<PAGE>
DELAWARE POOLED TRUST
---------------------
Delaware Pooled Trust, Inc. ("Fund") is a no-load, open-end management
investment company. The Fund consists of twelve portfolios (collectively, the
"Portfolios," or, individually, a "Portfolio") offering investment alternatives
for institutional clients. Investors may make investments in only one or in
more than one of the following Portfolios:
EQUITY ORIENTED FIXED INCOME ORIENTED
THE DEFENSIVE EQUITY PORTFOLIO THE FIXED INCOME PORTFOLIO
THE AGGRESSIVE GROWTH PORTFOLIO THE LIMITED-TERM MATURITY PORTFOLIO
THE INTERNATIONAL EQUITY PORTFOLIO THE GLOBAL FIXED INCOME PORTFOLIO
THE DEFENSIVE EQUITY SMALL/MID-CAP THE INTERNATIONAL FIXED INCOME
PORTFOLIO PORTFOLIO
THE DEFENSIVE EQUITY UTILITY PORTFOLIO THE HIGH-YIELD BOND PORTFOLIO
THE LABOR SELECT INTERNATIONAL EQUITY
PORTFOLIO
THE REAL ESTATE INVESTMENT TRUST PORTFOLIO
________________________________________________________________________________
The Fund is designed to meet the investment needs of discerning institutional
investors who desire experienced investment management and place a premium on
personal service.
The High-Yield Bond Portfolio of the Fund invests up to 100% of its assets in
lower rated fixed income securities, commonly known as "junk bonds," which
involve greater risks, including default risks, than higher rated fixed income
securities. Purchasers should carefully assess these risks before investing in
The High-Yield Bond Portfolio. See "INVESTMENT OBJECTIVES, POLICIES AND RISK
CONSIDERATIONS" and "ADDITIONAL INVESTMENT INFORMATION - HIGH-YIELD, HIGH
RISK SECURITIES."
This Prospectus is designed to set forth concisely the information about the
Fund that a prospective institutional client should know before investing and it
should be retained for future reference. Additional information about the Fund
is contained in a Statement of Additional Information dated November 29, 1995,
as it may be amended from time to time. That information is incorporated herein
by reference and is available without charge upon request from the Fund:
Delaware Pooled Trust, Inc.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
1-800-231-8002
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FUND EXPENSES....................................... 3
FINANCIAL HIGHLIGHTS................................ 6
DELAWARE POOLED TRUST SUMMARY....................... 9
FUND OFFICERS AND PORTFOLIO MANAGERS................ 11
RISK FACTORS........................................ 16
INVESTMENT OBJECTIVES, POLICIES AND RISK
CONSIDERATIONS.................................... 18
PURCHASE OF SHARES.................................. 33
REDEMPTION OF SHARES................................ 35
ADDITIONAL INVESTMENT INFORMATION................... 37
INVESTMENT LIMITATIONS.............................. 49
MANAGEMENT OF THE FUND.............................. 50
SHAREHOLDER SERVICES................................ 52
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS........... 53
TAXES............................................... 53
PERFORMANCE INFORMATION............................. 56
APPENDIX A--RATINGS................................. 58
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is:
November 29, 1995
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<PAGE>
FUND EXPENSES
The following tables illustrate all expenses and fees that a shareholder of the
Fund can expect to incur. The purpose of the tables is to assist the investor
in understanding the various expenses that an investor in the Fund will bear
directly or indirectly. With respect to The Fixed Income Portfolio, The
Limited-Term Maturity Portfolio, The International Fixed Income Portfolio, The
Defensive Equity Small/Mid-Cap Portfolio, The Defensive Equity Utility
Portfolio, The Labor Select International Equity Portfolio, The Real Estate
Investment Trust Portfolio and The High-Yield Bond Portfolio, the amounts set
forth below under the heading "Other Expenses" are based on estimates for the
Portfolios' initial fiscal year in which they conduct operations. With respect
to The Defensive Equity Portfolio, The Aggressive Growth Portfolio, The
International Equity Portfolio and The Global Fixed
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<PAGE>
Income Portfolio, the amounts set forth above under the heading "Other Expenses"
are based on actual results for the Portfolios' most recently completed fiscal
year.
<TABLE>
<CAPTION>
==================================================================================================================================
The The The The The Limited- The Global The
Defensive Aggressive International Fixed Term Maturity Fixed International
Shareholder Equity Growth Equity Income Portfolio Income Fixed Income
Transaction Expenses Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Sales Charge Imposed on None None None None None None None
Purchases
- ----------------------------------------------------------------------------------------------------------------------------------
Sales Charge Imposed on
Reinvested Dividends None None None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Redemption Fees None None None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None None None
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
Annual Fund The The The The The Limited- The Global The
Operating Expenses Defensive Aggressive International Fixed Term Fixed International
(as a percentage of Equity Growth Equity Income Maturity Income Fixed Income
average net assets) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees .39%* .55%* .71%* .32%* .22%* .33%* .02%*
After Voluntary Waiver and
Reimbursement
- ----------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees None None None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Other Expenses .29% .38% .23% .21% .21% .27% .58%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses
After Voluntary Waiver and .68%* .93%* .94%* .53%* .43%* .60%* .60%*
Reimbursement
==================================================================================================================================
</TABLE>
* With respect to The Defensive Equity Portfolio, The Aggressive Growth
Portfolio, The Fixed Income Portfolio and The Limited-Term Maturity Portfolio,
Delaware Investment Advisers elected voluntarily to
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<PAGE>
waive that portion, if any, of the annual Investment Advisory Fees payable by
a particular Portfolio and to reimburse a Portfolio for its expenses to the
extent necessary to ensure that the expenses of that Portfolio (exclusive of
taxes, interest, brokerage commissions and extraordinary expenses) do not
exceed, on an annualized basis, the amounts noted above during the period from
commencement of the public offering for the Portfolio through April 30, 1996.
Similarly, Delaware International Advisers Ltd. ("Delaware International"),
the investment adviser to The International Equity Portfolio, voluntarily
elected to waive that portion, if any, of its annual Investment Advisory Fees
and to reimburse the Portfolio for its expenses to the extent necessary to
ensure that the expenses of that Portfolio (exclusive of taxes, interest,
brokerage commissions and extraordinary expenses) do not exceed, on an
annualized basis, .96% during the period from commencement of the public
offering for the Portfolio through April 30, 1996. With respect to The Global
Fixed Income Portfolio and The International Fixed Income Portfolio, Delaware
International, the Portfolios' investment adviser, voluntarily elected to
waive that portion, if any, of its annual Investment Advisory Fees and to
reimburse each Portfolio for its expenses to the extent necessary to ensure
that the expenses of that Portfolio (exclusive of taxes, interest, brokerage
commissions and extraordinary expenses) do not exceed, on an annualized basis,
the amounts noted above during the period from commencement of the public
offering for the Portfolio through April 30, 1996. In the absence of such
voluntary waivers, Total Operating Expenses (as a percentage of average net
assets) are expected to equal 0.82%, 1.17%, 0.97%, 0.61%, 0.51%, 0.76% and
1.08%, respectively, for the Portfolios in the order they appear in the above
table. Other Expenses for The International Fixed Income Portfolio are
estimates derived from The Global Fixed Income Portfolio and assume the
voluntary waiver of fees will be in effect. See "MANAGEMENT OF THE FUND" for
a recital of the Investment Advisory Fees to which each adviser is entitled
under its Investment Management Agreement.
-5-
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
The Defensive The Labor The Real
Equity Small/ The Defensive Select Estate
Shareholder Mid-Cap Equity Utility International Investment The High-Yield
Transaction Expenses Portfolio Portfolio Equity Portfolio Trust Portfolio Bond Portfolio
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Sales Charge Imposed on Purchases None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Sales Charge Imposed on Reinvested
Dividends None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Redemption Fees None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
Annual Fund The Defensive The Labor The Real
Operating Expenses Equity Small/ The Defensive Select Estate
(as a percentage of Mid-Cap Equity Utility International Investment The High-Yield
average net assets) Portfolio Portfolio Equity Portfolio Trust Portfolio Bond Portfolio
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Advisory Fees .65%** .35%** .75%** .75%** .45%**
- ----------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees None None None None None
- ----------------------------------------------------------------------------------------------------------------------------------
Other Expenses .14% .14% .21% .14% .14%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses After Voluntary
Waiver and Reinvestment .79%** .49%** .96%** .89%** .59%**
==================================================================================================================================
</TABLE>
** All expense figures are estimates assuming that each Portfolio has average
net assets equal to $75 million. With respect to The Defensive Equity
Small/Mid-Cap Portfolio, The Defensive Equity Utility Portfolio, The Real
Estate Investment Trust Portfolio and The High-Yield Bond Portfolio,
Delaware Investment Advisers has elected voluntarily to waive that portion,
if any, of the annual Investment Advisory Fee payable by such Portfolios and
to reimburse each Portfolio for its expenses to the extent necessary to
ensure that the expenses of each Portfolio (exclusive of taxes, interest,
brokerage commissions and extraordinary expenses) do not exceed, as a
percentage of average net assets, on an annualized basis, .79%, .49%, .89%
and .59%, respectively, during the period from the commencement of the
public offering of such Portfolios through October 31, 1996. Similarly,
Delaware International, the investment adviser to The Labor Select
International Equity Portfolio, has elected voluntarily to waive that
portion, if any, of the annual Investment Advisory Fee payable by The Labor
Select International Equity Portfolio and to reimburse the Portfolio for its
expenses to the extent necessary to ensure that the expenses of that
Portfolio (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses) do not exceed, on an annualized basis, .96% of such
Portfolio's average net assets during the period from the commencement of
the public offering of the Portfolio through October 31, 1996. Other
Expenses for each of the Portfolios are estimated. See "MANAGEMENT OF THE
FUND" for a recital of the Investment Advisory Fees to which each adviser is
entitled under its Investment Management Agreement.
-6-
<PAGE>
The following example illustrates the expenses that you would incur on a $1,000
investment, assuming (1) a 5% annual rate of return, and (2) redemption at the
end of each time period. As noted in the table above, the Fund charges no
redemption fees.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------- -------- ------- --------
<S> <C> <C> <C> <C>
The Defensive Equity Portfolio $ 7 $22 $38 $ 85
The Aggressive Growth Portfolio 9 30 51 114
The International Equity Portfolio 10 30 52 115
The Fixed Income Portfolio 5 17 30 66
The Limited-Term Maturity Portfolio 4 14 24 54
The Global Fixed Income Portfolio 6 19 33 75
The International Fixed Income Portfolio 6 19 33 75
<CAPTION>
1 year* 3 years*
------- --------
<S> <C> <C>
The Defensive Equity Small/Mid-Cap Portfolio $8 $25
The Defensive Equity Utility Portfolio $5 $16
The Labor Select International Equity Portfolio $10 $31
The Real Estate Investment Trust Portfolio $9 $28
The High-Yield Bond Portfolio $6 $19
</TABLE>
* Assumes net assets of each Portfolio equal to $75 million.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
________________________________________________________________________________
FINANCIAL HIGHLIGHTS
The following financial highlights from the initial offerings of The Defensive
Equity Portfolio, The Aggressive Growth Portfolio, The International Equity
Portfolio and The Global Fixed Income Portfolio through October 31, 1994 are
derived from the financial statements of each of those Portfolios of the Fund
and have been audited by Ernst & Young LLP, independent auditors. The data
should be read in conjunction with the financial statements, related notes, and
the report of Ernst & Young LLP covering such financial information and
highlights all of which are incorporated by reference into Part B. Further
information about The Defensive Equity, The Aggressive Growth, The International
Equity and The Global Fixed Income Portfolios' performance is contained in their
respective Annual Reports to shareholders. A copy of each Portfolio's Annual
Report (including the report of Ernst & Young LLP) may be obtained from the Fund
upon request at no charge. Except for the initial sale of shares to Delaware
Management Company, Inc., The Defensive Equity Small/Mid-Cap Portfolio, The
Defensive Equity Utility Portfolio, The Labor Select International Equity
Portfolio, The Real Estate Investment Trust Portfolio, The Fixed Income
Portfolio, The Limited-Term Maturity Portfolio, The International Fixed Income
Portfolio and The High-Yield Bond Portfolio have sold no shares to investors.
Consequently, no financial highlights are being supplied for these eight
Portfolios. Unaudited financial highlights for the six months ended April 30,
1995 for The Defensive Equity Portfolio, The Aggressive Growth Portfolio, The
International Equity Portfolio and The Global Fixed Income Portfolio are also
provided below.
________________________________________________________________________________
-7-
<PAGE>
<TABLE>
<CAPTION>
The Defensive
Equity Portfolio
----------------
Period
11/1/94 Period
through 2/3/92(2)
4/30/95(1) Year ended through
(Unaudited) 10/31/94 10/31/93 10/31/92
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $13.0800 $12.7300 $10.6600 $10.0000
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income................... 0.1863 0.3203 0.2841 0.2291
Net Gains (Losses) on Securities
(both realized and unrealized)...... 0.8337 0.6527 2.3159 0.5109
--------- --------- --------- --------
Total From Investment Operations...... 1.0200 0.9730 2.6000 0.7400
--------- --------- --------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income).. (0.2600) (0.2800) (0.3200) (0.0800)
Distributions (from capital gains)...... (0.4900) (0.3430) (0.2100) none
Returns of Capital...................... none none none none
---- ---- ---- ----
Total Distributions................... (0.7500) (0.6230) (0.5300) (0.0800)
--------- --------- --------- --------
Net Asset Value, End of Period.......... $ 13.3500 $ 13.0800 $ 12.7300 $10.6600
========= ========= ========= ========
- -----------------------------
TOTAL RETURN............................ 8.47% 7.96% 25.17%
- ------------ ========= ========= ========
- -----------------------------
- -----------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period
(000's omitted)........................ $54,123 $37,323 $13,418 $4,473
Ratio of Expenses to
Average Daily Net Assets............... 0.68%(3) 0.68%(3) 0.68%(3) 0.68%(3)
Ratio of Net Investment
Income to Average Daily
Net Assets............................. 3.50%(4) 3.26%(4) 2.90%(4) 3.65%(4)
Portfolio Turnover Rate................. 56% 73% 37% 28%
<CAPTION>
The Aggressive
Growth Portfolio
----------------
Period
11/1/94 Period
through 2/27/92(1)
4/30/95(1) Year ended through
(Unaudited) 10/31/94 10/31/93 10/31/92
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $11.0100 $11.2000 $9.0400 $10.0000
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income................... 0.0258 0.0075 0.0181 0.0167
Net Gains (Losses) on Securities
(both realized and unrealized)...... 0.5022 0.0325 2.1589 (0.9767)
--------- --------- --------- --------
Total From Investment Operations...... 0.5280 0.0400 2.1770 (0.9600)
--------- --------- --------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income).. (0.0120) (0.0200) (0.0170) none
Distributions (from capital gains)...... (0.2360) (0.2100) none none
Returns of Capital...................... none none none none
---- ---- ---- ----
Total Distributions................... (0.2480) (0.2300) (0.0170) none
--------- --------- --------- --------
Net Asset Value, End of Period.......... $ 11.2900 $ 11.0100 $ 11.2000 $ 9.0400
========= ========= ========= ========
- -----------------------------
TOTAL RETURN............................ 10.13% 5.01% 0.34% 24.10% (13.89%)
- ------------ ========= ========= ========= ========
- -----------------------------
- -----------------------------
RATIOS/SUPPLEMENTAL DATA The Aggressive Growth Portfolio
- ------------------------ --------------------------------------------
Net Assets, End of Period
(000's omitted)........................ $26,245 $22,640 $20,478 $4,538
Ratio of Expenses to
Average Daily Net Assets............... 0.93%(3) 0.93%(3) 0.93%(3) 0.93%(3)
Ratio of Net Investment
Income to Average Daily
Net Assets............................. 0.51%(4) 0.07%(4) 0.23%(4) 0.28%(4)
Portfolio Turnover Rate................. 54% 43% 81% 34%
</TABLE>
__________________
(1) Ratios have been annualized but total return has not been annualized.
(2) Date of initial sale; ratios and total return have been annualized.
(3) Ratio of expenses to average daily net assets prior to voluntary management
fee waiver was 0.73% for the six months ended 4/30/95, 0.82% for the year
ended 10/31/94, 1.38% for the year ended 10/31/93 and 2.38% for the period
ended 10/31/92 for The Defensive Equity Portfolio; 1.16% for the six months
ended 4/30/95, 1.17% for the year ended 10/31/94, 1.40% for the year ended
10/31/93 and 2.56% for the period ended 10/31/92 for The Aggressive Growth
Portfolio; 0.97% for the year ended 10/31/94 , 1.38% for the year ended
10/31/93 and 2.94% for the period ended 10/31/92 for the International
Equity Portfolio; and 0.65% for the six months ended 4/30/95, 0.76% for the
year ended 10/31/94 and 0.88% for the period ended 10/31/93 for The Global
Fixed Income Portfolio.
(4) Ratio of net investment income (loss) to average daily net assets prior to
voluntary management fee waiver was 3.45% for the six months ended 4/30/95,
3.12% for the year ended 10/31/94, 2.20% for the year ended 10/31/93 and
1.95% for the period ended 10/31/92 for The Defensive Equity Portfolio;
0.28% for the six months ended 4/30/95, (0.17%) for the year ended
10/31/94, (0.24%) for the year ended 10/31/93 and (1.35%) for the period
ended 10/31/92 for The Aggressive Growth Portfolio; 1.33% for the year
ended 10/31/94, 2.56% for the year ended 10/31/93
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<PAGE>
and 2.69% for the period ended 10/31/92 for The International Equity
Portfolio; and 7.23% for the six months ended 4/30/95, 3.48% for the year
ended 10/31/94 and 10.42% for the period ended 10/31/93 for The Global Fixed
Income Portfolio.
-9-
<PAGE>
<TABLE>
<CAPTION>
THE INTERNATIONAL
EQUITY PORTFOLIO
----------------
PERIOD
11/1/94 PERIOD
THROUGH 2/4/92(2)
4/30/95(1) YEAR ENDED THROUGH
(UNAUDITED) 10/31/94 10/31/93 10/31/92
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 13.1100 $ 11.9900 $ 9.5000 $ 10.0000
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income................... (0.0149) 0.1440 0.2414 0.2282
Net Gains (Losses) on Securities
(both realized and unrealized)..... (0.0691) 1.2360 2.5686 (0.6282)
-------- ------ ------ --------
Total From Investment Operations...... (0.0840) 1.3800 2.8100 (0.4000)
-------- ------ ------ --------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income).. (0.1100) (0.1600) (0.3200) (0.1000)
Distributions (from capital gains)...... (0.2960) (0.1000) none none
Returns of Capital...................... none none none none
---- ---- ---- ----
Total Distributions................... (0.4060) (0.2600) (0.3200) (0.1000)
-------- -------- -------- --------
Net Asset Value, End of Period.......... $ 12.6200 $ 13.1100 $ 11.9900 $ 9.5000
========= ========= ========= ==========
_____________________________________
TOTAL RETURN ........................... (0.51%) 11.66% 30.28%
- ------------ ======= ====== ======
_____________________________________
_____________________________________
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (000's
omitted)............................... $96,086 $70,820 $24,288 $5,966
Ratio of Expenses to Average Daily Net
Assets................................. 0.93% 0.94%(3) 0.96%(3) 0.96%(3)
Ratio of Net Investment Income to
Average Daily Net Assets............... (0.61%) 1.36%(4) 2.98%(4)
Portfolio Turnover Rate................. 12% 22% 28% 2%
<CAPTION>
THE GLOBAL
FIXED INCOME PORTFOLIO
----------------------
PERIOD
11/1/94 PERIOD
THROUGH YEAR 11/30/92(2)
4/30/95(1) ENDED THROUGH
(UNAUDITED) 10/31/94 10/31/93
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 9.7900 $ 11.0900 $10.0000
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income................... 0.4109 0.4189 0.9547
Net Gains (Losses) on Securities
(both realized and unrealized)..... 0.0991 (0.1929) 0.7433
------ ------ ------
Total From Investment Operations...... 0.5100 0.2260 1.6980
------ ------ ------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income).. (0.2300) (0.9490) (0.6080)
Distributions (from capital gains)...... none (0.5770) none
Returns of Capital...................... none none none
---- ---- ----
Total Distributions................. (0.2300) (1.5260) (0.6080)
-------- -------- --------
Net Asset Value, End of Period.......... $ 10.0700 $ 9.7900 $11.0900
========= ========= ========
TOTAL RETURN (5.44%) 5.28% (2.07%) 18.96%
- ------------ ======= ===== ======= ======
_____________________________________
_____________________________________
THE GLOBAL
RATIOS/SUPPLEMENTAL DATA FIXED INCOME PORTFOLIO
- ------------------------ ----------------------
Net Assets, End of Period (000's
omitted)............................... $76,268 $42,266 $29,313
Ratio of Expenses to Average Daily Net
Assets................................. 0.60%(3) 0.62%(3) 0.62%(3)
Ratio of Net Investment Income to
Average Daily Net Assets............... 4.67%(4) 7.28%(4) 3.62%(4) 10.68%(4)
Portfolio Turnover Rate................. 61% 205% 198%
</TABLE>
__________________________
(1) Ratios have been annualized but total return has not been annualized.
(2) Date of initial sale; ratios and total return have been annualized.
(3) Ratio of expenses to average daily net assets prior to voluntary management
fee waiver was 0.73% for the six months ended 4/30/95, 0.82% for the year
ended 10/31/94, 1.38% for the year ended 10/31/93 and 2.38% for the period
ended 10/31/92 for The Defensive Equity Portfolio; 1.16% for the six months
ended 4/30/95, 1.17% for the year ended 10/31/94, 1.40% for the year ended
10/31/93 and 2.56% for the period ended 10/31/92 for The Aggressive Growth
Portfolio; 0.97% for the year ended 10/31/94, 1.38% for the year ended
10/31/93 and 2.94% for the period ended 10/31/92 for the International
Equity Portfolio; and 0.65% for the six months ended 4/30/95, 0.76% for the
year ended 10/31/94 and 0.88% for the period ended 10/31/93 for The Global
Fixed Income Portfolio.
(4) Ratio of net investment income (loss) to average daily net assets prior to
voluntary management fee waiver was 3.45% for the six months ended 4/30/95,
3.12% for the year ended 10/31/94, 2.20% for the year ended 10/31/93 and
1.95% for the period ended 10/31/92 for The Defensive Equity Portfolio;
0.28% for the six months ended 4/30/95, (0.17%) for the year ended 10/31/94,
(0.24%) for the year ended 10/31/93 and (1.35%) for the period ended
10/31/92 for The Aggressive Growth Portfolio; 1.33% for the year ended
10/31/94, 2.56% for the year ended 10/31/93
-10-
<PAGE>
and 2.69% for the period ended 10/31/92 for The International Equity
Portfolio; and 7.23% for the six months ended 4/30/95, 3.48% for the year
ended 10/31/94 and 10.42% for the period ended 10/31/93 for The Global Fixed
Income Portfolio.
-11-
<PAGE>
DELAWARE POOLED TRUST SUMMARY
THE FUND
The Fund consists of twelve Portfolios offering institutional investors a broad
range of investment choices coupled with the advantage of a no-load mutual fund
with the service companies of The Delaware Group providing customized services
as investment adviser, administrator and distributor. Each Portfolio, other
than The Defensive Equity Utility Portfolio, The Real Estate Investment Trust
Portfolio, The Global Fixed Income Portfolio and The International Fixed Income
Portfolio, is a diversified fund as defined by the Investment Company Act of
1940 ("1940 Act"). The Defensive Equity Utility Portfolio, The Real Estate
Investment Trust Portfolio, The Global Fixed Income Portfolio and The
International Fixed Income Portfolio are nondiversified funds as defined by the
1940 Act. The investment objectives and principal policies of each of the
twelve Portfolios are as follows:
THE DEFENSIVE EQUITY PORTFOLIO--seeks to realize maximum long-term total return,
consistent with reasonable risk, through investments in equity securities of
companies which, at the time of purchase, have dividend yields above the current
yield of the Standard & Poor's 500 Stock Index and which, in the opinion of
Delaware Investment Advisers, offer capital gains potential as well.
THE AGGRESSIVE GROWTH PORTFOLIO--seeks to realize maximum long-term capital
growth by investing in equity securities of smaller and medium-sized companies
that, in the opinion of Delaware Investment Advisers, offer, at the time of
purchase, superior long-term growth potential.
THE INTERNATIONAL EQUITY PORTFOLIO--seeks to achieve maximum long-term total
return by investing primarily in equity securities of issuers organized or
having a majority of their assets in or deriving a majority of their operating
income outside of the United States which, in the opinion of Delaware
International Advisers Ltd., are undervalued, at the time of purchase, based on
rigorous fundamental analysis conducted by the investment adviser.
THE DEFENSIVE EQUITY SMALL/MID-CAP PORTFOLIO--seeks to realize maximum long-term
total return. The Portfolio seeks to achieve this objective by investing in
equity securities of companies which, at the time of purchase, have dividend
yields above the current yield of the Standard & Poor's 500 Stock Index, have a
market capitalization below that of the third decile of companies registered on
the New York Stock Exchange, and which, in Delaware Investment Advisers'
opinion, offer capital gains potential.
THE DEFENSIVE EQUITY UTILITY PORTFOLIO--seeks to realize maximum long-term total
return. The Portfolio seeks to achieve this objective by investing at least 65%
of its total assets in equity securities of utility companies which, at the time
of purchase, have dividend yields above the current yield of the Standard &
Poor's 500 Stock Index and which, in the opinion of Delaware Investment
Advisers, offer capital gains potential.
THE LABOR SELECT INTERNATIONAL EQUITY PORTFOLIO--seeks to achieve maximum long-
term total return. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of issuers organized or having a majority of
their assets in or deriving a majority of their operating income outside of the
United States which, in the opinion of Delaware International Advisers Ltd., are
undervalued, at the time of purchase, based on rigorous fundamental analysis
conducted by the investment adviser, and furthermore, present certain
characteristics that are compatible or operate in accordance with certain
investment policies or restrictions followed by organized labor.
THE REAL ESTATE INVESTMENT TRUST PORTFOLIO--seeks to achieve maximum long-term
total return. Capital appreciation is a secondary objective. The Portfolio
seeks to achieve its objectives by investing at least 65% of its total assets in
equity securities of real estate investment trusts.
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THE FIXED INCOME PORTFOLIO--seeks to realize maximum long-term total return,
consistent with reasonable risk, by investing in a diversified portfolio of
investment grade fixed income obligations. The Portfolio will include U.S.
Government securities, mortgage-backed securities, corporate bonds and other
fixed income securities.
THE LIMITED-TERM MATURITY PORTFOLIO--seeks to provide a high level of current
income, consistent with the preservation of principal and reasonable risk. The
Portfolio will include U.S. Government securities, mortgage-backed securities,
corporate bonds and other fixed income securities. At no time will the average
maturity of the Portfolio exceed five years.
THE GLOBAL FIXED INCOME PORTFOLIO--seeks to achieve current income consistent
with the preservation of investors' principal. The Portfolio seeks to achieve
this objective by investing primarily 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 and that may also provide the potential for capital
appreciation.
THE INTERNATIONAL FIXED INCOME PORTFOLIO--seeks to achieve current income
consistent with the preservation of investors' principal. The Portfolio seeks
to achieve this objective by investing primarily 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 outside of the
United States and that may also provide the potential for capital appreciation.
Under normal circumstances, the Portfolio intends to invest in securities that
are denominated in foreign currencies.
THE HIGH-YIELD BOND PORTFOLIO--seeks high total return. The Portfolio seeks to
achieve its objective by investing primarily in bonds rated CCC or higher by
Standard & Poor's Corporation or Caa or higher by Moody's Investors Service,
Inc.
For further information, see "INVESTMENT OBJECTIVES, POLICIES AND RISK
CONSIDERATIONS" and "ADDITIONAL INVESTMENT INFORMATION."
INVESTMENT MANAGEMENT
Delaware Investment Advisers, a division of Delaware Management Company, Inc.
("Delaware"), acts as investment adviser to The Defensive Equity, The Aggressive
Growth, The Fixed Income, The Limited-Term Maturity, The Defensive Equity
Small/Mid-Cap, The Defensive Equity Utility, The Real Estate Investment Trust
and The High-Yield Bond Portfolios. The investment management fees payable to
Delaware Investment Advisers by these Portfolios are, respectively, .55%, .80%,
.40%, .30%, .65%, .35%, .75% and .45% of the respective Portfolio's average net
assets. Lincoln Investment Management, Inc., acts as sub-adviser to The Real
Estate Investment Trust Portfolio and receives 30% of the management fee paid to
Delaware. Delaware International Advisers Ltd. ("Delaware International"), an
affiliate of Delaware, is the investment adviser to The International Equity,
The Global Fixed Income, The International Fixed Income and The Labor Select
International Equity Portfolios. The investment management fees payable to
Delaware International by The International Equity Portfolio, The Global Fixed
Income Portfolio, The International Fixed Income Portfolio and The Labor Select
International Equity Portfolio are, respectively, .75%, .50%, .50% and .75% of
the respective Portfolio's average net assets. In addition, out of the
investment advisory fees to which they are otherwise entitled, Delaware and
Delaware International pay their proportionate share of the fees paid to
unaffiliated directors by the Fund, except that Delaware will make no such
payments out of the fees it receives for managing The Defensive Equity
Small/Mid-Cap, The Defensive Equity Utility, The Real Estate Investment Trust
and The High-Yield Bond Portfolios and Delaware International will make no such
payments out of the fees it receives for managing The International Fixed Income
and The Labor Select International Equity Portfolios. See "MANAGEMENT OF THE
FUND."
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FUND OFFICERS AND PORTFOLIO MANAGERS
WAYNE A. STORK
Chairman
A graduate of Brown University, Mr. Stork also attended the NYU Graduate School
of Business Administration while a senior transportation analyst at the Irving
Trust Company. He joined Delaware in 1962 as a security analyst covering a wide
range of industry groups. In 1975, he became Chief Investment Officer of
Delaware Investment Advisers, President in 1984, and in 1990 was named Chairman.
Mr. Stork is a Director of Delaware Management Company, Inc. and its affiliates,
and is Chairman of the Delaware Group of funds. He is a member of the Institute
of Chartered Financial Analysts and the Financial Analysts Federation.
WINTHROP S. JESSUP
President and Chief Executive Officer
Mr. Jessup is a graduate of Brown University where he majored in Economics. He
was a Vice President of Kidder, Peabody & Co. Inc. prior to joining Delaware in
1977. In 1988, he was named Executive Vice President of Delaware Management
Company, Inc. and its Delaware Investment Advisers division. Mr. Jessup is also
Executive Vice President of the Delaware Group of funds, and a Director of
Delaware Management Company, Inc. and its affiliates.
DAVID G. TILLES
Managing Director and Chief Investment Officer - Delaware International Advisers
Ltd.
Mr. Tilles was educated at the Sorbonne, Warwick University and Heidelberg
University. Prior to joining Delaware in 1990 as Managing Principal and Chief
Investment Officer of Delaware International Advisers Ltd., he spent 16 years
with Hill Samuel Investment Management Group in London, serving in a number of
investment capacities. His most recent position prior to joining Delaware was
Chief Investment Officer of Hill Samuel Investment Advisers Ltd.
GEORGE E. DEMING
Vice President/Senior Portfolio Manager - The Defensive Equity Portfolio
Mr. Deming received his BA in Economics and Political Science from the
University of Vermont and an MA in International Affairs from the University of
Pennsylvania. Prior to joining Delaware in 1978, he was responsible for
portfolio management and institutional sales at White, Weld & Co., Inc. He is a
member of the Financial Analysts of Philadelphia. Mr. Deming has managed The
Defensive Equity Portfolio since its inception.
EDWARD N. ANTOIAN
Vice President/Senior Portfolio Manager - The Aggressive Growth Portfolio
Mr. Antoian holds a BS from The State University of New York at Albany and
earned an MBA in Finance from the University of Pennsylvania's Wharton School.
Mr. Antoian began his career with Price Waterhouse. Prior to joining Delaware
in 1984, he worked in the Institutional Equity Department of E. F. Hutton in
Philadelphia. He is a Chartered Financial Analyst and a member of the
Philadelphia Finance Association and the Philadelphia Securities Association.
Mr. Antoian has managed The Aggressive Growth Portfolio since its inception.
TIMOTHY W. SANDERSON
Portfolio Manager - The International Equity Portfolio
A graduate of University College, Oxford, Mr. Sanderson began his investment
career in 1979 with Hill Samuel Investment Management Group. Prior to joining
Delaware International Advisers Ltd. in 1990 as Senior Portfolio Manager and
Director, he was an analyst and senior portfolio manager for Hill Samuel where,
since
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<PAGE>
1987, he had responsibility for Pacific Basin research and the management of
international institutional portfolios. Mr. Sanderson has managed The
International Equity Portfolio since its inception.
DAVID C. DALRYMPLE
Vice President/Senior Portfolio Manager - The Defensive Equity Small/Mid-Cap
Portfolio
Mr. Dalrymple holds a BS in Business Administration from Clarkson College in
Potsdam, NY, and an MBA from Cornell's Johnson School of Management in Ithaca,
NY. Prior to joining Delaware Management Company in December of 1991, he spent
five years as an assistant portfolio manager for Lord Abbett and Co. in New
York. Mr. Dalrymple is a Chartered Financial Analyst and a member of the
Financial Analysts of Philadelphia. Mr. Dalrymple has managed The Defensive
Equity Small/Mid-Cap Portfolio since its inception.
CLIVE A. GILLMORE
Director/Senior Portfolio Manager - The Labor Select International Equity
Portfolio
A graduate of the Warwick University, England, and the London Business School
Investment Program, Mr. Gillmore joined Delaware in 1990 after eight years of
investment experience. His most recent position prior to joining Delaware was
as a Pacific Basin equity analyst and senior portfolio manager for Hill Samuel
Investment Advisers Ltd. Prior to that, Mr. Gillmore was an analyst and
portfolio manager for Legal and General Investment in the United Kingdom. Mr.
Gillmore has managed of The Labor Select International Equity Portfolio since
its inception.
GEORGE H. BURWELL
Vice President/Senior Portfolio Manager - The Real Estate Investment Trust
Portfolio
Mr. Burwell holds a BA from the University of Virginia with a major in Political
Science and a minor in Economics. Prior to joining the Delaware Group in 1992,
Mr. Burwell was a portfolio manager for Midlantic Bank in Edison, New Jersey,
where he managed an equity mutual fund and three commingled funds. He has also
held the position of security analyst with Balis & Born in New York and First
Fidelity Bank in New Jersey. Mr. Burwell is a Chartered Financial Analyst. Mr.
Burwell has served as a portfolio manager of The Real Estate Investment Trust
Portfolio since its inception.
BABAK ZENOUZI
Vice President/Portfolio Manager - The Real Estate Investment Trust Portfolio
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 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. Mr. Zenouzi has served as a portfolio manager
of The Real Estate Investment Trust Portfolio since its inception.
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<PAGE>
DENNIS BLUME
Senior Vice President/Director of Real Estate Operations - Lincoln Investment
Management, Inc.
Sub-adviser to The Real Estate Investment Trust Portfolio
Mr. Blume holds a BS and an MBA from Indiana University. He joined Lincoln
Investment Management, Inc. in 1972 and has held several senior positions in the
real estate and public bond areas. He is a member of the Board of Directors of
Lynch & Mayer, Inc., Vantage Global Advisors, Inc., Lincoln Investment
Management, Inc., and East Wayne Street Center. Mr. Blume is a Chartered
Financial Analyst. Mr. Blume has served as a sub-adviser for The Real Estate
Investment Trust Portfolio since its inception.
JOHN F. ROBERTSON
Assistant Vice President/Real Estate Investments - Lincoln Investment
Management, Inc.
Sub-adviser to The Real Estate Investment Trust Portfolio
Mr. Robertson holds a BA from Wabash College where he was graduated magna cum
laude and awarded membership into Phi Beta Kappa, and an MBA with emphasis in
finance and real estate from Indiana University. Prior to joining Lincoln
Investment Management, Inc.'s Real Estate Debt Group in 1993, he was a
consultant with Ernst & Young's Special Services Group where he specialized in
the valuation of all types of commercial real estate. Mr. Robertson has
completed numerous courses toward the MAI designation and is a candidate for the
CFA designation. Mr. Robertson has served as a sub-adviser for The Real Estate
Investment Trust Portfolio since its inception.
GARY A. REED
Vice President/Senior Portfolio Manager - The Fixed Income Portfolio
Mr. Reed holds an AB in Economics from the University of Chicago and an MA in
Economics from Columbia University. He began his investment career in 1978 with
The Equitable Life Assurance Society, specializing in credit analysis. Prior to
joining Delaware Investment Advisers in 1989, Mr. Reed served as Vice President
and Manager of the Fixed Income Department at Irving Trust Company. Mr. Reed
has managed both discretionary and structured fixed income portfolios and is
experienced with a broad range of high-grade fixed income securities.
Additionally, he has developed investment programs for Decommissioning Trust
Funds and supervised their management. Mr. Reed has managed The Fixed Income
Portfolio since its inception.
IAN G. SIMS
Portfolio Manager - The Global Fixed Income Portfolio and The International
Fixed Income Portfolio
Mr. Sims is a graduate of the University of Leicester and holds a postgraduate
degree in statistics from the University of Newcastle-Upon-Tyne. He joined
Delaware International Advisers Ltd. 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, he was a senior fixed income and
currency portfolio manager with Hill Samuel Investment Advisers Ltd. Mr. Sims
has managed The Global Fixed Income Portfolio since its inception and will
manage The International Fixed Income Portfolio when it commences operations.
PAUL A. MATLACK
Vice President/Senior Portfolio Manager - The High-Yield Bond Portfolio
Mr. Matlack is a graduate of the University of Pennsylvania and received his MBA
in Finance from George Washington University. He began his career with Mellon
Bank as a credit specialist analyzing leveraged transactions in the chemical and
pharmaceutical industries. He subsequently served as a loan officer in Mellon's
Corporate Lending Division and in the Special Industries Group at Provident
National Bank, before joining Delaware in 1989. He is a Chartered Financial
Analyst. Mr. Matlack has served as a portfolio manager of The High-Yield Bond
Portfolio since its inception.
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<PAGE>
GERALD T. NICHOLS
Vice President/Senior Portfolio Manager - The High-Yield Bond Portfolio
Mr. Nichols is a graduate of the University of Kansas, where he received an MS
in Finance and a BS in Business Administration. Prior to joining Delaware in
1989, he was the investment officer for a merchant banking firm with interests
in the insurance and thrift industries. Mr. Nichols began his career in the
high-yield bond market with Waddell and Reed, Inc. in 1983 where, as a high-
yield credit analyst, he followed a variety of industries. He is a Chartered
Financial Analyst. Mr. Nichols has served as a portfolio manager of The High-
Yield Bond Portfolio since its inception.
JAMES R. RAITH, JR.
Vice President/Senior Portfolio Manager - The High-Yield Bond Portfolio
Mr. Raith is a 1973 graduate of Holy Cross University and received his MBA in
Finance from Tulane University in 1975. Prior to joining Delaware in 1987, he
held portfolio management positions in both fixed income and equity management.
Mr. Raith has been an active participant in the high-yield bond market since
1980. His past experience includes the management of $8 billion of life
insurance reserves at ICH Corporation, a major holder and issuer of high-yield
debentures (1985-1987), and the management of high-yield pension assets for
Firestone Tire and Rubber (1980-1985). He is a Chartered Financial Analyst.
Mr. Raith has served as a portfolio manager of The High-Yield Bond Portfolio
since its inception.
MARIA E. POLLACK
Assistant Vice President and Administrative Manager
Ms. Pollack joined the Delaware organization in 1982 and has served in a number
of senior administrative capacities. After attending Chestnut Hill College and
Temple University, she began her career as executive assistant to the Chairman
of the Delaware Group of funds and Delaware Investment Advisers. Prior to
becoming Administrative Manager for the Fund, she was responsible for
coordinating administrative activity for institutional shareholders in another
investment program maintained by the Delaware Group.
ADMINISTRATIVE SERVICES
Delaware Service Company, Inc., an affiliate of Delaware Management Company,
Inc. and Delaware International Advisers Ltd., provides the Fund with
administrative, dividend disbursing and transfer agency services. See
"MANAGEMENT OF THE FUND."
SPECIAL REPORTS AND OTHER SERVICES
The Fund provides client shareholders with annual audited financial reports and
unaudited semi-annual financial reports. In addition, the investment advisers'
dedicated service staff may also provide client shareholders detailed monthly
appraisals of the status of their account and complete reviews of portfolio
assets, performance results and other pertinent data. Finally, the investment
advisers' service staff expects to conduct personal reviews no less than
annually with each shareholder, with interim telephone updates and other
communications, as appropriate. The Fund's dedicated telephone number (1-800-
231-8002) is available for shareholder inquiries
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<PAGE>
during normal business hours. The net asset values for the Portfolios are also
available by using the above "800" telephone number. Written correspondence
should be addressed to:
Delaware Pooled Trust, Inc.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Attn: Client Services
From time to time, certain institutional separate accounts advised by Delaware
Investment Advisers or Delaware International may invest in the Fund's
Portfolios. The Portfolios may experience relatively large investments or
redemptions as a result of the institutional separate accounts either purchasing
or redeeming the Portfolios' shares. These transactions will affect the
Portfolios, since Portfolios that experience redemptions may be required to sell
portfolio securities, and Portfolios that receive additional cash will need to
invest it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent the Portfolios may be required to sell securities or invest cash
at times when they would not otherwise do so. Delaware Investment Advisers and
Delaware International, representing the interests of the Portfolios, is
committed to minimizing the impact of such transactions on the Portfolios. In
addition, Delaware Investment Advisers and Delaware International, as adviser to
the institutional separate accounts, is also committed to minimizing the impact
on the Portfolios to the extent it is consistent with pursuing the investment
objectives of the institutional separate accounts.
In cases where a shareholder of any of the Portfolios has an investment
counseling relationship with Delaware Investment Advisers or Delaware
International, Delaware Investment Advisers or Delaware International may, at
its discretion, reduce the shareholder's investment counseling fees by an amount
equal to the pro-rata advisory fees paid by the respective Portfolio. This
procedure will be utilized with clients having contractual relationships based
on total assets managed by Delaware Investment Advisers or Delaware
International to avoid situations where excess advisory fees might be paid to
Delaware Investment Advisers or Delaware International. In no event will a
client pay higher total advisory fees as a result of the client's investment in
a Portfolio.
See "SHAREHOLDER SERVICES."
CUSTODIAL SERVICES
The Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, NY
10260, acts as the Fund's custodian bank.
HOW TO INVEST
Shares of each Portfolio are offered directly to institutional investors at net
asset value with no sales commissions or 12b-1 charges. The minimum initial
investment for a Portfolio of the Fund is $1,000,000. There is no minimum for
subsequent investments in a Portfolio where the minimum initial investment has
been satisfied. In addition, institutional investors in The International
Equity and The Labor Select International Equity Portfolios may, under certain
circumstances, be required to make their investments in the respective
Portfolio, pursuant to instructions of the Fund, by a contribution of securities
in-kind to the Portfolio or by following another procedure that will have the
same economic effect as an in-kind purchase; in either case, such investors will
be required to pay the brokerage or other transaction costs arising in
connection with acquiring the subject securities. At such time as the Fund
receives appropriate regulatory approvals to do so in the future, under certain
circumstances, the Fund may, at its sole discretion, allow institutional
investors who have an existing investment counseling relationship with Delaware
Investment Advisers or Delaware International to make investments in the
Portfolios by a contribution of securities in-kind to such Portfolios. See
"PURCHASE OF SHARES."
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<PAGE>
HOW TO REDEEM
Shares of each Portfolio may be redeemed at any time, without cost, at the net
asset value per share of the Portfolio next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price and the redemption may be in cash or, under certain circumstances, in-
kind. If a shareholder reduces their investment in a Portfolio below $500,000,
their investment in that Portfolio may be subject to redemption. In addition,
investors in The International Equity, The Labor Select International Equity,
The Global Fixed Income and The International Fixed Income Portfolios may, under
certain circumstances, be required to accept their redemption, pursuant to
instructions from the Fund, in-kind in portfolio securities or, at the election
of the investor, by following another procedure that will have the same economic
effect as an in-kind redemption; in either case, such investors will be required
to pay the brokerage or other transaction costs arising in connection with the
sale of the subject securities. See "REDEMPTION OF SHARES."
RISK FACTORS
An investment in the Fund entails certain risks and considerations about which
an investor should be aware.
Because both The Aggressive Growth Portfolio (which seeks long-term capital
growth) and The Defensive Equity Small/Mid-Cap Portfolio (which seeks to
maximize long-term total return) invest primarily in small- to medium-sized
companies, the Portfolios' investments are likely to involve a higher degree of
liquidity risk and price volatility than if investments were made in larger
capitalization securities. The Aggressive Growth Portfolio and The Real Estate
Investment Trust Portfolio also may, under certain circumstances, use certain
futures contracts and options on futures contracts, as well as options on stock.
The International Equity, The Labor Select International Equity, The Global
Fixed Income and The International Fixed Income Portfolios will invest in
securities of foreign issuers which normally are denominated in foreign
currencies and may hold foreign currency directly. In addition, The Defensive
Equity Utility, The Real Estate Investment Trust and The High-Yield Bond
Portfolios may invest up to 10% of their total assets in foreign securities.
Consequently, these Portfolios may be affected by changes in currency rates and
exchange control regulations and may incur costs in connection with conversions
between currencies. To hedge this currency risk associated with investments in
non-U.S. dollar denominated securities, a Portfolio may invest in forward
foreign currency contracts. Those activities pose special risks which do not
typically arise in connection with investments in U.S. securities. In addition,
The Defensive Equity Utility, The Real Estate Investment Trust and The
International Fixed Income Portfolios may engage in foreign currency options and
futures transactions. For a discussion of the risks associated with these
instruments see "RISKS OF TRANSACTIONS IN OPTIONS, FUTURES AND FORWARD
CONTRACTS."
The foreign securities in which The International Equity, The Labor Select
International Equity, The Global Fixed Income and The International Fixed Income
Portfolios (and The Defensive Equity Utility, The Real Estate Investment Trust
and The High-Yield Bond Portfolios, up to 10% of their total assets) may invest
from time to time may be listed primarily on foreign exchanges which trade on
days when the New York Stock Exchange is closed (such as Saturday). As a
result, the net asset value of the Portfolios may be significantly affected by
such trading on days when shareholders will have no access to the Portfolios.
See "VALUATION OF SHARES."
The Real Estate Investment Trust Portfolio concentrates its investments in the
real estate industry, and The Defensive Equity Utility Portfolio concentrates
its investments in the utility industry. As a consequence, the net asset values
of the Portfolios can be expected to fluctuate in light of the factors affecting
those industries, and may fluctuate more widely than a portfolio that invests in
a broader range of industries. The Defensive
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<PAGE>
Equity Utility and The Real Estate Investment Trust Portfolios may be more
susceptible to any single economic, political or regulatory occurrence affecting
the utility or real estate industry, respectively.
The High-Yield Bond Portfolio invests in lower rated fixed income securities,
which, while generally having higher yields, are subject to factors, such as
reduced creditworthiness of issuers, increased risks of default and a more
limited and less liquid secondary market than higher rated securities. These
securities are subject to greater volatility and risk of loss of income and
principal than are higher rated securities. See "INVESTMENT OBJECTIVES,
POLICIES AND RISK CONSIDERATIONS" and "ADDITIONAL INVESTMENT INFORMATION - HIGH-
YIELD, HIGH RISK SECURITIES."
The Fixed Income, The Limited-Term Maturity, The Global Fixed Income and The
International Fixed Income Portfolios will normally experience annual portfolio
turnover rates exceeding 100%, but those rates are not expected to exceed 250%
with respect to The Fixed Income Portfolio and 200% with respect to The Limited-
Term Maturity, The Global Fixed Income and The International Fixed Income
Portfolios. Such relatively high portfolio turnover rates involve
correspondingly higher brokerage commissions, for equity transactions, and other
transaction costs and may affect the taxes payable by the Portfolios'
shareholders that are subject to federal income tax. See "INVESTMENT
OBJECTIVES, POLICIES AND RISK CONSIDERATIONS," "PORTFOLIO TRANSACTIONS" and
"TAXES."
The Fixed Income, The Limited-Term Maturity and The Global Fixed Income
Portfolios may invest in collateralized mortgage obligations and those
Portfolios, as well as The Real Estate Investment Trust Portfolio, may invest in
mortgage-backed securities. See "ADDITIONAL INVESTMENT INFORMATION--MORTGAGE-
BACKED SECURITIES."
The Real Estate Investment Trust Portfolio, by investing primarily in securities
of real estate investment trusts, is subject to interest rate risk, in that as
interest rates decline, the value of the Portfolio's investment in real estate
investment trusts can be expected to rise. Conversely, when interest rates
rise, the value of the Portfolio's investments in real estate investment trusts
holding fixed rate obligations can be expected to decline. See "ADDITIONAL
INVESTMENT INFORMATION--REITS."
Each of the twelve Portfolios may lend its portfolio securities, may invest in
repurchase agreements and may purchase securities on a when-issued basis.
While The Defensive Equity Utility Portfolio, The Real Estate Investment Trust
Portfolio, The Global Fixed Income Portfolio and The International Fixed Income
Portfolio intend to seek to qualify as a "diversified" investment company under
provisions of Subchapter M of the Internal Revenue Code, they will not be
diversified under the 1940 Act. Thus, while at least 50% of each Portfolio's
total assets will be represented by cash, cash items, certain qualifying
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Portfolio's total assets, it will not satisfy
the 1940 Act requirement in this respect, which applies that test to 75% of the
Portfolio's assets. A nondiversified portfolio is believed to be subject to
greater risk because adverse effects on the portfolio's security holdings may
affect a larger portion of the overall assets.
Each of the investment strategies identified above involves special risks which
are described under "INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS"
and "ADDITIONAL INVESTMENT INFORMATION" in this Prospectus and "INVESTMENT
POLICIES, PORTFOLIO TECHNIQUES AND RISK CONSIDERATIONS" in the Statement of
Additional Information.
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<PAGE>
INVESTMENT OBJECTIVES, POLICIES
AND RISK CONSIDERATIONS
The investment objective of each Portfolio of the Fund is described below,
together with the policies each Portfolio employs in its efforts to achieve its
objective. There is no assurance that a Portfolio will attain its objective.
The investment objective of each Portfolio is fundamental and may only be
changed by a majority approval of that Portfolio's shareholders. Unless
otherwise noted, the investment policies described below are not fundamental
policies and may be changed without shareholder approval.
THE DEFENSIVE EQUITY PORTFOLIO
The Defensive Equity Portfolio's investment objective is to realize maximum
long-term total return, consistent with reasonable risk. The Portfolio seeks to
achieve this objective by investing in equity securities of companies which, at
the time of purchase, have dividend yields above the current yield of the
Standard & Poor's 500 Stock Index ("S&P 500 Index") and which, in the investment
adviser's opinion, offer capital gains potential as well.
In selecting Portfolio securities, the investment adviser places an emphasis on
strong relative performance in falling markets. The Portfolio invests primarily
in equity securities of U.S. companies, although from time to time the Portfolio
will include sponsored or unsponsored American Depository Receipts actively
traded in the United States. Under normal market conditions, at least 65% of
the Portfolio's total assets will be invested in equity securities. Equity
securities for this purpose include, but are not limited to, common stocks,
securities convertible into common stocks and securities having common stock
characteristics, such as rights and warrants to purchase common stocks. The
Portfolio also may purchase preferred stock. The Portfolio may hold cash or
invest in short-term debt securities and other money market instruments when, in
the investment adviser's opinion, such holdings are prudent given then
prevailing market conditions. Except when the investment adviser believes a
temporary defensive approach is appropriate, the Portfolio, normally, will not
hold more than 5% of its total assets in cash or such short-term investments.
All these short-term investments will be of the highest quality as determined by
a nationally-recognized statistical rating organization (e.g., AAA by Standard &
Poor's Corporation ("S&P") or Aaa by Moody's Investors Service, Inc.
("Moody's")) or be of comparable quality as determined by the investment
adviser. Appendix A of this Prospectus describes the ratings of S&P and
Moody's. See "ADDITIONAL INVESTMENT INFORMATION" for further details concerning
these and other investment policies.
The investment adviser seeks to invest in high-yielding equity securities and
believes that, although capital gains are important, the dividend return
component will be a significant portion of the expected total return. The
investment adviser believes that a diversified portfolio of such high-yielding
stocks will outperform the market over the long-term, as well as preserve
principal in difficult market environments. Companies considered for purchase
generally will exhibit the following characteristics at the time of purchase: 1)
a dividend yield greater than the prevailing yield of the S&P 500 Index; 2) a
price-to-book ratio lower than the average large capitalization company; and 3)
a below-market price-to-earnings ratio.
The investment adviser takes a long-term investment approach by placing a strong
emphasis on its ability to determine attractive values and, generally, does not
seek to respond to short-term changes in the market. It is anticipated that the
annual turnover rate of the Portfolio will not exceed 100% under normal
circumstances. The Portfolio will maintain diversity among economic sectors and
industries and will not invest 25% or more of its total assets in the stocks of
issuers in any one industry, nor, ordinarily, more than 5%, at the time of
purchase, of any one company.
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THE AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio's investment goal is to realize maximum long-
term capital growth. The Portfolio seeks to attain this objective by investing
in equity securities of smaller and medium-sized companies which, in the opinion
of the investment adviser, present, at the time of purchase, significant long-
term growth potential. In pursuing this objective, current income is expected
to be incidental.
The Portfolio invests primarily in growth-oriented common stocks of small- to
medium-sized domestic corporations. Such companies, in the investment adviser's
view, generally are those companies that have total market capitalization
between $100 million and $2.5 billion at the time of purchase. The Portfolio
may invest in securities issued by companies having a capitalization outside
that range when, in the investment adviser's opinion, such a company exhibits
the same characteristics and growth potential as companies within the range.
Equity securities for this purpose include, but are not to be limited to, common
stocks, securities convertible into common stocks and securities having common
stock characteristics, such as rights and warrants to purchase common stocks.
The Portfolio also may purchase preferred stock. Although the investment
adviser does not pursue a market timing approach to investing, the Portfolio may
hold cash or invest in short-term debt securities or other money market
instruments when, in the investment adviser's opinion, such holdings are prudent
given the prevailing market conditions. Except when the investment adviser
believes a temporary defensive approach is appropriate, the Portfolio, normally,
will not hold more than 10% of its total assets in cash or such short-term
investments, but, on occasion, may hold as much as 30% of its total assets in
cash or such short-term investments. All such holdings 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 investment adviser. See "ADDITIONAL INVESTMENT INFORMATION."
The Portfolio 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, these activities will not be entered into for speculative
purposes, but rather to facilitate the ability quickly to deploy into the stock
market the Portfolio's positions in cash, short-term debt securities and other
money market instruments, at times when the Portfolio's assets are not fully
invested in equity securities. Such positions will generally be eliminated when
it becomes possible to invest in securities that are appropriate for the
Portfolio. See "ADDITIONAL INVESTMENT INFORMATION--FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS" and "OPTIONS" for a further discussion of these
investment policies.
The Portfolio will not invest 25% or more of its total assets in securities of
companies which conduct their principal business activities in specific
industries. The Portfolio expects to invest in small- to medium-sized companies
that have been in existence for at least three years (including the operation of
any predecessor company) but which have the potential, in the investment
adviser's judgment, for significant long-term capital growth. The investment
adviser assesses economic, industry, market and company developments to select
investments in promising emerging growth companies that are expected to benefit
from new technology, new products or services, research discoveries, rejuvenated
management and the like. However, the Portfolio may invest in any equity
security which, in the investment adviser's judgment, provides the potential for
significant capital appreciation.
The investment adviser believes that consistent earnings per share growth is
just as important as high absolute growth. Because the Portfolio seeks long-
term capital growth by investing primarily in small- to medium-sized companies,
its investments are likely to involve a higher degree of liquidity risk and
price volatility than larger capitalization securities.
The investment adviser does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the investment adviser may take advantage of short-term opportunities
that are consistent with its investment objective. It is anticipated that the
annual turnover rate of the Portfolio, under normal circumstances, will not
exceed 100%.
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THE INTERNATIONAL EQUITY PORTFOLIO
The investment objective of The International Equity Portfolio is to achieve
maximum long-term total return. The Portfolio seeks to achieve its objective by
investing primarily in equity securities of issuers organized or having a
majority of their assets or deriving a majority of their operating income
outside the United States, and which, in the investment adviser's opinion, are
undervalued at the time of purchase based on fundamental analysis employed by
the investment adviser.
In selecting portfolio securities the investment adviser emphasizes strong
performance in falling markets relative to other mutual funds focusing on
international equity investments. Equity securities in which the Portfolio may
invest include, but are not limited to, common stocks and securities convertible
into common stock and securities having common stock characteristics, such as
rights and warrants to purchase common stocks. Additionally, the Portfolio may
from time to time, hold its assets in cash (which may be U.S. dollars or foreign
currency, including European Currency Units ("ECU")) or may invest in short-term
debt securities or other money market instruments. Except when the investment
adviser believes a temporary defensive approach is appropriate, the Portfolio
generally will not hold more than 5% of its assets in cash or such short-term
instruments. All such holdings 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 of comparable quality as determined by the Portfolio's investment
adviser.
The Portfolio may hold up to 15% of its assets in foreign fixed income
securities when, in the investment adviser's opinion, equity securities are
overvalued and such fixed income securities present an opportunity for returns,
over an 18-month period, greater than those available through investments in
equity securities or the short-term investments described above. The foreign
fixed income securities in which the Portfolio may invest may be U.S. dollar or
foreign currency denominated, including ECU, and must have a government or
government agency backed credit status which would include, but not be limited
to, supranational entities. A supranational entity is an entity established or
financially supported by the national governments of one or more countries to
promote development or reconstruction. They include: The World Bank, European
Investment Bank, Asian Development Bank, European Economic Community, and the
Inter-American Development Bank. Such fixed income securities will be, at the
time of purchase, of the highest quality (e.g., AAA by S&P or Aaa by Moody's) or
of comparable quality as determined by the Portfolio's investment adviser. See
"ADDITIONAL INVESTMENT INFORMATION" for a further description of these and other
investment policies.
The investment adviser's approach in selecting investments for the Portfolio is
oriented to individual stock selection and is value driven. In selecting stocks
for the Portfolio, the investment adviser identifies those stocks which it
believes will provide the highest total return over a market cycle taking into
consideration the movement in the price of the individual security, and the
impact of currency adjustment on a United States domiciled, dollar-based
investor. The investment adviser conducts extensive fundamental research on a
global basis, and it is through this research effort that securities which, in
the investment adviser's opinion, have the potential for maximum long-term total
return are identified. The center of the fundamental research effort is a value
oriented dividend discount methodology toward individual securities and market
analysis which isolates value across country boundaries. This approach focuses
on future anticipated dividends and discounts the value of those dividends back
to what they would be worth if they were being paid today. Comparisons of the
values of different possible investments are then made. The investment
adviser's management approach is long-term in orientation, but, it is expected
that the annual turnover rate of the Portfolio will not exceed 150% under normal
circumstances. See "PORTFOLIO TRANSACTIONS" and "TAXES."
While the Portfolio is not subject to any specific geographic diversification
requirements, it will, under normal conditions, invest at least 65% of its total
assets 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
different countries outside the United States. Investments will be made mainly
in marketable securities of companies located in developed countries, but the
stock markets of developing countries are rapidly becoming accessible and the
Portfolio may
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hold securities of issuers located in any developing country determined to be
appropriate by the investment adviser. Investments in obligations of foreign
issuers involve somewhat different investment risks than those affecting
obligations of United States issuers. The risks posed by investments in
emerging or developing countries frequently are greater. See "ADDITIONAL
INVESTMENT INFORMATION--FOREIGN INVESTMENT INFORMATION."
Currency considerations carry a special risk for a portfolio of international
securities, and the investment adviser employs a purchasing power parity
approach to evaluate currency risk. In this regard, the Portfolio will actively
carry on hedging activities, and may invest in forward foreign currency exchange
contracts to hedge currency risks associated with the purchase of individual
securities denominated in a particular currency. See "ADDITIONAL INVESTMENT
INFORMATION-FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS."
THE DEFENSIVE EQUITY SMALL/MID-CAP PORTFOLIO
The Defensive Equity Small/Mid-Cap Portfolio's investment objective is to
realize maximum long-term total return. The Portfolio seeks to achieve this
objective by investing primarily in equity securities of companies which, at the
time of purchase, have dividend yields above the current yield of the S&P 500
Index, have a market capitalization below that of the third decile of companies
registered on the New York Stock Exchange, and, in the investment adviser's
opinion, offer capital gains potential as well.
In selecting Portfolio securities, the investment adviser places an emphasis on
strong relative performance in falling markets. The Portfolio invests primarily
in equity securities of U.S. companies, although from time to time the Portfolio
will include sponsored or unsponsored American Depository Receipts actively
traded in the United States. Under normal market conditions, at least 65% of
the value of the Portfolio's total assets will be invested in equity securities
of companies that currently have a total market capitalization of less than $3
billion. Equity securities for this purpose include common stocks, securities
convertible into common stocks and securities having common stock
characteristics, such as rights and warrants to purchase common stocks. The
Portfolio also may purchase preferred stock, and certain other non-traditional
equity securities. See "ADDITIONAL INVESTMENT INFORMATION--CONVERTIBLE, DEBT
AND NON-TRADITIONAL EQUITY SECURITIES" and "AMERICAN DEPOSITORY RECEIPTS" for
further details concerning these and other investment policies.
The Portfolio may hold cash or invest in short-term debt securities and other
money market instruments when, in the investment adviser's opinion, such
holdings are prudent given then prevailing market conditions. Except when the
investment adviser believes a temporary defensive approach is appropriate, the
Portfolio, normally, will not hold more than 5% of its total assets in cash or
such short-term investments. All these 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 investment adviser. See "ADDITIONAL INVESTMENT INFORMATION"
and "APPENDIX A-RATINGS" for further details concerning these and other
investment policies.
The investment adviser seeks to invest in high-yielding equity securities of
small and mid-cap companies and believes that, although capital gains are
important, the dividend return component will be a significant portion of the
expected total return. Further, the investment adviser believes that, although
more volatile, small and mid-cap companies will provide higher returns over the
long-term. In the investment adviser's opinion, a diversified portfolio of such
high-yielding, small and mid-cap companies will outperform the market over the
long-term, as well as preserve principal in difficult market environments.
Companies considered for purchase generally will exhibit the following
characteristics at the time of purchase: 1) a dividend yield greater than the
prevailing yield of the S&P 500 Index; and 2) market capitalization below that
of the third decile of companies registered on the New York Stock Exchange.
Such companies, in the investment adviser's view, generally are those companies
that currently have a total market capitalization of less than $3 billion at the
time of purchase.
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The Portfolio expects to invest in companies in the capitalization range
described above, and that have been in existence for at least three years
(including the operation of any predecessor company) but which have the
potential, in the investment adviser's judgment, for providing long-term total
return. Because the Portfolio seeks long-term total return by investing
primarily in small to mid-cap companies, its investments are likely to involve a
higher degree of liquidity risk and price volatility than investments in larger
capitalization securities.
The investment adviser takes a long-term investment approach by placing a strong
emphasis on its ability to determine attractive values and, generally, does not
seek to respond to short-term changes in the market. It is anticipated that the
annual turnover rate of the Portfolio will generally not exceed 100% under
normal circumstances. The Portfolio will maintain diversity among economic
sectors and industries and will not invest 25% or more of its total assets in
the stocks of issuers in any one industry, nor, ordinarily, more than 5%, at the
time of purchase, of any one company.
THE DEFENSIVE EQUITY UTILITY PORTFOLIO
The Defensive Equity Utility Portfolio's investment objective is to realize
maximum long-term total return. The Portfolio seeks to achieve this objective
by investing primarily in equity securities of utility companies which, at the
time of purchase, have dividend yields above the current yield of the S&P 500
Index and which, in the investment adviser's opinion, offer capital gains
potential as well. The Portfolio will operate as a nondiversified fund as
defined by the 1940 Act.
In selecting Portfolio securities, the investment adviser places an emphasis on
strong relative performance in falling markets. The Portfolio invests primarily
in equity securities of U.S. utility companies, although from time to time the
Portfolio will include sponsored or unsponsored American Depository Receipts
actively traded in the United States. Under normal market conditions, at least
65% of the value of the Portfolio's total assets will be invested in equity
securities of utility companies. The Portfolio may invest in the equity
securities of electric utilities, and other regulated utilities including, but
not limited to, natural gas pipelines, water utilities and telephone utilities.
The Portfolio may also invest in the equity securities of utility holding
companies. Equity securities for this purpose include common stocks, securities
convertible into common stocks and securities having common stock
characteristics, such as rights and warrants to purchase common stocks. The
Portfolio also may purchase preferred stock and convertible securities. See
"ADDITIONAL INVESTMENT INFORMATION--CONVERTIBLE, DEBT AND NON-TRADITIONAL EQUITY
SECURITIES" and "AMERICAN DEPOSITORY RECEIPTS" for a further discussion of these
investment policies.
The Portfolio may also invest up to 35% of its total assets in the debt
securities of utility companies. Generally, these debt securities will be
investment grade quality as determined by a nationally-recognized statistical
rating organization (e.g., BBB or better by S&P or Baa or better by Moody's) or
be of comparable quality as determined by the investment adviser. The Portfolio
may invest up to 10% of its assets in fixed income securities rated below
investment grade, including foreign government securities as discussed below.
The Portfolio may also invest up to 10% of its assets in securities of foreign
issuers. See "ADDITIONAL INVESTMENT INFORMATION--FOREIGN INVESTMENT
INFORMATION" and "HIGH-YIELD, HIGH RISK SECURITIES" for a further discussion of
these investment policies.
In connection with the Portfolio's ability to invest up to 10% of its total
assets in the securities of foreign issuers, currency considerations may present
risks if the Portfolio holds international securities. In this regard, the
Portfolio may carry on hedging activities, and may invest in forward foreign
currency exchange contracts to hedge currency risks associated with the purchase
of individual securities denominated in a particular currency. See "ADDITIONAL
INVESTMENT INFORMATION--FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS."
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The Portfolio may hold cash or invest in short-term debt securities and other
money market instruments when, in the investment adviser's opinion, such
holdings are prudent given then prevailing market conditions. Except when the
investment adviser believes a temporary defensive approach is appropriate, the
Portfolio, normally, will not hold more than 5% of its total assets in cash or
such short-term investments. All these 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 investment adviser. See "ADDITIONAL INVESTMENT INFORMATION"
for further details concerning these and other investment policies.
The investment adviser seeks to invest primarily in high-yielding equity
securities of utility companies and believes that, although capital gains are
important, the dividend return component will be a significant portion of the
expected total return. Further, the investment adviser believes that utility
companies will provide higher income and competitive long-term total returns.
The investment adviser believes that a diversified portfolio of such high-
yielding utility companies will provide more consistent returns than the broad
market, as well as preserve principal in difficult market environments. Equity
securities of companies considered for purchase generally will exhibit a
dividend yield greater than the prevailing yield of the S&P 500 Index.
The investment adviser takes a long-term investment approach by placing a strong
emphasis on its ability to determine attractive values and, generally, does not
seek to respond to short-term changes in the market. It is anticipated that the
annual turnover rate of the Portfolio will generally not exceed 100% under
normal circumstances. The Portfolio will not maintain diversity among economic
sectors and industries due to the specific nature of its investment objective,
but will not invest, ordinarily, more than 5% of its total assets, at the time
of purchase, in the securities of any one company.
THE LABOR SELECT INTERNATIONAL EQUITY PORTFOLIO
The investment objective of The Labor Select International Equity Portfolio is
to achieve maximum long-term total return. The Portfolio seeks to achieve its
objective by investing primarily in equity securities of issuers organized or
having a majority of their assets or deriving a majority of their operating
income outside of the United States, and which, in the investment adviser's
opinion, are undervalued at the time of purchase based on rigorous fundamental
analysis employed by the investment adviser. In addition to following these
quantitative guidelines, the Portfolio's investment adviser will select
securities of issuers that present certain characteristics that are compatible
or operate in accordance with certain investment policies or restrictions
followed by organized labor.
In selecting portfolio securities, the investment adviser emphasizes strong
performance in falling markets relative to other mutual funds focusing on
international equity investments. Equity securities in which the Portfolio may
invest include common stocks and securities convertible into common stock and
securities having common stock characteristics, such as rights and warrants to
purchase common stocks. Additionally, the Portfolio may, from time to time,
hold its assets in cash (which may be U.S. dollars or foreign currency,
including the ECU) or may invest in short-term debt securities or other money
market instruments. Except when the investment adviser believes a temporary
defensive approach is appropriate, the Portfolio generally will not hold more
than 5% of its assets in cash or such short-term instruments. All such holdings
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 Portfolio's investment adviser.
The Portfolio may hold up to 15% of its assets in foreign fixed income
securities when, in the investment adviser's opinion, equity securities are
overvalued and such fixed income securities present an opportunity for returns
greater than those available through investments in equity securities or the
short-term investments described above. The foreign fixed income securities in
which the Portfolio may invest may be U.S. dollar or foreign currency
denominated, including the ECU, and must have a government or government agency
backed credit status which would include, but not be limited to, supranational
entities. A supranational entity is an
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entity established or financially supported by the national governments of one
or more countries to promote development or reconstruction. They include: the
World Bank, European Investment Bank, Asian Development Bank, European Economic
Community and the Inter-American Development Bank. Such fixed income securities
will be, at the time of purchase, of the highest quality (e.g., AAA by S&P or
Aaa by Moody's) or be of comparable quality as determined by the Portfolio's
investment adviser. See "ADDITIONAL INVESTMENT INFORMATION" for a further
description of these and other investment policies.
The investment adviser's approach in selecting investments for the Portfolio is
primarily quantitatively oriented to individual stock selection and is value
driven. In selecting stocks for the Portfolio, the investment adviser
identifies those stocks which it believes will provide the highest total return
over a market cycle, taking into consideration the movement in the price of the
individual security, the impact of currency adjustment on a United States
domiciled, dollar-based investor and the investment guidelines described below.
The investment adviser conducts extensive fundamental research on a global
basis, and it is through this research effort that securities which, in the
investment adviser's opinion, have the potential for maximum long-term total
return are identified. The center of the fundamental research effort is a value
oriented dividend discount methodology toward individual securities and market
analysis which isolates value across country boundaries. This approach focuses
on future anticipated dividends and discounts the value of those dividends back
to what they would be worth if they were being paid today. Comparisons of the
values of different possible investments are then made.
Supplementing the adviser's quantitative approach to stock selection, the
investment adviser will, in managing the Portfolio, also attempt to follow
certain qualitative investment guidelines which seek to identify issuers that
present certain characteristics that are compatible or operate in accordance
with certain investment policies or restrictions followed by organized labor.
These qualitative investment guidelines include country screens, as well as
additional issuer-specific criteria. The country screens require that the
securities are of issuers domiciled in those countries that are included in the
Morgan Stanley Capital International Europe, Australia and Far East ("EAFE")
Index and Canada, as long as the country does not appear on any list of
prohibited or boycotted nations of the AFL-CIO or certain other labor
organizations. Nations that are presently in the EAFE Index include Japan, the
United Kingdom, Germany, France and The Netherlands. In addition, the Portfolio
will tend to favor investment in issuers located in those countries that the
investment adviser perceives as enjoying favorable relations with the United
States. Pursuant to the Portfolio's issuer-specific criteria, the Portfolio
will (1) invest only in companies which are publicly traded; (2) focus on
companies that show, in the investment adviser's opinion, evidence of pursuing
fair labor practices; (3) focus on companies that have not been subject to
penalties or tariffs imposed by applicable U.S. Government agencies for unfair
trade practices within the previous two years; and (4) not invest in initial
public offerings. In the opinion of the Portfolio's investment adviser,
evidence of pursuing fair labor practices would include whether a company has
demonstrated patterns of non-compliance with applicable labor or health and
safety laws. The qualitative labor sensitivity factors that the Portfolio's
investment adviser will utilize in selecting securities will vary over time, and
will be solely in the adviser's discretion.
While the Portfolio is not subject to any specific geographic diversification
requirements, it will, under normal conditions, invest at least 65% of its total
assets 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
different countries outside the United States, and which comply with the
parameters described above. Investments in obligations of foreign issuers
involve somewhat different investment risks than those affecting obligations of
United States issuers. The risks posed by investments in foreign countries
frequently are greater. See "ADDITIONAL INVESTMENT INFORMATION--FOREIGN
INVESTMENT INFORMATION."
The investment adviser does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the investment adviser may take advantage of short-term opportunities
that are consistent with its investment objective. It is anticipated that the
annual turnover rate of the Portfolio, under normal circumstances, will
generally not exceed 100%.
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Currency considerations carry a special risk for a portfolio of international
securities, and the investment adviser employs a purchasing power parity
approach to evaluate currency risk. In this regard, the Portfolio may actively
carry on hedging activities, and may invest in forward foreign currency exchange
contracts to hedge currency risks associated with the purchase of individual
securities denominated in a particular currency. See "ADDITIONAL INVESTMENT
INFORMATION--FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS."
THE REAL ESTATE INVESTMENT TRUST PORTFOLIO
The investment objective of The Real Estate Investment Trust Portfolio is to
achieve maximum long-term total return. Capital appreciation is a secondary
objective. The Portfolio seeks to achieve its objectives by investing in
securities of companies principally engaged in the real estate industry. Under
normal circumstances, at least 65% of the Portfolio's total assets will be
invested in equity securities of real estate investment trusts ("REITs"). The
Portfolio will operate as a nondiversified fund as defined by the 1940 Act.
The Portfolio invests in equity securities of REITs and other real estate
industry operating companies ("REOCs"). For purposes of the Portfolio's
investments, a REOC is a company that derives at least 50% of its gross revenues
or net profits from either (1) the 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. The Portfolio's investments in
equity securities of REITs and REOCs may include, from time to time, sponsored
or unsponsored American Depository Receipts actively traded in the United
States. Equity securities for this purpose include common stocks, securities
convertible into common stocks and securities having common stock
characteristics, such as rights and warrants to purchase common stocks. The
Portfolio may also purchase preferred stock. The Portfolio may invest up to 10%
of its assets in foreign securities, and in convertible securities. See
"ADDITIONAL INVESTMENT INFORMATION--FOREIGN INVESTMENT INFORMATION," "AMERICAN
DEPOSITORY RECEIPTS" and "CONVERTIBLE, DEBT AND NON-TRADITIONAL EQUITY
SECURITIES" for further discussion of these investment policies. The Portfolio
may also invest in mortgage-backed securities. See "MORTGAGE-BACKED SECURITIES"
for more detailed information about this investment policy.
The Portfolio may hold cash or invest in short-term debt securities and other
money market instruments when, in the investment adviser's opinion, such
holdings are prudent given then prevailing market conditions. Except when the
investment adviser believes a temporary defensive approach is appropriate, the
Portfolio will not hold more than 5% of its total assets in cash or such short-
term investments. All these 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 Portfolio's investment adviser. See "ADDITIONAL INVESTMENT INFORMATION" for
further details concerning these and other investment policies.
Although the Portfolio does not invest directly in real estate, the Portfolio
does invest primarily in REITs, and may purchase equity securities of REOCs.
Thus, because the Portfolio concentrates its investments in the real estate
industry, an investment in the Portfolio may be subject to certain risks
associated with direct ownership of real estate and with the real estate
industry in general. These risks include, among others: possible declines in
the value of real estate; risks related to general and local economic
conditions; possible lack of availability of mortgage funds; overbuilding;
extended vacancies of properties; increases in competition; property taxes and
operating expenses; changes in zoning laws; costs resulting from the clean-up
of, and liability to third parties resulting from, environmental problems;
casualty for condemnation losses, uninsured damages from floods, earthquakes or
other natural disasters; limitations on and variations in rents; and changes in
interest rates.
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The Portfolio may invest without limitation in shares of REITs. REITs are pooled
investment vehicles which invest primarily in income-producing real estate or
real estate related loans or interests. 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 and derive
income primarily from the collection of rents. Equity REITs can also 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. Like investment companies such
as the Fund, REITs are not taxed on income distributed to shareholders provided
they comply with several requirements in the Internal Revenue Code of 1986, as
amended (the "Code"). 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 Code, and/or to maintain exemptions
from the 1940 Act. By investing in REITs indirectly through the Portfolio, a
shareholder bears not only a proportionate share of the expenses of the
Portfolio, but also, indirectly, similar expenses of the REITs. For a further
discussion of the risks presented by investing in REITs, see "ADDITIONAL
INVESTMENT INFORMATION--REITS."
While the Portfolio does not intend to invest directly in real estate, the
Portfolio could, under certain circumstances, own real estate directly as a
result of a default on securities the Portfolio owns. In addition, if the
Portfolio has rental income or income from the direct disposition of real
property, the receipt of such income may adversely affect the Portfolio's
ability to retain its tax status as a regulated investment company.
The Portfolio 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, these activities will not be entered into for speculative
purposes, but rather to facilitate the ability quickly to deploy into the stock
market the Portfolio's positions in cash, short-term debt securities and other
money market instruments, at times when the Portfolio's assets are not fully
invested in equity securities. Such positions will generally be eliminated when
it becomes possible to invest in securities that are appropriate for the
Portfolio. See "ADDITIONAL INVESTMENT INFORMATION--FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS" and "OPTIONS" for a further discussion of these
investment policies.
In connection with the Portfolio's ability to invest up to 10% of its total
assets in the securities of foreign issuers, currency considerations may present
risks if the Portfolio holds international securities. Currency considerations
carry a special risk for a portfolio of international securities. In this
regard, the Portfolio may actively carry on hedging activities, and may invest
in forward foreign currency exchange contracts to hedge currency risks
associated with the purchase of individual securities denominated in a
particular currency. See "ADDITIONAL INVESTMENT INFORMATION--FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS."
The investment adviser does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the investment adviser may take advantage of short-term opportunities
that are consistent with its investment objective. It is anticipated that the
annual turnover rate of the Portfolio, under normal circumstances, will
generally not exceed 100%.
THE FIXED INCOME PORTFOLIO
The Fixed Income Portfolio's investment objective is to realize maximum long-
term total return, consistent with reasonable risk. It seeks to achieve its
objective by investing in a diversified portfolio of investment grade fixed
income obligations, including securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities"),
mortgage-backed securities, asset-backed securities, corporate bonds and other
fixed income securities.
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It seeks maximum long-term total return by investing in debt securities having
an average effective maturity (that is, the market value weighted average time
to repayment of principal) of between one to ten years. Short-and intermediate-
term debt securities (under ten years) form the core of the Portfolio, with
long-term bonds (over ten years) purchased as well when the investment adviser
believes they will enhance return without significantly increasing risk. Average
effective maturity may exceed the above range when the investment adviser
believes opportunities for enhanced returns exceed risk.
Typically, approximately 50% of the Portfolio's assets will be invested in U.S.
Government securities, mortgage-backed securities and asset-backed securities.
All securities purchased by the Portfolio will have an investment grade rating
at the time of purchase. Investment grade fixed income obligations will be
those rated BBB or better by S&P or Baa or better by Moody's or those deemed to
be of comparable quality by the investment adviser. Obligations rated BBB and
Baa have speculative characteristics. To the extent that the rating of a debt
obligation held by the Portfolio falls below BBB or Baa, the Portfolio, as soon
as practicable, will dispose of the security, unless such disposal would be
detrimental to the Portfolio in light of market conditions. See "ADDITIONAL
INVESTMENT INFORMATION--U.S. GOVERNMENT SECURITIES" and "MORTGAGE-BACKED
SECURITIES" for more detailed information about these and other investment
policies.
The Portfolio will normally experience an annual portfolio turnover rate
exceeding 100%, but that rate is not expected to exceed 250%. A 100% turnover
rate would occur if all of the securities in the Portfolio were sold and
replaced within one year. The rate of portfolio turnover is not a limiting
factor when the investment adviser deems it desirable to purchase or sell
securities. High portfolio turnover (over 100%) involves correspondingly
greater brokerage commissions and other transaction costs and may affect taxes
payable by the Portfolio's shareholders that are subject to federal income
taxes. The turnover rate may also be affected by cash requirements from
redemptions and repurchases of the Portfolio's shares. The degree of Portfolio
activity may affect brokerage costs of the Portfolio and taxes payable by
institutional shareholders that are subject to federal income taxes. See
"PORTFOLIO TRANSACTIONS" and "TAXES."
THE LIMITED-TERM MATURITY PORTFOLIO
The Limited-Term Maturity Portfolio seeks to realize a high level of current
income, consistent with the preservation of principal and reasonable risk. It
seeks to achieve its objective by investing in a diversified portfolio of
investment grade fixed income securities including: U.S. Government securities,
mortgage-backed securities, asset-backed securities, corporate bonds and other
fixed income securities. The Portfolio will not exceed an average effective
maturity (that is, the market value weighted average time to repayment of
principal) of five years and will invest at least a majority of its assets in
U.S. Government securities and mortgage-backed securities. The Portfolio also
may hold up to 30% of its assets in investment grade corporate fixed income
obligations (other than mortgage-backed securities and U.S. Government
securities) and asset-backed securities, but may not invest more than 10% of its
assets in such investment grade corporate fixed income securities rated, at the
time of purchase, Baa by Moody's or BBB by S&P or determined to be of comparable
quality by the investment adviser. To the extent that the rating of a debt
obligation held by the Portfolio falls below BBB or Baa, the Portfolio, as soon
as practicable, will dispose of the security, unless such disposal would be
detrimental to the Portfolio in light of market conditions.
The Limited-Term Maturity Portfolio will normally experience an annual portfolio
turnover rate exceeding 100%, but that rate is not expected to exceed 200%. See
"INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS--THE FIXED INCOME
PORTFOLIO" for a discussion of the implication of a portfolio turnover rate
exceeding 100%.
THE GLOBAL FIXED INCOME PORTFOLIO
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The Portfolio seeks to realize current income consistent with the preservation
of investors' principal. It seeks to achieve its objective by investing
primarily in fixed income securities that may also provide the potential for
capital appreciation. The Portfolio is a global fund. As such, it may invest
in securities issued in any currency and may hold foreign currency. Under
normal circumstances, at least 65% of the Portfolio's assets will be invested in
the 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. Securities of
issuers within a given country may be denominated in the currency of another
country or in multinational currency units such as the ECU. The Portfolio will
operate as a nondiversified fund as defined by the 1940 Act.
The investment adviser's approach in selecting investments for the portfolio is
oriented to country selection and is value driven. In selecting fixed income
instruments for the Portfolio, the investment adviser identifies those
countries' fixed income markets which it believes will provide the United
States' domiciled investor the highest yield over a market cycle, while also
offering the opportunity for capital gain and currency appreciation. The
investment adviser conducts extensive fundamental research on a global basis,
and it is through this effort that attractive fixed income markets are selected
for investment. The core of the fundamental research effort is a value oriented
discounted income stream methodology which isolates value across country
boundaries. This approach focuses on future coupon and redemption payments and
discounts the value of those payments back to what they would be worth if they
were to be paid today. Comparisons of the values of different possible
investments are then made. The investment adviser's management approach is
long-term in orientation, and it is therefore expected that the annual turnover
of the portfolio will not exceed 200% under normal circumstances. See
"PORTFOLIO TRANSACTIONS" and "TAXES."
The Portfolio will attempt to achieve its objective by investing in a broad
range of fixed income securities, including debt obligations of foreign and U.S.
companies which are generally rated A or better by S&P or Moody's or, if
unrated, are deemed to be of comparable quality by Delaware International, as
well as foreign and U.S. Government securities with the limitation noted below.
The Portfolio may invest up to 5% of its assets in fixed income securities rated
below investment grade, including foreign government securities as discussed
below. See "ADDITIONAL INVESTMENT INFORMATION--HIGH-YIELD, HIGH RISK
SECURITIES." The Portfolio may also invest in zero coupon bonds, and in the
debt securities of supranational entities denominated in any currency. The
Portfolio may also invest in mortgage-backed securities. See "ADDITIONAL
INVESTMENT INFORMATION--MORTGAGE-BACKED SECURITIES."
Zero coupon bonds are debt obligations which do not entitle the holder to any
periodic payments of interest prior to maturity or a specified date when the
securities begin paying current interest, and therefore are issued and traded at
a discount from their face amounts or par value. A supranational entity is an
entity established or financially supported by the national governments of one
or more countries to promote reconstruction or development. Examples of
supranational entities include, among others, the World Bank, the European
Economic Community, the European Coal and Steel Community, the European
Investment Bank, the Inter-Development Bank, the Export-Import Bank and the
Asian Development Bank. For increased safety, the Portfolio currently
anticipates that a large percentage of its assets will be invested in U.S.
Government securities and foreign government securities and securities of
supranational entities.
With respect to U.S. Government securities, the Portfolio may invest only in
securities issued or guaranteed as to the payment of principal and interest by
the U.S. Government, and those of its agencies or instrumentalities which are
backed by the full faith and credit of the United States. Direct obligations of
the U.S. Government which are available for purchase by the Portfolio include
bills, notes, bonds and other debt securities issued by the U.S. Treasury.
These obligations differ mainly in interest rates, maturities and dates of
issuance. Agencies whose obligations are backed by the full faith and credit of
the United States include the Farmers Home Administration, Federal Financing
Bank and others. When the Portfolio's investment adviser believes a temporary
defensive approach is appropriate, the Portfolio may hold up to 100% of its
assets in such U.S. Government securities and certain other short-term
instruments. See "ADDITIONAL INVESTMENT INFORMATION--U.S. GOVERNMENT
SECURITIES" and "SHORT-TERM INVESTMENTS."
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With respect to securities issued by foreign governments, their agencies,
instrumentalities or political subdivisions, the Portfolio will generally invest
in such securities if they have been rated AAA or AA by S&P or Aaa or Aa by
Moody's or, if unrated, have been determined by the investment adviser to be of
comparable quality. As noted above, the Portfolio may invest up to 5% of its
assets in non-investment grade fixed income securities. These investments may
include foreign government securities, some of which may be so-called Brady
Bonds. See "ADDITIONAL INFORMATION--HIGH-YIELD, HIGH RISK SECURITIES." The
Portfolio may also invest in sponsored or unsponsored American Depository
Receipts or European Depository Receipts. While the Portfolio may purchase
securities of issuers in any foreign country, developed or underdeveloped, it is
currently anticipated that the countries in which the Portfolio may invest will
include, but not be limited to, Canada, Germany, the United Kingdom, New
Zealand, France, The Netherlands, Belgium, Spain, Switzerland, Ireland, Denmark,
Portugal, Italy, Austria, Norway, Sweden, Finland, Luxembourg, Japan and
Australia. With respect to certain countries, investments by an investment
company may only be made through investments in closed-end investment companies
that in turn are authorized to invest in the securities of issuers in such
countries. Any investment the Portfolio may make in other investment companies
is limited in amount by the 1940 Act and would involve the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies. See "ADDITIONAL INVESTMENT INFORMATION--FOREIGN INVESTMENT
INFORMATION" and "AMERICAN DEPOSITORY RECEIPTS."
Currency considerations carry a special risk for a portfolio of international
securities and the investment adviser employs a purchasing power parity approach
to evaluate currency risk. In this regard, the Portfolio will actively carry on
hedging activities, and may invest in forward foreign currency exchange
contracts to hedge currency risks associated with its portfolio of securities.
See "ADDITIONAL INVESTMENT INFORMATION--FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS."
It is anticipated that the average weighted maturity of the Portfolio will be in
the five-to-ten year range. If, however, the investment adviser anticipates a
declining interest rate environment, the average weighted maturity may be
extended beyond ten years. Conversely, if the investment adviser anticipates a
rising rate environment, the average weighted maturity may be shortened to less
than five years. The Portfolio will not invest 25% or more of its total assets
in the securities of issuers all of which conduct their principal business
activities in the same industry.
THE INTERNATIONAL FIXED INCOME PORTFOLIO
The Portfolio seeks to realize current income consistent with the preservation
of investors' principal. It seeks to achieve its objective by investing
primarily in fixed income securities that may also provide the potential for
capital appreciation. The Portfolio is an international fund. As such, it may
invest in securities issued in any currency and may hold foreign currency.
Under normal circumstances, at least 65% of the Portfolio's assets will be
invested in the 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 outside of the United States. Under normal
circumstances, the Portfolio intends to invest in securities which are
denominated in foreign currencies. Securities of issuers within a given country
may be denominated in the currency of another country or in multinational
currency units such as ECU. The Portfolio will operate as a nondiversified fund
as defined by the 1940 Act.
The investment adviser's approach in selecting investments for the portfolio is
oriented to country selection and is value driven. In selecting fixed income
instruments for the Portfolio, the investment adviser identifies those
countries' fixed income markets which it believes will provide the United States
domiciled investor the highest yield over a market cycle, while also offering
the opportunity for capital gain and currency appreciation. The investment
adviser conducts extensive fundamental research on a global basis, and it is
through this effort that attractive fixed income markets are selected for
investment. The core of the fundamental research effort is a value oriented
discounted income stream methodology which isolates value across country
boundaries. This
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approach focuses on future coupon and redemption payments and discounts the
value of those payments back to what they would be worth if they were to be paid
today. Comparisons of the values of different possible investments are then
made. The investment adviser's management approach is long-term in orientation,
but, it is expected that the annual turnover of the portfolio will be
approximately 200% under normal circumstances. See "PORTFOLIO TRANSACTIONS" and
"TAXES."
The Portfolio will attempt to achieve its objective by investing in a broad
range of fixed income securities, including debt obligations of foreign
companies which are generally rated A or better by S&P or Moody's or, if
unrated, are deemed to be of comparable quality by Delaware International, as
well as, foreign government securities with the limitation noted below. The
Portfolio may invest up to 5% of its assets in fixed income securities rated
below investment grade, including foreign government securities as discussed
below. See "ADDITIONAL INVESTMENT INFORMATION--HIGH-YIELD, HIGH RISK
SECURITIES." The Portfolio may also invest in zero coupon bonds, and in the
debt securities of supranational entities denominated in any currency.
Zero coupon bonds are debt obligations which do not entitle the holder to any
periodic payments of interest prior to maturity or a specified date when the
securities begin paying current interest, and therefore are issued and traded at
a discount from their face amounts or par value. A supranational entity is an
entity established or financially supported by the national governments of one
or more countries to promote reconstruction or development. Examples of
supranational entities include, among others, the World Bank, the European
Economic Community, the European Coal and Steel Community, the European
Investment Bank, the Inter-Development Bank, the Export-Import Bank and the
Asian Development Bank. For increased safety, the Portfolio currently
anticipates that a large percentage of its assets will be invested in foreign
government securities and securities of supranational entities.
With respect to U.S. Government securities, the Portfolio may invest only in
securities issued or guaranteed as to the payment of principal and interest by
the U.S. Government, and those of its agencies or instrumentalities which are
backed by the full faith and credit of the United States. Direct obligations of
the U.S. Government which are available for purchase by the Portfolio include
bills, notes, bonds and other debt securities issued by the U.S. Treasury.
These obligations differ mainly in interest rates, maturities and dates of
issuance. Agencies whose obligations are backed by the full faith and credit of
the United States include the Farmers Home Administration, Federal Financing
Bank and others. When the Portfolio's investment adviser believes a temporary
defensive approach is appropriate, the Portfolio may hold up to 100% of its
assets in such U.S. Government securities and certain other short-term
instruments. See "ADDITIONAL INVESTMENT INFORMATION--U.S. GOVERNMENT
SECURITIES" and "SHORT-TERM INVESTMENTS."
With respect to securities issued by foreign governments, their agencies,
instrumentalities or political subdivisions, the Portfolio will generally invest
in such securities if they have been rated AAA or AA by S&P or Aaa or Aa by
Moody's or, if unrated, have been determined by the investment adviser to be of
comparable quality. As noted above, the Portfolio may invest up to 5% of its
assets in non-investment grade fixed income securities. These investments may
include foreign government securities, some of which may be so-called Brady
Bonds. See "ADDITIONAL INFORMATION--HIGH-YIELD, HIGH RISK SECURITIES." The
Portfolio may also invest in sponsored or unsponsored American Depository
Receipts or European Depository Receipts. While the Portfolio may purchase
securities of issuers in any foreign country, developed or underdeveloped, it is
currently anticipated that the countries in which the Portfolio may invest will
include, but not be limited to, Canada, Germany, the United Kingdom, New
Zealand, France, The Netherlands, Belgium, Spain, Switzerland, Ireland, Denmark,
Portugal, Italy, Austria, Norway, Sweden, Finland, Luxembourg, Japan and
Australia. With respect to certain countries, investments by an investment
company may only be made through investments in closed-end investment companies
that in turn are authorized to invest in the securities of issuers in such
countries. Any investment the Portfolio may make in other investment companies
is limited in amount by the 1940 Act and would involve the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies. See "ADDITIONAL INVESTMENT
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INFORMATION--FOREIGN INVESTMENT INFORMATION" and "AMERICAN DEPOSITORY RECEIPTS."
Currency considerations carry a special risk for a portfolio of international
securities and the investment adviser employs a purchasing power parity approach
to evaluate currency risk. In this regard, the Portfolio will actively carry on
hedging activities, and may utilize a wide range of hedging instruments,
including options, futures contracts, and related options, and forward foreign
currency exchange contracts to hedge currency risks associated with its
portfolios of securities. See "ADDITIONAL INVESTMENT INFORMATION--FORWARD
FOREIGN CURRENCY EXCHANGE CONTRACTS, FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS" and "OPTIONS."
It is anticipated that the average weighted maturity of the Portfolio will be in
the five-to-ten year range. If, however, the investment adviser anticipates a
declining interest rate environment, the average weighted maturity may be
extended beyond ten years. Conversely, if the investment adviser anticipates a
rising rate environment, the average weighted maturity may be shortened to less
than five years. The Portfolio will not invest 25% or more of its total assets
in the securities of issuers all of which conduct their principal business
activities in the same industry.
THE HIGH-YIELD BOND PORTFOLIO
The High-Yield Bond Portfolio's investment objective is to seek high total
return. The Portfolio seeks to achieve its objective by investing primarily in
bonds rated CCC or higher by S&P or Caa or higher by Moody's or, if unrated,
judged to be of comparable quality by the investment adviser.
The Portfolio will invest at least 80% of its assets at the time of purchase in:
(1) corporate bonds that may be rated CCC or higher by S&P or Caa or higher by
Moody's, or that may be unrated (which may be more speculative in nature than
rated bonds); (2) securities issued or guaranteed by the U.S Government, its
agencies or instrumentalities; or (3) commercial paper of companies rated A-1 or
A-2 by S&P or rated P-1 or P-2 by Moody's or, if unrated, judged to be of
comparable quality by the investment adviser. The Portfolio may also invest in
income-producing securities, including common stocks and preferred stocks, some
of which may have convertible features or attached warrants and which may be
speculative. See "ADDITIONAL INVESTMENT INFORMATION--CONVERTIBLE, DEBT AND NON-
TRADITIONAL EQUITY SECURITIES" for a further discussion of these investment
policies. The Portfolio may invest up to 10% of its total assets in securities
of issuers domiciled in foreign countries. The Portfolio may hold cash or
invest in short-term debt securities and other money market instruments when, in
the investment adviser's opinion, such holdings are prudent given then
prevailing market conditions. Except when the investment adviser believes a
temporary defensive approach is appropriate, the Portfolio normally will not
hold more than 5% of its total assets in cash or such short-term investments.
All these 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, if unrated, judged to be of comparable quality as determined by
the investment adviser. See "ADDITIONAL INVESTMENT INFORMATION" for further
details concerning these and other investment policies.
Although the Portfolio does not generally purchase a substantial amount of zero
coupon bonds or pay-in-kind (PIK) bonds, from time to time, the Portfolio may
acquire zero coupon bonds and, to a lesser extent, PIK bonds. Zero coupon bonds
and PIK bonds are generally considered to be more interest-sensitive than income
bearing bonds, to be more speculative than interest-bearing bonds, and to have
certain tax consequences which could, under certain circumstances, be adverse to
the Portfolio. For example, the Portfolio accrues, and is required to
distribute to shareholders income on its zero coupon bonds. However, the
Portfolio may not receive the cash associated with this income until the bonds
are sold or mature. If the Portfolio did not have sufficient
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cash to make the required distribution of accrued income, the Portfolio could be
required to sell other securities in its portfolio or to borrow to generate the
cash required.
With respect to U.S. Government securities, the Portfolio may invest only in
securities issued or guaranteed as to the payment of principal and interest by
the U.S. Government, and those of its agencies or instrumentalities which are
backed by the full faith and credit of the United States. Direct obligations of
the U.S. Government which are available for purchase by the Portfolio include
bills, notes, bonds and other debt securities issued by the U.S. Treasury.
These obligations differ mainly in interest rates, maturities and dates of
issuance. Agencies whose obligations are backed by the full faith and credit of
the United States include the Farmers Home Administration, Federal Financing
Bank and others. See "ADDITIONAL INVESTMENT INFORMATION--U.S. GOVERNMENT
SECURITIES."
The investment adviser does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the investment adviser may take advantage of short-term opportunities
that are consistent with its investment objective. It is anticipated that the
annual turnover rate of the Portfolio, under normal circumstances, will
generally not exceed 100%.
It is anticipated that the Portfolio's assets will be invested primarily in
unrated corporate bonds and bonds rated CCC or higher by S&P or Caa or higher by
Moody's, or, if unrated, judged to be of comparable quality by the investment
adviser. The market values of fixed income securities generally fall when
interest rates rise and, conversely, rise when interest rates fall. Lower rated
and unrated fixed income securities tend to reflect short-term corporate and
market developments to a greater extent than higher rated fixed income
securities, which react primarily to fluctuations in the general level of
interest rates. These lower rated or unrated securities generally have higher
yields, but, as a result of factors such as reduced creditworthiness of issuers,
increased risks of default and a more limited and less liquid secondary market,
are subject to greater volatility and risks of loss of income and principal than
are higher rated securities. The investment adviser will attempt to reduce such
risks through portfolio diversification, credit analysis, and attention to
trends in the economy, industries and financial markets.
Investing in these so-called "junk" or "high-yield" bonds entails certain risks,
including the risk of loss of principal, which may be greater than the risks
involved in investment grade bonds, and which should be considered by investors
contemplating an investment in the Portfolio. Such bonds are sometimes issued
by companies whose earnings at the time of issuance are less than the projected
debt service on the junk bonds. Some of the principal risks to which junk bonds
are subject are discussed below.
Although the market for high-yield bonds has been in existence for many years,
including periods of economic downturns, the high-yield market grew rapidly
during the long economic expansion which took place in the United States during
the 1980s. During the economic expansion, the use of high-yield debt securities
to fund highly leveraged corporate acquisitions and restructurings increased
dramatically. As a result, the high-yield market grew substantially during the
economic expansion. Although experts disagree on the impact recessionary
periods have had and will have on the high-yield market, some analysts believe a
protracted economic downturn would severely disrupt the market for high-yield
bonds, would adversely affect the value of outstanding bonds and would adversely
affect the ability of high-yield issuers to repay principal and interest. Those
analysts cite volatility experienced in the high-yield market in the past as
evidence for their position. It is likely that protracted periods of economic
uncertainty would result in increased volatility in the market prices of high-
yield bonds, an increase in the number of high-yield bond defaults and
corresponding volatility in the Portfolio's net asset value.
In addition, if, as a result of volatility in the high-yield market or other
factors, the Portfolio experiences substantial net redemptions of the
Portfolio's shares for a sustained period of time, the Portfolio may be required
to sell securities without regard to the investment merits of the securities to
be sold. If the Portfolio sells a substantial number of securities to generate
proceeds for redemptions, the asset base of the Portfolio will decrease and the
Portfolio's expense ratios may increase.
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Furthermore, the secondary market for high-yield securities is currently
dominated by institutional investors, including mutual funds and certain
financial institutions. There is generally no established retail secondary
market for high-yield securities. As a result, the secondary market for high-
yield securities is more limited and less liquid than 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. A less liquid secondary market may have an adverse effect on the
Portfolio's ability to dispose of particular issues, when necessary, to meet the
Portfolio's liquidity needs or in response to a specific economic event, such as
the deterioration in the creditworthiness of the issuer. In addition, a less
liquid secondary market makes it more difficult for the Portfolio to obtain
precise valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. 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. The Portfolio's privately placed high-yield
securities are particularly susceptible to the liquidity and valuation risks
outlined above.
Finally, there are a variety of legislative actions which have been taken or
which are considered from time to time by the United States Congress which could
adversely affect the market for high-yield bonds. For example, Congressional
legislation limited the deductibility of interest paid on certain high-yield
bonds used to finance corporate acquisitions. Also, 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 purchase of high-yield bonds as a result of,
among other factors, actions taken by the National Association of Insurance
Commissioners. If similar legislative and regulatory actions are taken in the
future, they could result in further tightening of the secondary market for
high-yield issues, could reduce the number of new high-yield securities being
issued and could make it more difficult for the Portfolio to attain its
investment objective.
See "ADDITIONAL INVESTMENT INFORMATION--HIGH-YIELD, HIGH RISK SECURITIES" for
further information about high-yield securities.
PURCHASE OF SHARES
Shares of each Portfolio may be purchased without a sales commission, at net
asset value per share next determined after (i) the Fund has been notified by
telephone of your purchase order and (ii) Federal Funds have been delivered to
the Fund's bank account maintained with The Morgan Guaranty Trust Company of New
York ("Custodian Bank"). Shares of The International Equity Portfolio and The
Labor Select International Equity Portfolio may, under certain circumstances, be
required to be purchased in-kind, as noted below. At such time as the Fund
receives appropriate regulatory approvals to do so in the future, under certain
circumstances, the Fund may, at its sole discretion, allow institutional
investors who have an existing investment counseling relationship with Delaware
Investment Advisers or Delaware International to make investments in the
Portfolios by a contribution of securities in-kind to such Portfolios. See
"VALUATION OF SHARES."
The minimum initial investment for a Portfolio is $1,000,000.
BY FEDERAL FUNDS WIRE
Purchases of shares of a Portfolio may only be made by having your bank wire
Federal Funds to the Fund's bank account maintained with the Custodian Bank. In
order for share purchases to be priced at the end of a given business day, the
Fund must be notified by telephone and Federal Funds must be received no later
than the close of regular trading on the New York Stock Exchange ("NYSE")
(ordinarily, 4 p.m., Eastern time) on days when the exchange is open. If notice
is given or Federal Funds are delivered after that time, the purchase order will
be priced on the following business day. In order to ensure prompt receipt of
your Federal Funds Wire and processing of your purchase order, it is important
that the following steps be taken:
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1. Telephone the Fund (Toll Free: 1-800-231-8002) and provide us with the
account name, address, telephone number, Tax Identification Number, the
Portfolio(s) selected, the amount being wired and by which bank and which
specific branch, if applicable. We will provide you with a Fund account number.
2. Instruct your bank to wire the specified amount of Federal Funds to the
Fund's Wire Concentration Bank Account (be sure to have your bank include the
name of the Portfolio(s) selected and the account number assigned to you) at:
The Morgan Guaranty Trust Company of New York
New York, NY 10015
ABA #021000238
DDA #001-30-970 (The Defensive Equity Portfolio)
DDA #001-30-981 (The Aggressive Growth Portfolio)
DDA #001-30-992 (The International Equity Portfolio)
DDA #001-00-000 (The Defensive Equity Small/Mid-Cap
Portfolio)
DDA #001-76-000 (The Defensive Equity Utility Portfolio)
DDA #001-00-554 (The Labor Select International Equity
Portfolio)
DDA #001-76-532 (The Real Estate Investment Trust Portfolio)
DDA #001-31-003 (The Fixed Income Portfolio)
DDA #001-31-014 (The Limited-Term Maturity Portfolio)
DDA #001-49-527 (The Global Fixed Income Portfolio)
DDA #001-63-453 (The International Fixed Income Portfolio)
DDA #001-00-000 (The High-Yield Bond Portfolio)
Attn: Delaware Pooled Trust, Inc.
Ref: (Portfolio name, your account number, your account
name)
Federal Funds purchase orders will be accepted only on a day on which the Fund,
the NYSE and the Custodian Bank are open for business.
3. Complete the Account Registration Form within two days and mail it to:
Delaware Pooled Trust, Inc.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Attn: Client Services
IN-KIND PURCHASES OR SIMILAR PROCEDURES (THE INTERNATIONAL EQUITY PORTFOLIO AND
THE LABOR SELECT INTERNATIONAL EQUITY PORTFOLIO)
Institutions proposing to invest an amount which at the time they telephone the
Fund (as required above), would constitute 5% or more of the assets of The
International Equity Portfolio and The Labor Select International Equity
Portfolio will, under normal circumstances, be required to make purchases by
tendering securities in which the respective Portfolio otherwise would invest
or, by following another procedure that will have the same economic effect as an
in-kind purchase. In either case, an investor that is required to purchase
shares pursuant to those procedures will be required to pay the brokerage or
other transaction costs of acquiring the subject securities. Prospective
investors will be notified when they telephone the Fund whether their investment
must be made in-kind or by such other procedure and, if in-kind, what
securities must be tendered. The purchase price per share for such investors
shall be the net asset value next determined after, as the case may be, (1)
delivery of cash or securities to the Custodian Bank and/or (2) the assignment
to the respective Portfolio by a prospective purchaser on trade date of the
investor's right to delivery of securities as to which brokerage orders have
been placed (but, as to which settlement is yet to occur) and delivery of cash
in an amount necessary to pay for those securities on settlement date. The
assets provided to the Portfolio pursuant to these
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procedures shall be valued consistent with the same valuation procedures used to
calculate the Portfolio's net asset value. See "VALUATION OF SHARES." Such
investors should contact the Fund at (1-800-231-8002) for further information.
ADDITIONAL INVESTMENTS
You may add to your shareholder account at any time and in any amount.
Procedures are the same as those to be followed for a new account, in as much as
it is very important to notify the Fund of your impending purchase by first
calling the Fund (1-800-231-8002). Then you must be sure that your bank follows
the same procedures as described above with respect to the wiring of Federal
Funds to the Fund's Custodian Bank. Additional investments in The International
Equity Portfolio and The Labor Select International Equity Portfolio are subject
to the same procedures and requirements (including the in-kind or similar
procedures) set forth above.
REDEMPTION OF SHARES
You may withdraw all or any portion of the amount in your account by redeeming
shares at any time. The Fund will redeem shares of each Portfolio at its net
asset value next determined after receipt of your redemption request in
accordance with the following instructions. On days that the Fund, the NYSE and
the Custodian Bank are open for business, the net asset value of the Fund's
Portfolios are determined as of the close of regular trading of the NYSE
(ordinarily, 4 p.m., Eastern time). See "VALUATION OF SHARES."
Shares of the Fund may be redeemed by mail, FAX message, or telephone. No
charge is made for redemption. The proceeds of any redemption may be more or
less than the purchase price of your shares depending on the market value of the
investment securities held by the Portfolio. Shares of The International Equity
Portfolio, The Labor Select International Equity Portfolio, The Global Fixed
Income Portfolio and The International Fixed Income Portfolio may, under certain
circumstances, be required to be redeemed in-kind in portfolio securities, as
noted below.
BY MAIL OR FAX MESSAGE
Each Portfolio will redeem its shares at the net asset value next determined on
the date the request is received in "good order." Your request should be
addressed to:
Delaware Pooled Trust, Inc.
Attn: Client Services
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
FAX # 215-972-8864
"Good order" for purposes of mail or FAX message redemptions means that the
request to redeem must include the following documentation:
a. A letter of instruction specifying the number of shares or dollar amount to
be redeemed signed by the appropriate corporate or organizational officer(s)
exactly as it appears on the Account Registration Form.
b. If you wish to change the name of the commercial bank or account designation
to receive the redemption proceeds as provided in the Account Registration Form,
then a separate written request must be submitted to the Fund at the above
address and copies of this request sent to both the current commercial bank and
the new
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designee bank. Prior to redemption, the Fund will telephonically confirm the
change with both the current and the new designee banks. Further clarification
of these procedures can be obtained by calling the Fund.
BY TELEPHONE
If you have previously elected the Telephone Redemption Option on the Account
Registration Form, you can request a redemption of your shares by calling the
Fund and requesting the redemption proceeds be wired to the commercial bank or
account designation identified in the Account Registration Form. Shares cannot
be redeemed by telephone if stock certificates are held for those shares or, in
the case of The International Equity Portfolio, The Labor Select International
Equity Portfolio, The Global Fixed Income Portfolio or The International Fixed
Income Portfolio, in instances when the special in-kind redemption procedures
are triggered, as described below. Please contact the Fund for further details.
In times of drastic market conditions, the telephone redemption option may be
difficult to implement. If you experience difficulty in making a telephone
redemption, your request may be made by mail or FAX message, pursuant to the
procedures described above. It will be implemented at the net asset value next
determined after it is received. Neither the Fund, the Portfolios nor the
Fund's transfer agent, Delaware Service Company, Inc., is responsible for any
losses incurred in acting upon written or telephone instructions for redemption
or exchange of Portfolio shares which are reasonably believed to be genuine.
With respect to such telephone transactions, the Fund will ensure that
reasonable procedures are used to confirm that instructions communicated by
telephone are genuine (including verification of a form of personal
identification) as, if it does not, the Fund or Delaware Service Company, Inc.
may be liable for any losses due to unauthorized or fraudulent transactions. A
written confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
To change the name of the commercial bank or account designated to receive the
redemption proceeds, a written request must be sent to the Fund at the address
above. Requests to change the bank or account designation must be signed by the
appropriate person(s) authorized to act on behalf of the shareholder.
The Fund's telephone redemption privileges and procedures may be modified or
terminated by the Fund only upon written notice to the Fund's client
shareholders.
REDEMPTIONS IN-KIND OR SIMILAR PROCEDURES (THE INTERNATIONAL EQUITY, THE LABOR
SELECT INTERNATIONAL EQUITY, THE GLOBAL FIXED INCOME AND THE INTERNATIONAL FIXED
INCOME PORTFOLIOS)
Institutions proposing to redeem an amount which, at the time they notify the
Fund of their intention to redeem (as described below), would constitute 5% or
more of the assets of The International Equity Portfolio, The Labor Select
International Equity Portfolio, The Global Fixed Income Portfolio or The
International Fixed Income Portfolio will, under normal circumstances, be
required to accept their redemption proceeds in-kind in Portfolio securities,
unless they elect another procedure which will have the same economic effect as
an in-kind redemption. In either case, an investor that is required to redeem
shares pursuant to this election must bear the brokerage or other transaction
costs of selling the Portfolio securities representing the value of their
redeemed shares. Any Portfolio securities delivered upon redemption will be
valued as described in "VALUATION OF SHARES." Investors in these Portfolios
should contact the Fund at (1-800-231-8002) for further information.
Institutional investors who have an existing investment counseling relationship
with Delaware Investment Advisers or Delaware International will not be subject
to the Fund's in-kind redemption requirements until such time as the Fund
receives appropriate regulatory approvals to permit such redemptions for the
account of such institutional investors.
IMPORTANT REDEMPTION INFORMATION
Because the Fund's shares are sold to institutional investors with a relatively
high investment minimum, Fund shareholders likely will hold a significant number
of Fund shares. For this reason, the Fund requests that
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shareholders proposing to make a large redemption order give the Fund at least
ten days advanced notice of any such order. This request can easily be satisfied
by calling the Fund at (1-800-231-8002), and giving notification of your future
intentions. Once a formal redemption order is received, the Fund, in the case of
redemptions to be made in cash, normally will make payment for all shares
redeemed under this procedure within three business days of receipt of the
order. In no event, however, will payment be made more than seven days after
receipt of a redemption request in good order. The Fund may suspend the right of
redemption or postpone the date at times when the NYSE is closed, or under any
emergency circumstances as determined by the Securities and Exchange Commission
("Commission").
With respect to The International Equity, The Labor Select International Equity,
The Global Fixed Income and The International Fixed Income Portfolios, as noted
above, or if the Fund otherwise determines that it would be detrimental to the
best interests of the remaining shareholders of a Portfolio to make payment
wholly or partly in cash, the Fund may pay the redemption proceeds in whole or
in part by a distribution in-kind of securities held by a Portfolio in lieu of
cash in conformity with applicable rules of the Commission. Investors may incur
brokerage charges on the sale of Portfolio securities so received in payment of
redemptions.
Due to the relatively high cost of maintaining shareholder accounts, the Fund
reserves the right to redeem shares in a Portfolio if the value of your holdings
in that Portfolio is below $500,000. The Fund, however, will not redeem shares
based solely upon market reductions in net asset value. If the Fund intends to
take such action, a shareholder would be notified and given 90 days to make an
additional investment before the redemption is processed.
ADDITIONAL INVESTMENT INFORMATION
U.S. GOVERNMENT SECURITIES
The U.S. Government securities in which the various Portfolios may invest for
temporary purposes and otherwise (see "INVESTMENT OBJECTIVES, POLICIES AND RISK
CONSIDERATIONS"), include a variety of securities which are issued or guaranteed
as to the payment of principal and interest by the U.S. Government, and by
various agencies or instrumentalities which have been established or sponsored
by the U.S. Government.
U.S. Treasury securities are backed by the "full faith and credit" of the United
States. Securities issued or guaranteed by federal agencies and U.S. Government
sponsored instrumentalities may or may not be backed by the full faith and
credit of the United States. In the case of securities not backed by the full
faith and credit of the United States, investors in such securities look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities,
such as the Government National Mortgage Association ("GNMA"), are, in effect,
backed by the full faith and credit of the United States through provisions in
their charters that they may make "indefinite and unlimited" drawings on the
Treasury, if needed to service its debt. Debt from certain other agencies and
instrumentalities, including the Federal Home Loan Bank and Federal National
Mortgage Association, are not guaranteed by the United States, but those
institutions are protected by the discretionary authority for the U.S. Treasury
to purchase certain amounts of their securities to assist the institutions in
meeting their debt obligations. Finally, other agencies and instrumentalities,
such as the Farm Credit System and the Federal Home Loan Mortgage Corporation,
are federally chartered institutions under U.S. Government supervision, but
their debt securities are backed only by the creditworthiness of those
institutions, not the U.S. Government.
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Some of the U.S. Government agencies that issue or guarantee securities include
the Export-Import Bank of the United States, Farmers Home Administration,
Federal Housing Administration, Maritime Administration, Small Business
Administration, and the Tennessee Valley Authority.
An instrumentality of a U.S. Government agency is a government agency organized
under Federal charter with government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Immediate Credit
Banks and the Federal National Mortgage Association.
MORTGAGE-BACKED SECURITIES
The Real Estate Investment Trust, The Fixed Income, The Limited-Term Maturity
and The Global Fixed Income Portfolios may invest in mortgage-backed securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or by government sponsored corporations. Those securities include, but are not
limited to, GNMA certificates. Such securities differ from other fixed income
securities in that principal is paid back by the borrower over the length of the
loan rather than returned in a lump sum at maturity. When prevailing interest
rates rise, the value of a GNMA security may decrease as do other debt
securities. When prevailing interest rates decline, however, the value of GNMA
securities may not rise on a comparable basis with other debt securities because
of the prepayment feature of GNMA securities. Additionally, if a GNMA
certificate is purchased at a premium above its principal value because its
fixed rate of interest exceeds the prevailing level of yields, the decline in
price to par may result in a loss of the premium in the event of prepayment.
Funds received from prepayments may be reinvested at the prevailing interest
rates which may be lower than the rate of interest that had previously been
earned.
The Portfolios also may invest in 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. 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. To the extent any privately-
issued CMOs or REMICs in which the Portfolios may invest are considered by the
Commission to be investment companies, the Portfolios will limit their
investments in such securities in a manner consistent with the provisions of the
1940 Act.
The mortgages backing these securities include conventional 30-year fixed rate
mortgages, graduated payment mortgages and adjustable rate mortgages. These
mortgages may be supported by various types of insurance, may be backed by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. However, the guarantees do not
extend to the mortgage-backed securities' value, which is likely to vary
inversely with fluctuations in interest rates. These certificates are in most
cases "pass-through" instruments, through which the holder receives a share of
all interest and principal payments from the mortgages underlying the
certificate. Because the prepayment characteristics of the underlying mortgages
vary, it is not possible to predict accurately the average life or realized
yield of a particular issue of pass-through certificates. During periods of
declining interest rates, prepayment of mortgages underlying mortgage-backed
securities can be expected to accelerate. When the mortgage obligations are
prepaid, the Portfolio may reinvest the prepaid amounts in securities, the yield
of which reflects interest rates prevailing at the time. Moreover, prepayments
of mortgages which underlie securities purchased at a premium could result in
capital losses.
Certain CMOs and REMICs may have variable or floating interest rates and others
may be stripped. Stripped mortgage securities have greater market volatility
than other types of mortgage securities in which the Portfolios may invest.
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Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the "interest-only" class), while the other class will receive
all of the principal (the "principal-only" class). The yield to maturity on an
interest-only class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a Portfolio's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Portfolio may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating categories.
Although stripped mortgage securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. As a result, established trading
markets have not yet been fully developed and, accordingly, these securities are
generally illiquid and to such extent, together with any other illiquid
investments, will not exceed 10% of a Portfolio's net assets.
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. The Portfolios 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 Portfolios currently invest in privately-issued CMOs
and REMICs only if they are rated at the time of purchase in the two highest
grades by a nationally-recognized statistical rating agency.
ASSET-BACKED SECURITIES
The Fixed Income and Limited-Term Maturity Portfolios may also invest in
securities which are backed by assets such as receivables on home equity and
credit card loans, and receivables regarding automobile, mobile home and
recreational vehicle loans, wholesale dealer floor plans and leases. All such
securities must be rated in the highest rating category by a reputable credit
rating agency (e.g., AAA by S&P or Aaa by Moody's). Such receivables are
securitized in either a pass-through or a pay-through structure. Pass-through
securities provide investors with an income stream consisting of both principal
and interest payments in respect of the receivables in the underlying pool.
Pay-through asset-backed securities are debt obligations issued usually by a
special purpose entity, which are collateralized by the various receivables and
in which the payments on the underlying receivables provide the funds to pay the
debt service on the debt obligations issued. The Portfolios may invest in these
and other types of asset-backed securities that may be developed in the future.
It is the Portfolios' current policy to limit asset-backed investments to those
represented by interests in credit card receivables, wholesale dealer floor
plans, home equity loans and automobile loans.
The rate of principal payment on asset-backed securities generally depends upon
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. Therefore, the yield may be difficult to predict and actual
yield to maturity may be more or less than the anticipated yield to maturity.
Due to the shorter maturity of the collateral backing such securities, there is
less of a risk of substantial prepayment than with mortgage-backed securities.
See "MORTGAGE-BACKED SECURITIES" above. Such asset-backed securities do,
however, involve certain risks not associated with mortgage-backed securities,
including the risk that security interests cannot be adequately or in many
cases, ever, established. In addition, with respect to credit card receivables,
a number of state and federal consumer credit laws give debtors the right to set
off certain amounts owed on the credit cards, thereby reducing the outstanding
balance. In the case of automobile receivables, there is a risk that the
holders may not have either a proper or first security interest in all of the
obligations backing such receivables due to the
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large number of vehicles involved in a typical issuance and technical
requirements under state laws. Therefore, recoveries on repossessed collateral
may not always be available to support payments on the securities.
SHORT-TERM INVESTMENTS
The short-term investments in which The Defensive Equity, The Aggressive Growth,
The International Equity, The Defensive Equity Small/Mid-Cap, The Defensive
Equity Utility, The Labor Select International Equity, The Real Estate
Investment Trust, The Global Fixed Income, The International Fixed Income and
The High-Yield Bond Portfolios may invest consistent with the limits recited
above (see "INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS") are:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a U.S. commercial
bank. Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits maturing in more than seven days will not be purchased by a Portfolio,
and time deposits maturing from two business days through seven calendar days
will not exceed 10% of the total assets of a Portfolio, in the case of The
Defensive Equity, The Aggressive Growth, The International Equity, The Global
Fixed Income and The International Fixed Income Portfolios, and 15% of the total
assets of a Portfolio, in the case of The Defensive Equity Small/Mid-Cap, The
Defensive Equity Utility, The Labor Select International Equity, The Real Estate
Investment Trust and The High-Yield Bond Portfolios. Certificates of deposit are
negotiable short-term obligations issued by commercial banks against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
A Portfolio will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion or, in the case of a bank
which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating by
a nationally-recognized statistical rating organization;
(2) Commercial paper with the highest quality rating by a nationally-recognized
statistical rating organization (e.g., A-1 by S&P or Prime-1 by Moody's) or, if
not so rated, of comparable quality as determined by a Portfolio's investment
adviser;
(3) Short-term corporate obligations with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa
by Moody's) or, if not so rated, of comparable quality as determined by a
Portfolio's investment adviser;
(4) U.S. Government securities (see "U.S. GOVERNMENT SECURITIES"); and
(5) Repurchase agreements collateralized by securities listed above.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Portfolio of the Fund may purchase securities on a when-issued or delayed
delivery basis. In such transactions, instruments are purchased with payment
and delivery taking place in the future in order to secure what is considered to
be an advantageous yield or price at the time of the transaction. Delivery of
and payment for these securities may take as long as a month or more after the
date of the purchase commitment. Each Portfolio will maintain with the
Custodian Bank a separate account with a segregated portfolio of securities in
an amount at least equal to these commitments. The payment obligation and the
interest rates that will be received are each fixed at the time a Portfolio
enters into the commitment and no interest accrues to the Portfolio until
settlement. Thus, it is possible that the market value at the time of
settlement could be higher
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or lower than the purchase price if the general level of interest rates has
changed. It is a current policy of the Portfolios not to enter into when-issued
commitments exceeding in the aggregate 15% of the market value of the
Portfolio's total assets less liabilities other than the obligations created by
these commitments.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements with brokers, dealers or
banks deemed to be creditworthy by a Portfolio's investment adviser under
guidelines of the Fund's directors. In a repurchase agreement, a Portfolio buys
securities from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week
and never exceeds one year. Not more than 10% of a Portfolio's assets may be
invested in repurchase agreements having a maturity in excess of seven days,
in the case of The Defensive Equity, The Aggressive Growth, The International
Equity, The Fixed Income, The Limited-Term Maturity, The Global Fixed Income and
The International Fixed Income Portfolios, and 15% of the total assets of a
Portfolio, in the case of The Defensive Equity Small/Mid-Cap, The Defensive
Equity Utility, The Labor Select International Equity, The Real Estate
Investment Trust and The High-Yield Bond Portfolios. Repurchase agreements may
be viewed as a fully collateralized loan of money by a Portfolio to the seller.
The Portfolio always receives securities as collateral with a market value at
least equal to the purchase price and this value is maintained during the term
of the agreement. If the seller defaults and the collateral value declines, a
Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, a Portfolio's realization upon the collateral may be
delayed or limited. Each Portfolio may invest cash balances in a joint
repurchase agreement in accordance with an Order the Delaware Group has obtained
from the Commission under Section 17(d) of the 1940 Act.
SECURITIES LENDING ACTIVITIES
Each Portfolio 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.
The major risk to which a Portfolio 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 Portfolio will only enter into loan arrangements
after a review of all pertinent facts by the investment adviser, subject to
overall supervision by 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 investment adviser.
BORROWING FROM BANKS
Each Portfolio may borrow money as a temporary measure or to facilitate
redemptions. No Portfolio has the intention of increasing its net income
through borrowing. Any borrowing will be done from a bank and, consistent with
Commission rules, immediately after any borrowing is in an amount which exceeds
5% of its net assets, there must be asset coverage of at least 300%. In the
event the asset coverage declines below 300%, a Portfolio would take steps to
reduce the amount of its borrowings so that asset coverage would equal at least
300%. Securities will not be purchased while a Portfolio has an outstanding
borrowing.
FOREIGN INVESTMENT INFORMATION
The International Equity Portfolio, The Labor Select International Equity
Portfolio, The Global Fixed Income Portfolio and The International Fixed Income
Portfolio (and The Defensive Equity Utility, The Real Estate Investment Trust
and The High-Yield Bond Portfolios, up to 10% of their total assets) will invest
in securities of foreign issuers and may hold foreign currency. Investments in
obligations of foreign issuers involve somewhat different investment risks than
those affecting obligations of United States issuers. There is limited publicly
available information with respect to foreign issuers, and foreign issuers are
not subject to uniform
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accounting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. There is also less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States and it is more difficult to enforce legal
rights outside of the U.S. Many foreign securities markets have substantially
less volume than U.S. national securities exchanges, and securities of some
foreign issuers are less liquid and more volatile than securities of comparable
domestic issuers. Settlement practices of certain foreign countries may include
delays and may otherwise differ from those customary in U.S. markets. Brokerage
commissions and other transaction costs on foreign securities exchanges are
generally higher than in the United States. It is also expected that the
expenses for custodial arrangements of The International Equity, The Defensive
Equity Utility, The Labor Select International Equity, The Real Estate
Investment Trust, The Global Fixed Income, The International Fixed Income and
The High-Yield Bond Portfolios' foreign securities will be somewhat greater than
the expenses for the custodial arrangements for U.S. securities of equal value.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a Portfolio receives from the companies comprising the Portfolio's
investments. See "TAXES." Additional risks include future political and economic
developments, the possibility that a foreign jurisdiction might impose or change
withholding taxes on income payable with respect to foreign securities, possible
seizure, nationalization or expropriation of the foreign issuer or foreign
deposits and the possible adoption of foreign government restrictions such as
exchange controls. Also, because a Portfolio may hold foreign currency and
because stocks of foreign companies are normally denominated in foreign
currencies, the Portfolio may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations, and may incur costs in
connection with conversions between various currencies. See "FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS" below.
The risks noted above often are heightened for investments in emerging or
developing countries. Compared to the United States and other developed
countries, emerging or developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities. Prices on these exchanges tend to be
volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries. Further, investments by foreign investors are subject to a
variety of restrictions in many emerging or developing countries. These
restrictions may take the form of prior governmental approval, limits on the
amount or type of securities held by foreigners, and limits on the type of
companies in which foreigners may invest. Additional restrictions may be
imposed at any time by these or other countries in which a Portfolio invests.
In addition, the repatriation of both investment income and capital from several
foreign countries is restricted and controlled under certain regulations,
including in some cases the need for certain government consents. Although
these restrictions may in the future make it undesirable to invest in emerging
or developing countries, the Portfolios' investment advisers do not believe that
any current repatriation restrictions would affect their decision to invest in
such countries.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As noted above, the foreign investments made by The International Equity, The
Defensive Equity Utility, The Labor Select International Equity, The Real Estate
Investment Trust, The Global Fixed Income and The International Fixed Income
Portfolios present currency considerations which pose special risks. The
investment advisers use a purchasing power parity approach to evaluate currency
risk. A purchasing power parity approach attempts to identify the amount of
goods and services that a dollar will buy in the United States and compares that
to the amount of a foreign currency required to buy the same amount of goods and
services in another country. When the dollar buys less abroad, the foreign
currency may be considered to be overvalued. When the dollar buys more abroad,
the foreign currency may be considered to be undervalued. Eventually,
currencies should trade at levels that should make it possible for the dollar to
buy the same amount of goods and services overseas as in the United States.
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Although The International Equity Portfolio, The Defensive Equity Utility
Portfolio, The Labor Select International Equity Portfolio, The Real Estate
Investment Trust Portfolio, The Global Fixed Income Portfolio and The
International Fixed Income Portfolio value their assets daily in terms of U.S.
dollars, they do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. A Portfolio will, 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. A Portfolio may conduct its foreign
currency exchange transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through entering into
contracts to purchase or sell foreign currencies at a future date (i.e., a
"forward foreign currency" contract or "forward" contract). A Portfolio will
convert currency on a spot basis from time to time, and investors should be
aware of the costs of currency conversion.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract.
A Portfolio may enter into forward contracts to "lock in" the price of a
security it has agreed to purchase or sell, in terms of U.S. dollars or other
currencies in which the transaction will be consummated. By entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars or
foreign currency, of the amount of foreign currency involved in the underlying
security transaction, a Portfolio will be able to protect itself against a
possible loss resulting from an adverse change in currency exchange rates during
the period between the date the security is purchased or sold and the date on
which payment is made or received.
For example, when the investment adviser believes that the currency of a
particular foreign country may suffer a significant decline against the U.S.
dollar or against another currency, a Portfolio may enter 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 the Portfolio's securities denominated in such foreign currency. A Portfolio
will not enter into forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate the Portfolio
to deliver an amount of foreign currency in excess of the value of the
Portfolio's securities or other assets denominated in that currency.
The Portfolios may enter into forward contracts to hedge the currency risk
associated with the purchase of individual securities denominated in particular
currencies. In the alternative, the Portfolios may also engage in currency
"cross hedging" when, in the opinion of the investment advisers, as appropriate,
the historical relationship among foreign currencies suggests that the
Portfolios may achieve the same protection for a foreign security at reduced
cost and/or administrative burden through the use of a forward contract relating
to a currency other than the U.S. dollar or the foreign currency in which the
security is denominated.
At the maturity of a forward contract, a Portfolio may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Portfolio may realize gain or loss from currency
transactions.
With respect to forward foreign currency contracts, the precise matching of
forward contract amounts and the value of the securities involved is generally
not possible since the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date it
matures. The projection of short-term currency strategy is highly uncertain.
It is impossible to forecast the market value of Portfolio securities at the
expiration of the contract. Accordingly, it may be necessary for a Portfolio to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign
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currency the Portfolio is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of a Portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
HIGH-YIELD, HIGH RISK SECURITIES
The International Fixed Income Portfolio and The Global Fixed Income Portfolio
may each invest up to 5% of its assets in high risk, high-yield fixed income
securities of foreign governments, including so-called Brady Bonds. In
addition, The Defensive Equity Utility Portfolio may invest up to 10% of its
total assets in fixed income securities rated below investment grade. These
securities are rated lower than BBB by S&P and Baa by Moody's or, if unrated,
are considered by the investment adviser to have characteristics similar to such
rated securities. Finally, The High-Yield Bond Portfolio invests primarily in
securities rated CCC or higher by S&P or Caa or higher by Moody's, or, if
unrated, judged to be of comparable quality by the investment adviser. See
"APPENDIX A--RATINGS" to this Prospectus for more rating information. The
discussion in this Section supplements the description of the risks of high-
yield securities found earlier in this Prospectus in "INVESTMENT OBJECTIVES,
POLICIES AND RISK CONSIDERATIONS - THE HIGH-YIELD BOND PORTFOLIO," and investors
should refer to that Section for a further discussion of the risks of high-yield
bonds.
Fixed income securities of this type are considered to be of poor standing and
predominantly speculative. Such securities are subject to a substantial degree
of credit risk. In the past, the high-yields from these bonds have more than
compensated for their higher default rates. There can be no assurance, however,
that yields will continue to offset default rates on these bonds in the future.
The Portfolios' investment advisers intend to maintain an adequately diversified
portfolio of these bonds. While diversification can help to reduce the effect
of an individual default on the Portfolios, there can be no assurance that
diversification will protect the Portfolios from widespread bond defaults
brought about by a sustained economic downturn.
Medium and low-grade bonds held by the Portfolios 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 by highly leveraged (indebted) firms,
which are generally less able than more financially stable firms to make
scheduled payments of interest and principal. The risks posed by bonds issued
under such circumstances are substantial.
The economy and interest rates may affect these high-yield, high risk securities
differently from other securities. Prices have been found to be 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 substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service principal and interest payment obligations, to meet
projected business goals and to obtain additional financing. Changes by
recognized rating agencies in their rating of any security and in the ability of
an issuer to make payments of interest and principal will also ordinarily have a
more dramatic effect on the values of these investments than on the values of
higher-rated securities. Such changes in value will not affect cash income
derived from these securities, unless the issuers fail to pay interest or
dividends when due. Such changes will, however, affect the Portfolios' net
asset value per share.
The International Fixed Income and The Global Fixed Income Portfolios also have
the ability to invest in Brady Bonds issued pursuant to the Brady Plan. Brady
Bonds are debt securities issued under the framework of the Brady Plan, an
initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989
as a mechanism for debtor nations to restructure their outstanding external
indebtedness (generally commercial bank debt). In restructuring its external
debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund. The Brady Plan framework, as it has
developed, contemplates the exchange of commercial bank debt
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for new issued bonds (Brady Bonds). The investment advisers believe that
economic reforms undertaken by countries in connection with the issuance of
Brady Bonds make the debt of countries which have issued or have announced plans
to issue Brady Bonds an attractive opportunity for investment. Investors,
however, should recognize that the Brady Plan only sets forth general guiding
principles for economic reform and debt reduction, emphasizing that solutions
must be negotiated on a case-by-case basis between debtor nations and their
creditors. In addition, Brady Bonds have been issued only recently and,
accordingly, do not have a long payment history. See "FOREIGN INVESTMENT
INFORMATION" above.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested, to facilitate investments in equity
securities and to reduce transaction costs, The Aggressive Growth Portfolio and
The Real Estate Investment Trust Portfolio may, to a limited extent, enter into
futures contracts, purchase or sell options on futures contracts and engage in
certain transactions in options on securities, and may enter into closing
transactions with respect to such activities. The Portfolios will only enter
into these transactions for hedging purposes if it is consistent with the
Portfolios' investment objectives and policies and the Portfolios will not
engage in such transactions to the extent that obligations relating to futures
contracts, options on futures contracts and options on securities (see "FUTURES
CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--OPTIONS ON SECURITIES"), in the
aggregate, exceed 25% of the Portfolios' assets.
Additionally, The International Fixed Income Portfolio may enter into futures
contracts, purchase or sell options on futures contracts, and trade in options
on foreign currencies, and may enter into closing transactions with respect to
such activities. The Portfolios will enter into such transactions to hedge or
"cross hedge" the currency risks associated with its investments, as described
under "FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS" above.
The Aggressive Growth Portfolio and The Real Estate Investment Trust Portfolio
may enter into contracts for the purchase or sale for future delivery of
securities. When a futures contract is sold, the Portfolios incur a contractual
obligation to deliver the securities underlying the contract at a specified
price on a specified date during a specified future month. A purchase of a
futures contract means the acquisition of a contractual right to obtain delivery
to the Portfolio of the securities called for by the contract at a specified
price during a specified future month. Because futures contracts require only a
small initial margin deposit, the Portfolios would then be able to keep a cash
reserve applicable to meet potential redemptions while at the same time being
effectively fully invested.
Foreign currency futures contracts operate similarly to futures contracts
concerning securities. When The International Fixed Income Portfolio sells a
futures contract on a foreign currency, it is obligated to deliver that foreign
currency at a specified future date. Similarly, a purchase by the Portfolio
gives it a contractual right to receive a foreign currency. This enables the
Portfolio to "lock in" exchange rates.
The Portfolios may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options except that options on
futures give the purchaser the right, in return for the premium paid, to assume
a position in a futures contract, rather than actually to purchase or sell the
futures contract, at a specified exercise price at any time during the period of
the option. The Portfolios will not enter into futures contracts and options
thereon to the extent that more than 5% of a Portfolio's assets are required as
futures contract margin deposits and premiums on options and only to the extent
that obligations under such futures contracts and options thereon would not
exceed 20% of the Portfolio's total assets.
To the extent that interest or exchange rates move in an unexpected direction,
the Portfolio may not achieve the anticipated benefits of investing in futures
contracts and options thereon, or may realize a loss. To the extent that a
Portfolio purchases an option on a futures contract and fails to exercise the
option prior to the exercise
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date, it will suffer a loss of the premium paid. Further, the possible lack of a
secondary market would prevent the Portfolio from closing out its positions
relating to futures.
OPTIONS
OPTIONS ON SECURITIES
The Aggressive Growth Portfolio and The Real Estate Investment Trust Portfolio
may write covered call options on U.S. securities, purchase call options on such
securities and enter into closing transactions related thereto. A Portfolio may
also purchase put options on U.S. securities, may write secured put options on
such securities and enter into closing transactions related thereto.
A covered call option obligates the writer, in return for the premium received,
to sell one of its securities to the purchaser of the option for an agreed price
up to an agreed date. The advantage is that the writer receives premium income
and the purchaser may hedge against an increase in the price of securities it
ultimately wishes to buy. A Portfolio will only purchase call options to the
extent that premiums paid on all outstanding call options do not exceed 2% of
the Portfolio's total assets.
A put option obligates the writer, in return for the premium received, to buy
the security underlying the option at the exercise price during the option
period, and the purchaser of the option has the right to sell the security to
the writer. The Portfolios will only write put options on a secured basis which
means that the Portfolios will maintain, in a segregated account with the
Custodian Bank, cash or U.S. Government securities in an amount not less than
the exercise price of the option at all times during the option period. A
Portfolio will only purchase put options if the Portfolio owns the security
covered by the put option at the time of purchase and to the extent that the
premiums on all outstanding put options do not exceed 2% of the Portfolio's
total assets. The advantage is that the writer receives premium income while
the purchaser can be protected should the market value of the security decline.
Closing transactions essentially let the Portfolios offset put options or call
options prior to exercise or expiration. If a Portfolio cannot effect closing
transactions, it may have to hold a security it would otherwise sell or deliver
a security it might want to hold.
The Portfolios may use both exchange-traded and over-the-counter options.
Certain over-the-counter options may be illiquid. The Aggressive Growth
Portfolio will only invest in such options to the extent consistent with its 10%
limit on investments in illiquid securities, and The Real Estate Investment
Trust Portfolio will only invest in such options to the extent consistent with
its 15% limit on investments in illiquid securities.
With respect to writing covered call options, the Portfolios may lose the
potential market appreciation of the securities subject to the option, if the
investment adviser's judgment is wrong and the price of the security moves in
the opposite direction from what was anticipated. In purchasing put and call
options, the premium paid by a Portfolio plus any transaction costs will reduce
any benefit realized by the Portfolio upon exercise of the option. When writing
put options, the Portfolios may be required, when the put is exercised, to
purchase securities at higher prices than current market prices.
OPTIONS ON FOREIGN CURRENCIES
The International Fixed Income Portfolio may purchase call options and write
covered call options on foreign currencies and enter into related closing
transactions. The Portfolio may also purchase put options and write secured put
options on foreign currencies and enter into related closing transactions. The
Portfolio will enter into such transactions to hedge or "cross hedge" the
currency risks associated with its investments, as described under "FORWARD
FOREIGN CURRENCY EXCHANGE CONTRACTS," above.
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Options on foreign currencies operate similarly to options on securities. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of a rate movement
adverse to the Portfolio's position, the Portfolio may forfeit the entire amount
of the premium plus any related transaction costs. As in the case of other
types of options, the writing of an option on a foreign currency will constitute
only a partial hedge, up to the amount of the premium received, and the
Portfolio could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses.
The Portfolio will write call options only if they are "covered" and put options
only if they are secured. A call written by the Portfolio will be considered
covered if the Portfolio owns short-term debt securities with a value equal to
the face amount of the option contract and denominated in the currency upon
which the call is written. A put option written by the Portfolio will be
considered secured if, so long as the Portfolio is obligated as the writer of
the put, it segregates with its Custodian Bank cash or liquid high grade debt
securities equal at all times to the aggregate exercise price of the put.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES AND FORWARD CONTRACTS
The use of futures contracts, options on futures contracts, forward contracts
and certain options for hedging and other non-speculative purposes as described
above involves certain risks. For example, a lack of correlation between price
changes of an option or futures contract and the assets being hedged could
render a Portfolio's hedging strategy unsuccessful and could result in losses.
The same results could occur if movements of foreign currencies do not correlate
as expected by the investment adviser at a time when a Portfolio is using a
hedging instrument denominated in one foreign currency to protect the value of a
security denominated in a second foreign currency against changes caused by
fluctuations in the exchange rate for the dollar and the second currency. If
the direction of securities prices, interest rates or foreign currency prices is
incorrectly predicted, the Portfolio will be in a worse position than if such
transactions had not been entered into. In addition, since there can be no
assurance that a liquid secondary market will exist for any contract purchased
or sold, a Portfolio may be required to maintain a position (and in the case of
written options may be required to continue to hold the securities used as
cover) until exercise or expiration, which could result in losses. Further,
options and futures contracts on foreign currencies, and forward contracts,
entail particular risks related to conditions affecting the underlying currency.
Over-the-counter transactions in options and forward contracts also involve
risks arising from the lack of an organized exchange trading environment.
RESTRICTED/ILLIQUID SECURITIES
Each Portfolio may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 ("1933 Act"). Rule 144A exempts
many privately placed and legally restricted securities from the registration
requirements of the 1933 Act and permits such securities to be freely traded
among certain institutional buyers such as the Portfolios. Each Portfolio,
other than The Defensive Equity Small/Mid-Cap, The Defensive Equity Utility, The
Labor Select International Equity, The Real Estate Investment Trust, The High-
Yield Bond and The International Fixed Income Portfolios, may invest no more
than 10% of the value of its net assets in illiquid securities. The Defensive
Equity Small/Mid-Cap, The Defensive Equity Utility, The Labor Select
International Equity, The Real Estate Investment Trust, The High-Yield Bond and
The International Fixed Income Portfolios may each invest no more than 15% of
the value of its net assets in illiquid securities. Illiquid securities, for
purposes of this policy, include repurchase agreements maturing in more than
seven days.
While maintaining oversight, the Board of Directors has delegated to each
Portfolio's investment adviser the day-to-day functions of determining whether
or not individual Rule 144A Securities are liquid for purposes of a Portfolio's
limitation on investments in illiquid assets. The Board has instructed each
Portfolio's investment adviser to consider the following factors in determining
the liquidity of a Rule 144A Security: (i) the frequency of trades and trading
volume for the security; (ii) whether at least three dealers are
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willing to purchase or sell the security and the number of potential purchasers;
(iii) whether at least two dealers are making a market in the security; and (iv)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer).
If an investment adviser determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Portfolio's holdings of illiquid securities exceed the Portfolio's 10% or 15%
limit, as applicable, on investment in such securities, the investment adviser
will determine what action shall be taken to ensure that the Portfolio continues
to adhere to such limitation.
CONVERTIBLE, DEBT AND NON-TRADITIONAL EQUITY SECURITIES
From time to time, The Defensive Equity Utility Portfolio may invest in
convertible securities of issuers in the utility industry. In addition, a
portion of The Defensive Equity Small/Mid-Cap and The High-Yield Bond
Portfolios' assets may be invested in convertible and debt securities of issuers
in any industry, and The Real Estate Investment Trust Portfolio's assets may be
invested in convertible securities of issuers in the real estate industry. A
convertible security is a security which may be converted at a stated price
within a specified period of time into a certain quantity of the common stock of
the same or a different issuer. Convertible and debt securities are senior to
common stocks in a corporation's capital structure, although convertible
securities are usually subordinated to similar nonconvertible securities.
Convertible and debt securities provide a fixed income stream and the
opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in the convertible security's
underlying common stock. Just as with debt securities, convertible securities
tend to increase in market value when interest rates decline and tend to
decrease in value when interest rates rise. However, the price of a convertible
security is also influenced by the market value of the security's underlying
common stock and tends to increase as the market value of the underlying stock
rises, whereas it tends to decrease as the market value of the underlying stock
declines. Convertible and debt securities acquired by The Defensive Equity
Small/Mid-Cap, The Defensive Equity Utility, The Real Estate Investment Trust
and The High-Yield Bond Portfolios may be rated below investment grade, or
unrated. These lower rated convertible and debt securities are subject to
credit risk considerations substantially similar to such considerations
affecting high risk, high-yield bonds, commonly referred to as "junk bonds."
See "INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS--THE HIGH-YIELD
BOND PORTFOLIO" and "HIGH-YIELD, HIGH RISK SECURITIES" for a further discussion
of these types of investments.
The Defensive Equity Small/Mid-Cap, The Defensive Equity Utility, The Real
Estate Investment Trust and The High-Yield Bond Portfolios may invest in
convertible preferred stocks that offer enhanced yield features, such as
Preferred Equity Redemption Cumulative Stock ("PERCS"), which provide an
investor, such as a Portfolio, with the opportunity to earn higher dividend
income than is available on a company's common stock. A PERCS is a preferred
stock which generally features a mandatory conversion date, as well as a capital
appreciation limit which is usually expressed in terms of a stated price. Upon
the conversion date, most PERCS convert into common stock of the issuer (PERCS
are generally not convertible into cash at maturity). Under a typical
arrangement, if after a predetermined number of years the issuer's common stock
is trading at a price below that set by the capital appreciation limit, each
PERCS would convert to 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 hence do not provide call
protection. However, if called early, the issuer may pay a call 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.
The Defensive Equity Small/Mid-Cap, The Defensive Equity Utility, The Real
Estate Investment Trust and The High-Yield Bond Portfolios may also invest in
other enhanced convertible securities. These include but are not limited to
ACES (Automatically Convertible Equity Securities), PEPS (Participating Equity
Preferred Stock),
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PRIDES (Preferred Redeemable Increased Dividend Equity Securities), SAILS (Stock
Appreciation Income Linked Securities), TECONS (Term Convertible Notes), QICS
(Quarterly Income Cumulative Securities and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS, and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.
REITS
The Real Estate Investment Trust Portfolio's investment in REITs presents
certain further risks that are unique and in addition to the risks associated
with investing in the real estate industry in general. Equity REITs may be
affected by changes in the value of the underlying property owned by the REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent on management skills, are not diversified, and are subject
to the risks of financing projects. REITs whose underlying assets include long-
term health care properties, such as nursing, retirement and assisted living
homes, may be impacted by federal regulations concerning the health care
industry.
REITs (especially mortgage REITs) are also subject to interest rate risks - when
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
REITs may have limited financial resources, may trade less frequently and in a
limited volume, and may be subject to more abrupt or erratic price movements
than other securities.
AMERICAN DEPOSITORY RECEIPTS
The Defensive Equity, The Defensive Equity Small/Mid-Cap, The Defensive Equity
Utility, The Real Estate Investment Trust, The Global Fixed Income and The
International Fixed Income Portfolios may invest in sponsored and unsponsored
American Depository Receipts ("ADRs") that are actively traded in the United
States. ADRs are receipts typically issued by a U.S. bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. "Sponsored" ADRs are issued jointly by the issuer of the
underlying security and a depository, and "unsponsored" ADRs are issued without
the participation of the issuer of the deposited security. Holders of
unsponsored ADRs generally bear all the costs of such facilities and the
depository of an unsponsored ADR facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to the holders of such receipts in
respect of the deposited securities. Therefore, there may not be a correlation
between information concerning the issuer of the security and the market value
of an unsponsored ADR.
INVESTMENT LIMITATIONS
Each Portfolio's investment objectives, their designation as a diversified
portfolio or, in the case of The Defensive Equity Utility, The Real Estate
Investment Trust, The Global Fixed Income and The International Fixed Income
Portfolios, as non-diversified portfolios, and their policies concerning
portfolio lending,
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borrowing from a bank and concentration of investments in specific industries
may not be changed unless authorized by the vote of a majority of a Portfolio's
outstanding voting securities. A "majority vote of the outstanding voting
securities" is the vote by the holders of the lesser of a) 67% or more of a
Portfolio's voting securities present in person or represented by proxy; or b)
more than 50% of the outstanding voting securities. The Statement of Additional
Information lists other more specific investment restrictions of each Portfolio
which may not be changed without a majority shareholder vote.
Except as specified above and under the heading "INVESTMENT OBJECTIVES, POLICIES
AND RISK CONSIDERATIONS" and as described under "INVESTMENT POLICIES, PORTFOLIO
TECHNIQUES AND RISK CONSIDERATIONS," in the Statement of Additional Information,
the foregoing investment policies are not fundamental and the directors may
change such policies without an affirmative vote of a "majority of the Fund's
outstanding voting securities," as defined in the 1940 Act.
MANAGEMENT OF THE FUND
DIRECTORS
The business and affairs of the Fund and its Portfolios are managed under the
direction of the Fund's Board of Directors. See "FUND OFFICERS AND PORTFOLIO
MANAGERS" in the Prospectus Summary and the Fund's Statement of Additional
Information for additional information about the Fund's officers and directors.
INVESTMENT ADVISERS
Delaware Investment Advisers, a division of Delaware Management Company, Inc.
("Delaware"), furnishes investment advisory services to The Defensive Equity,
The Aggressive Growth, The Defensive Equity Small/Mid-Cap, The Defensive Equity
Utility, The Real Estate Investment Trust, The Fixed Income, The Limited-Term
Maturity and The High-Yield Bond Portfolios. Lincoln Investment Management,
Inc. ("Lincoln"), a wholly-owned subsidiary of Lincoln National Corporation,
acts as sub-adviser to Delaware with respect to The Real Estate Investment
Portfolio. In its capacity as sub-adviser, Lincoln furnishes Delaware with
investment recommendations, asset allocation advice, research, economic analysis
and other investment services with respect to the securities in which The Real
Estate Investment Trust Portfolio may invest. Delaware and its predecessors
have been managing the funds in the Delaware Group since 1938. On October 31,
1994, Delaware and its affiliate, Delaware International, were supervising in
the aggregate more than $25 billion in assets in various institutional
(approximately $16,074,376,000) and investment company (approximately
$4,525,500,000) accounts. Lincoln (formerly named Lincoln National Investment
Management Company) was incorporated in 1930. Lincoln's primary activity is
institutional fixed-income investment management and consulting. Such activity
includes fixed income portfolios, private placements, real estate debt and
equity, and asset/liability management. As of June 30, 1995, Lincoln had over
$34 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.
Delaware International Advisers Ltd. ("Delaware International") furnishes
investment advisory services to The International Equity Portfolio, The Labor
Select International Equity Portfolio, The Global Fixed Income Portfolio and The
International Fixed Income Portfolio. Several of the principals of Delaware
International were previously associated with a registered investment adviser
which managed the assets of a registered investment company. Delaware
International commenced operations as a registered investment adviser in
December 1990.
Delaware has entered into Investment Advisory Agreements with the Fund on behalf
of The Defensive Equity, The Aggressive Growth, The Defensive Equity Small/Mid-
Cap, The Defensive Equity Utility, The Real Estate Investment Trust, The Fixed
Income, The Limited-Term Maturity and The High-Yield Bond Portfolios. Delaware
has also entered into a Sub-Advisory Agreement with Lincoln with respect to The
Real Estate
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Investment Trust Portfolio. Delaware International has entered into Investment
Advisory Agreements with the Fund on behalf of The International Equity
Portfolio, The Labor Select International Equity Portfolio, The Global Fixed
Income Portfolio and The International Fixed Income Portfolio. Under these
Agreements, Delaware and Delaware International, subject to the control and
supervision of the Fund's Board of Directors and in conformance with the stated
investment objectives and policies of the Portfolios with which they have an
agreement, manage the investment and reinvestment of the assets of the
Portfolios with which they have agreements. In this regard, it is their
responsibility to make investment decisions for the respective Portfolios.
As compensation for the services to be rendered under their advisory agreements,
Delaware or, as relevant, Delaware International is entitled to an advisory fee
calculated by applying a quarterly rate, based on the following annual
percentage rates, to the Portfolio's average daily net assets for the quarter:
PORTFOLIO RATE
The Defensive Equity Portfolio .55%
The Aggressive Growth Portfolio .80%
The International Equity Portfolio .75%
The Defensive Equity Small/Mid-Cap Portfolio .65%
The Defensive Equity Utility Portfolio .35%
The Labor Select International Equity Portfolio .75%
The Real Estate Investment Trust Portfolio .75%*
The Fixed Income Portfolio .40%
The Limited-Term Maturity Portfolio .30%
The Global Fixed Income Portfolio .50%
The International Fixed Income Portfolio .50%
The High-Yield Bond Portfolio .45%
* Lincoln receives 30% of the advisory fee paid to Delaware for acting as sub-
adviser to The Real Estate Investment Trust Portfolio.
As noted in "FUND EXPENSES," Delaware or, as relevant, Delaware International
elected voluntarily to waive that portion, if any, of its investment advisory
fees and to reimburse a Portfolio's expenses to the extent necessary to ensure
that a Portfolio's expenses (investment advisory fees, plus certain other noted
expenses) do not exceed, on an annualized basis, the amounts noted in that
section of this Prospectus through October 31, 1995 with respect to The
Defensive Equity, The Aggressive Growth, The International Equity, The Fixed
Income, The Limited-Term Maturity, The Global Fixed Income and The International
Fixed Income Portfolios, and through October 31, 1996 with respect to the other
Portfolios of the Fund. In addition, out of the investment advisory fees to
which they are otherwise entitled, Delaware and Delaware International pay their
proportionate share of the fees paid to unaffiliated directors by the Fund,
except that Delaware will make no such payments out of the fees it receives for
managing The Defensive Equity Small/Mid-Cap, The Defensive Equity Utility, The
Real Estate Investment Trust and The High-Yield Bond Portfolios, and Delaware
International will make no such payments out of the fees it receives for
managing The Labor Select International Equity and The International Fixed
Income Portfolios. For the fiscal year ended October 31, 1994, the investment
management fees earned by The Defensive Equity, The Aggressive Growth, The
International Equity and The Global Fixed Income Portfolios were 0.54%, 0.79%,
0.74% and 0.49%, respectively, of average daily net assets. After considering
the waiver of fees by the respective investment adviser, as described above, the
fees paid by The Defensive Equity, The Aggressive Growth, The International
Equity and The Global Fixed Income Portfolios amounted to 0.39%, 0.55%, 0.71%
and 0.35%, respectively, of average daily net assets. The advisory fees payable
by The Aggressive Growth, The International Equity, The Labor Select
International Equity and The Real Estate Investment Trust Portfolios, while
higher than the advisory fees paid by other mutual funds in general, are
comparable to fees paid by other mutual funds with similar objectives and
policies to the Portfolios.
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Delaware is an indirect, wholly-owned subsidiary 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. As a result of the merger, DMH, Delaware and Delaware International
became indirect, wholly-owned subsidiaries of Lincoln National and each is now
subject to the ultimate control of Lincoln National. Lincoln Investment
Management, Inc. ("Lincoln"), the sub-adviser to Delaware with respect to The
Real Estate Investment Trust Portfolio, is a wholly-owned subsidiary of Lincoln
National. Delaware, Delaware International and Lincoln may be deemed to be
affiliated persons under the 1940 Act, as the three companies are each under 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. In connection with the merger, new Investment Management Agreements
between the Fund on behalf of The Defensive Equity Portfolio, The Aggressive
Growth Portfolio, The Fixed Income Portfolio and The Limited-Term Maturity
Portfolio and Delaware, and new Investment Management Agreements between the
Fund on behalf of The International Equity Portfolio, The Global Fixed Income
Portfolio and The International Fixed Income Portfolio and Delaware
International were executed following shareholder approval. Delaware's address
is One Commerce Square, 2005 Market Street, Philadelphia, PA 19103. Delaware
International's address is Veritas House, 125 Finsbury Pavement, London, England
EC2A INQ. Lincoln's address is 200 E. Berry Street, Fort Wayne, Indiana 46802.
ADMINISTRATOR
Delaware Service Company, Inc., an affiliate of Delaware and an indirect,
wholly-owned subsidiary of DMH, provides the Fund with administrative services
pursuant to the Amended and Restated Shareholders Services Agreement with the
Fund on behalf of the Portfolios. The services provided under the Amended and
Restated Shareholders Services Agreement are subject to the supervision of the
officers and directors of the Fund, and include day-to-day administration of
matters related to the corporate existence of the Fund, maintenance of its
records, preparation of reports, supervision of the Fund's arrangements with its
Custodian Bank, and assistance in the preparation of the Fund's registration
statements under Federal and State laws. The Amended and Restated Shareholders
Services Agreement also provides that Delaware Service Company, Inc. will
provide the Fund with dividend disbursing and transfer agent services. Delaware
Service Company, Inc. is located at 1818 Market Street, Philadelphia, PA 19103.
For its services under the Amended and Restated Shareholders Services Agreement,
the Fund pays Delaware Service Company, Inc. an annual fixed fee, payable
monthly, and allocated among the Portfolios of the Fund based on the relative
percentage of assets of each Portfolio.
DISTRIBUTOR
Delaware Distributors, L.P. ("DDLP"), 1818 Market Street, Philadelphia, PA
19103, serves as the exclusive Distributor of the shares of the Fund's
Portfolios. Under its Distribution Agreements with the Fund on behalf of each
Portfolio, DDLP sells shares of the Fund upon the terms and at the current
offering price described in this Prospectus. DDLP is not obligated to sell any
certain number of shares of the Fund. DDLP is an indirect, wholly-owned
subsidiary of DMH.
EXPENSES
Each Portfolio is responsible for payment of certain other fees and expenses
(including legal fees, accountants' fees, custodial fees and printing and
mailing costs) specified in the Amended and Restated Shareholders Services
Agreement and each of the respective Distribution Agreements. The ratio of
expenses to average daily net assets for The Defensive Equity, The Aggressive
Growth, The International Equity and The Global Fixed Income Portfolios was
0.68%, 0.93%, 0.94% and 0.62%, respectively, for the period ended October 31,
1994. These ratios reflect the waiver of fees by the respective investment
adviser, as described above.
SHAREHOLDER SERVICES
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SPECIAL REPORTS AND OTHER SERVICES
The Fund provides client shareholders with annual audited financial reports and
unaudited semi-annual financial reports. In addition, the investment advisers'
dedicated service staff may also provide client shareholders a detailed monthly
appraisal of the status of their account and a complete review of portfolio
assets, performance results and other pertinent data. Finally, the investment
advisers expect to conduct personal reviews no less than annually with each
client shareholder, with interim telephone updates and other communication, as
appropriate. The Fund's dedicated telephone number, (1-800-231-8002), is
available for shareholder inquiries during normal business hours. The net asset
values for the Portfolios are also available by using the above "800" telephone
number.
EXCHANGE PRIVILEGE
Each Portfolio's shares may be exchanged for shares of the Fund's other
Portfolios based on the respective net asset values of the shares involved and
as long as a Portfolio's minimum is satisfied. Exchange requests should be sent
to Delaware Pooled Trust, Inc., One Commerce Square, 2005 Market Street,
Philadelphia, PA 19103, Attn: Client Services. Such an exchange would be
considered a taxable event in instances where an institutional shareholder is
subject to tax. The exchange privilege is only available with respect to
Portfolios that are registered for sale in a shareholder's state of residence.
The Fund reserves the right to suspend or terminate, or amend the terms of, the
exchange privilege upon 60 days' written notice to client shareholders.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund maintains the following dividend and capital gains policies for its
twelve Portfolios.
The Fixed Income, The Limited-Term Maturity, The Global Fixed Income and The
International Fixed Income Portfolios expect to declare dividends daily and
distribute them monthly. The Defensive Equity Utility and The High-Yield Bond
Portfolios expect to declare dividends monthly and distribute them monthly. The
Defensive Equity Small/Mid-Cap, The Defensive Equity, The International Equity
and The Labor Select International Equity Portfolios expect to declare and
distribute all of their net investment income to shareholders as dividends
quarterly. The Aggressive Growth and The Real Estate Investment Trust
Portfolios expect to declare and distribute all of their net investment income
to shareholders as dividends annually.
Net capital gains, if any, will be distributed annually. Unless a shareholder
elects to receive dividends and capital gains distributions in cash, all
dividends and capital gains distributions shall be automatically paid in
additional shares at net asset value of the Portfolio.
In addition, in order to satisfy certain distribution requirements of the Tax
Reform Act of 1986, each Portfolio may declare special year-end dividend and
capital gains distributions during November or December to shareholders of
record on a date in such month. Such distributions, if received by shareholders
by January 31, are deemed to have been paid by a Portfolio and received by
shareholders on the earlier of the date paid or December 31 of the prior year.
For the fiscal year ended October 31, 1994, a dividend of $0.280, $0.020, $0.949
and $0.160 per share of The Defensive Equity, The Aggressive Growth, The Global
Fixed Income and The International Equity Portfolios, respectively, was paid
from net investment income. In addition, a distribution of $0.343, $0.210,
$0.577 and $0.100 per share of The Defensive Equity, The Aggressive Growth, The
Global Fixed Income and The International Equity Portfolios, respectively, was
paid from realized securities profits.
TAXES
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GENERAL
Each Portfolio within the Fund has qualified or intends to qualify, and each
intends to continue to qualify, as a regulated investment company under the
Internal Revenue Code (the "Code"). As such, a Portfolio will not be subject to
federal income or excise tax to the extent its earnings are distributed to its
shareholders as provided in the Code.
Each Portfolio intends to distribute substantially all of its net investment
income and net capital gains. Dividends from net investment income or net
short-term capital gains will be taxable to you as ordinary income, whether
received in cash or in additional shares. For corporate investors, dividends
paid by the Equity Oriented Portfolios, with the exception of The International
Equity and The Labor Select International Equity Portfolios, from net investment
income will generally qualify, in part, for the intercorporate dividends-
received deduction. However, the portion of the dividends so qualified depends
on the aggregate qualifying dividend income received by a Portfolio from
domestic (U.S.) sources. Of the dividends paid by The Defensive Equity and The
Aggressive Growth Portfolios for the fiscal year ended October 31, 1994, 42% and
100%, respectively, were eligible for this deduction.
Distributions paid by a Portfolio from long-term capital gains, whether received
in cash or in additional shares, are taxable to those investors who are subject
to income taxes as long-term capital gains, regardless of the length of time an
investor has owned shares in a Portfolio. The Portfolios do not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a byproduct of Portfolio management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Portfolio are made
shortly before the record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution.
The sale of shares of a Portfolio is a taxable event and may result in a capital
gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
two mutual funds (or two portfolios of a mutual fund). Any loss incurred on the
sale or exchange of the shares of a Portfolio, held for six months or less, will
be treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares.
Each year, the Fund will mail to you information on the amount and tax status of
each Portfolio's dividends and distributions. Shareholders should consult their
own tax advisers regarding specific questions as to federal, state, local or
foreign taxes.
The Fund is required to withhold 31% of taxable dividends capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
THE INTERNATIONAL EQUITY PORTFOLIO, THE LABOR SELECT INTERNATIONAL EQUITY
PORTFOLIO, THE GLOBAL FIXED INCOME PORTFOLIO AND THE INTERNATIONAL FIXED INCOME
PORTFOLIO - FOREIGN TAXES
Each of The International Equity Portfolio, The Labor Select International
Equity Portfolio, The Global Fixed Income Portfolio and The International Fixed
Income Portfolio may elect to "pass-through" to its shareholders the amount of
foreign income taxes paid by such Portfolio. A Portfolio will make such an
election only if it deems it to be in the best interests of its shareholders.
If this election is made, shareholders of a Portfolio will be required to
include in their gross income their pro-rata share of foreign taxes paid by the
Portfolio. However, shareholders will be able to treat their pro-rata share of
foreign taxes as either an itemized deduction or a foreign tax credit (but not
both) against U.S. income taxes on their tax return.
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The tax discussion set forth above is included for general information only.
Prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in the Fund.
Additional information on tax matters is included in the Statement of Additional
Information.
VALUATION OF SHARES
The net asset value per share of each Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset value
per share is determined as of the close of regular trading on the NYSE on each
day the NYSE is open for business. Securities listed on a U.S. securities
exchange for which market quotations are available are valued at the last quoted
sale price on the day the valuation is made. Price information on listed
securities is taken from the exchange where the security is primarily traded.
Securities listed on a foreign exchange are valued at the last quoted sale price
available before the time when net assets are valued. Unlisted securities and
listed securities not traded on the valuation date for which market quotations
are readily available are valued at a price that is considered to best represent
fair value within a range not in excess of the current asked price nor less than
the current bid prices. Domestic equity securities traded over-the-counter,
domestic equity securities which are not traded on the valuation date and U.S.
Government securities are priced at the mean of the bid and ask price.
Bonds and other fixed income securities are valued according to the broadest and
most representative market, which will ordinarily be the over-the-counter
market. In addition, bonds and other fixed income securities may be valued on
the basis of prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. The prices provided by a
pricing service are determined without regard to bid or last sale prices but
take into account institutional size trading in similar groups of securities and
any developments related to the specific securities. Securities not priced in
this manner are valued at the most recent quoted mean price, or, when stock
exchange valuations are used, at the latest quoted sale price on the day of
valuation. If there is no such reported sale, the latest quoted mean price will
be used. Securities with remaining maturities of 60 days or less are valued at
amortized cost, if it approximates market value. In the event that amortized
cost does not approximate market value, market prices as determined above will
be used.
Exchange-traded options are valued at the last reported sales price or, if no
sales are reported, at the mean between the last reported bid and ask prices.
Non-exchange traded options are valued at fair value using a mathematical model.
Futures contracts are valued at their daily quoted settlement price. The value
of other assets and securities for which no quotations are readily available
(including restricted securities) are determined in good faith at fair value
using methods determined by the Fund's Board of Directors.
The securities in which The International Equity Portfolio, The Labor Select
International Equity Portfolio, The Global Fixed Income Portfolio and The
International Fixed Income Portfolio (and, to a limited extent, The Defensive
Equity Utility Portfolio, The Real Estate Investment Trust Portfolio and The
High-Yield Bond Portfolio) may invest from time to time may be listed primarily
on foreign exchanges which trade on days when the NYSE is closed (such as
Saturday). As a result, the net asset value of those Portfolios may be
significantly affected by such trading on days when shareholders have no access
to the Portfolios.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the mean between the bid and ask price of such currencies
against the U.S. dollar as provided by an independent pricing service or any
major bank, including the Custodian Bank. Forward foreign currency contracts
are valued at the mean price of the contracts. Interpolated values will be
derived when the settlement date of the contract is on an interim period for
which quotations are not available.
PORTFOLIO TRANSACTIONS
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In purchasing and selling securities for each of the Portfolios, the Fund (and,
in the case of The International Equity Portfolio, The Labor Select
International Equity Portfolio, The Global Fixed Income Portfolio and The
International Fixed Income Portfolio, the investment adviser) uses its best
efforts to obtain the best available price and most favorable execution and may,
where relevant, pay higher commissions in recognition of brokerage services
which in the opinion of the Fund's trading department (and, in the case of The
International Equity Portfolio, The Labor Select International Equity Portfolio,
The Global Fixed Income Portfolio and The International Fixed Income Portfolio,
the investment adviser) are necessary and in the best interest of the Fund's
shareholders. In selecting broker/dealers to execute the securities transactions
for the Portfolios, consideration will be given to such factors as the price of
the security, the rate of any commission, the size and difficulty of the order,
the reliability, integrity, financial condition, general execution and
operational capabilities of competing broker/dealers, and any brokerage and
research services which they provide to the Fund. These services may be used by
the investment advisers in servicing any of their other accounts. Some
securities considered for investment by each of the Fund's Portfolios may also
be appropriate for other clients served by the investment advisers. If a
purchase or sale of securities consistent with the investment policies of a
Portfolio and one or more of these other clients served by the investment
advisers is considered at or about the same time, transactions in such
securities will be allocated among the Portfolio and clients in a manner deemed
fair and reasonable. Although there is no specified formula for allocating such
transactions, the various allocation methods used and the results of such
allocations are subject to periodic review by the Fund's directors.
Subject to best price and execution, Portfolio orders may be placed with
qualified broker/dealers who recommend the Fund's Portfolios or who act as
agents in the purchase of shares of the Portfolios for their clients. The
portfolio turnover rates for the fiscal years ended October 31, 1993 and 1994
for The Defensive Equity Portfolio were 37% and 73%, respectively. The
portfolio turnover rates for the fiscal years ended October 31, 1993 and 1994
for The Aggressive Growth Portfolio were 81% and 43%, respectively. The
portfolio turnover rates for the fiscal year ended October 31, 1993 and 1994 for
The International Equity Portfolio were 28% and 22%, respectively. For the
period November 30, 1992 (date of initial sale) to October 31, 1993, The Global
Fixed Income Portfolio's annualized portfolio turnover rate was 198%, and for
the fiscal year ended October 31, 1994 was 205%. See "PORTFOLIO TURNOVER" under
"TRADING PRACTICES AND BROKERAGE" in the Statement of Additional Information.
PERFORMANCE INFORMATION
From time to time, the Portfolios may quote yield in advertising and other types
of sales literature. The current yield for each of these Portfolios will be
calculated by dividing the annualized net investment income earned by each of
the Portfolios during a recent 30-day period by the offering price per share
(net asset value) on the last day of the period. The yield information provides
for semi-annual compounding which assumes that net investment income is earned
and reinvested at a constant rate and annualized at the end of a six-month
period. Each Portfolio also may quote total return performance in advertising
and other types of literature. Total return will be based on a hypothetical
$1,000 investment, reflecting the reinvestment of all distributions at net asset
value at the beginning of the specific period. Each presentation will include,
as relevant, the average annual total return for one-, five- and ten-year
periods. Each Portfolio may also advertise aggregate and average total return
information over additional periods of time.
Yield and net asset value fluctuate and are not guaranteed. Past performance is
not an indication of future results.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
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The Fund was organized as a Maryland corporation on May 30, 1991. The Articles
of Incorporation permit the Fund to issue one billion shares of common stock
with $.01 par value and fifty million shares have been allocated to each
Portfolio. The Board of Directors has the power to designate one or more
classes of shares of common stock and to classify and reclassify any unissued
shares with respect to such classes.
The shares of each Portfolio, when issued, will be fully paid, non-assessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to the conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of each Portfolio have
noncumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of directors can elect 100% of the directors
if they choose to do so. Shares of each Portfolio entitled to vote on a matter
will vote in the aggregate and not by Portfolio, except when the matter to be
voted upon affects only the interests of shareholders of a particular Portfolio
or when otherwise expressly required by law. The Fund does not issue
certificates for shares unless a shareholder submits a specific request. Under
Maryland law, the Fund is not required, and does not intend, to hold annual
meetings of its shareholders unless, under certain circumstances, it is required
to do so under the 1940 Act.
CUSTODIAN BANK
Securities and cash are held by The Morgan Guaranty Trust Company of New York,
60 Wall Street, New York, NY 10260, as the Fund's custodian bank for all
Portfolios.
INDEPENDENT AUDITORS
Ernst & Young, Two Commerce Square, 2001 Market Street, Suite 4000,
Philadelphia, PA 19103, serves as independent auditors for the Fund.
EXPENSES
Each Portfolio is responsible for all its own expenses other than those borne by
its investment adviser under the relevant Investment Advisory Agreement and the
distributor under the Distribution Agreement.
LITIGATION
The Fund is not involved in any litigation.
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APPENDIX A--RATINGS
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 very 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.
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.
COMMERCIAL PAPER
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 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.
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PART B
DELAWARE POOLED TRUST, INC.
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 29, 1995
___________________________________
Delaware Pooled Trust, Inc. ("Fund") is a no-load, open-end management
investment company. The Fund consists of twelve series ("Portfolios") offering
a broad range of investment choices. The Fund is designed to provide clients
with attractive alternatives for meeting their investment needs. Shares of the
Portfolios are offered with no sales charge or exchange or redemption fee. This
Statement of Additional Information addresses information of the Fund applicable
to each of the twelve Portfolios.
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus of the Fund dated November 29, 1995. To
obtain a Prospectus, please write to the Delaware Pooled Trust, Inc. at One
Commerce Square, 2005 Market Street, Philadelphia, PA 19103, Attn: Client
Services or call the Fund at 1-800-231-8002.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT POLICIES, PORTFOLIO TECHNIQUES AND RISK CONSIDERATIONS.. 2
ACCOUNTING AND TAX ISSUES.......................................... 14
PERFORMANCE INFORMATION............................................ 15
TRADING PRACTICES AND BROKERAGE.................................... 20
PURCHASING SHARES.................................................. 22
DETERMINING NET ASSET VALUE........................................ 23
REDEMPTION AND REPURCHASE.......................................... 24
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS........................... 26
TAXES.............................................................. 26
INVESTMENT MANAGEMENT AGREEMENT.................................... 27
OFFICERS AND DIRECTORS............................................. 32
GENERAL INFORMATION................................................ 40
FINANCIAL STATEMENTS............................................... 41
</TABLE>
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INVESTMENT POLICIES, PORTFOLIO TECHNIQUES AND RISK CONSIDERATIONS
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions for each of the Portfolios
(except where otherwise noted) which, along with its respective investment
objective, cannot be changed without approval by the holders of a "majority" of
the respective Portfolio's outstanding shares, which is a vote by the holders of
the lesser of a) 67% or more of the voting securities present in person or by
proxy at a meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or b) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time a Portfolio
purchases securities.
Each Portfolio shall not:
1. Make loans, except to the extent that purchases of debt obligations
(including repurchase agreements), in accordance with a Portfolio's investment
objective and policies, are considered loans, and except that each Portfolio may
loan up to 25% of its respective assets to qualified broker/dealers or
institutional investors for their use relating to short sales or other security
transactions.
2. Purchase or sell real estate or real estate limited partnerships, but
this shall not otherwise prevent a Portfolio from investing in securities
secured by real estate or interests therein, and except that The Real Estate
Investment Trust Portfolio may own real estate directly as a result of a default
on securities the Portfolio owns.
3. Engage in the underwriting of securities of other issuers, except that
in connection with the disposition of a security, a Portfolio may be deemed to
be an "underwriter" as that term is defined in the Securities Act of 1933.
4. Make any investment which would cause more than 25% of the market or
other fair value of its respective total assets to be invested in the securities
of issuers all of which conduct their principal business activities in the same
industry, except that The Defensive Equity Utility Portfolio shall invest in
excess of 25% of its total assets in the securities of issuers in the utility
industry, and The Real Estate Investment Trust Portfolio shall invest in excess
of 25% of its total assets in the securities of issuers in the real estate
industry. This restriction does not apply to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
5. Purchase or sell commodities or commodity contracts, except that The
Aggressive Growth Portfolio, The Real Estate Investment Trust Portfolio and The
International Fixed Income Portfolio may enter into futures contracts and may
purchase and sell options on futures contracts in accordance with the
Prospectus, subject to investment restriction 6 below.
6. Enter into futures contracts or options thereon, except that The
Aggressive Growth Portfolio, The Real Estate Investment Trust Portfolio and The
International Fixed Income Portfolio may each enter into futures contracts and
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 its total assets.
7. Make short sales of securities, or purchase securities on margin,
except that The Aggressive Growth Portfolio, The Real Estate Investment Trust
Portfolio and The International Fixed Income Portfolio may satisfy margin
requirements with respect to futures transactions.
8. Purchase or retain the securities of any issuer which has an officer,
director or security holder who is a director or officer of the Fund or of
either of the investment advisers if or so long as the directors and officers of
the Fund and of the investment advisers together own beneficially more than 5%
of any class of securities of such issuer.
9. Invest in interests in oil, gas and other mineral leases or other
mineral exploration or development programs.
10. Borrow money, except as a temporary measure for extraordinary
purposes or to facilitate redemptions. Any borrowing will be done from a bank
and to the extent that such borrowing exceeds 5% of the value of its respective
net assets, asset coverage of at least 300% is required. In the event that such
asset coverage shall at any time fall below 300%, a Portfolio shall, within
three days thereafter (not including Sunday or holidays) or such longer period
as the Securities and Exchange Commission ("Commission") may prescribe by rules
and
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<PAGE>
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. No investment
securities will be purchased while a Portfolio has an outstanding borrowing. A
Portfolio will not pledge more than 10% of its respective net assets. A
Portfolio will not issue senior securities as defined in the Investment Company
Act of 1940 (the "1940 Act"), except for notes to banks.
In addition to the restrictions set forth above, in connection with the
qualification of a Portfolio's shares for sale in certain states, a Portfolio
may not invest in warrants if such warrants, valued at the lower of cost or
market, would exceed 5% of the value of a Portfolio's net assets. Included
within such amount, but not to exceed 2% of a Portfolio's net assets may be
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange. Warrants acquired by a Portfolio in units or attached to securities
may be deemed to be without value.
ADDITIONAL FUNDAMENTAL INVESTMENT RESTRICTIONS
The following additional investment restrictions apply to each of the
Portfolios, except The Defensive Equity Small/Mid-Cap Portfolio, The Defensive
Equity Utility Portfolio, The Labor Select International Equity Portfolio, The
Real Estate Investment Trust Portfolio, The International Fixed Income Portfolio
and The High-Yield Bond Portfolio, or as otherwise noted. They cannot be changed
without approval by the holders of a "majority" of the respective Portfolio's
outstanding shares, as described above.
Each Portfolio shall not:
1. As to 75% of its respective total assets, invest more than 5% of its
respective total assets in the securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities). This restriction shall also apply to The Defensive Equity
Small/Mid-Cap Portfolio, The Labor Select International Equity Portfolio and The
High-Yield Bond Portfolio. This restriction shall apply to only 50% of the
total assets of The Global Fixed Income Portfolio.
2. Invest in securities of other investment companies, except by purchase
in the open market involving only customary brokers' commissions or in
connection with a merger, consolidation or other acquisition or as may otherwise
be permitted by the 1940 Act.
3. Purchase more than 10% of the outstanding voting securities of any
issuer, or invest in companies for the purpose of exercising control or
management.
4. Write, purchase or sell options, puts, calls or combinations thereof
with respect to securities, except that The Aggressive Growth Portfolio may: (a)
write covered call options with respect to any or all parts of its portfolio
securities; (b) purchase call options to the extent that the premiums paid on
all outstanding call options do not exceed 2% of the Portfolio's total assets;
(c) write secured put options; and (d) purchase put options, if the Portfolio
owns the security covered by the put option at the time of purchase, and
provided that premiums paid on all put options outstanding do not exceed 2% of
its total assets. The Portfolio may sell call or put options previously
purchased and enter into closing transactions with respect to the activities
noted above.
5. Invest more than 5% of the value of its respective 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.
6. Invest more than 10% of its respective total assets in repurchase
agreements maturing in more than seven days and other illiquid assets.
For purposes of investment restriction 6, it is the Fund's policy,
changeable without shareholder vote, that "illiquid assets" include securities
of foreign issuers which are not listed on a recognized U.S. or foreign exchange
and for which a bona fide market does not exist at the time of purchase or
subsequent valuation.
THE DEFENSIVE EQUITY SMALL/MID-CAP PORTFOLIO, THE DEFENSIVE EQUITY UTILITY
PORTFOLIO, THE LABOR SELECT INTERNATIONAL EQUITY PORTFOLIO, THE REAL ESTATE
INVESTMENT TRUST PORTFOLIO, THE INTERNATIONAL FIXED INCOME PORTFOLIO AND THE
HIGH-YIELD BOND PORTFOLIO
The following additional investment restrictions apply to The Defensive
Equity Small/Mid-Cap Portfolio, The Defensive Equity Utility Portfolio, The
Labor Select International Equity Portfolio, The Real Estate Investment Trust
Portfolio, The International Fixed Income Portfolio and
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The High-Yield Bond Portfolio. Unlike the investment restrictions listed above,
these are non-fundamental investment restrictions and may be changed by the
Fund's Board of Directors without shareholder approval.
Except as noted below, each of The Defensive Equity Small/Mid-Cap
Portfolio, The Defensive Equity Utility Portfolio, The Labor Select
International Equity Portfolio, The Real Estate Investment Trust Portfolio, The
International Fixed Income Portfolio and The High-Yield Bond Portfolio shall
not:
1. As to 50% of the respective total assets of The Defensive Equity
Utility Portfolio, The Real Estate Invetment Trust Portfolio and The
International Fixed Income Portfolio, invest more than 5% of its respective
total assets in the securities of any one issuer (other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities).
2. Invest in securities of other investment companies, except by purchase
in the open market involving only customary brokers' commissions or in
connection with a merger, consolidation or other acquisition or as may otherwise
be permitted by the 1940 Act.
3. Invest more than 5% of the value of its respective total assets in
securities of companies less than three years old. Such three-year old period
shall include the operation of any predecessor company or companies. This
restriction shall not apply to The Real Estate Investment Trust Portfolio and
its investment in the securities of real estate investment trusts.
4. Purchase more than 10% of the outstanding voting securities of any
issuer, or invest in companies for the purpose of exercising control or
management.
5. Write, purchase or sell options, puts, calls or combinations thereof
with respect to securities, except that The Real Estate Investment Trust
Portfolio may: (a) write covered call options with respect to any or all parts
of its portfolio securities; (b) purchase call options to the extent that the
premiums paid on all outstanding call options do not exceed 2% of the
Portfolio's total assets; (c) write secured put options; and (d) purchase put
options, if the Portfolio owns the security covered by the put option at the
time of purchase, and provided that premiums paid on all put options outstanding
do not exceed 2% of its total assets. The Portfolio may sell call or put options
previously purchased and enter into closing transactions with respect to the
activities noted above.
6. Invest more than 15% of its respective total assets, determined at the
time of purchase, in repurchase agreements maturing in more than seven days and
other illiquid assets.
For purposes of investment restriction 5, it is the Fund's policy that
"illiquid assets" include securities of foreign issuers which are not listed on
a recognized U.S. or foreign exchange and for which no bona fide market exists
at the time of purchase.
The following information supplements the information provided in the
Fund's Prospectus.
FOREIGN INVESTMENT INFORMATION (THE INTERNATIONAL EQUITY PORTFOLIO, THE
DEFENSIVE EQUITY UTILITY PORTFOLIO, THE LABOR SELECT INTERNATIONAL EQUITY
PORTFOLIO, THE REAL ESTATE INVESTMENT TRUST PORTFOLIO, THE GLOBAL FIXED INCOME
PORTFOLIO, THE INTERNATIONAL FIXED INCOME PORTFOLIO AND THE HIGH-YIELD BOND
PORTFOLIO)
Investors in The International Equity Portfolio, The Labor Select
International Equity Portfolio, The Global Fixed Income Portfolio and The
International Fixed Income Portfolio (as well as in The Defensive Equity Utility
Portfolio, The Real Estate Investment Trust Portfolio and The High-Yield Bond
Portfolio, each of which possesses a limited ability to invest in foreign
securities) should recognize that investing in securities issued by foreign
corporations and foreign governments involves certain considerations, including
those set forth in the Prospectus, which are not typically associated with
investments in United States issuers. Since the securities of foreign issuers
are frequently denominated in foreign currencies, and since each Portfolio may
temporarily hold uninvested reserves in bank deposits in foreign currencies,
these Portfolios 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 each Portfolio, except The High-Yield Bond Portfolio, permit each to enter
into forward foreign currency
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<PAGE>
exchange contracts and permit The International Fixed Income Portfolio to engage
in certain options and futures activities, in order to hedge holdings and
commitments against changes in the level of future currency rates. See "FOREIGN
CURRENCY TRANSACTIONS (THE INTERNATIONAL EQUITY PORTFOLIO, THE DEFENSIVE EQUITY
UTILITY PORTFOLIO, THE LABOR SELECT INTERNATIONAL EQUITY PORTFOLIO, THE REAL
ESTATE INVESTMENT TRUST PORTFOLIO, THE GLOBAL FIXED INCOME PORTFOLIO AND THE
INTERNATIONAL FIXED INCOME PORTFOLIO)," below.
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 the Portfolios.
Payment of such interest equalization tax, if imposed, would reduce a
Portfolio's 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 a Portfolio by
United States issuers. 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
include, as relevant, 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 and similar financial instrument if such instrument is not
"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. 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 that are capital assets
in the hands of the taxpayer and which are not part of a straddle. The Treasury
Department has authority to issue regulations under which 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, as amended (the
"Code"), and the Treasury Regulations) will be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
Any gain or loss attributable to the foreign currency component of a transaction
engaged in by a Portfolio which is not subject to the special currency rules
(such as foreign equity investments other than certain preferred stocks) will be
treated as capital gain or loss and will not be segregated from the gain or loss
on the underlying transaction. It is anticipated that some of the non-U.S.
dollar denominated investments and foreign currency contracts the Portfolios may
make or enter into will be subject to the special currency rules described
above.
FOREIGN CURRENCY TRANSACTIONS (THE INTERNATIONAL EQUITY PORTFOLIO, THE DEFENSIVE
EQUITY UTILITY PORTFOLIO, THE LABOR SELECT INTERNATIONAL EQUITY PORTFOLIO, THE
REAL ESTATE INVESTMENT TRUST PORTFOLIO, THE GLOBAL FIXED INCOME PORTFOLIO AND
THE INTERNATIONAL FIXED INCOME PORTFOLIO)
The International Equity Portfolio, The Labor Select International Equity
Portfolio, The Global Fixed Income Portfolio and The International Fixed Income
Portfolio (as well as The Defensive Equity Utility Portfolio and The Real Estate
Investment Trust Portfolio, consistent with their limited ability to invest in
foreign securities) 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 Portfolio will account
for forward contracts by marking to market each day at daily exchange rates.
When a Portfolio 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
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<PAGE>
its assets denominated in such foreign currency, The Morgan Guaranty Trust
Company of New York ("Custodian Bank") will place or will cause to be placed
cash or liquid equity or debt securities in a separate account of that Portfolio
in an amount not less than the value of that Portfolio's 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 that Portfolio's commitments with respect
to such contracts.
As noted in the Prospectus, The International Fixed Income Portfolio may
also enter into transactions involving foreign currency options, futures
contracts and options on futures contracts, in order to minimize the currency
risk in its investment portfolio.
Foreign currency options are traded in a manner substantially similar to
options on securities. In particular, an option on foreign currency provides
the holder with the right to purchase, in the case of a call option, or to sell,
in the case of a put option, a stated quantity of a particular currency for a
fixed price up to a stated expiration date. The writer of the option undertakes
the obligation to deliver, in the case of a call option, or to purchase, in the
case of a put option, the quantity of the currency called for in the option,
upon exercise of the option by the holder.
As in the case of other types of options, the holder of an option on
foreign currency is required to pay a one-time, non-refundable premium, which
represents the cost of purchasing the option. The holder can lose the entire
amount of this premium, as well as related transaction costs, but not more than
this amount. The writer of the option, in contrast, generally is required to
make initial and variation margin payments, similar to margin deposits required
in the trading of futures contacts and the writing of other types of options.
The writer is therefore subject to risk of loss beyond the amount originally
invested and above the value of the option at the time it is entered into.
Certain options on foreign currencies, like forward contracts, are traded
over-the-counter through financial institutions acting as market-makers in such
options and the underlying currencies. Such transactions therefore involve
risks not generally associated with exchange-traded instruments. Options on
foreign currencies may also be traded on national securities exchanges regulated
by the Commission or commodities exchanges regulated by the Commodity Futures
Trading Commission.
A foreign currency futures contract is a bilateral agreement providing for
the purchase and sale of a specified type and amount of a foreign currency. By
its terms, a futures contract provides for a specified settlement date on which,
in the case of the majority of foreign currency futures contracts, the currency
underlying the contract is delivered by the seller and paid for by the
purchaser, or on which, in the case of certain futures contracts, the difference
between the price at which the contract was entered into and the contract's
closing value is settled between the purchaser and seller in cash. Futures
contracts differ from options in that they are bilateral agreements, with both
the purchaser and the seller equally obligated to complete the transactions. In
addition, futures contracts call for settlement only on the expiration date, and
cannot be "exercised" at any other time during their term.
The purchase or sale of a futures contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin" as a good faith deposit. Subsequent payments
to and from the broker referred to as "variation margin" are made on a daily
basis as the value of the currency underlying the futures contract fluctuates,
making positions in the futures contract more or less valuable, a process known
as "marking to the market."
A futures contract may be purchased or sold only on an exchange, known as a
"contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid
on each completed purchase and sale transaction. The contract market
clearinghouse guarantees the performance of each party to a futures contract, by
in effect taking the opposite side of such contract. At any time prior to the
expiration of a futures
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<PAGE>
contract, a trader may elect to close out its position by taking an opposite
position on the contract market on which the position was entered into, subject
to the availability of a secondary market, which will operate to terminate the
initial position. At that time, a final determination of variation margin is
made and any loss experienced by the trader is required to be paid to the
contract market clearing house while any profit due to the trader must be
delivered to it.
A call option on a futures contract provides the holder with the right to
purchase, or enter into a "long" position in, the underlying futures contract.
A put option on a futures contract provides the holder with the right to sell,
or enter into a "short" position, in the underlying futures contract. In both
cases, the option provides for a fixed exercise price up to a stated expiration
date. Upon exercise of the option by the holder, the contract market
clearinghouse establishes a corresponding short position for the writer of the
option, in the case of a call option, or a corresponding long position in the
case of a put option and the writer delivers to the holder the accumulated
balance in the writer's margin account which represents the amount by which the
market price of the futures contract at exercise exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. In the event that an option written by the Portfolio is
exercised, the Portfolio will be subject to all the risks associated with the
trading of futures contracts, such as payment of variation margin deposits. In
addition, the writer of an option on a futures contract, unlike the holder, is
subject to initial and variation margin requirements on the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option becomes worthless to the holder when it expires. Upon exercise of
an option, the exchange or contract market clearinghouse assigns exercise
notices on a random basis to those of its members which have written options of
the same series and with the same expiration date. A brokerage firm receiving
such notices then assigns them on a random basis to those of its customers which
have written options of the same series and expiration date. A writer therefore
has no control over whether an option will be exercised against it, nor over the
timing of such exercise.
BRADY BONDS (THE GLOBAL FIXED INCOME PORTFOLIO AND THE INTERNATIONAL FIXED
INCOME PORTFOLIO)
The Global Fixed Income Portfolio and The International Fixed Income
Portfolio may invest, within the limits specified in the Prospectus, in Brady
Bonds and other sovereign debt securities of countries that have restructured or
are in the process of restructuring sovereign debt pursuant to the Brady Plan.
Brady Bonds are debt securities issued under the framework of the Brady Plan, an
initiative announced by then U.S. Treasury Secretary Nicholas F. Brady in 1989
as a mechanism for debtor nations to restructure their outstanding external
indebtedness (generally, commercial bank debt). In restructuring its external
debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund (the "IMF"). The Brady Plan framework,
as it has developed, contemplates the exchange of commercial bank debt for newly
issued bonds (Brady Bonds). The World Bank and/or the IMF support the
restructuring by providing funds pursuant to loan agreements or other
arrangements which enable the debtor nation to collateralize the new Brady Bonds
or to repurchase outstanding bank debt at a discount. Under these arrangements
with the World Bank and/or the IMF, debtor nations have been required to agree
to the implementation of certain domestic monetary and fiscal reforms. Such
reforms have included the liberalization of trade and foreign investment, the
privatization of state-owned enterprises and the setting of targets for public
spending and borrowing. These policies and programs seek to promote the debtor
country's ability to service its external obligations and promote its economic
growth and development. Investors should recognize that the Brady Plan only
sets forth general guiding principles for economic reform and debt reduction,
emphasizing that
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<PAGE>
solutions must be negotiated on a case-by-case basis between debtor nations and
their creditors. The investment adviser to the Portfolios believes that economic
reforms undertaken by countries in connection with the issuance of Brady Bonds
make the debt of countries which have issued or have announced plans to issue
Brady Bonds an attractive opportunity for investment.
To date, Mexico, Costa Rica, Venezuela, Uruguay and Nigeria have issued
approximately $50 billion of Brady Bonds, and Argentina, Brazil and the
Philippines have announced plans to issue approximately $90 billion, based on
current estimates, of Brady Bonds. Investors should recognize that Brady Bonds
have been issued only recently, and accordingly do not have a long payment
history. Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by a
debtor nation with its creditors. As a result, the financial packages offered
by each country differ. The types of options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of face value of such
debt, bonds issued at a discount of face value of such debt, bonds bearing an
interest rate which increases over time and bonds issued in exchange for the
advancement of new money by existing lenders. Certain Brady Bonds have been
collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors.
OPTIONS ON SECURITIES, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS (THE
AGGRESSIVE GROWTH PORTFOLIO AND THE REAL ESTATE INVESTMENT TRUST PORTFOLIO)
In order to remain fully invested, and to reduce transaction costs, The
Aggressive Growth Portfolio and The Real Estate Investment Trust Portfolio may,
to the limited extent identified in the Prospectus, use futures contracts,
options on futures contracts and options on securities and may enter into
closing transactions with respect to such activities. The Portfolios may only
enter into these transactions for hedging purposes, if it is consistent with the
Portfolios' investment objectives and policies. The Portfolios will not engage
in such transactions to the extent that obligations resulting from these
activities in the aggregate exceed 25% of the Portfolios' assets.
OPTIONS
The Aggressive Growth Portfolio and The Real Estate Investment Trust
Portfolio may purchase call options, write call options on a covered basis,
write secured put options and purchase put options on a covered basis only.
The Portfolios may invest in options that are either exchange-listed or
traded over-the-counter. Certain over-the-counter options may be illiquid.
Thus, it may not be possible to close options positions and this may have an
adverse impact on the Portfolios' ability to effectively hedge their securities.
The Aggressive Growth Portfolio will not invest more than 10% of its assets in
illiquid securities, and The Real Estate Investment Trust Portfolio will not
invest more than 15% of its assets in illiquid securities.
A. COVERED CALL WRITING--The Portfolios may write covered call options
from time to time on such portion of their securities as the investment adviser
determines is appropriate given the limited circumstances under which the
Portfolios intend to engage in this activity. A call option gives the purchaser
of such option the right to buy and the writer (in this case a Portfolio) the
obligation to sell the underlying security at the exercise price during the
option period. If the security rises in value, however, the Portfolio may not
fully participate in the market appreciation.
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.
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With respect to options on actual portfolio securities owned by the
Portfolios, a Portfolio may enter into closing purchase transactions. A closing
purchase transaction is one in which the Portfolio, when obligated as a writer
of an option, terminates its obligation by purchasing an option of the same
series as the option previously written.
Consistent with the limited purposes for which the Portfolios intend to
engage in the writing of covered calls, 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 Portfolios to write another call option on
the underlying security with either a different exercise price or expiration
date or both.
The Portfolios 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, a Portfolio 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, a Portfolio 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.
The Portfolios will write call options only on a covered basis, which means
that the Portfolios 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 Portfolios would be required to continue to hold a security which
they might otherwise wish to sell, or deliver a security it would want to hold.
Options written by the Portfolios 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 CALL OPTIONS--The Portfolios may purchase call options to
the extent that premiums paid by the Portfolios do not aggregate more than 2% of
their total assets. When a Portfolio purchases a call option, in return for a
premium paid by the Portfolio to the writer of the option, the Portfolio 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
Portfolios may alter portfolio characteristics and modify portfolio maturities
without incurring the cost associated with portfolio transactions.
The Portfolios may, following the purchase of a call option, liquidate
their positions by effecting a closing sale transaction. This is accomplished by
selling an option of the same series as the option previously purchased. The
Portfolios 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 Portfolios 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 Portfolios 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
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exist. In such event, it may not be possible to effect closing transactions in
particular options, with the result that the Portfolios would have to exercise
their 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 a Portfolio may expire without any
value to the Portfolio.
C. PURCHASING PUT OPTIONS--The Portfolios may purchase put options to the
extent premiums paid by the Portfolios do not aggregate more than 2% of their
total assets. The Portfolios will, at all times during which they hold a put
option, own the security covered by such option.
A put option purchased by the Portfolios gives them the right to sell one
of their securities for an agreed price up to an agreed date. Consistent with
the limited purposes for which the Portfolios intend to purchase put options,
the Portfolios intend to purchase put options in order to protect against a
decline in the 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 Portfolio 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 Portfolio will lose the value of the
premium paid. The Portfolio may sell a put 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 Portfolios may sell a put option purchased on individual portfolio
securities. Additionally, the Portfolios may enter into closing sale
transactions. A closing sale transaction is one in which a Portfolio, 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.
D. WRITING PUT OPTIONS--A put option written by a Portfolio obligates it
to buy the security underlying the option at the exercise price during the
option period and the purchaser of the option has the right to sell the security
to the Portfolio. During the option period, the Portfolio, as writer of the put
option, may be assigned an exercise notice by the broker/dealer through whom the
option was sold requiring the Portfolio to make payment of the exercise price
against delivery of the underlying security. The obligation terminates upon
expiration of the put option or at such earlier time at which the writer effects
a closing purchase transaction. The Portfolios may write put options on a
secured basis which means that the Portfolios will maintain in a segregated
account with the Custodian Bank, cash or U.S. Government securities in an amount
not less than the exercise price of the option at all times during the option
period. The amount of cash or U.S. Government securities held in the segregated
account will be adjusted on a daily basis to reflect changes in the market value
of the securities covered by the put option written by the Portfolios.
Consistent with the limited purposes for which the Portfolios intend to engage
in the writing of put options, secured put options will generally be written in
circumstances where the investment adviser wishes to purchase the underlying
security for the Portfolios at a price lower than the current market price of
the security. In such event, a Portfolio would write a secured put option at an
exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay.
Following the writing of a put option, the Portfolios may wish to terminate
the obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Portfolios may not, however,
effect such a closing transaction after they have been notified of the exercise
of the option.
FUTURES AND OPTIONS ON FUTURES
Consistent with the limited circumstances under which The Aggressive Growth
Portfolio and The Real Estate Investment Trust Portfolio will use futures, the
Portfolios may enter into contracts for the purchase or sale for future delivery
of securities. While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into an offsetting transaction. When a Portfolio enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
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<PAGE>
Portfolio an amount referred to as "initial margin." This amount is maintained
by the futures commission merchant in an account at the Portfolio's Custodian
Bank. Thereafter, a "variation margin" may be paid by the Portfolio to, or drawn
by the Portfolio from, such account in accordance with controls set for such
account, depending upon changes in the price of the underlying securities
subject to the futures contract.
Consistent with the limited purposes for which the Portfolios may engage in
these transactions, a Portfolio may enter into such futures contracts to protect
against the adverse effects of fluctuations in interest rates without actually
buying or selling the securities. For example, if interest rates are expected
to increase, a Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt securities in the portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. Similarly, when it
is expected that interest rates may decline, futures contracts may be purchased
to hedge in anticipation of subsequent purchases of securities at higher prices.
Because the fluctuations in the value of futures contracts should be similar to
those of debt securities, a Portfolio could take advantage of the anticipated
rise in value of debt securities without actually buying them until the market
had stabilized. At that time, the futures contracts could be liquidated and the
Portfolio could then buy debt securities on the cash market.
With respect to options on futures contracts, when a Portfolio is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based, or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities.
The writing of a call option on a futures contract constitutes a partial
hedge against the declining price of the security which is deliverable upon
exercise of the futures contract. If the futures price at the expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's holdings. The writing of a put option on a
futures contract constitutes a partial hedge against the increasing price of the
security which is deliverable upon exercise of the futures contract. If the
futures price at the expiration of the option is higher than the exercise price,
the Portfolio will retain the full amount of option premium which provides a
partial hedge against any increase in the price of securities which the
Portfolio intends to purchase.
If a put or call option that a Portfolio has written is exercised, the
Portfolio 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 futures
positions, a Portfolio's losses from existing options on futures may, to some
extent, be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective puts on portfolio securities. For example,
consistent with the limited purposes for which the Portfolios will engage in
these activities, a Portfolio will purchase a put option on a futures contract
to hedge the Portfolio's securities against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Portfolios may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize a loss. For example, if a Portfolio
is hedged against the possibility of an increase in interest rates which would
adversely affect the price of securities held in its portfolio and interest
rates decrease instead, the Portfolio will lose part or all of the benefit of
the increased value of its securities which it has because it will have
offsetting losses in its futures position. In addition, in such situations, if
the Portfolio had insufficient cash, it may be required to sell securities from
its portfolio to meet daily variation margin requirements. Such sales of
securities may, but will
-11-
<PAGE>
not necessarily, be at increased prices which reflect the rising market. The
Portfolios may be required to sell securities at a time when it may be
disadvantageous to do so.
Further, with respect to options on futures contracts, the Portfolios may
seek to close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
* * *
From time to time, the Portfolios may also, as noted below, engage in the
following investment techniques:
ASSET-BACKED SECURITIES (THE FIXED INCOME PORTFOLIO AND THE LIMITED-TERM
MATURITY PORTFOLIO)
The Fixed Income and The Limited-Term Maturity Portfolios 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. 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 Portfolios 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.
REPURCHASE AGREEMENTS
While each Portfolio is permitted to do so, it normally does not invest in
repurchase agreements, except to invest cash balances or for temporary defensive
purposes.
The funds in the Delaware Group, including the Fund, have obtained an
exemption from the joint-transaction prohibitions of Section 17(d) of the 1940
Act to allow the Delaware Group funds jointly to invest cash balances. Each
Portfolio may invest cash balances in a joint repurchase agreement in accordance
with the terms of the Order and subject generally to the conditions described
below.
A repurchase agreement is a short-term investment by which the purchaser
acquires
-12-
<PAGE>
ownership of a debt security and the seller agrees to repurchase the obligation
at a future time and set price, thereby determining the yield during the
purchaser's holding period. Should an issuer of a repurchase agreement fail to
repurchase the underlying security, the loss to a Portfolio, if any, would be
the difference between the repurchase price and the market value of the
security. Each Portfolio will limit its investments in repurchase agreements to
those which its respective investment adviser, under the guidelines of the Board
of Directors, determines to present minimal credit risks and which are of high
quality. In addition, a Portfolio must have collateral of at least 100% of the
repurchase price, including the portion representing the Portfolio's yield under
such agreements which is monitored on a daily basis.
PORTFOLIO LOAN TRANSACTIONS
Each Portfolio 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 Fund that the staff of the 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 a Portfolio; 3) a Portfolio must be able to terminate the loan
after notice, at any time; 4) a Portfolio 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) a
Portfolio may pay reasonable custodian fees in connection with the loan; and 6)
the voting rights on the lent securities may pass to the borrower; however, if
the Board of 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 Portfolio 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 Portfolio will only enter into loan arrangements
after a review of all pertinent facts by the respective investment adviser,
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 respective
investment adviser.
RULE 144A SECURITIES
Each Portfolio may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A Securities are traded
among qualified institutional investors. While maintaining oversight, the Board
of Directors has delegated to the respective investment adviser the day-to-day
function of determining whether or not individual Rule 144A Securities are
liquid for purposes of each Portfolio's limitation (whether 15% or 10% of total
assets) on investments in illiquid assets. The Board has instructed the
respective investment adviser to consider the following factors in determining
the liquidity of a Rule 144A Security: (i) the frequency of trades and trading
volume for the security; (ii) whether at least three dealers are willing to
purchase or sell the security and the number of other potential purchasers;
(iii) whether at least two dealers are making a market in the security; and (iv)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer).
Investing in Rule 144A Securities could have the effect of increasing the
level of a Portfolio's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. After
the purchase of a Rule 144A Security, however, the Board of Directors and the
respective investment adviser will continue to monitor the liquidity of that
security to ensure that a Portfolio has no more than 10% or 15%, as appropriate,
of its total assets in illiquid securities.
-13-
<PAGE>
ACCOUNTING AND TAX ISSUES
When The Aggressive Growth Portfolio, The Real Estate Investment Trust
Portfolio and The International Fixed Income Portfolio writes a call, or
purchases a put option, an amount equal to the premium received or paid by it is
included in the section of the Portfolio's 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 ask prices. If an option which a Portfolio has written
expires on its stipulated expiration date, the Portfolio recognizes a short-term
capital gain. If a Portfolio enters into a closing purchase transaction with
respect to an option which the Portfolio has written, the Portfolio realizes a
short-term 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 Portfolio has written is exercised, the
Portfolio realizes a capital gain or loss from the sale of the underlying
security on foreign currency and the proceeds from such sale are increased by
the premium originally received.
The premium paid by a Portfolio for the purchase of a put option is
reported in the section of the Portfolio's 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 ask prices. If an option
which the Portfolio has purchased expires on the stipulated expiration date, the
Portfolio realizes a short-term or long-term capital loss for federal income tax
purposes in the amount of the cost of the option. If the Portfolio 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.
OTHER TAX REQUIREMENTS
Each Portfolio has qualified or intends to qualify, and each that has
qualified intends to continue to qualify, as a regulated investment company
under Subchapter M of the Code. Accordingly, a Portfolio will not be subject to
federal income tax to the extent its earnings are distributed. Each Portfolio
must meet several requirements to maintain its status as a regulated investment
company. Among these requirements are: (i) that at least 90% of its investment
company taxable income be derived from dividends, interest, payment with respect
to securities loans and gains from the sale or disposition of securities or
foreign currencies, or other income derived with respect to its business of
investing in such securities or currencies; (ii) that at the close of each
quarter of its taxable year at least 50% of the value of its assets consist of
cash and cash items, government securities, securities of other regulated
investment companies and, subject to certain diversification requirements, other
securities, and, with respect to its remaining assets, no more than 25% of the
value of such assets is invested in the securities (other than U.S. Government
securities and securities of other regulated investment companies) of any one
issuer, or of two or more issuers which are controlled by a Portfolio and which
are engaged in the same or similar trades or businesses; and (iii) that less
than 30% of its gross income be derived from sales of securities held for less
than three months.
The requirement that not more than 30% of gross income be derived from
gains from the sale or other disposition of securities held for less than three
months may restrict The Aggressive Growth Portfolio and The Real Estate
Investment Trust Portfolio in their ability to write covered call options on
securities which they have held less than three months, to write options which
expire in less than three months, to sell securities which have been held less
than three months and to effect closing purchase transactions with respect to
options which have been written less than three months prior to such
transactions. Consequently, in order to avoid
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<PAGE>
realizing a gain within the three-month period, the Portfolios may be required
to defer the closing out of a contract beyond the time when it might otherwise
be advantageous to do so. The Portfolios may also be restricted in the sale of
purchased put options and the purchase of put options for the purpose of hedging
underlying securities because of the application of the short sale holding
period rules with respect to such underlying securities.
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 following year, subject to the same limitation.
PERFORMANCE INFORMATION
From time to time, the Fund may state each Portfolio's total return in
advertisements and other types of literature. Any statements of total return
performance data will be accompanied by information on the Portfolio's average
annual total rate of return over the most recent one-, five-, and ten-year
periods, as relevant. The Fund may also advertise aggregate and average total
return information of each Portfolio over additional periods of time.
Each Portfolio's 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:
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes that all
distributions are reinvested at net asset value.
The performance of the Portfolios, as shown below, is the average annual
total return quotations for the one- and three-year periods ended April 30, 1995
and for the life of The Defensive Equity, The Aggressive Growth and The
International Equity Portfolios and for the one-year period ended April 30, 1995
and for the life of The Global Fixed Income Portfolio computed as described
above. Securities prices fluctuated during the period covered and the past
results should not be considered as representative of future performance.
AVERAGE ANNUAL TOTAL RETURN(1)
<TABLE>
<CAPTION>
THE THE THE
DEFENSIVE AGGRESSIVE INTERNATIONAL
EQUITY GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C>
1 year 1 year 1 year
ended ended ended
4/30/95 4/30/95 4/30/95
15.42% 5.10% 2.55%
3 years 3 years 3 years
ended ended ended
4/30/95 4/30/95 4/30/95
14.17% 9.35% 10.95%
Period Period Period
2/3/92(2) 2/27/92(2) 2/4/92(2)
through through through
4/30/95 4/30/95 4/30/95
15.03% 5.41% 10.68%
</TABLE>
-15-
<PAGE>
THE
GLOBAL
FIXED
INCOME
PORTFOLIO
1 year
ended
4/30/95
5.18%
Period
11/30/92(2)
through
4/30/95
10.06%
(1) Certain expenses of the Portfolios have been waived and reimbursed by the
respective investment adviser. In the absence of such waiver and reimbursement,
performance would have been affected negatively.
(2) Date of initial sale.
The Fund may also quote each Portfolio's current yield, calculated as
described below, in advertisements and investor communications.
The yield computation 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[(cd + 1) - 1]
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
The above formula will be used in calculating quotations of yield, based on
specific 30-day periods identified in advertising by the Portfolio. Yield
quotations are based on the Portfolio's net asset value on the last day of the
period and will fluctuate depending on the period covered. The yield of The
Global Fixed Income Portfolio, as of April 30, 1995, was 9.38%, reflecting the
waiver and reimbursement commitment by its investment adviser.
Investors should note that income earned and dividends paid by The Fixed
Income Portfolio, The Limited-Term Maturity Portfolio, The Global Fixed Income
Portfolio, The International Fixed Income Portfolio and The High-Yield Bond
Portfolio will also vary depending upon fluctuation in interest rates and
performance of each Portfolio. The net asset value of these five Portfolios will
fluctuate in value inversely to movements in interest rates and, therefore, will
tend to rise when interest rates fall and fall when interest rates rise.
Likewise, the net asset value for these Portfolios will vary from day to day
depending upon fluctuation in the prices of the securities held by each
Portfolio. Thus, investors should consider net asset value fluctuation as well
as yield in making an investment decision.
Each Portfolio's total return performance will be computed by adding all
reinvested income and realized securities profits distributions plus the change
in net asset value during a specific period and dividing by the net asset value
at the beginning of the period. The computation will not reflect the impact of
any income taxes payable by shareholders (who are subject to such tax) on the
reinvested distributions included in the calculation. Portfolio shares are sold
without a sales charge. Because security prices fluctuate, past performance
should not be considered as a representation of the results which may be
realized from an investment in the Portfolios in the future.
From time to time, performance of each Portfolio in the Fund may be
compared to various industry indices. For example, the Fund may quote actual
total return performance, dividend results and other performance information of
The Defensive Equity Portfolio, that invests primarily in domestic equities, in
advertising and other types of literature and may compare that information to,
or may separately illustrate similar information reported by the Standard &
Poor' s 500 Stock Index and the Dow Jones Industrial Average, and other
unmanaged indices. The Standard & Poor's 500 Stock Index and the Dow
-16-
<PAGE>
Jones Industrial Average are industry-accepted unmanaged indices of generally-
conservative securities used for measuring general market performance. The total
return performance reported will reflect the reinvestment of all distributions
on a quarterly basis and market price fluctuations. The indices do not take into
account any management expenses or other fees. In seeking a particular
investment objective, the Portfolios that invest primarily in equities may
include common stocks considered by the investment adviser to be more aggressive
than those tracked by these indices.
From time to time, the Fund may quote actual total return and/or yield
performance for each Portfolio in advertising and other types of literature
compared to indices or averages of alternative financial products available to
prospective investors. For example, the performance comparisons may include the
average return of various bank instruments, some of which may carry certain
return guarantees, offered by leading banks and thrifts as monitored by Bank
Rate Monitor, and those of generally-accepted corporate bond and government
security price indices of various durations prepared by Lehman Brothers and
Salomon Brothers, Inc. These indices are not managed for any investment goal.
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. 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. In addition, the Consumer
Price Index, the most commonly used measure of inflation, may be used in
preparing performance comparisons. The Consumer Price Index, as prepared by the
U.S. Bureau of Labor Statistics, indicates the cost fluctuations of a
representative group of consumer goods. It does not represent a return from an
investment.
Statistical and/or performance information and various indices compiled and
maintained by organizations such as the following may also be used in preparing
exhibits comparing certain industry trends to comparable Fund activity and
performance:
CDA Technologies, Inc. is a performance evaluation service that maintains a
statistical database of performance, as reported by a diverse universe of
independently-managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that provides a variety of
historical data including total return, capital appreciation and income on
the stock market as well as other investment asset classes, and inflation.
With its permission, this information will be used primarily for comparative
purposes and to illustrate general financial planning principles.
Interactive Data Corporation is a statistical access service that maintains a
database of various industry indicators, such as historical and current
price/earnings information and individual equity and fixed income price and
return information.
Compustat Industrial Databases, a service of Standard & Poor's Corporation,
may also be used in preparing performance and historical stock and bond
market exhibits. This firm maintains fundamental databases that provide
financial, statistical and market information covering more than 7,000
industrial and non-industrial companies.
Russell Indexes is an investment analysis service that provides both current
and historical stock performance information, focusing on the business
fundamentals of those firms issuing the security.
Morgan Stanley Capital International is a research firm that maintains a
statistical database of international securities. It also compiles and
maintains a number of unmanaged indices of international securities. These
indices are designed to measure the performance of the stock markets outside
of the USA. Primary coverage of Europe, Canada, Mexico, Australia and the
Far Eastern markets, and that of international industry groups are included.
-17-
<PAGE>
Lehman Brothers is a statistical research firm that maintains databases of
U.S. and international bond markets and corporate and government-backed
securities of various maturities. This information, as well as unmanaged
indices compiled and maintained by Lehman Brothers, will be used in preparing
comparative illustrations.
Wellesley Group Inc. is an investment management consulting firm specializing
in investment and market research for endowments and pension plans. Wellesley
Group will be maintaining, on behalf of the Fund, peer group comparison
composites for each Portfolio of the Fund. The peer group composites will be
constructed by selecting publicly-offered mutual funds that have investment
objectives that are similar to those maintained by each Portfolio in the
Fund. Wellesley Group will also be preparing performance analyses of actual
Fund performance, and benchmark index exhibits, for inclusion in client
quarterly review packages.
FT-Actuaries World Indices are jointly compiled by The Financial Times, Ltd.;
Goldman, Sachs & Co.; and Wood Mackenzie & Co., Ltd. in conjunction with the
Institute of Actuaries and the Faculty of Actuaries. Indices maintained by
this group primarily focus on compiling statistical information on
international financial markets and industry sectors, stock and bond issues
and certain fundamental information about the companies issuing the
securities. Statistical information on international currencies is also
maintained.
The Fund may also promote each Portfolio's yield and/or total return
performance and use comparative performance information computed by and
available from certain industry and general market research publications, such
as Lipper Analytical Services, Inc.
The following table is an example, for purposes of illustration only, of
cumulative total return performance for The Defensive Equity, The Aggressive
Growth, The International Equity and The Global Fixed Income Portfolios for the
three-, six- and nine-month periods ended April 30, 1995, for the one- and
three-year periods ended April 30, 1995 and for the life of The Defensive
Equity, The Aggressive Growth and The International Equity Portfolios.
Cumulative total return is provided for the three-, six- and nine-month periods
ended April 30, 1995, the one-year period ended April 30, 1995 and for the life
of The Global Fixed Income Portfolio. For these purposes, the calculations
assume the reinvestment of any capital gains distributions and income dividends
paid during the indicated periods. Comparative information on the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index (the "S&P 500 Index"),
the Consumer Price Index, the Wilshire Mid-Cap Index, the Morgan Stanley Europe,
Australia and Far East (EAFE) Index and the Salomon World Government Bond Index,
where applicable, is also included.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN(1)
THE
DEFENSIVE DOW S&P
EQUITY JONES 500
PORTFOLIO INDUSTRIAL INDEX
<S> <C> <C> <C>
3 months
ended
4/30/95 10.03% 13.17% 10.11%
6 months
ended
4/30/95 8.47% 12.11% 10.44%
9 months
ended
4/30/95 10.84% 17.23% 14.67%
1 year
ended
4/30/95 15.42% 20.70% 17.40%
3 years
ended
4/30/95 48.80% 40.18% 35.02%
Period
2/3/92(2)
through
4/30/95 57.44% 46.63% 36.33%
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
THE
AGGRESSIVE WILSHIRE
GROWTH MID-CAP
PORTFOLIO GROWTH
<S> <C> <C>
3 months
ended
4/30/95 6.71% 11.55%
6 months
ended
4/30/95 5.01% 8.39%
9 months
ended
4/30/95 11.59% 19.58%
1 year
ended
4/30/95 5.10% 14.55%
3 years
ended
4/30/95 30.75% 49.07%
Period
2/27/92(2)
through
4/30/95 18.20% 39.72%
</TABLE>
<TABLE>
<CAPTION>
THE
INTERNATIONAL S&P
EQUITY 500
PORTFOLIO EAFE INDEX
<S> <C> <C> <C>
3 months
ended
4/30/95 6.49% 9.92% 10.11%
6 months
ended
4/30/95 (0.51%) 1.24% 10.44%
9 months
ended
4/30/95 1.74% 3.72% 14.67%
1 year
ended
4/30/95 2.55% 5.59% 17.40%
3 years
ended
4/30/95 36.56% 49.78% 35.02%
Period
2/4/92(2)
through
4/30/95 38.89% 35.52% 36.33%
</TABLE>
<TABLE>
THE SALOMON
GLOBAL FIXED WORLD
INCOME GOV'T
PORTFOLIO BOND
<S> <C> <C>
3 months
ended
4/30/95 3.48% 10.66%
6 months
ended
4/30/95 5.28% 11.74%
9 months
ended
4/30/95 8.13% 13.96%
1 year
ended
4/30/95 5.18% 15.50%
Period
11/30/92(2)
through
4/30/95 26.07% 31.76%
</TABLE>
(1) Certain expenses of the Portfolios have been waived and reimbursed by the
respective investment adviser. In the absence of such waiver and reimbursement,
performance would have been affected negatively.
(2) Date of initial sale.
In addition, information will be provided that discusses the overriding
investment philosophies of Delaware Investment Advisers, a division of Delaware
Management Company, Inc. ("Delaware"), the investment adviser to The Defensive
Equity, The Aggressive Growth, The Defensive Equity Small/Mid-Cap, The Defensive
Equity Utility, The Real Estate Investment Trust, The Fixed Income, The Limited-
Term Maturity and The High-Yield Bond Portfolios, and Delaware International
Advisers Ltd. ("Delaware International"), an affiliate of Delaware and the
investment adviser to The International Equity, The Labor Select International
Equity, The Global Fixed Income and The International Fixed Income Portfolios
and how those philosophies impact each Portfolio in the strategies the Fund
employs in seeking Portfolio objectives. Since the investment disciplines being
employed for each Portfolio in the
-19-
<PAGE>
Fund are based on the disciplines and strategies employed by Delaware and
Delaware International to manage institutional separate accounts, investment
strategies and disciplines of these entities may also be discussed.
The Defensive Equity Portfolio's strategy relies on the consistency,
reliability and predictability of corporate dividends. Dividends tend to rise
over time, despite market conditions, and keep pace with rising prices; they are
paid out in "current" dollars. Just as important, current dividend income can
help lessen the effects of adverse market conditions. This equity dividend
discipline, coupled with the potential for capital gains, seeks to provide
investors with a consistently higher total-rate-of-return over time. In
implementing this strategy, the investment adviser seeks to buy securities with
a yield higher than the average of the S&P 500 Index. If a security held by the
Portfolio moves out of the acceptable yield range, it typically is sold. This
strict buy/sell discipline is instrumental in implementing The Defensive Equity
Portfolio strategy.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Portfolio
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding.
Typically, results of various assumed fixed rates of return on a $10,000
investment compounded monthly for ten years will be used.
These figures will be calculated assuming a fixed constant investment
return and assume no fluctuation in the value of principal. These figures will
not reflect payment of applicable taxes and are not intended to be a projection
of future results.
TRADING PRACTICES AND BROKERAGE
The Fund (and, in the case of The International Equity, The Labor Select
International Equity, The Global Fixed Income and The International Fixed Income
Portfolios, their investment adviser) selects brokers or dealers to execute
transactions 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 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. A number of trades are made on a net basis where
securities either are purchased directly from the dealer or are sold 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 the equivalent
of a commission. When a commission is paid, the Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department (and, in the case of The International Equity, The Labor Select
International Equity, The Global Fixed Income and The International Fixed Income
Portfolios, their investment adviser) 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.
During the period ended October 31, 1992, the aggregate dollar amounts of
brokerage commissions paid by The Defensive Equity, The Aggressive Growth and
The International Equity Portfolios amounted to $6,449, $7,368 and $529,
respectively. During the fiscal years ended October 31, 1993 and 1994, such
payments by the above Portfolios amounted to $14,686 and $59,381, respectively,
$32,320 and $19,391, respectively, and $10,651 and $94,890, respectively.
During the period ended October 31, 1993 and for the fiscal year ended October
31, 1994, such payments by The Global Fixed Income Portfolio amounted to $4,595
and $12,391, respectively.
The investment advisers may allocate out of all commission business
generated by all of the funds and accounts under management by them, 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 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
-20-
<PAGE>
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 investment advisers in connection with their
investment decision-making process with respect to one or more funds and
accounts they manage, and may not be used, or used exclusively, with respect to
the fund or account generating the brokerage.
During the fiscal year ended October 31, 1994, portfolio transactions of
The Defensive Equity, The Aggressive Growth, The International Equity and The
Global Fixed Income Portfolios in the amounts of $21,242,187, $5,579,279,
$19,907,505 and $10,470,688, respectively, resulting in brokerage commissions of
$34,791, $14,488, $69,280 and $12,874, respectively, were directed to brokers
for brokerage and research services provided.
As provided in the Securities Exchange Act of 1934 and each Portfolio's
Investment Management Agreement, 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 investment advisers which constitute in some part brokerage and research
services used by the investment advisers in connection with their investment
decision-making process and constitute in some part services used by them in
connection with administrative or other functions not related to their
investment decision-making process. In such cases, the investment advisers will
make a good faith allocation of brokerage and research services and will pay out
of their own resources for services used by them in connection with
administrative or other functions not related to their 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 Group. Subject to best price and execution,
commissions allocated to brokers providing such pricing services may or may not
be generated by the funds receiving the pricing service.
Combined orders for two or more accounts or funds engaged in the purchase
or sale of the same security may be placed if the judgment is made that 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 investment advisers 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,
orders may be placed with broker/dealers that have agreed to defray certain
Portfolio expenses, such as custodian fees.
PORTFOLIO TURNOVER
Portfolio trading will be undertaken principally to accomplish each
Portfolio's objective in relation to anticipated movements in the general level
of interest rates. A Portfolio is free to dispose of portfolio securities at any
time, subject to complying with the Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. A Portfolio will not attempt to achieve or be limited to
a predetermined rate of portfolio turnover. Such a turnover always will be
incidental to transactions
-21-
<PAGE>
undertaken with a view to achieving a Portfolio's investment objective.
The degree of portfolio activity may affect brokerage costs of a Portfolio
and taxes payable by a Portfolio's shareholders. A turnover rate of 100% would
occur, for example, if all the investments in a Portfolio's securities at the
beginning of the year were replaced by the end of the year. In investing for
capital appreciation, a relevant Portfolio may hold securities for any period of
time. Portfolio turnover will also be increased by The Aggressive Growth
Portfolio and The Real Estate Investment Trust Portfolio if the Portfolio writes
a large number of call options which are subsequently exercised. To the extent a
Portfolio realizes gains on securities held for less than six months, such gains
are taxable to the shareholder subject to tax or to a Portfolio at ordinary
income tax rates. The turnover rate also may be affected by cash requirements
from redemptions and repurchases of Portfolio shares. Total brokerage costs
generally increase with higher portfolio turnover rates.
Under normal circumstances: (1) the annual portfolio turnover rate of The
International Equity Portfolio is not expected to exceed 50%; (2) the annual
portfolio turnover rate of The Global Fixed Income Portfolio, The International
Fixed Income Portfolio and The Limited-Term Maturity Portfolio is not expected
to exceed 200%; (3) the annual portfolio turnover rate of The Defensive Equity
Portfolio, The Aggressive Growth Portfolio, The Defensive Equity Small/Mid-Cap
Portfolio, The Defensive Equity Utility Portfolio, The Labor Select
International Equity Portfolio, The Real Estate Investment Trust Portfolio and
The High-Yield Bond Portfolio is not expected to exceed 100%; and (4) the annual
portfolio turnover rate of The Fixed Income Portfolio is not expected to exceed
250%. The portfolio turnover rate of a Portfolio is calculated by dividing the
lesser of purchases or sales of securities for the particular fiscal year by the
monthly average of the value of the securities owned by the Portfolio during the
particular fiscal year, exclusive of securities whose maturities at the time of
acquisition are one year or less.
The portfolio turnover rates for the fiscal years ended October 31, 1993
and 1994 were 37% and 73%, respectively, for The Defensive Equity Portfolio, 81%
and 43%, respectively, for The Aggressive Growth Portfolio and 28% and 22%,
respectively, for The International Equity Portfolio. For the period November
30, 1992 (date of initial sale) to October 30, 1993, The Global Fixed Income
Portfolio's annualized portfolio turnover rate was 198% and for the fiscal year
ended October 31, 1994, the portfolio turnover rate was 205%. The portfolio
turnover rates experienced by The Global Fixed Income Portfolio for the periods
ended October 31, 1993 and 1994 were the result of unusual volatility in the
European markets following the breakdown of the prevailing European exchange
rate mechanism, the implementation of an investment strategy designed to avoid
certain foreign withholding taxes and management's shift in country exposure
following modification of the composition of a benchmark index.
PURCHASING SHARES
The following supplements the disclosure provided in the Fund's Prospectus.
Shares of each Portfolio are sold on a continuous basis directly to
institutional investors at the net asset value next determined after the receipt
of a purchase order and a Federal Funds wire as described more fully in the
Prospectus. See "DETERMINING NET ASSET VALUE." The minimum for initial
investments is $1,000,000 for each Portfolio. There are no minimums for
subsequent investments. See the Prospectus for special purchase procedures and
requirements that may be applicable to prospective investors in The
International Equity Portfolio and The Labor Select International Equity
Portfolio. At such time as the Fund receives appropriate regulatory approvals
to do so in the future, under certain circumstances, the Fund may, at its sole
discretion, allow institutional investors who have an existing investment
counseling relationship with Delaware Investment Advisers or Delaware
International to make investments in the Portfolios by a contribution of
securities in-kind to such Portfolios.
Delaware Distributors, L.P. serves as the national distributor for each
Portfolio's shares. See the Prospectus for information on how to invest. The
Fund reserves the right to suspend sales of Portfolio shares, and reject any
order for the purchase of Portfolio shares if in the opinion of
-22-
<PAGE>
management such rejection is in the Portfolio's best interest.
Certificates representing shares purchased are not ordinarily issued.
However, such purchases are confirmed to the investor and credited to the
shareholder's account on the books maintained on behalf of the Fund. The
investor will have the same rights of ownership with respect to such shares as
if certificates had been issued. An investor may receive a certificate
representing shares purchased by sending a letter to the Fund requesting the
certificate. No charge is made for any certificate issued. Investors who hold
certificates representing any of their shares may only redeem these shares by
written requests.
DETERMINING NET ASSET VALUE
Orders for purchases of shares of a Portfolio are effected at the net asset
value of that Portfolio next calculated after receipt of the order by the Fund
and Federal Funds wire by the Custodian Bank.
Net asset value is computed at the close of regular trading on the New York
Stock Exchange, generally 4 p.m., Eastern time, on days when the New York Stock
Exchange is open and an order to purchase or sell shares of a Portfolio has been
received or is on hand, having been received since the last previous computation
of net asset value. The New York Stock Exchange is scheduled to be open Monday
through Friday throughout the year except for New Year's 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.
The net asset value per share of each Portfolio is determined by dividing
the total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Securities listed
on a U.S. securities exchange for which market quotations are available are
valued at the last quoted sale price on the day the valuation is made. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Securities listed on a foreign exchange are valued at the
last quoted sale price available before the time when net assets are valued.
Unlisted securities and listed securities not traded on the valuation date for
which market quotations are readily available are valued at a price that is
considered to best represent fair value within a range not in excess of the
current ask prices nor less than the current bid prices. Domestic over-the-
counter equities, domestic equity securities that are not traded and U.S.
Government securities (and those of its agencies and instrumentalities) are
priced at the mean of the bid and ask price.
Bonds and other fixed income securities are valued according to the
broadest and most representative market, which will ordinarily be the over-the-
counter market. Net asset value includes interest on fixed income securities,
which is accrued daily. In addition, bonds and other fixed income securities may
be valued on the basis of prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted mean price or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted mean
price will be used. Securities with remaining maturities of 60 days or less are
valued at amortized cost, if it approximates market value. In the event that
amortized cost does not approximate market value, market prices as determined
above will be used.
Exchange-traded options are valued at the last reported sales price or, if
no sales are reported, at the mean between the last reported bid and ask prices.
Non-exchange traded options are valued at fair value using a mathematical model.
Futures contracts are valued at their daily quoted settlement price. The value
of other assets and securities for which no quotations are readily available
(including restricted securities) are determined in good faith at fair value
using methods determined by the Fund's Board of Directors.
The securities in which The International Equity Portfolio, The Labor
Select International Equity Portfolio, The Global Fixed Income Portfolio and The
International Fixed Income Portfolio (as
-23-
<PAGE>
well as The Defensive Equity Utility Portfolio, The Real Estate Investment Trust
Portfolio and The High-Yield Bond Portfolio, to the limited extent described in
the Prospectus) may invest from time to time may be listed primarily on foreign
exchanges which trade on days when the New York Stock Exchange is closed (such
as Saturday). As a result, the net asset value of those Portfolios may be
significantly affected by such trading on days when shareholders have no access
to the Portfolios.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the mean between the bid and ask prices of such currencies
against the U.S. dollar as provided by an independent pricing service or any
major bank, including the Custodian Bank. Forward foreign currency contracts
are valued at the mean price of the contract. Interpolated values will be
derived when the settlement date of the contract is on an interim period for
which quotations are not available.
REDEMPTION AND REPURCHASE
The following supplements the disclosure provided in the Fund's Prospectus.
Each Portfolio may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the
Commission, (ii) during any period when an emergency exists as defined by the
rules of the Commission as a result of which it is not reasonably practicable
for a Portfolio to dispose of securities owned by it, or fairly to determine the
value of its assets, and (iii) for such other periods as the Commission may
permit.
No charge is made by any Portfolio for redemptions. Payment for shares
redeemed or repurchased may be made either in cash or in-kind, or partly in cash
and partly in-kind. Any portfolio securities paid or distributed in-kind would
be valued as described in "DETERMINING NET ASSET VALUE." Subsequent sales by an
investor receiving a distribution in-kind could result in the payment of
brokerage commissions. Payment for shares redeemed ordinarily will be made
within three business days, but in no case later than seven days, after receipt
of a redemption request in good order. See "REDEMPTION OF SHARES" in the
Prospectus for special redemption procedures and requirements that may be
applicable to shareholders in The International Equity Portfolio, The Labor
Select International Equity Portfolio, The Global Fixed Income Portfolio and The
International Fixed Income Portfolio. Institutional investors who have an
existing investment counseling relationship with Delaware Investment Advisers or
Delaware International will not be subject to the Fund's in-kind redemption
requirements until such time as the Fund receives appropriate regulatory
approvals to permit such redemptions for the account of such institutional
investors.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Fund is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each Portfolio during any
90-day period for any one shareholder.
The value of a Portfolio's investments is subject to changing market
prices. Redemption proceeds may be more or less than the shareholder's cost
depending upon the market value of the Portfolio's securities. Thus, a
shareholder redeeming shares of a Portfolio may, if such shareholder is subject
to federal income tax, sustain either a gain or loss, depending upon the price
paid and the price received for such shares.
SMALLER ACCOUNTS
Due to the relatively higher cost of maintaining small accounts, the Fund
reserves the right to redeem Portfolio shares in any of its accounts at the
then-current net asset value if as a result of redemption or transfer a
shareholder's investment in a Portfolio has a value of less than $500,000.
However, before the Fund redeems such shares and sends the proceeds to the
shareholder, the shareholder will be notified in writing that the value of the
shares in the account is less than $500,000 and will be allowed 90 days from
that date of notice to make an additional investment to meet the required
minimum. Any redemption in an inactive account established with a minimum
investment may trigger mandatory redemption.
EXPEDITED TELEPHONE REDEMPTIONS
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<PAGE>
The Fund has available certain redemption privileges, as described below.
They are unavailable to shareholders of The International Equity Portfolio, The
Labor Select International Equity Portfolio, The Global Fixed Income Portfolio
and The International Fixed Income Portfolio whose redemptions trigger the
special in-kind redemption procedures. See the Prospectus. The Fund reserves the
right to suspend or terminate these expedited payment procedures at any time in
the future.
Shareholders wishing to redeem shares for which certificates have not been
issued may call the Fund at (1-800-231-8002) prior to 4 p.m., Eastern time, and
have the proceeds mailed to them at the record address. Checks payable to the
shareholder(s) of record will normally be mailed three business days, but no
more than seven days, after receipt of the redemption request.
In addition, redemption proceeds can be transferred to your predesignated
bank account by wire or by check by calling the Fund, as described above. The
Telephone Redemption Option on the Account Registration Form must have been
elected by the shareholder and filed with the Fund before the request is
received. Payment will be made by wire or check to the bank account designated
on the authorization form as follows:
1. PAYMENT BY WIRE: Request that Federal Funds be wired to the bank
account designated on the Account Registration Form. Redemption proceeds will
normally be wired on the next business day following receipt of the redemption
request. There is no charge for this service. If the proceeds are wired to the
shareholder's account at a bank which is not a member of the Federal Reserve
System, there could be a delay in the crediting of the funds to the
shareholder's bank account.
2. PAYMENT BY CHECK: Request a check be mailed to the bank account
designated on the Account Registration Form. Redemption proceeds will normally
be mailed three business days, but no later than seven days, from the date of
the telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it. If expedited payment under
these procedures could adversely affect a Portfolio, the Fund may take up to
seven days to pay the shareholder.
To reduce the risk of attempted fraudulent use of the telephone redemption
procedure, payment will be made only to the bank account designated on the
Account Registration Form. If a shareholder wishes to change the bank account
designated for such redemption, a written request in accordance with the
instructions set forth in the Prospectus will be required.
EXCHANGE PRIVILEGE
Shares of each Portfolio of the Fund may be exchanged for shares of any
other Portfolio. Exchange requests should be sent to Delaware Pooled Trust,
Inc., One Commerce Square, 2005 Market Street, Philadelphia, PA 19103 Attn:
Client Services.
Any such exchange will be based on the respective net asset values of the
shares involved and will be subject to the minimum investment requirements noted
above. There is no sales commission or charge of any kind and the shares of the
Portfolio into which the exchange is made, if necessary, must be registered in
the state in which the investor is domiciled. Before making an exchange, a
shareholder should consider the investment objectives of the Portfolio to be
purchased.
Exchange requests may be made either by mail, FAX message or by telephone.
Telephone exchanges will be accepted only if the certificates for the shares to
be exchanged are held by the Fund for the account of the shareholder and the
registration of the two accounts will be identical. Requests for exchanges
received prior to 4 p.m., Eastern time, for the Portfolios will be processed as
of the close of business on the same day. Requests received after this time
will be processed on the next business day. Exchanges may also be subject to
limitations as to amounts or frequency, and to other restrictions established by
the Board of Directors to assure that such exchanges do not disadvantage a
Portfolio and its shareholders. Exchanges into and out of The International
Equity Portfolio, The Labor Select International Equity Portfolio, The Global
Fixed Income Portfolio and The International Fixed Income Portfolio shall be
subject to the special purchase and redemption procedures identified in sections
of the Prospectus entitled "PURCHASE OF SHARES" and "REDEMPTION OF SHARES."
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<PAGE>
For federal income tax purposes, an exchange between Portfolios is a
taxable event for shareholders subject to federal income tax, and, accordingly,
a gain or loss may be realized. The Fund reserves the right to suspend or
terminate or amend the terms of the exchange privilege upon 60 days' written
notice to client shareholders.
* * *
Neither the Fund, the Portfolios nor the Fund's transfer agent, Delaware
Service Company, Inc., is responsible for any losses incurred in acting upon
written or telephone instructions for redemption or exchange of Portfolio shares
which are reasonably believed to be genuine. With respect to such telephone
transactions, the Fund will ensure that reasonable procedures are used to
confirm that instructions communicated by telephone are genuine (including
verification of a form of personal identification) as, if it does not, the Fund
or Delaware Service Company, Inc. may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
For the fiscal year ended October 31, 1994, a dividend of $0.280, $0.020,
$0.949 and $0.160 per share of The Defensive Equity, The Aggressive Growth, The
Global Fixed Income and The International Equity Portfolios, respectively, was
paid from net investment income. In addition, a distribution of $0.343, $0.210,
$0.577 and $0.100 per share of The Defensive Equity, The Aggressive Growth, The
Global Fixed Income and The International Equity Portfolios, respectively, was
paid from realized securities profits.
TAXES
The following supplements the tax disclosure provided in the Fund's
Prospectus.
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FUTURES CONTRACTS AND STOCK OPTIONS
(THE AGGRESSIVE GROWTH PORTFOLIO AND THE REAL
ESTATE INVESTMENT TRUST PORTFOLIO)
The Aggressive Growth Portfolio's and The Real Estate Investment Trust
Portfolio's transactions in options and futures contracts will be subject to
special tax rules that may affect the amount, timing and character of
distributions to shareholders. For example, certain positions held by a
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out) on such day, and any gain or loss associated
with such positions will be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by a Portfolio that substantially diminish
its risk of loss with respect to other positions in a Portfolio will constitute
"straddles," which are subject to special tax rules that may cause deferral of
the Portfolio's losses, adjustments in the holding periods of Portfolio
securities and conversion of short-term into long-term capital losses. Certain
tax elections exist for straddles which could alter the effects of these rules.
The Portfolios will limit their activities in options and futures contracts to
the extent necessary to meet the requirements of Subchapter M of the Code.
FORWARD CURRENCY CONTRACTS (THE INTERNATIONAL EQUITY PORTFOLIO, THE DEFENSIVE
EQUITY UTILITY PORTFOLIO, THE LABOR SELECT INTERNATIONAL EQUITY PORTFOLIO, THE
REAL ESTATE INVESTMENT TRUST PORTFOLIO, THE GLOBAL FIXED INCOME PORTFOLIO AND
THE INTERNATIONAL FIXED INCOME PORTFOLIO)
The International Equity Portfolio, The Defensive Equity Utility Portfolio,
The Labor Select International Equity Portfolio, The Real Estate Investment
Trust Portfolio, The Global Fixed Income Portfolio and The International Fixed
Income Portfolio will be required for federal income tax purposes to recognize
any gains and losses on forward currency contracts as of the end of each taxable
year as well as those actually realized during the year. In most cases, any
such gain or loss recognized with respect to a forward currency contract is
considered to be ordinary income or loss. Furthermore, forward currency futures
contracts which are intended to hedge against a change in the value of
securities held by these Portfolios may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
Special tax considerations also apply with respect to foreign investments
of these Portfolios. For example, certain foreign exchange gains and losses
(including exchange gains and losses on forward currency contracts) realized by
the Portfolio will be treated as ordinary income or losses.
STATE AND LOCAL TAXES
Shares of the Fund are exempt from Pennsylvania county personal property
tax.
INVESTMENT MANAGEMENT AGREEMENT
Delaware Investment Advisers, a division of Delaware Management Company,
Inc. ("Delaware"), One Commerce Square, Philadelphia, PA 19103, furnishes
investment management services to The Defensive Equity, The Aggressive Growth,
The Fixed Income, The Limited-Term Maturity, The Defensive Equity Small/Mid-Cap,
The Defensive Equity Utility, The Real Estate Investment Trust and The High-
Yield Bond Portfolios, subject to the supervision and direction of the Fund's
Board of Directors. Delaware International Advisers Ltd. ("Delaware
International"), Veritas House, 125 Finsbury Pavement, London, England EC2A 1NQ,
furnishes similar services to The International Equity, The Labor Select
International Equity, The Global Fixed Income and The International Fixed Income
Portfolios, subject to the supervision and direction of the Fund's Board of
Directors. Lincoln Investment Management, Inc. ("Lincoln") serves as sub-adviser
to Delaware with respect to The Real Estate Investment Trust Portfolio.
Lincoln's address is 200 E. Berry Street, Fort Wayne, Indiana 46802.
Delaware and its predecessors have been managing the funds in the Delaware
Group since 1938. The aggregate assets of these funds on October 31, 1994 were
approximately $9,525,500,000. Investment advisory services are also provided to
institutional accounts with assets on October 31, 1994 of approximately
$16,074,376,000.
Lincoln (formerly Lincoln National Investment Management Company) was
incorporated in 1930. As of June 30, 1995, Lincoln had over $34 billion in
assets under management.
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The Investment Management Agreements for The Defensive Equity, The
Aggressive Growth, The Fixed Income, The Limited-Term Maturity, The
International Equity, The Global Fixed Income and The International Fixed Income
Portfolios are each dated April 3, 1995 and were approved by shareholders on
March 29, 1995. The Investment Management Agreements for The Defensive Equity
Small/Mid-Cap, The Defensive Equity Utility, The Labor Select International
Equity, The Real Estate Investment Trust and The High-Yield Bond Portfolios are
each dated November 29, 1995 and were approved by the initial shareholders on
November 30, 1995. The Sub-Advisory Agreement for The Real Estate Investment
Trust Portfolio is dated November 29, 1995 and was approved by the initial
shareholder on November 30, 1995.
Each such Agreement has an initial term of two years and may be renewed
after its initial term only so long as 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 Portfolio, and only if
the terms of 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. Each Agreement is terminable without penalty on 60 days' notice
by the directors of the Fund or by the investment adviser. Each Agreement will
terminate automatically in the event of its assignment.
As compensation for the services to be rendered under their advisory
agreements, Delaware or, as relevant, Delaware International is entitled to an
advisory fee calculated by applying a quarterly rate, based on the following
annual percentage rates, to the Portfolio's average daily net assets for the
quarter:
PORTFOLIO RATE
---------
The Defensive Equity Portfolio .55%
The Aggressive Growth Portfolio .80%
The International Equity Portfolio .75%
The Defensive Equity Small/Mid-Cap Portfolio .65%
The Defensive Equity Utility Portfolio .35%
The Labor Select International Equity Portfolio .75%
The Real Estate Investment Trust Portfolio .75%
The Fixed Income Portfolio .40%
The Limited-Term Maturity Portfolio .30%
The Global Fixed Income Portfolio .50%
The International Fixed Income Portfolio .50%
The High-Yield Bond Portfolio .45%
Delaware has entered into a sub-advisory agreement with Lincoln with
respect to The Real Estate Investment Trust Portfolio. As compensation for its
services as sub-adviser to Delaware, Lincoln is entitled to receive a sub-
advisory fee equal to 30% of the investment management fee under Delaware's
Investment Management Agreement with the Fund on behalf of the Portfolio.
Out of the investment advisory fees to which they are otherwise entitled,
Delaware and Delaware International pay their proportionate share of the fees
paid to unaffiliated directors by the Fund, except that Delaware International
will make no such payments out of the fees it receives from managing The
International Fixed Income and The Labor Select International Equity Portfolios
and Delaware will make no such payments out of the fees it receives from
managing The Defensive Equity Small/Mid-Cap, The Defensive Equity Utility, The
Real Estate Investment Trust and The High-Yield Bond Portfolios.
With respect to The Defensive Equity, The Aggressive Growth, The Fixed
Income and The Limited-Term Maturity Portfolios, Delaware had elected
voluntarily to waive that portion, if any, of the annual investment advisory
fees payable by a particular Portfolio and to reimburse a Portfolio for its
expenses to the extent necessary to ensure that the expenses of that Portfolio
(exclusive of taxes, interest, brokerage commissions and extraordinary expenses)
did not exceed, on an annualized basis, respectively, .68%, .93%, .53% and .43%,
as a percentage of average net assets during the period from the commencement of
the public offering for the Portfolio through October 31, 1992. These waivers
and reimbursement commitments have been extended through April 30, 1996.
Similarly, Delaware International, the investment adviser to The International
Equity Portfolio and The International Fixed Income Portfolio, voluntarily
elected to waive that portion, if any, of its annual investment advisory fees
and to reimburse
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a particular Portfolio for its expenses to the extent necessary to ensure that
the expenses of that Portfolio (exclusive of taxes, interest, brokerage
commissions and extraordinary expenses) did not exceed, on an annualized basis,
respectively, .96% and .62%, as a percentage of average net assets. For The
International Equity Portfolio, the waiver and reimbursement commitment applied
to the period from the commencement of the public offering for the Portfolio
through October 31, 1992. Such waiver and reimbursement commitment has been
extended through April 30, 1996. For The International Fixed Income Portfolio
the waiver and reimbursement commitment applied to the period from the
commencement of the public offering for the Portfolio through April 30, 1994.
Such waiver and reimbursement commitment for The International Fixed Income
Portfolio has been modified to provide that such expenses of the Portfolio do
not exceed, on an annual basis, .60% through April 30, 1996. Delaware
International, also the investment adviser to The Global Fixed Income Portfolio,
voluntarily elected to waive that portion, if any, of its annual investment
advisory fees and to reimburse the Portfolio for its expenses to the extent
necessary to ensure that the expenses of that Portfolio (exclusive of taxes,
interest, brokerage commissions and extraordinary expenses) did not exceed, on
an annualized basis, .62% from the commencement of the public offering of the
Portfolio through October 31, 1993. Such waiver and reimbursement commitment had
been extended through October 31, 1994, but modified, effective November 1, 1994
through April 30, 1996, to provide that such expenses of the Portfolio do not
exceed, on an annualized basis, .60%. Amounts will be prorated over each
Portfolio's initial fiscal period from commencement of operations, if less than
a complete fiscal year.
With respect to The Defensive Equity Small/Mid-Cap Portfolio, The Defensive
Equity Utility Portfolio, The Real Estate Investment Trust Portfolio and The
High-Yield Bond Portfolio, Delaware Investment Advisers has elected voluntarily
to waive that portion, if any, of the annual Investment Advisory Fee payable by
such Portfolios and to reimburse each Portfolio for its expenses to the extent
necessary to ensure that the expenses of each Portfolio (exclusive of taxes,
interest, brokerage commissions and extraordinary expenses) do not exceed, as a
percentage of average net assets, on an annualized basis, .79%, .49%, .89% and
.59%, respectively, during the period from the commencement of the public
offering of such Portfolios through October 31, 1996. Similarly, Delaware
International, the investment adviser to The Labor Select International Equity
Portfolio, has elected voluntarily to waive that portion, if any, of the annual
Investment Advisory Fee payable by The Labor Select International Equity
Portfolio and to reimburse the Portfolio for its expenses to the extent
necessary to ensure that the expenses of that Portfolio (exclusive of taxes,
interest, brokerage commissions and extraordinary expenses) do not exceed,on an
annualized basis, .96% of such Portfolio's average net assets during the period
from the commencement of the public offering of the Portfolio through October
31, 1996. Other Operating Expenses for each of the Portfolios are estimated. For
the period February 3, 1992 (date of initial sale) to October 31, 1992, the
investment management fee earned by The Defensive Equity Portfolio amounted to
$12,880. For the period February 27, 1992 (date of initial sale) to October 31,
1992, the investment management fee earned by The Aggressive Growth Portfolio
amounted to $22,909. For the period February 4, 1992 (date of initial sale) to
October 31, 1992, the investment management fee earned by The International
Equity Portfolio amounted to $17,068. After consideration of the waiver of fees
by the respective investment adviser, no amounts were paid by the Portfolios.
For the fiscal years ended October 31, 1993 and 1994, the investment
management fees earned by The Defensive Equity, The Aggressive Growth and The
International Equity Portfolios amounted to $43,337 and $121,537, respectively,
$110,380 and $171,517, respectively, and $95,454 and $390,070, respectively.
For the period November 30, 1992 (date of initial sale) to October 31, 1993 and
for the fiscal year ended October 31, 1994, the investment management fees
earned by The Global Fixed Income Portfolio amounted to $107,750 and
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$175,663, respectively. After consideration of the waiver of fees by the
respective investment adviser $43,519 and $118,977 was paid by The Aggressive
Growth Portfolio for 1993 and 1994, respectively, $39,792 and $374,822 was paid
by The International Equity Portfolio for 1993 and 1994, respectively, $51,238
and $124,905 was paid by The Global Fixed Income Portfolio for 1993 and 1994,
respectively, and no amount was paid by The Defensive Equity Portfolio for 1993
and $88,345 was paid by this Portfolio for 1994.
On October 31, 1995, the total net assets of the Fund were $336,708,762,
broken down as follows: The Defensive Equity Portfolio--$51,947,097; The
Aggressive Growth Portfolio--$29,091,884; The International Equity Portfolio--
$156,467,112; The Fixed Income Portfolio--$21,000; The Limited-Term Maturity
Portfolio--$21,000; and The Global Fixed Income Portfolio--$99,160,669.
Delaware is an indirect, wholly-owned subsidiary of Delaware Management
Holdings, Inc. ("DMH").
Except for the expenses borne by the investment advisers under their
respective Investment Management Agreements and the distributor under the
Distribution Agreements, each Portfolio is responsible for all of its own
expenses. Among others, these include each Portfolio's proportionate share of
rent and certain other administrative expenses; the investment management fees;
transfer and dividend disbursing agent fees and costs; custodian expenses;
federal and state securities registration fees; proxy costs; and the costs of
preparing prospectuses and reports sent to shareholders. The ratio of expenses
to average daily net assets for The Defensive Equity, The Aggressive Growth, The
International Equity and The Global Fixed Income Portfolios for the fiscal year
ended October 31, 1994 was 0.68%, 0.93%, 0.94% and 0.62%, respectively. These
ratios reflect the waiver of fees by the respective investment adviser, as
described above.
By California regulation, the respective investment advisers are required
to waive certain fees and reimburse the Portfolios they manage for certain
expenses to the extent that the Portfolios' operating expenses, exclusive of
taxes, interest, brokerage commissions and extraordinary expenses, exceed 2 1/2%
of its first $30 million of average daily net assets, 2% of the next $70 million
of average daily net assets and 1 1/2% of any additional average daily net
assets. For the period ended October 31, 1994, no such reimbursement was
necessary or paid.
DISTRIBUTION AND SERVICE
Delaware Distributors, L.P. (which formerly conducted business as Delaware
Distributors, Inc.), located at 1818 Market Street, Philadelphia, PA 19103,
serves as the national distributor for The Defensive Equity, The Aggressive
Growth, The Fixed Income, The Limited-Term Maturity, The International Equity,
The Global Fixed Income and The International Fixed Income Portfolios under
separate Distribution Agreements dated April 3, 1995. It is the national
distributor for The Defensive Equity Small/Mid-Cap, The Defensive Equity
Utility, The Labor Select International Equity, The Real Estate Investment Trust
and The High-Yield Bond Portfolios under separate Distribution Agreements dated
November 29, 1995. Delaware Distributors, L.P. is an affiliate of the
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investment advisers and bears all of the costs of promotion and distribution.
Prior to January 3, 1995, Delaware Distributors, Inc. ("DDI") served as the
national distributor of the Fund's shares. On that date, Delaware Distributors,
L.P., a newly formed limited partnership, succeeded to the business of DDI. All
officers and employees of DDI became officers and employees of Delaware
Distributors, L.P. DDI is the corporate general partner of Delaware
Distributors, L.P. and both DDI and Delaware Distributors, L.P. are indirect,
wholly-owned subsidiaries of Delaware Management DMH.
Delaware Service Company, Inc., an affiliate of Delaware, is the Fund's
shareholder servicing, dividend disbursing and transfer agent for each Portfolio
pursuant to an Amended and Restated Shareholders Services Agreement dated
November 29, 1995. Delaware Service Company, Inc.'s principal business address
is 1818 Market Street, Philadelphia, PA 19103. It is also an indirect, wholly-
owned subsidiary of DMH.
OFFICERS AND DIRECTORS
The business and affairs of the Fund are managed under the direction of its
Board of Directors. As of October 31, 1995, no one account held 25% or more of
the outstanding shares of any of the Fund's Portfolios.
As of October 31, 1995, the Fund believes the following accounts held 5% or
more of the outstanding shares of The Defensive Equity Portfolio: Northern
Trust, Trust PHH Group, P.O. Box 92956, Chicago, IL 60690 held 458,592 shares
(12.93%); The Northern Trust Bank, Trust Children's Memorial Hospital, Self
Insurance Foundation Fund A, 22-89799 / 2-55243, P.O. Box 92956, Chicago, IL
60690 held 360,780 shares (10.17%); Nom & Company, FAO Consolidated Products
PSP, Employee Profit Sharing Plan, 111 Monument Circle, Suite 1601,
Indianapolis, IN 46204 held 315,062 shares (8.88%); The Northern Trust Company,
Trust Children's Memorial Pension Trust, 22-45691 / 2-255243, P.O., Box 92956,
Chicago, IL 60690 held 295,250 shares (8.30%); Commerce Bank of Kansas City,
Trust Burns & McDonnell Employee Stock Ownership Plan, P.O. Box 412817, Kansas
City, MO 64141 held 284,499 shares (7.94%); P&M Employees Pension Plan, Lone
Star Steel Company, P.O. Box 803546, 5501 LBJ Freeway, Suite 1200, Dallas, TX
75380 held 198,922 shares (5.61%); United Missouri Bank, Trust Burns & McDonnell
Profit Sharing, 340378017, P.O. Box 419260, Kansas City, MO 64141 held 188,743
shares (5.32%); and Cherrytrust & Company, FBO Colorado Open Shop Employers
Pension Trust, c/o The Bank of Cherry Creek, NA, 3033 E. First Ave., Denver, CO
80206 held 184,741 shares (5.21%).
As of October 31, 1995, the Fund believes the following accounts held 5% or
more of the outstanding shares of The Aggressive Growth Portfolio: Blue Cross &
Blue
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Shield of Connecticut, Inc., Employee Retirement Plan, 370 Bassett Rd., North
Haven, CT 06473 held 553,585 shares (24.47%); Blue Cross & Blue Shield of
Connecticut, Inc., 370 Bassett Rd., North Haven, CT 06473 held 551,249 shares
(24.37%); The Hillman Foundation, Inc., 2000 Grant Building, Pittsburgh, PA
15219 held 525,951 shares (23.25%); St. Elizabeth Hospital Medical Center, 1044
Belmont Ave., Youngstown, OH 44504 held 314,522 shares (13.90%); and Operating
Engineers Local 101 Pension Fund, 301 E. Armour Blvd., Suite 203, Kansas City,
Mo. 64111 held 314,077 shares (13.88%).
As of October 31, 1995, the Fund believes the following accounts held 5% or
more of the outstanding shares of The International Equity Portfolio: The
Salvation Army, Eastern Territory, 440 West Nyack Road, West Nyack, NY 10994
held 1,717,876 shares (14.40%); Father Flanagan's Foundation Fund, 14100
Crawford Street, Boys Town, NE 68010 held 1,529,970 shares (12.83%); The
Salvation Army, A Georgia Corporation, Board Designated, 1424 Northeast
Expressway, Atlanta, GA 30329 held 1,180,668 shares (9.90%); Amherst H. Wilder
Foundation, 919 LaFond Ave., St. Paul, MN 55104 held 963,084 shares (8.07%); The
Salvation Army, A Georgia Corporation, Board Designated Total Return, 1424
Northeast Expressway, Atlanta, GA 30329 held 943,361 shares (7.91%); Hamline
University, 1536 Hewitt Ave., St. Paul, MN 55104 held 657,161 shares (5.51%);
and Sheltering Arms Foundation, 909 E. Main Street, P.O. Box 1575, Richmond, VA
23213 held 596,577 shares (5.00%).
As of October 31, 1995, the Fund believes the following accounts held 5% or
more of the outstanding shares of The Global Fixed Income Portfolio: Washington
Suburban Sanitary Commission Employees Retirement Plan, 14501 Sweitzer Lane,
Laurel, MD 20707 held 2,481,781 shares (27.62%); St. Louis University, 3500
Lindell Blvd., St. Louis, MO 63103 held 1,529,323 shares (17.02%); Amherst H.
Wilder Foundation, 919 LaFond Ave., St. Paul, MN 55104 held 1,569,091 shares
(17.46%); City of Brockton, Contributory Retirement System, 50 School Street,
Brockton, MA 02401 held 827,611 shares (9.21%); Boatman's Trust Company, Cust.
Williams and Connolly, P.O. Box 14737, St. Louis, MO 63178 623,452 shares
(6.94%); Blue Cross & Blue Shield of Maryland Retirement Plan, Inc., 10455 Mill
Run Circle, Owings Mills, MD 21117 held 515,167 shares (5.73%); and Sheehan,
Phinney Bass and Green Profit Sharing Plan and Trust, 1000 Elm Street,
Manchester, NH 03105 held 467,582 shares (5.20%)
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DMH Corp., Delaware Management Company, Inc., 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. and Delaware Investment Counselors, Inc.
are direct or indirect, wholly-owned subsidiaries of 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 The Defensive
Equity Portfolio, The Aggressive Growth Portfolio, The Fixed Income Portfolio
and The Limited-Term Maturity Portfolio and Delaware, and new Investment
Management Agreements between the Fund on behalf of The International Equity
Portfolio, The Global Fixed Income Portfolio and The International Fixed Income
Portfolio and Delaware International were executed following shareholder
approval. As a result of the merger, DMH became a wholly-owned subsidiary and
Delaware and Delaware International became indirect, wholly-owned subsidiaries
of Lincoln National and each is now 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.
Certain officers and directors of the Fund hold identical positions in each
of the other funds in the Delaware Group. 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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*WAYNE A. STORK (58)
Chairman and Director of the Fund and Delaware Investment Counselors, Inc.
Chairman, President, Chief Executive Officer, Director and/or Trustee
of each of the other 16 Funds in the Delaware Group and Delaware
Management Holdings, Inc.
Chairman, Chief Executive Officer, Chief Investment Officer and Director of
Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of DMH Corp.,
Delaware International Advisers Ltd., Delaware International Holdings Ltd.
and Founders Holdings, Inc.
Director of Delaware Distributors, Inc. and Delaware Service Company, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.
_______________________
*Director affiliated with the investment manager of the Fund and considered an
"interested person" as defined in the Investment Company Act of 1940.
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WINTHROP S. JESSUP (50)
Executive Vice President of the Fund, 15 other funds in the Delaware Group
(which excludes Delaware Pooled Trust, Inc.) and Delaware Management
Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled Trust, Inc.
President and Director of Delaware Investment Counselors, Inc.
Executive Vice President and Director of DMH Corp., Delaware Management
Company, Inc.,
Delaware International Holdings Ltd. and Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Management Trust Company, Delaware Service Company,
Inc. and Delaware International Advisers Ltd.
During the past five years, Mr. Jessup has served in various executive
capacities at different times within the Delaware organization.
RICHARD G. UNRUH, JR. (56)
Executive Vice President of the Fund and each of the other 16 funds in the
Delaware Group.
Executive Vice President and Director of Delaware Management Company, Inc.
Senior Vice President of Delaware Management Holdings, Inc.
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.
WALTER P. BABICH (68)
Director and/or Trustee of the Fund and each of the other 16 funds in the
Delaware Group.
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.
ANTHONY D. KNERR (56)
Director and/or Trustee of the Fund and each of the other 16 funds in the
Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Consultant, 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.
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ANN R. LEVEN (55)
Director and/or Trustee of the Fund and each of the other 16 funds in the
Delaware Group.
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 1994, she
was Adjunct Professor of Columbia Business School.
W. THACHER LONGSTRETH (75)
Director and/or Trustee of the Fund and each of the other 16 funds in the
Delaware Group.
1617 John F. Kennedy Boulevard, Philadelphia, PA 19103.
Vice Chairman, Packquisition Corp., a financial printing, commercial
printing and information processing firm.
Philadelphia City Councilman.
President, MLW, Associates.
Director, Tasty Baking Company.
Director, Healthcare Services Group.
CHARLES E. PECK (69)
Director and/or Trustee of the Fund and each of the other 16 funds in the
Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of The
Ryland Group, Inc., Columbia, MD.
DAVID K. DOWNES (55)
Senior Vice President/Chief Administrative Officer/Chief Financial Officer
of the Fund, each of the other 16 funds in the Delaware Group and
Delaware Management Company, Inc.
Chairman and Director of Delaware Management Trust Company.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer/Treasurer of Delaware Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer and Director of DMH
Corp.
Senior Vice President/Chief Administrative Officer/Chief Financial Officer
and Director of Delaware Service Company, Inc.
Senior Vice President/Chief Administrative Officer and Director of Delaware
Distributors, Inc.
Senior Vice President/Chief Administrative Officer of Delaware
Distributors, L.P.
Chief Financial Officer and Director of Delaware International Holdings
Ltd.
Senior Vice President/Chief Financial Officer/Treasurer of Delaware
Investment Counselors, Inc.
Senior Vice President and Director of Founders Holdings, Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief
Administrative Officer, Chief Financial Officer and Treasurer of
Equitable Capital Management Corporation, New York, from December 1985
through August 1992, Executive Vice President from December 1985
through March 1992, and Vice Chairman from March 1992 through August
1992.
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GEORGE M. CHAMBERLAIN, JR. (48)
Senior Vice President and Secretary of the Fund, each of the other 16 funds
in the Delaware Group, Delaware Management Holdings, Inc., Delaware
Distributors, L.P. and Delaware Investment Counselors, Inc.
Executive Vice President, Secretary and Director of Delaware Management
Trust Company.
Senior Vice President, Secretary and Director of DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, Inc. and Delaware
Service Company, Inc.
Corporate Vice President, Secretary and Director of Founders Holdings, Inc.
Secretary and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within the Delaware organization.
GEORGE E. DEMING (54)
Vice President/Senior Portfolio Manager of The Defensive Equity Portfolio.
Before joining the Delaware Group in 1978, Mr. Deming was responsible for
portfolio management and institutional sales at White Weld & Co., Inc.
He is a member of the Financial Analysts of Philadelphia.
During the past five years, Mr. Deming has served in various capacities at
different times within the Delaware organization.
EDWARD N. ANTOIAN (39)
Vice President/Senior Portfolio Manager of the Fund, of seven other equity
funds in the Delaware Group and of Delaware Management Company, Inc.
During the past five years, Mr. Antoian has served in such capacities
within the Delaware organization.
GARY A. REED (41)
Vice President/Senior Portfolio Manager of the Fund, of the nine other
income (including tax-exempt) funds in the Delaware Group, of Delaware
Management Company, Inc. and Delaware Investment Counselors, Inc.
During the past five years, Mr. Reed has served in such capacities within
the Delaware organization.
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JOSEPH H. HASTINGS (45)
Vice President/Corporate Controller of the Fund, each of the other 16
funds in the Delaware Group, Delaware Management Holdings, Inc., DMH
Corp., Delaware Management Company, Inc., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Investment Counselors, Inc. and Founders Holdings, Inc.
Executive Vice President/Treasurer/Chief Financial Officer of Delaware
Management Trust Company.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief Financial
Officer for Prudential Residential Services, L.P., New York, NY from
1989 to 1992. Prior to that, Mr. Hastings served as Controller and
Treasurer for Fine Homes International, L.P., Stamford, CT from 1987
to 1989.
MICHAEL P. BISHOF (33)
Vice President/Treasurer of the Fund, each of the other 16 funds in the
Delaware Group, Delaware Management Company, Inc., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Founders Holdings, Inc. and Founders CBO Corporation.
Before joining the Delaware Group 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.
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<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 Group funds for the fiscal year
ended October 31, 1994 and an estimate of annual benefits to be received upon
retirement under the Delaware Group Retirement Plan for Directors/Trustees as of
October 31, 1994.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED TOTAL
BENEFITS ANNUAL COMPENSATION
AGGREGATE ACCRUED BENEFITS FROM ALL 17
COMPENSATION AS PART OF UPON DELAWARE
NAME FROM FUND FUND EXPENSES RETIREMENT* GROUP FUNDS
<S> <C> <C> <C> <C>
W. Thacher Longstreth $1,606.16 None $18,100 $39,960.02
Ann R. Leven $1,748.92 None $18,100 $44,960.02
Walter P. Babich $1,720.24 None $18,100 $43,960.03
Anthony D. Knerr $1,833.68 None $18,100 $43,962.11
Charles E. Peck $1,448.16 None $18,100 $36,824.07
</TABLE>
* Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director 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 fund in the Delaware Group for a period equal to the lesser of
the number of years that such person served as a director 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 of each fund at the time of such person's retirement. If an
eligible director retired as of October 31, 1994, he or she would be
entitled to annual payments totaling $18,100, in the aggregate, from all of
the funds in the Delaware Group, based on the number of funds in the
Delaware Group as of that date.
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<PAGE>
GENERAL INFORMATION
CUSTODY ARRANGEMENTS
The Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, NY
10260 serves as the Fund's custodian for domestic securities. With respect to
foreign securities, the Custodian Bank makes arrangements with subcustodians who
were approved by the directors of the Fund in accordance with Rule 17f-5 of the
1940 Act. In the selection of foreign subcustodians, the directors consider a
number of factors, including, but not limited to, the reliability and financial
stability of the institution, the ability of the institution to provide
efficiently the custodial services required for the Fund, and the reputation of
the institutions in the particular country or region.
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 Portfolio. While all shares have equal
voting rights on matters affecting the entire Fund, each Portfolio would vote
separately on any matter which affects only that Portfolio, such as any change
in its own investment objective and policy or action to dissolve a Portfolio and
as otherwise prescribed by the 1940 Act. Shares of each Portfolio have a
priority in that Portfolios' assets, and in gains on and income from the
portfolio of that Portfolio. Shares have no preemptive rights, are fully
transferable and, when issued, are fully paid and nonassessable.
The legality of the issuance of the shares offered hereby, pursuant to
registration under the 1940 Act Rule 24f-2, has been passed upon for the Fund by
Messrs. Stradley, Ronon, Stevens & Young, Philadelphia, Pennsylvania.
NONCUMULATIVE VOTING
THESE 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.
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<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for the Fund and, in
its capacity as such, audits the financial statements contained in the Fund's
Annual Reports. The Defensive Equity, The Aggressive Growth, The International
Equity and The Global Fixed Income Portfolios' Statements of Net Assets,
Statements of Investments, Statements of Assets and Liabilities, Statements of
Operations, Statements of Changes in Net Assets and Notes to Financial
Statements, and The Fixed Income, The Limited-Term Maturity and The
International Fixed Income Portfolios' Statements of Assets and Liabilities and
Notes to Financial Statements as well as the reports of Ernst & Young LLP,
independent auditors, for the fiscal year ended October 31, 1994 are included in
the Fund's Annual Reports to shareholders. The financial statements, the notes
relating thereto and the report of Ernst & Young LLP, listed above are
incorporated by reference from the Annual Reports into this Part B. In addition,
the unaudited financial statements and the notes relating thereto for The
Defensive Equity, The Aggressive Growth, The Fixed Income, The Limited-Term
Maturity, The International Equity, The Global Fixed Income and The
International Fixed Income Portfolios are incorporated by reference from the
Semi-Annual Reports into this Part B.
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