Inc. and its Principal
Business Address Affiliates and Other Positions and Offices Held
- ---------------- --------------------------------------------------------------------------
<S> <C>
T. Scott Wittman President and Director of Vantage Global Advisors, Inc.
Senior Vice President of Delaware Distributors, L.P.
Marc C. Viani Vice President of Vantage Global Advisors, Inc.
*Dennis A. Blume Director of Vantage Global Advisors, Inc.
Vice President and Director of Lincoln Investment Management, Inc. since 1985,
200 East Berry Street, Fort Wayne, IN; Director of Lynch & Mayer, Inc. since
1996, 520 Madison Avenue, New York, NY
*H. Thomas McMeekin Director of Vantage Global Advisors, Inc.
President and Director of Lincoln Investment Management, Inc., Lincoln National
Convertible Securities Fund, Inc., Lincoln National Income Fund, Inc. since 1994;
Executive Vice President and Chief Investment Officer of Lincoln National
Corporation since 1994; President, Chief Executive Officer and Director of
Lincoln National Mezzanine Corporation, 200 East Berry Street, Fort Wayne, IN;
Director of Lynch & Mayer, Inc., 520 Madison Avenue, New York, NY
</TABLE>
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Vantage Global Advisors, Inc. and its Principal
Business Address Affiliates and Other Positions and Offices Held
- ---------------- --------------------------------------------------------------------------
<S> <C>
**Jeffrey J. Nick Director of Vantage Global Advisors, Inc.
Chairman of the Board, President, Chief Executive Officer and Director/Trustee of
the Registrant and each of the other investment companies in the Delaware
Investments family, Delaware Management Company, Inc., Delaware Management
Business Trust, Delvoy, Inc., DMH Corp. and Founders Holdings, Inc.; Chairman and
Chief Executive Officer and Director of Delaware Management Company (a series of
Delaware Management Business Trust); Chairman and Director of Delaware Capital
Management, Inc. and Retirement Financial Services, Inc.; Chairman of Delaware
Investment Advisers (a series of Delaware Management Business Trust) and Delaware
Distributors, L.P.; Director of Delaware Service Company, Inc.,
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc. and Delaware Management Holdings, Inc.;
Director of Lynch & Mayer Inc.
**Bruce D. Barton(1) Director of Vantage Global Advisors, Inc.
President and Chief Executive Officer of Delaware Distributors, L.P. since 1996,
1818 Market Street, Philadelphia, PA;
(1) SENIOR VICE PRESIDENT AND DIRECTOR, Lincoln National Investment Companies February
1996 to October 1996; VICE PRESIDENT, Lincoln National Corporation May 1992 to October
1996.
</TABLE>
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
Delaware International Advisers Ltd. ("Delaware International")
serves as investment manager to the International Equity, Global Bond and
Emerging Markets Series of the Registrant. In addition, Delaware International
serves as sub-adviser to Strategic Income Series. In addition, Delaware
International also serves as investment manager or sub-adviser to certain other
funds in the Delaware Investments family (Delaware Group Global Dividend and
Income Fund, Inc., Delaware Group Global & International Funds, Inc., Delaware
Pooled Trust, Inc., Delaware Group Adviser Funds, Inc. and Delaware Group Income
Funds, Inc.) and other institutional accounts.
Information regarding the officers and directors of Delaware
International and the positions they have held with the Registrant during the
past two fiscal years is provided below.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Delaware International and its affiliates and other
- ------------------ ------------------------------------------------------------------------------
Business Address Positions and Offices Held
- ---------------- --------------------------
<S> <C>
*Jeffrey J. Nick(1) Chairman and Chief Executive Officer of Delaware Management Company (a series of Delaware Management
Business Trust); President, Chairman of the Board and Director of Delaware Management Holdings, Inc.;
President, Chairman of the Board, Chief Executive Officer and Director of DMH Corp.; President, Chairman
of the Board, Chief Executive Officer and Director of Delvoy, Inc.; Chairman of the Board, Chief
Executive Officer and Director of Delaware Management Company, Inc.; Chairman of the Board, President and
Chief Executive Officer and Trustee of Delaware Management Business Trust; Chairman of the Board of
Delaware Investment Advisers (a series of Delaware Management Business Trust); Director of Delaware
Service Company, Inc.; Chairman and Director of Delaware Capital Management, Inc.; Director of Retirement
Financial Services, Inc.; Chairman, Chief Executive Officer and Director of Delaware Distributors, Inc.;
Chairman of the Board of Delaware Distributors, L.P.; Chairman, Chief Executive Officer and Director of
Delaware International Holdings Ltd.; Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd; Chairman, President, Chief Executive Officer and Director of Founders
Holdings, Inc.; Chairman, President, Chief Executive Officer and Director of each fund in the Delaware
Investments family.
President, Chief Executive Officer and Director of Lincoln National Investment Companies, Inc. and
Delaware Management Holdings, Inc.; Director of Vantage Global Advisors, Inc. and Lynch & Mayer Inc.
**G Roger H. Kitson Vice Chairman and Director of Delaware International Advisers Ltd.
**Timothy W. Sanderson Chief Investment Officer, Equities and Director of Delaware International Advisers Ltd.
**Ian G. Sims Deputy Managing Director/Chief Investment Officer, Global Fixed Income and Director of Delaware
International Advisers Ltd.
**David G. Tilles Managing Director and Director of Delaware International Advisers Ltd.
**Elizabeth A. Desmond Senior Portfolio Manager and Director of Delaware International Advisers Ltd.
**John Emerson Finance Director and Director of Delaware International Advisers Ltd.
**Clive A. Gillmore Senior Portfolio Manager and Director of Delaware International Advisers Ltd.
**Nigel G. May Senior Portfolio Manager and Director of Delaware International Advisers Ltd.
**Hamish O. Parker Senior Portfolio Manager and Director of Delaware International Advisers Ltd.
**Robert Akester Senior Portfolio Manager of Delaware International Advisers Ltd.
**Fiona Barwick Senior Portfolio Manager of Delaware International Advisers Ltd.
**Joanna Bates Senior Portfolio Manager of Delaware International Advisers Ltd.
**Joshua Brooks Senior Portfolio Manager of Delaware International Advisers Ltd.
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Delaware International and its affiliates and other
- ------------------ ------------------------------------------------------------------------------
Business Address Positions and Offices Held
- ---------------- --------------------------
<S> <C>
**Gavin A. Hall Senior Portfolio Manager of Delaware International Advisers Ltd.
**John Kirk Senior Portfolio Manager of Delaware International Advisers Ltd.
**Hywel Morgan Senior Portfolio Manager of Delaware International Advisers Ltd.
**Christopher A. Moth Senior Portfolio Manager of Delaware International Advisers Ltd.
**Richard J. Ginty Portfolio Manager of Delaware International Advisers Ltd.
**R. Emma Lewis Portfolio Manager of Delaware International Advisers Ltd.
**Hugh A. Serjeant Portfolio Manager of Delaware International Advisers Ltd.
*John C.E. Campbell Director of Delaware International Advisers Ltd.; Executive Vice President/Global Marketing and Client
Services of Delaware Investment Advisers (a series of Delaware Management Business Trust)
*George E. Deming Vice President/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Senior Portfolio Manager of each fund in the Delaware
Investments family.
*David K. Downes President of Delaware Management Company (a series of Delaware Management Business Trust); Executive Vice
President, Chief Operating Officer and Chief Financial Officer of Delaware Management Holdings, Inc.;
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of DMH Corp.;
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of Delvoy, Inc.;
President and Director of Delaware Management Company, Inc.; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Trustee of Delaware Management Business Trust; Executive Vice
President, Chief Operating Officer and Chief Financial Officer of Delaware Investment Advisers (a series
of Delaware Management Business Trust); Chairman, President, Chief Executive Officer and Director of
Delaware Service Company, Inc.; President, Chief Executive Officer and Director of Delaware Capital
Management, Inc.; Chairman and Director of Retirement Financial Services, Inc.; Chairman and Director of
Delaware Management Trust Company; Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Distributors, Inc.; Executive Vice President, Chief Operating Officer
and Chief Financial Officer of Delaware Distributors, L.P.; President, Chief Operating Officer, Chief
Financial Officer and Director of Delaware International Holdings Ltd.; Director of Delaware
International Advisers Ltd.; Executive Vice President, Chief Operating Officer, Chief Financial Officer
and Director of Founders Holdings, Inc.; Executive Vice President, Chief Operating Officer and Chief
Financial Officer of Founders CBO Corporation; Executive Vice President, Chief Operating Officer and
Chief Financial Officer of each fund in the Delaware Investments family.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place, Newtown Square, PA
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Delaware International and its affiliates and other
- ------------------ ------------------------------------------------------------------------------
Business Address Positions and Offices Held
- ---------------- --------------------------
<S> <C>
*Richard J. Flannery Executive Vice President and General Counsel of Delaware Management Company (a series of Delaware
Management Business Trust); Executive Vice President and General Counsel of Delaware Management Holdings,
Inc.; Executive Vice President, General Counsel and Director of DMH Corp.; Executive Vice President,
General Counsel and Director of Delvoy, Inc.; Executive Vice President, General Counsel and Director of
Delaware Management Company, Inc.; Executive Vice President, General Counsel and Trustee of Delaware
Management Business Trust; Executive Vice President and General Counsel of Delaware Investment Advisers
(a series of Delaware Management Business Trust); Executive Vice President, General Counsel and Director
of Delaware Service Company, Inc.; Executive Vice President, General Counsel and Director of Delaware
Capital Management, Inc.; Executive Vice President, General Counsel and Director of Retirement Financial
Services, Inc.; Executive Vice President, General Counsel and Director of Delaware Management Trust
Company; Executive Vice President, General Counsel and Director of Delaware Distributors, Inc.; Executive
Vice President and General Counsel of Delaware Distributors, L.P.; Executive Vice President, General
Counsel and Director of Delaware International Holdings Ltd.; Director of Delaware International Advisers
Ltd.; Executive Vice President, General Counsel and Director of Founders Holdings, Inc.; Executive Vice
President and General Counsel of Founders CBO Corporation; Executive Vice President of each fund in the
Delaware Investments family.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA; Director and
Member of Executive Committee of Stonewall Links, Inc. since 1991, Bulltown Rd., Elverton, PA
*Richard G. Unruh Executive Vice President, Chief Investment Officer/ DMC Equity of Delaware Management
Company (a series of Delaware Management Business Trust); Executive Vice President of
Delaware Management Holdings, Inc.; Executive Vice President and Trustee of Delaware
Management Business Trust; Chief Executive Office, Chief Investment Officer/DIA Equity of
Delaware Investment Advisers (a series of Delaware Management Business Trust; Executive Vice
President of Delaware Capital Management, Inc.; Director of Delaware Investment Advisers Ltd.;
Executive Vice President, Chief Investment Officer/Equity of each fund in the Delaware
Investments family.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors, Chairman of Finance Committee, AAA Mid Atlantic, Inc. since
1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Metron, Inc. since 1995, 11911 Freedom
Drive, Reston, VA
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
** Business address of each is Third Floor, 80 Cheapside, London, England EC2V
6EE.
Lincoln Investment Management Company, Inc. serves as sub-adviser to the REIT
Series. Lincoln Investment Management Company, Inc. also serves as sub-adviser
to Delaware Pooled Trust, Inc. In addition, Lincoln Investment Management
Company, Inc. serves as investment manager to Lincoln National Convertible
Securities Fund, Inc., Lincoln National Income Fund, Inc., Lincoln National
Aggressive Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National
Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund, Inc.,
Lincoln National Global Asset Allocation Fund, Inc., Lincoln National Growth and
Income Fund, Inc., Lincoln National International Fund, Inc., Lincoln National
Managed Fund, Inc., Lincoln National Money Market Fund, Inc., Lincoln National
Social Awareness Fund, Inc., Lincoln National Special Opportunities Fund, Inc.
and to other clients. Lincoln Investment Management Company, Inc. is registered
with the Securities and Exchange Commission as an investment adviser and has
acted as an investment adviser to investment companies for over 40 years.
<PAGE>
PART C - Other Information
(continued)
Information regarding the officers and directors of Lincoln Investment
Management Company, Inc. and the positions they held during the past two years
follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Lincoln Investment Management Company, Inc.
Business Address and its Affiliates and Other Positions and Offices Held
- ---------------- -------------------------------------------------------
<S> <C>
*H. Thomas President & Director of Lincoln Investment Management, Inc., Lincoln
McMeekin National Convertible Securities Fund, Inc. and Lincoln National Income
Fund, Inc.; President, Chief Executive Officer and Director of Lincoln
National Mezzanine Corporation; Executive Vice President (previously
Senior Vice President) and Chief Investment Officer of Lincoln National
Corporation; and Director of The Lincoln National Life Insurance
Company, Lynch & Mayer, Inc. and Vantage Global Advisors, Inc.
*Dennis A. Blume Senior Vice President and Director of Lincoln Investment Management,
Inc. and Lincoln National Realty Corporation; and Director of Lynch &
Mayer, Inc. and Vantage Global Advisors, Inc.
*Steven R. Brody Senior Vice President and Director of Lincoln Investment Management,
Inc.; Director and Vice President of Lincoln National Mezzanine
Corporation; Vice President of The Lincoln National Life Insurance
Company; Director of Lincoln National Realty Corporation; Treasurer of
Lincoln National Convertible Securities Fund, Inc. and Lincoln National
Income Fund, Inc.; and Assistant Treasurer of Lincoln Financial Group,
Inc., Lincoln National Aggressive Growth Fund, Inc., Lincoln National
Bond Fund, Inc., Lincoln National Capital Appreciation Fund, Inc.,
Lincoln National Equity-Income Fund, Inc., Lincoln National Global
Asset Allocation Fund, Inc., Lincoln National Growth and Income Fund,
Inc., Lincoln National Health & Casualty Insurance Company, Lincoln
National International Fund, Inc., Lincoln National Life Reinsurance
Company, Lincoln National Managed Fund, Inc., Lincoln National
Money Market Fund, Inc., Lincoln National Reassurance Company,
Lincoln National Social Awareness Fund, Inc. and Lincoln National
Special Opportunities Fund, Inc.
*Ann L. Warner Vice President of Lincoln Investment Management, Inc.; Second Vice
President of Lincoln Life & Annuity Company of New York; Director of
Lincoln National Convertible Securities Fund, Inc.; and Director and
Vice President of Lincoln National Income Fund, Inc.
*JoAnn E. Becker Senior Vice President & Director of Lincoln Investment Management,
Inc. and The Lincoln National Life Insurance Company; and Director of
LNC Equity Sales Corporation, The Richard Leahy Corporation and
Professional Financial Planning, Inc.
*David A. Berry Senior Vice President-Fixed Income of Lincoln Investment Management,
Inc., Vice President of Lincoln National Convertible Securities Fund, Inc.
and Lincoln National Income Fund, Inc.; and Second Vice President of
Lincoln Life & Annuity Company of New York
</TABLE>
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1300 S. Clinton Street, Fort Wayne, IN 46802.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Lincoln Investment Management Company,
Business Address Inc. and its Affiliates and Other Positions and Offices Held
- ---------------- ------------------------------------------------------------
<S> <C>
*Karen L. Bobilier Senior Account Executive of Lincoln Investment Management, Inc.
*Kathy E. Bowman Vice President of Lincoln Investment Management, Inc.
*Philip C. Byrde Vice President of Lincoln Investment Management, Inc.
*Patrick R. Chasey Vice President of Lincoln Investment Management, Inc.
*Garrett W. Cooper Vice President of Lincoln Investment Management, Inc.
*David C. Fischer Vice President of Lincoln Investment Management, Inc. and
Lincoln National Income Fund, Inc.
*Robert C. Franzino Vice President of Lincoln Investment Management, Inc.
*Luc N. Girard Vice President of Lincoln Investment Management, Inc. and The Lincoln
National Life Insurance Company
*Jennifer C. Hom Vice President of Lincoln Investment Management, Inc.
*James M. Keefer Vice President and Associate General Counsel of Lincoln Investment
Management, Inc.
*Timothy H. Kilfoil Vice President of Lincoln Investment Management, Inc.
*Lawrence T. Kissko Vice President of Lincoln Investment Management, Inc.; Vice President
and Director Lincoln National Realty Corporation; and Vice President of
The Lincoln National Life Insurance Company
*Howard R. Lodge Vice President of Lincoln Investment Management, Inc.
*David J. Miller Vice President of Lincoln Investment Management, Inc.
*David C. Patch Vice President of Lincoln Investment Management, Inc.
*Regina N. Rohrbacher Compliance Officer of Lincoln Investment Management, Inc.
*Barbara A. Short Investment Fund Analyst of Lincoln Investment Management, Inc.
*Ann L. Warner Vice President of Lincoln Investment Management, Inc.
</TABLE>
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1300 S. Clinton Street, Fort Wayne, IN 46802.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Lincoln Investment Management Company,
Business Address Inc. and its Affiliates and Other Positions and Offices Held
- ---------------- ------------------------------------------------------------
<S> <C>
*Janet C. Whitney Corporate Vice President and Treasurer of Lincoln Investment
Management, Inc., The Financial Alternative, Inc., Financial Alternative
Resources, Inc., Financial Choices, Inc., Financial Investments, Inc.,
Financial Investment Services, Inc., The Financial Resources Department,
Inc., Investment Alternatives, Inc., The Investment Center, Inc., The
Investment Group, Inc., LNC Administrative Services Corporation, LNC
Equity Sales Corporation, The Richard Leahy Corporation, Lincoln
National Aggressive Growth Fund, Inc., Lincoln National Bond Fund,
Inc., Lincoln National Capital Appreciation Fund, Inc., Lincoln National
Equity-Income Fund, Inc., Lincoln National Global Assets Allocation
Fund, Inc., Lincoln National Growth and Income Fund, Inc., Lincoln
National Health & Casualty Insurance Company, Lincoln National
Intermediaries, Inc., Lincoln National International Fund, Inc., Lincoln
National Managed Fund, Inc., Lincoln National Management Services,
Inc., Lincoln National Mezzanine Corporation, Lincoln National Money
Market Fund, Inc. Lincoln National Realty Corporation, Lincoln National
Risk Management, Inc., Lincoln National Social Awareness Fund, Inc.,
Lincoln National Special Opportunities Fund, Inc., Lincoln National
Structured Settlement, Inc., Personal Financial Resources, Inc., Personal
Investment Services, Inc., Special Pooled Risk Administrators, Inc.,
Underwriters & Management Services, Inc.; Vice President and Treasurer
(previously Vice President and General Auditor) of Lincoln National
Corporation; and Assistant Treasurer of First Penn-Pacific Life Insurance
Company
*Jay M. Yentis Second Vice President of Lincoln Investment Management, Inc.
</TABLE>
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1300 S. Clinton Street, Fort Wayne, IN 46802.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Lincoln Investment Management Company,
Business Address Inc. and its Affiliates and Other Positions and Offices Held
- ---------------- ------------------------------------------------------------
<S> <C>
*C. Suzanne Womack Secretary of Lincoln Investment Management, Inc., Corporate Benefit
Systems Services Corporation, The Financial Alternative, Inc., Financial
Alternative Resources, Inc., Financial Choices, Inc., The Financial
Resources Department, Inc., Financial Investment Services, Inc.,
Financial Investments, Inc., Insurance Services, Inc., Investment
Alternatives, Inc., The Investment Center, Inc. (TN), The Investment
Group, Inc., LNC Administrative Services Corporation, LNC Equity
Sales Corporation, The Richard Leahy Corporation, Lincoln Life
Improved Housing, Inc., Lincoln National (China) Inc., Lincoln National
Convertible Securities Fund, Inc., Lincoln National Health & Casualty
Insurance Company, Lincoln National Income Fund, Inc., Lincoln
National Intermediaries, Inc., Lincoln National Life Reinsurance
Company, Lincoln National Management Services, Inc., Lincoln National
Mezzanine Corporation, Lincoln National Realty Corporation, Lincoln
National Reassurance Company, Lincoln National Reinsurance Company
(Barbados) Limited, Lincoln National Reinsurance Company Limited,
Lincoln National Risk Management, Inc., Lincoln National Structured
Settlement, Inc., Old Fort Insurance Company, Ltd., Personal Financial
Resources, Inc., Personal Investment Services, Inc., Professional
Financial Planning, Inc., Reliance Life Insurance Company of Pittsburgh,
Special Pooled Risk Administrators, Inc. and Underwriters &
Management Services, Inc.; Vice President, Secretary and Director of
Lincoln National Foundation, Inc.; Secretary and Assistant Vice President
of Lincoln National Corporation and The National Life Insurance
Company; and Assistant Secretary of Lincoln National Aggressive
Growth Fund, Inc., Lincoln National Bond Fund, Inc., Lincoln National
Capital Appreciation Fund, Inc., Lincoln National Equity-Income Fund,
Inc., Lincoln National Global Asset Allocation Fund, Inc., Lincoln
National Growth and Income Fund, Inc., Lincoln National International
Fund, Inc., Lincoln National Managed Fund, Inc., Lincoln National
Money Market Fund, Inc., Lincoln National Social Awareness Fund, Inc.,
Lincoln National Special Opportunities Fund, Inc., Lincoln National
Variable Annuity Funds A & B and Lincoln Life & Annuity Company of
New York
</TABLE>
* Business address is 200 East Berry Street, Fort Wayne, IN 46802.
** Business address is 1300 S. Clinton Street, Fort Wayne, IN 46802.
<PAGE>
PART C - Other Information
(continued)
Item 27. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter
for all the mutual funds in the Delaware Group.
(b) Information with respect to each officer or partner of
principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Investment
Advisers Limited Partner None
Delaware Capital
Management, Inc. Limited Partner None
Jeffrey J. Nick Chairman Chairman, President, Chief
Executive Officer and
Director/Trustee
Bruce D. Barton President and Chief Executive None
Officer
David K. Downes Executive Vice President, Executive Vice President, Chief
Chief Operating Officer Operating Officer and Chief
and Chief Financial Officer Financial Officer
Richard J. Flannery Executive Vice President/ Executive Vice President
General Counsel
George M. Chamberlain, Jr. Senior Vice President/Secretary Senior Vice President/
Secretary/General Counsel
Joseph H. Hastings Senior Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller
Terrence P. Cunningham Senior Vice President/Financial None
Institutions/National Sales Manger
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division
J. Chris Meyer Senior Vice President/ None
Director, Product Management
William M. Kimbrough Senior Vice President/Wholesaler None
Daniel J. Brooks Senior Vice President/Wholesaler None
Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager
Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager
Michael P. Bishof Senior Vice President and Treasurer/ Senior Vice
Manager, Investment Accounting President/Treasurer
Stephen J. DeAngelis Senior Vice President/National None
Director/Managed Account Services
Joanne O. Hutcheson Senior Vice President/Human Senior Vice President/Human
Resources Resources
Holly W. Reimel Senior Vice President/National None
Accounts
Eric E. Miller Senior Vice President/Assistant Senior Vice
Secretary/Deputy General Counsel President/Assistant
Secretary/Deputy General
Counsel
Richelle S. Maestro Senior Vice President/Assistant Senior Vice
Secretary/Deputy General Counsel President/Assistant
Secretary/Deputy General
Counsel
Diane M. Anderson Senior Vice President/ None
Retirement Operations
</TABLE>
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
James L. Shields Senior Vice President/ None
Chief Information Officer
Stephen C. Nell Senior Vice President/National None
Retirement Sales
Christopher H. Price Senior Vice President/Channel None
Manager
Lisa O. Brinkley Vice President/Compliance Vice President/Compliance
Daniel H. Carlson Vice President/Marketing Services None
Courtney S. West Vice President/Institutional Sales None
Gordon E. Searles Vice President/Client Services None
Julia R. Vander Els Vice President/Retirement Plan None
Contributions
Scott Metzger Vice President/Business Development None
Larry Carr Vice President/Variable Annuity None
Sales Manager
James R. Searles Vice President/Variable Annuity None
Sales Manager
Gregory J. McMillan Vice President/National Accounts None
Christopher W. Moore Vice President/Variable Annuity None
Wholesaler
Daniel J. O'Brien Vice President/Insurance Products None
Andrew W. Whitaker Vice President/Wholesaler None
Financial Institutions
Jessie Emery Vice President/Marketing None
Communications
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales Director
Dinah J. Huntoon Vice President/Product None
Manager, Equities
Soohee Lee Vice President/Fixed Income None
and International Product
Management
Joel A. Ettinger Vice President/Taxation Vice President/Taxation
Michael J. Woods Vice President/National None
Sales Manager
Susan T. Friestedt Vice President/Retirement Services None
Ellen M. Krott Vice President/Marketing None
John A. Wells Vice President/Marketing Technology None
Theodore V. Wood, III Vice President/Technical Systems None
Officer
Matthew Coldren Vice President/National Accounts None
Patrick A. Connelly Vice President/RIA Sales None
Karina J. Istvan Vice President/Strategic Planning Vice President/Strategic
Planning
Michael D. Mabry Vice President/Associate Vice President/Associate
GeneralCounsel/ General Counsel/
Assistant Secretary Assistant Secretary
David P. O'Connor Vice President/Associate Vice President/Associate
GeneralCounsel/ General Counsel/
Assistant Secretary Assistant Secretary
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Philip Y. Lin Vice President/Associate Vice President/Associate
GeneralCounsel/ General Counsel/
Assistant Secretary Assistant Secretary
Catherine A. Seklecki Vice President/Retirement Sales None
Michael T. Taggart Vice President/Facilities and None
Administrative Services
Bruce A. Ulmer Vice President/Year 2000 Vice President/Year 2000
Richard P. Allen Vice President/Wholesaler, None
Midwest Region
David P. Anderson, Jr. Vice President/Wholesaler None
Jeffrey H. Arcy Vice President/Wholesaler, None
Southeast Region
Patrick A. Bearss Vice President/Wholesaler, None
Midwest Region
Gabriella Bercze Vice President/Financial None
Institution Wholesaler
Larry D. Bridwell Vice President/Financial None
Institution Wholesaler
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Ronald A. Haimowitz Vice President/Wholesaler None
Edward J. Hecker Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
John R. Herron Vice President/Variable None
Annuity Wholesaler
Christopher L. Johnston Vice President/Wholesaler None
Michael P. Jordan Vice President/Wholesaler None
Carolyn Kelly Vice President/Wholesaler None
Richard M. Koerner Vice President/Wholesaler None
Theodore T. Malone Vice President/IPI Wholesaler None
Debbie A. Marler Vice President/Wholesaler None
Nathan W. Medin Vice President/Wholesaler None
Roger J. Miller Vice President/Wholesaler None
Andrew F. Morris Vice President/Wholesaler, None
East Division
Patrick L. Murphy Vice President/Wholesaler None
Scott E. Naughton Vice President/IPI Wholesaler None
Julia A. Nye Vice President/Wholesaler None
Joseph T. Owczarek Vice President/Wholesaler None
Otis S. Page Vice President/Wholesaler None
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
Mark A. Pletts Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Laura E. Roman Vice President/Wholesaler None
Robert A. Rosso Vice President/Wholesaler None
Linda Schulz Vice President/Wholesaler None
John C. Shalloe Vice President/Wrap Fee None
Wholesaler, Western Region
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Wayne W. Wagner Vice President/Wholesaler None
Scott Whitehouse Vice President/Wholesaler None
Denise D. Bradley Vice President/Variable None
Annuity Wholesaler
Rhonda J. Guido Vice President/Wholesaler None
John M. Leboeuf Vice President/Variable Annuity None
Wholesaler
John R. Logan Vice President/Wholesaler/ None
Financial Institutions
Christopher W. Moore Vice President/Variable Annuity None
Wholesaler
Julie Nusbaum Vice President/Wholesaler/ None
Financial Institutions
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Inapplicable.
Item 28. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818
Market Street, Philadelphia, PA 19103 or One Commerce Square,
Philadelphia, PA 19103, in London at Third Floor, 80 Cheapside,
London, England EC2V 6EE, in New York at 630 Fifth Avenue, New
York, NY 10111, or in Fort Wayne at 200 East Berry Street, Fort
Wayne, IN 46802 or 1300 S. Clinton Street, Fort Wayne, IN 46802.
Item 29. Management Services. None.
Item 30. Undertakings.
(a) Not Applicable.
<PAGE>
PART C - Other Information
(continued)
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
(d) Not Applicable.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia and Commonwealth of Pennsylvania on
this 15th day of April, 1999.
DELAWARE GROUP PREMIUM FUND, INC.
By /s/Jeffrey J. Nick
------------------
Jeffrey J. Nick
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------- ------------------------------------------ ----------------
<S> <C> <C>
/s/ Jeffrey J. Nick President, Chief Executive Officer
- --------------------------------------- Chairman of the Board and Director April 15, 1999
Jeffrey J. Nick
Executive Vice President/Chief Operating
Officer/Chief Financial Officer (Principal
Financial Officer and Principal Accounting
/s/David K. Downes Officer) April 15, 1999
- ---------------------------------------
David K. Downes
/s/Wayne A. Stork * Director April 15, 1999
- ---------------------------------------
Wayne A. Stork
/s/Walter P. Babich * Director April 15, 1999
- ---------------------------------------
Walter P. Babich
/s/Anthony D. Knerr * Director April 15, 1999
- ---------------------------------------
Anthony D. Knerr
/s/Ann R. Leven * Director April 15, 1999
- ---------------------------------------
Ann R. Leven
/s/ Thomas F. Madison * Director April 15, 1999
- ---------------------------------------
Thomas F. Madison
/s/John H. Durham * Director April 15, 1999
- ---------------------------------------
John H. Durham
/s/Charles E. Peck * Director April 15, 1999
- ---------------------------------------
Charles E. Peck
/s/Jan L. Yeomans * Director April 15, 1999
- ---------------------------------------
Jan L. Yeomans
</TABLE>
*By /s/Jeffrey J. Nick
------------------
Jeffrey J. Nick
as Attorney-in-Fact
for each of the persons indicated
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.J Consent of Auditors
EX-27 Financial Data Schedules
EX-99.PC Power of Attorney for Jan L. Yeomans
<PAGE>
EXHIBIT 99J
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment No. 21 to the Registration Statement (Form N-1A) (No.
33-14363) of Delaware Group Premium Fund, Inc. of our reports dated February 5,
1999, included in the 1998 Annual Reports to shareholders.
Philadelphia, Pennsylvania
April 26, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Capital Reserves Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Capital Reserves Series (the "Fund") as of December 31,
1998, and the related statement of operations for the year then ended, the
statements 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Capital Reserves Series at December 31,
1998, 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 its financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Cash Reserve Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Cash Reserve Series (the "Fund") as of December 31, 1998,
and the related statement of operations for the year then ended, the statements
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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Cash Reserve Series at December 31, 1998,
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 its financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Convertible Securities Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. Convertible Securities Series (the "Fund") as of December 31,
1998, and the related statement of operations for the year then ended, and the
statements of changes in net assets and financial highlights for each of the
periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Convertible Securities Series at December
31, 1998, the results of its operations for the year then ended, and the changes
in its net assets and its financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Decatur Total Return Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Decatur Total Return Series (the "Fund") as of December 31,
1998, and the related statement of operations for the year then ended, the
statements 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Decatur Total Return Series at December 31,
1998, 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 its financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Delaware Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Delaware Series (the "Fund") as of December 31, 1998, and
the related statement of operations for the year then ended, the statements 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Delaware Series at December 31, 1998, 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 its financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - DelCap Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - DelCap Series (the "Fund") as of December 31, 1998, and the
related statement of operations for the year then ended, the statements 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - DelCap Series at December 31, 1998, 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 its financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Delchester Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Delchester Series (the "Fund") as of December 31, 1998, and
the related statement of operations for the year then ended, the statements 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Delchester Series at December 31, 1998, 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 its financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Devon Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Devon Series (the "Fund") as of December 31, 1998, and the
related statement of operations for the year then ended, and the statements of
changes in net assets and financial highlights for each of the periods indicated
therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Devon Series at December 31, 1998, the
results of its operations for the year then ended, and the changes in its net
assets and its financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Global Bond Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Global Bond Series (the "Fund") as of December 31, 1998,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Global Bond Series at December 31, 1998, 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 its financial highlights
for each of the periods indicated therein, in conformity with generally accepted
accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Emerging Markets Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Emerging Markets Series (the "Fund") as of December 31,
1998, and the related statement of operations for the year then ended, and the
statements of changes in net assets and financial highlights for each of the
periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Emerging Markets Series at December 31,
1998, the results of its operations for the year then ended, and the changes in
its net assets and its financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - International Equity Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. International Equity Series (the "Fund") as of December 31,
1998, and the related statement of operations for the year then ended, the
statements 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - International Equity Series at December 31,
1998, 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 its financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - REIT Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - REIT Series (the "Fund") as of December 31, 1998, and the
related statement of operations, statement of changes in net assets and
financial highlights for the period May 4, 1998 (commencement of operations)
through December 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1998, by correspondence with the Fund's custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Premium Fund, Inc. - REIT Series at December 31, 1998, and the
results of its operations, changes in its net assets and its financial
highlights for the period May 4, 1998 (commencement of operations) through
December 31, 1998, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Small Cap Value Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Small Cap Value Series (the "Fund") as of December 31,
1998, and the related statement of operations for the year then ended, the
statements 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Small Cap Value Series at December 31, 1998,
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 its financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Social Awareness Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Social Awareness Series (the "Fund") as of December 31,
1998, and the related statement of operations for the year then ended, and the
statements of changes in net assets and financial highlights for each of the
periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Social Awareness Series at December 31,
1998, the results of its operations for the year then ended, and the changes in
its net assets and its financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Strategic Income Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. Strategic Income Series (the "Fund") as of December 31, 1998,
and the related statement of operations for the year then ended, and the
statements of changes in net assets and financial highlights for each of the
periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Strategic Income Series at December 31,
1998, the results of its operations for the year then ended, and the changes in
its net assets and its financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc. - Trend Series
We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc. - Trend Series (the "Fund") as of December 31, 1998, and the
related statement of operations for the year then ended, the statements 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Premium Fund, Inc. - Trend Series at December 31, 1998, 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 its financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Philadelphia, Pennsylvania
February 5, 1999
/s/ Ernst & Young LLP
- ------------------------
Ernst & Young LLP
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<INVESTMENTS-AT-VALUE> 118,554,494
<RECEIVABLES> 1,939,045
<ASSETS-OTHER> 608,721
<OTHER-ITEMS-ASSETS> (652)
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<OTHER-ITEMS-LIABILITIES> 393,336
<TOTAL-LIABILITIES> 393,336
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<PAID-IN-CAPITAL-COMMON> 132,070,690
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<SHARES-COMMON-PRIOR> 12,938,149
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<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (11,045,240)
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<DIVIDEND-INCOME> 406,247
<INTEREST-INCOME> 11,758,269
<OTHER-INCOME> 0
<EXPENSES-NET> 806,236
<NET-INVESTMENT-INCOME> 11,358,280
<REALIZED-GAINS-CURRENT> (577,975)
<APPREC-INCREASE-CURRENT> (13,468,140)
<NET-CHANGE-FROM-OPS> (2,687,835)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,317,743
<DISTRIBUTIONS-OF-GAINS> 32,038
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<NUMBER-OF-SHARES-REDEEMED> 2,277,223
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<SERIES>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 42,068,982
<INVESTMENTS-AT-VALUE> 42,431,489
<RECEIVABLES> 534,127
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<SHARES-COMMON-PRIOR> 3,307,902
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<OVERDISTRIBUTION-GAINS> 0
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<DISTRIBUTIONS-OTHER> 0
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<NUMBER-OF-SHARES-REDEEMED> 1,315,298
<SHARES-REINVESTED> 193,836
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,358,617)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 208,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 275,436
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<SERIES>
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<PERIOD-END> DEC-31-1998
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<INVESTMENTS-AT-VALUE> 202,647,527
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<DISTRIBUTIONS-OTHER> 0
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<ACCUMULATED-GAINS-PRIOR> 20,769,034
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<OVERDIST-NET-GAINS-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000814230
<NAME> DELAWARE GROUP PREMIUM FUND, INC.
<SERIES>
<NUMBER> 05
<NAME> CASH RESERVE SERIES
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 42,793,235
<INVESTMENTS-AT-VALUE> 42,793,235
<RECEIVABLES> 179,754
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<PAYABLE-FOR-SECURITIES> 0
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<CIK> 0000814230
<NAME> DELAWARE GROUP PREMIUM FUND, INC.
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<NAME> EMERGING MARKETS SERIES
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<OVERDIST-NET-GAINS-PRIOR> 0
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<PER-SHARE-GAIN-APPREC> (2.991)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814230
<NAME> DELAWARE GROUP PREMIUM FUND, INC.
<SERIES>
<NUMBER> 14
<NAME> STRATEGIC INCOME SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 21,314,995
<INVESTMENTS-AT-VALUE> 20,503,433
<RECEIVABLES> 646,492
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,149,925
<PAYABLE-FOR-SECURITIES> 544,123
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<OTHER-ITEMS-LIABILITIES> 35,038
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<SENIOR-EQUITY> 19,413
<PAID-IN-CAPITAL-COMMON> 20,275,354
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<SHARES-COMMON-PRIOR> 810,536
<ACCUMULATED-NII-CURRENT> 1,174,293
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<ACCUMULATED-NET-GAINS> (87,228)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (811,068)
<NET-ASSETS> 20,570,764
<DIVIDEND-INCOME> 5,498
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<OTHER-INCOME> (1,377)
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<NET-INVESTMENT-INCOME> 1,235,293
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<DISTRIBUTIONS-OF-INCOME> 246,632
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<NUMBER-OF-SHARES-REDEEMED> 500,017
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000814230
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<SERIES>
<NUMBER> 15
<NAME> SOCIAL AWARENESS SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 23,628,940
<INVESTMENTS-AT-VALUE> 27,318,194
<RECEIVABLES> 33,887
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<TOTAL-ASSETS> 27,490,518
<PAYABLE-FOR-SECURITIES> 498,955
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<TOTAL-LIABILITIES> 528,529
<SENIOR-EQUITY> 18,531
<PAID-IN-CAPITAL-COMMON> 23,712,310
<SHARES-COMMON-STOCK> 1,853,052
<SHARES-COMMON-PRIOR> 1,059,363
<ACCUMULATED-NII-CURRENT> 121,875
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (580,072)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,689,254
<NET-ASSETS> 26,961,898
<DIVIDEND-INCOME> 180,300
<INTEREST-INCOME> 74,819
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<EXPENSES-NET> 130,482
<NET-INVESTMENT-INCOME> 124,637
<REALIZED-GAINS-CURRENT> (574,831)
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<DISTRIBUTIONS-OF-INCOME> 33,744
<DISTRIBUTIONS-OF-GAINS> 124,853
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<NUMBER-OF-SHARES-SOLD> 1,464,605
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<CIK> 0000814230
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<SERIES>
<NUMBER> 16
<NAME> REIT SERIES
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<TOTAL-ASSETS> 5,667,823
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<TOTAL-LIABILITIES> 106,031
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,708,620
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 132,582
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (176,011)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (103,399)
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<DIVIDEND-INCOME> 137,776
<INTEREST-INCOME> 12,034
<OTHER-INCOME> 0
<EXPENSES-NET> 17,228
<NET-INVESTMENT-INCOME> 132,582
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<APPREC-INCREASE-CURRENT> (103,399)
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<DISTRIBUTIONS-OF-GAINS> 0
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</TABLE>
<PAGE>
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Investments Family of Funds listed on Exhibit A to this Power of
Attorney, hereby constitutes and appoints on behalf of each of the Funds listed
on Exhibit A, Jeffrey J. Nick, Wayne A. Stork and Walter P. Babich and any one
of them acting singly, her true and lawful attorneys-in-fact, in her name,
place, and stead, to execute and cause to be filed with the Securities and
Exchange Commission and other federal or state government agency or body, such
registration statements, and any and all amendments thereto as either of such
designees may deem to be appropriate under the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 15th day of April, 1999.
/s/ Jan L. Yeomans
- ----------------------
Jan L. Yeomans
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE INVESTMENTS FAMILY OF FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP FOUNDATION FUNDS
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
