<PAGE>
DELAWARE POOLED TRUST
Delaware Pooled Trust, Inc. ("Fund") is a no-load, open-end management
investment company. The Fund consists of 12 portfolios (collectively, the
"Portfolios," or, individually, a "Portfolio") offering investment alternatives
for institutional clients and high net-worth individuals. Investors may make
investments in only one or in more than one of the following Portfolios:
<TABLE>
<CAPTION>
EQUITY ORIENTED FIXED-INCOME ORIENTED
<S> <C>
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 Portfolio The International Fixed Income Portfolio
The Labor Select International Equity Portfolio The High-Yield Bond Portfolio
The Real Estate Investment Trust Portfolio
The Emerging Markets Portfolio
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund is designed to meet the investment needs of discerning institutional
investors and high net-worth individuals 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 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 April 14, 1997, 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>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
Page Page
Fund Expenses Additional Investment Information
Financial Highlights Investment Limitations
Delaware Pooled Trust Summary Management of the Fund
Fund Officers and Portfolio Managers Shareholder Services
Risk Factors Dividends and Capital Gains
Investment Objectives, Policies Distributions
and Risk Considerations Taxes
Purchase of Shares Performance Information
Redemption of Shares Appendix A--Ratings
</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:
April 14, 1997
-2-
<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 High-Yield Bond Portfolio and The
Emerging Markets Portfolio, the amounts set forth below corresponding to the
caption "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, The Global Fixed Income Portfolio, The Labor Select International
Equity Portfolio and The Real Estate Investment Trust Portfolio, the amounts set
forth below corresponding to the caption "Other Expenses" are based on actual
results for the Portfolios' most recently completed fiscal year.
<TABLE>
<CAPTION>
===================================================================================================================================
The
The The The Inter-
Shareholder The The Inter- The Limited- Global national
Transaction Defensive Aggressive national Fixed Term Fixed Fixed
Expenses Equity Growth Equity Income Maturity Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Charge None None None None None None None
Imposed on
Purchases
- -----------------------------------------------------------------------------------------------------------------------------------
Sales Charge
Imposed on None None None None None None None
Reinvested
Dividends
- -----------------------------------------------------------------------------------------------------------------------------------
Redemption Fees None None None None None None None
- -----------------------------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None None None
===================================================================================================================================
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Annual Fund
Operating The
Expenses The The The Inter-
(as a per- The The Inter- The Limited- Global national
centage of Defensive Aggressive national Fixed Term Fixed Fixed
average Equity Growth Equity Income Maturity Income Income
net assets) Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment 0.52%* 0.69%* 0.75%* 0.00%* 0.22%* 0.43%* 0.02%*
Advisory Fees
After Voluntary
Waiver and
Payment
- -----------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees None None None None None None None
- -----------------------------------------------------------------------------------------------------------------------------------
Other
Expenses 0.15% 0.21% 0.14% 0.53% 0.21% 0.17% 0.58%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating
Expenses After 0.67%* 0.90%* 0.89%* 0.53%* 0.43%* 0.60%* 0.60%*
Voluntary
Waiver and
Payment
===================================================================================================================================
</TABLE>
-4-
<PAGE>
* With respect to The Defensive Equity Portfolio and The Aggressive Growth
Portfolio, Delaware Investment Advisers has elected voluntarily to waive
that portion, if any, of the annual Investment Advisory Fees payable by a
Portfolio and to pay a Portfolio's 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, as a
percentage of average net assets, on an annualized basis, 0.68% and 0.93%,
respectively, during the period from November 1, 1996 through October 31,
1997. With respect to The Fixed Income Portfolio and The Limited-Term
Maturity Portfolio, Delaware Investment Advisers has elected voluntarily to
waive that portion, if any, of the annual Investment Advisory Fees payable
by a Portfolio and to pay a Portfolio's 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, as a
percentage of average net assets, on an annualized basis, the amounts noted
above corresponding to the caption "Total Operating Expenses After
Voluntary Waiver and Payment" during the period from November 1, 1996
through October 31, 1997. 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 pay the Portfolio's 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, as a percentage of average net assets, on an annualized basis,
0.96% during the period from November 1, 1996 through October 31, 1997.
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 pay a Portfolio's 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, as a percentage of average net assets, on an annualized basis, the
amounts noted above corresponding to the caption "Total Operating Expenses
After Voluntary Waiver and Payment" during the period from November 1, 1996
through October 31, 1997. In the absence of such voluntary waivers, Annual
Fund Operating Expenses (as a percentage of average net assets) are or are
expected to equal 0.70%, 1.01%, 1.20%, 0.51%, 0.66%, and 1.08%,
respectively, for The Defensive Equity, The Aggressive Growth, The Fixed
Income, The Limited-Term Maturity, The Global Fixed Income and The
International Fixed Income Portfolios. The actual expenses of The
International Equity Portfolio were 0.89% for the fiscal year ended October
31, 1996 and therefore the waiver noted above was not triggered. "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 Labor The Real
The Select Estate The High- The
Shareholder Defensive International Investment Yield Emerging
Transaction Expenses Equity Small/ Equity Trust Bond Markets
Mid-Cap Portfolio Portfolio Portfolio Portfolio
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Charge Imposed on None None None None None
Purchases
- -----------------------------------------------------------------------------------------------------------------------------------
Sales Charge Imposed on
Reinvested Dividends None None None None None
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase Reimbursement Fees* None None None None 0.75%
- -----------------------------------------------------------------------------------------------------------------------------------
Redemption Reimbursement Fees* None None None None 0.75%
- -----------------------------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================================
The Labor The Real
Annual Fund The Select Estate The High- The
Operating Expenses Defensive International Investment Yield Emerging
(as a percentage of Equity Small/ Equity Trust Bond Markets
average net assets) Mid-Cap Portfolio Portfolio Portfolio Portfolio
Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fees After
Voluntary Waiver and Payment 0.65%** 0.32%** 0.56%** 0.45%** 1.20%**
- -----------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees None None None None None
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.14% 0.60% 0.33% 0.14% 0.35%**
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses After
Voluntary Waiver and Payment 0.79%** 0.92%** 0.89%** 0.59%** 1.55%**
===================================================================================================================================
</TABLE>
-6-
<PAGE>
* A purchase reimbursement fee and a redemption reimbursement fee each equal
to 0.75% (as a percentage of the dollar amount purchased or redeemed, as
the case may be) are assessed against investors in shares of The Emerging
Markets Portfolio and paid to the Portfolio. The purpose of these fees is
to allocate transaction costs associated with investments and redemptions
to the investors making those transactions, thus insulating other
shareholders from those costs. See "HOW TO INVEST," "PURCHASE OF SHARES,"
"HOW TO REDEEM," "REDEMPTION OF SHARES" and "PURPOSE OF REIMBURSEMENT FEES
-- THE EMERGING MARKETS PORTFOLIO."
** Expense figures for The Defensive Equity Small/Mid-Cap Portfolio, The
High-Yield Bond Portfolio and The Emerging Markets Portfolio are estimates
assuming that each Portfolio has average net assets equal to $75 million.
Expense figures for The Labor Select International Equity Portfolio and The
Real Estate Investment Trust Portfolio are based on actual results for the
Portfolios' most recently completed fiscal year and have been annualized.
With respect to The Defensive Equity Small/Mid-Cap 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 pay a Portfolio's 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, as a percentage of
average net assets, on an annualized basis, 0.79%, 0.89% and 0.59%,
respectively, during the period from the commencement of the public
offering of such Portfolios through October 31, 1997. Similarly, Delaware
International, the investment adviser to The Labor Select International
Equity Portfolio and The Emerging Markets Portfolio, has elected
voluntarily to waive that portion, if any, of the annual Investment
Advisory Fee payable by such Portfolios and to pay a Portfolio's 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, as a percentage of average net assets, on an
annualized basis, 0.96% and 1.55%, respectively, during the period from the
commencement of the public offering of the Portfolio through October 31,
1997. In the absence of such voluntary waivers, Annual Fund Operating
Expenses (as a percentage of average net assets) are or are expected to
equal 0.79%, 1.30%, 1.02%, 0.59% and 1.86%, respectively, for The Defensive
Equity Small\Mid-Cap Portfolio, The Labor Select International Equity
Portfolio, The Real Estate Investment Trust Portfolio, The High-Yield Bond
Portfolio and The Emerging Markets Portfolio. See "MANAGEMENT OF THE FUND"
for a recital of the Investment Advisory Fees to which each adviser is
entitled under its Investment Management Agreement.
-7-
<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. The following examples also assume the voluntary waiver
of the management fee and/or other payments of expenses by the investment
adviser as discussed in this Prospectus. For The Emerging Markets Portfolio, the
expenses include the purchase reimbursement and redemption reimbursement fees
payable to the Portfolio. No other Portfolio charges these fees.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Defensive Equity Portfolio $7 $21 $37 $83
The Aggressive Growth Portfolio 9 29 50 111
The International Equity Portfolio 9 28 49 110
The Labor Select International Equity Portfolio 9 29 51 113
The Real Estate Investment Trust Portfolio 9 28 49 110
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
</TABLE>
<TABLE>
<CAPTION>
1 year* 3 years*
------ -------
<S> <C> <C>
The Defensive Equity Small/Mid-Cap Portfolio $8 $25
The High-Yield Bond Portfolio 6 19
The Emerging Markets Portfolio 36 68
</TABLE>
For The Emerging Markets Portfolio, the only Portfolio subject to a redemption
reimbursement fee, you would pay the following expenses on the same investment,
assuming no redemption:
<TABLE>
<CAPTION>
1 year 3 years
------ -------
<S> <C> <C>
The Emerging Markets Portfolio $26 $58
</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.
-8-
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
The Defensive Equity Portfolio, The Aggressive Growth Portfolio, The
International Equity Portfolio, The Global Fixed Income Portfolio, The Labor
Select International Equity Portfolio, The Real Estate Investment Trust
Portfolio and The Fixed Income Portfolio of Delaware Pooled Trust, Inc. 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 all of which are incorporated by reference into the Statement
of Additional Information.
Further information about the performance of The Defensive Equity, The
Aggressive Growth, The International Equity, The Global Fixed Income, The Labor
Select International Equity, The Real Estate Investment Trust and The Fixed
Income Portfolios of Delaware Pooled Trust, Inc. is contained in their Annual
Report. A copy of the Annual Report (including the report of Ernst & Young LLP)
may be obtained from the Fund upon request at no charge.
As of October 31, 1996, The Defensive Equity Small/Mid-Cap Portfolio, The
Limited-Term Maturity Portfolio, The International Fixed Income Portfolio and
The High-Yield Bond Portfolio had sold no shares to public investors and, thus,
had not commenced operations. Consequently, no financial highlights are
presented for these five Portfolios. The Emerging Markets Portfolio commenced
operations on April 14, 1997.
- -------------------------------------------------------------------------------
-9-
<PAGE>
<TABLE>
<CAPTION>
The Defensive
Equity Portfolio
------------------------------------------------------------------
Period
2/3/92(1)
Year ended through
10/31/96 10/31/95 10/31/94 10/31/93 10/31/92
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $14.6600 $13.0800 $12.7300 $10.6600 $10.0000
Income From Investment Operations
- ---------------------------------
Net Investment Income...................................... 0.4404 0.4303 0.3203 0.2841 0.2291
Net Gains (Losses) on Securities
(both realized and unrealized).......................... 2.9596 1.9797 0.6527 2.3159 0.5109
------ ------ ------ ------ ------
Total from Investment Operations..................... 3.4000 2.4100 0.9730 2.6000 0.7400
------ ------ ------ ------ ------
Less Distributions
- ------------------
Dividends (from net investment income)..................... (0.4400) (0.3400) (0.2800) (0.3200) (0.0800)
Distributions (from capital gains)......................... (1.1600) (0.4900) (0.3430) (0.2100) none
Returns of Capital......................................... none none none none none
---- ---- ---- ---- ----
Total Distributions.................................. (1.6000) (0.8300) (0.6230) (0.5300) (0.0800)
-------- -------- -------- -------- --------
Net Asset Value, End of Period............................. $16.4600 $14.6600 $13.0800 $12.7300 $10.6600
======== ======== ======== ======== ========
- ------------------------------
Total Return............................................... 24.87%(2) 19.77%(2) 7.96%(2) 25.17%(2) 10.13%(2)
- ------------
- ------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted).................. $67,179 $51,947 $37,323 $13,418 $4,473
Ratio of Expenses to Average Daily Net Assets.............. 0.67% 0.68% 0.68% 0.68% 0.68%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitations.......................... 0.70% 0.71% 0.82% 1.38% 2.38%
Ratio of Net Investment Income to Average Daily Net Assets 2.85% 3.33% 3.26% 2.90% 3.65%
Ratio of Net Investment Income to Average Daily Net Assets
Prior to Expense Limitations.......................... 2.83% 3.30% 3.12% 2.20% 1.95%
Portfolio Turnover Rate.................................... 74% 88% 73% 37% 28%
Average Commission Rate Paid............................... $0.06 N/A N/A N/A N/A
</TABLE>
- -----------------
(1) Date of initial sale; ratios and total return have been annualized.
(2) Total return reflects the expense limitations referenced in Fund Expenses.
<PAGE>
<TABLE>
<CAPTION>
The Aggressive
Growth Portfolio
--------------------------------------------------------------------
Period
2/27/92(1)
Year ended through
10/31/96 10/31/95 10/31/94 10/31/93 10/31/92
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $12.8600 $11.0100 $11.2000 $9.0400 $10.0000
Income From Investment Operations
- ---------------------------------
Net Investment Income...................................... (0.0188) 0.0428 0.0075 0.0181 0.0167
Net Gains (Losses) on Securities
(both realized and unrealized).......................... 2.3913 2.0552 0.0325 2.1589 (0.9767)
------ ------ ------ ------ --------
Total from Investment Operations..................... 2.3725 2.0980 0.0400 2.1770 (0.9600)
------ ------ ------ ------ --------
Less Distributions
- ------------------
Dividends (from net investment income)..................... (0.0425) (0.0120) (0.0200) (0.0170) none
Distributions (from capital gains)......................... (0.6200) (0.2360) (0.2100) none none
Returns of Capital......................................... none none none none none
---- ---- ---- ---- ----
Total Distributions.................................. (0.6625) (0.2480) (0.2300) (0.0170) none
-------- -------- -------- -------- ----
Net Asset Value, End of Period............................. $14.5700 $12.8600 $11.0100 $11.2000 $9.0400
======== ======== ======== ======== =======
- ------------------------------------
Total Return............................................... 19.19%(2) 19.61%(2) 0.34%(2) 24.10%(2) (13.89%)(2)
- ------------
- ------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted).................. $28,526 $29,092 $22,640 $20,478 $4,538
Ratio of Expenses to Average Daily Net Assets.............. 0.90% 0.93% 0.93% 0.93% 0.93%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitations.......................... 1.01% 1.08% 1.17% 1.40% 2.56%
Ratio of Net Investment Income to Average Daily Net Assets (0.18%) 0.37% 0.07% 0.23% 0.28%
Ratio of Net Investment Income to Average Daily Net Assets
Prior to Expense Limitations.......................... (0.29%) 0.22% (0.17%) (0.24%) (1.35%)
Portfolio Turnover Rate.................................... 95% 64% 43% 81% 34%
Average Commission Rate Paid............................... $0.06 N/A N/A N/A N/A
</TABLE>
- ------------------
(1) Date of initial sale; ratios and total return have been annualized.
(2) Total return reflects the expense limitations referenced in Fund Expenses.
<PAGE>
<TABLE>
<CAPTION>
The International
Equity Portfolio
------------------------------------------------------------------
Period
2/4/92(1)
Year ended through
10/31/96 10/31/95 10/31/94 10/31/93 10/31/92
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $13.1200 $13.1100 $11.9900 $9.5000 $10.0000
Income From Investment Operations
- ---------------------------------
Net Investment Income........................................ 0.5063 0.4749 0.1440 0.2414 0.2282
Net Gains (Losses) on Securities
(both realized and unrealized)............................ 1.7937 0.0011 1.2360 2.5686 (0.6282)
------ ------ ------ ------ --------
Total from Investment Operations....................... 2.3000 0.4760 1.3800 2.8100 (0.4000)
------ ------ ------ ------ --------
Less Distributions
- ------------------
Dividends (from net investment income)....................... (0.4900) (0.1700) (0.1600) (0.3200) (0.1000)
Distributions (from capital gains)........................... (0.1500) (0.2960) (0.1000) none none
Returns of Capital........................................... none none none none none
---- ---- ---- ---- ----
Total Distributions.................................... (0.6400) (0.4660) (0.2600) (0.3200) (0.1000)
-------- -------- -------- -------- --------
Net Asset Value, End of Period............................... $14.7800 $13.1200 $13.1100 $11.9900 $9.5000
======== ======== ======== ======== =======
- -------------------------------
Total Return................................................. 18.12% 3.91% 11.66%(2) 30.28%(2) (5.44%)(2)
- ------------
- -------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted).................... $299,950 $156,467 $70,820 $24,288 $5,966
Ratio of Expenses to Average Daily Net Assets................ 0.89% 0.90% 0.94% 0.96% 0.96%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitations............................ --- --- 0.97% 1.38% 2.94%
Ratio of Net Investment Income to Average Daily Net Assets 4.36% 4.81% 1.36% 2.98% 4.67%
Ratio of Net Investment Income to Average Daily Net Assets
Prior to Expense Limitations............................ --- --- 1.33% 2.56% 2.69%
Portfolio Turnover Rate...................................... 8% 20% 22% 28% 2%
Average Commission Rate Paid................................. $0.02 N/A N/A N/A N/A
</TABLE>
- ---------------------
(1) Date of initial sale; ratios and total return have been annualized.
(2) Total return reflects the expense limitations referenced in Fund Expenses.
<PAGE>
<TABLE>
<CAPTION>
The Global
Fixed Income Portfolio
-----------------------------------------------------
Period
11/30/92(1)
Year ended through
10/31/96 10/31/95 10/31/94 10/31/93
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................................... $11.0400 $9.7900 $11.0900 $10.0000
Income From Investment Operations
- ---------------------------------
Net Investment Income................................................... 0.7774 0.7357 0.4189 0.9547
Net Gains (Losses) on Securities
(both realized and unrealized)....................................... 0.7246 0.9243 (0.1929) 0.7433
------ ------ -------- ------
Total from Investment Operations.................................. 1.5020 1.6600 0.2260 1.6980
------ ------ ------ ------
Less Distributions
- ------------------
Dividends (from net investment income).................................. (0.7200) (0.4100) (0.9490) (0.6080)
Distributions (from capital gains)...................................... (0.2020) none (0.5770) none
Returns of Capital...................................................... none none none none
---- ---- ---- ----
Total Distributions............................................... (0.9220) (0.4100) (1.5260) (0.6080)
-------- -------- -------- --------
Net Asset Value, End of Period.......................................... $11.6200 $11.0400 $9.7900 $11.0900
======== ======== ======= ========
- --------------------------------
Total Return............................................................ 16.40%(2) 17.38%(2) 2.07%(2) 18.96%(2)
- ------------
- --------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)............................... $252,068 $99,161 $42,266 $29,313
Ratio of Expenses to Average Daily Net Assets........................... 0.60% 0.60% 0.62% 0.62%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitations....................................... 0.66% 0.68% 0.76% 0.88%
Ratio of Net Investment Income to Average Daily Net Assets 8.52% 6.73% 3.62% 10.68%
Ratio of Net Investment Income to Average Daily Net Assets
Prior to Expense Limitations....................................... 8.46% 6.65% 3.48% 10.42%
Portfolio Turnover Rate................................................. 63% 77% 205% 198%
</TABLE>
- -------------------
(1) Date of initial sale; ratios and total return have been annualized.
(2) Total return reflects the expense limitations referenced in Fund Expenses.
<PAGE>
<TABLE>
<CAPTION>
The Labor Select The Real Estate
International Equity Portfolio Investment Trust Portfolio The Fixed Income Portfolio
------------------------------ -------------------------- --------------------------
Period Period Period
12/19/95(1) 12/6/95(1) 3/12/96(1)
through through through
10/31/96 10/31/96 10/31/96
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................ $10.0000 $10.0000 $10.0000
Income From Investment Operations
- ---------------------------------
Net Investment Income............................... 0.4785 0.6515 0.3856
Net Gains (Losses) on Securities
(both realized and unrealized)................... 1.3115 1.9385 0.0100
------ ------ ------
Total from Investment Operations.............. 1.7900 2.5900 0.3956
------ ------ ------
Less Distributions
- ------------------
Dividends (from net investment income).............. (0.1000) (0.1000) (0.3856)
Distributions (from capital gains).................. none none none
Returns of Capital.................................. none none none
---- ---- ----
Total Distributions........................... (0.1000) (0.1000) (0.3856)
-------- -------- --------
Net Asset Value, End of Period...................... $11.6900 $12.4900 $10.0100
======== ======== ========
- ------------------------------------
Total Return....................................... 17.97%(2) 26.12%(2) 4.08%(2)
- ------------
- ------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)........... $23,154 $26,468 $10,518
Ratio of Expenses to Average Daily Net Assets....... 0.92% 0.89% 0.53%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitations................... 1.30% 1.02% 1.20%
Ratio of Net Investment Income to Average
Daily Net Assets.............................. 6.64% 6.70% 6.14%
Ratio of Net Investment Income to Average Daily
Net Assets Prior to Expense Limitations........ 6.26% 6.57% 5.47%
Portfolio Turnover Rate............................. 7% 109% 232%
Average Commission Rate Paid........................ $0.03 $0.06 N/A
</TABLE>
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(1) Date of initial sale; ratios have been annualized, but total return has not
been annualized.
(2) Total return reflects the expense limitations referenced in Fund Expenses.
<PAGE>
DELAWARE POOLED TRUST SUMMARY
THE FUND
The Fund consists of 12 Portfolios offering eligible 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 Real Estate Investment Trust Portfolio, The Global Fixed Income Portfolio,
The International Fixed Income Portfolio and The Emerging Markets Portfolio, is
a diversified fund as defined by the Investment Company Act of 1940 ("1940
Act"). The Real Estate Investment Trust Portfolio, The Global Fixed Income
Portfolio, The International Fixed Income Portfolio and The Emerging Markets
Portfolio are nondiversified funds as defined by the 1940 Act. The investment
objectives and principal policies of each of the 12 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, 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 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,
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.
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<PAGE>
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.
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 B- or higher by
Standard & Poor's Ratings Group ("S&P") or B3 or higher by Moody's Investors
Service, Inc. ("Moody's").
The Emerging Markets Portfolio --seeks to achieve long-term capital
appreciation. The Portfolio seeks to achieve its objective by investing
primarily in equity securities of issuers located or operating in emerging
countries.
For further information, see "INVESTMENT OBJECTIVES, POLICIES AND RISK
CONSIDERATIONS" and "ADDITIONAL INVESTMENT INFORMATION."
-11-
<PAGE>
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 Real Estate Investment Trust and The High-Yield Bond
Portfolios. The investment management fees payable to Delaware Investment
Advisers by these Portfolios are, respectively, 0.55%, 0.80%, 0.40%, 0.30%,
0.65%, 0.75% and 0.45% of the respective Portfolio's average net assets. Lincoln
Investment Management, Inc., acts as sub-adviser to Delaware with respect to The
Real Estate Investment Trust Portfolio and receives 30% of the management fee
paid to Delaware. Delaware International, an affiliate of Delaware, is the
investment adviser to The International Equity, The Global Fixed Income, The
International Fixed Income, The Labor Select International Equity and The
Emerging Markets Portfolios. The investment management fees payable to Delaware
International by The International Equity Portfolio, The Global Fixed Income
Portfolio, The International Fixed Income Portfolio, The Labor Select
International Equity Portfolio and The Emerging Markets Portfolio are,
respectively, 0.75%, 0.50%, 0.50%, 0.75% and 1.20% 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 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, The Labor Select International Equity and The Emerging Markets
Portfolios. See "MANAGEMENT OF THE FUND."
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<PAGE>
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.
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.
Gerald S. Frey
Vice President/Senior Portfolio Manager - The Aggressive Growth Portfolio
Mr. Frey holds a BA in Economics from Bloomsburg University and attended Wilkes
College and New York University. He has approximately 20 years' experience in
the money management business. Prior to joining the Delaware Group in 1996, he
was a Senior Director with Morgan Grenfell Capital Management in New York. Mr.
Frey has managed The Aggressive Growth Portfolio since June 1996.
Timothy W. Sanderson
Director/Senior Portfolio Manager - Delaware International Advisers Ltd. (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 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.
-13-
<PAGE>
Clive A. Gillmore
Director/Senior Portfolio Manager - Delaware International Advisers Ltd. (The
Labor Select International Equity Portfolio and The Emerging Markets 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 and The
Emerging Markets Portfolio since their respective dates of inception.
Robert Akester
Senior Portfolio Manager - Delaware International Advisers Ltd. (The Emerging
Markets Portfolio)
Prior to joining Delaware in 1996, Mr. Akester, who began his investment career
in 1969, was most recently a Director of Hill Samuel Investment Advisers Ltd.,
which he joined in 1985. His prior experience included working as a Senior
Analyst and head of the South-East Asian Research team at James Capel, and as a
Fund Manager at Prudential Assurance Co., Ltd. Mr. Akester holds a BS in
Statistics and Economics from University College, London and is an associate of
the Institute of Actuaries, with a certificate in Finance and Investment. Mr.
Akester has managed The Emerging Markets 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.
Steven R. Brody
Senior Vice President/Director of Real Estate Operations - Lincoln Investment
Management, Inc. Sub-adviser to The Real Estate Investment Trust Portfolio
Mr. Brody, a graduate of Miami (Ohio) University, joined Lincoln following 15
years in the commercial mortgage and real estate industry with another insurance
company, a commercial bank and a mortgage banking firm. He is responsible for
Lincoln's mortgage, real estate equity, private placement and mezzanine finance
activities, and the day-to-day operations of Lincoln Investment Management. Mr.
Brody has been active in the Mortgage Bankers Association of America and the
Urban Land Institute and is a Fellow of the Life Office Management Association.
He serves on the boards of Lincoln Investment Management, Indiana Institute of
Technology, and The Malpas Trust. Mr. Brody has served as a sub-adviser for The
Real Estate Investment Trust Portfolio since its inception.
-14-
<PAGE>
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 is a CFA
charterholder and has completed numerous courses toward the MAI designation. Mr.
Robertson has served as a sub-adviser for The Real Estate Investment Trust
Portfolio since its inception.
Lawrence T. Kissko
Vice President/Real Estate Equity - Lincoln Investment Management, Inc.
Sub-adviser to The Real Estate Investment Trust Portfolio
Mr. Kissko holds a BS degree in Management Science from Rensselaer Polytechnic
Institute and an MBA in Finance from State University of New York at Albany. He
is responsible for real estate asset management as well as the real estate
equity production effort of Lincoln Investment Management, Inc. Mr. Kissko
joined Lincoln in 1983, following a five-year association with Union Mutual Life
Insurance Company of Portland, Maine. Prior to that, he was associated with
Massachusetts Mutual Life Insurance Company. He is a CFA charterholder. Mr.
Kissko 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
Director/Senior Portfolio Manager - Delaware International Advisers Ltd. (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.
-15-
<PAGE>
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 CFA charterholder. Mr.
Matlack has served as a portfolio manager of The High- Yield Bond Portfolio
since its inception.
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 CFA
charterholder. Mr. Nichols has served as a portfolio manager of The High-Yield
Bond Portfolio since its inception.
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, accounting 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 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
-16-
<PAGE>
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.
If permitted under applicable law, 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 would 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 Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY 11245 serves as
custodian for The Global Fixed Income, The International Equity, The Labor
Select International Equity, The Real Estate Investment Trust, The High-Yield
Bond, The International Fixed Income and The Emerging Markets Portfolios.
Bankers Trust Company, One Bankers Trust Plaza, New York, NY 10006 serves as
custodian for The Defensive Equity, The Aggressive Growth, The Fixed Income, The
Limited-Term Maturity and The Defensive Equity Small/Mid-Cap Portfolios.
HOW TO INVEST
Shares of each Portfolio are offered directly to institutions and high net-worth
individual investors at net asset value with no sales commissions or 12b-1
charges. In the case of The Emerging Markets Portfolio, there is a purchase
reimbursement fee that applies to all purchases, whether pursuant to the
exchange privilege or otherwise. That fee which is paid by investors to the
Portfolio equals 0.75% of the dollar amount invested. This purchase
reimbursement fee is deducted automatically from the amount invested; it cannot
be paid separately. This purchase reimbursement fee does not apply to
investments in the
-17-
<PAGE>
Portfolio that are made by securities in-kind or reinvestments of dividends or
other distributions. See "PURPOSE OF REIMBURSEMENT FEES -- THE EMERGING MARKETS
PORTFOLIO" and "EXCHANGE PRIVILEGE" under "SHAREHOLDER SERVICES." 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, eligible investors in The
International Equity Portfolio may, under certain circumstances, be required to
make their investments in the 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 eligible investors who have an existing investment counseling relationship
with Delaware Investment Advisers or Delaware International to make investments
in any of the Fund's Portfolios by a contribution of securities in-kind to such
Portfolios. See "PURCHASE OF SHARES."
HOW TO REDEEM
Shares of each Portfolio, other than The Emerging Markets 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. For The
Emerging Markets Portfolio, shares may be redeemed at any time at the net asset
value per share of the Portfolio next determined after receipt of the redemption
request, less a redemption reimbursement fee equal to 0.75% of such value. The
fee is deducted automatically from the redemption proceeds. The fee also applies
in the case of an exchange of shares of The Emerging Markets Portfolio for
shares of another Portfolio. See "EXCHANGE PRIVILEGE" under "SHAREHOLDER
SERVICES" and "PURPOSE OF REIMBURSEMENT FEES -- THE EMERGING MARKETS PORTFOLIO."
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, The International Fixed Income and The Emerging Markets
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. If a
redemption of shares of The Emerging Markets Portfolio is made in-kind, the
redemption reimbursement fee that is otherwise applicable will not be assessed.
See "REDEMPTION OF SHARES."
-18-
<PAGE>
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 International Equity, The Labor Select International Equity, The Global
Fixed Income, The International Fixed Income and The Emerging Markets Portfolios
will invest in securities of foreign issuers which normally are denominated in
foreign currencies and may hold foreign currency directly; in addition, The Real
Estate Investment Trust and The High-Yield Bond Portfolios may invest up to 10%
of their total assets in foreign securities. Investments in securities of
non-United States issuers which are generally denominated in foreign currencies
involve certain risk and opportunity considerations not typically associated
with investing in United States companies. 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 Real Estate Investment Trust,
The International Fixed Income and The Emerging Markets Portfolios may engage in
foreign currency options and futures transactions. For a discussion of the risks
associated with foreign securities see "FOREIGN INVESTMENT INFORMATION" and for
those concerning these hedging instruments see "RISKS OF TRANSACTIONS IN
OPTIONS, FUTURES AND FORWARD CONTRACTS," both of which references appear under
the heading "ADDITIONAL INVESTMENT INFORMATION."
The International Equity, The Labor Select International Equity, The Global
Fixed Income, The International Fixed Income, The Real Estate Investment Trust
and The High-Yield Bond Portfolios may commit their assets eligible for foreign
investment to securities of issuers located in emerging markets. The Emerging
Markets Portfolio will invest its assets primarily in securities of companies
that are so located or operated. Investments in securities of companies in
emerging markets present a greater degree of risk than tends to be the case for
foreign investments in Western Europe and other developed markets. Among other
things, there is a greater possibility of expropriation, nationalization,
confiscatory taxation, income earned or other special taxes, foreign exchange
restrictions, limitations on the repatriation of income and capital from
investments, defaults in foreign government debt, and economic, political or
social instability. In addition, in many emerging markets, there is
substantially less publicly available information about issuers and the
information that is available tends to be of a lesser quality. Economic markets
and structures tend to be less mature and diverse and the securities markets
which are subject to less government regulation or supervision may also be
smaller, less liquid and subject to greater price volatility. See "ADDITIONAL
INVESTMENT INFORMATION--FOREIGN INVESTMENT INFORMATION" for a more extensive
discussion of these and other factors.
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<PAGE>
The foreign securities in which The International Equity, The Labor Select
International Equity, The Global Fixed Income, The International Fixed Income
and The Emerging Markets Portfolios (and 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 Aggressive Growth Portfolio, The Real Estate Investment Trust Portfolio and
The Emerging Markets Portfolio also may, under certain circumstances, use
certain futures contracts and options on futures contracts, as well as options
on stock. The Portfolios will only enter into these transactions for hedging
purposes. See "FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS" and "RISKS OF
TRANSACTIONS IN OPTIONS, FUTURES AND FORWARD CONTRACTS," both of which
references appear under the heading "ADDITIONAL INVESTMENT INFORMATION."
The Real Estate Investment Trust Portfolio concentrates its investments in the
real estate industry. As a consequence, the net asset value of the Portfolio can
be expected to fluctuate in light of the factors affecting that industry, and
may fluctuate more widely than a portfolio that invests in a broader range of
industries. The Real Estate Investment Trust Portfolio may be more susceptible
to any single economic, political or regulatory occurrence affecting the real
estate industry.
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 Emerging Markets Portfolio may invest up to 35% of its assets in high-yield,
high risk fixed-income securities, including Brady Bonds. Consequently, greater
investment risks may be involved with an investment in this Portfolio. See
"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,
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<PAGE>
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 12 Portfolios may lend its portfolio securities, may invest in
repurchase agreements and may purchase securities on a when-issued basis.
While The Real Estate Investment Trust Portfolio, The Global Fixed Income
Portfolio, The International Fixed Income Portfolio and The Emerging Markets
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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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 Depositary 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 S&P or Aaa
by Moody's) or be of comparable quality as determined by the investment adviser.
"APPENDIX A-- RATINGS" to 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.
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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.
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.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in growth-oriented common stocks of domestic corporations. Such
companies, in the investment adviser's view, generally are those companies that
currently 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.
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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%.
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, under normal market conditions, 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 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
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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. The Portfolio may also invest in sponsored and unsponsored
American Depositary Receipts, European Depositary Receipts or Global Depositary
Receipts. See "ADDITIONAL INVESTMENT INFORMATION--AMERICAN DEPOSITARY RECEIPTS"
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 market 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 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
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"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 Depositary 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 DEPOSITARY 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
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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. 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 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, under normal market conditions, 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 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
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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 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.
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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%.
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 Depositary 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 DEPOSITARY 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.
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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 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.
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
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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.
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
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"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
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
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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
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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 Depositary
Receipts or European Depositary 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 DEPOSITARY 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.
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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 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
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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 Depositary
Receipts or European Depositary 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 DEPOSITARY 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,
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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 B- or higher by S&P or B3 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 B- or higher by S&P or B3 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 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
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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 B- or higher by S&P or B3 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
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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.
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.
THE EMERGING MARKETS PORTFOLIO
The objective of The Emerging Markets Portfolio is to achieve long-term capital
appreciation. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of issuers located or operating in emerging
countries. The Portfolio is an international fund. Under normal circumstances,
at least 65% of the Portfolio's assets will be invested in equity securities of
issuers organized or having a majority of their assets or deriving a majority of
their operating income in at least three different emerging countries. The
Portfolio will attempt to achieve its objective by investing in a broad range of
equity securities, including common stocks,
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preferred stocks, convertible securities and warrants issued by companies
located or operating in emerging countries.
The Portfolio considers an "emerging country" to be any country which is
generally recognized to be an emerging or developing country by the
international financial community, including the World Bank and the
International Finance Corporation, as well as countries that are classified by
the United Nations or otherwise regarded by their authorities as developing. In
addition, any country that is included in the IFC Free Index or MSCI EMF Index
will be considered to be an "emerging country." As of the date of this
Prospectus, there are more than 130 countries which, in Delaware International's
judgment, are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. Within this group of developing or emerging countries are
included almost every nation in the world, except the United States, Canada,
Japan, Australia, New Zealand and most nations located in Western and Northern
Europe.
Currently, investing in many emerging countries is not feasible, or may, in
Delaware International's opinion, involve unacceptable political risks. The
Portfolio will focus its investments in those emerging countries where Delaware
International considers the economies to be developing strongly and where the
markets are becoming more sophisticated. Delaware International believes that
investment opportunities may result from an evolving long-term international
trend favoring more market-oriented economies, a trend that may particularly
benefit certain countries having developing markets. This trend may be
facilitated by local or international political, economic or financial
developments that could benefit the capital markets in such countries.
In considering possible emerging countries in which the Portfolio may invest,
Delaware International will place particular emphasis on certain factors, such
as economic conditions (including growth trends, inflation rates and trade
balances), regulatory and currency controls, accounting standards and political
and social conditions. It is currently anticipated that the countries in which
the Portfolio may invest will include, but not be limited to, Argentina, Brazil,
Chile, China, Columbia, The Czech Republic, Egypt, Greece, Hong Kong, Hungary,
India, Indonesia, Israel, Jamaica, Jordan, Kenya, Korea, Malaysia, Mexico,
Nigeria, Pakistan, Peru, the Philippines, Poland, Portugal, Russia, South
Africa, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and Zimbabwe. As markets
in other emerging countries develop, Delaware International expects to expand
and further diversify the countries in which the Portfolio invests.
Although not an exclusive list of criteria to be considered by Delaware
International, an emerging country equity security is one issued by a company
that, in the opinion of Delaware International, exhibits one or more of the
following characteristics: (i) its principal securities trading market is an
emerging country, as defined above; (ii) while traded in any market, alone or on
a consolidated basis, the company derives 50% or more of its annual revenues
from either goods produced, sales made or services performed in emerging
countries; or (iii) it is organized under the laws of, and has a principal
office in, an emerging country. Determinations as to eligibility will be made by
Delaware International based on publicly available information and inquiries
made of the companies. See "ADDITIONAL INVESTMENT INFORMATION--FOREIGN
INVESTMENT INFORMATION."
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The Portfolio may invest in American Depositary Receipts, European Depositary
Receipts or Global Depositary Receipts, and in both open-end and, listed or
unlisted, closed-end investment companies, as well as unregistered investment
companies. See "AMERICAN DEPOSITARY RECEIPTS" and "INVESTMENT COMPANY
SECURITIES" under "ADDITIONAL INVESTMENT INFORMATION."
The Portfolio also may invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption Cumulative Stock,
and certain other non-traditional equity securities. See "ADDITIONAL INVESTMENT
INFORMATION--CONVERTIBLE, DEBT AND NON-TRADITIONAL EQUITY SECURITIES."
Up to 35% of the Portfolio's net assets may be invested in fixed-income
securities issued by emerging country companies, and foreign governments, their
agencies, instrumentalities or political subdivisions, all of which may be
high-yield, high risk fixed-income securities rated lower than BBB by S&P and
Baa by Moody's or, if unrated, are considered by Delaware International to be of
equivalent quality and which present special investment risks. The Portfolio may
also invest in Brady Bonds and zero coupon securities. See "HIGH-YIELD, HIGH
RISK SECURITIES" and "ZERO COUPON SECURITIES" under "ADDITIONAL INVESTMENT
INFORMATION." The Portfolio may invest in securities issued in any currency and
may hold foreign currency. Securities of issuers within a given country may be
dominated in the currency of another country or in multinational currency units,
including ECU. See "ADDITIONAL INVESTMENT INFORMATION--FORWARD FOREIGN CURRENCY
EXCHANGE CONTRACTS." For temporary defensive purposes, the Portfolio may invest
all or a substantial portion of its assets in the high quality debt instruments
in which The International Equity Portfolio may invest. See "INVESTMENT
OBJECTIVES, POLICIES AND RISK CONSIDERATIONS--THE INTERNATIONAL EQUITY
PORTFOLIO."
See "ADDITIONAL INVESTMENT INFORMATION" for a further discussion about the above
and other securities and investment practices.
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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 Chase Manhattan Bank or Bankers
Trust Company ("Custodian Banks"). In addition, a purchase reimbursement fee
equal to 0.75% of the dollar amount invested is charged to investors in shares
of The Emerging Markets Portfolio and paid to the Portfolio. See "HOW TO INVEST"
and "PURPOSE OF REIMBURSEMENT FEES -- THE EMERGING MARKETS PORTFOLIO.
Shares of The 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 eligible 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.
The minimum initial investment for a Portfolio is $1,000,000.
By Federal Funds Wire
Purchases of shares of a Portfolio may be made by having your bank wire Federal
Funds to CoreStates Bank, N.A. as described below. 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:
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
CoreStates Bank, N.A., Philadelphia, PA, ABA #031000011, DSC Wire Purchase Bank
Account #1412893401. The funds should be sent to the attention of Delaware
Pooled Trust, Inc. (be sure to have your bank include the name of the
Portfolio(s) selected, the account number assigned to you and your account
name). Federal Funds purchase orders will be accepted only on a day on which the
Fund, the NYSE and the Custodian Banks 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
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By Mail
Purchases of shares of a Portfolio may also be made by mailing a check payable
to the specific Portfolio selected to the above address (be sure to complete an
Investment Application before sending your check).
Purchase Price
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-Kind Purchases or Similar Procedures (The 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 will, under normal circumstances, be required to
make purchases by tendering securities in which the 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 Banks and/or (2) the
assignment to the 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 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 CoreStates Bank, N.A. Additional investments in The International
Equity Portfolio are subject to the same procedures and requirements (including
the in-kind or similar procedures) set forth above.
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REDEMPTION OF SHARES
You may withdraw all or any portion of the amount in your account by redeeming
shares at any time by submitting a request in accordance with the instructions
provided below. The Fund will redeem shares of each Portfolio, other than The
Emerging Markets Portfolio, without cost at its net asset value next determined
after receipt of your redemption request. For redemptions of shares of The
Emerging Markets Portfolio, a redemption reimbursement fee equal to 0.75% of the
amount redeemed is deducted automatically and paid to the Portfolio. See "HOW TO
REDEEM" and "PURPOSE OF REIMBURSEMENT FEES -- THE EMERGING MARKETS PORTFOLIO."
On days that the Fund, the NYSE and the Custodian Banks 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, except the reimbursement fee assessed to investors in
The Emerging Markets Portfolio. 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, The International Fixed Income Portfolio and The Emerging
Markets 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 # 215-255-8864
"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 designee bank. Prior to redemption, the Fund will telephonically confirm
the change with both the
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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, The International Fixed
Income Portfolio or The Emerging Markets 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 priced 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, and if
applicable law permits, 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 will 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.
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Eligible 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 eligible investors.
IMPORTANT REDEMPTION INFORMATION
Because the Fund's shares are sold to institutions and high net-worth
individuals 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 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.
PURPOSE OF REIMBURSEMENT FEES -- THE EMERGING MARKETS PORTFOLIO
The purpose of the purchase and redemption transaction fees is to allocate
transaction costs associated with purchases and redemptions to investors making
those transactions, thus insulating existing shareholders from those transaction
costs. These costs include: (1) brokerage costs; (2) market impact costs, i.e.,
the increase in markets prices which may result when the Portfolio purchases or
sells thinly traded stocks; and (3) the effect of the "bid-asked" spread in
international markets.
The fees represent Delaware International's estimate of the brokerage and other
transaction costs incurred by the Portfolio in purchasing and selling
international stocks. Without the fee, the Portfolio would incur these costs
directly, resulting in reduced investment performance for all shareholders of
the
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Portfolio. With the fee, the transaction costs of purchasing and selling
international stocks are borne not by all existing shareholders, but only by
those investors making transactions. Transaction costs incurred when purchasing
or selling stocks of companies in emerging market countries are extremely high.
There are three components of transaction costs brokerage fees, the difference
between the bid/asked spread and market impact. Each one of these factors is
significantly more expensive in emerging market countries than in the United
States, because of less competition among brokers, lower utilization of
technology on the part of the exchanges and brokers, the lack of derivative
instruments and generally less liquid markets. Consequently, brokerage
commissions are high, bid/asked spreads are wide, and the market impact is
significant. In addition to these customary costs, most foreign countries have
exchange fees or stamp taxes.
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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.
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
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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.
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
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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. Each of the Portfolios may invest
in such private-backed securities but, the Portfolios, other than The Fixed
Income Portfolio, will do so (i) only if the securities are 100% collateralized
at the time of issuance by securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and (ii) currently, only if they
are rated at the time of purchase in the two highest grades by a
nationally-recognized statistical rating agency.
The Fixed Income Portfolio may invest up to 20% of its total assets in CMOs and
REMICs issued by private entities which are not collateralized by securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
so-called non-agency mortgage-backed securities. Investments in these securities
may be made only if the securities (i) are rated at the time of purchase in the
four top rating categories by a nationally-recognized statistical rating
organization (e.g., BBB or better by S&P or Baa or better by Moody's) and (ii)
represent interests in whole-loan mortgages, multi-family mortgages, commercial
mortgages and other mortgage collateral supported by a first mortgage lien on
real estate. Non-agency mortgage-backed securities are subject to the interest
rate and prepayment risks, described above, to which other CMOs and REMICs
issued by private issuers are subject. Non-agency mortgage-backed securities may
also be subject to a greater risk of loss of interest and principal because they
are not collateralized by securities issued or guaranteed by the U.S.
government. In addition, timely information concerning the loans underlying
these securities may not be as readily available and the market for these
securities may be less liquid than other CMOs and REMICs.
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, receivables regarding automobile, mobile home and
recreational vehicle loans, wholesale dealer floor plans and leases or other
loans or financial receivables currently available or which may be developed in
the future. All such securities must be rated in one of the four highest rating
categories by a reputable credit rating agency (e.g., BBB by S&P or Baa by
Moody's). Such
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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 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 or the concentration of collateral in a particular geographic
area. Therefore, the yield may be difficult to predict and actual yield to
maturity may be more or less than the anticipated yield to maturity. Due to the
shorter maturity of the collateral backing such securities, there tends to be
less of a risk of substantial prepayment than with mortgage-backed securities
but the risk of such a prepayment does exist. 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 and other
risks which may be peculiar to particular classes of collateral. For example,
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 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 Labor Select
International Equity, The Real Estate Investment Trust, The Global Fixed Income,
The International Fixed Income, The High-Yield Bond and The Emerging Markets
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
Real Estate Investment Trust, The Labor Select International Equity, The
Emerging Markets 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
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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 its 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 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,
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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 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
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 Emerging Markets Portfolio, The Global Fixed Income Portfolio and
The International Fixed Income Portfolio (and The Real Estate Investment Trust
Portfolio and The High-Yield Bond Portfolio, up to 10% of their total assets)
will invest in securities of foreign issuers and may hold foreign currency. Each
of these Portfolios has the right to purchase securities in any developed,
underdeveloped or emerging country. The Emerging Markets Portfolio, under
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normal market conditions, will invest at least 65% of its total assets in
securities of issuers in emerging markets. Investors should consider carefully
the substantial risks involved in investing in securities issued by companies
and governments of foreign nations. These risks are in addition to the usual
risks inherent in domestic investments. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations or other taxes imposed with respect to investments in
foreign nations, foreign exchange control (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations.
In addition, in many countries, there is substantially less publicly available
information about issuers than is available in reports about companies in the
United States and this information tends to be of a lesser quality. Foreign
companies are not subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to United States companies. In particular, the
assets and profits appearing on the financial statements of a developing or
emerging country issuer may not reflect its financial position or results of
operations in the way they would be reflected had the financial statements been
prepared in accordance with United States generally accepted accounting
principles. Also, for an issuer that keeps accounting records in local currency,
inflation accounting rules may require for both tax and accounting purposes,
that certain assets and liabilities be restated on the issuer's balance sheet in
order to express items in terms of currency or constant purchasing power.
Inflation accounting may indirectly generate losses or profits. Consequently,
financial data may be materially affected by restatements for inflation and may
not accurately reflect the real condition of those issuers and securities
markets.
It is also expected that the expenses for custodial arrangements of The
International Equity, The Labor Select International Equity, The Real Estate
Investment Trust, The Global Fixed Income, The International Fixed Income, The
High-Yield Bond and The Emerging Markets 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."
Further, a Portfolio may encounter difficulty or be unable to pursue legal
remedies and obtain judgments in foreign courts. Commission rates on securities
transactions in foreign countries, which are sometimes fixed rather than subject
to negotiation as in the United States, are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets, and may be subject to administrative uncertainties. In
many foreign countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States, and capital requirements for brokerage firms are
generally lower. The foreign securities markets of many of the countries in
which a Portfolio may invest may also be smaller, less liquid and subject to
greater price volatility than those in the United States.
Compared to the United States and other developed countries, emerging countries
may have volatile social conditions, relatively unstable governments and
political systems, economies based on only a few industries and
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economic structures that are less diverse and mature, and securities markets
that trade a small number of securities, which can result in a low or
nonexistent volume of trading. Prices in these securities markets 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. Until recently, there has been an absence of a capital
market structure or market-oriented economy in certain emerging countries.
Further, investments and opportunities for investments by foreign investors are
subject to a variety of national policies and restrictions in many emerging
countries. These restrictions may take the form of prior governmental approval,
limits on the amount or type of securities held by foreigners, limits on the
types of companies in which foreigners may invest and prohibitions on foreign
investments in issuers or industries deemed sensitive to national interests.
Additional restrictions may be imposed at any time by these or other countries
in which a Portfolio invests. Also, 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 governmental
consents. Although these restrictions may in the future make it undesirable to
invest in emerging countries, the investment managers for the Portfolios do not
believe that any current repatriation restrictions would affect their decision
to invest in such countries. Countries such as those in which a Portfolio may
invest, and in which The Emerging Markets Portfolio will primarily invest, have
historically experienced and may continue to experience, substantial, and in
some periods extremely high rates of inflation for many years, high interest
rates, exchange rate fluctuations or currency depreciation, large amounts of
external debt, balance of payments and trade difficulties and extreme poverty
and unemployment. Other factors which may influence the ability or willingness
to service debt include, but are not limited to, a country's cash flow
situation, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of its debt service burden to the economy as a whole,
its government's policy towards the International Monetary Fund, the World Bank
and other international agencies and the political constraints to which a
government debtor may be subject.
With respect to investment in debt issues of foreign governments, the ability of
a foreign government or government-related issuer to make timely and ultimate
payments on its external debt obligations will also be strongly influenced by
the issuer's balance of payments, including export performance, its access to
international credits and investments, fluctuations in interest rates and the
extent of its foreign reserves. A country whose exports are concentrated in a
few commodities or whose economy depends on certain strategic imports could be
vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments denominated in
dollars could be adversely affected. If a foreign government or
government-related issuer cannot generate sufficient earnings from foreign trade
to service its external debt, it may need to depend on continuing loans and aid
from foreign governments, commercial banks and multilateral organizations, and
inflows of foreign investment. The commitment on the part of these foreign
governments, multilateral organizations and others to make such disbursements
may be conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may curtail the willingness of such third parties
to lend funds, which may further impair the issuer's ability or willingness to
service its debts in a timely manner. The cost of servicing external debt will
also generally be adversely affected by rising international interest rates
because many external debt obligations bear interest at rates which are adjusted
based upon international interest rates. The ability to service external debt
will also depend on the level of the relevant government's international
currency reserves and its access to foreign
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exchange. Currency devaluations may affect the ability of a government issuer to
obtain sufficient foreign exchange to service its external debt.
As a result of the foregoing, a foreign governmental issuer may default on its
obligations. If such a default occurs, a Portfolio may have limited effective
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting party itself, and the ability
of the holder of foreign government and government-related debt securities to
obtain recourse may be subject to the political climate in the relevant country.
In addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of other foreign government and
government-related debt obligations in the event of default under their
commercial bank loan agreements.
Among the foreign government and government related issuers in which The
Emerging Markets, The International Fixed Income and The Global Fixed Income
Portfolios may invest are certain high-yield securities, including so-called
Brady Bonds. 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 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 "BRADY BONDS" in the
Statement of Additional Information for further information.
The issuers of the foreign government and government-related high-yield
securities, including Brady Bonds, in which The Emerging Markets, The
International Fixed Income and The Global Fixed Income Portfolios expect to
invest have in the past experienced substantial difficulties in servicing their
external debt obligations, which have led to defaults on certain obligations and
the restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, reducing and rescheduling interest and principal
payments by negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and obtaining new
credit to finance interest payments. Holders of certain foreign government and
government-related high yield securities may be requested to participate in the
restructuring of such obligations and to extend further loans to their issuers.
There can be no assurance that the Brady Bonds and other foreign government and
government-related high yield securities in which The Emerging Markets, The
International Fixed Income and The Global Fixed Income Portfolios may invest
will not be subject to similar defaults or restructuring arrangements which may
adversely affect the value of such investments. Furthermore, certain
participants in the secondary market for such debt may be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants.
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With respect to forward foreign currency exchange, 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. See
"FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS," below.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As noted above, the foreign investments made by The International Equity, The
Labor Select International Equity, The Real Estate Investment Trust, The Global
Fixed Income, The International Fixed Income and The Emerging Markets 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.
Although The International Equity 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 Emerging
Markets 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
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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 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. The Emerging
Markets Portfolio may invest up to 35% of its net assets in fixed-income
securities issued by emerging country companies, and foreign governments, their
agencies and instrumentalities or political sub-divisions, all of which may be
high-yield, high risk securities, including Brady Bonds. For a description of
Brady Bonds and their attendant risks, see "ADDITIONAL INVESTMENT INFORMATION
FOREIGN INVESTMENT INFORMATION." These high-yield, high risk securities are
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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.
In addition, The High-Yield Bond Portfolio invests primarily in securities rated
B- or higher by S&P or B3 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.
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, The
Real Estate Investment Trust Portfolio and The Emerging Markets 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
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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 and The Emerging Markets
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, The Real Estate Investment Trust Portfolio and
The Emerging Markets 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 or The
Emerging Markets 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 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.
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OPTIONS
Options on Securities
The Aggressive Growth Portfolio, The Real Estate Investment Trust Portfolio and
The Emerging Markets 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. Each Portfolio will only write put options on a secured basis which
means that the Portfolio will maintain, in a segregated account with its
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 and The Emerging Markets Portfolio will only invest in such
options to the extent consistent with their 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.
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Options on Stock Indices
The Emerging Markets Portfolio also may acquire options on stock indices. A
stock index assigns relative values to the common stocks included in the index
with the index fluctuating with changes in the market values of the underlying
stock. Options on stock indices are similar to options on stocks, but have
different delivery requirements. See "OPTIONS ON STOCK INDICES" in the Statement
of Additional Information.
Options on Foreign Currencies
The International Fixed Income Portfolio and The Emerging Markets Portfolio may
purchase call options and write covered call options on foreign currencies and
enter into related closing transactions. A Portfolio may also purchase put
options and write secured put options on foreign currencies and enter into
related closing transactions. A 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.
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 a Portfolio's position, a 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 a Portfolio could
be required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses.
A Portfolio will write call options only if they are "covered" and put options
only if they are secured. A call written by a Portfolio will be considered
covered if a 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 a Portfolio will be considered
secured if, so long as a 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
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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 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 Labor Select International Equity, The Real Estate Investment
Trust, The High-Yield Bond, The International Fixed Income and The Emerging
Markets 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 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
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
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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 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 Real Estate Investment Trust, The
High-Yield Bond and The Emerging Markets 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 Real Estate Investment Trust, The
High-Yield Bond and The Emerging Markets 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), 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
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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 DEPOSITARY RECEIPTS
The Defensive Equity, The International Equity, The Defensive Equity
Small/Mid-Cap, The Real Estate Investment Trust, The Global Fixed Income, The
International Fixed Income and The Emerging Markets Portfolios may invest in
sponsored and unsponsored American Depositary 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 Depositary, 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 Depositary 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.
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INVESTMENT COMPANY SECURITIES
Any investments that The Emerging Markets Portfolio makes in either closed-end
or open-end investment companies will be limited by the 1940 Act, and would
involve an indirect payment of a portion of the expenses, including advisory
fees, of such other investment companies. Under the 1940 Act's limitations, The
Emerging Markets Portfolio may not (1) own more than 3% of the voting stock of
another investment company; (2) invest more than 5% of the Portfolio's total
assets in the shares of any one investment company; nor (3) invest more than 10%
of the Portfolio's total assets in shares of other investment companies. These
percentage limitations also apply to the Portfolio's investments in unregistered
investment companies.
ZERO COUPON SECURITIES
The Emerging Markets Portfolio may also invest in zero coupon bonds. The market
prices of zero coupon securities are generally more volatile than the market
prices of securities that pay interest periodically and are likely to respond to
changes in interest rates to a greater degree than do non-zero coupon securities
having similar maturities and credit quality. Current federal income tax law
requires that a holder of a taxable zero coupon security report as income each
year the portion of the original issue discount of such security that accrues
that year, even though the holder receives no cash payments of interest during
the year. The Portfolio intends to qualify as a regulated investment company
under the Code. Accordingly, during periods when the Portfolio receives no
interest payments on its zero coupon securities, it will be required, in order
to maintain its desired tax treatment, to distribute cash approximating the
income attributable to such securities. Such distribution may require the sale
of portfolio securities to meet the distribution requirements and such sales may
be subject to the risk factor discussed above.
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INVESTMENT LIMITATIONS
Each Portfolio's investment objectives, their designation as a diversified
portfolio or, in the case of The Real Estate Investment Trust, The Global Fixed
Income, The International Fixed Income and The Emerging Markets Portfolios, as
non-diversified portfolios, and their policies concerning portfolio lending,
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" in this Prospectus 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.
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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 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, 1996, Delaware and its affiliates
within the Delaware Group, including Delaware International, were supervising in
the aggregate more than $30 billion in assets in various institutional or
separately managed (approximately $19,214,690,000) and investment company
(approximately $11,539,873,000) 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 October 31,
1996, Lincoln had over $39 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, The
International Fixed Income Portfolio and The Emerging Markets 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 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 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, The International Fixed Income Portfolio and The
Emerging Markets Portfolio. Under these Agreements, Delaware
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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 0.55%
The Aggressive Growth Portfolio 0.80%
The International Equity Portfolio 0.75%
The Defensive Equity Small/Mid-Cap Portfolio 0.65%
The Labor Select International Equity Portfolio 0.75%
The Real Estate Investment Trust Portfolio 0.75%*
The Fixed Income Portfolio 0.40%
The Limited-Term Maturity Portfolio 0.30%
The Global Fixed Income Portfolio 0.50%
The International Fixed Income Portfolio 0.50%
The High-Yield Bond Portfolio 0.45%
The Emerging Markets Portfolio 1.20%
* Lincoln receives 30% of the advisory fee paid to Delaware for acting as
sub-adviser to Delaware with respect 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 pay 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, 1997. 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 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, The
International Fixed Income and The Emerging Markets Portfolios. With respect to
The Defensive Equity, The Aggressive Growth, The Global Fixed Income, The Fixed
Income, The Labor Select International Equity and The Real Estate Investment
Trust Portfolios, the investment management fees earned were 0.55%, 0.79%,
0.50%, 0.38% (annualized), 0.75% (annualized) and 0.75% (annualized),
respectively, of average daily net assets for the fiscal year ended October 31,
1996. After considering the waiver of fees by the respective investment adviser,
as described above, the fees paid by The Defensive Equity, The Aggressive
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Growth, The Global Fixed Income, The Labor Select International Equity and The
Real Estate Investment Trust Portfolios amounted to 0.52%, 0.69%, 0.43%, 0.32%
(annualized), and 0.56% (annualized), respectively, of average daily net assets.
No fees were paid by The Fixed Income Portfolio. For the fiscal year ended
October 31, 1996, the investment management fee paid by The International Equity
Portfolio amounted to 0.75% of average daily net assets. The advisory fees
payable by The Aggressive Growth, The International Equity, The Labor Select
International Equity, The Real Estate Investment Trust and The Emerging Markets
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.
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. DMH, Delaware and Delaware International are now indirect, wholly
owned subsidiaries, and 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, IN 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 Banks, 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. Delaware Service Company, Inc. also
provides accounting services to the Fund pursuant to the terms of a separate
Fund Accounting Agreement.
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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 ratios of
expenses to average daily net assets for The Defensive Equity, The Aggressive
Growth, The Global Fixed Income, The Labor Select International Equity and The
Real Estate Investment Trust Portfolios were 0.67%, 0.90%, 0.60%, 0.92%
(annualized) and 0.89% (annualized), respectively, for the fiscal year ended
October 31, 1996. These ratios reflect the waiver and payment of fees by the
respective investment adviser, as described above. The ratio of expenses to
average daily net assets for The International Equity Portfolio was 0.89% for
the fiscal year ended October 31, 1996. The ratio of expenses to average daily
net assets for The Fixed Income Portfolio is expected to equal 0.53% on an
annual basis.
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SHAREHOLDER SERVICES
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 or the institutional class shares of the other funds in the Delaware
Group based on the respective net asset values of the shares involved and as
long as a Portfolio's minimum is satisfied. With respect to exchanges involving
The Emerging Markets Portfolio, however, an investor will be assessed a purchase
reimbursement fee by that Portfolio when exchanging from another Portfolio into
The Emerging Markets Portfolio and a shareholder of The Emerging Markets
Portfolio will be assessed a redemption reimbursement fee by that Portfolio when
exchanging out of The Emerging Markets Portfolio into another Portfolio. See
"HOW TO INVEST," "HOW TO REDEEM" and "PURPOSE OF REIMBURSEMENT FEES -- THE
EMERGING MARKETS PORTFOLIO." There are no minimum purchase requirements for the
institutional class shares of the other Delaware Group funds, but certain
eligibility requirements must be 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.
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DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund maintains the following dividend and capital gains policies for its 12
Portfolios.
The Fixed Income, The Limited-Term Maturity and The International Fixed Income
Portfolios expect to declare dividends daily and distribute them monthly. The
High-Yield Bond and The Global Fixed Income 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, The Real Estate Investment Trust and The Emerging Markets
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.
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TAXES
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, The Labor Select International Equity and The Emerging Markets
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, The Aggressive Growth and The Real Estate Investment Trust
Portfolios for the fiscal year ended October 31, 1996, 55%, 5% and 44%,
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 by-product 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.
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The International Equity Portfolio, The Labor Select International Equity
Portfolio, The Global Fixed Income Portfolio, The International Fixed Income
Portfolio and The Emerging Markets Portfolio--Foreign Taxes.
Each of The International Equity Portfolio, The Labor Select International
Equity Portfolio, The Global Fixed Income Portfolio, The International Fixed
Income Portfolio and The Emerging Markets 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.
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.
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<PAGE>
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, The International Fixed Income
Portfolio and The Emerging Markets Portfolio (and, to a limited extent, 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 Banks. 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
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, The
International Fixed Income Portfolio and The Emerging Markets 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, The
International Fixed Income Portfolio and The Emerging Markets 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.
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<PAGE>
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 past two fiscal years were as follows:
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
<S> <C> <C>
The Defensive Equity Portfolio 74% 88%
The Aggressive Growth Portfolio 95% 64%
The International Equity Portfolio 8% 20%
The Labor Select International Equity Portfolio 7%* N/A
The Real Estate Investment Trust Portfolio 109%* N/A
The Fixed Income Portfolio 232%* N/A
The Global Fixed Income Portfolio 63% 77%
</TABLE>
*Annualized.
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<PAGE>
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
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 Banks
The Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY 11245 serves as
custodian for The Global Fixed Income, The International Equity, The Labor
Select International Equity, The Real Estate Investment Trust, The High-Yield
Bond, The International Fixed Income and The Emerging Markets Portfolios.
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<PAGE>
Bankers Trust Company, One Bankers Trust Plaza, New York, NY 10006 serves as
custodian for The Defensive Equity, The Aggressive Growth, The Fixed Income, The
Limited-Term Maturity and The Defensive Equity Small/Mid-Cap Portfolios.
Independent Auditors
Ernst & Young LLP, 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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that company ranks in the
higher end of its generic category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the company ranks in the lower end of
its generic rating category.
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.
Plus (+) or minus (-) Ratings may be modified by a plus or minus sign,
reflecting the relative standing within the major rating categories.
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<PAGE>
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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<PAGE>
PART B
DELAWARE POOLED TRUST, INC.
STATEMENT OF ADDITIONAL INFORMATION
APRIL 14, 1997
-----------------------------------
Delaware Pooled Trust, Inc. ("Fund") is a no-load, open-end management
investment company. The Fund consists of 12 series ("Portfolios") offering a
broad range of investment choices. The Fund is designed to provide clients with
attractive alternatives for meeting their investment needs. This Statement of
Additional Information addresses information of the Fund applicable to each of
the 12 Portfolios.
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Prospectus of the Fund dated April 14, 1997. 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
Page
----
Investment Policies, Portfolio Techniques and Risk Considerations
Accounting and Tax Issues
Performance Information
Trading Practices and Brokerage
Purchasing Shares
Determining Net Asset Value
Redemption and Repurchase
Dividends and Capital Gain Distributions
Taxes
Investment Management Agreements
Officers and Directors
General Information
Financial Statements
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<PAGE>
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 (other than The Emerging Markets 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 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.
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<PAGE>
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 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 Labor
Select International Equity Portfolio, The Real Estate Investment Trust
Portfolio, The International Fixed Income Portfolio, The High-Yield Bond
Portfolio and The Emerging Markets 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.
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<PAGE>
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 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 Labor Select International Equity Portfolio,
The Real Estate Investment Trust Portfolio, The International Fixed Income
Portfolio and 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 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 Real Estate
Investment 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.
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<PAGE>
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 6, 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 Emerging Markets Portfolio
The Fund has adopted the following restrictions for The Emerging
Markets Portfolio which, along with its investment objective, cannot be changed
without approval by a "majority" of the Portfolio's outstanding shares, as
described above. The percentage limitations contained in these restrictions and
policies apply at the time the Portfolio purchases securities.
The Emerging Markets Portfolio shall not:
1. Invest 25% or more of its total assets in any one industry provided
that there is no limitation with respect to investments in obligations issued or
guaranteed as to principal or interest by the U.S.
Government, its agencies or instrumentalities.
2. Make loans other than by the purchase of all or a portion of a
publicly or privately distributed issue of bonds, debentures or other debt
securities of the types commonly offered publicly or privately and purchased by
financial institutions (including repurchase agreements), whether or not the
purchase was made upon the original issuance of the securities, and except that
the Portfolio may loan its assets to qualified broker/dealers or institutional
investors.
3. Engage in underwriting of securities of other issuers, except that
portfolio securities, including securities purchased in private placements, may
be acquired under circumstances where, if sold, the Portfolio might be deemed to
be an underwriter under the Securities Act of 1933. No limit is placed on the
proportion of the Portfolio's assets which may be invested in such securities.
4. Borrow money or issue senior securities, except to the extent
permitted by the 1940 Act or any rule or order thereunder or interpretation
thereof. Subject to the foregoing, the Portfolio may engage in short sales,
purchase securities on margin, and write put and call options.
5. Purchase or sell physical commodities or physical commodity
contracts, including physical commodity options or futures contracts in a
contract market or other futures market.
6. Purchase or sell real estate; provided that the Portfolio may invest
in securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
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<PAGE>
Foreign Investment Information (The International Equity Portfolio, The Labor
Select International Equity Portfolio, The Real Estate Investment Trust
Portfolio, The Global Fixed Income Portfolio, The International Fixed Income
Portfolio, The High-Yield Bond Portfolio and The Emerging Markets Portfolio)
Investors in The International Equity Portfolio, The Labor Select
International Equity Portfolio, The Global Fixed Income Portfolio, The
International Fixed Income Portfolio and The Emerging Markets Portfolio (as well
as in 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 exchange contracts and permit The International
Fixed Income Portfolio and The Emerging Markets 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 LABOR SELECT INTERNATIONAL
EQUITY PORTFOLIO, THE REAL ESTATE INVESTMENT TRUST PORTFOLIO, THE GLOBAL FIXED
INCOME PORTFOLIO, THE INTERNATIONAL FIXED INCOME PORTFOLIO AND THE EMERGING
MARKETS 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
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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 Labor
Select International Equity Portfolio, The Real Estate Investment Trust
Portfolio, The Global Fixed Income Portfolio, The International Fixed Income
Portfolio and The Emerging Markets Portfolio)
The International Equity Portfolio, The Labor Select International
Equity Portfolio, The Global Fixed Income Portfolio, The International Fixed
Income Portfolio and The Emerging Markets Portfolio (as well as The Real Estate
Investment Trust Portfolio, consistent with its 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 its assets denominated in
such foreign currency, its 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
and The Emerging Markets 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.
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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 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
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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, The International Fixed Income
Portfolio and The Emerging Markets Portfolio)
The Global Fixed Income Portfolio, The International Fixed Income
Portfolio and The Emerging Markets 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 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
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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 The Real Estate Investment Trust Portfolio and The
Emerging Markets Portfolio)
In order to remain fully invested, and to reduce transaction costs, The
Aggressive Growth Portfolio, The Real Estate Investment Trust Portfolio and The
Emerging Markets 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, The Real Estate Investment Trust
Portfolio and The Emerging Markets Portfolio may purchase call options, write
call options on a covered basis, write secured put options, which put options
for The Aggressive Growth Portfolio and The Real Estate Investment Portfolio
will be 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 and The
Emerging Markets Portfolio will not invest more than 15% of their respective
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.
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
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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
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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 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 Aggressive Growth and The Real Estate Investment Trust
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. A Portfolio may write put options on a secured
basis which means that the Portfolio will maintain in a segregated account with
its 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
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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.
Options on Stock Indices
The Emerging Markets Portfolio may acquire option on stock indices. A
stock index assigns relative values to the common stocks included in the index
with the index fluctuating with changes in the market values of the underlying
common stock.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. the writer of the option is obligated, in return for the
premium received to make delivery of this amount. Gain or loss to the Portfolio
on transactions in stock index options will depend on price movements in the
stock market generally (or in a particular industry or segment of the market)
rather than price movements of individual securities. As with stock options, the
Portfolio may offset its position in stock index options prior to expiration by
entering into a closing transaction on an Exchange or it may let the option
expire unexercised.
A stock index fluctuates with changes in the market values of the stock
so included. Some stock index options are based on a broad market index such as
the Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower market index such as the Standard & Poor's 100. Indices are also based
on an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indices are currently
traded on domestic exchanges such as: The Chicago Board Options Exchange, the
New York Stock Exchange and American Stock Exchange as well as on foreign
exchanges.
The Portfolio's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the Portfolio's securities. Since the
Portfolio will not duplicate the components of an index, the correlation will
not be exact. Consequently, the Portfolio bears the risk that the prices of the
securities being hedged will not move in the same amount as the hedging
instrument. It is also possible that there may be a negative correlation between
the index or other securities which would result in a loss on both such
securities and the hedging instrument.
Positions in stock index options may be closed out only on an Exchange
which provides a secondary market. There can be no assurance that a liquid
secondary market will exist for any particular stock index option. Thus, it may
not be possible to close such an option. The inability to close options
positions could have an adverse impact on the Portfolio's ability effectively to
hedge its securities. The Portfolio will enter into an option position only if
there appears to be a liquid secondary market for such options.
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The Portfolio will not engage in transactions in options on stock
indices for speculative purposes but only to protect appreciation attained and
to take advantage of the liquidity available in the option markets.
Futures and Options on Futures
Consistent with the limited circumstances under which The Aggressive
Growth Portfolio, The Real Estate Investment Trust Portfolio and The Emerging
Markets 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 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
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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 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
or the concentration of collateral in a particular geographic area. Therefore,
the yield may be difficult to predict and actual yield to maturity may be more
or less than the anticipated yield to maturity. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entities issuing the securities are
insulated from the credit risk of the originator or affiliated entities, and the
amount of credit support provided to the securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
due on the underlying pool is timely. Protection against losses resulting from
ultimate default enhances the likelihood of payments of the obligations on at
least some of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The Portfolios will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.
-15-
<PAGE>
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 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.
-16-
<PAGE>
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. Credit
worthiness 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.
Non-Traditional Equity Securities
The Emerging Markets Portfolio 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 the 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. 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 Emerging Markets Portfolio 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),
PRIDES (Preferred Redeemable Increased Dividend Equity Securities), SAILS
(Stocks Appreciation Income Linked Securities), TECONS (Term Convertible Notes),
QICS (Quarterly Income
-17-
<PAGE>
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.
-18-
<PAGE>
ACCOUNTING AND TAX ISSUES
When The Aggressive Growth Portfolio, The Real Estate Investment Trust
Portfolio, The International Fixed Income Portfolio or The Emerging Markets
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.
Options on Certain Stock Indices
Accounting for options on certain stock indices will be in accordance
with generally accepted accounting principles. The amount of any realized gain
or loss on closing out such a position will result in a realized gain or loss
for tax purposes. Such options held by a Portfolio at the end of each fiscal
year on a broad-based stock index will be required to be "marked to market" for
federal income tax purposes. Generally, 60% of any net gain or loss recognized
on such deemed sales or on any actual sales will be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss.
Other Tax Requirements
Each 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
-19-
<PAGE>
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, The Real Estate Investment
Trust Portfolio and The Emerging Markets Portfolios 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 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.
-20-
<PAGE>
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:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase
order of $1,000;
T = average annual total return;
n = number of years;
ERV = redeemable value of the
hypothetical $1,000 purchase
at the end of the period.
Aggregate 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, as shown below, is the average annual total return
quotations for The Defensive Equity, The Aggressive Growth, The International
Equity and The Global Fixed Income Portfolios through October 31, 1996.
Securities prices fluctuated during the period covered and the past results
should not be considered as representative of future performance.
-21-
<PAGE>
Average Annual Total Return(1)
The The
Defensive Aggressive
Equity Growth
Portfolio Portfolio
1 year ended 1 year ended
10/31/96 24.87% 10/31/96 19.19%
3 years ended 3 years ended
10/31/96 17.32% 10/31/96 12.67%
Period 2/3/92(2) Period 2/27/92(2)
through 10/31/96 17.75% through 10/31/96 10.64%
The
The Global
International Fixed
Equity Income
Portfolio Portfolio
1 year ended 1 year ended
10/31/96 18.12% 10/31/96 16.40%
3 years ended 3 years ended
10/31/96 11.08% 10/31/96 11.73%
Period 2/4/92(2) Period 11/30/92(2)
through 10/31/96 12.03% through 10/31/96 13.38%
(1) Certain expenses of the Portfolios have been waived and paid by the
respective investment adviser. In the absence of such waiver and
payment, performance would have been affected negatively.
(2) Date of initial sale.
-22-
<PAGE>
The performance, as shown below, is the aggregate total return
quotations for The Labor Select International Equity Portfolio, The Real Estate
Investment Trust Portfolio and The Fixed Income Portfolio through October 31,
1996. Securities prices fluctuated during the period covered and the past
results should not be considered as representative of future performance.
Aggregate Total Return(1)
<TABLE>
<CAPTION>
The
Labor The
Select Real Estate The
International Investment Fixed
Equity Trust Income
Portfolio Portfolio Portfolio
<C> <C> <C> <C> <C> <C>
Period Period Period
12/19/95(2) 12/6/95(2) 3/12/96(2)
through through through
10/31/96 17.97% 10/31/96 26.12% 7/31/96 4.08%
</TABLE>
(1) Certain expenses of the Portfolios have been waived and paid by the
respective investment adviser. In the absence of such waiver and payment,
performance would have been affected negatively.
(2) Date of initial sale; total return for this short of a time period may not
be representative of longer term results.
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[(-------- + 1) -- 1]
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends;
d = the maximum offering price per share on the last day of the
period.
-23-
<PAGE>
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 yields for
the Global Fixed Income Portfolio and The Fixed Income Portfolio as of October
31, 1996 were 6.32% and 6.13%, respectively. Each yield reflects 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 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.
-24-
<PAGE>
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 Ratings
Group, 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.
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. In addition, the performance of
multiple indices compiled and maintained by this firm may be combined to
create a blended performance result for comparative purposes. Generally,
the indices selected will be representative of the types of securities in
which the Portfolios may invest and the assumptions that were used in
calculating the blended performance will be described.
-25-
<PAGE>
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.
Salomon Brothers is a statistical research firm that maintains databases of
international markets and bond markets (corporate and government-issued
securities). This information, as well as unmanaged indices compiled and
maintained by Salomon, will be used in preparing comparative illustrations.
In addition, the performance of multiple indices compiled and maintained by
this firm may be combined to create a blended performance result for
comparative performances. Generally, the indices selected will be
representative of the types of securities in which the Funds may invest and
the assumptions that were used in calculating the blended performance will
be described.
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 tables are an example, for purposes of illustration only,
of cumulative total return performance through October 31, 1996 for The
Defensive Equity, The Aggressive Growth, The International Equity, The Global
Fixed Income, The Labor Select International Equity, The Real Estate Investment
Trust and The Fixed Income Portfolios. For these purposes, the calculations
assume the reinvestment of any capital gains distributions and income dividends
paid during the indicated periods. Comparative information on certain indices is
also included.
-26-
<PAGE>
Cumulative Total Return(1)
<TABLE>
<CAPTION>
The The
Defensive Dow S&P Aggressive Russell
Equity Jones 500 Growth 2000-
Portfolio Industrial Index Portfolio Stock
<S> <C> <C> <C> <C> <C> <C>
3 months 3 months
ended ended
10/31/96 10.16% 9.62% 10.83% 10/31/96 8.25% 8.25%
6 months 6 months
ended ended
10/31/96 8.63% 9.47% 9.08% 10/31/96 (0.48%) (1.52%)
9 months 9 months
ended ended
10/31/96 12.39% 13.61% 12.79% 10/31/96 10.55% 9.16%
1 year 1 year
ended ended
10/31/96 24.87% 29.70% 24.10% 10/31/96 19.19% 16.62%
3 years 3 years
ended ended
10/31/96 61.46% 76.96% 62.97% 10/31/96 43.04% 37.57%
Period Period
2/3/92(2) 2/27/92(2)
through through
10/31/96 117.07% 112.53% 96.25% 10/31/96 60.47% 79.08%
</TABLE>
(1) Certain expenses of the Portfolios have been waived and paid by the
respective investment adviser. In the absence of such waiver and
payment, performance would have been affected negatively.
(2) Date of initial sale.
-27-
<PAGE>
Cumulative Total Return(1)
<TABLE>
<CAPTION>
The The Salomon
International S&P Global Fixed World
Equity 500 Income Government
Portfolio EAFE Index Portfolio Bond
<S> <C> <C> <C> <C> <C> <C>
3 months 3 months
ended ended
10/31/96 7.87% 1.84% 10.83% 10/31/96 6.67% 2.69%
6 months 6 months
ended ended
10/31/96 4.30% (2.41%) 9.08% 10/31/96 9.86% 5.51%
9 months 9 months
ended ended
10/31/96 9.13% 2.90% 12.79% 10/31/96 10.79% 4.40%
1 year 1 year
ended ended
10/31/96 18.12% 10.48% 24.10% 10/31/96 16.40% 5.38%
3 years 3 years
ended ended
10/31/96 37.05% 21.18% 62.97% 10/31/96 39.46% 25.78%
Period Period
2/4/92(2) 11/30/92(2)
through through
10/31/96 71.34% 47.33% 95.86% 10/31/96 63.62% 40.85%
</TABLE>
(1) Certain expenses of the Portfolios have been waived and paid by the
respective investment adviser. In the absence of such waiver and
payment, performance would have been affected negatively.
(2) Date of initial sale.
-28-
<PAGE>
Cumulative Total Return(1)
<TABLE>
<CAPTION>
The
Labor The Real
Select Estate
International Investment NAREIT
Equity Trust Equity
Portfolio EAFE Portfolio REIT
<S> <C> <C> <C> <C> <C>
3 months 3 months
ended ended
10/31/96 7.73% 1.84% 10/31/96 12.12% 8.89%
6 months 6 months
ended ended
10/31/96 6.65% (2.41%) 10/31/96 18.28% 13.99%
9 months 9 months
ended ended
10/31/96 11.39% 2.90% 10/31/96 19.41% 15.27%
Period Period
12/19/95(2) 12/6/95(2)
through through
10/31/96 17.97% 7.49% 10/31/96 26.12% 23.57%
</TABLE>
(1) Certain expenses of the Portfolios have been waived and paid by the
respective investment adviser. In the absence of such waiver and payment,
performance would have been affected negatively.
(2) Date of initial sale; total return for this short of a time period may not
be representative of longer term results.
-29-
<PAGE>
Lehman
Brothers
The Government/
Fixed Corporate
Income Intermediate
Portfolio Bond
3 months
ended
10/31/96 3.32% 3.27%
6 months
ended
10/31/96 4.51% 4.59%
Period
3/12/96(2)
through
10/31/96 4.08% 3.69%
(1) Certain expenses of the Portfolios have been waived and paid by the
respective investment adviser. In the absence of such waiver and payment,
performance would have been affected negatively.
(2) Date of initial sale; total return for this short of a time period may not
be representative of longer term results.
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 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, The International Fixed Income and The Emerging Markets 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 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.
-30-
<PAGE>
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.
COMPOUNDED RETURNS
Results of various assumed fixed rates of return on a $1,000,000
investment compounded monthly for 10 years:
7% 9% 11% 13%
Rate of Rate of Rate of Rate of
Return Return Return Return
------ ------ ------ ------
12-'85 $1,072,290 $1,093,807 $1,115,719 $1,138,032
12-'86 $1,149,806 $1,196,414 $1,244,829 $1,295,118
12-'87 $1,232,926 $1,308,645 $1,388,879 $1,473,886
12-'88 $1,322,054 $1,431,405 $1,549,598 $1,677,330
12-'89 $1,417,626 $1,565,681 $1,728,916 $1,908,856
12-'90 $1,520,106 $1,712,553 $1,928,984 $2,172,341
12-'91 $1,629,994 $1,873,202 $2,152,204 $2,472,194
12-'92 $1,747,827 $2,048,921 $2,401,255 $2,813,438
12-'93 $1,874,177 $2,241,124 $2,679,125 $3,201,783
12-'94 $2,009,661 $2,451,357 $2,989,150 $3,643,733
Results of various assumed fixed rates of return on a $1,000,000
investment compounded quarterly for 10 years:
8% 10% 12% 14%
Rate of Rate of Rate of Rate of
Return Return Return Return
------ ------ ------ ------
12-'85 $1,082,432 $1,103,813 $1,125,509 $1,147,523
12-'86 $1,171,659 $1,218,403 $1,266,770 $1,316,809
12-'87 $1,268,242 $1,344,889 $1,425,761 $1,511,069
12-'88 $1,372,786 $1,484,506 $1,604,706 $1,733,986
12-'89 $1,485,947 $1,638,617 $1,806,111 $1,989,789
12-'90 $1,608,437 $1,808,726 $2,032,794 $2,283,328
12-'91 $1,741,024 $1,996,495 $2,287,927 $2,620,172
12-'92 $1,884,540 $2,203,757 $2,575,083 $3,006,707
12-'93 $2,039,887 $2,432,535 $2,898,278 $3,450,266
12-'94 $2,208,039 $2,685,064 $3,262,038 $3,959,259
These figures are calculated assuming a fixed constant investment
return and assume no fluctuation in the value of principal. These figures, which
do not reflect payment of applicable taxes, are not intended to be a projection
of future results and do not reflect actual performance results of any of the
Portfolios.
-31-
<PAGE>
TRADING PRACTICES AND BROKERAGE
The Fund (and, in the case of The International Equity, The Labor
Select International Equity, The Global Fixed Income, The International Fixed
Income and The Emerging Markets 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, The International Fixed Income and The Emerging Markets 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 fiscal years ended October 31, 1994, 1995 and 1996, the
aggregate dollar amounts of brokerage commissions paid by the Portfolios listed
below amounted to the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
The Defensive Equity Portfolio $117,326 $108,104 $59,381
The Aggressive Growth Portfolio 46,384 26,361 19,391
The International Equity Portfolio 398,781 280,594 94,890
The Global Fixed Income Portfolio --- 1,545 12,391
The Labor Select International Equity Portfolio 78,514 N/A N/A
The Real Estate Investment Trust Portfolio 122,865 N/A N/A
The Fixed Income Portfolio --- N/A N/A
</TABLE>
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 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.
-32-
<PAGE>
During the fiscal year ended October 31, 1996, portfolio transactions
of the following Portfolios in the amounts listed below, resulting in brokerage
commissions in the amounts listed below were directed to brokers for brokerage
and research services provided:
<TABLE>
<CAPTION>
Portfolio Brokerage
Transactions Commissions
Amounts Amounts
------- -------
<S> <C> <C>
The Defensive Equity Portfolio $23,219,760 $25,793
The Aggressive Growth Portfolio 11,283,920 26,434
The International Equity Portfolio 21,783,280 75,791
The Labor Select International Equity Portfolio 773,162 4,289
The Real Estate Investment Trust Portfolio 29,418,630 70,854
</TABLE>
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.
-33-
<PAGE>
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 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 Labor Select International Equity Portfolio, The Real Estate
Investment Trust Portfolio, The Emerging Markets 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 past two fiscal years were as
follows:
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
The Defensive Equity Portfolio 74% 88%
The Aggressive Growth Portfolio 95% 64%
The International Equity Portfolio 8% 20%
The Global Fixed Income Portfolio 63% 77%
The Labor Select International Equity Portfolio 7%* N/A
The Real Estate Investment Trust Portfolio 109%* N/A
The Fixed Income Portfolio 232%* N/A
</TABLE>
*Annualized
-34-
<PAGE>
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
institutions and high net-worth individuals 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. In addition, for purchases of shares in
The Emerging Markets Portfolio, a purchase reimbursement fee of 0.75% of the
dollar amount invested is charged to investors and paid to the Portfolio to help
defray expenses of investing purchase proceeds. 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. 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 eligible 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 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 assessed by the Fund for any certificate issued.
Investors who hold certificates representing any of their shares may only redeem
these shares by written requests.
-35-
<PAGE>
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 Portfolio's Custodian Bank, plus in the case
of The Emerging Markets Portfolio, a purchase reimbursement fee equal to 0.75%
of the dollar amount invested.
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 well as The Real Estate Investment
Trust Portfolio and The High-Yield Bond Portfolio, to the limited extent
described in the
-36-
<PAGE>
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 Banks. 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.
-37-
<PAGE>
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, except that
shareholders that redeem shares of The Emerging Markets Portfolio are assessed
by the Portfolio a 0.75% redemption reimbursement fee. 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, The
International Fixed Income Portfolio and The Emerging Markets Portfolio.
Eligible 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 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
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-
-38-
<PAGE>
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
later 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 or for the institutional classes of the other funds in the
Delaware Group. 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 calculated on the basis of 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, except for exchanges involving shares of The Emerging Markets
Portfolio. See "EXCHANGE PRIVILEGE" under "SHAREHOLDER SERVICES" in the
Prospectus. The shares of a Portfolio into which an 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.
-39-
<PAGE>
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."
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.
-40-
<PAGE>
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
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. As such, the Fund will not be subject to federal
income tax on net investment income and net realized capital gains which are
distributed to shareholders.
The Fund's policy is to distribute substantially all of each
Portfolio's net investment income and any net realized capital gains in the
amount and at the times that will avoid any federal income or excise taxes.
Unless a shareholder elects to receive dividends and capital gains distributions
in cash, all dividends and capital gains distributions shall be automatically
reinvested in the Portfolios of the Fund. The amounts of any dividend or capital
gains distributions cannot be predicted.
All dividends out of net investment income, together with distributions
from short-term capital gains, will be taxable to those shareholders who are
subject to income taxes as ordinary income. (These distributions may be eligible
for the dividends-received deductions for corporations.) Any net long-term
capital gains distributed to those shareholders who are subject to income tax
will be taxable as such, regardless of the length of time a shareholder has
owned their shares. Of the dividends paid by The Defensive Equity, The
Aggressive Growth and The Real Estate Investment Trust Portfolios for the fiscal
year ended October 31, 1996, 55%, 5% and 44%, respectively, were eligible for
the dividends-received deduction for corporations.
Undistributed net investment income is included in the Portfolio's net
assets for the purpose of calculating net asset value per share. Therefore on
the "ex-dividend" date, the net asset value per share excludes the dividend
(i.e., is reduced by the per share amount of the dividend). Dividends paid
shortly after the purchase of shares by an investor, although in effect a return
of capital, are taxable to shareholders who are subject to tax.
Each Portfolio of the Fund is treated as a separate entity (and hence
as a separate "regulated investment company") for federal tax purposes. Any net
capital gains recognized by a Portfolio are distributed to its investors without
need to offset (for federal income tax purposes) such gains against any net
capital losses of another Portfolio.
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
or local taxes.
-41-
<PAGE>
TAXES
The following supplements the tax disclosure provided in the Fund's
Prospectus.
FUTURES CONTRACTS AND STOCK OPTIONS
(The Aggressive Growth Portfolio, The Real Estate Investment Trust Portfolio and
The Emerging Markets Portfolio)
The Aggressive Growth Portfolio's, The Real Estate Investment Trust
Portfolio's and The Emerging Markets 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 Labor Select International Equity
Portfolio, The Real Estate Investment Trust Portfolio, The Global Fixed Income
Portfolio, The Emerging Markets Portfolio and The International Fixed Income
Portfolio)
The International Equity 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 Emerging
Markets 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.
-42-
<PAGE>
INVESTMENT MANAGEMENT AGREEMENTS
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 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, The International Fixed Income and The Emerging
Markets 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. On October 31, 1996, Delaware and its affiliates
within the Delaware Group, including Delaware International, were managing in
the aggregate more than $30 billion in assets in various institutional or
separately managed (approximately $19,214,690,000) and investment company
(approximately $11,539,873,000) accounts.
Lincoln (formerly Lincoln National Investment Management Company) was
incorporated in 1930. As of October 31, 1996, Lincoln had over $39 billion in
assets under management.
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 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. The Investment Management Agreement for The Emerging Markets Portfolio is
dated April 14, 1997 and was approved by the initial shareholder on that date.
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.
-43-
<PAGE>
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 0.55%
The Aggressive Growth Portfolio 0.80%
The International Equity Portfolio 0.75%
The Defensive Equity Small/Mid-Cap Portfolio 0.65%
The Labor Select International Equity Portfolio 0.75%
The Real Estate Investment Trust Portfolio 0.75%*
The Fixed Income Portfolio 0.40%
The Limited-Term Maturity Portfolio 0.30%
The Global Fixed Income Portfolio 0.50%
The International Fixed Income Portfolio 0.50%
The High-Yield Bond Portfolio 0.45%
The Emerging Markets Portfolio 1.20%
* 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, The Emerging Markets 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 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, 0.68%, 0.93%, 0.53% and
0.43%, 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 have been extended through October 31, 1997. With respect to The
Defensive Equity Small/Mid-Cap Portfolio, The Real Estate Investment Trust
Portfolio and The High-Yield Bond Portfolio, Delaware 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, 0.79%, 0.89% and
0.59%, respectively, during the period from the commencement of the public
offering of such Portfolios through October 31, 1996. Such waivers have been
extended through October 31, 1997. Other Operating Expenses for The Defensive
Equity Small/Mid-Cap and The High-Yield Bond Portfolios are estimated.
-44-
<PAGE>
Delaware International voluntarily elected to waive that portion, if
any, of its annual investment advisory fees and to reimburse The International
Equity and The International Fixed Income Portfolio for their respective
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, 0.96% and 0.62% 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
has been extended through October 31, 1997. For The International Fixed Income
Portfolios 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 for The International Fixed Income Portfolio has been modified
to provide that such expenses of the Portfolio do not exceed, on an annual
basis, 0.60% through October 31, 1997. Delaware International voluntarily
elected to waive that portion, if any, of its annual investment advisory fees
and to reimburse The Global Fixed Income 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, 0.62% from the commencement of the public
offering of the Portfolio through October 31, 1993. Such waiver had been
extended through October 31, 1994, but modified, effective November 1, 1994
through October 31, 1997 to provide that such expenses of the Portfolio do not
exceed, on an annualized basis, 0.60%. Delaware International 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, 0.96% of such
Portfolio's average net assets during the period from the commencement of the
public offering of the Portfolio through October 31, 1996. Such waiver has been
extended through October 31, 1997. Delaware International voluntarily elected to
waive that portion, if any, of its annual investment advisory fees and to pay
The Emerging Markets Portfolio's 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,
1.55% as a percentage of average net assets from the commencement of the public
offering through October 31, 1997. Amounts will be prorated over each
Portfolio's initial fiscal period from commencement of operations, if less than
a complete fiscal year.
-45-
<PAGE>
Investment management fees incurred for the last three fiscal years
with respect to each Portfolio follows:
<TABLE>
<CAPTION>
Portfolio October 31, 1996 October 31, 1995 October 31, 1994
- --------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
The Defensive Equity Portfolio $343,114 earned $255,586 earned $121,537 earned
$328,126 paid $237,776 paid $88,345 paid
$14,988 waived $17,810 waived $33,192 waived
The Aggressive Growth Portfolio $214,315 earned $202,809 earned $171,517 earned
$185,753 paid $163,397 paid $118,977 paid
$28,562 waived $39,412 waived $52,540 waived
The International Equity Portfolio $1,632,036 paid $792,936 paid $390,070 earned
$374,822 paid
$15,248 waived
The Global Fixed Income Portfolio $762,870 earned $349,107 earned $175,663 earned
$661,220 paid $293,883 paid $124,905 paid
$101,650 waived $55,224 waived $50,758 waived
The Labor Select International $100,144 earned N/A N/A
Equity Portfolio $50,055 paid
$50,089 waived
The Real Estate Investment $153,313 earned N/A N/A
Trust Portfolio $127,250 paid
$26,063 waived
The Fixed Income Portfolio $19,389 earned N/A N/A
$-0- paid
$19,389 waived
</TABLE>
-46-
<PAGE>
On October 31, 1996, the total net assets of the Fund were
$707,861,340, broken down as follows:
The Defensive Equity Portfolio $67,178,884
The Aggressive Growth Portfolio $28,525,544
The International Equity Portfolio $299,949,843
The Global Fixed Income Portfolio $252,068,251
The Labor Select International Equity Portfolio $23,153,615
The Real Estate Investment Trust Portfolio $26,467,638
The Fixed Income Portfolio $10,517,565
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 ratios of expenses
to average daily net assets for the fiscal year ended October 31, 1996 were as
follows:
The Defensive Equity Portfolio 0.67%*
The Aggressive Growth Portfolio 0.90%*
The International Equity Portfolio 0.89%
The Global Fixed Income Portfolio 0.60%*
The Labor Select International Equity Portfolio 0.92%*/**
The Real Estate Investment Trust Portfolio 0.89%*/**
*Reflects the voluntary waiver of fees by the respective investment manager.
**Annualized.
The ratio of expenses to average daily net assets for The Fixed Income
Portfolio is expected to equal 0.53% on an annual basis.
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. Delaware
Distributors, L.P. is the national distributor for The Defensive Equity
Small/Mid-Cap, The Labor Select International Equity, The Real Estate Investment
Trust and The High-Yield Bond Portfolios under separate Distribution Agreements
dated November 29, 1995. It is the national distributor for The
-47-
<PAGE>
Emerging Markets Portfolio under a Distribution Agreement dated April 14, 1997.
Delaware Distributors, L.P. is an affiliate of the 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 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 April
14, 1997. Delaware Service Company, Inc. also provides accounting services to
the Fund pursuant to the terms of a separate Fund Accounting Agreement. 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.
-48-
<PAGE>
OFFICERS AND DIRECTORS
The business and affairs of the Fund are managed under the direction of
its Board of Directors. As of March 31, 1997, no one account held 25% or more of
the outstanding shares of any of the Fund's Portfolios. As of March 31, 1997,
the directors and officers, as a group, owned less than 1% of the outstanding
shares of The Real Estate Investment Trust Portfolio; they did not hold shares
of any of the other Portfolios.
As of March 31, 1997, management believes the following accounts held
5% or more of the outstanding shares of a Portfolio:
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Defensive
Equity Portfolio Northern Trust
TRST PHH Group
P.O. Box 92956
Chicago, IL 60675 567,391 11.76%
Strafe & Co.
For Consolidated Products
Profit Sharing Plan
P.O. Box 160
Westerville, OH 43086 474,923 9.84%
The Northern Trust Company
TRST Children's Memorial
Pension Trust
22-45691 / 2-255243
P.O. Box 92956
Chicago, IL 60675 340,562 7.06%
Commerce Bank of Kansas City
Trust Burns & McDonnell
Employee Stock Ownership Plan
P.O. Box 419248
Kansas City, MO 64141 334,103 6.92%
Metz Baking Company
Master Pension Trust
1014 Nebraska Street
Sioux City, IA 51105 299,036 6.20%
</TABLE>
-49-
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Defensive
Equity Portfolio Cherrytrust & Co.
FBO Colorado Open Shop
Employers Pension Trust
C/O The Bank of Cherry Creek NA
3033 E. First Ave
Denver, CO 80206 288,770 5.98%
Patterson & Company
c/o CoreStates Bank
P.O. Box 7829
Philadelphia, PA 19101 276,685 5.73%
Mac & Co.
A/C LNFF5033902
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230 250,459 5.19%
The Aggressive
Growth Portfolio Blue Cross & Blue Shield of Connecticut, Inc.
370 Bassett Rd.
North Haven, CT 06473 1,203,722 52.56%
St. Elizabeth Hospital Medical Center
1044 Belmont Ave.
Youngstown, OH 44504 394,131 17.21%
The Hillman Foundation, Inc.
2000 Grant Building
Pittsburgh, PA 15219 384,175 16.78%
Crestar Bank
Cust the College of William and Mary
P.O. Box 8795
Blow Memorial Hall
Williamsburg, VA 23187 134,203 5.86%
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The International
Equity Portfolio The Salvation Army
Eastern Territory
440 West Nyack Road
West Nyack, NY 10994 2,696,699 10.77%
The Salvation Army
A Georgia Corporation
1424 Northeast Expressway
Atlanta, GA 30329 2,279,564 9.11%
Father Flanagan's Foundation Fund
14100 Crawford St.
Boys Town, NE 68010 2,165,508 8.65%
The Salvation Army
Central Territory
10 West Algonquin Road
Des Plaines, IL 60016 2,077,601 8.30%
Mac & Co.
A/C LCPF 0763222
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230 1,494,892 5.97%
The Fixed Income
Portfolio Northumberland City
Employees Retirement Fund
Cust. Northern Central Bank
c/o Keystone Financial
Trust Operation
P.O. Box 2450
Altoona, PA 16603 594,439 28.25%
Patterson & Co.
c/o CoreStates Bank
P.O. Box 7829
Philadelphia, PA 19101 396,271 18.83%
Delaware Management Company
Attn. Joe Hastings
1818 Market Street
Philadelphia, PA 19103 320,401 15.22%
</TABLE>
-51-
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Fixed Income
Portfolio The City of Groton
295 Meridian Street
Groton, CT 06340 313,581 14.90%
Crestar Bank
Cust The College of William and Mary
Room 224 Private Funds Office
Blow Memorial Hall
P.O. Box 8795
Williamsburg, VA 23187 170,378 8.09%
Philadelphia Association of Zeta Psi
Fraternity U/T/A E W Weil
613 Kirsch Avenue
Wayne, PA 19087 139,660 6.63%
The Global Fixed
Income Portfolio Saxon & Co.
FBO Western Pennsylvania Teamsters
& Employers Pension Fund
P.O. Box 7780-1888
Philadelphia, PA 19183 3,310,509 12.69%
St. Louis University
3500 Lindell Blvd.
St. Louis, MO 63103 3,293,631 12.62%
Washington Suburban Sanitary Commission
Employees Retirement Plan
14501 Sweitzer Ln.
Laurel, MD 20707 2,936,347 11.25%
Optima Health Inc.
Master Custody
C/O Chase Manhattan Bank
770 Broadway
New York, NY 10003 1,711,771 6.56%
Mary Hitchock Memorial Hospital
One Medical Center Drive
Lebanon, NH 03756 1,708,730 6.55%
Amherst H. Wilder Foundation
919 Lafond Ave.
St. Paul, MN 55104 1,614,481 6.18%
</TABLE>
-52-
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Labor Select
International Equity
Portfolio Operating Engineers
LCL 101 Pension
301 E. Armour Blvd.
Suite 203
Kansas City, MO 64111 1,061,747 35.95%
Operating Engineers Pension Trust Fund
8401 Corporate Drive Suite 200
Landover, MD 20785 414,594 14.04%
First of America Trust Company
Cust Plumbers and Steamfitters
Local 137 Pension Trust
International Portfolio
P.O. Box 4042
Kalamazoo, MI 49002 367,146 12.43%
Carpenters 626 Pension Fund
P.O. Box 740
Davis Road and Oakwood Lane
Valley Forge, PA 19482 225,115 7.62%
Bot Hudson County Carpenters Pension Fund
c/o I.E. Shaffer & Co.
P.O. Box 1025
West Trenton, NJ 08628 211,149 6.90%
Architectural & Ornamental
Ironworkers Local 63
2525 West Lexington
Broadview, IL 60153 163,595 5.53%
</TABLE>
-53-
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Real Estate
Investment Trust
Portfolio The Lincoln National Life Insurance Company
Separate Account No. 5
1300 S. Clinton Street
Fort Wayne, IN 46802 1,573,224 43.69%
The Lincoln National Life Insurance Company
1300 S. Clinton Street
Fort Wayne, IN 46802 1,136,311 31.62%
American States Insurance Company
500 N. Meridian St.
Indianapolis, IN 46204 568,156 15.81%
The High-Yield
Bond Portfolio Schwartz 1996 Charitable Remainder Unitrust
c/o TCS Group, L.L.C.
1200 Shermer Road Suite 212
Northbrook, IL 60062 305,635 36.81%
Chicago Trust Co.
FBO Lincoln National Corp. Employees Retirement Plan
c/o Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WI 53201 304,866 36.72%
Trust Seven Hundred Thirty
U/A/D 4/2/94
c/o TCS Group, L.L.C.
1200 Shermer Road Suite 212
Northbrook, IL 60062 109,838 13.23%
Trust Four Hundred Thirty
U/A/D 4/2/94
c/o TCS Group, L.L.C.
1200 Shermer Road Suite 212
Northbrook, IL 60062 109,838 13.23%
</TABLE>
-54-
<PAGE>
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., Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, 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. DMH, Delaware and Delaware International are now indirect, wholly
owned subsidiaries, and subject to the ultimate control, of Lincoln National.
Lincoln National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.
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.
*Wayne A. Stork (59)
Chairman and Director of the Fund, Delaware Distributors, Inc. and
Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer, Director and/or Trustee
of 17 other investment companies in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd. and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.
Director of Delaware Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.
Richard G. Unruh, Jr. (57)
Executive Vice President of the Fund and each of the other 17
investment companies in the Delaware Group.
Executive Vice President and Director of Delaware Management Company,
Inc.
Senior Vice President of Delaware Management Holdings, Inc. and
Delaware Capital Management, 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.
- ----------
*Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-55-
<PAGE>
Paul E. Suckow (49)
Executive Vice President/Chief Investment Officer, Fixed Income of the
Fund, each of the other 17 investment companies in the
Delaware Group and Delaware Management Company, Inc.
Executive Vice President/Chief Investment Officer/Fixed Income and
Director of Founders Holdings, Inc.
Senior Vice President/Chief Investment Officer, Fixed Income of
Delaware Management Holdings, Inc.
Director of Founders CBO Corporation.
Senior Vice President of Delaware Capital Management, Inc.
Director, HYPPCO Finance Company Ltd.
Before returning to the Delaware Group in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio
manager for the Delaware Group.
Walter P. Babich (69)
Director and/or Trustee of the Fund and each of the other 17 investment
companies 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 (58)
Director and/or Trustee of the Fund and each of the other 17 investment
companies in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Founder and Managing Director, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance
and Treasurer of Columbia University, New York. From 1987 to
1989, he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven (56)
Director and/or Trustee of the Fund and each of the other 17 investment
companies 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 1992, she was Adjunct Professor of Columbia Business
School.
-56-
<PAGE>
W. Thacher Longstreth (76)
Director and/or Trustee of the Fund and each of the other 17
investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
Charles E. Peck (71)
Director and/or Trustee of the Fund and each of the other 17 investment
companies in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive
Officer of The Ryland Group, Inc., Columbia, MD.
David K. Downes (57)
ExecutiveVice President/Chief Operating Officer/Chief Financial
Officer of the Fund, each of the other 17 investment companies
in the Delaware Group.
Executive Vice President, Chief Operating Officer and Chief Financial
Officer of Delaware Management Company, Inc.
Chairman and Director of Delaware Management Trust Company.
Chairman and Director of Delaware Investment & Retirement Services,
Inc.
President/Chief Executive Officer/Chief Financial Officer and Director
of Delaware Service Company, Inc.
Executive Vice President/Chief Operating Officer/Chief Financial
Officer of Delaware Management Holdings, Inc.
Executive Vice President/Chief Operating Officer/Chief Financial
Officer and Director of DMH Corp., Delaware Distributors, Inc.
and Founders Holdings, Inc.
Executive Vice President/Chief Operating Officer/Chief Financial
Officer and Director of Delaware International Holdings Ltd.
Executive Vice President/Chief Financial Officer/Chief Operating
Officer of Delaware Capital Management, Inc.
Senior Vice President/Chief Administrative Officer/ Chief Financial
Officer of Delaware Distributors, L.P.
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.
-57-
<PAGE>
George M. Chamberlain, Jr. (50)
Senior Vice President and Secretary of the Fund, each of the other 17
investment companies in the Delaware Group, Delaware
Management Holdings, Inc. and Delaware Distributors, L.P.
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.,
Delaware Service Company, Inc., Founders Holdings, Inc.,
Delaware Investment & Retirement Services, Inc. and Delaware
Capital Management, 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 (55)
Vice President/Senior Portfolio Manager of The Defensive Equity
Portfolio.
Vice President/Senior Portfolio Manager of Delaware Investment
Advisers.
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.
Gerald S. Frey (51)
Vice President/Senior Portfolio Manager of the Fund, of seven other
investment companies in the Delaware Group and of Delaware
Management Company, Inc.
Before joining the Delaware Group in 1996, Mr. Frey was a Senior
Director with Morgan Grenfell Capital Management, New York, NY
from 1986 to 1995.
Gary A. Reed (42)
Vice President/Senior Portfolio Manager of the Fund, of nine other
investment companies in the Delaware Group, of Delaware
Management Company, Inc. and Delaware Capital Management, Inc.
Vice President/Senior Portfolio Manager of Delaware Capital
Management, Inc. During the past five years, Mr. Reed has
served in such capacities within the Delaware organization.
Gerald T. Nichols (39)
Vice President/Senior Portfolio Manager of the Fund, of 11 other
investment companies in the Delaware Group and of Delaware
Management Company, Inc.
Vice President of Founders Holdings, Inc.
Treasurer/Assistant Secretary and Director of Founders CBO Corporation.
During the past five years, Mr. Nichols has served in various
capacities at different times within the Delaware
organization.
-58-
<PAGE>
Paul A. Matlack (37)
Vice President/Senior Portfolio Manager of the Fund, of 11 other
investment companies in the Delaware Group and of Delaware
Management Company, Inc.
Vice President of Founders Holdings, Inc.
President and Director of Founders CBO Corporation.
During the past five years, Mr. Matlack has served in various
capacities at different times within the Delaware
organization.
Babak Zenouzi (34)
Vice President/Portfolio Manager of the Fund and of nine other
investment companies in the Delaware Group.
Vice President/Assistant Portfolio Manager of Delaware Investment
Advisers.
Before joining the Delaware Group in 1992, Mr. Zenouzi held positions
of Assistant Vice President, Senior Financial Analyst and
Portfolio Accountant for The Boston Company, Boston, MA from
1986 to 1991.
Joseph H. Hastings (47)
Vice President/Corporate Controller of the Fund, each of the other
17 investment companies 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
Capital Management, Inc., Founders Holdings, Inc. and Delaware
International Holdings Ltd.
Chief Financial Officer/Treasurer of Delaware Investment &
Retirement Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer 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 (34)
Vice President/Treasurer of the Fund, each of the other 17
investment companies in the Delaware Group, Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Distributors, L.P., Delaware Service Company, Inc.
and Founders Holdings, Inc.
Vice President/Manager of Investment Accounting of Delaware
International Holdings Ltd.
Assistant Treasurer of 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.
-59-
<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, 1996 and an estimate of annual benefits to be
received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of October 31, 1996.
<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 $2,088 None $30,000 $44,102
Ann R. Leven $2,446 None $30,000 $52,238
Walter P. Babich $2,249 None $30,000 $48,102
Anthony D. Knerr $2,407 None $30,000 $51,238
Charles E. Peck $2,252 None $30,000 $47,238
</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, 1996, he or she would be
entitled to annual payments totaling $30,000, 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.
-60-
<PAGE>
GENERAL INFORMATION
Custody Arrangements
The Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY 11245
serves as custodian for The Global Fixed Income, The International Equity, The
Labor Select International Equity, The Real Estate Investment Trust, The
High-Yield Bond, The Emerging Markets and The International Fixed Income
Portfolios. Bankers Trust Company, One Bankers Trust Plaza, New York, NY 10006
serves as custodian for The Defensive Equity, The Aggressive Growth, The Fixed
Income, The Limited-Term Maturity and The Defensive Equity Small/Mid-Cap
Portfolios. The Chase Manhattan Bank serves as custodian for all Portfolios with
respect to foreign securities.
With respect to foreign securities, The Chase Manhattan 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, LLP, Philadelphia, Pennsylvania.
Noncumulative Voting
Portfolio 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 Statement of Additional Information does not include all of the
information contained in the Registration Statement which is on file with the
Securities and Exchange Commission.
-61-
<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditor 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, The Global Fixed Income, The Labor Select International Equity, The Real
Estate Investment Trust and The Fixed Income Portfolios' Statements of Net
Assets, Statements of Operations, Statements of Changes in Net Assets and Notes
to Financial Statements, and The Limited-Term Maturity Portfolio's and The
International Fixed Income Portfolio's 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, 1996 are included in
the Fund's Annual Reports to shareholders. The financial statements, the notes
relating thereto and the reports of Ernst & Young LLP, listed above are
incorporated by reference from the Annual Reports into this Statement of
Additional Information.
-62-
