<PAGE>
DELAWARE(SM)
INVESTMENTS
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Philadelphia o London
Delaware
Pooled Trust
Prospectus March 1, 1999
This Prospectus offers 19 Portfolios. Each Portfolio provides a no-load
investment alternative for institutional clients and high net-worth individuals.
Delaware Pooled Trust, Inc. (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.
EQUITY ORIENTED
The Large-Cap Value Equity Portfolio
The Core Equity Portfolio
(formerly named the Growth and Income Portfolio)
The Mid-Cap Growth Equity Portfolio
(formerly named The Aggressive Growth Portfolio)
The Mid-Cap Value Equity Portfolio
(formerly named The Small/Mid-Cap
Value Equity Portfolio)
The Small-Cap Value Equity Portfolio
The Small-Cap Growth Equity Portfolio
The Real Estate Investment Trust Portfolio+/++
The Real Estate Investment Trust Portfolio II++
The Global Equity Portfolio
The International Equity Portfolio
The Labor Select International Equity Portfolio
The Emerging Markets Portfolio
FIXED-INCOME ORIENTED
The Intermediate Fixed Income Portfolio
The Aggregate Fixed Income Portfolio
The High-Yield Bond Portfolio
The Diversified Core Fixed Income Portfolio
The Global Fixed Income Portfolio
The International Fixed Income Portfolio
ASSET ALLOCATION
The Asset Allocation Portfolio
+ The Real Estate Investment Trust Portfolio offers five classes of
shares. This Prospectus relates only to The Real Estate Investment Trust
Portfolio class, which commenced operations on November 4, 1997.
++ The Real Estate Investment Trust portfolio and The Real estate
Investment Trust portfolio II are sometimes referred to collectively as
"The Real Estate Investment Trust Portfolios" in this Prospectus.
The Asset Allocation Portfolio is a "fund of funds" which primarily invests in
several of the Portfolios of the Fund. It is a series of Delaware Group
Foundation Funds (Foundation Funds) which is also a mutual fund.
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The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus and any representation
to the contrary is a criminal offense.
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<PAGE>
Table of contents
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Risk/Return Summary: Investments,
Risks, and Performance
The Large-Cap Value Equity Portfolio Page 1
The Core Equity Portfolio 3
The Mid-Cap Growth Equity Portfolio 5
The Mid-Cap Value Equity Portfolio 7
The Small-Cap Value Equity Portfolio 9
The Small-Cap Growth Equity Portfolio 11
The Real Estate Investment Trust Portfolios 13
The Global Equity Portfolio 17
The International Equity Portfolio 20
The Labor Select International Equity Portfolio 22
The Emerging Markets Portfolio 26
The Intermediate Fixed Income Portfolio 29
The Aggregate Fixed Income Portfolio 31
The High-Yield Bond Portfolio 33
The Diversified Core Fixed Income Portfolio 36
The Global Fixed Income Portfolio 39
The International Fixed Income Portfolio 42
The Asset Allocation Portfolio 45
Additional Investment Information
Risk Factors Page 52
Management of the Fund 56
Shareholder Service 62
How to Purchase Shares 63
Redemption of Shares 64
Valuation of Shares 67
Dividends and Capital Gains Distributions 67
Taxes 68
Financial Highlights 69
<PAGE>
Profile: The Large-Cap Value Equity Portfolio
What are the Portfolio's Goals?
The Large-Cap Value Equity Portfolio seeks maximum long-term total return,
consistent with reasonable risk. Although the Portfolio will strive to achieve
its goal, there is no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio invests 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, we place 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 it will
invest in 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 which include
common stocks, securities convertible into common stocks and securities having
common stock characteristics, such as rights and warrants to purchase common
stocks, and preferred stock. The Portfolio may hold cash or invest in short-term
debt securities or other money market instruments (normally, not more than 5% of
its total assets) when, in our opinion, such holdings are prudent given the
prevailing market conditions.
We seek to invest in high-yielding equity securities and believe that, although
capital gains are important, the dividend return component will be a significant
portion of the expected total return. We believe 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.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. This Portfolio
will be affected primarily by changes in stock prices.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
<PAGE>
How has The Large-Cap Value Equity Portfolio performed?
This bar chart and table can help you evaluate the potential risks of investing
in The Large-Cap Value Equity Portfolio. We show how returns for The Large-Cap
Value Equity Portfolio have varied over the past six calendar years, as well as
average annual returns for one and five years and since inception - with average
annual returns compared to the performance of the S&P 500 Composite Stock Price
Index. The S&P 500 Index is an unmanaged index of 500 widely held common stocks
that is often used to represent performance of the U.S. stock market. The index
is unmanaged and doesn't include the actual costs of buying, selling, and
holding securities. The Portfolio's past performance does not necessarily
indicate how it will perform in the future. During the periods shown, Delaware
Management Company has voluntarily waived and paid expenses of The Large-Cap
Value Equity Portfolio. Returns would be lower without the voluntary waiver and
payment.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (The Large-Cap
Value Equity Portfolio) FPO]
Year-by-year total return (The Large-Cap Value Equity Portfolio)
The Large-Cap Value Equity Portfolio
1993 19.44%
1994 3.42%
1995 34.06%
1996 20.60%
1997 30.53%
1998 11.84%
As of December 31, 1998, The Large-Cap Value Equity Portfolio had a year-to-date
return of 11.84%. During the periods illustrated in this bar chart, The
Large-Cap Value Equity Portfolio's highest return was 14.92% for the quarter
ended June 30, 1997 and its lowest return was -10.87% for the quarter ended
September 30, 1998.
1
<PAGE>
How has The Large-Cap Value Equity Portfolio performed? (continued)
Average annual returns for the period ending 12/31/98
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The Large-Cap Value S&P 500
Equity Portfolio Stock Index
1 year 11.84% 28.56%
5 years 19.54% 24.03%
Since Inception (2/3/92) 18.92% 20.11%
What are The Large-Cap Value Equity Portfolio's fees and expenses?
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Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
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Annual Portfolio operating expenses are deducted from The Large-Cap Value Equity
Portfolio's assets before it pays dividends and before its net asset value and
total return are calculated. We will not charge you separately for these
expenses.
Investment advisory fees(1) 0.55%
Distribution and service (12b-1) fees None
Other expenses(1) 0.16%
Total operating expenses(1) 0.71%
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This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(2) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $73
3 years $227
5 years $395
10 years $883
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.68% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
2
<PAGE>
Profile: The Core Equity Portfolio
What are the Portfolio's Goals?
The Core Equity Portfolio seeks capital appreciation and income.
Although the Portfolio will strive to achieve its goal, there is no
assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio seeks
to achieve its objectives by investing primarily in income-producing
common stocks, with a focus on common stocks that the investment adviser
believes have the potential for above average dividend increases over
time. Under normal circumstances, the Portfolio will generally invest at
least 65% of its total assets in dividend paying common stocks.
In selecting stocks for the Portfolio, we will focus primarily on
dividend paying common stocks issued by companies with market
capitalization in excess of $100 million but we are not precluded from
purchasing shares of companies with market capitalizations of less than
$100 million. In seeking stocks with potential for above average dividend
increases, we will consider such factors as the historical growth rate of
a company's dividend, the frequency of prior dividend increases, the
issuing company's potential to generate cash flows and the price/earnings
multiple of the stock relative to the market. We will generally avoid
stocks that we believe are overvalued and may select stocks with current
dividend yields that are lower than the current yield of the S&P 500
Stock Index in exchange for anticipated dividend growth.
While the Portfolio's objectives may best be attained by investing in
common stocks, it may also invest in other securities including, but not
limited to, convertible and preferred securities, shares or convertible
bonds issued by real estate investment trust (REITS), rights and warrants
to purchase common stock and various types of fixed-income securities,
such as U.S. government and government agency securities, corporate debt
securities, and bank obligations, and may also engage in options and
futures transactions. The Portfolio may invest up to 5% of its assets in
foreign securities and, without limitation in sponsored and unsponsored
ADRs that are actively traded in the U.S.
In addition, in unusual market conditions, in order to meet redemption
requests, for temporary defensive purposes and pending investment, the
Portfolio may hold a substantial portion of its assets in cash or
short-term fixed-income obligations. In taking such temporary defensive
positions the Portfolio may not be able to achieve its investment goals.
What are the main risks of investing in the Portfolio? Investing in any
mutual fund involves risk, including the risk that you may lose part or
all of the money you invest. The price of Portfolio shares will increase
and decrease according to changes in the value of the Portfolio's
investments. The Portfolio will be affected primarily by changes in stock
prices.
An investment in the Portfolio is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC)
or any other government agency.
See "Additional Investment Information" and "Risk Factors" for further
details concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a
complete investment program; it should be considered just one part of
your total financial plan. Be sure to discuss this Portfolio with your
investment consultant to determine whether it is an appropriate
investment for you.
3
<PAGE>
What are The Core Equity Portfolio's fees and expenses?
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Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
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Annual Portfolio operating expenses are deducted from The Core Equity
Portfolio's assets before it pays dividends and before its net asset
value and total return are calculated. We will not charge you separately
for these expenses.
Investment advisory fees(1) 0.55%
Distribution and service (12b-1) fees None
Other expenses(1)/(2) 1.19%
Total operating expenses(1) 1.74%
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This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Portfolio
expenses on a hypothetical investment of $10,000 with an annual 5% return
over the time shown.(3) This is an example only, and does not represent
future expenses, which may be greater or less than those shown here.
1 year $177
3 years $548
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.68% of average daily net assets.
(2) Other expenses are based on estimated amounts for the current fiscal year.
(3) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
4
<PAGE>
Profile: The Mid-Cap Growth Equity Portfolio
What are the Portfolio's Goals?
The Mid-Cap Growth Equity Portfolio seeks maximum long-term capital
growth. Current income is expected to be incidental. Although the
Portfolio will strive to achieve its goal, there is no assurance that it
will.
What are the Portfolio's main investment strategies? The Portfolio seeks
to attain its objective by investing in equity securities of medium-sized
companies which, in the opinion of the investment adviser, present, at
the time of purchase, significant long-term growth potential. Under
normal market conditions, the Portfolio invests at least 65% of its total
assets in growth-oriented common stocks of domestic corporations. Those
companies, in the investment adviser's view, generally have total market
capitalizations between $1 billion and $10 billion at the time of
purchase. The Portfolio may invest in securities issued by companies
having a capitalization outside that range when, in our 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.
We assess 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 our judgment, provides the
potential for significant capital appreciation.
Although we do 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 our opinion, such holdings are prudent
given the prevailing market conditions. Generally, the Portfolio 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. 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.
What are the main risks of investing in the Portfolio? Investing in any
mutual fund involves risk, including the risk that you may lose part or
all of the money you invest. The price of Portfolio shares will increase
and decrease according to changes in the value of the Portfolio's
investments. This Portfolio will be affected primarily by changes in
stock prices. Because the Portfolio seeks long-term total return by
investing primarily in mid-cap companies, its investments are likely to
involve a higher degree of liquidity risk and price volatility than
investments in larger capitalization securities.
An investment in the Portfolio is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC)
or any other government agency.
See "Additional Investment Information" and "Risk Factors" for further
details concerning these and other investment policies.
You should keep in mind that an investment in the Portfolio is not a
complete investment program; it should be considered just one part of
your total financial plan. Be sure to discuss this Portfolio with your
investment consultant to determine whether it is an appropriate
investment for you.
5
<PAGE>
How has The Mid-Cap Growth Equity Portfolio performed?
This bar chart and table can help you evaluate the potential risks of
investing in The Mid-Cap Growth Equity Portfolio. We show how returns for
The Mid-Cap Growth Equity Portfolio have varied over the past six
calendar years, as well as average annual returns for one and five years
and since inception - with the average annual returns compared to the
performance of the Russell 2000 Stock Index. The Russell 2000 Stock Index
measures the performance of the 2000 smallest companies in the Russell
3000 Index, which represents approximately 10% of the total market
capitalization of the Russell 3000 Index. The index is unmanaged and
doesn't include the actual costs of buying, selling, and holding
securities. The Portfolio's past performance does not necessarily
indicate how it will perform in the future. During the periods shown,
Delaware Management Company has voluntarily waived and paid expenses of
The Mid-Cap Growth Equity Portfolio. Returns would be lower without the
voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (The Mid-Cap
Growth Equity Portfolio) FPO]
Year-by-year total return (The Mid-Cap Growth Equity Portfolio)
The Mid-Cap Growth Equity Portfolio
1993 12.76%
1994 -4.01%
1995 29.69%
1996 13.40%
1997 13.00%
1998 20.14%
As of December 31, 1998, The Mid-Cap Growth Equity Portfolio had a year-to-date
return of 20.14%. During the periods illustrated in this bar chart, The Mid-Cap
Growth Equity Portfolio's highest return was 25.17% for the quarter ended
December 31, 1998 and its lowest return was -15.15% for the quarter ended
September 30, 1998.
Average annual returns for periods ending 12/31/98
The Mid-Cap Growth Russell 2000
Equity Portfolio Stock Index
1 year 20.14% -2.55%
5 years 13.90% 11.86%
Since inception (2/27/92) 12.14% 12.35%
<PAGE>
What are The Mid-Cap Growth Equity Portfolio's fees and expenses?
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Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Mid-Cap Growth
Equity Portfolio's assets before it pays dividends and before its net
asset value and total return are calculated. We will not charge you
separately for these expenses
Investment advisory fees(1) 0.80%
Distribution and service (12b-1) fees None
Other expenses(1) 0.91%
Total operating expenses(1) 1.71%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Portfolio
expenses on a hypothetical investment of $10,000 with an annual 5% return
over the time shown.(2) This is an example only, and does not represent
future expenses, which may be greater or less than those shown here.
1 year $174
3 years $539
5 years $928
10 years $2,019
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.93% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
6
<PAGE>
Profile: The Mid-Cap Value Equity Portfolio
What are the Portfolio's Goals?
The Mid-Cap Value Equity Portfolio seeks maximum long-term total return.
Although the Portfolio will strive to achieve its goal, there is no assurance
that it will.
What are the Portfolio's main investment strategies? The Mid-Cap Value Equity
Portfolio seeks to achieve its objective by investing primarily in equity
securities of companies, which, at the time of purchase, have market
capitalizations of between $1 billion and $10 billion and are listed on a
national securities exchange or NASDAQ, and which, in the investment adviser's
opinion, offer capital gains potential.
In selecting Portfolio securities, we place 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
described above. Equity securities for this purpose include common stocks,
securities convertible into common stocks, securities having common stock
characteristics, such as rights and warrants to purchase common stocks,
preferred stock, and certain other non-traditional equity securities.
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. The Portfolio may also invest in futures contracts and options on
futures contracts subject to certain limitations.
The Portfolio may hold cash or invest in short-term debt securities and other
money market instruments when, in our opinion, such holdings are prudent given
then prevailing market conditions. Except when we believe a temporary defensive
approach is appropriate, the Portfolio normally will limit its holdings in cash
or short-term debt instruments to 5% of its assets.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. This Portfolio
will be affected primarily by changes in stock prices. Because the Portfolio
seeks long-term total return by investing primarily in mid-cap companies, its
investments are likely to involve a higher degree of liquidity risk and price
volatility than investments in larger capitalization securities.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
7
<PAGE>
How has The Mid-Cap Value Equity Portfolio performed?
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This bar chart and table can help you evaluate the potential risks of investing
in The Mid-Cap Value Equity Portfolio. We show returns for The Mid-Cap Value
Equity Portfolio for the past calendar year, as well as average annual returns
for one year and since inception - with average annual returns compared to the
performance of the Russell 2500 Value Index. The Russell 2500 Value Index
measures the performance of Russell 2500 with lower price-to-book ratios and
lower forecasted growth values. The index is unmanaged and doesn't include the
actual costs of buying, selling, and holding securities. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
During the periods shown, Delaware Management Company has voluntarily waived and
paid expenses of The Mid-Cap Value Equity Portfolio. Returns would be lower
without the voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (INSTITUTIONAL CLASS) FPO]
Total return (The Mid-Cap Value Equity Portfolio)
The Mid-Cap Value Equity Portfolio
1998 -3.90%
As of December 31, 1998, The Mid-Cap Value Equity Portfolio had a year-to-date
return of -3.90%. During the period illustrated in this bar chart, The Mid-Cap
Value Equity Portfolio's highest return was 10.06% for the quarter ended March
31, 1998 and its lowest return was -15.25% for the quarter ended September 30,
1998.
Average annual returns for periods ending 12/31/98
The Mid-Cap Value Russell 2500
Equity Portfolio Value Index
- --------------------------------------------------------------------------------
1 year -3.90% -1.92%
Since inception (12/29/97) -3.27% -1.92%
What are The Mid-Cap Growth Equity Portfolio's fees and expenses?
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- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Mid-Cap Value
Equity Portfolio's assets before it pays dividends and before its net
asset value and total return are calculated. We will not charge you
separately for these expenses.
Investment advisory fees(1) 0.75%
Distribution and service (12b-1) fees None
Other expenses(1) 0.62%
Total operating expenses(1) 1.37%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar
investment objectives. We show the cumulative amount of Portfolio
expenses on a hypothetical investment of $10,000 with an annual 5% return
over the time shown.(2) This is an example only, and does not represent
future expenses, which may be greater or less than those shown here.
1 year $139
3 years $434
5 years $750
10 years $1,646
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.89% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
8
<PAGE>
Profile: The Small-Cap Value Equity Portfolio
What are the Portfolio's Goals?
The Small-Cap Value Equity Portfolio seeks long-term capital appreciation.
Although the Portfolio will strive to achieve its goal, there is no assurance
that it will.
What are the Portfolio's main investment strategies? The Portfolio seeks to
achieve its objective by investing primarily in equity securities of small
capitalization companies, which, at the time of purchase, generally have market
capitalizations of between $500 million and $1.5 billion and are listed on a
national securities exchange or NASDAQ.
The Portfolio will purchase securities that the investment adviser believes to
be undervalued relative to the asset value of long-term earning power of the
companies concerned. 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, the Portfolio intends to invest at least
65% of its net assets in equity securities issued by small-cap companies. Equity
securities for this purpose, include, among others, common stock, securities
convertible into common stock, warrants and preferred stock.
The Portfolio may invest up to 25% of its net assets in equity securities of
foreign issuers. The Portfolio also may invest up to 25% of its net assets in
fixed-income securities and convertible securities rated B or below by Moody's
or S&P when we believe that capital appreciation is likely; high yield, high
risk securities are also known as "Junk Bonds." The Portfolio also may use
option strategies.
For temporary defensive purposes, the Portfolio may invest in fixed-income
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, as well as money market instruments and corporate bonds rated
A or above by Moody's or S&P.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. The Portfolio
will be affected primarily by changes in stock prices. Because the Portfolio
seeks long-term capital appreciation by investing primarily in small-cap
companies, its investments are likely to involve a higher degree of liquidity
and price volatility than investments in larger capitalization securities.
Because the Portfolio may invest up to 25% of its net assets in securities of
foreign issurers, the Portfolio may be adversely affected by changes in currency
rates and exchange control regulations, and may incur costs in connection with
currency exchange rates. Investing in high yield, high risk debt securities
entails certain risks, including the risk of loss of principal, which may be
greater than the risks involved in higher rated debt secutities.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
9
<PAGE>
What are The Small-Cap Value Equity Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Small-Cap Value Equity
Portfolio's assets before it pays dividends and before its net asset value and
total return are calculated. We will not charge you separately for these
expenses.
Investment Advisory fees(1) 0.75%
Distribution and service (12b-1) fees None
Other expenses(1/2) 0.28%
Total operating expenses(1) 1.03%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(3) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $105
3 years $328
(1) Delaware Management Company has agreed to waive fees and pay expenses
through October 31, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.89% of average daily net assets.
(2) Other expenses are based on estimated amounts for the current fiscal year.
(3) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
10
<PAGE>
Profile: The Small-Cap Growth Equity Portfolio
What are the Portfolio's Goals?
The Small-Cap Growth Equity Portfolio seeks long-term capital appreciation.
Although the Portfolio will strive to achieve its goal, there is no assurance
that it will.
What are the Portfolio's main investment strategies? The Portfolio will invest
primarily in equity securities of companies which the investment adviser
believes have the potential for high earnings growth, and which generally
represent the smallest 25% in terms of market capitalization of U.S. equity
securities listed on a national securities exchange or NASDAQ. The Portfolio has
been designed to provide investors with potentially greater long-term rewards
than provided by an investment in a fund that seeks capital appreciation from
common stocks of companies with more established earnings histories. In pursuing
its objective, the Portfolio anticipates that it will invest substantially all,
and under normal conditions not less than 65%, of its assets in common stocks,
preferred stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights. To the extent that the
Portfolio invests in convertible debt securities, those securities will be
purchased on the basis of their equity characteristics, and ratings, if any, of
those securities will not be an important factor in their selection. In
addition, under normal market conditions, no more than 35% of the Portfolio's
total assets may be invested in debt securities of corporate and governmental
issues.
The Portfolio will invest in equity securities of companies we believe to be
undervalued and to have the potential for high earnings growth. Companies in
which the Portfolio invests generally will meet one or more of the following
criteria: high historical earnings-per-share (EPS) growth; high projected future
EPS growth; an increase in research analyst earnings estimates; attractive
relative price to earning ratios; and high relative discounted cash flows. In
selecting the Portfolio's investments, we also focus on companies with capable
management teams, strong industry positions, sound capital structures, high
returns on equity, high reinvestment rates and conservative financial accounting
policies.
At no time will the investments of the Portfolio in bank obligations, including
time deposits, exceed 25% of the value of the Portfolio's assets. The Portfolio
may also engage in options and futures transactions. In addition, the Portfolio
may invest up to 10% of its assets in foreign securities which may include
Global Depositary Receipts and, without limitation, in sponsored and unsponsored
American Depositary Receipts that are actively traded in the U.S.
In unusual market conditions, in order to meet redemption requests, for
temporary defensive purposes and pending investment, the Portfolio may hold a
substantial portion of its assets in cash or short-term fixed-income
obligations. In such situations the Portfolio may not be able to achieve its
investment goal.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. The Portfolio
primarily will be affected by changes in stock prices. Because the Portfolio
seeks long-term capital appreciation by investing primarily in small-cap
companies, its investments are likely to involve a higher degree of liquidity
and price volatility than investments in larger capitalization securities.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
11
<PAGE>
What are The Small-Cap Growth Equity Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Small-Cap Growth
Equity Portfolio's assets before it pays dividends and before its net asset
value and total return are calculated. We will not charge you separately for
these expenses.
Investment Advisory fees(1) 0.75%
Distribution and service (12b-1) fees None
Other expenses(1/2) 1.03%
Total operating expenses(1) 1.78%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(3) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $181
3 years $560
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.89% of average daily net assets.
(2) Other expenses are based on estimated amounts for the current fiscal year.
(3) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
12
<PAGE>
Profile: The Real Estate Investment
Trust Portfolio and
The Real Estate Investment Trust Portfolio II
What are each Portfolio's Goals?
Each Portfolio seek maximum long-term total return, with capital
appreciation as a secondary objective. Although each Portfolio will
strive to achieve their goal, there is no assurance that they will.
What are each Portfolio's main investment strategies? Each Portfolio
invests in securities of companies principally engaged in the real estate
industry. Under normal circumstances, at least 65% of each Portfolio's
total assets will be invested in equity securities of real estate
investment trusts (REITs). The Portfolios are considered non-diversified"
under the federal laws and regulations that regulate mutual funds. Thus,
adverse effects on the Portfolios' investments may affect a larger
portion of its overall assets and subject the Portfolios to greater
risks.
Each Porfolio 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 Portfolios, REITs are not taxed on income distributed to
shareholders provided they comply with several requirements in the
Internal Revenue Code of 1986, as amended. 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 Investment Company Act of 1940. By investing in REITs indirectly
through a 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 special risks presented by
investing in REITs, see "Risk Factors - Real Estate Industry Risk" and
"Additional Investment information - Real Estate Investment Trusts
(REITs)."
Each Portfolio also invests in equity securities of other real estate
industry operating companies (REOCs). We define a REOC as 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. A 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, preferred stocks,
securities convertible into common stocks and securities having common
stock characteristics, such as rights and warrants to purchase common
stocks.
Each 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.
13
<PAGE>
What are each Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
Each Portfolio may hold cash or invest in short-term debt securities and
other money market instruments when the investment adviser believes such
holdings are prudent given current market conditions. Except when we
believe a temporary defensive approach is appropriate, a 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 Standard & Poor's Ratings Group or Aaa by
Moody's Investors Service) or be of comparable quality as we determine.
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, we may take advantage of short-term
opportunities that are consistent with a Portfolio's investment
objectives.
What are the main risks of investing in each Portfolio? Investing in any
mutual fund involves risk, including the risk that you may lose part or
all of the money you invest. The price of Portfolio shares will increase
and decrease according to changes in the value of a Portfolio's
investments. In addition, a Portfolio's share prices and yields will
fluctuate in response to movements in stock prices. Because the
Portfolios concentrate their investments in the real estate industry, an
investment in either Portfolio may be subject to special risks associated
with direct ownership of real estate and with the real estate industry in
general and their investments may tend to fluctuate more in value than a
portfolio that invests in a broader range of industries. To the extent
that a portfolio holds real estate directly, as a result of defaults, or
receives rental income from its real estate holdings, its tax status as a
regulated investment company may be jeopardized. By investing in REITs
indirectly through either Portfolio, a shareholder bears not only a
proportionate share of the expenses of the Portfolio, but also,
indirectly, similar expenses of the REITs.
An investment in a Portfolio is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC)
or any other government agency.
See "Additional Investment Information" and "Risk Factors" for further
details concerning these and other investment policies and risks.
You should keep in mind that an investment in a Portfolio is not a
complete investment program; it should be considered just one part of
your total financial plan. Be sure to discuss these Portfolios with your
investment consultant to determine whether it is an appropriate
investment for you.
<PAGE>
How has The Real Estate Investment Trust Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of investing
in The Real Estate Investment Trust Portfolio. We show how returns for The Real
Estate Investment Trust Portfolio have varied over the past three calendar
years, as well as average annual returns for one year and since inception --
with average annual total return compared to the performance of the NAREIT
Equity REIT Index. The NAREIT Equity REIT Index is a benchmark of real estate
investment trusts that invest in many types of U.S. property. The index is
unmanaged and doesn't include the actual costs of buying, selling, and holding
securities. The Real Estate Investment Trust Portfolio class commenced
operations on November 4, 1997. Pursuant to applicable regulation, total return
shown for periods prior to commencement of operations is that of the original
(and then only) class of shares offered by the Real Estate Investment Trust
Portfolio, which commenced operations on December 6, 1995. That original class
has been redesignated REIT Fund A Class. Like The Real Estate Investment Trust
Portfolio class, the original class, prior to its redesignation, did not carry a
front-end sales charge and was not subject to rule 12b-1 distribution expenses.
The Portfolio's past performance does not necessarily indicate how it will
perform in the future. During the periods shown, Delaware Management Company has
voluntarily waived and paid expenses of The Real Estate Investment Trust
Portfolio. Returns would be lower without the voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (The Real
Estate Investment Trust Portfolio) FPO]
Year-by-year total return (The Real Estate Investment Trust Portfolio)
The Real Estate Investment Trust Portfolio
1996 41.81%
1997 31.34%
1998 -12.09%
As of December 31, 1998, The Real Estate Investment Trust Portfolio had a
year-to-date return of -12.09%. During the periods illustrated in this
bar chart, The Real Estate Investment Trust Portfolio's highest return
was 21.32% for the quarter ended December 31, 1996 and its lowest return
was -8.93% for the quarter ended September 30, 1998.
14
<PAGE>
How has Real Estate Investment Portfolio performed? (continued)
- --------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/98
The Real Estate NAREIT Equity
Investment Trust Portfolio REIT Index
1 year -12.09% -17.51%
Since 12/6/95 18.93% 10.31%
<TABLE>
<CAPTION>
What are The Real Estate Investment Trust Portfolio's fees and expenses?
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shareholder fees are fees paid Maximum sales charge (load) imposed on
directly from your investment. purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- ---------------------------------------------------------------------------------------------------------------------
Annual Portfolio operating expenses Investment advisory fees(1) 0.75%
are deducted from The Real Estate
Investment Trust Portfolio's assets Distribution and service (12b-1) fees None
before it pays dividends and before
its net asset value and total Other expenses(1) 0.27%
return are calculated. We will not
charge you separately for these Total operating expenses(1) 1.02%
expenses.
- ---------------------------------------------------------------------------------------------------------------------
This example is intended to help 1 year $104
you compare the cost of investing
in the Portfolio to the cost of 3 years $325
investing in other mutual funds
with similar investment objectives. 5 years $563
We show the cumulative amount of
Portfolio expenses on a 10 years $1,248
hypothetical investment of $10,000
with an annual 5% return over the
time shown.(2) This is an example
only, and does not represent future
expenses, which may be greater or
less than those shown here.
</TABLE>
(1) Delaware Management Company has agreed to waive fees and pay expenses
from November 11, 1998 through April 30, 1999 in order to prevent total
operating expenses (excluding any taxes, interest, brokerage fees and
extraordinary expenses) from exceeding 0.95% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the
periods we show. This example does not assume the voluntary expense cap
described in footnote 1.
15
<PAGE>
How has The Real Estate Investment Trust Portfolio II performed?
This bar chart and table can help you evaluate the potential risks of
investing in The Real Estate Investment Trust Portfolio II. We show
average annual return for The Real Estate Investment Trust Portfolio II
for the past calendar year, as well as average annual returns for one
year and since inception - with average annual returns compared to the
performance of the NAREIT Equity REIT Index. The NAREIT Equity REIT Index
is a benchmark of real estate investment trusts that invest in many types
of U.S. property. The index is unmanaged and doesn't include the actual
costs of buying, selling, and holding securities. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future. During the periods shown, Delaware Management Company has
voluntarily waived and paid expenses of The Real Estate Investment Trust
Portfolio II. Returns would be lower without the voluntary waiver and
payment.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (The Real Estate Investment
Trust Portfolio II) FPO]
Total return (The Real Estate Investment Trust Portfolio II)
The Real Estate Investment Trust Portfolio II
1998 -12.97%
As of December 31, 1998, The Real Estate Investment Trust Portfolio II
had a year-to-date return of -12.97%. During the period illustrated in
this bar chart, The Real Estate Investment Trust Portfolio II's highest
return was 3.95% for the quarter ended December 31, 1998 and its lowest
return was -9.37% for the quarter ended September 30, 1998.
Average annual returns for periods ending 12/31/98
The Real Estate NAREIT Equity
Investment Trust Portfolio II REIT Index
1 year -12.97% -17.51%
Since inception (11/4/97) -8.29% -14.46%
<PAGE>
<TABLE>
<CAPTION>
What are The Real Estate Investment Trust Portfolio II's fees and expenses?
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shareholder fees are fees paid Maximum sales charge (load) imposed on
directly from your investment. purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------------------------------------------
Annual Portfolio operating expenses Investment advisory fees(1) 0.75%
are deducted from The Real Estate
Investment Trust Portfolio II's Distribution and service (12b-1) fees None
assets before it pays dividends and
before its net asset value and Other expenses(1) 0.68%
total return are calculated. We
will not charge you separately for Total operating expenses(1) 1.43%
these expenses.
- --------------------------------------------------------------------------------------------------------------------
This example is intended to help 1 year $146
you compare the cost of investing
in the Portfolio to the cost of 3 years $452
investing in other mutual funds
with similar investment objectives. 5 years $782
We show the cumulative amount of
Portfolio expenses on a 10 years $1,713
hypothetical investment of $10,000
with an annual 5% return over the
time shown.(2) This is an example
only, and does not represent future
expenses, which may be greater or
less than those shown here.
</TABLE>
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.86% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
16
<PAGE>
Profile: The Global Equity Portfolio
What are the Portfolio's Goals?
The Global Equity Portfolio seeks long-term growth without undue risk to
principal. Although the Portfolio will strive to achieve its goal, there is
no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio seeks
to achieve its objective by investing, under normal circumstances, at
least 65% of its total assets in equity 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. Such securities will normally, in the investment
adviser's opinion, be undervalued at the time of purchase based on a
fundamental analysis performed by the investment adviser. Investments
will be mainly in marketable securities of companies located in developed
markets.
The Portfolio will attempt to achieve its objective by investing in
securities traded in equity markets and currencies that investment
adviser believes offer the best relative value within the global
investment universe. 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 Euro and ECU, or may invest
in short-term debt securities or other money market instruments, as
described below.)
Our approach in selecting investments for the Portfolio is oriented to
individual stock selection and is value driven. In selecting stocks for
the Portfolio, we consider movement in the price of individual
securities, and the impact of currency adjustment on a United States
domiciled, dollar-based investor. We also conduct research on a global
basis in an effort to identify securities that have the potential for
long-term total return. The center of the 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. Our approach is long-term in orientation, and it is
expected that the annual turnover rate of the Portfolio will not exceed
75% under normal circumstances.
In a global portfolio, currency return can also be an integral component
of an investment's total return. We will use a purchasing power parity
approach to assess the value of individual currencies. Purchasing power
parity attempts to identify the amounts of goods and services that a
dollar will buy in the United States and compare that to the amount of a
foreign currency required to buy the same amount of goods and services in
another country. Eventually, currencies should trade at levels that would
make it possible for the dollar to buy the same amount of goods and
services overseas as in the United States. When the dollar buys less, the
foreign currency may be considered to be overvalued. When the dollar buys
more, the currency may be considered to be undervalued. Securities
available in an undervalued currency may offer greater return potential
and may be an attractive investment.
The Portfolio may also invest of up to 35% of its assets in fixed-income
securities when, in our opinion, attractive opportunities exist relative
to those available through investments in equity or short-term
investments. The fixed-income securities in which the Portfolio may
invest include U.S. dollar or foreign currency-denominated government,
government agency or corporate bonds and bonds of supranational
organizations. 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. In addition,
for temporary defensive purposes, the Portfolio may invest all or a
substantial portion of its
17
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
assets in high quality debt instruments issued by foreign governments,
their agencies, instrumentalities or political subdivisions, the U.S.
government, its agencies or instrumentalities, which are backed by the
full faith and credit of the U.S. government, or issued by foreign or
U.S. companies and certain short-term instruments. In taking such
temporary defensive positions, the Portfolio may not be able to achieve
its investment objective. The Portfolio may also invest in the securities
listed above pending investment of proceeds from new sales of Portfolio
shares and to maintain sufficient cash to meet redemption requests.
What are the main risks of investing in the Portfolio? Investing in any
mutual fund involves risk, including the risk that you may lose part or
all of the money you invest. The price of Portfolio shares will increase
and decrease according to changes in the value of the Portfolio's
investments. This Portfolio primarily will be affected by changes in
stock and bond prices and currency exchange rates. Investments in
securities of non-U.S. issuers which are generally denominated in foreign
currencies involve certain risk and opportunity considerations not
typically associated with investing in U.S. companies. The Portfolio may
be affected by changes in currency rates and exchange control regulations
and may incur costs in connection with conversions between currencies. To
the extent that the investment adviser invests in forward foreign
currency contracts or uses other instruments to endeavor to hedge against
currency risks the Portfolio will be subject to the special risks
associated with that activity. In addition, to the extent that the
Portfolio invests in securities of companies in emerging markets, those
investments present a greater degree of risk than tends to be the case
for foreign investments in Western Europe and other developed markets.
An investment in the Portfolio is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC)
or any other government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these instruments
You should keep in mind that an investment in the Portfolio is not a
complete investment program; it should be considered just one part of
your total financial plan. Be sure to discuss this Portfolio with your
investment consultant to determine whether it is an appropriate
investment for you.
<PAGE>
How has The Global Equity Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of
investing in The Global Equity Portfolio. We show returns for The Global
Equity Portfolio for the past calendar year, as well as average annual
returns for one year and since inception -- with average annual returns
compared to the performance of the Morgan Stanley Capital International
World Stock Index. The Morgan Stanley Capital International World Stock
Index is an international index that includes stocks traded in Europe,
Australia, the Far East, plus the U.S., and Canada, and South Africa,
weighted by capitalization. The index is unmanaged and doesn't include
the actual costs of buying, selling, and holding securities. The
Portfolio's past performance does not necessarily indicate how it will
perform in the future. During the periods shown, Delaware International
Advisers Ltd. has voluntarily waived and paid expenses of The Global
Equity Portfolio. Returns would be lower without the voluntary waiver and
payment.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (The Global Equity Portfolio)
FPO]
Total return (The Global Equity Portfolio)
The Global Equity Portfolio
1998 11.15%
As of December 31, 1998, The Global Equity Portfolio had a year-to-date
return of 11.15%. During the period illustrated in this bar chart, The
Global Equity Portfolio's highest return was 12.51% for the quarter ended
December 31, 1998 and its lowest return was -10.57% for the quarter ended
September 30, 1998.
18
<PAGE>
How has The Global Equity Portfolio performed? (continued)
- --------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/98
The Global Morgan Stanley Capital
Equity Portfolio International World Stock Index
1 year 11.15% 24.34%
Since inception(10/15/97) 7.83% 23.60%
<TABLE>
<CAPTION>
What are The Global Equity Portfolio's fees and expenses?
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder fees are fees paid Maximum sales charge (load) imposed on
directly from your investment. purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees(1) 0.40%
Redemption reimbursement fees(1) 0.30%
Exchange Fees None
- --------------------------------------------------------------------------------------------------------------------------------
Annual Portfolio operating expenses Investment advisory fees(2) 0.75%
are deducted from The Global Equity
Portfolio's assets before it pays Distribution and service (12b-1) fees None
dividends and before its net asset
value and total return are Other expenses(2) 1.56%
calculated. We will not charge you
separately for these expenses. Total operating expenses(2) 2.31%
Assumes Assumes no
redemption redemption
- --------------------------------------------------------------------------------------------------------------------------------
This example is intended to help
you compare the cost of investing 1 year $303 $273
in the Portfolio to the cost of
investing in other mutual funds 3 years $788 $758
with similar investment objectives.
We show the cumulative amount of 5 years $1,300 $1,270
Portfolio expenses on a
hypothetical investment of $10,000 10 years $2,705 $2,675
with an annual 5% return over the
time shown.(3) This is an example
only, and does not represent future
expenses, which may be greater or
less than those shown here.
</TABLE>
(1) The purchase reimbursement fee and redemption reimbursement fee are paid to
the Portfolio. These fees are designed to reflect an approximation of the
brokerage and related transaction costs associated with the investment of an
investor's purchase amount or the disposition of assets to meet redemptions,
and to limit the extent to which the Portfolio (and, indirectly, the
Portfolio's existing shareholders) would have to bear such costs. In lieu of
the purchase reimbursement fee, investors in The Global Equity Portfolio,
with the concurrence of the adviser, may elect to invest by a contribution
of securities or follow procedures that have the same economic effect as
such a contribution.
(2) Delaware International Advisers Ltd. has agreed to waive fees and pay
expenses through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.96% of average daily net assets.
(3) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 2.
19
<PAGE>
Profile: The International Equity Portfolio
- --------------------------------------------------------------------------------
What are the Portfolio's Goals?
The International Equity Portfolio seeks maximum long-term total return.
Although the Portfolio will strive to achieve its goal, there is no assurance
that it will.
What are the Portfolio's main investment strategies? 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 in at
least three different countries 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. Investments will be
made mainly in marketable securities of companies located in developed
countries.
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 Euro
and ECU), or may invest in short-term debt securities or other money market
instruments. Except when we believe 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. When taking a temporary defensive position
the Portfolio may not be able to attain its investment objective.
Our approach in selecting investments for the Portfolio is oriented to
individual stock selection and is value driven. In selecting stocks for the
Portfolio, we consider movement in the price of individual securities, and the
impact of currency adjustment on a United States domiciled, dollar-based
investor. We also conduct research on a global basis in an effort to identify
securities that have the potential for long-term total return. The center of the
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. Our approach is long-term in orientation, and it is expected that the
annual turnover rate of the Portfolio will not exceed 75% under normal
circumstances.
In a global portfolio, currency return can also be an integral component of an
investment's total return. We will use a purchasing power parity approach to
assess the value of individual currencies. Purchasing power parity attempts to
identify the amounts of goods and services that a dollar will buy in the United
States and compare that to the amount of a foreign currency required to buy the
same amount of goods and services in another country. Eventually, currencies
should trade at levels that would make it possible for the dollar to buy the
same amount of goods and services overseas as in the United States. When the
dollar buys less, the foreign currency may be considered to be overvalued. When
the dollar buys more, the currency may be considered to be undervalued.
Securities available in an undervalued currency may offer greater return
potential and may be an attractive investment.
The Portfolio may make limited use (not more than 15% of its assets) of foreign
fixed-income securities when, in our opinion attractive opportunities exist
relative to 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 Euro and ECU, and must have a government or government
agency backed credit status which would
20
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
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.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. This Portfolio
primarily will be affected by changes in the stock and bond prices and currency
exchange rates. Investments in securities of non-U.S. issuers which are
generally denominated in foreign currencies involve certain risk and opportunity
considerations not typically associated with investing in U.S. companies.
foreign securities may be adversely affected by political instability, foreign
economic conditions or inadequate regulatory and accounting standards. In
addition, 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. The Portfolio also
may be affected by changes in currency rates which may reduce or eliminate any
gains produced by investments and exchange control regulations and may incur
costs in connection with conversions between currencies. To the extent that the
investment adviser invests in forward foreign currency contracts or uses other
instruments to endeavor to hedge against currency risks the Portfolio will be
subject to the special risks associated with that activity. In addition, to the
extent that the Portfolio invests in securities of companies in emerging
markets, those investments present a greater degree of risk than tends to be the
case for foreign investments in Western Europe and other developed markets.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
<PAGE>
How has The International Equity Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of investing
in The International Equity Portfolio. We show how returns for The International
Equity Portfolio have varied over the past six calendar years, as well as
average annual returns for one and five years and since inception-- with average
annual return compared to the performance of the Morgan Stanley Capital
International EAFE Stock Index. The Morgan Stanley Capital International EAFE
Stock Index is an international index including stocks traded on 16 exchanges in
Europe, Australia and the Far East, weighted by capitalization.The index is
unmanaged and doesn't include the actual costs of buying, selling, and holding
securities. The Portfolio's past performance does not necessarily indicate how
it will perform in the future. During the periods shown, Delaware International
Advisers Ltd. has voluntarily waived and paid expenses of The International
Equity Portfolio. Returns would be lower without the voluntary waiver and
payment.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (The
International Equity Portfolio) FPO]
Year-by-year total return (The International Equity Portfolio)
The International Equity Portfolio
1993 29.72%
1994 3.59%
1995 13.02%
1996 20.35%
1997 5.13%
1998 10.01%
21
<PAGE>
How has The International Equity Portfolio performed? (continued)
- --------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/98
The International Morgan Stanley Capital
Equity Portfolio International EAFE Stock Index
1 year 10.01% 20.00%
5 years 10.26% 9.19%
Since inception (2/4/92) 11.38% 9.98%
What are The International Equity Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
reinvested dividends None
- --------------------------------------------------------------------------------
Purchase reimbursement fees None
- --------------------------------------------------------------------------------
Redemption reimbursement fees None
- --------------------------------------------------------------------------------
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The International Equity
Portfolio's assets before it pays dividends and before its net asset value and
total return are calculated. We will not charge you separately for these
expenses.
Investment advisory fees 0.75%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees None
- --------------------------------------------------------------------------------
Other expenses 0.16%
- --------------------------------------------------------------------------------
Total operating expenses(1) 0.91%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(2) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $93
- --------------------------------------------------------------------------------
3 years $290
- --------------------------------------------------------------------------------
5 years $504
- --------------------------------------------------------------------------------
10 years $1,120
(1) Delaware International Advisers Ltd. has agreed to waive fees and pay
expenses through April 30, 1999 in order to prevent total operating
expenses (excluding any taxes, interest, brokerage fees and extraordinary
expenses) from exceeding 0.96% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the
periods we show.
22
<PAGE>
Profile: The Labor Select International Equity Portfolio
- --------------------------------------------------------------------------------
What are the Portfolio's Goals?
The Labor Select International Equity Portfolio seeks maximum long-term
total return. Although the Portfolio will strive to achieve its goal, there
is no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio, under normal
market conditions, will 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 of the United States, and which, in the opinion of the investment
adviser, are undervalued at the time of purchase based on rigorous fundamental
analysis that we employ. In addition to following these quantitative guidelines,
we 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, we emphasize 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 Euro and ECU) or
may invest in short-term debt securities or other money market instruments.
Except when 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. When taking a temporary defensive position the Portfolio may not be
able to attain its investment objective.
The Portfolio may hold up to 15% of its assets in foreign fixed-income
securities when, in our opinion, equity securities are overvalued and such
fixed-income securities present an opportunity for returns greater than those
available through investments in equity securities or the short-term investments
described above. The foreign fixed-income securities in which the Portfolio may
invest may be U.S. dollar or foreign currency denominated, including the Euro
and 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 determined to be of
comparable quality.
Our 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, we identify those stocks which 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. We conduct extensive fundamental research
on a global basis, and it is through this research effort that securities, which
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. Our 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 our quantitative approach to stock selection, we 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
23
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
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 currently 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 we perceive 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 our 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. 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 we will utilize in selecting
securities will vary over time, and will be solely in our discretion.
We do not normally intend to respond to short-term market fluctuations or to
acquire securities for the purpose of short-term trading; however, we may take
advantage of short-term opportunities that are consistent with the Portfolio's
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.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. The
Portfolio's share prices and yields will fluctuate in response to movements in
stock prices and currency exchange rates. Investments in securities of non-U.S.
issuers which are generally denominated in foreign currencies involve certain
risk and opportunity consideration not typically associated with investing in
U.S. companies. Foreign securities may be adversely affected by political
instability, foreign economic conditions or inadequate regulatory and accounting
standards. In addition, there is the posssibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations or other taxes imposed with respect to investments in foreign nations.
The Portfolio also may be affected by changes in currency rates which may reduce
or eliminate any gains produced by investment and exchange control regulations
and may incur costs in connection with conversions between currencies. To the
extent the investment advisor invests in forward foreign currency contracts or
uses other investments to endeavor to hedge against currency risks, the
Portfolio will be subject to the special risks associated with that activity. In
addition, to the extent the Portfolio invests in securities of companies in
emerging markets, those investments present a greater degree of risk than tends
to be the case for foreign investments in Western Europe and other developed
markets.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
24
<PAGE>
How has The Labor Select International Equity Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of investing
in The Labor Select International Equity Portfolio. We show how returns for The
Labor Select International Equity Portfolio have varied over the past three
calendar years, as well as average annual returns for one year and since
inception - with average annual returns compared to the performance of the
Morgan Stanley Capital International EAFE Stock Index. The Morgan Stanley
Capital International EAFE Stock Index is an international index including
stocks traded on 16 exchanges in Europe, Australia and the Far East, weighted by
capitalization. The index is unmanaged and doesn't include the actual costs of
buying, selling, and holding securities. The Portfolio's past performance does
not necessarily indicate how it will perform in the future. During the periods
shown, Delaware International Advisers Ltd. has voluntarily waived and paid
expenses of The Labor Select International Equity Portfolio. Returns would be
lower without the voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (The Labor
Select International Equity Portfolio) FPO]
Year-by-year total return (The Labor Select International Equity Portfolio)
The Labor Select International Equity Portfolio
1996 22.08%
1997 10.83%
1998 11.90%
As of December 31, 1998, The Labor Select International Equity Portfolio had a
year-to-date return of 11.90%. During the periods illustrated in this bar chart,
The Labor Select International Equity Portfolio's highest return was 13.01% for
the quarter ended December 31, 1998 and its lowest return was -12.04% for the
quarter ended September 30, 1998.
Average annual returns for periods ending 12/31/98
- --------------------------------------------------------------------------------
The Labor Select Morgan Stanley Capital
International Equity International EAFE
Portfolio Stock Index
- --------------------------------------------------------------------------------
1 year 11.90% 20.00%
- --------------------------------------------------------------------------------
Since inception(12/19/95) 15.62% 9.00%
What are The Labor Select International Equity Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
reinvested dividends None
- --------------------------------------------------------------------------------
Purchase reimbursement fees None
- --------------------------------------------------------------------------------
Redemption reimbursement fees None
- --------------------------------------------------------------------------------
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Labor Select
International Equity Portfolio's assets before it pays dividends and before its
net asset value and total return are calculated. We will not charge you
separately for these expenses.
Investment advisory fees(1) 0.75%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees None
- --------------------------------------------------------------------------------
Other expenses(1) 0.18%
- --------------------------------------------------------------------------------
Total operating expenses(1) 0.93%
- --------------------------------------------------------------------------------
<PAGE>
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(2) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $95
- --------------------------------------------------------------------------------
3 years $296
- --------------------------------------------------------------------------------
5 years $515
- --------------------------------------------------------------------------------
10 years $1,143
(1) Delaware International Advisers Ltd. has agreed to waive fees and pay
expenses through April 30, 1999 in order to prevent total operating
expenses (excluding any taxes, interest, brokerage fees and extraordinary
expenses) from exceeding 0.96% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the
periods we show.
25
<PAGE>
Profile: The Emerging Markets Portfolio
What are the Portfolio's Goals?
The Emerging Markets Portfolio seeks long-term capital appreciation. Although
the Portfolio will strive to achieve its goal, there is no assurance that it
will.
What are the Portfolio's main investment strategies? The Emerging Markets
Portfolio is an international fund. The Portfolio, under normal market
conditions, will invest at least 65% of its 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 emerging countries. The
Portfolio will attempt to achieve its objective by investing in a broad range of
equity securities, including common stocks, preferred stocks, convertible
securities, certain non-traditional equity 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." There are more than 130
countries that we generally consider to be emerging or developing countries by
the international financial community, approximately 40 of which currently have
stock markets. Almost every nation in the world is included within this group of
developing or emerging countries 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 our
opinion, involve unacceptable political risks. The Portfolio will focus its
investments in those emerging countries where we consider the economies to be
developing strongly and where the markets are becoming more sophisticated. We
believe that investment opportunities may result from an evolving long-term
international trend favoring more market-oriented economies, a trend that may
particularly benefit certain countries having developing markets. 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, we
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. We
currently anticipate that the countries in which the Portfolio may invest will
include, but are not 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, we expect to expand and further diversify the countries in which the
Portfolio invests.
Although this is not an exclusive list, we consider an emerging country equity
security to be one that is issued by a company that 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. We will determine eligibility based on publicly
available information and inquiries made of the companies.
26
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
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 to be of equivalent quality. The
Portfolio may also invest in Brady Bonds and zero coupon bonds. 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 Euro and ECU. For
temporary defensive purposes, the Portfolio may invest all or a substantial
portion of its assets in the high quality debt instruments. When taking a
temporary defensive position, the Portfolio may not be able to achieve its
investment objective.
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.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. This Portfolio
primarily will be affected by changes in stock and bond prices and currency
exchange rates. Investments in securities of non-U.S. issuers which are
generally denominated in foreign currencies involve certain risk and opportunity
considerations not typically associated with investing in U.S. companies. The
Portfolio may be affected by changes in currency rates and exchange control
regulations and may incur costs in connection with conversions between
currencies. To the extent the investment adviser invests in forward foreign
currency contracts or uses other investments to endeavor to hedge against
currency risks, the Portfolio will be subject to the special risks associated
with that activity. In addition, 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.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
<PAGE>
How has The Emerging Markets Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of investing
in The Emerging Markets Portfolio. We show returns for The Emerging Markets
Portfolio for the past calendar year, as well as average annual returns for one
year and since inception--with average annual returns compared to the
performance of the Morgan Stanley Capital International Emerging Markets Free
Equity Index. The Morgan Stanley Capital International Emerging Markets Free
Equity Index is a U.S. dollar dominated index comprised of stocks of countries
with below average per capita GDP as defined by the World Bank, foreign
ownership restrictions, a tax regulatory environment, and greater perceived
market risk than in the developed countries. Within this index, MSCI aims to
capture an aggregate of 60% of local market capitalization. The index is
unmanaged and doesn't include the actual costs of buying, selling, and holding
securities. The Portfolio's past performance does not necessarily indicate how
it will perform in the future. During the periods shown, Delaware International
Advisers Ltd. has voluntarily waived and paid expenses of The Emerging Markets
Portfolio. Returns would be lower without the voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (The Emerging Markets
Portfolio) FPO]
Total return (The Emerging Markets Portfolio)
The Emerging Markets Portfolio
1998 -34.88%
As of December 31, 1998, The Emerging Markets Portfolio had a year-to-date
return of -34.88%. During the periods illustrated in this bar chart, The
Emerging Markets Portfolio's highest return was 7.03% for the quarter ended
March 31, 1998 and its lowest was -24.26% for the quarter ended June 30, 1998.
27
<PAGE>
How has The Emerging Markets Portfolio performed? (continued)
- --------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/98
The Emerging Morgan Stanley Capital International
Markets Portfolio Emerging Markets Free Equity Index
- --------------------------------------------------------------------------------
1 year -34.88% -25.34%
Since inception (4/14/97) -26.85% -25.85%
What are The Emerging Markets Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees(1) 0.75%
Redemption reimbursement fees(1) 0.75%
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Emerging Markets
Portfolio's assets before it pays dividends and before its net asset value and
total return are calculated. We will not charge you separately for these
expenses.
Investment advisory fees(2/3) 1.20%
Distribution and service (12b-1) fees None
Other expenses(2) 0.49%
Total operating expenses(2) 1.69%
- --------------------------------------------------------------------------------
Assumes Assumes no
redemption redemption
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(4) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $321 $246
3 years $679 $604
5 years $1,061 $986
10 years $2,133 $2,058
(1) The purchase reimbursement fee and redemption reimbursement fee are paid to
the Portfolio. These fees are designed to reflect an approximation of the
brokerage and related transaction costs associated with the investment of an
investor's purchase amount or the disposition of assets to meet redemptions,
and to limit the extent to which the Portfolio (and, indirectly, the
Portfolio's existing shareholders) would have to bear such costs.
(2) Delaware International Advisers Ltd. has agreed to waive fees and pay
expenses through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 1.55% of average daily net assets.
(3) Delaware International has elected voluntarily to limit its annual
Investment Advisory Fee to no more than 1.00% of the Portfolio's average
daily net assets during the period from October 1, 1997 through April 30,
1999. The effect of the current fee waiver of 1.55% with respect to total
operating expenses described in footnote 2 and the 1.00% fee limitation is
that the annual Investment Advisory Fee paid to Delaware International on
behalf of the Portfolio will be an amount equal to the lesser of 1.00% or
the amount necessary to limit Total operating expenses of the Portfolio
(exclusive of taxes, interest, brokerage commissions and extraordinary
expenses) to no more than 1.55% of average net assets, on an annualized
basis. Delaware International has also voluntarily agreed that the annual
Investment Advisory Fee payable to Delaware International on behalf of The
Emerging Markets Portfolio will not exceed 1.00% unless shareholders of the
Portfolio have been notified of the change to the 1.00% fee limitation at
least one year in advance of such increase.
(4) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense caps described
in footnotes 2 and 3.
28
<PAGE>
Profile: The Intermediate Fixed Income Portfolio
What are the Portfolio's Goals?
The Intermediate Fixed Income Portfolio seeks maximum long-term total return,
consistent with reasonable risk. Although the Portfolio will strive to achieve
its goal, there is no assurance that it will.
What are the Portfolio's main investment strategies? 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. The benchmark against which the Portfolio's performance
will be measured is the Lehman Brothers Government/Corporate Intermediate Bond
Index.
The Portfolio 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) between one to ten years.
Short- and intermediate-term debt securities (under ten years) form the core of
the Portfolio. Long-term bonds (over ten years) are purchased when they will
enhance return without significantly increasing risk. Average effective maturity
may exceed the above range when we believe 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.
The Portfolio will normally experience an annual portfolio turnover rate
exceeding 100%, but that rate is not expected to exceed 250%. High portfolio
turnover (over 100%) involves correspondingly greater 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 transaction costs of the Portfolio and taxes payable by
institutional shareholders that are subject to federal income taxes.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. This Portfolio
will be affected by changes in interest rates because the value of fixed-income
securities held by the Portfolio, particularly those with longer maturities,
will decrease if interest rates rise. The Portfolio also will be affected by
prepayment risk due to its holdings of mortgage-backed securities. With
prepayment risks, when homeowners prepay mortgages during periods of low
interest rates the Portfolio may be free to re-deploy its assets in lower
yielding securities.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these instruments.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
29
<PAGE>
How has The Intermediate Fixed Income Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of investing
in The Intermediate Fixed Income Portfolio. We show how returns for The
Intermediate Fixed Income Portfolio have varied over the past two calendar
years, as well as average annual returns for one year and since inception--with
average annual returns compared to the performance of the Lehman Brothers
Government/Corporate Intermediate Bond Index. The Lehman Brothers
Government/Corporate Intermediate Bond is an index composed of 5,400 publicly
issued corporate and U.S. government debt rated Baa or better, with at least one
year to maturity and at least $25 million par outstanding. The index is
unmanaged and doesn't include the actual costs of buying, selling, and holding
securities. The Portfolio's past performance does not necessarily indicate how
it will perform in the future. During the periods shown, Delaware Management
Company has voluntarily waived and paid expenses of The Intermediate Fixed
Income Portfolio. Returns would be lower without the voluntary waiver and
payment.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (The Intermediate
Fixed Inome Portfolio) FPO]
Year-by-year total return (The Intermediate Fixed Income Portfolio)
The Intermediate Fixed Income Portfolio
1997 7.37%
1998 7.07%
As of December 31, 1998, The Intermediate Fixed Income Portfolio had a
year-to-date return of 7.07%. During the periods illustrated in this bar chart,
The Intermediate Fixed Income Portfolio's highest return was 3.16% for the
quarter ended September 30, 1998 and its lowest return was -0.02% for the
quarter ended March 31, 1997.
Average annual returns for periods ending 12/31/98
The Intermediate Lehman Brothers Government/
Fixed Income Portfolio Corporate Intermediate Bond Index
- --------------------------------------------------------------------------------
1 year 7.07% 7.73%
Since inception (3/12/96) 6.84% 8.44%
<PAGE>
What are The Intermediate Fixed Income Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Intermediate Fixed
Income Portfolio's assets before it pays dividends and before its net asset
value and total return are calculated. We will not charge you separately for
these expenses.
Investment advisory fees(1) 0.40%
Distribution and service (12b-1) fees None
Other expenses(1) 0.61%
Total operating expenses(1) 1.01%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(2) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $103
3 years $322
5 years $558
10 years $1,236
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.53% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
30
<PAGE>
Profile: The Aggregate Fixed Income Portfolio
What are the Portfolio's Goals?
The Aggregate Fixed Income Portfolio seeks maximum long-term total return,
consistent with reasonable risk. Although the Portfolio will strive to achieve
its goal, there is no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio 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. The benchmark against which the Portfolio's performance
will be measured is the Lehman Brothers Aggregate Bond Index.
The Portfolio seeks maximum long-term total return by investing in debt
securities having a broad range of maturities. However, the Portfolio typically
will have 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 when they will
enhance return without significantly increasing risk. Average effective maturity
may exceed the above range when 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.
The Portfolio will normally experience an annual portfolio turnover rate
exceeding 100%, but that rate is not expected to exceed 250%. High portfolio
turnover (over 100%) involves correspondingly greater 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 transaction costs of the Portfolio and taxes payable by
institutional shareholders that are subject to federal income taxes.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. The Portfolio
will be affected by changes in interest rates because the value of fixed- income
securities held by the Portfolio, particularly those with longer maturities,
will decrease if interest rates rise. The Portfolio will also be affected by
prepayment risk due to its holdings of mortgage-backed securities. With
prepayment risk, when homeowners prepay mortgages during periods of low interest
rates, the Fund may be forced to re-deploy its assets in lower yielding
securities.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
31
<PAGE>
How has The Aggregate Fixed Income Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of investing
in The Aggregate Fixed Income Portfolio. We show returns for The Aggregate Fixed
Income Portfolio for the past calendar year, as well as average annual returns
for one year and since inception--with average annual returns compared to the
performance of the Lehman Brothers Aggregate Bond Index. The Lehman Brothers
Aggregate Bond Index is comprised of approximately 6,000 publicly traded bonds
including U.S. government, mortgage-backed, corporate and Yankee bonds with an
average maturity of approximately 10 years. The index is weighted by the market
value of the bonds included in the index. The index is unmanaged and doesn't
include the actual costs of buying, selling, and holding securities. The
Portfolio's past performance does not necessarily indicate how it will perform
in the future. During the periods shown, Delaware Management Company has
voluntarily waived and paid expenses of The Aggregate Fixed Income Portfolio.
Returns would be lower without the voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (The Aggregate Fixed
Income Portfolio) FPO]
Total return (The Aggregate Fixed Income Portfolio)
1998 8.58%
As of December 31, 1998, The Aggregate Fixed Income Portfolio had a year-to-date
return of 8.58%. During the period illustrated in this bar chart, The Aggregate
Fixed Income Portfolio's highest return was 4.20% for the quarter ended
September 30, 1998 and its lowest return was 0.54% for the quarter ended
December 31, 1998.
Average annual returns for periods ending 12/31/98
The Aggregate Fixed Lehman Brothers
Income Portfolio Aggregate Bond Index
- --------------------------------------------------------------------------------
1 year 8.58% 8.69%
Since inception (12/29/97) 8.39% 8.69%
<PAGE>
What are The Aggregate Fixed Income Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Aggregate Fixed Income
Portfolio's assets before it pays dividends and before its net asset value and
total return are calculated. We will not charge you separately for these
expenses.
Investment advisory fees(1) 0.40%
Distribution and service (12b-1) fees None
Other expenses(1) 1.67%
Total operating expenses(1) 2.07%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(2) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $210
3 years $649
5 years $1,114
10 years $2,400
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.53% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
32
<PAGE>
Profile: The High-Yield Bond Portfolio
What are the Portfolio's Goals?
The High-Yield Bond Portfolio seeks high total return. Although the
Portfolio will strive to achieve its goal, there is no assurance that it
will.
What are the Portfolio's main investment strategies? 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. Of these categories of securities, the
investment adviser anticipates investing primarily in corporate bonds. 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. 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 our opinion, such holdings are prudent given
then prevailing market conditions. Except when we believe 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. When taking a temporary
defensive position the Portfolio may not be able to achieve its investment
objective.
From time to time, the Portfolio may acquire zero coupon bonds and, to a lesser
extent, pay-in-kind ("PIK") bonds, however, the Portfolio generally does not
purchase a substantial amount of these securities. Zero coupon bonds and PIK
bonds are 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.
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.
We do 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.
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. We will attempt to reduce such risks through portfolio
diversification, credit analysis, and attention to trends in the economy,
industries and financial markets.
What are the main risks of investing in the Portfolio? Investing in 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.
If, as a result of volatility in the high-yield market or other factors, the
Portfolio experiences substantial net redemptions of the Portfolio's shares for
a sustained period of time, the Portfolio may be required to sell securities
without regard to the
33
<PAGE>
What are the main risks of investing in the Portfolio? (continued)
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. 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.
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. The price of Portfolio shares will increase
and decrease according to changes in the value of the Portfolio's investments.
The Portfolio will be affected by changes in bond prices. To the extent the
Portfolio invests in securities issued by non-U.S. companies, those investments
in securities of non-U.S. issuers which are generally denominated in foreign
currencies involve certain risk and opportunity considerations not typically
associated with investing in U.S. issuers.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
<PAGE>
How has The High-Yield Bond Portfolio performed?
This bar chart and table can help you evaluate the potential risks of investing
in The High-Yield Bond Portfolio. We show how returns for The High-Yield Bond
Portfolio have varied over the past two calendar years, as well as average
annual returns for one year and since inception--with average annual returns
compared to the performance of the Salomon Brothers High-Yield Cash Pay Index.
The Salomon Brothers High-Yield Cash Pay Index includes cash-pay and
deferred-interest bonds, but excludes bankrupt bonds. When an issuer misses or
expects to miss an interest payment or enters into Chapter 11, the corresponding
bonds exit the index at month end, reflecting the loss of the coupon payment or
accrued interest. You should remember that unlike the Portfolio, the index is
unmanaged and doesn't include the actual costs of buying, selling, and holding
securities. The Portfolio's past performance does not necessarily indicate how
it will perform in the future. During the periods shown, Delaware Management
Company has voluntarily waived and paid expenses of The High-Yield Bond
Portfolio. Returns would be lower without the voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (The High-Yield
Bond Portfolio) FPO]
Year-by-year total return (The High Yield Bond Portfolio)
The High-Yield Bond Portoflio
1997 18.14%
1998 1.75%
As of December 31, 1998, The High-Yield Bond Portfolio had a year-to-date return
of 1.75%. During the periods illustrated in this bar chart, The High-Yield Bond
Portfolio's highest return was 6.39% for the quarter ended June 30, 1997 and its
lowest return was -5.42% for the quarter ended September 30, 1998.
34
<PAGE>
How has The High-Yield Bond Portfolio performed? (continued)
Average annual returns for periods ending 12/31/98
The High-Yield Salomon Brothers High-Yield
Bond Portfolio Cash Pay Index
1 year 1.75% 4.42%
Since inception (12/2/96) 9.90% 8.69%
What are The High-Yield Bond Portfolio's fees and expenses?
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
Annual Portfolio operating expenses are deducted from The High-Yield Bond
Portfolio's assets before it pays dividends and before its net asset value and
total return are calculated. We will not charge you separately for these
expenses.
Investment advisory fees(1) 0.45%
Distribution and service (12b-1) fees None
Other expenses(1) 0.30%
Total operating expenses(1) 0.75%
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.2 This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $77
3 years $240
5 years $417
10 years $930
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.59% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the
periods we show. This example does not assume the voluntary expense cap
described in footnote 1.
35
<PAGE>
Profile: The Diversified Core Fixed Income Portfolio
What are the Portfolio's Goals?
The Diversified Core Fixed Income Portfolio seeks maximum long-term total
return, consistent with reasonable risk. Although the Portfolio will
strive to achieve its goal, there is no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio seeks to
achieve its objective by allocating its investments principally among the
following three sectors of the fixed-income securities markets: the U.S.
Investment Grade Sector, the U.S. High-Yield Sector, and the International
Sector. The investment adviser will determine the amount of assets of the
Portfolio that will be allocated to each of the three sectors in which the
Portfolio will invest, based on our evaluation of economic and market conditions
and our assessment of the returns and potential for appreciation that can be
achieved from investments in each of the three sectors. We will periodically
reallocate the Portfolio's assets, as deemed necessary. The relative proportion
of the Portfolio's assets to be allocated among sectors is described below.
o U.S. Investment Grade Sector Under normal circumstances, between 50% and 90%
of the Portfolio's total assets will be invested in the U.S. investment grade
sector. In managing the Portfolio's assets allocated to the investment grade
sector, we will invest principally in debt obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities and by U.S. corporations.
The corporate debt obligations in which the Portfolio may invest include bonds,
notes, debentures and commercial paper of U.S. companies. The U.S. government
securities in which the Portfolio may invest 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.
The investment grade sector of the Portfolio's assets may also be invested in
mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or by government sponsored corporations. Other
mortgage-backed securities in which the Portfolio may invest are issued by
certain private, non-government entities. Subject to the quality limitations,
the Portfolio may also invest in securities which are backed by assets such as
receivables on home equity and credit card loans, automobile, mobile home,
recreational vehicle and other loans, wholesale dealer floor plans and leases.
Securities purchased by the Portfolio will be rated in one of the four highest
rating categories or will be unrated securities that are determined to be of
comparable quality. See Appendix A for additional rating information.
o U.S. High-Yield Sector Under normal circumstances, between 5% and 30% of the
Portfolio's total assets will be allocated to the U.S. High-Yield Sector. We
will invest the Portfolio's assets that are allocated to the domestic high-yield
sector primarily in those securities having a liberal and consistent yield and
those tending to reduce the risk of market fluctuations. The Portfolio may
invest in domestic corporate debt obligations, including, notes, which may be
convertible or non-convertible, commercial paper, units consisting of bonds with
stock or warrants to buy stock attached, debentures, convertible debentures,
zero coupon bonds and pay-in-kind securities ("PIKs").
The Portfolio will invest in both rated and unrated bonds. The rated bonds that
the Portfolio may purchase in this sector will generally be rated BB or lower by
S&P or Fitch, Ba or lower by Moody's, or similarly rated by another nationally
recognized statistical rating organization. Unrated bonds may be more
speculative in nature than rated bonds.
36
<PAGE>
What are the Portfolio's main investment strategies? (continued)
o International Sector Under normal circumstances, between 5% and 20% of the
Portfolio's total assets will be invested in the International Sector. The
International Sector invests primarily in fixed-income securities of issuers
organized or having a majority of their assets or deriving a majority of their
operating income in foreign countries. These fixed-income securities include
foreign government securities, debt obligations of foreign companies, and
securities issued by supranational entities. 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 International Bank for Reconstruction and
Development (more commonly known as 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.
The Portfolio may invest in securities issued in any currency and may hold
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 the European Currency Unit. The Portfolio may, 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.
The Portfolio will invest in both rated and unrated foreign securities. It may
purchase securities of issuers in any foreign country, developed and
underdeveloped. These investments may include direct obligations of issuers
located in emerging markets countries and so-called Brady Bonds. However,
investments in emerging markets, Brady Bonds and in foreign securities that are
rated below investment grade (e.g. lower than BBB by S&P), or if unrated, judged
to be of comparable quality, will, in the aggregate, be limited to no more than
5% of the Portfolio's total assets. In addition, the Portfolio may invest in
sponsored and unsponsored American Depositary Receipts, European Depositary
Receipts, or Global Depositary Receipts. The Portfolio may also invest in zero
coupon bonds and may purchase shares of other investment companies.
In unusual market conditions, in order to meet redemption requests, for
temporary defensive purposes, and pending investment, the Portfolio may hold a
substantial portion of its assets in cash or short-term fixed-income
obligations. The Portfolio may also use a wide range of hedging instruments,
including options, futures contracts and options on futures contracts subject to
certain limitations.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. The Portfolio
will be affected by changes in bond prices and currency exchange rates.
Investments in high yield, high risk bonds entails certain risk, including the
risk of loss of principal which may be greater than the risks presented by
investment grade bonds and which should be considered by investors contemplating
an investment in the Portfolio. Investments in securities of non-U.S. issuers
which are generally denominated in foreign currencies involve certain risk and
opportunity considerations not typically associated with investing in U.S.
issuers. The Portfolio will also be affected by prepayment risk due to its
holdings of mortgage-backed securities. with prepayment risk, when homeowners
prepay mortgages during periods of low interest rates, the Fund may be forced to
re-deploy its assets in lower yielding securities.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
37
<PAGE>
How has The Diversified Core Fixed Income Portfolio performed?
This bar chart and table can help you evaluate the potential risks of investing
in The Diversified Core Fixed Income Portfolio. We show returns for The
Diversified Core Fixed Income Portfolio for the past calendar year, as well as
average annual returns for one year and since inception--with the average annual
returns compared to the performance of the Lehman Brothers Aggregate Bond Index.
The Lehman Brothers Aggregate Bond Index is comprised of approximately 6,000
publicly traded bonds including U.S. government, mortgage-backed, corporate and
Yankee bonds with an average maturity of approximately 10 years. The index is
weighted by the market value of the bonds included in the index. The index is
unmanaged and doesn't include the actual costs of buying, selling, and holding
securities. The Portfolio's past performance does not necessarily indicate how
it will perform in the future. During the periods shown, Delaware Management
Company has voluntarily waived and paid expenses of The Diversified Core Fixed
Income Portfolio. Returns would be lower without the voluntary waiver and
payment.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (The Diversified Core
Fixed Income Portfolio) FPO]
Total return (The Diversified Core Fixed Income Portfolio)
The Diversified Core Fixed Income Portfolio
1998 10.28%
As of December 31, 1998, The Diversified Core Fixed Income Portfolio had a
year-to-date return of 10.28%. During the periods illustrated in this bar chart,
The Diversified Core Fixed Income Portfolio's highest return was 3.65% for the
quarter ended March 31, 1998 and its lowest return was 1.10% for the quarter
ended September 30, 1998.
Average annual returns for periods ending 12/31/98
The Diversified Core Lehman Brothers
Fixed Income Portfolio Aggregate Bond Index
1 year 10.28% 8.69%
Since inception (12/29/97) 9.92% 8.69%
<PAGE>
What are The Diversified Core Fixed Income Portfolio's fees and expenses?
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
Annual Portfolio operating expenses are deducted from The Diversified Core Fixed
Income Portfolio's assets before it pays dividends and before its net asset
value and total return are calculated. We will not charge you separately for
these expenses.
Investment advisory fees(1) 0.43%
Distribution and service (12b-1) fees None
Other expenses(1) 1.31%
Total operating expenses(1) 1.74%
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.2 This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $177
3 years $548
5 years $944
10 years $2,052
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.57% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the
periods we show. This example does not assume the voluntary expense cap
described in footnote 1.
38
<PAGE>
Profile: The Global Fixed Income Portfolio
What are the Portfolio's Goals?
The Global Fixed Income Portfolio seeks current income consistent with the
preservation of principal. Although the Portfolio will strive to achieve its
goal, there is no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio seeks to
achieve its objective by investing primarily in fixed-income securities that may
also provide the potential for capital appreciation. The Portfolio is a global
fund. As such, it may invest in securities issued in any currency and may hold
foreign currency. Under normal circumstances, at least 65% of the Portfolio's
assets will be invested in the fixed-income securities of issuers organized or
having a majority of their assets in or deriving a majority of their operating
income in at least three different countries, one of which may be the United
States. Securities of issuers within a given country may be denominated in the
currency of another country or in multinational currency units such as the Euro
and ECU. The Portfolio is considered "non-diversified" under the federal laws
and regulations that regulate mutual funds. Thus, adverse effects on the
Portfolio's investments may affect a larger portion of its overall assets and
subject the Portfolio to greater risks.
Our approach in selecting investments for the Portfolio is oriented to country
selection and is value driven. In selecting fixed-income instruments for the
Portfolio, we identify those countries' fixed-income markets which 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.
We conduct 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.
Our 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. High portfolio turnover involves correspondingly greater
transaction costs and may affect taxes payable by the Portfolio's shareholder
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 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, 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.
It is anticipated that the average weighted maturity of the Portfolio will be in
the five-to-ten year range. If, however, we anticipate a declining interest rate
environment, the average weighted maturity may be extended beyond ten years.
Conversely, if we anticipate a rising rate environment, the average weighted
maturity may be shortened to less than five years.
The Portfolio may also invest in zero coupon bonds, and in the debt securities
of supranational entities denominated in any currency. 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.
39
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
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. These obligations
differ mainly in interest rates, maturities and dates of issuance. When we
believe 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. When taking a temporary defensive position, the
Portfolio may not be able to achieve its investment objective.
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. 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 Investment Company Act
of 1940 and would involve the indirect payment of a portion of the expenses,
including advisory fees, of such other investment companies.
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 its portfolio of securities.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. The Portfolio
will be affected by changes in bond prices and currency exchange rates.
Investments in securities of non-U.S. issuers which are generally denominated in
foreign currencies involve certain risk and opportunity considerations not
typically associated with investing in U.S. issuers. Foreign securities may be
adversely affected by political instability, foreign economic conditions or
inadequate regulatory and accounting standards. In addition, 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. The Portfolio also may be affected by changes in
currency rates, which may reduce or eliminate any gains produced by investment,
and exchange control regulations and may incur costs in connection with
conversions between currencies. to the extent the Portfolio invests in
securities of companies in emerging markets, investments present a greater
degree of risk than tends to be the case for foreign investments in Western
Europe and other developed markets. To the extent the investment advisor invests
in forward foreign currency contracts or uses other investments to endeavor to
hedge against currency risks, the Portfolio will be subject to the special risks
associated with that activity.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
40
<PAGE>
How has The Global Fixed Income Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of investing
in The Global Fixed Income Portfolio. We show how returns for The Global Fixed
Income Portfolio have varied over the past six calendar years, as well as
average annual returns for one and five years and since inception --with the
average annual returns compared to the performance of the Salomon Brothers World
Government Bond Index. The Salomon Brothers World Government Bond Index is an
index of bonds from 14 world government bond markets with maturities of at least
1 year. The index is unmanaged and doesn't include the actual costs of buying,
selling, and holding securities. The Portfolio's past performance does not
necessarily indicate how it will perform in the future. During the periods
shown, Delaware International Advisers Ltd. has voluntarily waived and paid
expenses of The Global Fixed Income Portfolio. Returns would be lower without
the voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (The Global Fixed
Income Portfolio) FPO]
Year-by-year total return (The Global Fixed Income Portfolio)
The Global Fixed Income Portfolio
1993 19.16%
1994 1.24%
1995 18.96%
1996 14.94%
1997 1.73%
1998 8.68%
As of December 31, 1998, The Global Fixed Income Portfolio had a year-to-date
return of 8.68%. During the periods illustrated in this bar chart, The Global
Fixed Income Portfolio's highest return was 6.33% for the quarter ended March
31, 1993 and its lowest return was -2.50% for the quarter ended June 30, 1994.
Average annual returns for periods ending 12/31/98
The Global Fixed Salomon Brothers World
Income Portfolio Government Bond Index
- --------------------------------------------------------------------------------
1 year 8.68% 15.29%
5 years 8.88% 7.85%
Since inception (11/30/92) 10.57% 8.72%
What are The Global Fixed Income Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The Global Fixed Income
Portfolio's assets before it pays dividends and before its net asset value and
total return are calculated. We will not charge you separately for these
expenses.
Investment advisory fees(1) 0.50%
Distribution and service (12b-1) fees None
Other expenses(1) 0.12%
Total operating expenses(1) 0.62%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(2) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $63
3 years $199
5 years $346
10 years $774
(1) Delaware International Advisers Ltd. has agreed to waive fees and pay
expenses through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.60% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
41
<PAGE>
Profile: The International Fixed Income Portfolio
What are the Portfolio's Goals?
The International Fixed Income Portfolio seeks current income consistent with
the preservation of principal. Although the Portfolio will strive to achieve its
goal, there is no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio 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 Euro and ECU. 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, as well as, foreign government securities with the
limitation noted below. The Portfolio is considered "non-diversified" under the
federal laws and regulations that regulate mutual funds. Thus, adverse effects
on the Portfolio's investments may affect a larger portion of its overall assets
and subject the Portfolio to greater risks.
Our 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. We conduct 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 Portfolio may also invest in zero coupon bonds, and in the debt securities
of supranational entities denominated in any currency. A supranational entity is
an entity established or financially supported by the national governments of
one or more countries to promote reconstruction or development. Examples of
supranational entities include, among others, the World Bank, the European
Economic Community, the European Coal and Steel Community, the European
Investment Bank, the Inter-Development Bank, the Export-Import Bank and the
Asian Development Bank. For increased safety, the Portfolio currently
anticipates that a large percentage of its assets will be invested in foreign
government securities and securities of supranational entities.
With respect to U.S. government securities, the Portfolio may invest only in
securities issued or guaranteed as to the payment of principal and interest by
the U.S. government, and those of its agencies or instrumentalities which are
backed by the full faith and credit of the United States. When we believe 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. When taking a temporary defensive position, the Portfolio may not
achieve its investment objective.
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 to be of comparable quality. The
Portfolio may invest up to 5% of its assets in non-investment
42
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
grade fixed-income securities. These investments may include foreign government
securities, some of which may be so-called Brady Bonds. 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 Investment Company Act of 1940 and would involve the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies.
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 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.
It is anticipated that the average weighted maturity of the Portfolio will be in
the five-to-ten year range. If, however, we anticipate a declining interest rate
environment, the average weighted maturity may be extended beyond ten years.
Conversely, if we anticipate a rising rate environment, the average weighted
maturity may be shortened to less than five years.
Our 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. High portfolio turnover involves correspondingly greater
transaction costs and may affect taxes payable by the Portfolio's shareholder
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.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. The Portfolio
will be affected by changes in bond prices and currency exchange rates.
Investments in securities of non-U.S. issuers which are generally denominated in
foreign currencies involve certain risk and opportunity considerations not
typically associated with investing in U.S. issuers. Foreign securities may be
adversely affected by political instability, foreign economic conditions or
inadequate regulatory and accounting standards. In addition, 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. The Portfolio may also be affected by changes in
currency rates, which may reduce or eliminate any gains produced by investment,
and exchange control regulations and may incur costs in connection with
conversions between currencies. To the extent the Portfolio invests in
securities of companies in emerging markets, investments present a greater
degree of risk than tends to be the case for foreign investments in Western
Europe and other developed markets. To the extent the investment adviser invests
in forward foreign currency contracts or uses other investments to endeavor to
hedge against currency risks, the Portfolio will be subject to the special risks
associated with that activity.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
43
<PAGE>
How has The International Fixed Income Portfolio performed?
- --------------------------------------------------------------------------------
This bar chart and table can help you evaluate the potential risks of investing
in The International Fixed Income Portfolio. We show returns for The
International Fixed Income Portfolio for the past calendar year, as well as
average annual returns for one year and since inception--with the average annual
return compared to the performance of the Salomon Brothers Non-U.S. World
Government Bond Index. The Salomon Brothers Non-U.S. World Government Bond Index
is a market-capitalization weighted benchmark that tracks the performances of
the Government bond markets of Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal,
Spain, Sweden, Switzerland, the United Kingdom, and the United States. The index
is unmanaged and doesn't include the actual costs of buying, selling, and
holding securities. The Portfolio's past performance does not necessarily
indicate how it will perform in the future. During the periods shown, Delaware
International Advisers Ltd. has voluntarily waived and paid expenses of The
International Fixed Income Portfolio. Returns would be lower without the
voluntary waiver and payment.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (The International Fixed
Income Portfolio) FPO]
Total return (The International Fixed Income Portfolio)
The International Fixed Income Portfolio
1998 9.68%
As of December 31, 1998, The International Fixed Income Portfolio had a
year-to-date return of 9.68%. During the periods illustrated in this bar chart,
The International Fixed Income Portfolio's highest return was 5.52% for the
quarter ended September 30, 1998 and its lowest return was 0.30% for the quarter
ended June 30, 1998.
Average annual returns for periods ending 12/31/98
The International Fixed Salomon Brothers Non-U.S. World
Income Portfolio Government Bond Index
- --------------------------------------------------------------------------------
1 year 9.68% 17.80%
Since inception (4/11/97) 7.87% 12.77%
What are The International Fixed Income Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
Maximum sales charge (load) imposed on
reinvested dividends None
Purchase reimbursement fees None
Redemption reimbursement fees None
Exchange Fees None
- --------------------------------------------------------------------------------
Annual Portfolio operating expenses are deducted from The International Fixed
Income Portfolios assets before it pays dividends and before its net asset value
and total return are calculated. We will not charge you separately for these
expenses.
Investment advisory fees(1) 0.50%
Distribution and service (12b-1) fees None
Other expenses(1) 0.17%
Total operating expenses(1) 0.67%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(2) This is an example only, and does not represent future expenses, which
may be greater or less than those shown here.
1 year $68
3 years $214
5 years $373
10 years $835
(1) Delaware International Advisers Ltd. has agreed to waive fees and pay
expenses through April 30, 1999 in order to prevent total operating expenses
(excluding any taxes, interest, brokerage fees and extraordinary expenses)
from exceeding 0.60% of average daily net assets.
(2) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense Cap described in
footnote 1.
44
<PAGE>
Profile: The Asset Allocation Portfolio
- --------------------------------------------------------------------------------
What are the Portfolio's Goals?
The Asset Allocation Portfolio seeks capital appreciation with current income as
a secondary objective. Although the Portfolio will strive to achieve its goal,
there is no assurance that it will.
What are the Portfolio's main investment strategies? The Portfolio seeks to
achieve its objective by investing primarily in domestic equity and fixed-income
securities, including domestic equity and fixed-income Portfolios of the Fund.
The Portfolio may also invest in international equity and fixed-income
securities, including international equity and fixed-income Portfolios of the
Fund. The Portfolio will generally invest at least 20% of its net assets in
fixed-income securities, including fixed-income Portfolios of the Fund. The
Portfolio will pursue its investment objective through active asset allocation
implemented primarily with investments in a combination of the Portfolios of the
Fund. The Portfolio may also separately invest directly in the same securities
and employ the same investment strategies as any of the Portfolios of the Fund,
to the extent consistent with the Portfolio's investment objectives. The
Portfolio may invest directly in securities or other investment instruments for
such purposes as avoiding undue disruption of the activities of the Portfolios
of the Fund, hedging of the Portfolios' investment positions, or to make
investments in asset classes not available in the Portfolios of the Fund. While
it is anticipated that at most times the Portfolio will be primarily invested in
the Portfolios of the Fund, it is possible, from time to time, for the Portfolio
to be substantially invested directly in securities. The Portfolio is considered
"non-diversified" under the federal laws and regulations that regulate mutual
funds. Thus, adverse effects on the Portfolio's investments may affect a larger
portion of its overall assets and subject the Portfolio to greater risks.
As described above, the Portfolios of the Fund include funds investing in U.S.
and foreign stocks, bonds, and money market instruments. At any point in time,
it can be expected that the Portfolio will invest in a different combination of
securities and Portfolios of the Fund. In allocating the Portfolio's assets, we
will evaluate the expected return of the Portfolios of the Fund, the volatility
of the Portfolios of the Fund (i.e., the variability of returns from one period
to the next), and the correlation of the Portfolios of the Fund (i.e. the degree
to which the Portfolios of the Fund move together).
The Portfolios of the Fund that will currently be considered for investment by
The Asset Allocation Portfolio are listed below, grouped within broad asset
classes. The asset class headings below are provided for convenience and are
approximate in nature. For more detailed information on the investment policies
of each Portfolio of the Fund, see the discussion of each such Portfolio in this
section. The list of Portfolios of the Fund may change from time to time, and
Portfolios of the Fund may be added or deleted upon our recommendation without
shareholder approval.
45
<PAGE>
What are the Portfolio's main investment strategies? (continued)
- --------------------------------------------------------------------------------
Asset Class Portfolio of the Fund
- ----------- ---------------------
U.S. Equity The Mid-Cap Growth Equity Portfolio
The Large-Cap Value Equity Portfolio
The Core Equity Portfolio
The Small-Cap Growth Equity Portfolio
The Real Estate Investment Trust Portfolio II
The Mid-Cap Value Equity Portfolio
International Equity The Emerging Markets Portfolio
The Global Equity Portfolio
The International Equity Portfolio
The Labor Select International Equity Portfolio
Fixed Income The Aggregate Fixed Income Portfolio
The Diversified Core Fixed Income Portfolio
The Intermediate Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio
The International Fixed Income Portfolio
The percentage ranges targeted for the Portfolio by broad asset class are set
forth below. The percentage ranges applicable to each asset class for the
Portfolio may be changed from time to time by us without the approval of
shareholders.
Asset Class Percentage Ranges of Investment in Asset Classes
- --------------------------------------------------------------------------------
U.S. Equity 30% - 70%
International Equity 5% - 30%
Fixed Income 20% - 65%
Cash 0% - 35%
The Portfolio will generally at all times be invested in at least three
Portfolios of the Funds, consistent with the table above. The Portfolio may
invest up to 100% of its total assets in cash or other money market instruments
for temporary, defensive purposes. When taking a temporary defensive position
the Portfolio may not be able to achieve its investment objective.
The Portfolio will indirectly bear its pro rata share of the fees and expenses
incurred by the Portfolios of the Fund that are applicable to direct
shareholders of such Portfolios of the Fund. The investment returns of the
Portfolio, therefore, will be net of the expenses of the Portfolios of the Fund
in which it is invested.
The Portfolio may, to the extent consistent with its investment objective,
invest its assets directly in the same types of securities and engage in the
same types of investment strategies as those in which the Portfolios of the Fund
invest. The Portfolio may use such investment strategies to hedge investment
positions, including investments directly in securities and investments in the
Portfolios of the Fund, to help protect the Portfolio against a decline in the
value of the Portfolios of the Fund. The Portfolio does not intend to engage in
these investment strategies for non-hedging purposes such that more than 5% of
its assets will be exposed.
The Portfolio, to the extent consistent with its investment objectives, and
certain of the Portfolios of the Fund, may purchase foreign securities; purchase
high yielding, high risk debt securities (commonly referred to as "junk bonds");
enter into foreign currency transactions; engage in options transactions; engage
in futures contracts and options on futures; purchase zero coupon bonds and
pay-in-kind bonds; purchase restricted and illiquid securities; and enter into
forward roll transactions.
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The price of Portfolio shares will increase and decrease
according to changes in the value of the Portfolio's investments. The
Portfolio's assets may be primarily invested in a combination of the Portfolios
of the Fund. As a result, the Portfolio's investment performance may be directly
related to the investment performance of the
46
<PAGE>
What are the main risks of investing in the Portfolio? (continued)
- --------------------------------------------------------------------------------
Portfolios of the Fund held by it. The ability of the Portfolio to meet its
investment objective may thus be directly related to the ability of the
Portfolios of the Fund to meet their objectives as well as the allocation among
those Portfolios of the Fund by the Manager. In addition, the Portfolio's share
prices and yields will fluctuate in response to movements in the securities
markets as a whole.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
See "Additional Investment Information" and "Risk Factors" for further details
concerning these and other investment policies and risks.
You should keep in mind that an investment in the Portfolio is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Portfolio with your investment
consultant to determine whether it is an appropriate investment for you.
What are The Asset Allocation Portfolio's fees and expenses?
- --------------------------------------------------------------------------------
Shareholder fees are fees paid directly from your investment.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price None
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
reinvested dividends None
- --------------------------------------------------------------------------------
Purchase reimbursement fees None
- --------------------------------------------------------------------------------
Redemption reimbursement fees None
- --------------------------------------------------------------------------------
Exchange Fees None
Annual Portfolio operating expenses are deducted from The Asset Allocation
Portfolio's assets before it pays dividends and before its net asset value and
total return are calculated. We will not charge you separately for these
expenses.
Investment advisory fees(1) 0.50%
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees None
- --------------------------------------------------------------------------------
Other expenses(1/2) 0.23%
- --------------------------------------------------------------------------------
Total operating expenses(1) 0.28%
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Portfolio expenses on a
hypothetical investment of $10,000 with an annual 5% return over the time
shown.(3) This is an example only, and does not represent future
expenses, which may be greater or less than those shown here.
1 year $29
- --------------------------------------------------------------------------------
3 years $90
<PAGE>
- --------------------------------------------------------------------------------
This example is calculated based on the same hypothetical investment of
$10,000 with an annual 5% return over the time shown as used above, and assuming
the estimated total operating expenses of The Asset Allocation Portfolio noted
above, but also assuming the estimated average aggregate total operating
expenses of the Portfolios of the Fund described below.(4) This is an example
only, and does not represent future expenses, which may be greater or less than
those shown here.
1 year $103
- -------------------------------------------------------------------------------
3 years $322
(1) Delaware Management Company has agreed to waive fees and pay expenses
through April 30, 1999 in order to prevent total direct operating expenses
of the Portfolio (excluding any taxes, interest, brokerage fees and
extraordinary expenses) from exceeding 0.15% of average daily net assets.
(2) Other expenses are based on estimated amounts for the current fiscal year.
(3) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolio's total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1.
(4) The Portfolio's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Portfolios' total operating expenses remain unchanged in each of the periods
we show. This example does not assume the voluntary expense cap described in
footnote 1, but does assume the voluntary expense caps of the other
Portfolios of the Fund.
The Asset Allocation Portfolio, as a shareholder in the Portfolios of the Fund,
will indirectly bear its proportionate share of any management fees and other
expenses paid by the Portfolios of the Fund. These fees and expenses, which are
embedded in the prices of the Portfolios of the Fund shares purchased by The
Asset Allocation Portfolio, are in addition to the fees and expenses of The
Asset Allocation Portfolio shown above. The average aggregate total operating
expenses of the Portfolios of the Fund (including any voluntary expense caps)
are estimated to be 0.73%, based on the actual operating expenses of the
Portfolios of the Fund for the most recent fiscal year and the following static
asset allocation assumptions: The Mid-Cap Growth Equity Portfolio - 25%; The
Large-Cap Value Equity Portfolio - 25%; The International Equity Portfolio -
15%; The High-Yield Bond Portfolio - 10%; and The Aggregate Fixed Income
Portfolio - 25%. Actual expenses will differ depending on the actual asset
allocations among the Portfolios of the Fund in effect from time to time.
47
<PAGE>
Additional Investment Information
The Portfolios may invest in a broad selection of securities consistent with
their respective investment objective and policies. The following chart gives a
brief description of the securities that the Portfolios may invest in. Please
see the Statement of Additional Information for additional descriptions and risk
information on these investments as well as other investments for the
Portfolios.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks: Securities that represent shares of ownership Consistent with their respective investment objective,
in a corporation. Stockholders participate in the certain Portfolios will invest assets in common stocks, as
corporation's profits and losses, proportionate to the well as in dividend paying stocks.
number of shares they own.
Corporate Bonds: Debt obligations issued by a corporation. The Intermediate Fixed Income, and The Aggregate Fixed
Income Portfolios may invest in bonds rated in one of the
four highest categories by an NRSRO (or deemed equivalent).
The Global Fixed Income Portfolio may invest in 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. The
International Fixed Income Portfolio may invest in debt
obligations of foreign companies which are generally rated A
or better by S&P or Moody's or deemed to be of comparable
quality. The Global Fixed Income and The International Fixed
Income Portfolios may invest in foreign government
securities rated in one of the top two rating categories or,
if unrated, be deemed to be of comparable quality. The
High-Yield Bond Portfolio may invest up to 80% of its assets
in corporate bonds that may be rated B- or higher by S&P or
B3 by Moody's, or that may be unrated. The Diversified Core
Fixed Income Portfolio may invest in bonds rated in one of
the four highest rating categories for its U.S. Investment
Grade Sector, and it may invest in bonds rated BB or lower
by S&P and Ba or lower by Moody's for its U.S. High-Yield
Sector and International Sector. Up to 35% of The Emerging
Markets Portfolio's net assets may be invested in
fixed-income securities issued by emerging country
companies. The Small-Cap Growth Equity Portfolio may invest
up to 35% of its assets in debt securities, all of which
must be within the four highest grades assigned by an NRSO
or deemed to be of comparable quality. The Small-Cap Value
Equity Portfolio may invest up to 25% of its net assets in
corporate bonds rated below B when the Portfolio's manager
believes that capital appreciation from those securities is
likely. Debt securities may be acquired by The Mid-Cap Value
Equity, The Core Equity and The Asset Allocation Portfolios
and those securities may be rated below investment grade or,
if unrated, limited, in the case of The Core Equity
Portfolio, to no more than 5% of its assets. The Global
Equity Portfolio may invest up to 35% of its assets in
corporate debt obligations rated in one of the top two
rating categories, or, if unrated, deemed to be of
comparable quality. The International Equity and The Labor
Select International Equity Portfolios may invest up to 15%
of their assets in foreign debt instruments when suitable
equity investments are not available.
Convertible Securities: Usually preferred stocks or The Mid-Cap Value Equity, The Small-Cap Value Equity, The
corporate bonds that can be exchanged for a set number of Small-Cap Growth Equity, The Core Equity, The High-Yield
shares of common stock at a predetermined price. These Bond and The Asset Allocation Portfolios may invest a
securities offer higher appreciation potential than portion of their assets in convertible securities in any
nonconvertible bonds and greater income potential than industry, and The Real Estate Investment Trust Portfolios'
nonconvertible preferred stocks. assets may be invested in convertible securities of issuers
in the real estate industry. Convertible securities acquired
by The Mid-Cap Value Equity, The Small-Cap Value Equity. The
Core Equity, (as to no more than 5% of its assets) The Real
Estate Investment Trust, The High-Yield Bond and The Asset
Allocation Portfolios may be rated below investment grade,
or unrated. The Mid-Cap Value Equity, The Real Estate
Investment Trust, The High-Yield Bond, The Emerging Markets
and The Asset Allocation Portfolios may invest in
convertible preferred stock that offers various yield,
dividend or other enhancements. Such enhanced convertible
preferred securities include instruments like PERCS
(Preferred Equity Redemption Cumulation Stock), PRIDES
(Preferred Redeemable Increased Dividend Equity Securities)
and DECS (Dividend Enhanced Convertible Securities).
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
Additional Investment Information (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Mortgage-Backed Securities: Fixed-income securities that The Aggregate Fixed Income, The Diversified Core Fixed
represent pools of mortgages, with investors receiving Income, The Intermediate Fixed Income, The Real Estate
principal and interest payments as the underlying mortgage Investment Trust, The Global Fixed Income, The Asset
loans are paid back. Many are issued and guaranteed against Allocation and The Core Equity Portfolios may invest in
default by the U.S. government or its agencies or mortgage-backed securities issued or guaranteed by the U.S.
instrumentalities, such as the Federal Home Loan Mortgage government, its agencies or instrumentalities or by
Corporation, the Fannie Mae and the Government National government sponsored corporations. For the Aggregate Fixed
Mortgage Association. Others are issued by private financial Income and The Intermediate Fixed Income Portfolio, all
institutions, with some fully collateralized by certificates securities will be rated investment grade at the time of
issued or guaranteed by the government or its agencies or purchase.
instrumentalities.
Collateralized Mortgage Obligations (CMOs) and Real Estate The Aggregate Fixed Income, The Diversified Core Fixed
Mortgage Investment Conduits (REMICs): CMOs are privately Income, The Intermediate Fixed Income, The Real Estate
issued mortgage-backed bonds whose underlying value is the Investment Trust, The Global Fixed Income, The Asset
mortgages that are collected into different pools according Allocation and The Core Equity Portfolios may invest in CMOs
to their maturity. They are issued by U.S. government and REMICs. Certain CMOs and REMICs may have variable or
agencies and private issuers. REMICs are privately issued floating interest rates and others may be stripped. Stripped
mortgage-backed bonds whose underlying value is a fixed pool mortgage securities are generally considered illiquid and to
of mortgages secured by an interest in real property. Like such extent, together with any other illiquid investments,
CMOs, REMICs offer different pools. will not exceed 10% of a Portfolio's net assets. In
addition, subject to certain quality and collateral
limitations, The Intermediate Fixed Income, The Aggregate
Fixed Income, The Diversified Core Fixed Income and The
Asset Allocation Portfolios may each 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.
Asset-Backed Securities: Bonds or notes backed by accounts The Intermediate Fixed Income, The Aggregate Fixed Income,
receivables, including home equity, automobile or credit The Diversified Core Fixed Income, The Asset Allocation and
loans. The Core Equity Portfolios may invest in asset-backed
securities rated in one of the four highest rating
categories by a NRSRO (e.g., BBB by S&P or Baa by Moody's).
Real Estate Investment Trusts (REITs): REITs are pooled The Real Estate Investment Trust Portfolios may invest
investment vehicles which invest primarily in without limitation in shares of REITs. The Core Equity, The
income-producing real estate or real estate related loans or Small-Cap Value Equity and The Asset Allocation Portfolios
interests. REITs are generally classified as equity REITs, may also invest in REITs consistent with their investment
mortgage REITs or a combination of equity and mortgage objective and policies.
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.
U.S. Government Securities: U.S. Treasury securities are For those Portfolios that invest in U.S. government
backed by the "full faith and credit" of the United States. securities for temporary purposes and otherwise, these
Securities issued or guaranteed by federal agencies and U.S. securities are issued or guaranteed as to the payment of
government sponsored instrumentalities may or may not be principal and interest by the U.S. government, and by
backed by the "full faith and credit" of the United States. various agencies or instrumentalities which have been
In the case of securities not backed by the "full faith and established or sponsored by the U.S. government.
credit" of the United States, investors in such securities
look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment.
Repurchase Agreements: An agreement between a buyer and While each Portfolio is permitted to do so, it normally does
seller of securities in which the seller agrees to buy the not invest in repurchase agreements except to invest cash
securities back within a specified time at the same price balances or for temporary defensive purposes. Not more than
the buyer paid for them, plus an amount equal to an agreed 10% of a Portfolio's assets may be invested in repurchase
upon interest rate. Repurchase agreements are often viewed agreements having a maturity in excess of seven days.
as equivalent to cash.
Restricted Securities: Privately placed securities whose Each Portfolio may invest in restricted securities,
resale is restricted under securities law. including securities eligible for resale without
registration pursuant to Rule 144A under the Securities act
of 1933. To the extent restricted securities are illiquid, a
Portfolio will limit its investments in them in accordance
with its policy concerning illiquid securities. See
"Illiquid Securities" below.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
Additional Investment Information (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Illiquid Securities: Securities that do not have a ready Each Portfolio may invest no more than 10% of the value of
market, and cannot be easily sold, if at all, at its net assets in illiquid securities, with the exception of
approximately the price that the Fund has valued them. The Diversified Core Fixed Income, The Aggregate Fixed
Illiquid securities include repurchase agreements maturing Income, The Mid-Cap Value Equity, The Small-Cap Value
in more than seven days. Equity, The Labor Select International Equity, The Real
Estate Investment Trust, The High-Yield Bond, The
International Fixed Income, The Global Equity, The Emerging
Markets, The Asset Allocation, The Small-Cap Growth Equity
and The Core Equity Portfolios each of which may invest no
more than 15% of the value of its net assets in illiquid
securities.
Short-Term Debt Investments: These instruments include (i) Each Portfolio may invest in these instruments either as a
time deposits, certificates of deposit and bankers means to achieve its investment objective or, more commonly,
acceptances issued by a U.S. commercial bank; (ii) as temporary defensive investments or pending investment in
commercial paper of the highest quality rating; (iii) the Portfolio's principal investment securities.
short-term debt obligations with the highest quality rating;
(iv) U.S. government securities; and (v) repurchase
agreements collateralized by those instruments.
Time Deposits: Time deposits are non-negotiable deposits Time deposits maturing in more than seven days will not be
maintained in a banking institution for a specified period purchased by any of the following Portfolios, and time
of time at a stated interest rate. deposits maturing from two business days through seven
calendar days will not exceed 10% of the total assets of The
Large-Cap Value Equity, The Mid-Cap Growth Equity, The
International Equity, The Global Fixed Income and The
International Fixed Income Portfolios; and 15% of the total
assets of The Mid-Cap Value Equity, The Small-Cap Value
Equity, The Diversified Core Fixed Income, The Labor Select
International Equity, The Real Estate Investment Trust, The
Global Equity, The Emerging Markets, The High-Yield Bond,
The Asset Allocation, The Small-Cap Growth Equity and The
Core Equity Portfolios.
When-Issued and Delayed-Delivery Securities: In these Each Portfolio may purchase securities on a when-issued or
transactions instruments are purchased with payment and delayed delivery basis. The Portfolios may not enter into
delivery taking place in the future in order to secure what when-issued commitments exceeding in the aggregate 15% of
is considered to be an advantageous yield or price at the the market value of the Portfolio's total assets less
time of the transaction. The payment obligations and the liabilities other than the obligations created by these
interest rates that will be received are each fixed at the commitments. Each Portfolio will maintain with the Custodian
time a Portfolio enters into the commitment and no interest Bank a separate account with a segregated portfolio of
accrues to the Portfolio until settlement. Thus, it is securities in an amount at least equal to these commitments.
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.
Securities Lending: These transactions involve the loan of Each Portfolio may loan up to 25% of its assets to qualified
securities owned by the Fund to qualified dealers and broker/dealers or institutional investors. These
investors for their use relating to short-sales or other transactions will generate additional income for the
securities transactions. Portfolio.
Investment Company Securities The Emerging Markets Portfolio, The Global Equity Portfolio
The Diversified Core Fixed Income Portfolio, The Asset
Allocation Portfolio, The Small-Cap Growth Equity Portfolio
and The Core Equity Portfolio may invest in either
closed-end or open-end investment companies consistent with
the 1940 Act requirements. These investments involve an
indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies.
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.
Zero Coupon and Pay-In-Kind Bonds: Zero coupon bonds are The Emerging Markets Portfolio may invest up to 35% of its
debt obligations which do not entitle the holder to any net assets in fixed-income securities, including zero-coupon
periodic payments of interest prior to maturity or a bonds. The High-Yield Bond Portfolio may also purchase
specified date when the securities begin paying current zero-coupon bonds and PIK bonds, although it generally does
interest, and therefore are issued and traded at a discount not purchase a substantial amount of these bonds. The
from their face amounts or par value. Pay-in-kind ("PIK") Diversified Core Fixed Income Portfolio may also purchase
bonds pay interest through the issuance to holders of these securities consistent with its investment objective.
additional securities.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
Additional Investment Information (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
American Depositary Receipts (ADRs): Certificates issued by The Small-Cap Growth Equity, The Core Equity, The Large-Cap
a U.S. bank that represent a stated number of shares of a Value Equity, The International Equity, The Mid-Cap Value
foreign corporation that the bank holds in its vault. An ADR Equity Portfolio, The Small-Cap Value Equity, The Real
entitles the holder to all dividends and capital gains Estate Investment Trust, The Diversified Core Fixed Income,
earned by the underlying foreign shares. An ADR is bought The Global Fixed Income, The International Fixed Income, The
and sold the same as U.S. securities. Sponsored ADRs are Global Equity, The Emerging Markets and The Asset Allocation
issued jointly by the issuer of the underlying security and Portfolios may invest in sponsored and unsponsored ADRs that
a Depositary, and unsponsored ADRs are issued without the are actively traded in the United States.
participation of the issuer of the deposited security.
European Depositary Receipts (EDRs) and Global Depositary In conjunction with their investments in foreign securities,
Receipts (GDRs): EDRs and GDRs are receipts issued by The Global Fixed Income, The International Fixed Income and
non-U.S. banks or trust companies and foreign branches of The Asset Allocation Portfolios may invest in sponsored and
U.S. banks that evidence ownership of the underlying foreign unsponsored EDRs, and The International Equity, The Global
or U.S. securities. Sponsored EDRs or GDRs are issued Equity, The Emerging Markets, The Diversified Core Fixed
jointly by the issuer of the underlying security and a Income and The Asset Allocation Portfolios may also invest
Depositary, and unsponsored EDRs or GDRs are issued without in sponsored and unsponsored EDRs and GDRs. In addition, The
the participation of the issuer of the deposited security. Small-Cap Growth Equity Portfolio may invest in sponsored
and unsponsored GDRs subject to its 10% limit on investments
in foreign securities.
Brady Bonds: These are debt securities issued under the The Global Fixed Income, The International Fixed Income, The
framework of the Brady Plan, an initiative announced by the Diversified Core Fixed Income, The Emerging Markets and The
U.S. Treasury Secretary Nicholas F. Brady in 1989, as a Asset Allocation Portfolios may invest in Brady Bonds
mechanism for debtor nations to restructure their consistent with their respective investment objectives. We
outstanding external indebtedness (generally, commercial believe that economic reforms undertaken by countries in
bank debt). connection with the issuance of Brady Bonds makes the debt
of countries which have issued or have announced plans to
issue Brady Bonds an attractive opportunity for investment.
Futures and Options: A futures contract is a bilateral The Mid-Cap Growth Equity, The Real Estate Investment Trust,
agreement providing for the purchase and sale of a specified The Diversified Core Fixed Income, The Emerging Markets, The
type and amount of a financial instrument, or for the making Global Equity, The Asset Allocation, The Small-Cap Growth
and acceptance of a cash settlement, at a stated time in the Equity, The Mid-Cap Value Equity, The Small-Cap Value Equity
future for a fixed price. A call option is a short-term and The Core Equity Portfolios may invest in futures,
contract pursuant to which the purchaser of the call option, options and closing transactions related thereto. These
in return for the premium paid, has the right to buy the activities will not be entered into for speculative
security or other financial instrument underlying the option purposes, but rather for hedging purposes and to facilitate
at a specified exercise price at any time during the term of the ability to quickly deploy into the stock market the
the option. A put option is a similar contract which gives Portfolio's cash, short-term debt securities and other money
the purchaser of the put option, in return for a premium, market instruments at times when the Portfolio's assets are
the right to sell the underlying security or other financial not fully invested in equity securities. A Portfolio may
instrument at a specified price during the term of the only enter into these transactions for hedging purposes if
option. it is consistent with its respective investment objective
and policies. A Portfolio may not engage in such
transactions to the extent that obligations resulting from
these activities in the aggregate exceed 25% of the
Portfolio's assets. In addition, The International Fixed
Income, The Global Equity, The Emerging Markets, The
Diversified Core Fixed Income and The Asset Allocation
Portfolios 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 to hedge or "cross hedge"
the currency risks associated with its investments.
Generally, foreign currencies futures contracts operate
similarly to futures contracts concerning securities, and
options on foreign currencies operate similarly to options
on securities. See also "Foreign Currency Transactions"
below.
Foreign Currency Transactions: Several Portfolios will Although The International Equity, The Labor Select
invest in securities of foreign issuers and may hold foreign International Equity, The Real Estate Investment Trust, The
currency. In addition, several Portfolios may enter into Diversified Core Fixed Income, The Global Fixed Income, The
contracts to purchase or sell foreign currencies at a future International Fixed Income, The Global Equity, The Emerging
date (i.e., a "forward foreign currency" contract or Markets, The Asset Allocation, The Small-Cap Value Equity,
"forward" contract). A forward contract involves an The Small-Cap Growth Equity and The Core Equity Portfolios
obligation to purchase or sell a specific currency at a value their assets daily in terms of U.S. dollars, they do
future date, which may be any fixed number of days from the not intend to convert their holdings of foreign currencies
date of the contract, agreed upon by the parties, at a price into U.S. dollars on a daily basis. A Portfolio may,
set at the time of the contract. A Portfolio may enter into however, from time to time, purchase or sell foreign
forward contracts to "lock-in" the price of a security it currencies and/or engage in forward foreign currency
has agreed to purchase or sell, in terms of U.S. dollars or transactions in order to expedite settlement of Portfolio
other currencies in which the transaction will be transactions and to minimize currency value fluctuations.
consummated.
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</TABLE>
51
<PAGE>
Risk Factors
An investment in the Portfolios entails certain risks and considerations about
which an investor should be aware. The following chart gives a brief description
of some of the risks of investing in the Portfolios. Please see the Statement of
Additional Information for additional descriptions and risk information.
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Market Risk is the risk that all or a majority of the We maintain a long-term investment approach and focus on
securities in a certain market-like the stock or bond securities that we believe can continue to provide returns
market-will decline in value because of factors such as over an extended period of time regardless of interim market
economic conditions, future expectations or investor fluctuations. We do not try to predict overall market
confidence. movements and do not trade for short-term purposes.
Industry and Security Risk is the risk that the value of The Real Estate Investment Trust Portfolios concentrate
securities in a particular industry or the value of an their investments in the real estate industry. As a
individual stock or bond will decline because of changing consequence, the net asset value of each Portfolio can be
expectations for the performance of that industry or for the expected to fluctuate in light of the factors affecting that
individual company issuing the stock or bond. industry, and may fluctuate more widely than a portfolio
that invests in a broader range of industries. Each
Portfolio may be more susceptible to any single economic,
political or regulatory occurrence affecting the real estate
industry.
With the exception of The Real Estate Investment Trust
Portfolios, we limit the amount of each Portfolio's assets
invested in any one industry, as is consistent with that
Portfolio's investment objective. To seek to reduce these
risks for all Portfolios, we limit investments in any
individual security and we follow a rigorous selection
process before choosing securities for the Portfolios.
Interest Rate Risk is the risk that securities, particularly The Portfolios, especially those that invest significantly
bonds with longer maturities, will decrease in value if in fixed-income securities, are subject to various interest
interest rates rise in value when interest rates fall. rate risks depending upon their investment objectives and
However, investments in equity securities issued by small policies. We cannot eliminate that risk, but we do strive to
and medium sized companies which often borrow money to address it by monitoring economic conditions, especially
finance operations, may also be adversely affected by rising interest rate trends and their potential impact on the
interest rates. Portfolios. The Portfolios do not try to increase returns on
their investments in debt securities by predicting and
aggressively capitalizing on interest rate movements. The
Intermediate Fixed Income and The Aggregate Fixed Income
Portfolios seek to maintain as the core of their investment
portfolios, short and intermediate-term debt securities
(under 10 years). The Global Fixed Income and The
Intermediate Fixed Income Portfolios anticipate that average
weighted maturity will be in the five-to-ten year range,
with a possible shift beyond ten years in a declining
interest rate environment and a possible shortening below
five years in a rising interest rate environment.
The High-Yield Bond Portfolio by investing primarily in
unrated corporate bonds and bonds rated B- or higher by S&P
or B3 or higher by Moody's, or unrated bonds, are subject to
interest rate risks. See "Lower Rated Fixed-Income
Securities" below. The Real Estate Investment Trust
Portfolios, by investing primarily in securities of real
estate investment trusts, and the other Portfolios that
invest in those securities to a lesser degree, are subject
to interest rate risk, in that as interest rates decline,
the value of each Portfolio's investments in real estate
investment trusts can be expected to rise. Conversely, when
interest rates rise, the value of each Portfolio's
investments in real estate investment trusts holding fixed
rate obligations can be expected to decline. However, lower
interest rates tend to increase the level of refinancing,
which can hurt returns on REITS that hold fixed-income
obligations. The Mid-Cap Value Equity, The Mid-Cap Growth
Equity, The Small-Cap Value Equity and The Small-Cap Growth
Equity invest in small or mid-cap companies and we seek to
address the potential interest rate risks by analyzing each
company's financial situation and its cash flow to determine
the company's ability to finance future expansion and
operations. The potential impact that rising interest rates
might have on a stock is taken into consideration before a
stock is purchased.
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Risk Factors (continued)
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Foreign Risk is the risk that foreign securities may be The International Equity, The Labor Select International
adversely affected by political instability, changes in Equity, The Global Fixed Income, The International Fixed
currency exchange rates, foreign economic conditions or Income, The Global Equity and The Emerging Markets
inadequate regulatory and accounting standards. In addition, Portfolios will invest in securities of foreign issuers
there is the possibility of expropriation, nationalization which normally are denominated in foreign currencies and may
or confiscatory taxation, taxation of income earned in hold foreign currency directly. In limiting these risks, The
foreign nations or other taxes imposed with respect to Core Equity Portfolio may invest up to 5% of its assets; The
investments in foreign nations, foreign exchange controls, Real Estate Investment Trust, The High-Yield Bond and The
which may include suspension of the ability to transfer Small-Cap Growth Equity Portfolios may invest up to 10% of
currency from a given country, and default in foreign their respective total assets; The Diversified Core Fixed
government securities. Income Portfolio may invest up to 20% of its total assets;
and The Small-Cap Value Equity Portfolio may invest up to
25% of its 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.
Currency risk is the risk that the value of an investment The Portfolios described above that are subject to foreign
may be negatively affected by changes in foreign currency risk may be affected by changes in currency rates and
exchange rates. Adverse changes in exchange rates may reduce exchange control regulations and may incur costs in
or eliminate any gains produced by investments that are connection with conversions between currencies. To hedge
denominated in foreign currencies and may increase losses. 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, The
Global Equity, The Diversified Core Fixed Income and The
Emerging Markets Portfolios may engage in foreign currency
options and futures transactions.
Emerging Markets Risk is the possibility that the risks The Emerging Markets Portfolio focuses its investments on
associated with international investing will be greater in companies in these markets and The International Equity, The
emerging markets than in more developed foreign markets Labor Select International Equity, The Global Equity, The
because, among other things, emerging markets may have less Global Fixed Income, The International Fixed Income, and The
stable political and economic environments. In addition, in High-Yield Bond Portfolios may invest a portion of their
many emerging markets, there is substantially less publicly assets in securities of issuers located in emerging markets.
available information about issuers and the information that The Portfolios cannot eliminate these risks but will attempt
is available tends to be of a lesser quality. Economic to reduce these risks through portfolio diversification,
markets and structures tend to be less mature and diverse credit analysis, and attention to trends in the economy,
and the securities markets which are subject to less industries and financial markets and other relevant factors.
government regulation or supervision may also be smaller,
less liquid and subject to greater price volatility.
Lower Rated Fixed-Income Securities (high yield, high risk The International Fixed Income, The Global Fixed Income, and
securities) while generally having higher yields, are The Asset Allocation Portfolios may invest up to 5%, 5%, and
subject to reduced creditworthiness of issuers, increased 55%, respectively, of its assets in high risk, high-yield
risks of default and a more limited and less liquid fixed-income securities of foreign governments including,
secondary market than higher rated securities. These with specified limitations, Brady Bonds. The High-Yield Bond
securities are subject to greater volatility and risk of Portfolio invests primarily in lower-rated fixed-income
loss of income and principal than are higher rated securities in an effort to attain higher yields, and this is
securities. Lower rated and unrated fixed-income securities a primary risk of investing in this Portfolio. The
tend to reflect short-term corporate and market developments Diversified Core Fixed Income Portfolio, which may invest in
to a greater extent than higher rated fixed-income lower rated fixed income securities, will limit its
securities, which react primarily to fluctuations in the investments in such securities to 30% of its total assets.
general level of interest rates. Fixed-income securities of The Emerging Markets Portfolio may invest up to 35% of its
this type are considered to be of poor standing and assets in high-yield, high risk fixed-income securities,
primarily speculative. Such securities are subject to a including Brady Bonds. See "Emerging Markets Risk" above.
substantial degree of credit risk. The Small-Cap Value Equity may invest up to 25% of its net
assets in high-yield, high risk securities rated below B
when the Portfolio's manager believes that capital
appreciation from those securities is likely. Portfolios
will attempt to reduce these risks through portfolio
diversification, credit analysis, and attention to trends in
the economy, industries and financial markets.
Liquidity Risk is the possibility that securities cannot be We limit exposure to illiquid securities.
readily sold, or can only be sold at a price significantly
lower than their broadly recognized value.
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Risk Factors (continued)
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Futures Contracts, Options on Futures Contracts, Forward The Mid-Cap Growth Equity, The Mid-Cap Value
Contracts, and Certain Options used as investments for Equity, The Small-Cap Value Equity, The Real
hedging and other non-speculative purposes involves certain Estate Investment Trust, The Small-Cap Growth
risks. For example, a lack of correlation between price Equity, The Core Equity, The Global Equity, The
changes of an option or futures contract and the assets Diversified Core Fixed Income, The Emerging
being hedged could render a Portfolio's hedging strategy Markets, and The Asset Allocation Portfolios may
unsuccessful and could result in losses. The same results use certain options strategies or may use futures
could occur if movements of foreign currencies do not contracts and options on futures contracts. The
correlate as expected by the investment adviser at a time Portfolios will not enter into futures contracts
when a Portfolio is using a hedging instrument denominated and options thereon to the extent that more than
in one foreign currency to protect the value of a security 5% of a Portfolio's assets are required as futures
denominated in a second foreign currency against changes contract margin deposits and premiums on options
caused by fluctuations in the exchange rate for the dollar and only to the extent that obligations under such
and the second currency. If the direction of securities futures contracts and options thereon would not
prices, interest rates or foreign currency prices is exceed 20% of the Portfolio's total assets.
incorrectly predicted, the Portfolio will be in a worse
position than if such transactions had not been entered See also "Foreign Risk" and "Currency Risk" above.
into. In addition, since there can be no assurance that a
liquid secondary market will exist for any contract
purchased or sold, a Portfolio may be required to maintain a
position (and in the case of written options may be required
to continue to hold the securities used as cover) until
exercise or expiration, which could result in losses.
Further, options and futures contracts on foreign
currencies, and forward contracts, entail particular risks
related to conditions affecting the underlying currency.
Over-the-counter transactions in options and forward
contracts also involve risks arising from the lack of an
organized exchange trading environment.
Zero Coupon and Pay-In-Kind Bonds are generally considered Those Portfolios that invest in zero coupon and
to be more interest sensitive than income bearing bonds, to pay-in-kind bonds will do so to the extent they
be more speculative than interest-bearing bonds, and to have are consistent with the Portfolio's investment
certain tax consequences which could, under certain objective.
circumstances be adverse to a 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
does 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.
Portfolio Turnover rates reflect the amount of securities The Intermediate Fixed Income, The Aggregate Fixed
that are replaced from the beginning of the year to the end Income, The Global Fixed Income, The International
of the year by a Portfolio. The degree of portfolio activity Fixed Income and The Diversified Core Fixed Income
may affect brokerage costs and other transaction costs of a Portfolios will normally experience annual
Portfolio, as well as taxes payable by Portfolios' portfolio turnover rates exceeding 100%, but those
shareholders that are subject to federal income tax. rates are not expected to exceed 250% with respect
to The Intermediate Fixed Income, The Aggregate
Fixed Income and The Diversified Core Fixed Income
Portfolios and 200% with respect to The Global
Fixed Income and The International Fixed Income
Portfolios.
Company Size Risk is the risk that small or medium size The Mid-Cap Value Equity, The Mid-Cap Growth
companies may be more volatile than larger companies because Equity, The Small-Cap Value Equity and The
of limited financial resources or dependence on narrow Small-Cap Growth Equity Portfolios maintain a
product lines. well-diversified portfolio, select stocks
carefully and monitor them continuously in an
effort to manage this risk.
Prepayment Risk is the risk that homeowners will prepay The Portfolios that invest in Mortgage-Backed
mortgages during periods of low interest rates, forcing an Securities, Collateralized Mortgage Obligations
investor to reinvest money at interest rates that might not (CMOs) and Real Estate Mortgage Investment
be lower than those on the prepaid mortgage. Conduits (REMICS) under "Additional Investment
Information-How we use them" take into
consideration the likelihood of prepayment when
mortgages are selected. The Portfolios may look
for mortgage securities that have characteristics
that make them less likely to be prepaid, such as
low outstanding loan balances or below-market
interest rates.
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Risk Factors (continued)
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Real Estate Industry Risk include among others: possible The Real Estate Investment Trust Portfolios
declines in the value of real estate; risks related to operate as "non-diversified" funds as defined by
general and local economic conditions; possible lack of the 1940 Act. Since each Portfolio invests
availability of mortgage funds; overbuilding; extended principally in REITS it is more subject to the
vacancies of properties; increases in competition; property risks associated with the real estate industry.
taxes and operating expenses; changes in zoning laws; costs Investors should carefully consider these risks
resulting from the clean-up of, and liability to third before investing in the Portfolio. To the extent
parties resulting from, environmental problems; casualty for The Asset Allocation Portfolio, The Core Equity
condemnation losses; uninsured damages from floods, Portfolio and The Small-Cap Value Equity Portfolio
earthquakes or other natural disasters; limitations on and invest in REITs, those Portfolios, although to a
variations in rents; and changes in interest rates. REITS lesser degree than The Real Estate Investment
are subject to substantial cash flow dependency, defaults by Trust Portfolios, are subject to the same risks.
borrowers, self-liquidation, and the risk of failing to
qualify for tax-free pass-through of income under the
Internal Revenue Code of 1986, as amended and/or to maintain
exemptions from the 1940 Act.
Non-Diversified Portfolios are believed to be subject to The Real Estate Investment Trust, The Global Fixed
greater risks because adverse effects on their security Income, The International Fixed Income, The
holdings may affect a larger portion of their overall Emerging Markets, and The Asset Allocation
assets. Portfolios will not be diversified under the 1940
Act. This means that less than 75% of each
Portfolio's total assets may 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. However, each Portfolio
will satisfy the Internal Revenue Code's
diversification requirement, which applies that
test to 50% of the Portfolio's assets.
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Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, each Portfolio could be adversely affected if the computer
systems used by its service providers do not properly process and calculate
date-related information on and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Fund is taking steps to obtain satisfactory
assurances that the Portfolio's major service providers are taking steps
reasonably designed to address the Year 2000 Problem with respect to the
computer systems that such service providers use. There can be no assurance that
these steps will be sufficient to avoid any adverse impact on the business of
any of the Portfolios. The Year 2000 Problem may also adversely affect the
issuers of securitizaties in which each Portfolio invests. the portfolio
managers and investment professionals of each Portfolio consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantee that, even with their due diligence efforts, they will be
able to predict the affect of Year 2000 on any company or the performance of its
securities.
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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. The business and affairs of
Foundation Funds and its series, The Asset Allocation Portfolio, are managed
under the direction of Foundation Funds' Board of Trustees. See the Fund's
Statement of Additional Information for additional information about the Fund's
and Foundation Funds' officers and directors/trustees.
Fund Officers and Portfolio Managers
Jeffrey J. Nick
President, Chief Executive Officer and Chairman
Mr. Nick is a graduate of Princeton University with a BA in English Literature.
While pursuing his baccalaureate degree from Princeton, Mr. Nick had the
opportunity to study in Germany at Bonn University. This was followed by studies
at the University of Chicago, which led to an MBA in Finance and Marketing. Mr.
Nick joined Lincoln National Corporation in its US headquarters in 1989 as
Senior Vice President responsible for corporate planning and development for
Lincoln National Corporation. He held this position until 1992. From 1992 to
1996, Mr. Nick was Managing Director of Lincoln National UK Plc. Before joining
Lincoln, his career included assignments in management consultancy (with Arthur
D. Little, Inc.) and merchant banking (Chase Investment Bank). Mr. Nick is
President, Chief Executive Officer, Chairman and Director of the Delaware
Investments funds; President, Chief Executive Officer and Director of Delaware
Management Holdings, Inc. and Lincoln National Investment Companies, Inc.; and
Chairman, Chief Executive Officer and Director of Delaware Management Company
and Delaware International Advisers Ltd.
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 Management Ltd.
George E. Deming
Vice President/Senior Portfolio Manager - The Large-Cap Value 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 Investments 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 Large-Cap Value Equity Portfolio since its inception.
Gerald S. Frey
Vice President/Senior Portfolio Manager - The Mid-Cap Growth Equity Portfolio
and The Small-Cap Growth Equity 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 Delaware Investments in 1996, he
was a Senior Director with Morgan Grenfell Capital Management in New York. Mr.
Frey has managed The Mid-Cap Growth Equity Portfolio since June 1996 and The
Small-Cap Growth Equity Portfolio since its inception.
Timothy W. Sanderson
Director and Chief Investment Officer, Equities - 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 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.
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Clive A. Gillmore
Director/Senior Portfolio Manager - Delaware International Advisers Ltd. (The
International Equity Portfolio, 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 International in 1990 after
eight years of investment experience. His most recent position prior to joining
Delaware International was as a Pacific Basin equity analyst and senior
portfolio manager for Hill Samuel Investment Management Ltd. 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 International Equity
Portfolio, 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 International in 1996, Mr. Akester, who began his
investment career in 1969, was most recently a Director of Hill Samuel
Investment Management Ltd., which he joined in 1985. His prior experience
included working as a Senior Analyst and head of the South-East Asian Research
team at James Capel, and as a Fund Manager at Prudential Assurance Co., Ltd. Mr.
Akester holds a BS in Statistics and Economics from University College, London
and is an associate of the Institute of Actuaries, with a certificate in Finance
and Investment. Mr. Akester has managed The Emerging Markets Portfolio since its
inception.
Babak Zenouzi
Vice President/Senior Portfolio Manager - The Real Estate Investment Trust
Portfolios Mr. Zenouzi holds a BS in Finance and Economics from Babson College
in Wellesley, Massachusetts, and an MS in Finance from Boston College. Prior to
joining Delaware Investments in 1992, he was with The Boston Company where he
held the positions of assistant vice president, senior financial analyst,
financial analyst and portfolio accountant. Mr. Zenouzi has managed The Real
Estate Investment Trust Portfolio and The Real Estate Investment Trust Portfolio
II since their respective dates of inception.
Gary A. Reed
Vice President/Senior Portfolio Manager - The Intermediate Fixed Income
Portfolio and The Aggregate 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 Investments 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 Intermediate
Fixed Income Portfolio and The Aggregate Fixed Income Portfolio since their
respective dates of inception.
Elizabeth Desmond
Director/Senior Portfolio Manager - Delaware International Advisers Ltd. (The
Global Equity Portfolio)
Ms. Desmond is a graduate of Wellesley College and the masters program in East
Asian studies at Stanford University. After working for the Japanese government
for two years, she began her investment career as a Pacific Basin investment
manager with Shearson Lehman Global Asset Management. Prior to joining Delaware
International in the Spring of 1991, she was a Pacific Basin equity analyst and
senior portfolio manager at Hill Samuel Investment Management Ltd. Ms. Desmond
is a CFA charterholder. Ms. Desmond has managed the foreign securities component
of The Global Equity Portfolio since its inception.
Robert L. Arnold
Vice President/Portfolio Manager - The Global Equity Portfolio
Mr. Arnold holds a BS from Carnegie Mellon University and earned an MBA from the
University of Chicago. Before acting as a portfolio manager at Delaware
Investments, he was a financial analyst focusing on the financial services
industry, including banks, thrifts, insurance companies and consumer finance
companies. Prior to joining Delaware Investments in March 1992, he was a
planning analyst with Chemical Bank in New York. He began his investment career
as a management consultant with Arthur Young in Philadelphia. Delaware acts as
sub-adviser to The Global Equity Portfolio, managing the U.S. securities portion
of the Portfolio. In that capacity, Mr. Arnold furnishes investment
recommendations, asset allocation advice, research and other services with
respect to U.S. securities. Mr. Arnold has managed the U.S. component of The
Global Equity Portfolio since its inception.
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Ian G. Sims
Director/Deputy Managing Director/Chief Investment Officer/Global Fixed Income -
Delaware International Advisers Ltd. (The Global
Fixed Income Portfolio, The International Fixed Income Portfolio and The
Diversified Core 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 in 1990 as a
senior international fixed-income and currency manager. Mr. Sims began his
investment career with the Standard Life Assurance Co., and subsequently moved
to the Royal Bank of Canada Investment Management International Company, where
he was an international fixed-income manager. Prior to joining Delaware
International, he was a senior fixed-income and currency portfolio manager with
Hill Samuel Investment Management Ltd. Mr. Sims has managed The Global Fixed
Income Portfolio, The International Fixed Income Portfolio and the foreign
component of The Diversified Core Fixed Income Portfolio since their respective
dates of inception.
Paul A. Matlack
Vice President/Senior Portfolio Manager - The High-Yield Bond Portfolio and The
Diversified Core Fixed Income 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 Investments in 1989. He is a CFA
charterholder. Mr. Matlack has managed The High-Yield Bond Portfolio and the
U.S. high-yield component of The Diversified Core Fixed Income Portfolio since
their respective dates of 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
Investments 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 managed The High-Yield Bond Portfolio since its
inception.
Roger A. Early
Vice President/Senior Portfolio Manager - The Diversified Core Fixed Income
Portfolio
Mr. Early has an undergraduate degree in economics from the University of
Pennsylvania's Wharton School and an MBA in finance and accounting from the
University of Pittsburgh. He is also a CPA and a CFA charterholder. Prior to
joining Delaware Investments, Mr. Early was a portfolio manager for Federated
Investment Counseling's fixed-income group, with over $1 billion in assets. Mr.
Early has managed The Diversified Core Fixed Income Portfolio since its
inception.
Frank X. Morris
Vice President/Portfolio Manager - The Mid-Cap Value Equity Portfolio
Mr. Morris received a bachelor's degree at Providence College and an MBA degree
at Widener University. He joined Delaware Investments in 1997. He previously
served as vice president and director of equity research at PNC Asset
Management. He is president of the Financial Analysis Society of Philadelphia
and is a member of the Association of Investment Management and Research and the
National Association of Petroleum Investment Analysts. Mr. Morris has managed
The Mid-Cap Value Equity Portfolio since its inception.
J. Paul Dokas
Vice President/Portfolio Manager - The Mid-Cap Value Equity Portfolio and The
Asset Allocation Portfolio
Mr. Dokas holds a BBA in Business from Loyola College and an MBA in Business
from the University of Maryland. Prior to joining Delaware Investments in 1997,
he was a Director of Trust Investments for Bell Atlantic Corporation in
Philadelphia. Mr. Dokas is a CFA charterholder. Mr. Dokas has managed The
Mid-Cap Value Equity Portfolio since its inception and will manage The Asset
Allocation Portfolio when it commences operations.
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Christopher S. Beck
Vice President/Senior Portfolio Manager - The Small-Cap Value Equity Portfolio
Mr. Beck began his career in the investment business with Wilmington Trust in
1981. Later, he became Director of Research at Cypress Capital Management in
Wilmington and Chief Investment Officer of the University of Delaware Endowment
Fund. Prior to joining the Delaware Investments in May, 1997, he managed the
Small Cap Fund for two years at Pitcairn Trust Company. He holds a BS from the
University of Delaware, an MBA from Lehigh University and is a CFA
charterholder. Mr. Beck will manage The Small Cap Value Equity Portfolio when it
commences operations.
George H. Burwell
Vice President/Senior Portfolio Manager - The Core Equity Portfolio
Mr. Burwell holds a BA from the University of Virginia. Prior to joining
Delaware Investments in 1992, Mr. Burwell was a portfolio manager for Midlantic
Bank in Edison, New Jersey, where he managed an equity mutual fund and three
commingled funds. Mr. Burwell is a CFA charterholder. Mr. Burwell has managed
The Core Equity Portfolio since its inception.
Investment Advisers
Delaware Management Company ("Delaware"), a series of Delaware Management
Business Trust, furnishes investment advisory services to The Large-Cap Value
Equity, The Mid-Cap Growth Equity, The Mid-Cap Value Equity, The Small-Cap Value
Equity, The Aggregate Fixed Income, The Diversified Core Fixed Income, The Real
Estate Investment Trust, The Intermediate Fixed Income, The High-Yield Bond, The
Asset Allocation, The Small-Cap Growth Equity and The Core Equity Portfolios and
furnishes sub-investment advisory services to The Global Equity Portfolio
related to the U.S. securities portion of that Portfolio. 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 Trust Portfolios. 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 Portfolios may invest. Delaware and
its predecessors have been managing the funds in Delaware Investments since
1938. 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. 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"), an affiliate of
Delaware, furnishes investment advisory services to The International Equity,
The Labor Select International Equity, The Global Fixed Income, The
International Fixed Income, The Global Equity and The Emerging Markets
Portfolios and furnishes sub-advisory services to The Diversified Core Fixed
Income Portfolio related to the foreign securities portion of that Portfolio.
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 Large-Cap Value Equity, The Mid-Cap Growth Equity, The Mid-Cap Value
Equity, The Small-Cap Value Equity, The Diversified Core Fixed Income, The
Aggregate Fixed Income, The Real Estate Investment Trust, The Intermediate Fixed
Income, The High-Yield Bond, The Asset Allocation, The Small-Cap Growth Equity
and The Core Equity Portfolios. Delaware has also entered into a Sub-Advisory
Agreement with Lincoln with respect to The Real Estate Investment Trust
Portfolios and with Delaware International with respect to The Diversified Core
Fixed Income Portfolio. Delaware International has entered into Investment
Advisory Agreements with the Fund on behalf of The International Equity, The
Labor Select International Equity, The Global Fixed Income, The International
Fixed Income, The Global Equity and The Emerging Markets Portfolios. Delaware
acts as sub-adviser to Delaware International with respect to The Global Equity
Portfolio managing the U.S. securities portion of that Portfolio. Under these
Agreements, Delaware and Delaware International, subject to the control and
supervision of the Fund's Board of Directors and in conformance with the stated
investment objectives and policies of the Portfolios with which they have an
agreement, manage the investment and reinvestment of the assets of the
Portfolios with which they have agreements. In this regard, it is their
responsibility to make investment decisions for the respective Portfolios. The
manager and sub-adviser, where applicable, were paid an aggregate fee for the
last fiscal year (as a percentage of average daily net assets) as follows:
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Investment Management
Fees Paid After Voluntary
Portfolio Waivers
The Large-Cap Value Equity Portfolio 0.50%
The Core Equity Portfolio 0.55%*
The Mid-Cap Growth Equity Portfolio none
The Mid-Cap Value Equity Portfolio 0.75%*
The Small-Cap Value Equity Portfolio 0.75%*
The Small-Cap Growth Equity Portfolio 0.75%*
The Real Estate Investment Trust Portfolio 0.59%
The Real Estate Investment Trust Portfolio II 0.75%*
The International Equity Portfolio 0.75%
The Labor Select International Equity Portfolio 0.72%
The Emerging Markets Portfolio 1.06%
The Global Equity Portfolio none
The Global Fixed Income Portfolio 0.48%
The Intermediate Fixed Income Portfolio none
The Aggregate Fixed Income Portfolio 0.40%*
The Diversified Core Fixed Income Portfolio 0.43%*
The High-Yield Bond Portfolio 0.28%
The International Fixed Income Portfolio 0.43%
The Asset Allocation Portfolio 0.05%*
* These Portfolios have not been operating for a full fiscal year or have not
yet commenced operations. The fee stated above is the fee that the investment
adviser is entitled to receive under its Investment Management Agreement with
the Portfolio.
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 Portfolios 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. Delaware's address is One Commerce Square,
2005 Market Street, Philadelphia, PA 19103. Delaware International's address is
3rd Floor, 80 Cheapside, London, England EC2V 6EE. Lincoln's address is 200 E.
Berry Street, Fort Wayne, IN 46802.
From time to time, certain institutional separate accounts advised by Delaware
International and an affiliate of Delaware, 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 and Delaware International, representing the
interests of the Portfolios, are committed to minimizing the impact of such
transactions on the Portfolios. In addition, the advisers to the institutional
separate accounts, are 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, Delaware
International or their affiliates, Delaware 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, Delaware International or their affiliates
to avoid situations where excess advisory fees might be paid to Delaware or
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Delaware International. In no event will a client pay higher total advisory fees
as a result of the client's investment in a Portfolio. Such reductions would not
apply to The Asset Allocation Portfolio to the extent that management fees of
the Portfolios are indirectly charged to shareholders of The Asset Allocation
Portfolio.
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.
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.
Custodian Bank
The Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY 11245 serves as
custodian for each Portfolio.
Independent Auditors
Ernst & Young LLP, Two Commerce Square, 2001 Market Street, Suite 4000,
Philadelphia, PA 19103, serves as independent auditors for the Fund and for the
Foundations Funds.
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SHAREHOLDER SERVICES
Special Reports and Other Services. The Fund will provide client shareholders
with the following information:
o Annual audited financial reports
o Unaudited semi-annual financial reports.
o Detailed monthly appraisal of the status of their account and a complete
review of portfolio assets, performance results and other pertinent data.
In addition, 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. You may also obtain the net
asset values for the Portfolios by calling this number. Written correspondence
should be addressed to:
Delaware Pooled Trust, Inc.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Attention: Client Services
*Correspondence relating to The Asset Allocation Portfolio will be forwarded
to Foundation Funds.
Exchange Privilege
Each Portfolio's shares may be exchanged for shares of the other Portfolios or
the institutional class shares of the other funds in Delaware Investments based
on the respective net asset values of the shares involved and as long as a
Portfolio's minimum is satisfied. There are no minimum purchase requirements for
the institutional class shares of the other Delaware Investments funds, but
certain eligibility requirements must be satisfied. 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.
With respect to exchanges involving The Emerging Markets Portfolio or The Global
Equity Portfolio, an investor will be assessed a purchase reimbursement fee by
the respective Portfolio when exchanging from another Portfolio into The
Emerging Markets Portfolio or The Global Equity Portfolio and a shareholder of
The Emerging Markets Portfolio or The Global Equity Portfolio will be assessed a
redemption reimbursement fee by the respective Portfolio when exchanging out of
The Emerging Markets Portfolio or The Global Equity Portfolio into another
Portfolio. See "Redemption of Shares" and "Purpose of Reimbursement Fees."
Please call the Fund for further information on how to exchange shares of the
Fund.
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How to purchase shares
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.
Minimum Investments. The minimum investment is $1,000,000 and there are no
minimums for subsequent investments in a Portfolio where the minimum initial
investment has been satisfied.
Purchase Price. You may buy shares at the Portfolio's net asset value per share
(NAV), which is calculated as of the close of the New York Stock Exchange (NYSE)
(usually 4:00 P.M. Eastern Time) every day the exchange is open. Your order will
be priced at the next NAV calculated after your order is accepted by the Fund.
Except in the case of in-kind purchases, an order will be accepted by the Fund
after (1) the Fund is notified by telephone of your purchase order and (2)
Federal Funds, or a check in good order, have been delivered to the Fund's
agent. If notice is given or Federal Funds are delivered after that time, the
purchase order will be priced at the close of the following business day.
Purchase Reimbursement Fee. In the case of The Emerging Markets and The Global
Equity Portfolios, there is a purchase reimbursement fee that applies to all
purchases, including purchases made in an exchange from one Portfolio to another
under the exchange privilege or otherwise. That fee which is paid by investors
to the relevant Portfolio equals 0.75% of the dollar amount invested for The
Emerging Markets Portfolio and 0.40% of the dollar amount invested for The
Global Equity Portfolio. This purchase reimbursement fee is deducted
automatically from the amount invested; it cannot be paid separately. The fee
does not apply to investments in the Portfolios that are made by contributions
of securities in-kind or reinvestments of dividends or other distributions. See
"Purpose of Reimbursement Fees" and "Redemption of Shares" below.
In-Kind Purchases. 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. Eligible investors in The
Global Equity Portfolio may elect to pay the purchase reimbursement fee or to
invest by a contribution in-kind in securities or by following another procedure
that would have the same economic effect as an in-kind purchase, including the
procedure described 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 International or an affiliate
of Delaware to make investments in any of the Fund's Portfolios by a
contribution of securities in-kind to such Portfolios.
Institutions proposing to invest an amount which at the time they telephone the
Fund 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 investors purchasing shares by an in-kind
procedure shall be the net asset value next determined after, as the case may
be, (1) delivery of cash or securities to The Chase Manhattan Bank, the Fund's
custodian bank 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." Investors
in The International Equity Portfolio required to follow these procedures and
those proposing to invest in The Global Equity Portfolio electing to do so
should contact the Fund at (1-800-231-8002) for further information.
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How to Purchase Shares By Federal Funds Wire
Purchases of shares of a Portfolio may be made by having your bank wire Federal
Funds to First Union Bank 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:
o First, telephone the Fund at 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.
o Second, instruct your bank to wire the specified amount of Federal Funds to
First Union Bank, Philadelphia, PA, ABA #031201467, DSC Wire Purchase Bank
Account # 2014128934013. 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, First Union Bank and The Chase Manhattan Bank,
the Fund's custodian are open for business.
o Third, 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
*Account registrations for The Asset Allocation Portfolio will be forwarded
to Foundation Funds.
How to Purchase Shares 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. Please be sure to
complete an Investment Application and deliver it along with your check.
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:
o First, notify the Fund of your impending purchase by calling us at
1-800-231-8002.
o Then you must be sure that your bank follows the same procedures as
described above with respect to the wiring of Federal Funds to First Union
Bank or delivery of a check by mail.
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. 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; for The Global Equity Portfolio, the
reimbursement fee paid to the Portfolio is equal to 0.30% of the amount redeemed
and is deducted automatically from the redemption proceeds.
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, The Global Equity Portfolio and The
Emerging Markets Portfolio may, under certain circumstances, be required to be
redeemed in-kind in portfolio securities, as noted below.
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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." "Good order" for purposes of
mail or FAX message redemptions means that the request to redeem must include
the following documentation:
o 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.
o 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, a separate written request must be submitted to the Fund
at the address listed below. Copies of this request must be 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 current and
the new designee banks. Further clarification of these procedures can be
obtained by calling the Fund.
Send your requests to:
Delaware Pooled Trust, Inc.*
Attn: Client Services
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
FAX # 215-255-1162
*Requests relating to The Asset Allocation Portfolio will be forwarded to
Foundation Funds.
By Telephone
o 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 at 1-800-231-8002 and requesting the redemption proceeds
be wired to the commercial bank or account designation identified in the
Account Registration Form.
o 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, The Global Equity
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.
o Redemption requests will be priced at the net asset value next determined
after the request is received.
o The Fund will provide written confirmation for all purchase, exchange and
redemption transactions initiated by telephone.
o 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.
o 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.
o 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.
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.
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.
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Redemptions In-Kind or Similar Procedures For The International Equity, The
Labor Select International Equity, The Global Fixed Income, The International
Fixed Income, The Global Equity and the Emerging Markets 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, The
International Fixed Income Portfolio, The Global Equity Portfolio or The
Emerging Markets 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. If a redemption of shares of The Emerging
Markets Portfolio or The Global Equity Portfolio is made in-kind, the redemption
reimbursement fee that is otherwise applicable will not be assessed. Investors
in these Portfolios should contact the Fund at 1-800-231-8002 for further
information.
Eligible investors who have an existing investment counseling relationship with
Delaware or Delaware International, or their affiliates, 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, The International Fixed Income, The Global Equity and
The Emerging Markets 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 for The Emerging Markets and The Global Equity
Portfolios. The purchase and redemption transaction fees are designed to reflect
an approximation of the brokerage and related transaction costs associated with
the investment of an investor's purchase amount or the disposition of assets to
meet redemptions, and to limit the extent to which The Emerging Markets
Portfolio or The Global Equity Portfolio (and, indirectly, the Portfolio's
existing shareholders) would have to bear such costs. These costs include: (1)
brokerage costs; (2) market impact costs, i.e., the increase in market prices
which may result when a Portfolio purchases or sells thinly traded stocks; and
(3) the effect of the "bid-asked" spread in international markets.
The fees represent the manager's estimate of the brokerage and other transaction
costs incurred by a Portfolio in purchasing and selling portfolio securities,
especially international stocks. Without the fee, a Portfolio would incur these
costs directly, resulting in reduced investment performance for all its
shareholders. With the fee, the transaction costs of purchasing and selling
stocks are borne not by all existing shareholders, but only by those investors
making transactions. Also, when a portfolio acquires securities of companies in
emerging markets, transaction costs incurred when purchasing or selling stocks
are extremely high. There are three components of transaction costs - brokerage
fees, the difference between the bid/asked spread
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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 those markets. In addition to these
customary costs, most foreign countries have exchange fees or stamp taxes.
VALUATION OF SHARES
o 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. Currently, the NYSE
observes the following holidays: New Year's Day, Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
o 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.
o 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. Securities with remaining maturities of 60 days or less
are valued at amortized cost, if it approximates market value.
o Foreign securities may trade on weekends or other days when the Fund does
not price its shares. While the net asset value may change on these days,
you will not be able to purchase or redeem Fund shares.
o 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.
o 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 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 The Chase Manhattan Bank, the Fund's
custodian.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Intermediate Fixed Income Portfolio expects 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
Aggregate Fixed Income, The Diversified Core Fixed Income, The Large-Cap Value
Equity, The International Equity, The Labor Select International Equity and The
International Fixed Income Portfolios and The Real Estate Investment Trust
Portfolio expect to declare and distribute all of their net investment income to
shareholders as dividends quarterly. The Mid-Cap Growth Equity, The Mid-Cap
Value Equity, The Small-Cap Value Equity, The Global Equity, The Small-Cap
Growth Equity, The Asset Allocation, The Core Equity and The Emerging Markets
Portfolios and The Real Estate Investment Trust Portfolio II 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.
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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.
TAXES
General
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, The Global 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.
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.
Additionally, the Fund is required to withhold 31% of taxable dividend 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.
Foreign Taxes
Each of The International Equity, The Labor Select International Equity, The
Global Fixed Income, The International Fixed Income, The Global Equity and The
Emerging Markets Portfolios 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.
68
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand a Portfolio's
financial performance. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in a Portfolio, assuming the
reinvestment of all dividends and distributions. All "per share" information
reflects financial results for a single Portfolio share. This information has
been audited by Ernst & Young LLP, whose report, along with the Fund's financial
statements, is included in the Fund's annual report, which is available upon
request by calling 800-231-8002.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
The Large-Cap Value Equity Portfolio
Year ended 10/31
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 18.530 $16.460 $14.660 $13.080 $12.730
Income from investment operations:
Net investment income 0.308 0.381 0.440 0.430 0.320
Net realized and unrealized
gain on investments 2.022 3.599 2.960 1.980 0.653
-------- ------- ------- ------- -------
Total from investment operations 2.330 3.980 3.400 2.410 0.973
-------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.380) (0.410) (0.440) (0.340) (0.280)
Distributions from net realized
gain on investments (2.700) (1.500) (1.160) (0.490) (0.343)
-------- ------- ------- ------- -------
Total dividends and distributions (3.080) (1.910) (1.600) (0.830) (0.623)
-------- ------- ------- ------- -------
Net asset value, end of period $17.780 $18.530 $16.460 $14.660 $13.080
======== ======= ======= ======= =======
Total return(1) 13.50% 26.73% 24.87% 19.77% 7.96%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $117,858 $81,102 $67,179 $51,947 $37,323
Ratio of expenses to average net assets 0.68% 0.66% 0.67% 0.68% 0.68%
Ratio of expenses to average net assets
prior to expense limitation 0.71% 0.67% 0.70% 0.71% 0.82%
Ratio of net investment income
to average net assets 1.91% 2.15% 2.85% 3.33% 3.26%
Ratio of net investment income to average
net assets prior to expense limitation 1.88% 2.14% 2.83% 3.30% 3.12%
Portfolio turnover 85% 73% 74% 88% 73%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return reflects voluntary expense limitations.
69
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Mid-Cap The Small-Cap
The Core Value Equity Growth Equity
Equity Portfolio Portfolio Portfolio
Period Period Period
9/15/98(1) 12/29/97(1) 9/15/98(1)
through through through
10/31/98 10/31/98 10/31/98
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.500 $8.500 $8.500
Income (loss) from investment operations:
Net investment income 0.012 0.096 0.019
Net realized and unrealized gain (loss) on investments 0.458 (0.876) 0.881
------ ------ ------
Total from investment operations 0.470 (0.780) 0.900
------ ------ ------
Less dividends and distributions:
Dividends from net investment income none none none
Distributions from net realized gain on investments none none none
------ ------ ------
Total dividends and distributions none none none
------ ------ ------
Net asset value, end of period $8.970 $7.720 $9.400
====== ====== ======
Total return(2) 5.53% (9.18%) 10.59%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $2,112 $2,724 $3,318
Ratio of expenses to average net assets 0.68% 0.87% 0.89%
Ratio of expenses to average net assets
prior to expense limitation 1.74% 1.37% 1.78%
Ratio of net investment income to average net assets 1.15% 1.34% 1.72%
Ratio of net investment income to average net assets
prior to expense limitation 0.09% 0.84% 0.83%
Portfolio turnover 53% 155% 98%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Total return reflects voluntary expense limitations.
70
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Mid-Cap Growth Equity Portfolio
Year ended 10/31
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.680 $14.570 $12.860 $11.010 $11.200
Income (loss) from investment operations:
Net investment income (loss)(1) 0.011 (0.117) (0.019) 0.043 0.008
Net realized and unrealized
gain on investments 0.009 1.607 2.392 2.055 0.032
------- ------- ------- ------- -------
Total from investment operations 0.020 1.490 2.373 2.098 0.040
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income none none (0.043) (0.012) (0.020)
Distributions from net realized
gain on investments (6.240) (2.380) (0.620) (0.236) (0.210)
------- ------- ------- ------- -------
Total dividends and distributions (6.240) (2.380) (0.663) (0.248) (0.230)
------- ------- ------- ------- -------
Net asset value, end of period $7.460 $13.680 $14.570 $12.860 $11.010
======= ======= ======= ======= =======
Total return 1.47% 11.84% 19.19% 19.61% 0.34%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $4,879 $10,317 $28,526 $29,092 $22,640
Ratio of expenses to average net assets 0.59% 0.93% 0.90% 0.93% 0.93%
Ratio of expenses to average net assets
prior to expense limitation 1.71% 1.40% 1.01% 1.08% 1.17%
Ratio of net investment income (loss)
to average net assets 0.13% (0.29%) (0.18%) 0.37% 0.07%
Ratio of net investment income
(loss) to average net assets
prior to expense limitation (0.99%) (0.76%) (0.29%) 0.22% (0.17%)
Portfolio turnover 154% 117% 95% 64% 43%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share information for the year ended October 31, 1998 was based on the
average shares outstanding method.
(2) Total return reflects voluntary expense limitations.
71
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Real Estate The Aggregate The Diversified
Investment Trust Fixed Income Core Fixed Income
Portfolio II Portfolio Portfolio
Period Period Period
11/4/97(1) 12/29/97(1) 12/29/97(1)
through through through
10/31/98 10/31/98 10/31/98
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $16.340 $8.500 $8.500
Income (loss) from investment operations:
Net investment income 0.749 0.415 0.533(3)
Net realized and unrealized gain (loss) on
investments and foreign currencies (2.739) 0.215 0.077
------- ------ -------
Total from investment operations (1.990) 0.630 0.610
------- ------ -------
Less dividends and distributions:
Dividends from net investment income (0.120) none none
Distributions from net realized gain on investments none none none
------- ------ -------
Total dividends and distributions (0.120) none none
------- ------ -------
Net asset value, end of period $14.230 $9.130 $9.110
======= ====== =======
Total return(2) (12.27%) 7.41% 7.18%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,763 $2,149 $3,216
Ratio of expenses to average net assets 0.86% 0.53% 0.57%
Ratio of expenses to average net assets
prior to expense limitation 1.43% 2.07% 1.74%
Ratio of net investment income to average net assets 5.34% 5.62% 7.12%
Ratio of net investment income to average net assets
prior to expense limitation 4.77% 4.08% 5.95%
Portfolio turnover 54% 438% 312%
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Total return reflects voluntary expense limitations.
(3) Per share information for the period ended October 31, 1998 was based on the
average shares outstanding method.
72
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
The Real Estate
Investment
Trust Portfolio
Period Period
11/4/97(1) 12/6/95(1)
through Year ended 10/31 through
10/31/98(2) 1998(3) 1997(3) 10/31/96(3)
----------- --------------------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $16.340 $16.260 $12.490 $10.000
Income (loss) from investment operations:
Net investment income 1.134 1.118 0.616 0.652
Net realized and unrealized
gain (loss) on investments (2.769) (2.713) 4.664 1.938
------- ------- ------- -------
Total from investment operations (1.635) (1.595) 5.280 2.590
------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.895) (0.865) (0.720) (0.100)
Distributions from net realized
gains on investments (0.820) (0.820) (0.790) none
------- ------- ------- -------
Total dividends and distributions (1.715) (1.685) (1.510) (0.100)
------- ------- ------- -------
Net asset value, end of period $12.990 $12.980 $16.260 $12.490
======= ======= ======= =======
Total return(4) (11.17%) (10.98%) 46.50% 26.12%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $40.807 $13.340 $60.089 $26.468
Ratio of expenses to average net assets 0.86% 1.11% 0.82% 0.89%
Ratio of expenses to average net assets
prior to expense limitation 1.02% 1.27% 0.99% 1.02%
Ratio of net investment income
to average net assets 4.56% 4.31% 4.25% 6.70%
Ratio of net investment income
to average net assets
prior to expense limitation 4.40% 4.15% 4.08% 6.57%
Portfolio turnover 51% 51% 58% 109%
</TABLE>
(1) Date of initial sale; ratios have been annualized, but total return has not
been annualized.
(2) The data presented above is for The Real Estate Investment Trust Portfolio
class, which is the class of shares offered in this Prospectus and which
commenced operations on November 4, 1997. Like the original class prior to
its redesignation (see footnote 3), The Real Estate Investment Trust
Portfolio class carries no front-end or contingent deferred sales charges
and is not subject to Rule 12b-1 Distribution Plan fees.
(3) December 6, 1995 is the date of initial sale of the original (and then only)
class of shares offered by The Real Estate Investment Trust Portfolio. Data
represented above is for that class of shares which, as of November 4, 1997,
was redesignated the "REIT Fund A Class," became subject to Rule 12b-1
Distribution Plan fees and is offered in a separate prospectus.
(4) Total return reflects voluntary expense limitations.
73
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
The Intermediate The High-Yield
Fixed Income Portfolio Bond Portfolio
Period Period
Year ended 3/12/96(1) Year ended 12/2/96(1)
10/31 through 10/31 through
1998 1997 10/31/96 1998 10/31/97
------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.090 $10.010 $10.000 $11.180 $10.000
Income (loss) from investment operations:
Net investment income 0.593 0.605 0.386 0.993 0.788
Net realized and unrealized
gain (loss) on investments 0.100 0.080 0.010 (0.925) 0.957
------- ------- ------- ------- -------
Total from investment operations 0.693 0.685 0.396 0.068 1.745
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.593) (0.605) (0.386) (0.890) (0.565)
Distributions from net realized
gain on investments (0.010) none none (0.288) none
------- ------- ------- ------- -------
Total dividends and distributions (0.603) (0.605) (0.386) (1.178) (0.565)
------- ------- ------- ------- -------
Net asset value, end of period $10.180 $10.090 $10.010 $10.070 $11.180
======= ======= ======= ======= =======
Total return(2) 7.06% 7.09% 4.08% 0.30% 17.92%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $30,211 $30,366 $10,518 $20,706 $11,348
Ratio of expenses to average net assets 0.53% 0.53% 0.53% 0.59% 0.59%
Ratio of expenses to average net assets
prior to expense limitation 1.01% 0.84% 1.20% 0.75% 0.79%
Ratio of net investment income
to average net assets 5.86% 6.05% 6.14% 9.53% 9.05%
Ratio of net investment income
to average net assets
prior to expense limitation 5.38% 5.74% 5.47% 9.37% 8.85%
Portfolio turnover 181% 205% 232% 211% 281%
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Total return reflects voluntary expense limitations.
74
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
The Global The Labor Select
Equity International Equity
Portfolio Portfolio
Period Period
10/15/97(1) Year ended 12/19/95(1)
Year ended through 10/31 through
10/31/98 10/31/97 1998 1997 10/31/96
---------- ----------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.120 $8.500 $12.990 $11.690 $10.000
Income (loss) from investment operations:
Net investment income(2) 0.184 0.009 0.334 0.474 0.479
Net realized and unrealized gain (loss)
on investments and foreign currencies 0.486 (0.389) 0.444 1.346 1.311
------ ------ -------- ------- -------
Total from investment operations 0.670 (0.380) 0.778 1.820 1.790
------ ------ -------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.070) none (0.448) (0.520) (0.100)
Distributions from net realized
gain on investments none none none none none
------ ------ -------- ------- -------
Total dividends and distributions (0.070) none (0.448) (0.520) (0.100)
------ ------ -------- ------- -------
Net asset value, end of period $8.720 $8.120 $13.320 $12.990 $11.690
====== ====== ======== ======= =======
Total return(3) 8.31% (4.47%) 6.18% 16.01% 17.97%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $3,093 $2,855 $103,350 $50,896 $23,154
Ratio of expenses to average net assets 0.96% 0.96% 0.88% 0.89% 0.92%
Ratio of expenses to average net assets
prior to expense limitation 2.31% 2.95% 0.93% 1.06% 1.30%
Ratio of net investment income
to average net assets 2.10% 2.54% 2.46% 2.37% 6.64%
Ratio of net investment income to average
net assets prior to expense limitation 0.75% 0.55% 2.41% 2.20% 6.26%
Portfolio turnover 47% 0% 2% 11% 7%
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized
(2) Per share information for the year ended October 31, 1998 was based on the
average shares outstanding method.
(3) Total return reflects voluntary expense limitations.
75
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
The International Equity Portfolio
Year ended 10/31
Delaware Pooled Trust 1998 1997 1996 1995 1994
- ---------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.860 $14.780 $13.120 $13.110 $11.990
Income from investment operations:
Net investment income(1) 0.400 0.329 0.506 0.475 0.144
Net realized and unrealized gain
on investments and foreign currencies 0.370 1.271 1.794 0.001 1.236
-------- -------- -------- -------- -------
Total from investment operations 0.770 1.600 2.300 0.476 1.380
-------- -------- -------- -------- -------
Less dividends and distributions:
Dividends from net investment income (0.610) (0.520) (0.490) (0.170) (0.160)
Distributions from net realized
gain on investments (0.150) none (0.150) (0.296) (0.100)
-------- -------- -------- -------- -------
Total dividends and distributions (0.760) (0.520) (0.640) (0.466) (0.260)
-------- -------- -------- -------- -------
Net asset value, end of period $15.870 $15.860 $14.780 $13.120 $13.110
======== ======== ======== ======== =======
Total return 4.96% 11.01% 18.12% 3.91% 11.66%(2)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $616,229 $500,196 $299,950 $156,467 $70,820
Ratio of expenses to average net assets 0.91% 0.93% 0.89% 0.90% 0.94%
Ratio of expenses to average net assets
prior to expense limitation 0.91% 0.93% 0.89% 0.90% 0.97%
Ratio of net investment income
to average net assets 2.50% 2.21% 4.36% 4.81% 1.36%
Ratio of net investment income
to average net assets
prior to expense limitation 2.50% 2.21% 4.36% 4.81% 1.33%
Portfolio turnover 5% 8% 8% 20% 22%
</TABLE>
(1) Per share information for the year ended October 31, 1998 was based on the
average shares outstanding method.
(2) Total return reflects voluntary expense limitations.
76
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Emerging The International
Markets Fixed Income
Portfolio Portfolio
Period Period
Year ended 4/14/97(1) Year ended 4/11/97(1)
10/31 through 10/31 through
1998 10/31/97 1998 10/31/97
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.200 $10.000 $10.660 $10.000
Income (loss) from investment operations:
Net investment income(2) 0.153 0.028 0.558 0.236
Net realized and unrealized gain (loss)
on investments and foreign currencies (0.348) (0.828) 0.045 0.474
------- ------- ------- -------
Total from investment operations (3.195) 0.800 0.603 0.710
------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.025) none (0.492) (0.050)
Distributions from net realized
gain on investments (0.140) none (0.021) none
------- ------- ------- -------
Total dividends and distributions (0.165) none (0.513) (0.050)
------- ------- ------- -------
Net asset value, end of period $5.840 $9.200 $10.750 $10.660
======= ======= ======= =======
Total return(3) (35.30%) (8.00%) 5.96% 7.11%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $34,030 $18,565 $87,997 $33,734
Ratio of expenses to average net assets 1.55% 1.55% 0.60% 0.60%
Ratio of expenses to average net assets
prior to expense limitation 1.69% 2.02% 0.67% 0.86%
Ratio of net investment income
to average net assets 1.98% 0.74% 5.47% 6.05%
Ratio of net investment income to average
net assets prior to expense limitation 1.84% 0.27% 5.40% 5.79%
Portfolio turnover 39% 46% 104% 145%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of commencement of operations; ratios have been annualized but total
return has not been annualized.
(2) Per share information for the year ended October 31, 1998 was based on the
average shares outstanding method.
(3) Total return reflects voluntary expense limitations.
77
<PAGE>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Global Fixed Income Portfolio
Year ended 10/31
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.220 $11.620 $11.040 $9.790 $11.090
Income from investment operations:
Net investment income(1) 0.610 0.721 0.777 0.736 0.419
Net realized and unrealized
gain (loss) on investments
and foreign currencies 0.037 (0.116) 0.725 0.924 (0.193)
------- ------- ------- ------- -------
Total from investment operations 0.647 0.605 1.502 1.660 0.226
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.630) (0.835) (0.720) (0.410) (0.949)
Distributions from net realized
gain on investments (0.177) (0.170) (0.202) none (0.577)
------- ------- ------- ------- -------
Total dividends and distributions (0.807) (1.005) (0.922) (0.410) (1.526)
------- ------- ------- ------- -------
Net asset value, end of period $11.060 $11.220 $11.620 $11.040 $9.790
======= ======= ======= ======= =======
Total return(2) 6.28% 5.59% 16.40% 17.38% 2.07%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $660,741 $431,076 $252,068 $99,161 $42,266
Ratio of expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.62%
Ratio of expenses to average net assets
prior to expense limitation 0.62% 0.65% 0.66% 0.68% 0.76%
Ratio of net investment income (loss)
to average net assets 5.71% 6.28% 8.52% 6.73% 3.62%
Ratio of net investment income
to average net assets
prior to expense limitation 5.69% 6.23% 8.46% 6.65% 3.48%
Portfolio turnover 131% 114% 63% 77% 205%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share information for the year ended October 31, 1998 was based on the
average shares outstanding method.
(2) Total return reflects voluntary expense limitations.
78
<PAGE>
APPENDIX A-RATINGS
Bonds
Excerpts from Moody's description of its bond ratings: Aaa-judged to be the
best quality. They carry the smallest degree of investment risk; Aa-judged to be
of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa-considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba-judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B-generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa-are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest;
Ca-represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings; C-the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Excerpts from S&P's description of its bond ratings: AAA-highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA-also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A-strong ability to pay
interest and repay principal although more susceptible to changes in
circumstances; BBB-regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC-regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D-in default, and payment
of interest and/or repayment of principal is in arrears.
Excerpts from Fitch's description of its bond ratings: AAA-Bonds considered
to be investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events; AA-Bonds considered to
be investment grade and of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong, although not quite as strong as
bonds rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+; A-Bonds considered to be investment grade
and of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances that bonds with higher ratings;
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings; BB--Bonds are
considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements; B-Bonds are considered
highly speculative. While bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of the issue;
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment; CC-Bonds are minimally protected. Default in
payment of interest and/or principal seems probable over time; C-Bonds are in
imminent default in payment of interest or principal; and DDD, DD and D-Bonds
are in default on interest and/or principal payments. Such bonds are extremely
speculative and should be valued on the basis of their ultimate recovery value
in liquidation or reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents the lowest potential
for recovery.
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the "AAA" category.
79
<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.
80
<PAGE>
Delaware Pooled Trust
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to shareholders. In the Fund's shareholder
reports you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal period. You can find more detailed information about the Fund's in the
current Statement of Additional Information (SAI), which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
legally a part of this Prospectus. You may obtain a free copy of these documents
by writing to us at One Commerce Square, 2005 Market Street, Philadelphia, PA
19103, or call toll-free 800-231-8002.
You can find reports and other information about the Funds on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Funds, including their
Statement of Additional Information, can be reviewed and copied at the SECs
Public Reference Room in Washington, D.C. You can get information on the public
reference room by calling the SEC at 1-800-SEC-0330.
E-mail
[email protected]
Shareholder Inquires
Call the Fund at 1-800-231-8002
o For Fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions
and telephone exchanges.
Investment Company Act File Number: 811-6322
DELAWARE(SM)
INVESTMENTS
- -----------
Philadelphia o London
P-147 [--] PP 1/99
<PAGE>
DELAWARE
INVESTMENTS
- -----------
Philadelphia o London
REIT Fund
Class A o Class B o Class C
Prospectus March 1, 1999
Total Return Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of contents
- -----------------------------------------------------------------
Fund profile page 2
The REIT Fund 2
- -----------------------------------------------------------------
How we manage the Fund page 5
Our investment strategies 5
The risks of investing in the Fund 7
- -----------------------------------------------------------------
Who manages the Fund page 10
Investment manager and sub-adviser 10
Portfolio manager 10
Fund Administration (Who's who) 11
- -----------------------------------------------------------------
About your account page 12
Investing in the Fund 12
Choosing a share class 12
How to reduce your sales charge 15
How to buy shares 16
Retirement plans 17
How to redeem shares 18
Account minimum 19
Special services 20
Dividends, distributions and taxes 21
- -----------------------------------------------------------------
Certain management considerations page 22
- -----------------------------------------------------------------
Additional investment information page 23
- -----------------------------------------------------------------
Financial information page 36
<PAGE>
Profile: The REIT Fund
What are the Fund's goals?
The REIT Fund seeks maximum long-term total return, with capital appreciation
as a secondary objective. Although the Fund will strive to achieve its goal,
there is no assurance that it will.
What are the Fund's main investment strategies? The REIT Fund invests in
securities of companies principally engaged in the real estate industry. Under
normal circumstances, we will invest at least 65% of the Fund's total assets in
equity securities of real estate investment trusts (REITs).
What are the main risks of investing in the Fund? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The value of your investment will increase and decrease according to
changes in the value of the securities held by the Fund.
Because we concentrate our investments in the real estate industry, the Fund may
be subject to certain risks associated with direct ownership of real estate and
with the real estate industry in general and its investments may tend to
fluctuate more in value than a portfolio that invests in a broader range of
industries. To the extent that the Fund holds real estate directly, as a result
of defaults or receives rental income from its real estate holdings, its tax
status as a regulated investment company may be jeopardized.
The REIT Fund is considered "non-diversified" under the federal laws and
regulations that regulate mutual funds. That means the Fund may invest more than
5% of net assets in a single security. Thus, adverse effects on an investment
held by the Fund may affect a larger portion of overall assets and subject the
Fund to greater risks.
For a more complete discussion of risk, please turn to page 7.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors seeking a high level of total return.
o Investors willing to invest in equity securities of companies principally
engaged in the real estate industry.
o Investors looking to diversify their equity holdings by adding exposure to the
real estate markets.
Who should not invest in the Fund w Investors seeking current income.
o Investors unwilling to accept the risks of investing in the real estate
industry as well as in a non-diversified fund.
o Investors who are unwilling to accept that the value of their investments may
fluctuate, sometimes significantly, over the short term.
1
<PAGE>
How has the Fund performed?
- --------------------------------------------------------------------------------
This bar chart can help you evaluate the potential risks of investing in the
Fund. We show how returns for the Fund's Class A shares have varied over the
past three calendar years, as well as average annual returns of all shares for
the past year and since inception. Beginning November 11, 1997, a 12b-1 fee has
been assessed annually. All class returns reflect voluntary expense caps in
place during the periods. The returns would be lower without these voluntary
caps.
[GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (CLASS A) FPO]
Year-by-year total return (Class A)
REIT Fund A Class
1996 41.81%
1997 31.34%
1998 -12.37%
As of December 31, 1998, the Fund's Class A had a year-to-date return of
- -12.37%. During the periods illustrated in this bar chart, the Fund's Class A's
highest return was 21.32% for the quarter ended December 31, 1996 and its lowest
return was -4.97% for the quarter ended June 30, 1998.
The maximum Class A sales charge of 5.75%, which is normally deducted when you
purchase shares, is not reflected in the year-by-year total returns above. If
this fee were included, the returns would be less than those shown. The average
annual returns shown below do include the sales charge.
Average annual returns for periods ending 12/31/98
CLASS A*** B C NAREIT Equity
(if redeemed)* (if redeemed) *REIT Index**
Inception 12/6/95 Inception 11/11/97 Inception 11/11/97
1 year -17.41% -16.93% -13.77% -17.51%
Lifetime 16.53% -10.28% -7.58% 10.31%
The table above shows the Fund's average annual returns compared to the
performance of the NAREIT Equity REIT Index. You should remember that unlike
the Fund, the index is unmanaged and doesn't reflect the actual costs of
operating a mutual fund, such as the costs of buying, selling, and holding
securities.
* If redeemed at end of period shown. If shares were not redeemed, the returns
for Class B would be -12.98% and -7.58% for the one-year and lifetime
periods, respectively. Returns for Class C would be -12.98% and -7.58% for
the one-year and lifetime periods, respectively.
** Lifetime returns are shown if the Fund or Class existed for less than 10
years. NAREIT Equity REIT Index returns is for Class A lifetime. NAREIT
Equity REIT Index return for Class B and Class C lifetimes was -14.46%.
Maximum sales charges are included in the Fund returns above.
*** Reflects sales charges even for periods before November 11, 1997, the date
when the fee was first charged. Historical performance prior to that date
has been restated to reflect the charge, but has not been recalculated to
reflect the 12b-1 fee which also took affect on that date.
2
<PAGE>
What are the Fund's fees and expenses?
- --------------------------------------------------------------------------------
Sales charges are fees paid directly from your investments when you buy or sell
shares of the Fund. The Fund may waive or reduce sales charges; please see the
Statement of Additional Information for details.
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.6 This is an
example only, and does not represent future expenses, which may be greater or
less than those shown here.
- --------------------------------------------------------------------------------
CLASS A B C
- --------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases as a percentage of
offering price 5.75% none none
Maximum contingent deferred sales charge
(load) as a percentage of original
purchase price or redemption price,
whichever is lower none(1) 5%(2) 1%(3)
Maximum sales charge (load) imposed on
reinvested dividends none none none
Redemption fees none none none
Management fees 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25%(4) 1.00% 1.00%
Other expenses 0.27% 0.27% 0.27%
Total operating expenses5 1.27% 2.02% 2.02%
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CLASS(7) A B B C C
(if redeemed) (if redeemed)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year $697 $205 $705 $205 $305
3 years $995 $634 $934 $634 $634
5 years $1,232 $1,088 $1,288 $1,088 $1,088
10 years $2,021 $2,155 $2,155 $2,348 $2,348
</TABLE>
(1) A purchase of Class A shares at $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is
paid a commission, a contingent deferred sales charge will apply to certain
redemptions. Additional Class A purchase options that involve a contingent
deferred sales charge may be permitted from time to time and will be
disclosed in the prospectus if they are available.
(2) If you redeem Class B shares during the first year after you buy them, you
will pay a contingent deferred sales charge of 5%, which declines to 4%
during the second year, 3% during the third and fourth years, 2% during the
fifth year, 1% during the sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) Class A Shares are subject to a 12b-1 fee of 0.30% of average daily net
assets, but the board of directors has set the fee at 0.25% of average daily
net assets.
(5) The investment manager has agreed to waive fees and pay expenses from
November 11, 1998 through April 30, 1999 in order to prevent total operating
expenses (excluding any taxes, interest, brokerage fees, extraordinary
expenses and 12b-1 fees) from exceeding 0.95% of average daily net assets.
The manager's voluntary expense cap was different prior to November 11,
1998.
(6) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show. This example does not reflect the voluntary expense cap described in
footnote 5.
(7) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
3
<PAGE>
How we manage the Fund
- --------------------------------------------------------------------------------
Our investment strategies
The investment objective of the Fund is to achieve maximum long-term total
return. Capital appreciation is a secondary objective. The Fund invests in
securities of companies principally engaged in the real estate industry. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in equity securities of real estate investment trusts (REITs).
The Fund 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. 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
Investment Company Act of 1940. By investing in REITs indirectly through the
Fund, a shareholder bears not only a proportionate share of the expenses of the
Fund, but also, indirectly, similar expenses of the REITs. For a further
discussion of the special risks presented by investing in REITs, see "The risks
of investing in the Fund -- Real estate industry risk" and "Additional
investment information" -- "REITs."
The Fund also invests in equity securities of other real estate industry
operating companies (REOCs). We define a REOC as 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
Fund'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, preferred stocks, securities convertible into common
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Glossary A-B
Amortized cost
- --------------
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
Average maturity
- ----------------
An average of when the individual bonds and other debt securities held in a
portfolio will mature.
4
<PAGE>
stocks and securities having common stock characteristics, such as rights and
warrants to purchase common stocks.
The Fund may invest up to 10% of its assets in foreign securities, and in
convertible securities. The Fund may also invest in mortgage-backed securities.
The Fund 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
Fund's positions in cash, short-term debt securities and other money market
instruments, at times when the Fund'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 Fund.
The Fund may hold cash or invest in short-term debt securities and other money
market instru ments when the manager believes such holdings are prudent given
current market conditions. Except when the manager believes a temporary
defensive approach is appropriate, the Fund will not hold more than 5% of its
total assets in cash or such short-term investments. All these short-term
investments will be of the highest quality as determined by a
nationally recognized statistical rating organization (e.g. AAA by Standard &
Poor's Ratings Group or Aaa by Moody's Investors Service) or be of comparable
quality as determined by the manager.
The manager does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the manager may take advantage of short-term opportunities that are
consistent with the Fund's investment objectives. It is anticipated that the
annual turnover rate of the Fund, under normal circumstances, will generally not
exceed 100%.
See "Additional investment information" and "The risks of investing in the Fund"
for a further discussion of the investment policies described above and the
risks associated with them.
Bond
- ----
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
Bond ratings
- ------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds.
See also Nationally recognized statistical rating organization.
5
<PAGE>
How we manage the Fund (continued)
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Fund, you should
consider your investment to be a long-term investment that typically provides
the best results when held for a number of years. The following are the chief
risks you assume when investing in REIT Fund. Please see the Statement of
Additional Information for further discussion of these risks and the other risks
not discussed here.
- --------------------------------------------------------------------------------
Risks
- --------------------------------------------------------------------------------
Market risk is the risk that all or a majority of the securities in a certain
market -- like the stock or bond market -- will decline in value because of
factors such as economic conditions, future expectations or investor confidence.
Industry and security risk is the risk that the value of securities in a
particular industry or the value of an individual stock or bond will decline
because of changing expectations for the performance of that industry or for the
individual company issuing the stock or bond.
Interest rate risk is the risk that securities will decrease in value if
interest rates rise and conversely rise in value when interest rates fall.
- --------------------------------------------------------------------------------
How we strive to manage them
- --------------------------------------------------------------------------------
We maintain a long-term investment approach and focus on stocks we believe can
appreciate over an extended time frame regardless of interim market
fluctuations. We do not try to predict overall stock market movements and do not
trade for short-term purposes.
We may hold a substantial part of the Fund's assets in cash or cash equivalents
as a temporary, defensive strategy.
In the REIT Fund we concentrate on the real estate industry. As a consequence,
the share price of the Fund may fluctuate in response to factors affecting that
industry, and may fluctuate more widely than a portfolio that invests in a
broader range of industries. The Fund may be more susceptible to any single
economic, political or regulatory occurrence affecting the real estate industry.
The REIT Fund is subject to interest rate risk. As interest rates decline, the
value of the Fund's investments in real estate investment trusts that hold fixed
rate obligations can be expected to rise. Conversely, when interest rates rise,
the value of the Fund's investments in real estate investment trusts holding
fixed rate obligations can be expected to decline. However, lower interest rates
tend to increase the level of refinancing, which can hurt returns of REITs that
hold fixed rate obligations.
C-C
Capital
- -------
The amount of money you invest.
Capital appreciation
- --------------------
An increase in the value of an investment.
Capital gains distributions
- ---------------------------
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Commission
- ----------
The fee an investor pays to a financial adviser for investment advice and help
in buying or selling mutual funds, stocks, bonds or other securities.
6
<PAGE>
- --------------------------------------------------------------------------------
Risks
- --------------------------------------------------------------------------------
Real Estate Industry Risk includes 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 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. REITS are subject to substantial cash flow
dependency, defaults by borrowers, self-liquidation, and the risk of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code of
1986, as amended and/or to maintain exemptions from the 1940 Act.
Non-diversified risk affects portfolios with a greater percentage of assets
invested in fewer securities. adverse effects on individual holdings may have a
greater impact on the Fund's performance.
Foreign risk is the risk that foreign securities may be adversely affected by
political instability, changes in currency exchange rates, foreign economic
conditions or inadequate regulatory and accounting standards.
Liquidity risk is the possibility that securities cannot be readily sold, or can
only be sold at a price lower than the price that the Fund has valued them.
- --------------------------------------------------------------------------------
How we strive to manage them
- --------------------------------------------------------------------------------
Since the Fund invests principally in REITS it is more subject to the risks
associated with the real estate industry. Investors should carefully consider
these risks before investing in the Fund.
Though the REIT Fund will hold a number of different securities, technically it
is considered a non-diversified fund according to the definition in the 1940
Act. In a diversified fund, 75% of the portfolio must be diversified, meaning
the Fund cannot invest more than 5% of net assets in an individual security.
When a fund is non-diversified, it does not have to limit the percentage of
assets invested in individual securities to that extent. However, the Fund does
intend to satisfy the Internal Revenue Code's diversification requirement, which
says that for 50% of the Fund's assets, no more than 5% of net assets can be
invested in any one individual security. The bottom line for shareholders is
that 50% of the REIT Fund must be invested so that no more than 5% of net assets
are invested in any single security. The other 50% can be more concentrated with
greater than 5% invested in individual securities.
We may invest up to 10% of the REIT Fund's total assets in foreign securities;
however we typically invest only a small portion of assets in foreign
securities, so this is not expected to be a major risk to the Fund.
If the Fund holds international securities, currency considerations may present
risks. The Fund may try to reduce this risk by investing in forward foreign
currency exchange contracts to neutralize currency risks associated with the
purchase of individual securities denominated in a particular currency. See
"Futures and options risks" below.
We limit exposure to illiquid securities.
- --------------------------------------------------------------------------------
Compounding
- -----------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- --------------------------
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
Contingent deferred sales charge (CDSC)
- ---------------------------------------
Fee charged by some mutual funds when shares are redeemed (sold back to the
fund) within a set number of years; an alternative method for investors to
compensate a financial adviser for advice and service, rather than an up-front
commission.
Corporate bond
- --------------
A debt security issued by a corporation. See bond.
Cost basis
- ----------
The original purchase price of an investment, used in determing capital gains
and losses.
7
<PAGE>
How we manage the Fund (continued)
- --------------------------------------------------------------------------------
Risks
- --------------------------------------------------------------------------------
Futures and options risks Futures contracts, options on futures contracts,
forward contracts and certain other options involve risks. For example, there
may be no correlation between price changes of an option or futures contract and
the assets being hedged. This could render the hedging strategy unsuccessful and
could result in losses. Also, options and futures contracts on foreign
currencies, and forward contracts, entail particular risks related to conditions
affecting the underlying currency.
- --------------------------------------------------------------------------------
How we strive to manage them
- --------------------------------------------------------------------------------
The REIT Fund may use futures contracts and options on futures contracts, as
well as options on securities for hedging purposes. The Fund will enter into
futures contracts and options on them only to the extent that no more than 5% of
the Fund'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 on them would not exceed 20% of the Fund's total assets.
See also "Foreign risk" above.
Lending securities The Fund may lend up to 25% of its assets to qualified
dealers and investors for their use in security transactions.
Purchasing securities on a when-issued or delayed delivery basis The Fund may
buy or sell securities on a when-issued or delayed delivery basis; that it,
paying for securities before delivery or taking delivery at a later date.
Portfolio turnover rates reflect the amount of securities that are replaced from
the beginning of the year to the end of the year by the Fund. The degree of
portfolio activity may affect brokerage costs and other transaction costs of the
Fund. We anticipate that the annual turnover rate of the Fund will generally not
exceed 100%.
C-F
Currency exchange rates
- -----------------------
The price at which one's country's currency can be converted into another's.
This exchange rate varies almost daily according to a wide range of political,
economic and other factors.
Depreciation
- ------------
A decline in an investment's value.
Diversification
- ---------------
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
Dividend distribution
- ---------------------
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
8
<PAGE>
Who manages the Fund
- --------------------------------------------------------------------------------
Investment manager and sub-adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust, which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Funds' business affairs and provides daily
administrative services. Lincoln Investment Management, Inc. is the Fund's
sub-adviser. As sub-adviser, Lincoln provides Delaware with investment
recommendations, asset allocation advice, research, economic analysis and other
investment services regarding the types of securities in which we invest. For
their services to the Fund, the manager and sub-adviser were paid an aggregate
fee for the last fiscal year as follows:
Investment Management Fees
REIT Fund
- --------------------------------------------------------------------------------
As a percentage of average daily net assets 0.59%
- --------------------------------------------------------------------------------
Portfolio manager
Baback Zenouzi has primary responsibility for making day-to-day investment
decisions for the Fund. He has been Senior Portfolio Manager for the Fund since
its inception. Mr. Zenouzi holds a BS in Finance and Economics from Babson
College in Wellesley, Massachussetts, and an MS in Finance from Boston College.
Before joining Delaware Investments in 1992, he was with the Boston Company
where he was an assistant vice president, senior financial analyst, financial
analyst and portfolio accountant.
Duration
- --------
A measurement of a fixed-income investment's price volatility. The larger the
number, the greater the likely price change for a given change in interest
rates.
Expense ratio
- -------------
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
- -----------------
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
9
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
Board of Directors
The Fund
Investment manager
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
Custodian
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
Sub-adviser
Lincoln Investment
Management. Inc.
200 E. Berry Street
Fort Wayne, IN 46802
Distributor
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
Service agent
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
Financial advisers
Portfolio managers
(see page 9 for details)
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the management
of a designated portion of the fund's assets. They are selected and supervised
by the investment manager.
Portfolio managers Portfolio managers are employed by the investment manager or
sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
<PAGE>
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Financial advisers Financial advisers provide advice to their clients--analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
F-N
Fixed-income securities
- -----------------------
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See bond.
Inflation
- ---------
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
- ---------------
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
10
<PAGE>
About your account
- --------------------------------------------------------------------------------
Investing in the Fund
You can choose from a number of share classes for the Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares have an up-front sales charge of up to 5.75% that you pay
when you buy the shares. The offering price for Class A shares includes the
front-end sales charge.
o If you invest $50,000 or more, your front-end sales charge will be reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information.
o Class A shares are also subject to an annual 12b-1 fee no greater than 0.30%
(currently no more than 0.25%) of average daily net assets, which is lower
than the 12b-1 fee for Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge.
Class A Sales Charges
<TABLE>
<CAPTION>
Sales charge as % Sales charge as % of Dealer's commission as %
Amount of purchase of offering price amount invested of offering price
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 6.09% 5.00%
$50,000 but
under $100,000 4.75% 5.01% 4.00%
$100,000 but
under $250,000 3.75% 3.93% 3.00%
$250,000 but
under $500,000 2.50% 2.54% 2.00%
$500,000 but
under $1 million 2.00% 2.00% 1.60%
</TABLE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you may have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year and 0.50% if
you redeem them within the second year.
<TABLE>
<CAPTION>
Sales charge as % Sales charge as % of Dealer's commission as %
Amount of purchase of offering price amount invested of offering price
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
$1 million up to $5 million none none 1.00%
Next $20 million
up to $25 million none none 0.50%
Amount over $25 million none none 0.25%
</TABLE>
<PAGE>
Management fee
- --------------
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
- ---------------------
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
Maturity
- --------
The length of time until a bond issuer must repay the underlying loan principal
to bondholders.
NAREIT Equity REIT Index
- ------------------------
The NAREIT Equity REIT Index is a benchmark of real estate investment trusts
that invest in many types of U.S. property.
National Association of Securities Dealers (NASD)
- -------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
11
<PAGE>
About your account (continued)
Class
B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within six years after you
buy them.
o If you redeem Class B shares during the first year after you buy them, the
shares will be subject to a contingent deferred sales charge of 5%. The
contingent deferred sales charge is 4% during the second year, 3% during the
third and fourth years, 2% during the fifth year, 1% during the sixth year,
and 0% thereafter.
o Under certain circumstances, the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1% of average daily net assets,
of which 0.25% are service fees paid to the distributor, dealers or others
for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and
any dividends paid on these shares are lower than dividends on Class A
shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%
(currently no more than 0.25%). Conversion may occur as late as three months
after the eighth anniversary of purchase, during which time Class B's higher
12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
N-P
Nationally recognized statistical rating organization (NRSRO)
- -------------------------------------------------------------
A company that assesses the credit quality of bonds, commercial paper, preferred
and common stocks and municipal short-term issues, rating the probability that
the issuer of the debt will meet the scheduled interest payments and repay the
principal. Ratings are published by such companies as Moody's Investors Service
(Moody's), Standard & Poor's Corporation (S&P), Duff & Phelps, Inc. (Duff), and
Fitch Investor Services, Inc. (Fitch).
Net asset value (NAV)
- ---------------------
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
12
<PAGE>
Class
C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund.However, you will pay a contingent deferred
sales charge if you redeem your shares within 12 months after you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o Class C shares are subject to an annual 12b-1 fee which may not be greater
than 1% of average daily net assets, of which 0.25% are service fees paid to
the distributor, dealers or others for providing services and maintaining
shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any
one time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
Preferred stock
- ---------------
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also pay dividends at a fixed rate and
are sometimes convertible into common stock.
Price-to-earnings ratio
- -----------------------
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings of $5 has a P/E of 20.
Principal
- ---------
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
Prospectus
- ----------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
13
<PAGE>
About your account (continued)
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
Share class
Program How it works A B C
- --------------------------------------------------------------------------------
Letter of Intent Through a Letter of X Although the Letter
Intent you agree to of Intent and Rights
invest a certain of Accumulation do
amount in Delaware not apply to the
Investment Funds purchase of Class B
(except money market and C shares, you
funds with no sales can combine your
charge) over a purchase of Class A
13-month period to shares with your
qualify for reduced purchase of B and C
front-end sales shares to fulfill
charges. your Letter of
Intent or qualify
for Rights of
Accumulation.
- --------------------------------------------------------------------------------
Rights of You can combine your X
Accumulation holdings or
purchases of all
funds in the
Delaware Investments
family (except money
market funds with no
sales charge) as
well as the holdings
and purchases of
your spouse and
children under 21 to
qualify for reduced
front-end sales
charges.
- --------------------------------------------------------------------------------
Reinvestment Up to 12 months X Not available
of Redeemed after you redeem
Shares shares, you can
reinvest the
proceeds without
paying a front-end
sales charge.
- --------------------------------------------------------------------------------
SIMPLE IRA, These investment X Not available
SEP IRA, SARSEP, plans may qualify
Prototype Profit for reduced sales
Sharing, Pension, charges by combining
401(k) SIMPLE the purchases of all
401(k), 403(b)(7), members of the
and 457 Retirement group. Members of
Plans these groups may
also qualify to
purchase shares
without a front-end
sales charge and a
waiver of any
contingent deferred
sales charges.
- --------------------------------------------------------------------------------
R-S
Real estate investment trusts (REITS)
- -------------------------------------
A real estate investment trust is a company that is usually traded publicly,
that manages a portfolio of real estate to make profits for shareholders.
Redeem
- ------
To cash in your shares by selling them back to the mutual fund.
Risk
- ----
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
14
<PAGE>
How to buy shares
[GRAPHIC OMITTED]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[GRAPHIC OMITTED]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[GRAPHIC OMITTED]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[GRAPHIC OMITTED]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[GRAPHIC OMITTED]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service, or through our web site, www.delawarefunds.com. For more information
about how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
Sales charge
- ------------
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
- ----------------------------------------
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
- -------------
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
- -------------------
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
15
<PAGE>
About your account (continued)
How to buy shares (continued)
Once you have completed an application, you can generally open an account with
an initial investment of $1,000--and make additional investments at any time for
as little as $100. If you are buying shares in an IRA or Roth IRA, under the
Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act; or through
an Automatic Investing Plan, the minimum purchase is $250, and you can make
additional investments of only $25. The minimum for an Education IRA is $500.
The minimums vary for retirement plans other than IRAs, Roth IRAs or Education
IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of trading
of the New York Stock Exchange each business day that the Exchange is open. We
calculate this value by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and dividing the resulting
number by the number of shares outstanding. The result is the net asset value
per share. We price securities and other assets for which market quotations are
available at their market value. We price fixed-income securities on the basis
of valuations provided to us by an independent pricing service that uses methods
approved by the board of directors. Any fixed-income securities that have a
maturity of less than 60 days we price at amortized cost. We price all other
securities at their fair market value using a method approved by the board of
directors.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Fund may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in the Fund can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
S-V
Standard Deviation
- ------------------
A measure of an investment's volatility; for mutual fund's, measures how much a
fund's total return varies from its historical average.
Statement of Additional Information (SAI)
- -----------------------------------------
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
- -----
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
16
<PAGE>
How to redeem shares
[GRAPHIC OMITTED]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[GRAPHIC OMITTED]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of $50,000 or
more, you must include a signature guarantee for each owner. Signature
guarantees are also required when redemption proceeds are going to an address
other than the address of record on an account.
[GRAPHIC OMITTED]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[GRAPHIC OMITTED]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, the First Union Bank fee (currently
$7.50) will be deducted from your proceeds. Bank information must be on file
before you request a wire redemption.
[GRAPHIC OMITTED]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawarefunds.com. For more information about how to
sign up for these services, call our Shareholder Service Center at 800.523.1918.
Total return
- ------------
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- --------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
- ----------
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
17
<PAGE>
About your account (continued)
How to redeem shares
(continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares, you
will receive the net asset value as determined on the business day we receive
your request. We will deduct any applicable contingent deferred sales charges.
You may also have to pay taxes on the proceeds from your sale of shares. We will
send you a check, normally the next business day, but no later than seven days
after we receive your request to sell your shares. If you purchased your shares
by check, we will wait until your check has cleared, which can take up to 15
days, before we send your redemption proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares, not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimum
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs, Uniform Gift to Minors Act accounts or
accounts with automatic investing plans, $500 for Education IRAs) for three or
more consecutive months, you will have until the end of the current calendar
quarter to raise the balance to the minimum. If your account is not at the
minimum by the required time, you will be charged a $9 fee for that quarter and
each quarter after that until your account reaches the minimum balance. If your
account does not reach the minimum balance, the Fund may redeem your account
after 60 days' written notice to you.
18
<PAGE>
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
Automatic
Investing Plan
The Automatic Investing Plan allows you to make regular monthly investments
directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as Social Security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
Dividend
Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a sales charge and without
paying a contingent deferred sales charge at the time of the exchange. However,
if you exchange shares from a money market fund that does not have a sales
charge you will pay any applicable sales charges on your new shares. When
exchanging Class B and Class C shares of one fund for similar shares in other
funds, your new shares will be subject to the same contingent deferred sales
charge as the shares you originally purchased. The holding period for the CDSC
will also remain the same, with the amount of time you held your original shares
being credited toward the holding period of your new shares. You don't pay sales
charges on shares that you acquired through the reinvestment of dividends. You
may have to pay taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to get a copy of the
fund's prospectus and read it carefully before buying shares through an
exchange.
19
<PAGE>
About your account (continued)
Special services
(continued)
MoneyLine(SM)
On Demand Service
Through our MoneyLineSM On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000.
MoneyLine
Direct Deposit Service
Through our MoneyLine Direct Deposit Service you can have
$25 or more in dividends and distributions deposited directly to your bank
account. Delaware Investments does not charge a fee for this service; however,
your bank may assess one. This service is not available for retirement plans.
Systematic
Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly or
quarterly payment from your account made to you or someone you designate. If the
value of your account is $5,000 or more, you can make withdrawals of at least
$25 monthly, or $75 quarterly. You may also have your withdrawals deposited
directly to your bank account through our MoneyLine Direct Deposit Service.
Dividends, distributions
and taxes
Dividends and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains, unless you tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
20
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The Year 2000 Problem may also
adversely affect the issuers of securities in which the Fund invests. The
portfolio manager and investment professionals of the Fund consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantee that, even with their due diligence efforts, they will be
able to predict the affect of Year 2000 on any company or the performance of its
securities.
Investments by
Fund of Funds
REIT Fund accepts investments from the series portfolios of Delaware
Group Foundation Funds, a fund of funds. From time to time, the Fund may
experience large investments or redemptions due to allocations or rebalancings
by Foundation Funds. While it is impossible to predict the overall impact of
these transactions over time, there could be adverse effects on portfolio
management. For example, the Fund may be required to sell securities or invest
cash at times when it would not otherwise do so. These transactions could also
have tax consequences if sales of securities result in gains, and could also
increase transactions costs or portfolio turnover. The manager will monitor
transactions by Foundation Funds and will attempt to minimize any adverse
effects on both REIT Fund and Foundation Funds as a result of these
transactions.
21
<PAGE>
Additional investment information
REITS
The Fund'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.
Convertible, debt
and non-traditional
equity securities
A portion of the Fund's assets may be invested in convertible securities of
issuers in the real estate industry. A convertible security is a security which
may be converted at a stated price within a specified period of time into a
certain quantity of the common stock of the same or a different issuer.
Convertible and debt securities are senior to common stocks in a corporation's
capital structure, although convertible securities are usually subordinated to
similar nonconvertible securities. Convertible and debt securities provide a
fixed-income stream and the opportunity, through its conversion feature, to
participate in the capital appreciation resulting from a market price advance in
the convertible security's underlying common stock. Just as with debt
securities, convertible securities tend to increase in market value when
interest rates decline and tend to decrease in value when interest rates rise.
However, the price of a convertible security is also influenced by the market
value of the security's underlying common stock and tends to increase as the
market value of the underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines. Convertible and debt securities
acquired by the Fund 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."
22
<PAGE>
Convertible, debt
and non-traditional
equity securities
(continued)
The Fund 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 Fund, 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 Fund 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
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.
23
<PAGE>
Additional investment information (continued)
Depositary
receipts
The Fund 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. ADRs may be listed on a national
securities exchange or may be traded in the over-the-counter market. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs involve risks similar to
those accompanying direct investments in foreign securities.
Short-term
investments
The short-term investments in which the Fund may invest consistent with the
stated under "How we manage the Fund" are: w Time deposits, certificates of
deposit (including marketable variable rate certificates of deposit) and
bankers' acceptances issued by a U.S. commercial bank.
o 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 the
Fund, and time deposits maturing from two business days through seven
calendar days will not exceed 15% of the total assets of the Fund.
Certificates of deposit are negotiable short-term obligations issued by
commercial banks against funds deposited in the issuing institution.
Variable rate certificates of deposit are certificates of deposit on which
the interest rate is periodically adjusted prior to their stated maturity
based upon a specified market rate. A bankers' acceptance is a time draft
drawn on a commercial bank by a borrower usually in connection with an
international commercial transaction (to finance the import, export,
transfer or storage of goods).
The Fund 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;
24
<PAGE>
Short-term
investments
(continued)
o 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 the manager;
o 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 the
manager;
o U.S. government securities (see U.S. Government Securities); and
o Repurchase agreements collateralized by securities listed above.
When-issued and
delayed delivery
securities
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. The Fund 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 the Fund enters into the commitment and no interest
accrues to the Fund 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
Fund not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Fund's total assets less liabilities other than the
obligations created by these commitments.
Repurchase
agreements
The Fund may enter into repurchase agreements with brokers, dealers or banks
deemed to be creditworthy by the manager under guidelines of board of directors.
In a repurchase agreement, the Fund buys securities from a seller that has
agreed to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. The term of these
agreements is usually from overnight to one week and never exceeds one year. Not
more than 15% of the Fund's assets may be invested in repurchase agreements
having a maturity in excess of seven days. Repurchase agreements may be viewed
as a fully collateralized loan of money by the Fund to the seller. The Fund
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, the Fund
might incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Fund's realization upon the collateral may be delayed or limited.
The Fund may invest cash balances in a joint repurchase agreement in accordance
with an Order Delaware Investments has obtained from the Commission under
Section 17(d) of the 1940 Act.
25
<PAGE>
Additional investment information (continued)
Securities lending
activities
The Fund 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 the Fund 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, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the manager, 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 manager.
Borrowing from
banks
The Fund may borrow money as a temporary measure or to facilitate redemptions.
The Fund has no intention of increasing its net income through borrowing. Any
borrowing will be done from a bank and, consistent with SEC 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%, the Fund 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 the Fund has an outstanding borrowing.
Foreign investment
information
Up to 10% of the total assets of the Fund may be invested in securities of
foreign issuers and foreign currency. The Fund has the right to purchase
securities in any developed, underdeveloped or emerging country. 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
26
<PAGE>
Foreign investment
information
(continued)
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 Fund's
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 the Fund receives
from the companies comprising the Fund's investments.
Further, the Fund 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 the Fund 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 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 the
Fund invests. Also, the repatriation of both investment income and capital from
several foreign
27
<PAGE>
Additional investment information (continued)
Foreign investment
information
(continued)
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 manager does not believe that any current repatriation
restrictions would affect their decision to invest in such countries. Countries
such as those in which the Fund may 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 exchange. Currency devaluations may
affect the ability of a government issuer to obtain sufficient foreign exchange
to service its external debt.
28
<PAGE>
Foreign investment
information
(continued)
As a result of the foregoing, a foreign governmental issuer may default on its
obligations. If such a default occurs, the Fund 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.
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 Fund present currency
considerations which pose special risks. The manager uses 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 Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund 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 transactions and to minimize currency value fluctuations.
The Fund 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).
The Fund 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.
29
<PAGE>
Additional investment information (continued)
Forward foreign
currency exchange
contracts
(continued)
The Fund 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, the Fund 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 manager believes that the currency of a particular foreign
country may suffer a significant decline against the U.S. dollar or against
another currency, the Fund may enter into a forward contract to sell, for a
fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's securities or other assets denominated in
that currency.
The Fund 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 Fund may also engage in currency "cross hedging" when,
in the opinion of the manager, as appropriate, the historical relationship among
foreign currencies suggests that the Fund 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, the Fund 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 Fund 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 the Fund securities at the
expiration of the contract. Accordingly, it may be necessary for the Fund 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
30
<PAGE>
Forward foreign
currency exchange contracts
(continued)
amount of foreign currency the Fund 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 security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
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 Fund may, to a limited extent,
enter into futures contracts, purchase or sell options on futures contracts and
engage in certain transactions in options on securities, and may enter into
closing transactions with respect to such activities. The Fund will only enter
into these transactions for hedging purposes if it is consistent with the Fund's
investment objectives and policies and the Fund will not engage in such
transactions to the extent that obligations relating to futures contracts,
options on futures contracts and options on securities (see "Options on
securities" below), in the aggregate, exceed 25% of the Fund's assets.
The Fund may enter into contracts for the purchase or sale for future delivery
of securities. When a futures contract is sold, the Fund 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 Fund 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 Fund would then be able to keep a cash reserve
applicable to meet potential redemptions while at the same time being
effectively fully invested.
The Fund 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 Fund will not enter into futures contracts and options thereon to
the extent that 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 futures contracts and options thereon would not exceed 20% of the
Fund's total assets. In the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in calculating the 5%.
To the extent that interest or exchange rates move in an unexpected direction,
the Fund may not achieve the anticipated benefits of investing in futures
contracts and options thereon, or may realize a loss. To the extent that the
Fund 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 Fund from closing out
its positions relating to futures.
31
<PAGE>
Additional investment information (continued)
Options on securities
The Fund may write covered call options on U.S. securities, purchase call
options on such securities and enter into closing transactions related thereto.
The Fund 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. The Fund will only purchase call options to the extent
that premiums paid on all outstanding call options do not exceed 2% of the
Fund's total assets.
A put option obligates the writer, in return for the premium received, to buy
the security underlying the option at the exercise price during the option
period, and the purchaser of the option has the right to sell the security to
the writer. The Fund will only write put options on a secured basis which means
that the Fund 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 Fund will only purchase
put options if the Fund 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 Fund'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 Fund offset put options or call options
prior to exercise or expiration. If the Fund 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 Fund may use both exchange-traded and over-the-counter options. Certain
over-the-counter options may be illiquid. The Fund 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 Fund may lose the potential
market appreciation of the securities subject to the option, if the manager'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 the Fund plus any transaction costs will reduce any benefit realized by the
Fund upon exercise of the option. When writing put options, the Fund may be
required, when the put is exercised, to purchase securities at higher prices
than current market prices.
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 the Fund'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 the Fund 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 Fund 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, the Fund 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,
32
<PAGE>
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
The Fund 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 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 Fund.
The Fund may 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 the manager
the day-to-day functions of determining whether or not individual Rule 144A
Securities are liquid for purposes of the Fund's limitation on investments in
illiquid assets. The board has instructed the manager 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 the manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 15% limit on investment in
such securities, the manager will determine what action shall be taken to ensure
that the Fund continues to adhere to such limitation.
Zero coupon
securities
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 Fund intends to qualify as a regulated investment
company under the Internal Revenue Code. Accordingly, during periods when the
Fund 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.
U.S. government securities
The U.S. government securities in which the Fund may invest for temporary
purposes and otherwise (see How we manage the Fund), 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
33
<PAGE>
Additional investment information (continued)
U.S. government securities
(continued)
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 Fund may invest in mortgage-backed securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities or by government sponsored
corporations. Those securities include, but are not limited to, GNMA
certificates. Such securities differ from other fixed-income securities in that
principal is paid back by the borrower over the length of the loan rather than
returned in a lump sum at maturity. When prevailing interest rates rise, the
value of a GNMA security may decrease as do other debt securities. When
prevailing interest rates decline, however, the value of GNMA securities may not
rise on a comparable basis with other debt securities because of the prepayment
feature of GNMA securities. Additionally, if a GNMA certificate is purchased at
a premium above its principal value because its fixed rate of interest exceeds
the prevailing level of yields, the decline in price to par may result in a loss
of the premium in the event of prepayment. Funds received from prepayments may
be reinvested at the prevailing interest rates which may be lower than the rate
of interest that had previously been earned.
The Fund 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
34
<PAGE>
Mortgage-backed securities
(continued)
which the Fund may invest are considered by the U.S. Securities and Exchange
Commission to be investment companies, the Fund will limit its 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 Fund 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 Fund 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 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 the Fund's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund 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 the Fund's net assets.
CMOs and REMICs issued by private entities are not government securities and are
not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. The Fund may invest in such
private-backed securities but, the Fund 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.
35
<PAGE>
Financial information
Financial highlights
The Financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
<TABLE>
<CAPTION>
REIT Fund
Class A Class B Class C
Period Period Period
12/6/95(1,2) 11/11/97(1) 11/11/97(1)
Year Ended 10/31 through through through
1998(2) 1997(2) 10/31/96 10/31/98 10/31/98
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.260 $12.490 $10.000 $16.230 $16.230
Income (loss) from investment operations
Net investment income 1.118 0.616 0.652 0.914 0.914
Net realized and unrealized gain (loss) on investments (2.713) 4.664 1.938 (2.559) (2.559)
-------- ------- ------- ------- -------
Total from investment operations (1.595) 5.280 2.590 (1.645) (1.645)
-------- ------- ------- ------- -------
Less dividends and distributions
Dividends from net investment income (0.865) (0.720) (0.100) (0.775) (0.775)
Distributions from net realized gain on investments (0.820) (0.790) none (0.820) (0.820)
------- ------- ------- ------- -------
Total dividends and distributions (1.685) (1.510) (0.100) (1.595) (1.595)
------- ------- ------- ------- -------
Net asset value, end of period $12.980 $16.260 $12.490 $12.990 $12.990
======= ======= ======= ======= =======
Total return (3) (10.98%) 46.50% 26.12% (11.31%) (11.31%)
Ratios and supplemental data
Net assets, end of period (000 omitted) $13,340 $60,089 $26,468 $12,802 $2,435
Ratio of expenses to average net assets 1.11% 0.82% 0.89% 1.86% 1.86%
Ratio of expenses to average net assets prior to
expense limitation 1.27% 0.99% 1.02% 2.02% 2.02%
Ratio of net investment income to average net assets 4.31% 4.25% 6.70% 3.56% 3.56%
Ratio of net investment income to average net assets
prior to expense limitation 4.15% 4.08% 6.57% 3.40% 3.40%
Portfolio turnover 51% 58% 109% 51% 51%
</TABLE>
Volatility
<TABLE>
<CAPTION>
Period Period Period
12/6/95(1,2) 11/11/97(1) 11/11/97(1)
Year Ended 10/31 through through through
1998(2) 1997(2) 10/31/96 10/31/98 10/31/98
<S> <C> <C> <C> <C> <C>
-10.98% 46.50% 26.12% -11.31% -11.31%
</TABLE>
Volatility, as indicated by year-by-year return3 Volatility is not part of the
Financial Highlights and has not been audited by Ernst & Young LLP.
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized.
(2) The financial highlights appearing above for the period December 6, 1995
through November 3, 1997 are derived from data concerning the original (and
then only) class of shares. Effective November 4, 1997, that original class
was redesignated REIT Fund A Class. The original class did not have a
front-end sales charge or a 12b-1 fee. The financial highlights prior to
November 4, 1997 do not reflect 12b-1 fees or the sales charges described
in this prospectus.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge. Total return
reflects expense limitations in effect for the Fund.
36
<PAGE>
How to read the
Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
F und's securities; it is after expenses have been deducted.
Net realized and unrealized gain (loss) on investments
A realized gain occurs when we sell an investment at a profit, while a realized
loss occurs when we sell an investment at a loss. When an investment increases
or decreases in value but we do not sell it, we record an unrealized gain or
loss. The amount of realized gain per share that we pay to shareholders is
listed under "Less dividends and distributions-Distributions from net realized
gain on investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include fee waivers, exclude front-end and contingent deferred sales
charges, and assume the shareholder has reinvested all dividends and realized
gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover rate
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover rate
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
37
<PAGE>
REIT Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during their last fiscal year. You
can find more detailed information about the Fund in the current Statement of
Additional Information, which we have filed electronically with the Securities
and Exchange Commission (SEC) and which is legally a part of this prospectus. If
you want a free copy of the Statement of Additional Information, the annual or
semi-annual report, or if you have any questions about investing in the Fund,
you can write to us at 1818 Market Street, Philadelphia, PA 19103, or call
toll-free 800.523.1918. You may also obtain additional information about the
Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1-800-SEC-0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center:
Monday to Friday, 8 a.m. to 8 p.m. Eastern time.
o For fund information; literature; price, yield and performance figures.
o For information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions
and telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
o For convenient access to account information or current performance
information on all Delaware Investments Funds seven days a week, 24 hours a
day, use this Touch-Tone(R) service.
Registrant's Investment Company Act file number: 811-6322
Real Estate Investment Trust CI A 246248868 DPREX
Real Estate Investment Trust CI B 246248819 DPRBX
Real Estate Investment Trust CI C 246248793 DPRCX
DELAWARE
INVESTMENTS
- -----------
Philadelphia o London
P+______[--]PP3/99
<PAGE>
DELAWARE
INVESTMENTS
- -----------
PHILADELPHIA o LONDON
REIT Fund
Institutional Class
Prospectus March 1, 1999
Total Return Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of contents
- --------------------------------------------------------------------------------
Fund profile page 2
The REIT Fund 2
- --------------------------------------------------------------------------------
How we manage the Fund page 5
Our investment strategies 5
The risks of investing in the Fund 7
- --------------------------------------------------------------------------------
Who manages the Fund page 10
Investment manager and sub-adviser 10
Portfolio manager 10
- --------------------------------------------------------------------------------
Fund administration (Who's who) page 11
- --------------------------------------------------------------------------------
About your account page 12
Investing in the Fund 12
How to buy shares 13
How to redeem shares 15
Account Minimum 15
Exchanges 15
Dividends, distributions and taxes 16
- --------------------------------------------------------------------------------
Certain management considerations page 17
- --------------------------------------------------------------------------------
Additional investment information page 18
- --------------------------------------------------------------------------------
Financial information page 32
<PAGE>
Profile: The REIT Fund
What are the Portfolio's Goals?
The REIT Fund seeks maximum long-term total return, with capital appreciation
as a secondary objective. Although the Fund will strive to achieve its goal,
there is no assurance that it will.
What are the Fund's main investment strategies? The REIT Fund invests in
securities of companies principally engaged in the real estate industry. Under
normal circumstances, we will invest at least 65% of the Fund's total assets in
equity securities of real estate investment trusts (REITs).
What are the main risks of investing in the Portfolio? Investing in any mutual
fund involves risk, including the risk that you may lose part or all of the
money you invest. The value of your investment will increase and decrease
according to changes in the value of the securities held by the Fund.
Because we concentrate our investments in the real estate industry, the Fund may
be subject to certain risks associated with direct ownership of real estate and
with the real estate industry in general and its investments may tend to
fluctuate more in value than a portfolio that invests in a broader range of
industries. To the extent that the Fund holds real estate directly, as a result
of defaults or receives rental income from its real estate holdings, its tax
status as a regulated investment company may be jeopardized.
The REIT Fund is considered "non-diversified" under the federal laws and
regulations that regulate mutual funds. That means the Fund may invest more than
5% of net assets in a single security. Thus, adverse effects on an investment
held by the Fund may affect a larger portion of overall assets and subject the
Fund to greater risks.
For a more complete discussion of risk, please turn to page 7.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
Who should invest in the Fund?
o Investors seeking a high level of total return.
o Investors willing to invest in equity securities of companies
principally engaged in the real estate industry.
o Investors looking to diversify their equity holdings by adding exposure
to the real estate markets.
Who should not invest in the Fund?
o Investors seeking current income.
o Investors unwilling to accept the risks of investing in the real estate
industry as well as in a non-diversified fund.
o Investors who are unwilling to accept that the value of their
investment may fluctuate, sometimes significantly, over the short term.
1
<PAGE>
How has the Fund performed?
- --------------------------------------------------------------------------------
This bar chart can help you evaluate the risks of investing in REIT Fund. We
show returns for the Institutional Class shares for the past calendar year, as
well as average annual returns for the past year and since inception. The Fund's
past performance is not necessarily an indication how it will perform in the
future. The Class' returns reflect voluntary expense caps in place during the
periods. The returns would be lower without these voluntary caps.
[GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (INSTITUTIONAL CLASS) FPO]
Total return (Institutional Class)
REIT Fund
1998 -12.09%
As of December 31, 1998, the Institutional Class had a year-to-date return of
- -12.09%. During the period illustrated in this bar chart, the Institutional
Class' highest return was 1.12% for the quarter ended March 31, 1998 and its
lowest return was -8.93% for the quarter ended September 30, 1998.
Average annual returns for periods ending 12/31/98
- --------------------------------------------------------------------------------
Institutional NAREIT Equity
Class REIT Index
1 year -12.09% -17.51%
Since inception (11/11/97) -7.28% -14.46%
The table above shows the Fund's average annual returns compared to the
performance of the NAREIT Equity REIT Index. You should remember that unlike the
Fund, the index is unmanaged and doesn't reflect the actual costs of operating a
mutual fund, such as buying, selling, and holding securities.
2
<PAGE>
Maximum sales charge (load) imposed on
purchases as a percentage of offering price none
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
Maximum sales charge (load) imposed on
reinvested dividends none
Redemption fees none
Exchange Fees(1) none
- --------------------------------------------------------------------------------
Management fees 0.75%
Distribution and service (12b-1) fees none
Other expenses 0.27%
Total operating expenses(2) 1.02%
- --------------------------------------------------------------------------------
1 year $104
3 years $325
5 years $563
10 years $1,248
What are REIT Fund's fees and expenses?
- --------------------------------------------------------------------------------
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
- --------------------------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets before it
pays dividends and before its net asset value and total return are calculated.
We will not charge you separately for these expenses. These expenses are based
on amounts incurred during the Fund's most recent fiscal year.
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.3 This is an
example only, and does not represent future expenses, which may be greater or
less than those shown here.
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(2) The investment manager has agreed to waive fees and pay expenses from
November 11, 1998 through April 30, 1999 in order to prevent total operating
expenses (excluding any taxes, interest, brokerage fees, extraordinary
expenses and 12b-1 fees) from exceeding 0.95% of average daily net assets.
The manager's voluntary expense cap was different prior to November 11,
1998.
(3) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show. This example does not reflect the voluntary expense cap described in
footnote 2.
3
<PAGE>
How we manage the Fund
Our investment strategies
The investment objective of the Fund is to achieve maximum long-term total
return. Capital appreciation is a secondary objective. The Fund invests in
securities of companies principally engaged in the real estate industry. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in equity securities of real estate investment trusts (REITs).
The Fund 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. 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
Investment Company Act of 1940. By investing in REITs indirectly through the
Fund, a shareholder bears not only a proportionate share of the expenses of the
Fund, but also, indirectly, similar expenses of the REITs. For a further
discussion of the special risks presented by investing in REITs, see "The risks
of investing in the Fund - Real estate industry risk" and "Additional investment
information"--"REITs."
The Fund also invests in equity securities of other real estate industry
operating companies (REOCs). We define a REOC is a company that
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
How to use this glossary
Words found in the glossary are printed in boldface only the first time they
appear in the prospectus. So if you would like to know the meaning of a word
that isn't in boldface, you might still find it in the glossary.
Glossary A-B
Amortized cost
- --------------------------------------------------------------------------------
Amortized cost is a method used to value a fixed-income security that starts
with the face value of the security and then adds or subtracts from that value
depending on whether the purchase price was greater or less than the value of
the security at maturity. The amount greater or less than the par value is
divided equally over the time remaining until maturity.
4
<PAGE>
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 Fund'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, preferred stocks, securities convertible into
common stocks and securities having common stock characteristics, such as rights
and warrants to purchase common stocks.
The Fund may invest up to 10% of its assets in foreign securities, and in
convertible securities. The Fund may also invest in mortgage-backed securities.
The Fund 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
Fund's positions in cash, short-term debt securities and other money market
instruments, at times when the Fund'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 Fund.
The Fund may hold cash or invest in short-term debt securities and other money
market instruments when the manager believes such holdings are prudent given
current market conditions. Except when the manager believes a temporary
defensive approach is appropriate, the Fund will not hold more than 5% of its
total assets in cash or such short-term investments. All these short-term
investments will be of the highest quality as determined by a
nationally recognized statistical rating organization (e.g. AAA by Standard &
Poor's Ratings Group or Aaa by Moody's Investors Service) or be of comparable
quality as determined by the manager.
Bond ratings
- --------------------------------------------------------------------------------
Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest
quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered
investment grade. Bonds rated Ba/BB or lower are commonly known as junk
bonds.See also Nationally recognized statistical rating organization.
Bond
- --------------------------------------------------------------------------------
A debt security, like an IOU, issued by a company, municipality or government
agency. In return for lending money to the issuer, a bond buyer generally
receives fixed periodic interest payments and repayment of the loan amount on a
specified maturity date. A bond's price changes prior to maturity and is
inversely related to current interest rates. When interest rates rise, bond
prices fall, and when interest rates fall, bond prices rise.
5
<PAGE>
How we manage the Fund (continued)
The manager does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the manager may take advantage of short-term opportunities that are
consistent with the Fund's investment objectives. It is anticipated that the
annual turnover rate of the Fund, under normal circumstances, will generally not
exceed 100%.
See "Additional investment information" and "The risks of investing in the Fund"
for a further discussion of the investment policies described above and the
risks associated with them.
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. Because of the nature of the Fund, you should
consider your investment to be a long-term investment that typically provides
the best results when held for a number of years. The following are the chief
risks you assume when investing REIT Fund. Please see the Statement of
Additional Information for further discussion of these risks and other risks not
discussed here.
- --------------------------------------------------------------------------------
Risks
- --------------------------------------------------------------------------------
Market risk is the risk that all or a majority of the securities in a certain
market -- like the stock or bond market -- will decline in value because of
factors such as economic conditions, future expectations or investor confidence.
Industry and security risk is the risk that the value of securities in a
particular industry or the value of an individual stock or bond will decline
because of changing expectations for the performance of that industry or for the
individual company issuing the stock or bond.
Interest rate risk is the risk that securities will decrease in value if
interest rates rise and conversely rise in value when interest rates fall.
- --------------------------------------------------------------------------------
How we strive to manage them
- --------------------------------------------------------------------------------
We maintain a long-term investment approach and focus on stocks we believe can
appreciate over an extended time frame regardless of interim market
fluctuations. We do not try to predict overall stock market movements and do not
trade for short-term purposes.
We may hold a substantial part of the Fund's assets in cash or cash equivalents
as a temporary, defensive strategy.
In the REIT Fund we concentrate on the real estate industry. As a consequence,
the share price of the Fund may fluctuate in response to factors affecting that
industry, and may fluctuate more widely than a portfolio that invests in a
broader range of industries. The Fund may be more susceptible to any single
economic, political or regulatory occurrence affecting the real estate industry.
The REIT Fund is subject to interest rate risk. As interest rates decline, the
value of the Fund's investments in real estate investment trusts that hold fixed
rate obligations can be expected to rise. Conversely, when interest rates rise,
the value of the Fund's investments in real estate investment trusts holding
fixed rate obligations can be expected to decline. However, lower interest rates
tend to increase the level of refinancing, which can hurt returns of REITs that
hold fixed rate obligations.
- --------------------------------------------------------------------------------
C-D
Capital
- -------
The amount of money you invest.
Capital appreciation
- --------------------
An increase in the value of an investment.
Capital gains distributions
- ---------------------------
Payments to mutual fund shareholders of profits (realized gains) from the sale
of a fund's portfolio securities. Usually paid once a year; may be either
short-term gains or long-term gains.
Compounding
- -----------
Earnings on an investment's previous earnings.
Consumer Price Index (CPI)
- --------------------------
Measurement of U.S. inflation; represents the price of a basket of commonly
purchased goods.
6
<PAGE>
- --------------------------------------------------------------------------------
Risks
- --------------------------------------------------------------------------------
Real Estate Industry Risk includes 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 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. REITS are subject to substantial cash flow
dependency, defaults by borrowers, self-liquidation, and the risk of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code of
1986, as amended and/or to maintain exemptions from the 1940 Act.
Non-Diversified risk affects portfolios with a greater percentage of assets
invested in fewer securities. Adverse effects on individual holdings may have a
greater impact on the Fund's performance.
Foreign risk is the risk that foreign securities may be adversely affected by
political instability, changes in currency exchange rates, foreign economic
conditions or inadequate regulatory and accounting standards.
Liquidity risk is the possibility that securities cannot be readily sold, or can
only be sold at a price lower than the price that the Fund has valued them.
- --------------------------------------------------------------------------------
How we strive to manage them
- --------------------------------------------------------------------------------
Since the Fund invests principally in REITS it is more subject to the risks
associated with the real estate industry. Investors should carefully consider
these risks before investing in the Fund.
Though the REIT Fund will hold a number of different securities, technically it
is considered a non-diversified fund according to the definition in the 1940
Act. In a diversified fund, 75% of the portfolio must be diversified, meaning
the Fund cannot invest more than 5% of net assets in an individual security.
When a fund is non-diversified, it does not have to limit the percentage of
assets invested in individual securities to that extent. However, the Fund does
intend to satisfy the Internal Revenue Code's diversification requirement, which
says that for 50% of the Fund's assets, no more than 5% of net assets can be
invested in any one individual security. The bottom line for shareholders is
that 50% of the REIT Fund must be invested so that no more than 5% of net assets
are invested in any single security. The other 50% can be more concentrated with
greater than 5% invested in individual securities.
We may invest up to 10% of the REIT Fund's total assets in foreign securities;
however we typically invest only a small portion of assets in foreign
securities, so this is not expected to be a major risk to the Fund.
If the Fund holds international securities, currency considerations may present
risks. The Fund may try to reduce this risk by investing in forward foreign
currency exchange contracts to neutralize currency risks associated with the
purchase of individual securities denominated in a particular currency. See
"Futures and options risks" below.
We limit exposure to illiquid securities.
- --------------------------------------------------------------------------------
Corporate bond
- --------------
A debt security issued by a corporation. See bond.
Cost basis
- ----------
The original purchase price of an investment, used in determining capital gains
and losses.
Currency exchange rates
- -----------------------
The price at which one's country's currency can be converted into another's.
This exchange rate varies almost daily according to a wide range of political,
economic and other factors.
Depreciation
- ------------
A decline in an investment's value.
Diversification
- ---------------
The process of spreading investments among a number of different securities,
asset classes or investment styles to reduce the risks of investing.
7
<PAGE>
- --------------------------------------------------------------------------------
Risks
- --------------------------------------------------------------------------------
Futures and options risks Futures contracts, options on futures contracts,
forward contracts and certain other options involve risks. For example, there
may be no correlation between price changes of an option or futures contract and
the assets being hedged. This could render the hedging strategy unsuccessful and
could result in losses. Also, options and futures contracts on foreign
currencies, and forward contracts, entail particular risks related to conditions
affecting the underlying currency.
- --------------------------------------------------------------------------------
How we strive to manage them
- --------------------------------------------------------------------------------
The REIT Fund may use futures contracts and options on futures contracts, as
well as options on securities for hedging purposes. The Fund will enter into
futures contracts and options on them only to the extent that no more than 5% of
the Fund's assets are required as futures contract margin deposits and premiums
on options and only to the extent that obligations under futures contracts and
options on them would not exceed 20% of the Fund's total assets.
See also "Foreign risk" above.
- --------------------------------------------------------------------------------
Lending securities The Fund may lend up to 25% of its assets to qualified
dealers and investors for their use in security transactions.
Purchasing securities on a when-issued or delayed delivery basis The Fund may
buy or sell securities on a when-issued or delayed delivery basis; that it,
paying for securities before delivery or taking delivery at a later date.
Portfolio turnover rates reflect the amount of securities that are replaced from
the beginning of the year to the end of the year by the Fund. The degree of
portfolio activity may affect brokerage costs and other transaction costs of the
Fund. We anticipate that the annual turnover rate of the Fund will generally not
exceed 100%.
D-I
Dividend distribution
- ---------------------
Payments to mutual fund shareholders of dividends passed along from the fund's
portfolio of securities.
Expense ratio
- -------------
A mutual fund's total operating expenses, expressed as a percentage of its total
net assets. Operating expenses are the costs of running a mutual fund, including
management fees, offices, staff, equipment and expenses related to maintaining
the fund's portfolio of securities and distributing its shares. They are paid
from the fund's assets before any earnings are distributed to shareholders.
Financial adviser
- -----------------
Financial professional (e.g., broker, banker, accountant, planner or insurance
agent) who analyzes clients' finances and prepares personalized programs to meet
objectives.
8
<PAGE>
Who manages the Fund
Investment manager
and sub-adviser
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust, which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. Lincoln Investment Management, Inc. is the Fund's
sub-adviser. As sub-adviser, Lincoln provides Delaware with investment
recommendations, asset allocation advice, research, economic analysis and other
investment services regarding the types of securities in which we invest. For
their services to the Fund, the manager and sub-adviser were paid an aggregate
fee for the last fiscal year as follows:
Investment Management Fees
REIT Fund
As a percentage of average daily net assets 0.59%
Portfolio
manager
Baback Zenouzi has primary responsibility for making day-to-day investment
decisions for the Fund. He has been Senior Portfolio Manager for the Fund since
its inception. Mr. Zenouzi holds a BS in Finance and Economics from Babson
College in Wellesley, Massachussetts, and an MS in Finance from Boston College.
Before joining Delaware Investments in 1992, he was with the Boston Company
where he was an assistant vice president, senior financial analyst, financial
analyst and portfolio accountant.
Fixed-income securities
- -----------------------
With fixed-income securities, the money you originally invested is paid back at
a pre-specified maturity date. These securities, which include government,
corporate or municipal bonds, as well as money market securities, typically pay
a fixed rate of return (often referred to as interest). See Bonds.
Inflation
- ---------
The increase in the cost of goods and services over time. U.S. inflation is
frequently measured by changes in the Consumer Price Index (CPI).
Investment goal
- ---------------
The objective, such as long-term capital growth or high current income, that a
mutual fund pursues.
9
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments funds.
Board of Directors
Investment Manager
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
Custodian
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
The Fund
Sub-adviser
Lincoln Investment Management
200 E. Berry Street
Fort Wayne, IN 46802
Service agent
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
Distributor
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
Portfolio manager
(see page 9 for details)
Shareholders
Board of directors A mutual fund is governed by a board of directors which has
oversight responsibility for the management of the fund's business affairs.
Directors establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the board of directors must be independent of the fund's
investment manager or distributor. These independent fund directors, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Sub-adviser A sub-adviser is a company generally responsible for the management
of a designated portion the fund's assets. They are selected and supervised by
the investment manager.
Portfolio managers Portfolio managers are employed by the investment manager or
sub-adviser to make investment decisions for individual portfolios on a
day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and typically place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to
National Association of Securities Dealers, Inc. (NASD) rules governing mutual
fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect directors. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
<PAGE>
M-P
Management fee
- --------------
The amount paid by a mutual fund to the investment adviser for management
services, expressed as an annual percentage of the fund's average daily net
assets.
Market capitalization
- ---------------------
The value of a corporation determined by multiplying the current market price of
a share of common stock by the number of shares held by shareholders. A
corporation with one million shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
NAREIT Equity REIT Index
- ------------------------
The NAREIT Equity REIT Index is a benchmark of real estate investment trusts
that invest in many types of U.S. property.
10
<PAGE>
About your account
Investing in
the Fund
Institutional Class shares are available for purchase only by the following:
o retirement plans introduced by persons not associated with brokers or dealers
that are primarily engaged in the retail securities business and rollover
individual retirement accounts from such plans
o tax-exempt employee benefit plans of the manager or its affiliates and
securities dealer firms with a selling agreement with the distributor
o institutional advisory accounts of the manager, or its affiliates and those
having client relationships with Delaware Investment Advisers, an affiliate of
the manager, or its affiliates and their corporate sponsors, as well as
subsidiaries and related employee benefit plans and rollover individual
retirement accounts from such institutional advisory accounts
o a bank, trust company and similar financial institution investing for its own
account or for the account of its trust customers for whom such financial
institution is exercising investment discretion in purchasing shares of the
Class, except where the investment is part of a program that requires payment
to the financial institution of a Rule 12b-1 Plan fee
o registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least
$1,000,000 entrusted to the adviser for investment purposes, but only if the
adviser is not affiliated or associated with a broker or dealer and derives
compensation for its services exclusively from its clients for such advisory
services
National Association of Securities Dealers (NASD)
- -------------------------------------------------
A self-regulating organization, consisting of brokerage firms (including
distributors of mutual funds), that is responsible for overseeing the actions of
its members.
Net asset value (NAV)
- ---------------------
The daily dollar value of one mutual fund share. Equal to a fund's net assets
divided by the number of shares outstanding.
Preferred stock
- ---------------
Preferred stock has preference over common stock in the payment of dividends and
liquidation of assets. Preferred stocks also often pay dividends at a fixed
rate and are sometimes convertible into common stock.
Price-to-earnings ratio
- -----------------------
A measure of a stock's value calculated by dividing the current market price of
a share of stock by its annual earnings per share. A stock selling for $100 per
share with annual earnings per share of $5 has a P/E of 20.
Principal
- ---------
Amount of money you invest (also called capital). Also refers to a bond's
original face value, due to be repaid at maturity.
11
<PAGE>
About your account (continued)
How to buy shares
[GRAPHIC OMITTED] By mail
Complete an investment slip and mail it with your check, made
payable to the fund and class of shares you wish to purchase
to Delaware Investments, 1818 Market Street, Philadelphia, PA
19103-3682. If you are making an initial purchase by mail, you
must include a completed investment application (or an
appropriate retirement plan application if you are opening a
retirement account) with your check.
[GRAPHIC OMITTED] By wire
Ask your bank to wire the amount you want to invest to First
Union Bank, ABA #031201467, Bank Account number 2014128934013.
Include your account number and the name of the fund in which
you want to invest. If you are making an initial purchase by
wire, you must call us at 800.510.4015 so we can assign you an
account number.
[GRAPHIC OMITTED] By exchange
You can exchange all or part of your investment in one or more
funds in the Delaware Investments family for shares of other
funds in the family. Please keep in mind, however, that you
may not exchange your shares for Class B or Class C shares. To
open an account by exchange, call Client Services
Representative at 800.510.4015.
[GRAPHIC OMITTED] Through your financial adviser
Your financial adviser can handle all the details of
purchasing shares, including opening an account. Your adviser
may charge a separate fee for this service.
R-S
Prospectus
- ----------
The official offering document that describes a mutual fund, containing
information required by the SEC, such as investment objectives, policies,
services and fees.
Real estate investment trusts (REITS)
- ------------------------------------
A real estate investment trust is a company that is usually traded publicly,
that manages a portfolio of real estate to make profits for shareholders.
Redeem
- ------
To cash in your shares by selling them back to the mutual fund.
Risk
- ----
Generally defined as variability of value; also credit risk, inflation risk,
currency and interest rate risk. Different investments involve different types
and degrees of risk.
12
<PAGE>
How to buy shares
(continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receive your order before the close of trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on a business day,
you will pay that day's closing share price which is based on the Fund's net
asset value. If we receive your order after the close of trading, you will pay
the next business day's price. A business day is any day that the New York Stock
Exchange is open for business. Currently the Exchange is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. We reserve the right to reject any purchase
order.
We determine the Fund's net asset value (NAV) per share at the close of
trading of the New York Stock Exchange each business day that the Exchange is
open. We calculate this value by adding the market value of all the securities
and assets in the Fund's portfolio, deducting all liabilities, and dividing the
resulting number by the number of shares outstanding. The result is the net
asset value per share. We price securities and other assets for which market
quotations are available at their market value. We price fixed-income securities
on the basis of valuations provided to us by an independent pricing service that
uses methods approved by the board of directors. Any fixed-income securities
that have a maturity of less than 60 days we price at amortized cost. We price
all other securities at their fair market value using a method approved by the
board of directors.
Sales charge
- ------------
Charge on the purchase or redemption of fund shares sold through financial
advisers. May vary with the amount invested. Typically used to compensate
advisers for advice and service provided.
SEC (Securities and Exchange Commission)
- ----------------------------------------
Federal agency established by Congress to administer the laws governing the
securities industry, including mutual fund companies.
Share classes
- -------------
Different classifications of shares; mutual fund share classes offer a variety
of sales charge choices.
Signature guarantee
- -------------------
Certification by a bank, brokerage firm or other financial institution that a
customer's signature is valid; signature guarantees can be provided by members
of the STAMP program.
13
<PAGE>
About your account (continued)
How to redeem shares
[GRAPHIC OMITTED] By mail
You can redeem your shares (sell them back to the fund) by
mail by writing to: Delaware Investments, 1818 Market Street,
Philadelphia, PA 19103. All owners of the account must sign
the request, and for redemptions of $50,000 or more, you must
include a signature guarantee for each owner. You can also fax
your written request to 215.255.8864. Signature guarantees are
also required when redemption proceeds are going to anyone
other than the account holder(s) of record..
[GRAPHIC OMITTED] By telephone
You can redeem up to $50,000 of your shares by telephone. You
may have the proceeds sent to you by check, or if you redeem
at least $1,000 of shares, you may have the proceeds sent
directly to your bank by wire. Bank information must be on
file before you request a wire redemption.
[GRAPHIC OMITTED] By wire
You can redeem $1,000 or more of your shares and have the
proceeds deposited directly to your bank account the next
business day after we receive your request. Bank information
must be on file before you request a wire redemption.
[GRAPHIC OMITTED] Through your financial adviser
Your financial adviser can handle all the details of redeeming
your shares. Your adviser may charge a fee for this service.
S-V
Standard deviation
- ------------------
A measure of an investment's volatility; for mutual funds, measures how much a
fund's total return has typically varied from its historical verage.
Statement of Additional Information (SAI)
- -----------------------------------------
The document serving as "Part B" of a fund's prospectus that provides more
detailed information about the fund's organization, investments, policies and
risks.
Stock
- -----
An investment that represents a share of ownership (equity) in a corporation.
Stocks are often referred to as "equities."
Total return
- ------------
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
14
<PAGE>
How to redeem shares
(continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares, you
will receive the net asset value as determined on the business day we receive
your request. We will send you a check, normally the next business day, but no
later than seven days after we receive your request to sell your shares. If you
purchased your shares by check, we will wait until your check has cleared, which
can take up to 15 days, before we send your redemption proceeds.
Account minimum
If you redeem shares and your account balance falls below $250, the Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends,
distributions
and taxes
Dividends and capital gains, if any, are paid annually. We automatically
reinvest all dividends and any capital gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
Volatility
- ----------
The tendency of an investment to go up or down in value by different magnitudes.
Investments that generally go up or down in value in relatively small amounts
are considered "low volatility" investments, whereas those investments that
generally go up or down in value in relatively large amounts are considered
"high volatility" investments.
15
<PAGE>
Certain management considerations
Year 2000
As with other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by its service providers do not properly process and calculate date-related
information from and after January 1, 2000. This is commonly known as the "Year
2000 Problem." The Fund is taking steps to obtain satisfactory assurances that
its major service providers are taking steps reasonably designed to address the
Year 2000 Problem on the computer systems that the service providers use.
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the business of the Fund. The Year 2000 Problem may also
adversely affect the issuers of securities in which the Fund invests. The
Portfolio manager and investment professionals of the Fund consider Year 2000
compliance in the securities selection and investment process. However, there
can be no guarantee that, even with their due diligence efforts, they will be
able to predict the affect of Year 2000 on any company or the performance of its
securities.
Investments by Fund of Funds
REIT Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, the Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, the Fund may be required to sell securities or invest cash at times
when it would not otherwise do so. These transactions could also have tax
consequences if sales of securities result in gains, and could also increase
transactions costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on both
REIT Fund and Foundation Funds as a result of these transactions.
16
<PAGE>
Additional investment information
REITS
The Fund'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.
Convertible, debt and non-traditional equity securities
A portion of the Fund's assets may be invested in convertible securities of
issuers in the real estate industry. A convertible security is a security which
may be converted at a stated price within a specified period of time into a
certain quantity of the common stock of the same or a different issuer.
Convertible and debt securities are senior to common stocks in a corporation's
capital structure, although convertible securities are usually subordinated to
similar nonconvertible securities. Convertible and debt securities provide a
fixed-income stream and the opportunity, through its conversion feature, to
participate in the capital appreciation resulting from a market price advance in
the convertible security's underlying common stock. Just as with debt
securities, convertible securities tend to increase in market value when
interest rates decline and tend to decrease in value when interest rates rise.
However, the price of a convertible security is also influenced by the market
value of the security's underlying common stock and tends to increase as the
market value of the underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines. Convertible and debt securities
acquired by the Fund 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."
T-V
Total return
- ------------
An investment performance measurement, expressed as a percentage, based on the
combined earnings from dividends, capital gains and change in price over a given
period.
Uniform Gift to Minors Act and Uniform Transfers to Minors Act
- --------------------------------------------------------------
Federal and state laws that provide a simple way to transfer property to a minor
with special tax advantages.
Volatility
- ----------
The tendency of an investment to go up or down in value by different magnitudes.
There are "low volatility" and "high volatility" investments.
17
<PAGE>
Additional investment information (continued)
Convertible, debt and non-traditional equity securities
(continued)
The Fund 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 Fund, 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 Fund 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
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.
Depositary receipts
The Fund 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
18
<PAGE>
Depositary receipts
(continued)
concerning the issuer of the security and the market value of an unsponsored
ADR. ADRs may be listed on a national securities exchange or may be traded in
the over-the-counter market. ADR prices are denominated in U.S. dollars although
the underlying securities are denominated in a foreign currency. Investments in
ADRs involve risks similar to those accompanying direct investments in foreign
securities.
Short-term investments
The short-term investments in which the Fund may invest consistent
with the stated under "How we manage the Fund" are:
o 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 the Fund,
and time deposits maturing from two business days through seven calendar days
will not exceed 15% of the total assets of the Fund. Certificates of deposit
are negotiable short-term obligations issued by commercial banks against funds
deposited in the issuing institution. Variable rate certificates of deposit
are certificates of deposit on which the interest rate is periodically
adjusted prior to their stated maturity based upon a specified market rate. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods).
The Fund 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;
o 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 the manager;
o 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 the
manager;
o U.S. government securities (see U.S. Government Securities); and
o Repurchase agreements collateralized by securities listed above.
19
<PAGE>
Additional investment information (continued)
When-issued and delayed delivery securities
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. The Fund 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 the Fund enters into the commitment and no interest
accrues to the Fund 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
Fund not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Fund's total assets less liabilities other than the
obligations created by these commitments.
Repurchase agreements
The Fund may enter into repurchase agreements with brokers, dealers or banks
deemed to be creditworthy by the manager under guidelines of board of directors.
In a repurchase agreement, the Fund buys securities from a seller that has
agreed to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. The term of these
agreements is usually from overnight to one week and never exceeds one year. Not
more than 15% of the Fund's assets may be invested in repurchase agreements
having a maturity in excess of seven days. Repurchase agreements may be viewed
as a fully collateralized loan of money by the Fund to the seller. The Fund
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, the Fund
might incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Fund's realization upon the collateral may be delayed or limited.
The Fund may invest cash balances in a joint repurchase agreement in accordance
with an Order Delaware Investments has obtained from the Commission under
Section 17(d) of the 1940 Act.
Securities lending activities
The Fund 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 the Fund 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, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the manager, 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 manager.
Borrowing from banks
The Fund may borrow money as a temporary measure or to facilitate redemptions.
The Fund has no intention of increasing its net income through borrowing. Any
borrowing will be done from a bank and, consistent with SEC 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%, the Fund 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 the Fund has an outstanding borrowing.
20
<PAGE>
Foreign investment information
Up to 10% of the total assets of the Fund may be invested in securities of
foreign issuers and foreign currency. The Fund has the right to purchase
securities in any developed, underdeveloped or emerging country. 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 Fund's
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 the Fund receives
from the companies comprising the Fund's investments.
Further, the Fund 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 the Fund may invest may also be smaller, less liquid and subject to
greater price volatility than those in the United States.
21
<PAGE>
Additional investment information (continued)
Foreign investment information
(continued)
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 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 the
Fund 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 manager does not believe that any current
repatriation restrictions would affect their decision to invest in such
countries. Countries such as those in which the Fund may 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
22
<PAGE>
Foreign investment information
(continued)
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 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, the Fund 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.
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 Fund present currency
considerations which pose special risks. The manager uses 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 Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund 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 transactions and to minimize currency value fluctuations.
The Fund 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).
The Fund will convert currency on a spot basis from time to time, and investors
should be aware of the costs of currency conversion.
23
<PAGE>
Additional investment information (continued)
Forward foreign currency exchange contracts
(continued)
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.
The Fund 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, the Fund 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 manager believes that the currency of a particular foreign
country may suffer a significant decline against the U.S. dollar or against
another currency, the Fund may enter into a forward contract to sell, for a
fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's securities or other assets denominated in
that currency.
The Fund 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 Fund may also engage in currency "cross hedging" when,
in the opinion of the manager, as appropriate, the historical relationship among
foreign currencies suggests that the Fund 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, the Fund 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 Fund 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 the Fund securities at the
expiration of the contract. Accordingly, it may be necessary for the Fund 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 Fund 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 security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
24
<PAGE>
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 Fund may, to a limited extent,
enter into futures contracts, purchase or sell options on futures contracts and
engage in certain transactions in options on securities, and may enter into
closing transactions with respect to such activities. The Fund will only enter
into these transactions for hedging purposes if it is consistent with the Fund's
investment objectives and policies and the Fund will not engage in such
transactions to the extent that obligations relating to futures contracts,
options on futures contracts and options on securities (see "Options on
securities" below), in the aggregate, exceed 25% of the Fund's assets.
The Fund may enter into contracts for the purchase or sale for future delivery
of securities. When a futures contract is sold, the Fund 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 Fund 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 Fund would then be able to keep a cash reserve
applicable to meet potential redemptions while at the same time being
effectively fully invested.
The Fund 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 Fund will not enter into futures contracts and options thereon to
the extent that 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 futures contracts and options thereon would not exceed 20% of the
Fund's total assets. In the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in calculating the 5%.
To the extent that interest or exchange rates move in an unexpected direction,
the Fund may not achieve the anticipated benefits of investing in futures
contracts and options thereon, or may realize a loss. To the extent that the
Fund 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 Fund from closing out
its positions relating to futures.
25
<PAGE>
Additional investment information (continued)
Options on securities
The Fund may write covered call options on U.S. securities, purchase call
options on such securities and enter into closing transactions related thereto.
The Fund 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. The Fund will only purchase call options to the extent
that premiums paid on all outstanding call options do not exceed 2% of the
Fund's total assets.
A put option obligates the writer, in return for the premium received, to buy
the security underlying the option at the exercise price during the option
period, and the purchaser of the option has the right to sell the security to
the writer. The Fund will only write put options on a secured basis which means
that the Fund 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 Fund will only purchase
put options if the Fund 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 Fund'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 Fund offset put options or call options
prior to exercise or expiration. If the Fund 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 Fund may use both exchange-traded and over-the-counter options. Certain
over-the-counter options may be illiquid. The Fund 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 Fund may lose the potential
market appreciation of the securities subject to the option, if the manager'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 the Fund plus any transaction costs will reduce any benefit realized by the
Fund upon exercise of the option. When writing put options, the Fund may be
required, when the put is exercised, to purchase securities at higher prices
than current market prices.
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 the Fund'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 the Fund 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 Fund 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, the Fund may be required to maintain a position (and in the case of
written options may be required to continue to
26
<PAGE>
Risks of transactions in options, futures and forward contracts
(continued)
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
The Fund 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 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 Fund.
The Fund may 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 the manager
the day-to-day functions of determining whether or not individual Rule 144A
Securities are liquid for purposes of the Fund's limitation on investments in
illiquid assets. The board has instructed the manager 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 the manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 15% limit on investment in
such securities, the manager will determine what action shall be taken to ensure
that the Fund continues to adhere to such limitation.
Zero coupon securities
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 Fund intends to qualify as a regulated investment
company under the Internal Revenue Code. Accordingly, during periods when the
Fund 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.
U.S. government securities
The U.S. government securities in which the Fund may invest for temporary
purposes and otherwise (see How we manage the Fund), 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.
27
<PAGE>
U.S. government securities
(continued)
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 Fund may invest in mortgage-backed securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities or by government sponsored
corporations. Those securities include, but are not limited to, GNMA
certificates. Such securities differ from other fixed-income securities in that
principal is paid back by the borrower over the length of the loan rather than
returned in a lump sum at maturity. When prevailing interest rates rise, the
value of a GNMA security may decrease as do other debt securities. When
prevailing interest rates decline, however, the value of GNMA securities may not
rise on a comparable basis with other debt securities because of the prepayment
feature of GNMA securities. Additionally, if a GNMA certificate is purchased at
a premium above its principal value because its fixed rate of interest exceeds
the prevailing level of yields, the decline in price to par may result in a loss
of the premium in the event of prepayment. Funds received from prepayments may
be reinvested at the prevailing interest rates which may be lower than the rate
of interest that had previously been earned.
The Fund 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
28
<PAGE>
Mortgage-backed securities
(continued)
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 Fund may invest are considered
by the U.S. Securities and Exchange Commission to be investment companies, the
Fund will limit its 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 Fund 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 Fund 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 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 the Fund's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund 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 the Fund's net assets.
CMOs and REMICs issued by private entities are not government securities and are
not directly guaranteed by any government agency. They are secured by the
underlying collateral of the private issuer. The Fund may invest in such
private-backed securities but, the Fund 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.
29
<PAGE>
Financial information
Financial highlights Institutional Class
- --------------------------------------------------------------------------------
REIT Fund
- --------------------------------------------------------------------------------
Period 11/11/97(1)
through
10/31/98
- --------------------------------------------------------------------------------
Net asset value, beginning of period $16.230
Income (loss) from investment operations
Net investment income 1.134
Net realized and unrealized gain (loss) on investments (2.659)
-------
Total from investment operations (1.525)
-------
Less dividends and distributions
Dividends from net investment income (0.895)
-------
Distributions from net realized gain on investments (0.820)
-------
Total dividends and distributions (1.175)
-------
Net asset value, end of period $12.990
=======
Total return(2) (10.56%)
Ratios and supplemental data
Net assets, end of period (000 omitted) $ 1,504
Ratio of expenses to average net assets 0.86%
Ratio of expenses to average net assets prior to
expense limitation 1.02%
Ratio of net investment income to average net assets 4.56%
Ratio of net investment income to average net assets
prior to expense limitation 4.40%
Portfolio turnover 51%
- --------------------------------------------------------------------------------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized.
(2) Total return reflects expense limitations in effect for the Fund.
The Financial highlights table is intended to help you understand the Fund's
financial performance. All "per share" information reflects financial results
for a single Fund share. This information has been audited by Ernst & Young LLP,
whose report, along with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by calling 800.523.1918.
30
<PAGE>
How to read the
Financial highlights
Net investment income
Net investment income includes dividend and interest income earned from the
Fund's securities after expenses have been deducted.
Net realized and unrealized gains (losses) on investments
A realized gain occurs when we sell an investment at a profit, while a realized
loss occurs when we sell an investment at a loss. When an investment increases
or decreases in value but we do not sell it, we record an unrealized gain or
loss. The amount of realized gain per share that we pay to shareholders is
listed under "Less Dividends and Distributions from net realized gains on
investments."
Net asset value (NAV)
This is the value of a mutual fund share, calculated by dividing the net assets
by the number of shares outstanding.
Total return
This represents the rate that an investor would have earned or lost on an
investment in the Fund. In calculating this figure for the financial highlights
table, we include fee waivers, and assume the shareholder has reinvested all
dividends and realized gains.
Net assets
Net assets represent the total value of all the assets in the Fund's portfolio,
less any liabilities, that are attributable to that class of the Fund.
Ratio of expenses to average net assets
The expense ratio is the percentage of net assets that a fund pays annually for
operating expenses and management fees. These expenses include accounting and
administration expenses, services for shareholders, and similar expenses.
Ratio of net investment income to average net assets
We determine this ratio by dividing net investment income by average net assets.
Portfolio turnover rate
This figure tells you the amount of trading activity in a fund's portfolio. For
example, a fund with a 50% turnover has bought and sold half of the value of its
total investment portfolio during the stated period.
31
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<PAGE>
REIT Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the SEC web site
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. You can get
information on the public reference room by calling the SEC at 1.800.SEC.0330.
Web site
www.delawarefunds.com
E-mail
[email protected]
Client Services Representative
800.510.4015
Delaphone Service
800.362.FUND (800.362.3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Registrant's Investment Company Act file number: 811-6322
Cusip Number NASDAQ Symbol
REIT Fund Institutional Class 246248777 DPRSX
DELAWARE(SM)
INVESTMENTS
- -----------
Philadelphia o London
P- [--] PP 2/99
<PAGE>
DELAWARE POOLED TRUST, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 1999
-----------------------------------
Delaware Pooled Trust, Inc. ("Pooled Trust, Inc.") is an open-end
management investment company. Pooled Trust, Inc. consists of various series
("Portfolios") offering a broad range of investment choices. Pooled Trust, Inc.
is designed to provide clients with attractive alternatives for meeting their
investment needs. This Statement of Additional Information ("SAI") (Part B of
Pooled Trust, Inc.'s registration statement) addresses information of Pooled
Trust, Inc. applicable to each of the Portfolios. In addition, investors may
make investments in The Asset Allocation Portfolio. That Portfolio is a "fund of
funds" which primarily invests in several of the Portfolios of Pooled Trust,
Inc. The Asset Allocation Portfolio is a series of Delaware Group Foundation
Funds ("Foundation Funds") which is also an open-end management investment
company.
This SAI is not a prospectus but should be read in conjunction with the
related Prospectus for each Portfolio. Certain information from the Fund's
Annual Report has been incorporated by reference into this SAI. To obtain the
proper Prospectus or Annual Report for the Portfolios, please write to the
Delaware Pooled Trust, Inc. at One Commerce Square, 2005 Market Street,
Philadelphia, PA 19103, Attn: Client Services or call Pooled Trust, Inc. at
1-800-231-8002. Correspondence relating to The Asset Allocation Portfolio will
be forwarded to Foundation Funds. To obtain the Prospectus or Annual Report for
the Class A, B and C Shares or the Institutional Class of The Real Estate
Investment Trust Portfolio, write to the Distributor at 1818 Market Street,
Philadelphia, PA 19103 or call 1-800-523-1918 for the Class A, B and C Shares or
1-800-510-4015 for the Institutional Class.
1
<PAGE>
TABLE OF CONTENTS
Page
----
Fund History 3
Investment Policies, Portfolio Techniques and Risk Considerations 3
Investment Restrictions 3
Investment Policies and Risks 10
Accounting and Tax Issues 38
Trading Practices and Brokerage 43
Portfolio Turnover 46
Purchasing Shares 48
Determining Offering Price and Net Asset Value 72
Redemption and Exchange 74
Dividends and Capital Gain Distributions 85
Taxes 87
Investment Management Agreements 91
Officers and Directors 101
General Information 127
Performance Information 130
Financial Statements 145
Appendix A - Ratings 146
Appendix B--Investment Objectives of the Funds
in the Delaware Investments Family 148
2
<PAGE>
FUND HISTORY
The Fund was organized as a Maryland corporation on May 30, 1991. The
Articles of Incorporation permit the Fund to issue two 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. Foundation Funds was organized as a Delaware
business trust on October 24, 1997.
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/trustees can elect
100% of the directors/trustees 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 class of shares of a Portfolio when
otherwise expressly required by law. Neither the Fund nor Foundation Funds 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. Under Foundation Funds' Declaration of Trust and
By-Laws, it is also not required, and does not intend, to hold annual meetings
unless required to do so by the 1940 Act.
Delaware Pooled Trust, Inc. offers various Portfolios providing
eligible investors a broad range of investment choices coupled with the
advantage of a no-load mutual fund with the service companies of Delaware
Investments providing customized services as investment adviser, administrator
and distributor. Each Portfolio, other than The Real Estate Investment Trust
Portfolio, The Real Estate Investment Trust Portfolio II, The Global Fixed
Income Portfolio, The International Fixed Income Portfolio, The Emerging Markets
Portfolio and The Asset Allocation Portfolio, is a diversified fund as defined
by the Investment Company Act of 1940 ("1940 Act"). The Real Estate Investment
Trust Portfolio, The Real Estate Investment Trust Portfolio II, The Global Fixed
Income Portfolio, The International Fixed Income Portfolio, The Emerging Markets
Portfolio and The Asset Allocation Portfolio are nondiversified funds as defined
by the 1940 Act.
INVESTMENT POLICIES, PORTFOLIO TECHNIQUES AND RISK CONSIDERATIONS
Investment Restrictions
Pooled Trust, Inc. has adopted the following restrictions for each of
the Portfolios (except where otherwise noted) which, along with its respective
investment objective (except in the case of the International Mid-Cap Sub
Portfolio), 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.
3
<PAGE>
The investment objective of The Asset Allocation, The Small-Cap Value
Equity, The Small-Cap Growth Equity, The Core Equity, and The International
Mid-Cap Sub Portfolios are not fundamental, and may be changed without
shareholder approval. However, The Board of Directors or Trustees, as
appropriate for The Asset Allocation, the Small-Cap Growth Equity, The Core
Equity, and The International Mid-Cap Sub Portfolio will notify shareholders
prior to a material change in the Portfolio's objective.
Each Portfolio (other than The International Mid-Cap Sub Portfolio, The
Mid-Cap Value Equity Portfolio, The Small-Cap Value Equity Portfolio, The Global
Equity Portfolio, The Emerging Markets Portfolio, The Aggregate Fixed Income
Portfolio and The Diversified Core Fixed Income 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 and The Real Estate Investment Trust Portfolio II
(collectively, "The Real Estate Investment Trust Portfolios") may each 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 each of The Real Estate Investment Trust Portfolios 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
Mid-Cap Growth Equity Portfolio, The Real Estate Investment Trust Portfolios and
The International Fixed Income Portfolio may enter into futures contracts and
may purchase and sell options on futures contracts in accordance with the
related Prospectus, subject to investment restriction 6 below.
6. Enter into futures contracts or options thereon, except that The
Mid-Cap Growth Equity Portfolio, The Real Estate Investment Trust Portfolios 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 Mid-Cap Growth Equity Portfolio, The Real Estate Investment
Trust Portfolios and The International Fixed Income Portfolio may satisfy margin
requirements with respect to futures transactions.
8. Purchase or retain the securities of any issuer which has an
officer, director or security holder who is a director or officer of Pooled
Trust, Inc. or of either of the investment advisers if or so long as the
directors and officers of Pooled Trust, Inc. and of the investment advisers
together own beneficially more than 5% of any class of securities of such
issuer.
4
<PAGE>
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 International Mid-Cap Sub Portfolio, The Mid-Cap Value
Equity Portfolio, The Small-Cap Value Equity Portfolio, The Labor Select
International Equity Portfolio, The Real Estate Investment Trust Portfolios, The
International Fixed Income Portfolio, The High-Yield Bond Portfolio, The
Emerging Markets Portfolio, The Aggregate Fixed Income Portfolio and The
Diversified Core Fixed Income 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 (other than The International Mid-Cap Sub Portfolio, The
Mid-Cap Value Equity Portfolio, The Small-Cap Value Equity Portfolio, The Labor
Select International Equity Portfolio, The Real Estate Investment Trust
Portfolios, The International Fixed Income Portfolio, The High-Yield Bond
Portfolio, The Emerging Markets Portfolio, The Aggregate Fixed Income Portfolio
and The Diversified Core Fixed Income 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 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.
5
<PAGE>
4. Write, purchase or sell options, puts, calls or combinations thereof
with respect to securities, except that The Mid-Cap Growth Equity 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 Pooled Trust, Inc.'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 Labor Select International Equity Portfolio, The Real Estate
Investment Trust Portfolios, The International Fixed Income Portfolio and The
High-Yield Bond Portfolio
The following additional investment restrictions apply to The Labor
Select International Equity Portfolio, The Real Estate Investment Trust
Portfolios, 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 Pooled Trust,
Inc.'s Board of Directors without shareholder approval.
Except as noted below, each of The Labor Select International Equity
Portfolio, The Real Estate Investment Trust Portfolios, 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 Portfolios 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 Portfolios and
their investments 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.
6
<PAGE>
5. Write, purchase or sell options, puts, calls or combinations thereof
with respect to securities, except that each of The Real Estate Investment Trust
Portfolios 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. Each 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 Pooled Trust, Inc.'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 Mid-Cap Value Equity Portfolio, The Global Equity Portfolio, The
Emerging Markets Portfolio, The Aggregate Fixed Income Portfolio and The
Diversified Core Fixed Income Portfolio
Pooled Trust, Inc. has adopted the following restrictions for The
Mid-Cap Value Equity Portfolio, The Global Equity Portfolio, The Emerging
Markets Portfolio, The Aggregate Fixed Income Portfolio and The Diversified Core
Fixed Income Portfolio (except where otherwise noted) which, along with each
such Portfolio's 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 a Portfolio purchases securities.
Except as noted below, each of The Mid-Cap Value Equity Portfolio, The
Global Equity Portfolio, The Emerging Markets Portfolio, The Aggregate Fixed
Income Portfolio and The Diversified Core Fixed Income Portfolio shall not:
1. As to 75% of its total assets, invest more than 5% of its 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 not apply to The Emerging Markets Portfolio.
2. 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.
3. 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.
4. 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.
7
<PAGE>
5. 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.
6. Purchase or sell physical commodities or physical commodity
contracts, including physical commodity options or futures contracts in a
contract market or other futures market.
7. 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.
The International Mid-Cap Sub Portfolio, The Small-Cap Value Equity
Portfolio, The Small-Cap Growth Equity Portfolio, The Core Equity Portfolio and
The Asset Allocation Portfolio
Pooled Trust, Inc. has adopted the following restrictions for The
International Mid-Cap Sub Portfolio, The Small-Cap Value Equity Portfolio, The
Small-Cap Growth Equity Portfolio and The Core Equity Portfolio and Foundation
Funds has adopted the following restrictions for The Asset Allocation Portfolio.
These restrictions cannot be changed without approval by a "majority" of the
Portfolio's outstanding shares, as described above. Except with respect to
borrowing, the percentage limitations contained in these restrictions and
policies apply at the time a Portfolio purchases securities.
Each of The International Mid-Cap Sub Portfolio, The Small-Cap Value
Equity Portfolio, The Small-Cap Growth Equity Portfolio, The Core Equity
Portfolio and The Asset Allocation Portfolio shall not:
1. Make investments that will result in the concentration (as that term
may be defined in the 1940 Act, any rule or order thereunder, or U.S. Securities
and Exchange Commission ("SEC") staff interpretation thereof) of its investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not prevent a Portfolio from investing in obligations
issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or in certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that a Portfolio
may engage in transactions involving the acquisition, disposition or resale of
its portfolio securities, under circumstances where it may be considered to be
an underwriter under the Securities Act of 1933.
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent a Portfolio from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent a Portfolio from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent a
Portfolio from purchasing debt obligations, entering into repurchase agreements,
loaning its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
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In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
Prospectus, The International Mid-Cap Sub Portfolio, The Small-Cap Growth Equity
Portfolio, The Core Equity Portfolio and The Asset Allocation Portfolio will be
subject to the following investment restrictions (except as otherwise noted),
which are considered non-fundamental and may be changed by the Board of
Directors or Trustees, as applicable, without shareholder approval.
1. The International Mid-Cap Sub Portfolio, The Small-Cap Growth Equity
Portfolio, The Core Equity Portfolio and The Asset Allocation Portfolio are
permitted to invest in other investment companies, including open-end,
closed-end or unregistered investment companies, either within the percentage
limits set forth in the 1940 Act , any rule or order thereunder or SEC staff
interpretation thereof, or without regard to percentage limits in connection
with a merger, reorganization, consolidation or other similar transaction.
However, none of The International Mid-Cap Sub Portfolio, The Small-Cap Growth
Equity Portfolio or The Core Equity Portfolio may operate as a "fund of funds"
which invests primarily in the shares of other investment companies as permitted
by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
2. A Portfolio may not invest more than 15% of its net assets in
securities which it can not sell or dispose of in the ordinary course of
business within seven days at approximately the value at which the Fund has
valued the investment.
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Investment Policies and Risks
Foreign Investment Information (The International Mid-Cap Sub Portfolio, The
International Equity Portfolio, The Labor Select International Equity Portfolio,
The Real Estate Investment Trust Portfolios, The Global Fixed Income Portfolio,
The International Fixed Income Portfolio, The High-Yield Bond Portfolio, The
Diversified Core Fixed Income Portfolio, The Emerging Markets Portfolio, The
Global Equity Portfolio, The Asset Allocation Portfolio, The Small-Cap Value
Equity Portfolio, The Small-Cap Growth Equity Portfolio and The Core Equity
Portfolio)
Investors in The International Mid-Cap Sub Portfolio, The International
Equity Portfolio, The Labor Select International Equity Portfolio, The Global
Fixed Income Portfolio, The International Fixed Income Portfolio, The Emerging
Markets Portfolio and The Global Equity Portfolio (as well as in The Real Estate
Investment Trust Portfolios, The Diversified Core Fixed Income Portfolio, The
High-Yield Bond Portfolio, The Asset Allocation Portfolio, The Small-Cap Growth
Equity Portfolio and The Core Equity 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 related 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, The Diversified Core Fixed Income
Portfolio, The Emerging Markets Portfolio, The Global Equity Portfolio, The
Asset Allocation Portfolio, The Small-Cap Growth Equity Portfolio and The Core
Equity 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 International Mid-Cap Sub Portfolio, The Labor Select
International Equity Portfolio, The Real Estate Investment Trust Portfolios, The
Global Fixed Income Portfolio, The International Fixed Income Portfolio, The
Emerging Markets Portfolio, The Global Equity Portfolio, The Diversified Core
Fixed Income Portfolio, The Asset Allocation Portfolio, The Small-Cap Growth
Equity Portfolio and The Core Equity Portfolio), below.
The International Mid-Cap Sub Portfolio, The International Equity
Portfolio, The Labor Select International Equity Portfolio, The Global Equity
Portfolio, The Emerging Markets Portfolio, The Global Fixed Income Portfolio and
The International Fixed Income Portfolio (and The Real Estate Investment Trust,
The High-Yield Bond, The Diversified Core Fixed Income, The Asset Allocation,
The Small-Cap Growth Equity, The Small-Cap Value Equity and The Core Equity
Portfolios, up to 10%, 10%, 20%, 10%, 5%, 25% and 20%, respectively, 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 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.
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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 Diversified Core Fixed Income, The Global Fixed Income,
The International Fixed Income, The High-Yield Bond, The Global Equity, The
Emerging Markets, The Asset Allocation, The Small-Cap Value Equity, The
Small-Cap Growth Equity and The Core Equity 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 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
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<PAGE>
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 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.
The issuers of the foreign government and government-related
high-yield securities, including Brady Bonds, in which The Emerging Markets, The
International Fixed Income, The Global Fixed Income, The Diversified Core Fixed
Income and The Asset Allocation 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
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<PAGE>
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, The Global Fixed Income, The Diversified Core Fixed
Income and The Asset Allocation 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.
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.
There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by the Portfolios.
Payment of such interest equalization tax, if imposed, would reduce a
Portfolio's rate of return on its investment. Dividends paid by foreign issuers
may be subject to withholding and other foreign taxes which may decrease the net
return on such investments as compared to dividends paid to a Portfolio by
United States issuers. Special rules govern the federal income tax treatment of
certain transactions denominated in terms of a currency other than the U.S.
dollar or determined by reference to the value of one or more currencies other
than the U.S. dollar. The types of transactions covered by the special rules
include, as relevant, the following: (i) the acquisition of, or becoming the
obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury Regulations, preferred stock); (ii) the accruing of certain
trade receivables and payables; and (iii) the entering into or acquisition of
any forward contract and similar financial instrument if such instrument is not
"marked to market." The disposition of a currency other than the U.S. dollar by
a U.S. taxpayer is also treated as a transaction subject to the special currency
rules. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts that are capital assets
in the hands of the taxpayer and which are not part of a straddle. The Treasury
Department has authority to issue regulations under which certain transactions
subject to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), and the Treasury Regulations) will be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
Any gain or loss attributable to the foreign currency component of a transaction
engaged in by a Portfolio which is not subject to the special currency rules
(such as foreign equity investments other than certain preferred stocks) will be
treated as capital gain or loss and will not be segregated from the gain or loss
on the underlying transaction. It is anticipated that some of the non-U.S.
dollar denominated investments and foreign currency contracts the Portfolios may
make or enter into will be subject to the special currency rules described
above.
With reference to the Portfolios' investments in foreign government
securities, there is the risk that 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.
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<PAGE>
The issuers of foreign government and government-related debt
securities 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 Brady Bonds and other foreign
government and government-related securities 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.
Investments and opportunities for investments by foreign investors in
emerging market countries are subject to a variety of national policies and
restrictions. 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 the Portfolios' invest. Although these restrictions may in
the future make it undesirable to invest in emerging countries, a Portfolio's
adviser or sub-adviser, as relevant, does not believe that any current
registration restrictions would affect its decision to invest in such countries.
As disclosed in the Prospectus for The International Mid-Cap Sub
Portfolio, the foreign short-term fixed-income securities in which the Portfolio
may invest may be U.S. dollar or foreign currency denominated, including EURO.
Such securities may include 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
Work Bank, European Investment Bank, Asian Development Bank, European Economic
Community and the Inter-American Development Bank. Such fixed-income securities
will be typically rated, at the time of purchase, AA or higher by Standard &
Poor's Ratings Group or Aa or higher by Moody's Investor Service, Inc. or of
comparable quality as determined by the Portfolio's investment adviser.
Foreign Currency Transactions (The International Equity Portfolio, The
International Mid-Cap Sub Portfolio, The Labor Select International Equity
Portfolio, The Real Estate Investment Trust Portfolios, The Global Fixed Income
Portfolio, The International Fixed Income Portfolio, The Emerging Markets
Portfolio, The Global Equity Portfolio, The Diversified Core Fixed Income
Portfolio, The Asset Allocation Portfolio, The Small-Cap Growth Equity
Portfolio, The Small-Cap Value Equity Portfolio, and The Core Equity Portfolio)
The International Equity Portfolio, The International Mid-Cap Sub
Portfolio, The Labor Select International Equity Portfolio, The Global Fixed
Income Portfolio, The International Fixed Income Portfolio, The Emerging Markets
Portfolio and The Global Equity Portfolio (as well as The Real Estate Investment
Trust Portfolios, The Diversified Core Fixed Income Portfolio, The Asset
Allocation Portfolio, The Small-Cap Value Equity Portfolio, The Small-Cap Growth
Equity Portfolio and The Core Equity Portfolio, consistent with their limited
ability to invest in foreign securities) may purchase or sell currencies and/or
engage in forward foreign currency transactions in order to expedite settlement
of portfolio transactions and to minimize currency value fluctuations.
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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.
The International Fixed Income Portfolio, The Emerging Markets
Portfolio, The Global Equity Portfolio, The Diversified Core Fixed Income
Portfolio and The Asset Allocation 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. 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.
As in the case of other types of options, the holder of an option on
foreign currency is required to pay a one-time, non-refundable premium, which
represents the cost of purchasing the option. The holder can lose the entire
amount of this premium, as well as related transaction costs, but not more than
this amount. The writer of the option, in contrast, generally is required to
make initial and variation margin payments, similar to margin deposits required
in the trading of futures contacts and the writing of other types of options.
The writer is therefore subject to risk of loss beyond the amount originally
invested and above the value of the option at the time it is entered into.
Certain options on foreign currencies, like forward contracts, are
traded over-the-counter through financial institutions acting as market-makers
in such options and the underlying currencies. Such transactions therefore
involve risks not generally associated with exchange-traded instruments. Options
on foreign currencies may also be traded on national securities exchanges
regulated by the Commission or commodities exchanges regulated by the Commodity
Futures Trading Commission.
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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 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.
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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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The foreign investments made by The International Mid-Cap Sub, The
International Equity, The Labor Select International Equity, The Real Estate
Investment Trust, The Diversified Core Fixed Income, The Global Fixed Income,
The International Fixed Income, The Global Equity, The Emerging Markets, The
Asset Allocation, The Small-Cap Value Equity, The Small-Cap Growth Equity and
The Core Equity 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 Mid-Cap Sub, The International Equity, The
Labor Select International Equity, The Real Estate Investment Trust, The
Diversified Core Fixed Income, The Global Fixed Income, The International Fixed
Income, The Global Equity, The Emerging Markets, The Asset Allocation, The
Small-Cap Growth Equity, The Small-Cap Value Equity and The Core Equity
Portfolios value their assets daily in terms of U.S. dollars, they do not intend
to convert their holdings of foreign currencies into U.S. dollars on a daily
basis. A Portfolio will, however, from time to time, purchase or sell foreign
currencies and/or engage in forward foreign currency transactions in order to
expedite settlement of Portfolio transactions and to minimize currency value
fluctuations. A Portfolio may conduct its foreign currency exchange transactions
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into contracts to purchase or sell foreign
currencies at a future date (i.e., a "forward foreign currency" contract or
"forward" contract). A Portfolio will convert currency on a spot basis from time
to time, and investors should be aware of the costs of currency conversion.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract, agreed upon by the parties, at a price set at the time
of the contract.
A Portfolio may enter into forward contracts to "lock in" the price of
a security it has agreed to purchase or sell, in terms of U.S. dollars or other
currencies in which the transaction will be consummated. By entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars or
foreign currency, of the amount of foreign currency involved in the underlying
security transaction, a Portfolio will be able to protect itself against a
possible loss resulting from an adverse change in currency exchange rates during
the period between the date the security is purchased or sold and the date on
which payment is made or received.
For example, when the investment adviser believes that the currency of
a particular foreign country may suffer a significant decline against the U.S.
dollar or against another currency, a Portfolio may enter into a forward
contract to sell, for a fixed amount of U.S. dollars or other appropriate
currency, the amount of foreign currency approximating the value of some or all
of the Portfolio's securities denominated in such foreign currency. A Portfolio
will not enter into forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate the Portfolio
to deliver an amount of foreign currency in excess of the value of the
Portfolio's securities or other assets denominated in that currency.
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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.
Brady Bonds (The Global Fixed Income Portfolio, The International Fixed Income
Portfolio, The Diversified Core Fixed Income Portfolio, The Emerging Markets
Portfolio and The Asset Allocation Portfolio)
The Global Fixed Income Portfolio, The International Fixed Income
Portfolio, The Diversified Core Fixed Income Portfolio, The Emerging Markets
Portfolio and The Asset Allocation Portfolio may invest, within the limits
specified in the related 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.
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To date, Mexico, Costa Rica, Venezuela, Uruguay and Nigeria have issued
approximately $50 billion of Brady Bonds, and Argentina, Brazil and the
Philippines have announced plans to issue approximately $90 billion, based on
current estimates, of Brady Bonds. Investors should recognize that Brady Bonds
have been issued only recently, and accordingly do not have a long payment
history. Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by a
debtor nation with its creditors. As a result, the financial packages offered by
each country differ. The types of options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of face value of such
debt, bonds issued at a discount of face value of such debt, bonds bearing an
interest rate which increases over time and bonds issued in exchange for the
advancement of new money by existing lenders. Certain Brady Bonds have been
collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors.
Options on Securities, Futures Contracts and Options on Futures Contracts (The
Mid-Cap Growth Equity Portfolio, The Real Estate Investment Trust Portfolios,
The Diversified Core Fixed Income Portfolio, The Emerging Markets Portfolio, The
Global Equity Portfolio, The Asset Allocation Portfolio, The Small-Cap Growth
Equity Portfolio and The Core Equity Portfolio)
In order to remain fully invested, and to reduce transaction costs, The
Mid-Cap Growth Equity Portfolio, The Real Estate Investment Trust Portfolios,
The Diversified Core Fixed Income Portfolio, The Emerging Markets Portfolio, The
Global Equity Portfolio, The Asset Allocation Portfolio, The Small-Cap Growth
Equity Portfolio, The Small-Cap Value Equity Portfolio and The Core Equity
Portfolio may, to the limited extent identified in the related 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 Mid-Cap Growth Equity Portfolio, The Real Estate Investment Trust
Portfolios, The Emerging Markets Portfolio, The Global Equity Portfolio, The
Asset Allocation Portfolio, The Small-Cap Growth Equity Portfolio, The Small-Cap
Value Equity Portfolio and The Core Equity Portfolio may purchase call options,
write call options on a covered basis, purchase put options and write put
options. Writing put options will require the Portfolio to segregate assets
sufficient to cover the put while the option is outstanding.
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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
Mid-Cap Growth Equity Portfolio will not invest more than 10% of its assets in
illiquid securities, and The Real Estate Investment Trust Portfolios, The
Diversified Core Fixed Income Portfolio, The Emerging Markets Portfolio, The
Global Equity Portfolio, The Asset Allocation Portfolio, The Small-Cap Value
Equity Portfolio, The Small-Cap Growth Equity Portfolio and The Core Equity
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. The advantage is that the writer receives a premium income and
the purchaser may hedge against an increase in the price of the securities it
ultimately wishes to buy. 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 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.
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The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
The Portfolios will write call options only on a covered basis, which
means that the Portfolios will own the underlying security subject to a call
option at all times during the option period. Unless a closing purchase
transaction is effected, the Portfolios would be required to continue to hold a
security which they might otherwise wish to sell, or deliver a security it would
want to hold. Options written by the Portfolios will normally have expiration
dates between one and nine months from the date written. The exercise price of a
call option may be below, equal to, or above the current market value of the
underlying security at the time the option is written.
B. Purchasing Call Options--The Portfolios may purchase call options to
the extent that premiums paid by the Portfolios do not aggregate more than 2% of
their total assets. When a Portfolio purchases a call option, in return for a
premium paid by the Portfolio to the writer of the option, the Portfolio obtains
the right to buy the security underlying the option at a specified exercise
price at any time during the term of the option. The writer of the call option,
who receives the premium upon writing the option, has the obligation, upon
exercise of the option, to deliver the underlying security against payment of
the exercise price. The advantage of purchasing call options is that the
Portfolios may alter portfolio characteristics and modify portfolio maturities
without incurring the cost associated with portfolio transactions.
The Portfolios may, following the purchase of a call option, liquidate
their positions by effecting a closing sale transaction. This is accomplished by
selling an option of the same series as the option previously purchased. The
Portfolios will realize a profit from a closing sale transaction if the price
received on the transaction is more than the premium paid to purchase the
original call option; the Portfolios will realize a loss from a closing sale
transaction if the price received on the transaction is less than the premium
paid to purchase the original call option.
Although the Portfolios will generally purchase only those call options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
option, or at any particular time, and for some options no secondary market on
an exchange may 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 Mid-Cap Growth Equity, The Real Estate Investment Trust
and The Diversified Core Fixed Income 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.
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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 only if the
Portfolio will maintain in a segregated account with its Custodian Bank, cash,
U.S. government securities or other assets in an amount not less than the
exercise price of the option at all times during the option period. The amount
of cash, U.S. government securities or other assets 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, such 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 put option at an exercise
price which, reduced by the premium received on the option, reflects the lower
price it is willing to pay.
Following the writing of a put option, the Portfolios may wish to
terminate the obligation to buy the security underlying the option by effecting
a closing purchase transaction. This is accomplished by buying an option of the
same series as the option previously written. The Portfolios may not, however,
effect such a closing transaction after they have been notified of the exercise
of the option.
Options on Stock Indices
The Emerging Markets Portfolio, The Global Equity Portfolio, The
Diversified Core Fixed Income Portfolio, The Asset Allocation Portfolio, The
Small-Cap Growth Equity Portfolio and The Core Equity Portfolio 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 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 a 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, a
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.
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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.
A 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 a Portfolio
will not duplicate the components of an index, the correlation will not be
exact. Consequently, a 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 a Portfolio's ability effectively to
hedge its securities. A Portfolio will enter into an option position only if
there appears to be a liquid secondary market for such options.
A 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 Mid-Cap
Growth Equity Portfolio, The Real Estate Investment Trust Portfolios, The
Diversified Core Fixed Income Portfolio, The Emerging Markets Portfolio, The
Global Equity Portfolio, The Asset Allocation Portfolio, The Small-Cap Growth
Equity Portfolio and The Core Equity 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.
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With respect to options on futures contracts, when a Portfolio is not
fully invested, it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based, or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities.
The writing of a call option on a futures contract constitutes a
partial hedge against the declining price of the security which is deliverable
upon exercise of the futures contract. If the futures price at the expiration of
the option is below the exercise price, the Portfolio will retain the full
amount of the option premium which provides a partial hedge against any decline
that may have occurred in the Portfolio's holdings. The writing of a put option
on a futures contract constitutes a partial hedge against the increasing price
of the security which is deliverable upon exercise of the futures contract. If
the futures price at the expiration of the option is higher than the exercise
price, the Portfolio will retain the full amount of option premium which
provides a partial hedge against any increase in the price of securities which
the Portfolio intends to purchase.
If a put or call option that a Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions, a
Portfolio's losses from existing options on futures may, to some extent, be
reduced or increased by changes in the value of portfolio securities. The
purchase of a put option on a futures contract is similar in some respects to
the purchase of protective puts on portfolio securities. For example, consistent
with the limited purposes for which the Portfolios will engage in these
activities, a Portfolio will purchase a put option on a futures contract to
hedge the Portfolio's securities against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Portfolios may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize a loss. For example, if a Portfolio
is hedged against the possibility of an increase in interest rates which would
adversely affect the price of securities held in its portfolio and interest
rates decrease instead, the Portfolio will lose part or all of the benefit of
the increased value of its securities which it has because it will have
offsetting losses in its futures position. In addition, in such situations, if
the Portfolio had insufficient cash, it may be required to sell securities from
its portfolio to meet daily variation margin requirements. Such sales of
securities may, but will 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.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested, to facilitate investments in
portfolio securities and to reduce transaction costs, The Aggressive Growth, The
Mid-Cap Value Equity, The Real Estate Investment Trust, The Diversified Core
Fixed Income, The Global Equity, The Emerging Markets, The Asset Allocation, The
Small-Cap Growth Equity and The Core Equity Portfolios may, to a limited extent,
enter into futures contracts, purchase or sell options on futures contracts and
engage in certain transactions in options on securities, and may enter into
closing transactions with respect to such activities. For the same purposes, The
Core Equity Portfolio may also enter into futures contracts on stock indices and
purchases or sell options on stock index futures and stock indices and may enter
into closing transactions with respect to these 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, in the
aggregate, exceed 25% of the Portfolios' assets.
Additionally, The International Fixed Income, The Global Equity, The
Emerging Markets, The Diversified Core Fixed Income and The Asset Allocation
Portfolios 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 to hedge or "cross hedge"
the currency risks associated with its investments.
The Mid-Cap Growth Equity, The Mid-Cap Value Equity, The Real Estate
Investment Trust, The Diversified Core Fixed Income, The Global Equity, The
Emerging Markets, The Asset Allocation, The Small-Cap Growth Equity and The Core
Equity Portfolios may enter into contracts for the purchase or sale for future
delivery of securities. A futures contract is a bilateral agreement providing
for the purchase and sale of a specified type and amount of a financial
instrument, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a futures contract provides
for a specified settlement date on which the securities underlying the contracts
are delivered, or in the case of securities index 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 the 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 transaction. 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. This
amount is generally maintained in a segregated account at the custodian bank.
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index or instrument underlying the
futures contract fluctuates, making positions in the futures contract more or
less valuable, a process known as "marking to the market."
Foreign currency futures contracts operate similarly to futures
contracts concerning securities. When The International Fixed Income, The Global
Equity, The Emerging Markets, The Diversified Core Fixed Income or The Asset
Allocation Portfolios 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.
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The Portfolios may also purchase and write options to buy or sell
futures contracts in which the Portfolio's may invest and enter into related
closing transactions. 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. In the case of an option
that is in-the-money at the time of purchase, the in-the-money amount may be
excluded in calculating the 5% limit.
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.
Asset-Backed Securities (The Intermediate Fixed Income Portfolio, The Aggregate
Fixed Income Portfolio, The Diversified Core Fixed Income Portfolio, The Asset
Allocation Portfolio and The Core Equity Portfolio)
The Intermediate Fixed Income Portfolio, The Aggregate Fixed Income
Portfolio, The Diversified Core Fixed Income Portfolio, The Asset Allocation
Portfolio and The Core Equity Portfolio may each invest a portion of their
assets in asset-backed securities. 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 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 Portfolio to pay the debt
service on the debt obligations issued.
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. 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. Such
asset-backed securities doe however, involve certain risks not associated with
mortgage-backed securities, including the risk that security interest cannot be
adequately or in many case, ever, established and other risks which may be
peculiar 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.
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Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
due on the underlying pool is timely. Protection against losses resulting from
ultimate default enhances the likelihood of payments of the obligations on at
least some of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The Portfolios will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve against
future losses) and "over collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceeds that required to make
payments of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue.
High-Yield, High Risk Securities
The International Fixed Income Portfolio, The Global Fixed Income, The
Diversified Core Fixed Income and The Asset Allocation Portfolios may invest up
to 5%, 5%, 20%, and 55%, respectively, of its assets in high risk, high-yield
fixed-income securities of foreign governments, including, with specified
limitations, 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. These high-yield, high risk securities are rated lower
than BBB by S&P and Baa by Moody's or, if unrated, are considered by the
investment adviser to have characteristics similar to such rated securities.
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. In its U.S. high yield sector, The
Diversified Core Fixed Income Portfolio, under normal circumstances, invests
between 5% and 30% in U.S. Bonds generally rated BB or lower by S&P or Fitch or
Ba or lower by Moody's or similarly rated by another nationally recognized
statistical rating organization. The Small-Cap Value Equity Portfolio may invest
up to 25% of its net assets in U.S. corporate bonds rated below B by Moody's or
S&P when the Portfolio investment adviser believes that capital appreciation is
likely from an investment in those securities. See "APPENDIX A--RATINGS" to this
SAI for more rating information.
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.
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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.
Although the market for high-yield bonds has been in existence for many
years, including periods of economic downturns, the high-yield market grew
rapidly during the long economic expansion which took place in the United States
during the 1980s. During the economic expansion, the use of high-yield debt
securities to fund highly leveraged corporate acquisitions and restructurings
increased dramatically. As a result, the high-yield market grew substantially
during the economic expansion. Although experts disagree on the impact
recessionary periods have had and will have on the high-yield market, some
analysts believe a protracted economic downturn would severely disrupt the
market for high yield bonds, would adversely affect the value of outstanding
bonds and would adversely affect the ability of high-yield issuers to repay
principal and interest. Those analysts cite volatility experienced in the
high-yield market in the past as evidence for their position. It is likely that
protracted periods of economic uncertainty would result in increased volatility
in the market prices of high-yield bonds, an increase in the number of
high-yield bond defaults and corresponding volatility in the Portfolio's net
asset value.
In addition, if, as a result of volatility in the high-yield market or
other factors, the Portfolio experiences substantial net redemptions of the
Portfolio's shares for a sustained period of time, the Portfolio may be required
to sell securities without regard to the investment merits of the securities to
be sold. If the Portfolio sells a substantial number of securities to generate
proceeds for redemptions, the asset base of the Portfolio will decrease and the
Portfolio's expense ratios may increase.
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.
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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.
Convertible, Debt and Non-Traditional Equity Securities
A portion of The International Mid-Cap Sub, The Mid-Cap Value Equity,
The Small-Cap Value Equity, The High-Yield Bond, The Asset Allocation, The
Small-Cap Growth Equity and The Core Equity Portfolios' assets may be invested
in convertible and debt securities of issuers in any industry, and The Real
Estate Investment Trust Portfolios' assets may be invested in convertible
securities of issuers in the real estate industry. A convertible security is a
security which may be converted at a stated price within a specified period of
time into a certain quantity of the common stock of the same or a different
issuer. Convertible and debt securities are senior to common stocks in a
corporation's capital structure, although convertible securities are usually
subordinated to similar nonconvertible securities. Convertible and debt
securities provide a fixed-income stream and the opportunity, through its
conversion feature, to participate in the capital appreciation resulting from a
market price advance in the convertible security's underlying common stock. Just
as with debt securities, convertible securities tend to increase in market value
when interest rates decline and tend to decrease in value when interest rates
rise. However, the price of a convertible security is also influenced by the
market value of the security's underlying common stock and tends to increase as
the market value of the underlying stock rises, whereas it tends to decrease as
the market value of the underlying stock declines. Investments in debt
securities by The Small-Cap Growth Equity Portfolio will be limited to those
that are, at the time of investment, within the four highest grades assigned by
a nationally recognized statistical rating agency (e.g., Baa or higher by
Moody's or BBB or higher by Standard & Poor's) or deemed to be of comparable
quality by the investment adviser. Convertible and debt securities acquired by
The Mid-Cap Value Equity, The Real Estate Investment Trust, The High-Yield Bond,
The Asset Allocation and The Core Equity (as to no more than 5% of its assets)
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 "High-Yield, High Risk
Securities" for a further discussion of these types of investments.
The International Mid-Cap Sub, The Mid-Cap Value Equity, The Small-Cap
Value Equity, The Real Estate Investment Trust, The High-Yield Bond, The
Emerging Markets and The Asset Allocation 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
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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 International Mid-Cap Sub, The Mid-Cap Value Equity, The Small-Cap
Value Equity, The Real Estate Investment Trust, The High-Yield Bond, The
Emerging Markets and The Asset Allocation 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 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 Portfolios', The Asset Allocation
Portfolio's, The Small-Cap Value Equity Portfolio's and The Core Equity
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.
Depositary Receipts
The International Mid-Cap Sub, The Large-Cap Value Equity, The
International Equity, The Diversified Core Fixed Income, The Mid-Cap Value
Equity, The Small-Cap Value Equity, The Real Estate Investment Trust, The Global
Fixed Income, The International Fixed Income, The Global Equity, The Emerging
Markets, The Asset Allocation, The Small-Cap Growth Equity and The Core Equity
Portfolios may invest in sponsored and unsponsored American Depositary Receipts
("ADRs") that are actively traded in the United States. The Global Fixed Income,
The International Fixed Income and The Asset Allocation Portfolios may also
invest in sponsored and unsponsored European Depositary Receipts ("EDRs"), and
The International Mid-Cap Sub, The International Equity, The Global Equity, The
Emerging Markets and The Asset Allocation Portfolios may also invest in
sponsored and unsponsored EDRs and Global Depositary Receipts ("GDRs"). The
Small-Cap Growth Equity Portfolio may also invest in sponsored and unsponsored
GDRs. Subject to its 10% limit on investments in foreign securities.
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ADRs are receipts typically issued by a U.S. bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs and GDRs are receipts issued by non-U.S. Banks or trust
companies and foreign branches of U.S. banks that evidence ownership of the
underlying foreign or U.S. securities. "Sponsored" ADRs, EDRs or GDRs are issued
jointly by the issuer of the underlying security and a Depositary, and
"unsponsored" ADRs, EDRs or GDRs are issued without the participation of the
issuer of the deposited security. Holders of unsponsored ADRs, EDRs or GDRs
generally bear all the costs of such facilities and the Depositary of an
unsponsored ADR, EDR or GDR 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, EDR or GDR. ADRs may be listed on a national securities
exchange or may be traded in the over-the-counter market. EDRs and GDRs traded
in the over-the-counter market which do not have an active or substantial
secondary market will be considered illiquid and therefore will be subject to a
Portfolio's limitation with respect to such securities. ADR prices are
denominated in U.S. dollars although the underlying securities are denominated
in a foreign currency. Investments in ADRs, EDRs and GDRs involve risks similar
to those accompanying direct investments in foreign securities.
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 Investments family, including Pooled Trust,
Inc. and Foundation Funds, have obtained an exemption from the joint-transaction
prohibitions of Section 17(d) of the 1940 Act to allow such 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. If bankruptcy proceedings are commences with
respect to the seller a Portfolio's realization upon the collateral may be
delayed or limited. Each Portfolio will limit its investments in repurchase
agreements to those which its respective investment adviser, under the
guidelines of the Board of Directors or Trustees, as applicable, determines to
present minimal credit risks and which are of high quality. In addition, a
Portfolio must have collateral of at least 102% of the repurchase price,
including the portion representing the Portfolio's yield under such agreements
which is monitored on a daily basis. 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.
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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 Pooled Trust, Inc. and Foundation Funds, as
applicable, 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 Pooled Trust, Inc. 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 or Trustees of Pooled Trust, Inc. or Foundation Funds, as applicable,
know that a material event will occur affecting an investment loan, they must
either terminate the loan in order to vote the proxy or enter into an
alternative arrangement with the borrower to enable the directors to vote the
proxy.
The major risk to which a Portfolio would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, a Portfolio will only enter into loan
arrangements after a review of all pertinent facts by the respective investment
adviser, under the supervision of the Board of Directors or Trustees as
applicable, including the creditworthiness of the borrowing broker, dealer or
institution and then only if the consideration to be received from such loans
would justify the risk. Creditworthiness will be monitored on an ongoing basis
by the respective investment adviser.
Restricted and 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 or Trustees, as applicable, 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 Boards have 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 or Trustees, as applicable, 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. 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.
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The International Mid-Cap Sub Portfolio, The Diversified Core Fixed
Income Portfolio, The Asset Allocation Portfolio, The Small-Cap Growth Equity
Portfolio and The Core Equity Portfolio may purchase privately-placed securities
whose resale is restricted under applicable securities laws. Such restricted
securities generally offer a higher return potential than comparable registered
securities but involve some additional risk since they can be resold only in
privately-negotiated transactions or after registration under applicable
securities laws. The registration process may involve delays which would result
in the Portfolio obtaining a less favorable price on a resale. The International
Mid-Cap Sub Portfolio, Diversified Core Fixed Income Portfolio, The Asset
Allocation Portfolio, The Small-Cap Growth Equity Portfolio and The Core Equity
Portfolio will not purchase illiquid assets if more than 15% of its net assets
would then consist of such illiquid securities.
Non-Traditional Equity Securities (The International Mid-Cap Sub Portfolio, The
Emerging Markets Portfolio, The Small-Cap Value Equity Portfolio and The Asset
Allocation Portfolio)
The International Mid-Cap Sub Portfolio, The Emerging Markets
Portfolio, The Small-Cap Value Equity Portfolio and The Asset Allocation
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 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. 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 International Mid-Cap Sub Portfolio, The Emerging Markets
Portfolio, The Small-Cap Value Equity Portfolio and The Asset Allocation
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 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.
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U.S. Government Securities
The U.S. government securities in which the various Portfolios may
invest for temporary purposes and otherwise (see " Investment Restrictions" and
the Prospectus of the Fund for additional information), 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 Aggregate Fixed Income, The
Diversified Core Fixed Income, The Intermediate Fixed Income, The Global Fixed
Income, The Asset Allocation and The Core Equity Portfolios may invest in
mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or by government sponsored corporations. Those
securities include, but are not limited to, GNMA certificates. Such securities
differ from other fixed-income securities in that principal is paid back by the
borrower over the length of the loan rather than returned in a lump sum at
maturity. When prevailing interest rates rise, the value of a GNMA security may
decrease as do other debt securities. When prevailing interest rates decline,
however, the value of GNMA securities may not rise on a comparable basis with
other debt securities because of the prepayment feature of GNMA securities.
Additionally, if a GNMA certificate is purchased at a premium above its
principal value because its fixed rate of interest exceeds the prevailing level
of yields, the decline in price to par may result in a loss of the premium in
the event of prepayment. Funds received from prepayments may be reinvested at
the prevailing interest rates which may be lower than the rate of interest that
had previously been earned.
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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 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 Intermediate Fixed Income Portfolio and The Aggregate Fixed
Income Portfolio, will do so (i) only if the
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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 (and, in
the case of The Core Equity Portfolio, the four) highest grades by a
nationally-recognized statistical rating agency.
The Intermediate Fixed Income Portfolio, The Aggregate Fixed Income
Portfolio, The Diversified Core Fixed Income Portfolio and The Asset Allocation
Portfolio each 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.
Short-Term Investments
The short-term investments in which The International Mid-Cap Sub, The
Large-Cap Value Equity, The Mid-Cap Growth Equity, The International Equity, The
Mid-Cap Value Equity, The Diversified Core Fixed Income, The Labor Select
International Equity, The Real Estate Investment Trust, The Global Fixed Income,
The International Fixed Income, The High-Yield Bond, The Global Equity, The
Emerging Markets, The Asset Allocation, The Small-Cap Growth Equity and The Core
Equity Portfolios may invest 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 Large-Cap Value Equity, The Mid-Cap Growth Equity, 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 International
Mid-Cap Sub, The Mid-Cap Value Equity, The Small-Cap Value Equity, The
Diversified Core Fixed Income, The Labor Select International Equity, The Real
Estate Investment Trust, The Global Equity, The Emerging Markets, The High-Yield
Bond, The Asset Allocation, The Small-Cap Growth Equity and The Core Equity
Portfolios. Certificates of deposit are negotiable short-term obligations issued
by commercial banks against funds deposited in the issuing institution. Variable
rate certificates of deposit are certificates of deposit on which the interest
rate is periodically adjusted prior to their stated maturity based upon a
specified market rate. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods).
A Portfolio will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion or, in the case of a
bank which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating by
a nationally-recognized statistical rating organization;
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(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.
(6) And in the case of The International Mid-Cap Sub Portfolio, bank
deposits held by or at the Portfolio's Custodian Bank or one of its
sub-custodians.
Investment Company Securities
Any investments that The International Mid-Cap Sub Portfolio, The
Emerging Markets Portfolio, The Global Equity Portfolio, The Diversified Core
Fixed Income Portfolio, The Asset Allocation Portfolio, The Small-Cap Growth
Equity Portfolio and The Core Equity Portfolio make 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, or
such other investment companies. Under the 1940 Act's current limitations, the
Portfolios may not (1) own more than 3% of the voting stock of another
investment company; and (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. Each Portfolio in which The Asset Allocation Portfolio
invests may not operate as a "fund of funds" by investing in other registered
open-end investment companies or registered unit investment trusts that are part
of the Delaware Investments family of funds.
Zero Coupon and Pay-In-Kind Bonds
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 pay value. PIK bonds pay
interest through the issuance to holders of additional securities. 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's authorized to invest in them. For example, with zero
coupon bonds, the Portfolio accrue, and is required to distribute to
shareholders, income on such 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.
Concentration
In applying The International Mid-Cap Sub Portfolio, The Small-Cap
Growth Equity Portfolio's, The Core Equity Portfolio's and The Asset Allocation
Portfolio's policy on concentration: (i) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (ii) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified
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finance will each be considered a separate industry; and (iii) asset backed
securities will be classified according to the underlying assets securing such
securities.
Risks Associated with the Asset Allocation Portfolio
The Asset Allocation Portfolio's assets may be primarily invested in a
combination of the Portfolios. As a result, the Asset Allocation Portfolio is
subject to the same risks as any of the Portfolios in the Fund in which its
invests. Moreover, The Asset Allocation Portfolio's investment performance may
be directly related to the investment performance of the Portfolios of the Fund
held by it. The ability of The Asset Allocation Portfolio to meet its investment
objective may thus be directly related to the ability of the Portfolios of the
Fund to meet their objectives as well as the allocation among those Portfolios
of the fund by Delaware. There can be no assurance that the investment objective
of The Asset Allocation Portfolio or any of the Portfolios of the Fund will be
achieved.
Because The Asset Allocation Portfolio and the other Portfolios of the
Fund are separately managed, it is possible that certain Portfolios of the Fund
in which The Asset Allocation Portfolio invests may be acquiring securities at
the same time that other Portfolios of the Fund in which that Portfolio invests
are selling the same security. Similarly, it is possible that The Asset
Allocation Portfolio may directly acquire a security at the same time that a
Portfolio of the Fund in which it invests is selling the same security, or vice
versa. This practice could result in higher indirect transactions costs for The
Asset Allocation Portfolio, and thus adversely affect The Asset Allocation
Portfolio's returns, than would be the case if it were only investing directly
in securities.
Delaware has adopted Asset Allocation Guidelines (the "Guidelines")
which govern The Asset Allocation Portfolio's purchases and redemptions of
shares of the Portfolios of the Fund. Pursuant to these Guidelines, if the
Manager anticipates that The Asset Allocation Portfolio's allocation transaction
will disrupt the investment activities of a Portfolio of the Fund, the portfolio
managers of the relevant Portfolios will confer on steps to minimize adverse
effects on both The Asset Allocation Portfolio and the Portfolio of the Fund,
such as staggering the timing and amounts of such allocation transactions. In
addition, Delaware will attempt to minimize the number and size of allocation
transactions taking place at any one time while attempting to avoid losing
investment opportunities for The Asset Allocation Portfolio. As a result, The
Asset Allocation Portfolio may, on occasion, be unable to purchase or redeem
shares of a Portfolio of the Fund as quickly or in such amounts as they
otherwise would in the absence of such Guidelines. Such delays or changes in
amounts may decrease the total return and/or increase the volatility of The
Asset Allocation Portfolio.
ACCOUNTING AND TAX ISSUES
When The Mid-Cap Growth Equity Portfolio, either of The Real Estate
Investment Trust Portfolios, The International Fixed Income Portfolio, The
Emerging Markets Portfolio, The Global Equity Portfolio, The Diversified Core
Fixed Income Portfolio, The Asset Allocation Portfolio, The Small-Cap Value
Equity Portfolio, The Small-Cap Growth Equity Portfolio or The Core Equity
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
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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. As such, a Portfolio will not be subject to
federal income tax, or to any excise tax, to the extent its earnings are
distributed as provided in the Code and it satisfies other requirements relating
to the sources of its income and diversification of its assets.
In order to qualify as a regulated investment company for federal
income tax purposes, each Portfolio must meet certain specific requirements,
including:
(i) Each Portfolio must maintain a diversified portfolio of securities,
wherein no security (other than U.S. government securities and securities of
other regulated investment companies) can exceed 25% of a Portfolio's total
assets, and, with respect to 50% of a Portfolio's total assets, no investment
(other than cash and cash items, U.S. government securities and securities of
other regulated investment companies) can exceed 5% of a Portfolio's total
assets. For purposes of the tax diversification test under Subchapter M of the
Internal Revenue Code, repurchase agreements constitute securities are not
considered to be cash or cash items;
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(ii) Each Portfolio must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or disposition of stock and securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies;
(iii) Each Portfolio must distribute to its shareholders at least 90%
of its net investment income and net tax-exempt income for each of its fiscal
years, and
(iv) Each Portfolio must realize less than 30% of its gross income for
each fiscal year from gains from the sale of securities and certain other assets
that have been held by the Portfolio for less than three months ("short-short
income"). The Taxpayer Relief Act of 1997, as amended, (the "1997 Act") repealed
the 30% short-short income test for tax years of regulated investment companies
beginning after August 5, 1997; however, this rule may have continuing effect in
some states for purposes of classifying the Portfolio as a regulated investment
company.
The Code requires the Portfolios to distribute at least 98% of its
taxable ordinary income earned during the calendar year and 98% of its capital
gain net income earned during the 12 month period ending October 31 (in addition
to amounts from the prior year that were neither distributed nor taxed to a
Portfolio) to you by December 31 of each year in order to avoid federal excise
taxes. The Portfolios intend as a matter of policy to declare and pay sufficient
dividends in December or January (which are treated by you as received in
December) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the year that unrealized losses exceed unrealized gains or when
the offsetting position is sold.
The 1997 Act has also added new provisions for dealing with
transactions that are generally called "Constructive Sale Transactions." Under
these rules, the Portfolio must recognize gain (but not loss) on any
constructive sale of an appreciated financial position in stock, a partnership
interest or certain debt instruments. The Portfolio will generally be treated as
making a constructive sale when it: 1) enters into a short sale on the same or
substantially identical property; 2) enters into an offsetting notional
principal contract; or 3) enters into a futures or forward contract to deliver
the same or substantially identical property. Other transactions (including
certain financial instruments called collars) will be treated as constructive
sales as provided in Treasury regulations to be published. There are also
certain exceptions that apply for transactions that are closed before the end of
the 30th day after the close of the taxable year.
Investment in Foreign Currencies and Foreign Securities
Certain of the Portfolios are authorized to invest certain limited
amounts in foreign securities. Such investments, if made, will have the
following additional tax consequences to each Portfolio:
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Portfolio accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time a Portfolio actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the date
of
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acquisition of the security or contract and the date of its disposition are also
treated as ordinary gain or loss. These gains or losses, referred to under the
Code as "Section 988" gains or losses, may increase or decrease the amount of a
Portfolio's net investment company taxable income, which, in turn, will affect
the amount of income to be distributed to you by a Portfolio.
If a Portfolio's Section 988 losses exceed a Portfolio's other net
investment company taxable income during a taxable year, a Portfolio generally
will not be able to make ordinary dividend distributions to you for that year,
or distributions made before the losses were realized will be recharacterized as
return of capital distributions of federal income tax purposes, rather than as
an ordinary dividend or capital gain distribution. If a distribution is treated
as a return of capital, your tax basis in your Portfolio shares will be reduced
by a like amount (to the extent of such basis), and any excess of the
distribution over your tax basis in your Portfolio shares will be treated as
capital gain to you.
The 1997 Act generally requires that foreign income be translated into
U.S. dollars at the average exchange rate for the tax year in which the
transactions are conducted. Certain exceptions apply to taxes paid more than two
years after the taxable year to which they relate. This new law may require a
Portfolio to track and record adjustments to foreign taxes paid on foreign
securities in which it invests. Under a Portfolio's current reporting procedure,
foreign security transactions are recorded generally at the time of each
transaction using the foreign currency spot rate available for the date of each
transaction. Under the new law, a Portfolio will be required to record a fiscal
year end (and at calendar year end for excise tax purposes) an adjustment that
reflects the difference between the spot rates recorded for each transaction and
the year-end average exchange rate for all of a Portfolio's foreign securities
transactions. There is a possibility that the mutual fund industry will be given
relief from this new provision, in which case no year-end adjustments will be
required.
The Portfolios may be subject to foreign withholding taxes on income
from certain of its foreign securities. If more than 50% of the total assets of
a Portfolio at the end of its fiscal year are invested in securities of foreign
corporations, a Portfolio may elect to pass-through to you your pro rata share
of foreign taxes paid by a Portfolio. If this election is made, you will be: (i)
required to include in your gross income your pro rata share of foreign source
income (including any foreign taxes paid by a Portfolio); and (ii) entitled to
either deduct your share of such foreign taxes in computing your taxable income
or to claim a credit for such taxes against your U.S. income tax, subject to
certain limitations under the Code. You will be informed by a Portfolio at the
end of each calendar year regarding the availability of any such foreign tax
credits and the amount of foreign source income (including any foreign taxes
paid by a Portfolio). If a Portfolio elects to pass-through to you the foreign
income taxes that it has paid, you will be informed at the end of the calendar
year of the amount of foreign taxes paid and foreign source income that must be
included on your federal income tax return. If a Portfolio invests 50% or less
of its total assets in securities of foreign corporations, it will not be
entitled to pass-through to you your pro-rata shares of foreign taxes paid by a
Portfolio. In this case, these taxes will be taken as a deduction by a
Portfolio, and the income reported to you will be the net amount after these
deductions. The 1997 Act also simplifies the procedures by which investors in
funds that invest in foreign securities can claim tax credits on their
individual income tax returns for the foreign taxes paid by a Portfolio. These
provisions will allow investors who pay foreign taxes of $300 or less on a
single return or $600 or less on a joint return during any year (all of which
must be reported on IRS Form 1099-DIV from a Portfolio to the investor) to claim
a tax credit against their U.S. federal income tax for the amount of foreign
taxes paid by a Portfolio. This process will allow you, if you qualify, to
bypass the burdensome and detailed reporting requirements on the foreign tax
credit schedule (Form 1116) and report your foreign taxes paid directly on page
2 of Form 1040.
Investment in Passive Foreign Investment Company securities--The
Portfolios may invest in shares of foreign corporations which may be classified
under the Code as passive foreign investment
41
<PAGE>
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets or 75% or
more of its gross income is investment-type income. If a Portfolio receives an
"excess distribution" with respect to PFIC stock, the Portfolio itself may be
subject to U.S. federal income tax on a portion of the distribution, whether or
not the corresponding income is distributed by a Portfolio to you. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which a Portfolio held the PFIC shares. A
Portfolio itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Portfolio taxable years, and an
interest factor will be added to the tax, as if the tax had been payable in such
prior taxable years. In this case, you would not be permitted to claim a credit
on your own tax return for the tax paid by a Portfolio. Certain distributions
from a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain distribution might have
been classified as capital gain. This may have the effect of increasing
Portfolio distributions to you that are treated as ordinary dividends rather
than long-term capital gain dividends.
A Portfolio may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, a Portfolio generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC during such period. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, the 1997 Act provides for
another election that would involve marking-to-market the Portfolio's PFIC
shares at the end of each taxable year (and on certain other dates as prescribed
in the Code), with the result that unrealized gains would be treated as though
they were realized. The Portfolio would also be allowed an ordinary deduction
for the excess, if any, of the adjusted basis of its investment in the PFIC
stock over its fair market value at the end of the taxable year. This deduction
would be limited to the amount of any net mark-to-market gains previously
included with respect to that particular PFIC security. If a Portfolio were to
make this second PFIC election, tax at the Portfolio level under the PFIC rules
would generally be eliminated.
The application of the PFIC rules may affect, among other things, the
amount of tax payable by a Portfolio (if any), the amounts distributable to you
by a Portfolio, the time at which these distributions must be made, and whether
these distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares
of a foreign corporation are acquired to ascertain that the foreign corporation
is a PFIC, and that there is always a possibility that a foreign corporation
will become a PFIC after a Portfolio acquires shares in that corporation. While
a Portfolio will generally seek to avoid investing in PFIC shares to avoid the
tax consequences detailed above, there are no guarantees that it will do so and
it reserves the right to make such investments as a matter of its fundamental
investment policy.
Most foreign exchange gains are classified as ordinary income which
will be taxable to you as such when distributed. Similarly, you should be aware
that any foreign exchange losses realized by a Portfolio, including any losses
realized on the sale of foreign debt securities, are generally treated as
ordinary losses for federal income tax purposes. This treatment could increase
or reduce a Portfolio's income available for distribution to you, and may cause
some or all of a Portfolio's previously distributed income to be classified as a
return of capital.
42
<PAGE>
TRADING PRACTICES AND BROKERAGE
Pooled Trust, Inc. or Foundation Funds, as applicable, (and, in the
case of The International Equity, The International Mid-Cap Sub, The Labor
Select International Equity, The Global Fixed Income, The International Fixed
Income, The Emerging Markets, The Global Equity and The Diversified Core Fixed
Income Portfolios, their investment adviser or sub-adviser) selects brokers or
dealers to execute transactions on behalf of a Portfolio 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, Pooled Trust, Inc. or Foundation Funds pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department (and, in the case of The International Equity, The International
Mid-Cap Sub, The Labor Select International Equity, The Global Fixed Income, The
International Fixed Income, The Emerging Markets, The Global Equity and The
Diversified Core Fixed Income Portfolios, their investment adviser or
sub-adviser) as to rates paid and charged for similar transactions throughout
the securities industry. In some instances, Pooled Trust, Inc. pays a minimal
share transaction cost when the transaction presents no difficulty. A number of
trades are made on a net basis where the Funds either buy the securities
directly from the dealer or sell them to the dealer. In these instances, there
is not direct commission charged but there is a spread (the difference between
the buy and sell price) which is the equivalent of a commission.
Securities transactions for The International Equity, The International
Mid-Cap Sub, The Labor Select International Equity, The Global Equity, The
Emerging Markets, The Global Fixed Income, The International Fixed Income, The
High Yield Bond, The Real Estate Investment Trust and The Diversified Core Fixed
Income Portfolios may be effected in foreign markets which may not allow
negotiation of commissions or where it is customary to pay fixed rates.
During the fiscal years ended October 31, 1995, 1996 and 1997, the
aggregate dollar amounts of brokerage commissions paid by the Portfolios listed
below amounted to the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
The Large Cap Value Equity Portfolio $198,202 $137,685 $117,326
The Mid-Cap Growth Equity Portfolio $19,470 $66,754 $26,361
The International Equity Portfolio $390,649 $618,700 $398,781
The Global Fixed Income Portfolio N/A N/A N/A
The Labor Select International Equity Portfolio (1) $134,410 $72,413 $78,514
The Real Estate Investment Trust Portfolio (2) $185,742 $111,633 $122,865
The Emerging Markets Portfolio (3) $194,207 $92,535 N/A
The Global Equity Portfolio (4) $3,549 $5,176 N/A
The Core Equity Portfolio (5) $2,458 N/A N/A
The Mid-Cap Value Equity Portfolio(6) $15,643 N/A N/A
The Small-Cap Growth Equity Portfolio (5) $1,702 N/A N/A
The Real Estate Investment Trust Portfolio II (7) $16,638 N/A N/A
The Intermediate Fixed Income Portfolio (8) N/A N/A N/A
The Aggregate Fixed Income Portfolio (6) N/A N/A N/A
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C>
The High-Yield Bond Portfolio (9) N/A N/A N/A
The Diversified Core Fixed Income Portfolio(6) N/A N/A N/A
The International Fixed Income Portfolio(10) N/A N/A N/A
The Asset Allocation Portfolio (11) N/A N/A N/A
The International Mid-Cap Sub Portfolio (11) N/A N/A N/A
The Small-Cap Value Equity Portfolio (11) N/A N/A N/A
</TABLE>
(1) Commenced operations on December 19, 1995.
(2) Commenced operations on December 6, 1995
(3) Commenced operations on April 14, 1997.
(4) Commenced operations on October 15, 1997.
(5) Commenced operations on September 15, 1998.
(6) Commenced operations on December 29, 1997.
(7) Commenced operations on November 4, 1997.
(8) Commenced operations on March 12, 1996.
(9) Commenced operations on December 2, 1996.
(10) Commenced operations on April 11, 1997.
(11) Has not commenced operations as of October 31, 1998.
The investment advisers or sub-advisers may allocate out of all
commission business generated by all of the Portfolios 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.
44
<PAGE>
During the fiscal year ended October 31, 1998, 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 Transactions Brokerage Commissions
---------------------- ---------------------
Amounts Amounts
------- -------
<S> <C> <C>
The Large Cap Value Equity Portfolio $87,352,536 $92,557
The Mid-Cap Growth Equity Portfolio $7,338,957 $13,974
The International Equity Portfolio $19,488,896 $43,480
The Labor Select International Equity Portfolio $10,198,546 $22,822
The Real Estate Investment Trust Portfolio $38,144,721 $86,183
The Emerging Markets Portfolio none none
The Mid-Cap Value Equity Portfolio(1) $9,636,086 $14,985
The Core Equity Portfolio (2) $176,340 $276
The Small-Cap Growth Equity Portfolio $673,401 $1,548
The Real Estate Investment Trust Portfolio II(3) $2,777,792 $6,341
The Intermediate Fixed Income Portfolio N/A N/A
The Aggregate Fixed Income Portfolio(1) N/A N/A
The High-Yield Bond Portfolio N/A N/A
The Diversified Core Fixed Income Portfolio N/A N/A
The Global Equity Portfolio $752,875 $884
The Global Fixed Income Portfolio N/A N/A
The Asset Allocation Portfolio (4) N/A N/A
The International Mid-Cap Sub Portfolio (4) N/A N/A
The Small-Cap Value Equity Portfolio (4) N/A N/A
</TABLE>
(1) Commenced operations on December 29, 1997.
(2) Commenced operations on September 15, 1998.
(3) Commenced operations on November 4, 1997.
(4) Has not commenced operations as of October 31, 1998.
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, Pooled Trust, Inc. 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
Pooled Trust, Inc. and to other funds in the Delaware Investments family.
Subject to best price and execution, commissions allocated to brokers providing
such pricing services may or may not be generated by the Portfolios receiving
the pricing service.
45
<PAGE>
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, the
Board of Directors of Pooled Trust, Inc. and the Board of Trustees of Foundation
Funds that the advantages of combined orders outweigh the possible disadvantages
of separate transactions.
Consistent with the Conduct Rules 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.
Subject to best price and execution, Portfolio orders may be placed
with qualified broker/dealers who recommend the Fund's Portfolios or who acts as
agents in the purchase of shares of the Portfolios for their clients.
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 Mid-Cap
Growth Equity Portfolio, either of The Real Estate Investment Trust Portfolios,
The International Equity Portfolio, The Emerging Markets Portfolio, The Global
Equity Portfolio, The Diversified Core Fixed Income Portfolio, The Asset
Allocation Portfolio, The Small-Cap Growth Equity Portfolio and The Core Equity
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. High portfolio turnover involves correspondingly greater
brokerage costs and may affect taxes payable by shareholders that are subject to
federal income taxes.
Under normal circumstances: (1) the annual portfolio turnover rate of
The International Equity Portfolio is not expected to exceed 150%; (2) the
annual portfolio turnover rate of The Global Fixed Income Portfolio and The
International Fixed Income Portfolio is not expected to exceed 200%; (3) the
annual portfolio turnover rate of The Large-Cap Value Equity Portfolio, The
Mid-Cap Growth Equity Portfolio, The Mid-Cap Value Equity Portfolio, The
Small-Cap Value Equity Portfolio, The Labor Select International Equity
Portfolio, The Real Estate Investment Trust Portfolios, The Emerging Markets
Portfolio, The Global Equity Portfolio, The High-Yield Bond Portfolio, The
International Mid-Cap Sub
46
<PAGE>
Portfolio, The Core Equity Portfolio and The Asset Allocation Portfolio is not
expected to exceed 100%; (4) the annual portfolio turnover rate of The
Intermediate Fixed Income Portfolio and The Aggregate Fixed Income Portfolio is
not expected to exceed 250%; (5) the annual portfolio turnover rate of The
Diversified Core Fixed Income Portfolio is not expected to exceed 50%; and (6)
the annual portfolio turnover rate of The Small-Cap Growth Equity Portfolio is
expected to be 100%. 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.
47
<PAGE>
The portfolio turnover rates of the following Portfolios for the past
two fiscal years were as follows:
<TABLE>
<CAPTION>
October 31, 1998 October 31, 1997
---------------- ----------------
<S> <C> <C>
The Large Cap Value Equity Portfolio 85% 73%
The Mid-Cap Growth Equity Portfolio 154% 117%
The International Equity Portfolio 5% 8%
The Global Fixed Income Portfolio 131% 114%
The Labor Select International Equity Portfolio 2% 11%
The Real Estate Investment Trust Portfolio 51% 58%
The Intermediate Fixed Income Portfolio 181% 205%
The High-Yield Bond Portfolio (1) 211% 281%*
The International Fixed Income Portfolio (2) 104% 145%*
The Emerging Markets Portfolio (3) 39% 46%*
The Global Equity Portfolio (4) 47% 0%*
The Core Equity Portfolio (5) 53%* N/A
The Mid-Cap Value Equity Portfolio (6) 155%* N/A
The Small-Cap Value Equity Portfolio (7) N/A N/A
The Small-Cap Growth Equity Portfolio (5) 98%* N/A
The Real Estate Investment Trust Portfolio II (8) 54%* N/A
The Aggregate Fixed Income Portfolio (6) 438%* N/A
The Diversified Core Fixed Income Portfolio (6) 312%* N/A
The Asset Allocation Portfolio (7) N/A N/A
The International Mid-Cap Sub Portfolio (7) N/A N/A
</TABLE>
*Annualized
(1) Commenced operations on December 2, 1996.
(2) Commenced operations on April 11, 1997.
(3) Commenced operations on April 14, 1997.
(4) Commenced operations on October 15, 1997.
(5) Commenced operations on September 15, 1998.
(6) Commenced operations on December 29, 1997.
(7) Has not commenced operations as of October 31, 1998.
(8) Commenced operations on November 4, 1997.
PURCHASING SHARES
The following supplements the disclosure provided in the Portfolios'
Prospectuses.
Delaware Distributors, L.P. serves as the national distributor for each
Portfolio's shares. See the related Prospectus for information on how to invest.
Pooled Trust, Inc. or Foundation Funds, as applicable, 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
unless a shareholder submits a specific request. Certificates are not issued in
the case of Class B Shares or Class C Shares of The Real Estate Investment Trust
Portfolio, in the case of The International Mid-Cap Sub Portfolio shares, or in
the case of any retirement plan account including self-directed IRAs. However,
purchases not involving the issuance of certificates are confirmed to the
investor and credited to the shareholder's account on the books maintained on
behalf of Pooled Trust, Inc. The investor will have the same rights of ownership
with respect to such shares as if certificates had been issued. An investor that
is permitted to obtain a certificate may receive a certificate representing full
share denominations purchased by sending a letter
48
<PAGE>
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by Pooled Trust, Inc. or Foundation Funds for
any certificate issued. A shareholder may be subject to fees for replacement of
a lost or stolen certificate, under certain conditions, including the cost of
obtaining a bond covering the lost or stolen certificate. Please contact the
Portfolios for further information. Investors who hold certificates representing
any of their shares may only redeem those shares by written request. The
investor's certificate(s) must accompany such request.
Purchasing Shares (The Real Estate Investment Trust Portfolio class of The Real
Estate Investment Trust Portfolio and all other Portfolios)
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 related 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. For The International
Mid-Cap Sub Portfolio, the purchase reimbursement fee is equal to 0.60% of the
dollar amount invested and for The Global Equity Portfolio, the purchase
reimbursement fee is equal to 0.40% of the dollar amount invested. In lieu of
paying that fee, an investor in The International Mid-Cap Sub Portfolio or The
Global Equity Portfolio may elect, subject to agreement by DIA Ltd., to invest
by a contribution of in-kind securities or may follow another procedure that has
the same economic impact on the Portfolio and its shareholders, in which case
the purchase reimbursement fee will not apply. See "DETERMINING OFFERING PRICE
AND NET ASSET VALUE." The minimum for initial investments is $1,000,000 for each
Portfolio. There are no minimums for subsequent investments. See the related
Prospectus for special purchase procedures and requirements that may be
applicable to prospective investors in The International Equity Portfolio and
The Global Equity Portfolio. At such time as Pooled Trust, Inc. receives
appropriate regulatory approvals to do so in the future, under certain
circumstances, Pooled Trust, Inc. may, at its sole discretion, allow eligible
investors who have an existing investment counseling relationship with Delaware
International or an affiliate of Delaware to make investments in the Portfolios
by a contribution of securities in-kind to such Portfolios.
49
<PAGE>
Purchasing Shares (REIT Fund A, B, C and Institutional Classes of The Real
Estate Investment Trust Portfolio)
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such Classes
generally must be at least $100. The initial and subsequent investment minimums
for Class A Shares will be waived for purchases by officers, directors and
employees of any Delaware Investments fund, the Manager or any of the Manager's
affiliates if the purchases are made pursuant to a payroll deduction program.
Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Delaware Investments Asset
Planner service are subject to a minimum initial investment of $2,000 per Asset
Planner Strategy selected. There are no minimum purchase requirements for the
Institutional Classes, but certain eligibility requirements must be satisfied.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. See Investment Plans for purchase limitations
applicable to retirement plans. Pooled Trust, Inc. will reject any purchase
order for more than $250,000 of Class B Shares and $1,000,000 or more of Class C
Shares. An investor may exceed these limitations by making cumulative purchases
over a period of time. In doing so, an investor should keep in mind, however,
that reduced front-end sales charges apply to investments of $50,000 or more in
Class A Shares, and that Class A Shares are subject to lower annual 12b-1 Plan
expenses than Class B Shares and Class C Shares and generally are not subject to
a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Pooled Trust, Inc. reserves the right to reject any order for the purchase of
its shares of either Fund if in the opinion of management such rejection is in
such Fund's best interest. If a purchase is canceled because your check is
returned unpaid, you are responsible for any loss incurred. Each Portfolio can
redeem shares from your account(s) to reimburse itself for any loss, and you may
be restricted from making future purchases in any of the funds in the Delaware
Investments family. Each Portfolio reserves the right to reject purchase orders
paid by third-party checks or checks that are not drawn on a domestic branch of
a United States financial institution. If a check drawn on a foreign financial
institution is accepted, you may be subject to additional bank charges for
clearance and currency conversion.
Each Portfolio also reserves the right, following shareholder
notification, to charge a service fee on non-retirement accounts that, as a
result of redemption, have remained below the minimum stated account balance for
a period of three or more consecutive months. Holders of such accounts may be
notified of their insufficient account balance and advised that they have until
the end of the current calendar quarter to raise their balance to the stated
minimum. If the account has not reached the minimum balance requirement by that
time, the Fund will charge a $9 fee for that quarter and each subsequent
calendar quarter until the account is brought up to the minimum balance. The
service fee will be deducted from the account during the first week of each
calendar quarter for the previous quarter, and will be used to help defray the
cost of maintaining low-balance accounts. No fees will be charged without proper
notice, and no CDSC will apply to such assessments.
Each Portfolio also reserves the right, upon 60 days' written notice,
to involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.
The NASD has adopted amendments to its Conduct Rules, as amended,
relating to investment company sales charges. Pooled Trust, Inc. and the
Distributor intend to operate in compliance with these rules.
50
<PAGE>
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 5.75%; however, lower front-end sales charges
apply for larger purchases. See the table in the Fund Classes' Prospectus. Class
A Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment.
Class B Shares are purchased at net asset value and are subject to a
CDSC of: (i) 5% if shares are redeemed within one year of purchase; (ii) 4% if
shares are redeemed within two years of purchase; (iii) 3% if shares are
redeemed during the third or fourth year following purchase; (iv) 2% if shares
are redeemed during the fifth year following purchase; and (v) 1% if shares are
redeemed during the sixth year following purchase. Class B Shares are also
subject to annual 12b-1 Plan expenses which are higher than those to which Class
A Shares are subject and are assessed against Class B Shares for approximately
eight years after purchase. See Automatic Conversion of Class B Shares, below.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Plans Under Rule 12b-1 for the Portfolio Classes
under Purchasing Shares, and Determining Offering Price and Net Asset Value in
this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in the Portfolio's assets and will
receive a proportionate interest in that Fund's income, before application, as
to Class A, Class B and Class C Shares, of any expenses under that Fund's 12b-1
Plans.
Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares or Institutional Class shares, a
shareholder submits a specific request. Certificates are not issued in the case
of Class B Shares or Class C Shares or in the case of any retirement plan
account including self-directed IRAs. However, purchases not involving the
issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing full
share denominations purchased by sending a letter signed by each owner of the
account to the Transfer Agent requesting the certificate. No charge is assessed
by Pooled Trust, Inc. for any certificate issued. A shareholder may be subject
to fees for replacement of a lost or stolen certificate, under certain
conditions, including the cost of obtaining a bond covering the lost or stolen
certificate. Please contact the Portfolio for further information. Investors who
hold certificates representing any of their shares may only redeem those shares
by written request. The investor's certificate(s) must accompany such request.
51
<PAGE>
\
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A Shares, Class B Shares
and Class C Shares permit investors to choose the method of purchasing shares
that is most suitable for their needs given the amount of their purchase, the
length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of
0.30% of the average daily net assets of Class A Shares, or to purchase either
Class B or Class C Shares and have the entire initial purchase amount invested
in the Portfolio with the investment thereafter subject to a CDSC and annual
12b-1 Plan expenses. Class B Shares are subject to a CDSC if the shares are
redeemed within six years of purchase, and Class C Shares are subject to a CDSC
if the shares are redeemed within 12 months of purchase. Class B and Class C
Shares are each subject to annual 12b-1 Plan expenses of up to a maximum of 1%
(0.25% of which are service fees to be paid to the Distributor, dealers or
others for providing personal service and/or maintaining shareholder accounts)
of average daily net assets of the respective Class. Class B Shares will
automatically convert to Class A Shares at the end of approximately eight years
after purchase and, thereafter, be subject to annual 12b-1 Plan expenses of up
to a maximum of 0.30% of average daily net assets of such shares.
Unlike Class B Shares, Class C Shares do not convert to another Class.
The higher 12b-1 Plan expenses on Class B Shares and Class C Shares
will be offset to the extent a return is realized on the additional money
initially invested upon the purchase of such shares. However, there can be no
assurance as to the return, if any, that will be realized on such additional
money. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also consider the duration of the annual 12b-1 Plan expenses to
which each of the classes is subject and the desirability of an automatic
conversion feature, which is available only for Class B Shares.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Portfolios, the Distributor and others will be paid, in
the case of Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A Shares, Class B Shares and Class C Shares. Investors should understand
that the purpose and function of the respective 12b-1 Plans and the CDSCs
applicable to Class B Shares and Class C Shares are the same as those of the
12b-1 Plan and the front-end sales charge applicable to Class A Shares in that
such fees and charges are used to finance the distribution of the respective
Classes. See Plans Under Rule 12b-1 for the Portfolio Classes.
Dividends, if any, paid on Class A Shares, Class B Shares and Class C
Shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except that the additional amount of 12b-1
Plan expenses relating to Class B Shares and Class C Shares will be borne
exclusively by such shares. See Determining Offering Price and Net Asset Value.
Class A Shares
Purchases of $50,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectus, and may include a series of purchases over a 13-month period under a
Letter of Intention signed by the purchaser. See Special Purchase Features -
Class A Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may reallow to dealers up to the full amount of the front-end sales.
In addition, certain dealers who enter into an agreement to provide extra
training and information on Delaware Investments products and services and who
increase sales of Delaware Investments funds may receive an additional
commission of up to 0.15% of the offering price in connection with sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution
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<PAGE>
capabilities and their ability to increase sales. The Distributor should be
contacted for further information on these requirements as well as the basis and
circumstances upon which the additional commission will be paid. Participating
dealers may be deemed to have additional responsibilities under the securities
laws. Dealers who receive 90% or more of the sales charge may be deemed to be
underwriters under the 1933 Act.
Dealer's Commission
As described in the Prospectus, for initial purchases of Class A Shares
of $1,000,000 or more, a dealer's commission may be paid by the Distributor to
financial advisers through whom such purchases are effected.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other Delaware Investments
funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) may be aggregated with those of the Class A Shares of
the Portfolio. Financial advisers also may be eligible for a dealer's commission
in connection with certain purchases made under a Letter of Intention or
pursuant to an investor's Right of Accumulation. Financial advisers should
contact the Distributor concerning the applicability and calculation of the
dealer's commission in the case of combined purchases.
An exchange from other Delaware Investments funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above, and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of Class B Shares or Class C
Shares of the Portfolio, even if those shares are later exchanged for shares of
another Delaware Investments fund. In the event of an exchange of the shares,
the "net asset value of such shares at the time of redemption" will be the net
asset value of the shares that were acquired in the exchange. See Waiver of
Contingent Deferred Sales Charge--Class B Shares and Class C Shares under
Redemption and Exchange for the Portfolio Classes for a list of the instances in
which the CDSC is waived.
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the same
Fund. See Automatic Conversion of Class B Shares under Classes of Shares in the
Fund Classes' Prospectus. Such conversion will constitute a tax-free exchange
for federal income tax purposes. See Taxes. Investors are reminded that the
Class A Shares into which Class B Shares will convert are subject to ongoing
annual 12b-1 Plan expenses of up to a maximum of 0.30% of average daily net
assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class
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C Shares, it will be assumed that shares held for more than 12 months are
redeemed first followed by shares acquired through the reinvestment of dividends
or distributions, and finally by shares held for 12 months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class B Shares at the time of purchase from its
own assets in an amount equal to no more than 5% of the dollar amount purchased.
In addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if redeemed within six
years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for the Portfolio to
sell Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Part B, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B Shares
falls on a Conversion Date, an investor's Class B Shares will be converted on
that date. If the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth anniversary falls on
the day after a Conversion Date, that shareholder will have to hold Class B
Shares for as long as three additional months after the eighth anniversary of
purchase before the shares will automatically convert into Class A Shares.
Class B Shares of the Portfolio acquired through a reinvestment of
dividends will convert to the corresponding Class A Shares of that fund (or, in
the case of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve
Consultant Class) pro-rata with Class B Shares of that fund not acquired through
dividend reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an
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amount equal to no more than 1% of the dollar amount purchased. As discussed
below, Class C Shares are subject to annual 12b-1 Plan expenses and, if redeemed
within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this Part B. See Redemption and Exchange.
Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, Pooled Trust, Inc. has
adopted a separate plan for each of Class A Shares, the Class B Shares and the
Class C Shares of The Real Estate Investment Trust Portfolio (the "Plans"). Each
Plan permits the relevant Portfolio to pay for certain distribution, promotional
and related expenses involved in the marketing of only the Class to which the
Plan applies.
The Plans permit the Portfolio, pursuant to the Distribution Agreement,
to pay out of the assets of Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in distributing
and promoting sales of shares of such classes. These expenses include, among
other things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B Shares and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition, the Portfolio may make payments out of the assets of Class
A Shares, Class B Shares and Class C Shares directly to other unaffiliated
parties, such as banks, who either aid in the distribution of shares of, or
provide services to, such classes.
The maximum aggregate fee payable by the Portfolio under the Plans, and
the Portfolio's Distribution Agreement, is on an annual basis up to 0.30% of
Class A Shares' average daily net assets for the year of Class A Shares, and up
to 1% (0.25% of which are service fees to be paid to the Distributor, dealers
and others for providing personal service and/or maintaining shareholder
accounts) of each of Class B Shares' and Class C Shares' average daily net
assets for the year. Pooled Trust, Inc.'s Board of Directors may reduce these
amounts at any time. Pursuant to Board action, the maximum aggregate fee payable
by Class A Shares is 0.25%.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A Shares, Class B Shares and Class C Shares would be borne by such persons
without any reimbursement from such Classes. Subject to seeking best price and
execution, the Classes may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreement, as amended, have been
approved by the Board of Directors of Pooled Trust, Inc., including a majority
of the directors who are not "interested persons" (as
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defined in the 1940 Act) of Pooled Trust, Inc. and who have no direct or
indirect financial interest in the Plans by vote cast in person at a meeting
duly called for the purpose of voting on the Plans and such Agreement.
Continuation of the Plans and the Distribution Agreement, as amended, must be
approved annually by the Board of Directors in the same manner, as specified
above.
Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, the Class A
Shares, Class B Shares and Class C Shares and that there is a reasonable
likelihood of the Plan relating to a Class providing a benefit to that Class.
The Plans and the Distribution Agreement, as amended, may be terminated at any
time without penalty by a majority of those directors who are not "interested
persons" or by a majority vote of the outstanding voting securities of the
relevant Class. Any amendment materially increasing the maximum percentage
payable under the Plans must likewise be approved by a majority vote of the
outstanding voting securities of the relevant Class, as well as by a majority
vote of those directors who are not "interested persons." With respect to the
Class A Share Plan, any material increase in the maximum percentage payable
thereunder must also be approved by a majority of the outstanding voting
securities of the Class B Shares. Also, any other material amendment to the
Plans must be approved by a majority vote of the directors including a majority
of the noninterested directors of Pooled Trust, Inc. having no interest in the
Plans. In addition, in order for the Plans to remain effective, the selection
and nomination of directors who are not "interested persons" of Pooled Trust,
Inc. must be effected by the directors who themselves are not "interested
persons" and who have no direct or indirect financial interest in the Plans.
Persons authorized to make payments under the Plans must provide written reports
at least quarterly to the Board of Directors for their review.
For the fiscal year ended October 31, 1998, payments from Class A
Shares, Class B Shares and Class C Shares of REIT Fund amounted to $18,831,
$71,406 and $40,555, respectively. Such amounts were used for the following
purposes:
<TABLE>
<CAPTION>
REIT Fund REIT Fund REIT Fund
A Class B Class C Class
------- ------- -------
<S> <C> <C> <C>
Advertising - --- ---
Annual/Semi-Annual Reports $55 --- ---
Broker Trails $18,636 $17,012 $7,681
Broker Sales Charges --- $27,030 $22,397
Dealer Service Expenses --- --- ---
Interest on Broker Sales Charges --- $22,954 $1,689
Commissions to Wholesalers --- $4,310 $8,788
Promotional-Broker Meetings --- $100 ---
Promotional-Other $10 --- ---
Prospectus Printing $130 --- ---
Telephone --- --- ---
Wholesaler Expenses --- --- ---
Other --- --- ---
</TABLE>
Other Payments to Dealers - Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Investments family of funds. In some instances, these
incentives or payments may be offered only to certain dealers who maintain,
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<PAGE>
have sold or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Investments fund shares.
Subject to pending amendments to the NASD's Conduct Rules, in
connection with the promotion of Delaware Investments fund shares, the
Distributor may, from time to time, pay to participate in dealer-sponsored
seminars and conferences, reimburse dealers for expenses incurred in connection
with preapproved seminars, conferences and advertising and may, from time to
time, pay or allow additional promotional incentives to dealers, which shall
include non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the Securities and Exchange Commission.
It is likely that the NASD's Conduct Rules will be amended such that the ability
of the Distributor to pay non-cash compensation as described above will be
restricted in some fashion. The Distributor intends to comply with the NASD's
Conduct Rules as they may be amended.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value under
the Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege.
Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Investments family,
certain of their agents and registered representatives and employees of
authorized investment dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts, must be for
accounts in the name of the individual or a qualifying family member. Class A
Shares may also be purchased at net asset value by current and former officers,
directors and employees (and members of their families) of the Dougherty
Financial Group LLC.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of funds in the
Delaware Investments family. Officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Investors may be charged a fee when effecting transactions in Class A
Shares through a broker or agent that offers these special investment products.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional Class
of the Portfolio; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Retirement Financial Services, Inc. (formerly known as
Delaware Investment & Retirement Services, Inc.) proprietary record keeping
system that (i) has in excess of $500,000 of plan assets invested in Class A
Shares of funds in the Delaware Investments family and any stable value account
available to investment advisory clients of the Manager or its affiliates; or
(ii) is sponsored by an employer that has at any point after May 1, 1997 had
more than 100 employees while such plan has held Class A Shares of the Portfolio
in the Delaware Investments family and such employer has properly represented
to, and received written confirmation back from,
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Retirement Financial Services, Inc. in writing that it has the requisite number
of employees. See Group Investment Plans for information regarding the
applicability of the Limited CDSC.
Purchases of Class A Shares at net asset value may also be made by bank
sponsored retirement plans that are no longer eligible to purchase Institutional
Class Shares or purchase interests in a collective trust as a result of a change
in distribution arrangements.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Investments family at net asset value.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to the Portfolio
account in connection with loans originated from accounts previously maintained
by another investment firm will also be invested at net asset value.
Pooled Trust, Inc. must be notified in advance that the trade qualifies
for purchase at net asset value.
Allied Plans
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Investments funds ("eligible Delaware Investments
fund shares"), as well as shares of designated classes of non-Delaware
Investments funds ("eligible non-Delaware Investments fund shares"). Class B
Shares and Class C Shares are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware Investments
fund shares held by the Allied Plan may be combined with the dollar amount of
new purchases by that Allied Plan to obtain a reduced front-end sales charge on
additional purchases of eligible Delaware Investments fund shares. See Combined
Purchases Privilege, below.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments fund
shares or for eligible non-Delaware Investments fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible fund
shares, both Delaware Investments and non-Delaware Investments, which were not
subject to a front end sales charge, will be subject to the applicable sales
charge if exchanged for eligible Delaware Investments fund shares to which a
sales charge applies. No sales charge will apply if the eligible fund shares
were previously acquired through the exchange of eligible shares on which a
sales charge was already paid or through the reinvestment of dividends. See
Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
adviser's eligibility for a dealer's commission on net asset value purchases of
eligible Delaware Investments fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated. See Class A Shares,
above.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Investments and non-Delaware Investments fund shares.
When eligible Delaware Investments fund shares are exchanged into eligible
non-Delaware Investments fund shares, the Limited CDSC will be imposed at the
time of the exchange, unless the joint venture agreement specifies that the
amount of the Limited CDSC will be paid
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by the financial adviser or selling dealer. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Pooled Trust, Inc. which provides for the holding in escrow by the
Transfer Agent, of 5% of the total amount of Class A Shares intended to be
purchased until such purchase is completed within the 13-month period. A Letter
of Intention may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the difference
between the front-end sales charge on Class A Shares purchased at the reduced
rate and the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13-month period, the Transfer Agent will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level designated in
their Letter of Intention) of all their shares of the Portfolio and of any class
of any of the other mutual funds in Delaware Investments (except shares of any
Delaware Investments fund which do not carry a front-end sales charge, CDSC or
Limited CDSC other than shares of Delaware Group Premium Fund, Inc. beneficially
owned in connection with the ownership of variable insurance products, unless
they were acquired through an exchange from a Delaware Investments fund which
carried a front-end sales charge, CDSC or Limited CDSC) previously purchased and
still held as of the date of their Letter of Intention toward the completion of
such Letter.
Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge on
investments of Class A Shares made by the plan. The aggregate investment level
of the Letter of Intention will be determined and accepted by the Transfer Agent
at the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in Delaware Investments funds that are offered with a front-end
sales charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent
reserves the right to adjust the signed Letter of Intention based on this
acceptance criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments exceed the
anticipated level and equal an amount that would qualify the plan for further
discounts, any front-end sales charges will be automatically adjusted. In the
event this Letter of Intention is not fulfilled within the 13-month period, the
plan level will be adjusted (without completing another Letter of Intention) and
the employer will be billed for the difference in front-end sales charges due,
based on the plan's assets under management at that time. Employers may also
include the value (at offering price at the level designated in their Letter of
Intention) of all their shares intended for purchase that are offered with a
front-end sales charge, CDSC or Limited CDSC of any class. Class B Shares and
Class C Shares of the Portfolio and other Delaware Investments funds which offer
corresponding classes of shares may also be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Portfolio, as well as shares of any other class of any of the
other Delaware Investments funds (except shares of any Delaware Investments fund
which do not carry a front-end sales charge, CDSC or Limited CDSC, other than
shares of Delaware Group Premium Fund, Inc. beneficially owned in connection
with the ownership of variable insurance products, unless they were acquired
through an exchange from a Delaware Investments fund which carried a front-end
sales charge, CDSC or Limited CDSC). In addition, assets held by investment
advisory clients of the Manager or its affiliates in a stable value account may
be combined with other Delaware Investments fund holdings.
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The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
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Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to the Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of the Portfolio,
as well as shares of any other class of any of the other Delaware Investments
funds which offer such classes (except shares of any Delaware Investments fund
which do not carry a front-end sales charge, CDSC or Limited CDSC, other than
shares of Delaware Group Premium Fund, Inc. beneficially owned in connection
with the ownership of variable insurance products, unless they were acquired
through an exchange from a Delaware Investments fund which carried a front-end
sales charge, CDSC or Limited CDSC). If, for example, any such purchaser has
previously purchased and still holds Class A Shares and/or shares of any other
of the classes described in the previous sentence with a value of $40,000 and
subsequently purchases $10,000 at offering price of additional shares of Class A
Shares, the charge applicable to the $10,000 purchase would currently be 4.75%.
For the purpose of this calculation, the shares presently held shall be valued
at the public offering price that would have been in effect were the shares
purchased simultaneously with the current purchase. Investors should refer to
the table of sales charges for Class A Shares to determine the applicability of
the Right of Accumulation to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of the Portfolio (and of Institutional
Classes holding shares which were acquired through an exchange from one of the
other mutual funds in Delaware Investments offered with a front-end sales
charge) who redeem such shares have one year from the date of redemption to
reinvest all or part of their redemption proceeds in Class A Shares of that
Portfolio or in Class A Shares of any of the other funds in the Delaware
Investments family, subject to applicable eligibility and minimum purchase
requirements, in states where shares of such other funds may be sold, at net
asset value without the payment of a front-end sales charge. This privilege does
not extend to Class A Shares where the redemption of the shares triggered the
payment of a Limited CDSC. Persons investing redemption proceeds from direct
investments in mutual funds in the Delaware Investments family offered without a
front-end sales charge will be required to pay the applicable sales charge when
purchasing Class A Shares. The reinvestment privilege does not extend to a
redemption of either Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to the Portfolio in which the investor does not then have an account
will be treated like all other initial purchases of the Portfolio's shares.
Consequently, an investor should obtain and read carefully the prospectus for
the fund in which the investment is intended to be made before investing or
sending money. The prospectus contains more complete information about the fund,
including charges and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Portfolio' shareholder servicing agent, about
the applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) in connection with the features described above.
Group Investment Plans
Group Investment Plans which are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares described in the Prospectus, based on total
plan assets. If a company has more than one plan investing in the Delaware
Investments family of funds, then the total amount invested in all plans would
be used in determining the applicable front-end sales charge reduction upon each
purchase, both initial and subsequent, upon notification to the Fund in which
the investment is being made at the time of each such purchase. Employees
participating in such Group Investment Plans may also combine the investments
made in their plan account when determining the applicable front-end sales
charge on purchases to non-retirement Delaware Investments investment accounts
if they so notify the Fund in which they are investing in connection with each
purchase. See Retirement Plans under Investments Plans for information about
retirement plans.
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The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from a fund in the Delaware Investments family.
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
Institutional Class
The Institutional Class of the Portfolio is available for purchase only
by: (a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager or its affiliates and securities dealer firms with
a selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment Advisers, an affiliate of the Manager, or its other
affiliates and their corporate sponsors, as well as subsidiaries and related
employee benefit plans and rollover individual retirement accounts from such
institutional advisory accounts; (d) a bank, trust company and similar financial
institution investing for its own account or for the account of its trust
customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment of the financial institution of a Rule
12b-1 Plan fee; and (e) registered investment advisers investing on behalf of
clients that consist solely of institutions and high net-worth individuals
having at least $1,000,000 entrusted to the adviser for investment purposes, but
only if the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services.
Shares of the Institutional Class are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective A,
B or C Class in which an investor has an account (based on the net asset value
in effect on the reinvestment date) and will be credited to the shareholder's
account on that date. All dividends and distributions of Institutional Class are
reinvested in the accounts of the holders of such shares (based on the net asset
value in effect on the reinvestment date). A confirmation of each dividend
payment from net investment income will be mailed to shareholders quarterly. A
confirmation of any distributions from realized securities profits will be
mailed to shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectuses
and this Part B, are made for Class A Shares at the public offering price, and
for Class B Shares, Class C Shares and Institutional Class at the net asset
value, at the end of the day of receipt. A reinvestment plan may be terminated
at any time. This plan does not assure a profit nor protect against depreciation
in a declining market.
Reinvestment of Dividends in Other Delaware Investments Family of Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A Shares,
Class B Shares and Class C Shares may automatically reinvest dividends and/or
distributions in any of the mutual funds in the Delaware Investments, including
the Portfolio, in states where their shares may be sold. Such investments will
be at net asset value at the close of business on the reinvestment date without
any front-end sales charge or service fee. The shareholder must notify the
Transfer Agent in writing and must have established an account in the fund into
which the dividends and/or distributions are to be invested. Any reinvestment
directed to the Portfolio in which the investor does not then have an account
will be treated like all other initial purchases of the Portfolio's shares.
Consequently, an investor should obtain and read carefully the prospectus for
the fund in which the investment is intended to be made before investing or
sending money. The prospectus contains more complete information about the fund,
including charges and expenses.
Subject to the following limitations, dividends and/or distributions
from other funds in Delaware Investments may be invested in shares of the
Portfolio, provided an account has been established. Dividends from Class A
Shares may not be directed to Class B Shares or Class C Shares. Dividends from
Class B Shares may only be directed to other Class B Shares and dividends from
Class C Shares may only be directed to other Class C Shares.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same Delaware
Investments fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE
IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, or 403(b)(7) or 457 Deferred Compensation Plans.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family, you may write and authorize an exchange of part or all of
your investment into shares of the Portfolio. If you wish to open an account by
exchange, call the Shareholder Service Center for more information. All
exchanges are subject to the eligibility and minimum purchase requirements set
forth in the Portfolio's prospectus. See Redemption and Exchange for more
complete information concerning your exchange privileges.
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Holders of Class A Shares of the Portfolio may exchange all or part of
their shares for certain of the shares of other funds in the Delaware
Investments family, including other Class A Shares, but may not exchange their
Class A Shares for Class B Shares or Class C Shares of the Portfolio or of any
other fund in the Delaware Investments family. Holders of Class B Shares of the
Portfolio are permitted to exchange all or part of their Class B Shares only
into Class B Shares of other Delaware Investments funds. Similarly, holders of
Class C Shares of the Portfolio are permitted to exchange all or part of their
Class C Shares only into Class C Shares of other Delaware Investments funds.
Class B Shares of the Portfolio and Class C Shares of the Portfolio acquired by
exchange will continue to carry the CDSC and, in the case of Class B Shares, the
automatic conversion schedule of the fund from which the exchange is made. The
holding period of Class B Shares of the Portfolio acquired by exchange will be
added to that of the shares that were exchanged for purposes of determining the
time of the automatic conversion into Class A Shares of the Portfolio.
Permissible exchanges into Class A Shares of the Portfolio will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of the Portfolio will be made without the imposition of
a CDSC by the fund from which the exchange is being made at the time of the
exchange.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for the Portfolio
to accept for investment in Class A Shares, Class B Shares or Class C Shares,
through an agent bank, preauthorized government or private recurring payments.
This method of investment assures the timely credit to the shareholder's account
of payments such as social security, veterans' pension or compensation benefits,
federal salaries, Railroad Retirement benefits, private payroll checks,
dividends, and disability or pension fund benefits. It also eliminates lost,
stolen and delayed checks.
Automatic Investing Plan--Shareholders of Class A Shares, Class B
Shares and Class C Shares may make automatic investments by authorizing, in
advance, monthly payments directly from their checking account for deposit into
their Fund account. This type of investment will be handled in either of the
following ways. (1) If the shareholder's bank is a member of the National
Automated Clearing House Association ("NACHA"), the amount of the investment
will be electronically deducted from his or her account by Electronic Fund
Transfer ("EFT"). The shareholder's checking account will reflect a debit each
month at a specified date although no check is required to initiate the
transaction. (2) If the shareholder's bank is not a member of NACHA, deductions
will be made by preauthorized checks, known as Depository Transfer Checks.
Should the shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to the Portfolio from the federal government or its agencies
on behalf of a shareholder may be credited to the shareholder's account after
such payments should have been terminated by reason of death or otherwise. Any
such payments are subject to reclamation by the federal government or its
agencies. Similarly, under certain circumstances, investments from private
sources may be subject to reclamation by the transmitting bank. In the event of
a reclamation, the Portfolio may liquidate sufficient shares from a
shareholder's account to reimburse the government or the private source. In the
event there are insufficient shares in the shareholder's account, the
shareholder is expected to reimburse the Fund.
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Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Portfolio accounts. Either Portfolio will
accept these investments, such as bank-by-phone, annuity payments and payroll
allotments, by mail directly from the third party. Investors should contact
their employers or financial institutions who in turn should contact Pooled
Trust, Inc. for proper instructions.
MoneyLine (SM) On Demand
You or your investment dealer may request purchases of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize the Portfolio to accept
such requests from you or your investment dealer, funds will be withdrawn from
(for share purchases) your predesignated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine (SM) On Demand transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this service by completing an Account Services form.
If your name and address are not identical to the name and address on your Fund
account, you must have your signature guaranteed. The Portfolios do not charge a
fee for this service; however, your bank may charge a fee.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Class A
Shares, Class B Shares and C Shares through regular liquidations of shares in
their accounts in other mutual funds in the Delaware Investments family.
Shareholders of the Class A, B and C Shares may elect to invest in one or more
of the other mutual funds in Delaware Investments family through the Wealth
Builder Option. If in connection with the election of the Wealth Builder Option,
you wish to open a new account to receive the automatic investment, such new
account must meet the minimum initial purchase requirements described in the
prospectus of the fund that you select. All investments under this option are
exchanges and are therefore subject to the same conditions and limitations as
other exchanges noted above.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Class A, B and C Shares Prospectus. The investment will be made on the 20th day
of each month (or, if the fund selected is not open that day, the next business
day) at the public offering price or net asset value, as applicable, of the fund
selected on the date of investment. No investment will be made for any month if
the value of the shareholder's account is less than the amount specified for
investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Redemption and Exchange for a brief summary of the tax consequences
of exchanges. Shareholders can terminate their participation in Wealth Builder
at any time by giving written notice to the fund from which exchanges are made.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Classes.
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Asset Planner
To invest in Delaware Investments funds using the Asset Planner asset
allocation service, you should complete an Asset Planner Account Registration
Form, which is available only from a financial adviser or investment dealer.
Effective September 1, 1997, the Asset Planner Service is only available to
financial advisers or investment dealers who have previously used this service.
The Asset Planner service offers a choice of four predesigned asset allocation
strategies (each with a different risk/reward profile) in predetermined
percentages in Delaware Investments funds. With the help of a financial adviser,
you may also design a customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange. Also see
Buying Class A Shares at Net Asset Value. The minimum initial investment per
Strategy is $2,000; subsequent investments must be at least $100. Individual
fund minimums do not apply to investments made using the Asset Planner service.
Class A, Class B and Class C Shares are available through the Asset Planner
service. Generally, only shares within the same class may be used within the
same Strategy. However, Class A Shares of the Portfolio and of other funds in
the Delaware Investments family may be used in the same Strategy with consultant
class shares that are offered by certain other Delaware Investments funds.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
See Institutional Class, above, for additional information on any of the plans
and Delaware's retirement services, call the Shareholder Service Center.
Retirement Plans
An investment in the REIT Fund may be suitable for tax-deferred
retirement plans. Delaware Investments offers a full spectrum of retirement
plans, including the 401(k) Defined Contribution Plan, Individual Retirement
Account ("IRA") and the new Roth IRA and Education IRA.
Among the retirement plans that Delaware Investments offers, Class B
Shares are available only by Individual Retirement Accounts, SIMPLE IRAs, Roth
IRAs, Education IRAs, Simplified Employee Pension Plans, Salary Reduction
Simplified Employee Pension Plans, and 403(b)(7) and 457 Deferred Compensation
Plans. The CDSC may be waived on certain redemptions of Class B Shares and Class
C Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange in the Prospectus for the Fund
Classes for a list of the instances in which the CDSC is waived.
Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C Shares must be
in an amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.
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Minimum investment limitations generally applicable to other investors
do not apply to retirement plans other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25, regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such Plans.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Class
shares. See Institutional Class, above. For additional information on any of the
plans and Delaware's retirement services, call the Shareholder Service Center
telephone number.
It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these plans, contact your investment dealer or the Distributor.
Taxable distributions from the retirement plans described below may be
subject to withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the Plans described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations. These
plans can be maintained as Section 401(k), profit sharing or money purchase
pension plans. Contributions may be invested only in Class A Shares and Class C
Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year; however, participation
may be restricted based on certain income limits.
IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that can be
utilized depending on the individual's circumstances. A new Roth IRA and
Education IRA are available in addition to the existing deductible IRA and
non-deductible IRA.
Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income ("AGI") and whether the taxpayer is an active participant
in an employer sponsored retirement plan. Even if a taxpayer is an active
participant in an employer sponsored retirement plan, the full $2,000 is still
available if the taxpayer's AGI is below $30,000 ($50,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $50,000 and $60,000, and for
single individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available for
contributions to IRAs by taxpayers whose AGI after IRA deductions exceeds the
maximum income limit established for each year and who are active participants
in an employer sponsored retirement plan.
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Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as $2,000 for each working
spouse and defer taxes on interest or other earnings from the IRAs.
Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI is
below $150,000. The maximum deductible IRA contribution for a married individual
who is not an active participant, but whose spouse is, is phased out for
combined AGI between $150,000 and $160,000.
Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or another IRA
may rollover the distribution tax-free to a Conduit IRA. The rollover of the
eligible distribution must be completed by the 60th day after receipt of the
distribution; however, if the rollover is in the form of a direct
trustee-to-trustee transfer without going through the distributee's hand, the
60-day limit does not apply.
A distribution qualifies as an "eligible rollover distribution" if it
is made from a qualified retirement plan, a 403(b) plan or another IRA and does
not constitute one of the following:
(1) Substantially equal periodic payments over the employee's life or
life expectancy or the joint lives or life expectancies of the employee and
his/her designated beneficiary;
(2) Substantially equal installment payments for a period certain of 10
or more years;
(3) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;
(4) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the employee; and
(5) A distribution of after-tax contributions which is not includable
in income.
Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA. As a
result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Act"), the $2,000 annual limit will not be reduced by any contributions to
a deductible or nondeductible IRA for the same year. The maximum contribution
that can be made to a Roth IRA is phased out for single filers with AGI between
$95,000 and $110,000, and for couples filing jointly with AGI between $150,000
and $160,000. Qualified distributions from a Roth IRA would be exempt from
federal taxes. Qualified distributions are distributions (1) made after the
five-taxable year period beginning with the first taxable year for which a
contribution was made to a Roth IRA and (2) that are (a) made on or after the
date on which the individual attains age 59 1/2, (b) made to a beneficiary on or
after the death of the individual, (c) attributed to the individual being
disabled, or (d) for a qualified special purpose (e.g., first time homebuyer
expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the conversion
is done prior to January 1, 1999, then the income from the conversion can be
included in income ratably over a four-year period beginning with the year of
conversion.
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Education IRAs
For taxable years beginning after December 31, 1997, an Education IRA
has been created exclusively for the purpose of paying qualified higher
education expenses. Taxpayers can make non-deductible contributions up to $500
per year per beneficiary. The $500 annual limit is in addition to the $2,000
annual contribution limit applicable to IRAs and Roth IRAs. Eligible
contributions must be in cash and made prior to the date the beneficiary reaches
age 18. Similar to the Roth IRA, earnings would accumulate tax-free. There is no
requirement that the contributor be related to the beneficiary, and there is no
limit on the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can be created for the same
beneficiaries, however, the contribution limit of all contributions for a single
beneficiary cannot exceed $500 annually.
This $500 annual contribution limit for Education IRAs is phased out
ratably for single contributors with modified AGI between $95,000 and $110,000,
and for couples filing jointly with modified AGI of between $150,000 and
$160,000. Individuals with modified AGI above the phase-out range are not
allowed to make contributions to an Education IRA established on behalf of any
other individual.
Distributions from an Education IRA are excludable from gross income to
the extent that the distribution does not exceed qualified higher education
expenses incurred by the beneficiary during the year the distribution is made
regardless of whether the beneficiary is enrolled at an eligible educational
institution on a full-time, half-time, or less than half-time basis.
Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of such a
distribution will be includible in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
education expenses. Tax-free (and penalty-free) transfers and rollovers of
account balances from one Education IRA benefiting one beneficiary to another
Education IRA benefiting a different beneficiary (as well as redesignations of
the named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or rollover is
made before the time the old beneficiary reaches age 30 and the new beneficiary
reaches age 18.
A company or association may establish a Group IRA or Group Roth IRA
for employees or members who want to purchase shares of the Fund.
Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. For information concerning the applicability of a CDSC upon
redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales
Charge - Class B Shares and Class C Shares.
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Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks. In addition, effective January 1, 1998, the new law allows for premature
distribution without a 10% penalty if (i) the amounts are used to pay qualified
higher education expenses (including graduate level courses) of the taxpayer,
the taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer, taxpayer's
spouse or any child or grandchild of the taxpayer or the taxpayer's spouse. A
qualified first-time homebuyer is someone who has had no ownership interest in a
residence during the past two years. The aggregate amount of distribution for
first-time home purchases cannot exceed a lifetime cap of $10,000.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may continue to be maintained by employers having 25 or
fewer employees. An employer may elect to make additional contributions to such
existing plans.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans. Plan
documents are available to enable employers to establish a plan. An employer may
also elect to make profit sharing contributions and/or matching contributions
with investments in only Class A Shares and Class C Shares or certain other
funds in the Delaware Investments family. Purchases under the Plan may be
combined for purposes of computing the reduced front-end sales charge applicable
to Class A Shares as set forth in the table the Prospectus for the Fund Classes.
Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase shares
of any of the Classes in conjunction with such an arrangement. Purchases under
the Plan may be combined for purposes of computing the reduced front-end sales
charge applicable to Class A Shares as set forth in the table the Prospectus for
the Fund Classes.
Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of the Fund. Although investors may use their
own plan, there is available a Delaware Investments 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Purchases under the Plan may be combined
for purposes of computing the reduced front-end sales charge applicable to Class
A Shares as set forth in the table in the Prospectus for the Fund Classes.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or
fewer employees.
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SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is available
only to plan sponsors 100 or fewer employees and, in exchange for mandatory plan
sponsor contributions, discrimination testing is no longer required. Class B
Shares are not available for purchase by such plans.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
The Real Estate Investment Trust Portfolio Class of The Real Estate
Investment Trust Portfolio and all other Portfolios
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
Pooled Trust, Inc. and Federal Funds wire by the Portfolio's Custodian Bank,
plus in the case of The International Mid-Cap Sub Portfolio, The Emerging
Markets Portfolio and the Global Equity Portfolio, any applicable purchase
reimbursement fee equal to 0.60%, 0.75% and 0.40%, respectively, of the dollar
amount invested. In the case of The International Mid-Cap Sub Portfolio, in
certain circumstances, orders for the purchase of shares placed by or at the
direction of DIA Ltd. on behalf of its institutional separate account clients
will be effected at the net asset value of The International Mid-Cap Sub
Portfolio next calculated after receipt of the order and satisfactory assurances
regarding payment of the purchase price. The purchase price may be paid either
in cash upon settlement of a corresponding sale of client securities held
outside of the Portfolio through an in-kind transfer, through an alternative
method arranged through the client's custodian, or any other method reasonably
acceptable to Pooled Trust, Inc.
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 days when the following
holidays are observed: New Year's Day, Martin Luther King, Jr.'s Birthday,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. When the New York Stock Exchange is closed, Pooled
Trust, Inc. and Foundation Funds will generally be closed, pricing calculations
will not be made and purchase and redemption orders will not be processed.
Class A Shares, Class B Shares and C Shares and Institutional Class
Shares of The Real Estate Investment Trust Portfolio
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by Pooled Trust, Inc., its agent or certain other
authorized persons. See Distribution and Service under Investment Management
Agreements. Orders for purchases of Class B Shares, Class C Shares and the
Institutional Classes are effected at the net asset value per share next
calculated after receipt of the order by the Fund, its agent or certain other
authorized persons. Selling dealers are responsible for transmitting orders
promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except days when the following holidays are observed: New
Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the
New York Stock Exchange is closed, Pooled Trust, Inc. will generally be closed,
pricing calculations will not be made and purchase and redemption orders will
not be processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in the
financial statements for the Funds which are incorporated by reference into this
Part B.
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Each Class will bear, pro-rata, all of the common expenses of the
Portfolio. The net asset values of all outstanding shares of each Class will be
computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Portfolio represented by the value of shares
of that Class. All income earned and expenses incurred by the Portfolio will be
borne on a pro-rata basis by each outstanding share of a Class, based on each
Class' percentage in the Portfolio represented by the value of shares of such
Classes, except that the Class A, Class B and Class C Shares alone will bear the
12b-1 Plan expenses payable under their respective Plans. Due to the specific
distribution expenses and other costs that would be allocable to each Class, the
dividends paid to each Class of The Real Estate Investment Trust Portfolio may
vary. However, the net asset value per share of each Class is expected to be
equivalent.
* * *
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 Board of
Directors or Trustees, as applicable.
The securities in which The International Equity Portfolio, The
International Mid-Cap Sub Portfolio, The Labor Select International Equity
Portfolio, The Global Fixed Income Portfolio, The International Fixed Income
Portfolio, The Emerging Markets Portfolio and The Global Equity Portfolio (as
well as The Real Estate Investment Trust Portfolios, The High-Yield Bond
Portfolio, The Diversified Core Fixed Income Portfolio The Asset Allocation
Portfolio, The Small-Cap Growth Equity Portfolio and The Core Equity Portfolio,
to the limited extent described in the Prospectus) may invest from time to time
may be listed primarily on foreign exchanges which trade on days when the New
York Stock Exchange is closed (such as holidays or 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.
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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. Foreign securities and the prices of foreign
securities denominated in foreign currencies are translated into U.S. dollars at
the mean between the bid and offer quotations of such currencies based on rates
in effect as of the close of the London Stock Exchange.
REDEMPTION AND EXCHANGE
The following supplements the disclosure provided in the Prospectuses.
The Real Estate Investment Trust Portfolio Class of The Real Estate
Investment Trust Portfolio and all other Portfolios
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 International Mid-Cap Sub-Portfolio, The Emerging
Markets Portfolio and The Global Equity Portfolio are assessed by the relevant
Portfolio a redemption reimbursement fee of 0.50%, 0.75% and 0.30%,
respectively. Payment for shares redeemed or repurchased may be made either in
cash or in-kind, or partly in cash and partly in-kind. If a redemption of shares
is made in-kind, the redemption reimbursement fee that is otherwise applicable
will not be assessed. Any portfolio securities paid or distributed in-kind would
be valued as described in "DETERMINING OFFERING PRICE AND 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 related 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 Global Equity
Portfolio. Under certain circumstances, eligible investors who have an existing
investment counseling relationship with Delaware Investment Advisers or Delaware
International will not be subject to Pooled Trust, Inc.'s in-kind redemption
requirements until such time as Pooled Trust, Inc. or Foundation Funds, as
applicable, receives appropriate regulatory approvals to permit such redemptions
for the account of such investors.
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Pooled Trust, Inc. and Foundation Funds has elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which Pooled Trust, Inc. 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.
Small Accounts
Due to the relatively higher cost of maintaining small accounts, Pooled
Trust, Inc. and Foundation Funds 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 Pooled Trust, Inc. 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.
* * *
Pooled Trust, Inc. and Foundation Funds 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, The International Fixed Income
Portfolio and The Global Equity Portfolio whose redemptions trigger the special
in-kind redemption procedures. See the related Prospectus. The Portfolios
reserve the right to suspend or terminate these expedited payment procedures at
any time in the future.
Expedited Telephone Redemptions
Shareholders wishing to redeem shares for which certificates have not
been issued may call Pooled Trust, Inc. at (1-800-231-8002) prior to 4 p.m.,
Eastern time, and have the proceeds mailed to them at the record address.
Redemptions involving The Asset Allocation Portfolio will be forwarded to
Foundation Funds. 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 Pooled Trust, Inc., as
described above. The Telephone Redemption Option on the Account Registration
Form must have been elected by the shareholder and filed with Pooled Trust, Inc.
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 Portfolio to the
shareholder's bank account.
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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, Pooled Trust, Inc. or as
applicable, Foundation Funds 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 may be exchanged for shares of any other
Portfolio or for the institutional classes of the other funds in the Delaware
Investments family. Exchange requests should be sent to Delaware Pooled Trust,
Inc., One Commerce Square, 2005 Market Street, Philadelphia, PA 19103 Attn:
Client Services. Exchanges involving The Asset Allocation Portfolio will be
forwarded to Foundation Funds.
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 the special purchase and redemption reimbursement fees for
exchanges involving shares of The International Mid-Cap Sub Portfolio, The
Emerging Markets Portfolio and The Global Equity Portfolio. See Exchange
Privilege under Shareholder Services in the related Prospectus. The shares of a
Portfolio into which an exchange is made, if necessary, must be authorized for
sale 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 Pooled Trust, Inc. or, as applicable,
Foundation Funds for the account of the shareholder and the registration of the
two accounts will be identical. Requests for exchanges received prior to 4 p.m.,
Eastern time, for the Portfolios will be processed as of the close of business
on the same day. Requests received after this time will be processed on the next
business day. Exchanges may also be subject to limitations as to amounts or
frequency, and to other restrictions established by the Board of Directors or
Trustees, as applicable, 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, The International Fixed Income Portfolio and The Global
Equity Portfolio shall be subject to the special purchase and redemption
procedures identified in sections of the related 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. Pooled Trust, Inc. and Foundation Funds 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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Neither Pooled Trust, Inc., Foundation Funds, the Portfolios nor the
Portfolios' 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, Pooled Trust, Inc. or, as
applicable, Foundation Funds 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, Pooled
Trust, Inc., Foundation Funds 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.
Class A Shares, Class B Shares and Class C Shares and Institutional Class
Shares of The Real Estate Investment Trust Portfolio
You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, tax-advantaged funds, bond
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
the Portfolio and all exchanges of shares constitute taxable events. Further, in
order for an exchange to be processed, shares of the fund being acquired must be
registered in the state where the acquiring shareholder resides. You may want to
consult your financial adviser or investment dealer to discuss which funds in
Delaware Investments will best meet your changing objectives, and the
consequences of any exchange transaction. You may also call the Delaware
Investments directly for fund information.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after the Portfolio receives your request in good
order, subject, in the case of a redemption, to any applicable CDSC or Limited
CDSC. For example, redemption or exchange requests received in good order after
the time the offering price and net asset value of shares are determined will be
processed on the next business day. A shareholder submitting a redemption
request may indicate that he or she wishes to receive redemption proceeds of a
specific dollar amount. In the case of such a request, and in the case of
certain redemptions from retirement plan accounts, the Portfolio will redeem the
number of shares necessary to deduct the applicable CDSC in the case of Class B
Shares and Class C Shares, and, if applicable, the Limited CDSC in the case of
Class A Shares and tender to the shareholder the requested amount, assuming the
shareholder holds enough shares in his or her account for the redemption to be
processed in this manner. Otherwise, the amount tendered to the shareholder upon
redemption will be reduced by the amount of the applicable CDSC or Limited CDSC.
Redemption proceeds will be distributed promptly, as described below, but not
later than seven days after receipt of a redemption request.
Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. The
Portfolio may suspend, terminate, or amend the terms of the exchange privilege
upon 60 days' written notice to shareholders.
In addition to redemption of Portfolio shares, the Distributor, acting
as agent of the Portfolio, offers to repurchase Fund shares from broker/dealers
acting on behalf of shareholders. The redemption or repurchase price, which may
be more or less than the shareholder's cost, is the net asset value per share
next determined after receipt of the request in good order by the Portfolio, its
agent, or certain authorized persons, subject to applicable CDSC or Limited
CDSC. This is computed and effective at the time the offering price and net
asset value are determined. See Determining Offering Price and Net Asset Value.
The Portfolio and the Distributor end their business days at 5 p.m., Eastern
time. This offer is discretionary and may be completely withdrawn without
further notice by the Distributor.
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Orders for the repurchase of Portfolio shares which are submitted to
the Distributor prior to the close of its business day will be executed at the
net asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by the Portfolio or certain other authorized persons (see
Distribution and Service under Investment Management Agreements); provided,
however, that each commitment to mail or wire redemption proceeds by a certain
time, as described below, is modified by the qualifications described in the
next paragraph.
The Portfolio will process written and telephone redemption requests to
the extent that the purchase orders for the shares being redeemed have already
settled. The Portfolio will honor redemption requests as to shares for which a
check was tendered as payment, but the Portfolio will not mail or wire the
proceeds until it is reasonably satisfied that the purchase check has cleared,
which may take up to 15 days from the purchase date. You can avoid this
potential delay if you purchase shares by wiring Federal Funds. The Portfolio
reserves the right to reject a written or telephone redemption request or delay
payment of redemption proceeds if there has been a recent change to the
shareholder's address of record.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Portfolio will automatically redeem from the shareholder's account the shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Portfolio or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by the Portfolio of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Portfolio fairly to value
its assets, or in the event that the SEC has provided for such suspension for
the protection of shareholders, the Portfolio may postpone payment or suspend
the right of redemption or repurchase. In such case, the shareholder may
withdraw the request for redemption or leave it standing as a request for
redemption at the net asset value next determined after the suspension has been
terminated.
Payment for shares redeemed or repurchased may be made either in cash
or kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Pooled
Trust, Inc. has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Portfolio is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Portfolio during any
90-day period for any one shareholder.
The value of the Portfolio's investments is subject to changing market
prices. Thus, a shareholder reselling shares to the Portfolio may sustain either
a gain or loss, depending upon the price paid and the price received for such
shares.
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Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value, below.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase and (v) 0% thereafter. Class C Shares are subject to a CDSC
of 1% if shares are redeemed within 12 months following purchase. See Contingent
Deferred Sales Charge - Class B Shares and Class C Shares under Purchasing
Shares. Except for the applicable CDSC or Limited CDSC and, with respect to the
expedited payment by wire described below for which, in the case of the Fund
Classes, there is currently a $7.50 bank wiring cost, neither the Portfolio nor
the Distributor charges a fee for redemptions or repurchases, but such fees
could be charged at any time in the future.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments (in
each case, "New Shares") in a permitted exchange, will not be subject to a CDSC
that might otherwise be due upon redemption of the Original Shares. However,
such shareholders will continue to be subject to the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the Original Shares as
described in this Part B and any CDSC assessed upon redemption will be charged
by the fund from which the Original Shares were exchanged. In an exchange of
Class B Shares from the Portfolio, the Fund's CDSC schedule may be higher than
the CDSC schedule relating to the New Shares acquired as a result of the
exchange. For purposes of computing the CDSC that may be payable upon a
disposition of the New Shares, the period of time that an investor held the
Original Shares is added to the period of time that an investor held the New
Shares. With respect to Class B Shares, the automatic conversion schedule of the
Original Shares may be longer than that of the New Shares. Consequently, an
investment in New Shares by exchange may subject an investor to the higher 12b-1
fees applicable to Class B Shares of the Portfolio for a longer period of time
than if the investment in New Shares were made directly.
Written Redemption
You can write to the Portfolio at One Commerce Square, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed by all
owners of the account or your investment dealer of record. For redemptions of
more than $50,000, or when the proceeds are not sent to the shareholder(s) at
the address of record, the Portfolio require a signature by all owners of the
account and a signature guarantee for each owner. A signature guarantee can be
obtained from a commercial bank, a trust company or a member of a Securities
Transfer Association Medallion Program ("STAMP"). The Portfolio reserves the
right to reject a signature guarantee supplied by an eligible institution based
on its creditworthiness. The Portfolio may require further documentation from
corporations, executors, retirement plans, administrators, trustees or
guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request.
Certificates are not issued for Class B Shares or Class C Shares.
Written Exchange
You may also write to the Portfolio (at 1818 Market Street,
Philadelphia, PA 19103) to request an exchange of any or all of your shares into
another mutual fund in Delaware Investments, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
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The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. The Portfolio reserves the right to modify, terminate or suspend
these procedures upon 60 days' written notice to shareholders. It may be
difficult to reach the Portfolio by telephone during periods when market or
economic conditions lead to an unusually large volume of telephone requests.
Neither the Portfolio nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Portfolio will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes are generally tape recorded, and a written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. 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. First Union National Bank's fee
(currently $7.50) will be deducted from Fund Class redemption proceeds. If you
ask for a check, it will normally be mailed the next business day after receipt
of your redemption request to your predesignated bank account. There are no
separate fees for this redemption method, but the mail time may delay getting
funds into your bank account. Simply call the Shareholder Service Center prior
to the time the offering price and net asset value are determined, as noted
above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in Delaware Investments under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of the Portfolio, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Investments family. Telephone exchanges may be subject to
limitations as to amounts or frequency. The Transfer Agent and the Portfolio
reserve the right to record exchange instructions received by telephone and to
reject exchange requests at any time in the future.
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MoneyLine (SM) On Demand
You or your investment dealer may request redemptions of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize the Portfolio to accept
such requests from you or your investment dealer, funds will be deposited to
(for share redemptions) your predesignated bank account. Your request will be
processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine (SM) On Demand transactions. See
MoneyLine (SM) On Demand under Investment Plans.
Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), the Portfolio will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Investments funds from Timing Firms. The Portfolio reserves the right to
temporarily or permanently terminate the exchange privilege or reject any
specific purchase order for any person whose transactions seem to follow a
timing pattern who: (i) makes an exchange request out of the Fund within two
weeks of an earlier exchange request out of the Fund, or (ii) makes more than
two exchanges out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1/4 of 1% of the Fund's net
assets. Accounts under common ownership or control, including accounts
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Investments funds: (1)
Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware Balanced Fund,
(4) Limited-Term Government Fund, (5) USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware
Investments funds are available for timed exchanges. Assets redeemed or
exchanged out of Timing Accounts in Delaware Investments funds not listed above
may not be reinvested back into that Timing Account. The Portfolio reserves the
right to apply these same restrictions to the account(s) of any person whose
transactions seem to follow a time pattern (as described above).
The Portfolio also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if the
Portfolio receives or anticipates simultaneous orders affecting significant
portions of the Portfolio's assets. In particular, a pattern of exchanges that
coincide with a "market timing" strategy may be disruptive to the Portfolio and
therefore may be refused.
Except as noted above, only shareholders and their authorized brokers
of record will be permitted to make exchanges or redemptions.
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Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who
own or purchase $5,000 or more of shares at the offering price, or net asset
value, as applicable, for which certificates have not been issued may establish
a Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or
quarterly withdrawals of $75 or more, although the Portfolios do not recommend
any specific amount of withdrawal. This is particularly useful to shareholders
living on fixed incomes, since it can provide them with a stable supplemental
amount. This $5,000 minimum does not apply for the Portfolio's prototype
retirement plans. Shares purchased with the initial investment and through
reinvestment of cash dividends and realized securities profits distributions
will be credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the net asset value calculated on the third business
day preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital, and the share
balance may in time be depleted, particularly in a declining market.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in Delaware Investments funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net
asset value and a dealer's commission has been paid on that purchase. The
applicable CDSC for Class B Shares and Class C Shares redeemed via a Systematic
Withdrawal Plan will be waived if, on the date that the Plan is established, the
annual amount selected to be withdrawn is less than 12% of the account balance.
If the annual amount selected to be withdrawn exceeds 12% of the account balance
on the date that the Systematic Withdrawal Plan is established, all redemptions
under the Plan will be subject to the applicable CDSC. Whether a waiver of the
CDSC is available or not, the first shares to be redeemed for each Systematic
Withdrawal Plan payment will be those not subject to a CDSC because they have
either satisfied the required holding period or were acquired through the
reinvestment of distributions. The 12% annual limit will be reset on the date
that any Systematic Withdrawal Plan is modified (for example, a change in the
amount selected to be withdrawn or the frequency or date of withdrawals), based
on the balance in the account on that date. See Waiver of Contingent Deferred
Sales Charge - Class B Shares and Class C Shares, below.
An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Portfolio reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
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Systematic Withdrawal Plan payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine (SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. It may take up to four business days for the transactions to
be completed. You can initiate this service by completing an Account Services
form. If your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Portfolio does not
charge a fee for any this service; however, your bank may charge a fee. This
service is not available for retirement plans.
The Systematic Withdrawal Plan is not available for Institutional
Classes. Shareholders should consult with their financial advisers to determine
whether a Systematic Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value For purchases of $1,000,000 or more made
on or after July 1, 1998, a Limited CDSC will be imposed on certain redemptions
of Class A Shares (or shares into which such Class A Shares are exchanged)
according to the following schedule: (1) 1.00% if shares are redeemed during the
first year after the purchase; and (2) 0.50% if such shares are redeemed during
the second year after the purchase, if such purchases were made at net asset
value and triggered the payment by the Distributor of the dealer's commission
described above.
The Limited CDSC will be paid to the Distributor and will be assessed
on an amount equal to the lesser of : (1) the net asset value at the time of
purchase of the Class A Shares being redeemed or (2) the net asset value of such
Class A Shares at the time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset value at purchase of
the Class A Shares even if those shares are later exchanged for shares of
another Delaware Investments fund and, in the event of an exchange of Class A
Shares, the "net asset value of such shares at the time of redemption" will be
the net asset value of the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than two years will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the two-year
holding period. The Limited CDSC is assessed if such two year period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of the Portfolio or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
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Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from the Portfolio's right to liquidate a shareholder's account if the aggregate
net asset value of the shares held in the account is less than the
then-effective minimum account size; (ii) distributions to participants from a
retirement plan qualified under section 401(a) or 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"), or due to death of a participant in such
a plan; (iii) redemptions pursuant to the direction of a participant or
beneficiary of a retirement plan qualified under section 401(a) or 401(k) of the
Code with respect to that retirement plan; (iv) periodic distributions from an
IRA, SIMPLE IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death,
disability, or attainment of age 59 1/2, and IRA distributions qualifying under
Section 72(t) of the Internal Revenue Code; (v) returns of excess contributions
to an IRA; (vi) distributions by other employee benefit plans to pay benefits;
(vii) distributions described in (ii), (iv), and (vi) above pursuant to a
systematic withdrawal plan; and (viii) redemptions by the classes of
shareholders who are permitted to purchase shares at net asset value, regardless
of the size of the purchase (see Buying Class A Shares at Net Asset Value under
Purchasing Shares).
Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from the
Portfolio's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) returns of excess contributions to an IRA, SIMPLE
IRA, SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic
distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, or 403(b)(7) or 457
Deferred Compensation Plan due to death, disability or attainment of age 59 1/2,
and IRA distributions qualifying under Section 72(t) of the Internal Revenue
Code; and (iv) distributions from an account if the redemption results from the
death of all registered owners of the account (in the case of accounts
established under the Uniform Gifts to Minors or Uniform Transfers to Minors
Acts or trust accounts, the waiver applies upon the death of all beneficial
owners) or a total and permanent disability (as defined in Section 72 of the
Code) of all registered owners occurring after the purchase of the shares being
redeemed.
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from the Portfolio's right to liquidate
a shareholder's account if the aggregate net asset value of the shares held in
the account is less than the then-effective minimum account size; (ii) returns
of excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Internal
Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred Compensation
Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or a 401(k)
Defined Contribution Plan upon attainment of normal retirement age under the
plan or upon separation from service; (vi) periodic distributions from an IRA or
SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of all registered owners of the
account (in the case of accounts established under the Uniform Gifts to Minors
or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon
the death of all beneficial owners) or a total and permanent disability (as
defined in Section 72 of the Code) of all registered owners occurring after the
purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B Shares and Class C
Shares redeemed in accordance with a Systematic Withdrawal Plan if the annual
amount selected to be withdrawn under the Plan does not exceed 12% of the value
of the account on the date that the Systematic Withdrawal Plan was established
or modified.
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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, a Portfolio will not be subject to
federal income tax, or to any excise tax, to the extent its earnings are
distributed as provided in the Code and it satisfies other requirements relating
to the sources of its income and diversification of its assets.
The policy of Pooled Trust, Inc. and Foundation Funds, as applicable,
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. All dividends and capital gains
distributions of accounts in REIT Fund Institutional Class shall be
automatically reinvested in the Class. For all other Portfolios and Classes of
The Real Estate Investment Trust Portfolio, shareholders may elect to receive
dividends and capital gains distributions in cash, otherwise, all such dividends
and distributions will be automatically reinvested in the Portfolios. 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.
For the fiscal year ended October 31, 1998, the percentage of dividends
paid by the following Portfolios qualified for the dividends-received deduction:
The Large-Cap Value Equity Portfolio 74%
The Real Estate Investment Trust Portfolio 100%
The Core Equity Portfolio 100%
The Mid-Cap Growth Equity Portfolio 8%
The Mid-Cap Value Equity Portfolio 100%
The Small-Cap Value Equity Portfolio N/A
The Small-Cap Growth Equity Portfolio 1%
The Real Estate Investment Trust Portfolio II 100%
The Global Equity Portfolio 94%
The International Equity Portfolio 100%
The Labor Select International Equity Portfolio 100%
The Emerging Markets Portfolio 100%
The Intermediate Fixed Income Portfolio none
The Aggregate Fixed Income Portfolio none
The High-Yield Bond Portfolio 3%
The Diversified Core Fixed Income Portfolio none
The Global Fixed Income Portfolio none
The International Fixed Income Portfolio none
The Asset Allocation Portfolio N/A
The International Mid-Cap Sub Portfolio N/A
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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 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, Pooled Trust, Inc. or, as applicable, Foundation Funds will
mail information to investors 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.
Each class of shares of The Real Estate Investment Trust Portfolio will
share proportionately in the investment income and expenses of the Portfolio,
except that Class A Shares, Class B Shares and Class C Shares alone will incur
distribution fees under their respective 12b-1 plans.
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TAXES
The following supplements the tax disclosure provided in the
Prospectuses.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), as revised by
the 1998 Act, the Fund is required to track its sales of portfolio securities
and to report its capital gain distributions to you according to the following
categories of holding periods:
"Pre-Act long-term capital gains": securities sold by a Portfolio
before May 7, 1997, that were held for more than 12 months. These gains
will be taxable to individual investors at a maximum rate of 28%.
"Mid-term capital gains" or "28 percent rate gain": securities
sold by a Portfolio after July 28, 1997 that were held more than one year
but not more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%.
"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by the Fund between May 7, 1997 and July 28, 1997 that were
held for more than 12 months, and securities sold by the Fund after July
28, 1997 that were held for more than 18 months. As revised by the 1998
Act, this rate applies to securities held for more than 12 months for tax
years beginning after December 31, 1997. These gains will be taxable to
individual investors at a maximum rate of 20% for investors in the 28% or
higher federal income tax brackets, and at a maximum rate of 10% for
investors in the 15% federal income tax bracket.
"Qualified 5-year gains": For individuals in the 15% bracket,
qualified 5-year gains are net gains on securities held for more than 5
years which are sold after December 31, 2000. For individuals who are
subject to tax at higher rate brackets, qualified 5-year gains are net
gains on securities which are purchased after December 31, 2000 and are
held for more than 5 years. Taxpayers subject to tax at a higher rate
brackets may also make an election for shares held on January 1, 2001 to
recognize gain on their shares (any loss is disallowed) in order to qualify
such shares as qualified 5-year property as though purchased after December
31, 2000. These gains will be taxable to individual investors at a maximum
rate of 18% for investors in the 28% or higher federal income tax brackets,
and at a maximum rate of 8% for investors in the 15% federal income tax
bracket when sold after the 5 year holding period.
A portion of each Portfolio's dividends may qualify for the
dividends-received deduction for corporations provided in the federal income tax
law. The portion of dividends paid by a Portfolio that so qualifies will be
designated each year in a notice mailed to a Portfolio's shareholders, and
cannot exceed the gross amount of dividends received by a Portfolio from
domestic (U.S.) corporations that would have qualified for the
dividends-received deduction in the hands of a Portfolio if the Portfolio was a
regular corporation. The availability of the dividends-received deduction is
subject to certain holding period and debt financing restrictions imposed under
the Code on the corporation claiming the deduction. Under the 1997 Act, the
amount that a Portfolio may designate as eligible for the dividends-received
deduction will be reduced or eliminated if the shares on which the dividends
earned by a Portfolio were debt-financed or held by a Portfolio for less than a
46-day period during a 90-day period beginning 45 days before the ex-dividend
date and ending 45 days after the ex-dividend date. Similarly, if your Portfolio
shares are debt-financed or held by you for less than a 46-day period during a
90-day period beginning 45 days before the ex-dividend date and ending 45 days
after the ex-dividend date, then the dividends-received deduction for Portfolio
dividends on your shares may also be reduced or eliminated. Even if designated
as dividends eligible for the dividends-received deduction, all dividends
(including any deducted portion) must be included in your alternative minimum
taxable income calculation.
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Shareholders will be notified annually by Pooled Trust, Inc. as to the
federal income tax status of dividends and distributions paid by their
Portfolio.
In addition to the federal taxes described above, shareholders may or
may not be subject to various state and local taxes. Because shareholders' state
and local taxes may be different than the federal taxes described above,
shareholders should consult their own tax advisers. Each year the Fund will mail
to you information on the amount and tax status of each Portfolio's dividends
and distribution.
See also Other Tax Requirements under Accounting and Tax Issues in this
Part B.
VALUATION OF SHARES
The net asset value per share of each Portfolio is determined by
dividing the total market value of the Portfolio's investments and other assets,
less any liabilities, by the total outstanding shares of the Portfolio. Net
asset value per share is determined as of the close of regular trading on the
NYSE on each day the NYSE is open for business. Securities listed on a U.S.
securities exchange for which market quotations are available are valued at the
last quoted sale price on the day the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at a price that is considered
to best represent fair value within a range not in excess of the current asked
price nor less than the current bid prices. Domestic equity securities traded
over-the-counter, domestic equity securities which are not traded on the
valuation date and U.S. government securities are priced at the mean of the bid
and ask price.
Bonds and other fixed-income securities are valued according to the
broadest and most representative market, which will ordinarily be the
over-the-counter market. In addition, bonds and other fixed-income securities
may be valued on the basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of such securities. The
prices provided by a pricing service are determined without regard to bid or
last sale prices but take into account institutional size trading in similar
groups of securities and any developments related to the specific securities.
Securities not priced in this manner are valued at the most recent quoted mean
price, or, when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted mean price will be used. Securities with remaining maturities of 60 days
or less are valued at amortized cost, if it approximates market value. In the
event that amortized cost does not approximate market value, market prices as
determined above will be used.
Exchange-traded options are valued at the last reported sales price or,
if no sales are reported, at the mean between the last reported bid and ask
prices. Non-exchange traded options are valued at fair value using a
mathematical model. Futures contracts are valued at their daily quoted
settlement price. The value of other assets and securities for which no
quotations are readily available (including restricted securities) are
determined in good faith at fair value using methods determined by the Fund's
Board of Directors. The securities in which The International Equity, The Labor
Select International Equity, The Global Fixed Income, The International Fixed
Income, The Global Equity and The Emerging Markets Portfolios (and, to a limited
extent, The Real Estate Investment Trust, The Diversified Core Fixed Income, The
High-Yield Bond, The Asset Allocation, The Small-Cap Value Equity, The Small-Cap
Growth Equity and The Core Equity Portfolios) 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.
88
<PAGE>
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.
Futures Contracts and Stock Options
(The Mid-Cap Growth Equity Portfolio, The Real Estate Investment Trust
Portfolios, The Emerging Markets Portfolio, The Global Equity Portfolio, The
Diversified Core Fixed Income Portfolio, The Asset Allocation Portfolio, The
Small-Cap Value Equity Portfolio, The Small-Cap Growth Equity Portfolio and The
Core Equity Portfolio)
The Mid-Cap Growth Equity Portfolio's, The Real Estate Investment Trust
Portfolios', The Emerging Markets Portfolio's, The Global Equity Portfolio's,
The Diversified Core Fixed Income Portfolio's, The Asset Allocation Portfolio's,
The Small-Cap Value Equity Portfolio's, The Small-Cap Growth Equity Portfolio's
and The Core Equity 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 International Mid-Cap Sub
Portfolio, The Labor Select International Equity Portfolio, The Real Estate
Investment Trust Portfolios, The Global Fixed Income Portfolio, The Emerging
Markets Portfolio, The International Fixed Income Portfolio, The Global Equity
Portfolio, The Diversified Core Fixed Income Portfolio, The Asset Allocation
Portfolio, The Small-Cap Value Equity Portfolio, The Small-Cap Growth Equity
Portfolio and The Core Equity Portfolio)
The International Equity Portfolio, The International Mid-Cap Sub
Portfolio, The Labor Select International Equity Portfolio, The Real Estate
Investment Trust Portfolios, The Global Fixed Income Portfolio, The
International Fixed Income Portfolio, The Emerging Markets Portfolio, The Global
Equity Portfolio, The Diversified Core Fixed Income Portfolio, The Asset
Allocation Portfolio, The Small-Cap Value Equity Portfolio, The Small-Cap Growth
Equity Portfolio and The Core Equity 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.
89
<PAGE>
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 Pooled Trust, Inc. are exempt from Pennsylvania county
personal property tax.
90
<PAGE>
INVESTMENT MANAGEMENT AGREEMENTS AND SUB-ADVISORY AGREEMENTS
Delaware Management Company ("Delaware"), One Commerce Square,
Philadelphia, PA 19103, furnishes investment management services to The
Large-Cap Value Equity, The Mid-Cap Growth Equity, The Intermediate Fixed
Income, The Aggregate Fixed Income, The Mid-Cap Value Equity, The Real Estate
Investment Trust, The High-Yield Bond, The Diversified Core Fixed Income and The
Asset Allocation, The Small-Cap Growth Equity, The Core Equity and the Small-Cap
Value Equity Portfolios, subject to the supervision and direction of Board of
Directors or Trustees of Pooled Trust, Inc. or, as applicable, Foundation Funds.
Delaware International Advisers Ltd. ("Delaware International"), Third Floor, 80
Cheapside, London, England EC2V 6EE, furnishes similar services to The
International Equity, The International Mid-Cap Sub Portfolio, The Labor Select
International Equity, The Global Fixed Income, The International Fixed Income,
The Emerging Markets and The Global Equity Portfolios, and provides sub-advisory
services to The Diversified Core Fixed Income Portfolio subject to the
supervision and direction of Pooled Trust, Inc.'s Board of Directors. Lincoln
Investment Management, Inc. ("Lincoln") serves as sub-adviser to Delaware with
respect to The Real Estate Investment Trust Portfolios. Lincoln's address is 200
E. Berry Street, Fort Wayne, Indiana 46802.
Delaware and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On October 31, 1998, Delaware and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $42 billion in assets in
the various institutional or separately managed (approximately $24,854,600,000)
and investment company ($17,780,970,000) accounts.
Lincoln (formerly Lincoln National Investment Management Company) was
incorporated in 1930. As of October 31, 1998, Lincoln had approximately $39.8
billion in assets under management.
91
<PAGE>
The following table contains the dates of the Investment Management
Agreements for the Portfolios as well as the dates that they were approved by
shareholders.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Date of Agreement Date Approved by Shareholders
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Large-Cap Value Equity Portfolio April 3, 1995 March 29, 1995
- ----------------------------------------------------------------------------------------------------------------------
The Mid-Cap Growth Equity Portfolio April 3, 1995 March 29, 1995
- ----------------------------------------------------------------------------------------------------------------------
The International Fixed Income April 3, 1995 March 29, 1995
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
The International Equity Portfolio April 3, 1995 March 29, 1995
- ----------------------------------------------------------------------------------------------------------------------
The Global Fixed Income Portfolio April 3, 1995 March 29, 1995
- ----------------------------------------------------------------------------------------------------------------------
The Intermediate Fixed Income Portfolio April 3, 1995 March 29, 1995
- ----------------------------------------------------------------------------------------------------------------------
The Mid-Cap Value Equity Portfolio November 29, 1996 November 30, 1995*
- ----------------------------------------------------------------------------------------------------------------------
The Labor Select International Equity November 29, 1996 November 30, 1995*
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
The Real Estate Investment Trust November 29, 1996 November 30, 1995*
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
The High-Yield Bond Portfolio November 29, 1996 November 30, 1995*
- ----------------------------------------------------------------------------------------------------------------------
The Emerging Markets Portfolio April 14, 1997 April 14, 1997*
- ----------------------------------------------------------------------------------------------------------------------
The Global Equity Portfolio October 14, 1997 October 14, 1997*
- ----------------------------------------------------------------------------------------------------------------------
The Real Estate Investment Trust October 14, 1997 October 14, 1997*
Portfolio II
- ----------------------------------------------------------------------------------------------------------------------
The Aggregate Fixed Income Portfolio December 24, 1997 December 24, 1997*
- ----------------------------------------------------------------------------------------------------------------------
The Diversified Core Fixed Income December 24, 1997 December 24, 1997*
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
The Asset Allocation Portfolio August 31, 1998 August 31, 1998*
- ----------------------------------------------------------------------------------------------------------------------
The Core Equity Portfolio August 31, 1998 August 31, 1998*
- ----------------------------------------------------------------------------------------------------------------------
The Small-Cap Growth Equity Portfolio August 31, 1998 August 31, 1998*
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Date approved by the initial shareholder
The Investment Management Agreement for The International Mid-Cap Sub
Portfolio is dated December 23, 1998 and will be approved by the initial
shareholder prior to commencement of operations. The Investment Management
Agreement for The Small-Cap Vaule Equity Portfolio is dated March 1, 1999 and
will be approved by the initial shareholder prior to commencement of operations.
The Sub-Advisory Agreement between Delaware and Lincoln for The Real Estate
Investment Trust Portfolio is dated November 29, 1995 and was approved by the
initial shareholder on November 30, 1995. The Sub-Advisory Agreement between
Delaware and Lincoln for The Real Estate Investment Trust Portfolio II is dated
as of October 14, 1997 and was approved by the initial shareholder on that date.
The Sub-Advisory Agreement between Delaware and Delaware International for the
Diversified Core Fixed Income Portfolio is dated December 24, 1997 and was
approved by the initial shareholder on that date.
92
<PAGE>
Each Portfolio's Investment Management 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 Trustees, as applicable, 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 or
trustees of Pooled Trust, Inc. or Foundation Funds 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 Pooled Trust, Inc., the trustees
of Foundation Funds or by the investment adviser. Each Agreement will terminate
automatically in the event of its assignment.
As compensation for the services to be rendered under their advisory
agreements, Delaware or, as relevant, Delaware International is entitled to an
advisory fee calculated by applying a quarterly rate, based on the following
annual percentage rates, to the Portfolio's average daily net assets for the
quarter:
Portfolio Rate
The Large-Cap Value Equity Portfolio 0.55%
The Mid-Cap Growth Equity Portfolio 0.80%
The International Equity Portfolio 0.75%
The International Mid-Cap Sub Portfolio 0.75%
The Mid-Cap Value Equity Portfolio 0.75%
The Labor Select International Equity Portfolio 0.75%
The Real Estate Investment Trust Portfolio 0.75%(1)
The Real Estate Investment Trust Portfolio II 0.75%(1)
The Intermediate Fixed Income Portfolio 0.40%
The Aggregate Fixed Income Portfolio 0.40%
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%(2)
The Global Equity Portfolio 0.75%(3)
The Diversified Core Fixed Income Portfolio 0.43%(3)
The Asset Allocation Portfolio 0.05%
The Small-Cap Growth Equity Portfolio 0.75%
The Core Equity Portfolio 0.55%
The Small-Cap Value Equity Portfolio 0.75%
(1) Delaware has entered into a sub-advisory agreement with Lincoln with respect
to The Real Estate Investment Trust Portfolios. 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 Pooled Trust, Inc. on behalf
of the Portfolio.
(2) Delaware International has elected voluntarily to limit its annual
Investment Advisory Fee to no more than 1.00% of The Emerging Markets
Portfolio's average daily net assets during the period from October 1, 1997
through April 30, 1999. The effect of the current fee waiver of 1.55% with
respect to "Total Operating Expenses" and the 1.00% fee limitation with
respect to The Emerging Markets Portfolio is that the annual Investment
Advisory Fee paid to Delaware International on behalf of that Portfolio will
be an amount equal to the lesser of 1.00% or the amount necessary to limit
"Total Operating Expenses" of the Portfolio (exclusive of taxes, interest,
brokerage commissions and extraordinary expenses) to no more than 1.55% of
average net assets, on an annualized basis. Delaware International has also
voluntarily agreed that the annual Investment Advisory Fee payable to
Delaware International on behalf of The Emerging Markets Portfolio will not
exceed 1.00% unless shareholders of the Portfolio have been notified of the
change to the 1.00% fee limitation at least one year in advance of such
increase.
93
<PAGE>
(3) Delaware has entered into sub-advisory agreements with Delaware
International with respect to The Global Equity Portfolio and The
Diversified Core Fixed Income Portfolio. As compensation for its services as
sub-adviser to Delaware, Delaware International is entitled to receive
sub-advisory fees equal to 50% of the investment management fees under
Delaware's Investment Management Agreement with Pooled Trust, Inc. on behalf
of The Global Equity Portfolio. With respect to The Diversified Core Fixed
Income Portfolio, as compensation for Delaware International's services as
sub-adviser to Delaware, Delaware International is entitled to receive
sub-advisory fees from Delaware an amount equal to the management fee paid
to Delaware times a ratio; the numerator of which is the average daily net
assets represented by foreign assets and the denominator of which is the
average daily net assets of The Diversified Core Fixed Income Portfolio,
such amount to be calculated at the same time and measured over the same
period as the management fee.
94
<PAGE>
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 Pooled Trust, Inc., except that Delaware
International will make no such payments out of the fees it receives from
managing The International Fixed Income, The Emerging Markets, The Labor Select
International Equity, The International Mid-Cap Sub Portfolio and The Global
Equity Portfolios, and Delaware will make no such payments out of the fees it
receives from managing The Mid-Cap Value Equity, The Real Estate Investment
Trust, The High-Yield Bond, The Diversified Core Fixed Income, The Asset
Allocation, The Small-Cap Growth Equity and The Core Equity Portfolios.
Delaware, or as applicable Delaware International, has elected voluntarily
to waive that portion, if any of the annual investment advisory fees payable by
a particular Portfolio and (except with respect to The International Mid-Cap Sub
Portfolio) to pay 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,
the following percentages of average daily net assets from the commencement of
operations through April 30, 1999 (unless otherwise noted) :
Portfolio
The Large-Cap Value Equity Portfolio 0.68%
The Mid-Cap Growth Equity Portfolio 0.93%
The International Equity Portfolio 0.96%
The Mid-Cap Value Equity Portfolio 0.89%
The Labor Select International Equity Portfolio 0.96%
The Real Estate Investment Trust Portfolio 0.95%(1)
The Real Estate Investment Trust Portfolio II 0.86%
The Intermediate Fixed Income Portfolio 0.53%
The Aggregate Fixed Income Portfolio 0.53%
The Global Fixed Income Portfolio 0.60%(2)
The International Fixed Income Portfolio 0.60%(3)
The High-Yield Bond Portfolio 0.59%
The Emerging Markets Portfolio 1.55%
The Global Equity Portfolio 0.96%
The Diversified Core Fixed Income Portfolio 0.57%
The Asset Allocation Portfolio 0.15%
The Small-Cap Growth Equity Portfolio 0.89%
The Core Equity Portfolio 0.68%
The Small-Cap Value Equity Portfolio 0.89%
The International Mid-Cap Sub Portfolio 0.85%(4)
(1) With respect to REIT Fund A Class, REIT Fund B Class, REIT Fund C Class and
REIT Fund Institutional Class and the Real Estate Investment Trust
Portfolio Class of The Real Estate Investment Trust Portfolio, Delaware has
elected voluntarily to waive that portion, if any, of the annual Investment
Advisory Fee payable by such classes and to reimburse each class for its
expenses to the extent necessary to ensure that the expenses of each class
(exclusive of applicable 12b-1 plan expenses, taxes, interest, brokerage
commissions, extraordinary expenses) do not exceed, as a percentage of
average net assets, on an annualized basis, 0.95% during the period
November 11, 1998 through April 30, 1999. From commencement of operations
of the classes through November 11, 1998, expenses were capped at 0.86%.
(2) Delaware International voluntarily elected to waive that portion, if any,
of its annual investment advisory fees and to pay 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% as a percentage of average net assets for the period from the
commencement of the public offering for the Portfolio through October 31,
1994. Such waiver was modified effective November 1, 1994 to provide that
such expenses of the Portfolio do not exceed, on an annualized basis, 0.60%
through April 30, 1999.
95
<PAGE>
(3) Delaware International voluntarily elected to waive that portion, if any,
of its annual investment advisory fees and to pay The International Fixed
Income Portfolio for its 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, 0.62% as a percentage of average net assets for the
period from the commencement of the public offering for the Portfolio
through April 30, 1994. Such waiver for The International Fixed Income
Portfolio was modified effective May 1, 1994 to provide that such expenses
of the Portfolio do not exceed, on an annual basis, 0.60% through April 30,
1999.
(4) Delaware International has elected voluntarily to waive that portion, if
any, of its annual investment advisory fees and to pay the International
Mid-Cap Sub Portfolio for its expenses to the extent necessary to ensure
that the total fund operating expenses of that Portfolio (exclusive of
taxes, interest, brokerage commissions, and extraordinary expenses) do not
exceed 0.85% of The Portfolio's average net assets, on an annualized basis
during the period from the commencement of operations through October 31,
1999.
Investment management fees incurred for the last three fiscal years
with respect to each Portfolio follows:
<TABLE>
<CAPTION>
Portfolio October 31, 1998 October 31, 1997 October 31, 1996
<S> <C> <C> <C>
The Large-Cap Value Equity Portfolio $522,423 earned $441,785 earned $343,114 earned
$484,387 paid $433,247 paid $328,126 paid
$38,036 waived $8,538 waived $14,988 waived
The Mid-Cap Growth Portfolio $46,880 earned $156,524 earned $214,315 earned
-0- paid $64,669 paid $185,753 paid
$46,880 waived $91,855 waived $28,562 waived
The International Equity Portfolio $4,214,740 paid $3,119,494 paid $1,632,036 paid
The Global Fixed Income Portfolio $2,649,961 earned $1,591,678 earned $762,870 earned
$2,527,013 paid $1,425,392 paid $661,220 paid
$122,948 waived $166,286 waived $101,650 waived
The Labor Select International $658,651 earned $291,778 earned $100,144 earned
Equity Portfolio(1) $613,775 paid $222,760 paid $50,055 paid
$44,876 waived $69,018 waived $50,089 waived
The Real Estate Investment $543,001 earned $354,157 earned $153,313 earned
Trust Portfolio(2) $424,875 paid $273,770 paid $127,250 paid
$118,126 waived $80,387 waived $26,063 waived
The Intermediate Fixed Income $119,736 earned $84,846 earned $19,389 earned
Portfolio(3) -0- paid $18,659 paid $ -0- paid
$199,736 waived $66,187 waived $19,389 waived
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
The High-Yield Bond Portfolio(4) $80,874 earned $27,213 earned N/A
$51,914 paid $13,551 paid
$28,960 waived $13,662 waived
The International Fixed Income $292,924 earned $61,031 earned N/A
Portfolio(5) $251,150 paid $29,230 paid
$41,774 waived $31,801 waived
The Emerging Markets Portfolio(6) $431,051 earned $89,760 earned N/A
$380,298 paid $54,085 paid
$50,753 $35,675 waived
The Global Equity Portfolio(7) $23,131 earned $941 earned N/A
$23,131 waived $941 waived
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
Portfolio October 31, 1998 October 31, 1997 October 31, 1996
<S> <C> <C> <C>
The Mid-Cap Value Equity
Portfolio(8) $18,902 earned N/A N/A
$ 6,388 paid
$12,514 waived
The Aggregate Fixed Income
Portfolio(8) $6,901 earned N/A N/A
$-0- paid
$6,901 waived
The Diversified Core Fixed
Income Portfolio(8) $11,289 earned N/A N/A
$-0- paid
$11,289 waived
The Core Equity Portfolio(9) $1,360 earned N/A N/A
$-0- paid
$1,360 waived
The Small-Cap Growth Equity
Portfolio(9) $2,815 earned N/A N/A
$-0- paid
$12,815
The Small-Cap Value Equity
Portfolio(10) N/A N/A N/A
The Asset Allocation Portfolio(10) N/A N/A N/A
The International Mid-Cap Sub
Portfolio (10) N/A N/A N/A
</TABLE>
(1) Commenced operations on December 19, 1995.
(2) Commenced operations on December 6, 1995.
(3) Commenced operations on March 12, 1996.
(4) Commenced operations on December 2, 1996.
(5) Commenced operations on April 11, 1997.
(6) Commenced operations on April 14, 1997.
(7) Commenced operations on October 15, 1997.
(8) Commenced operations on December 29, 1997.
(9) Commenced operations on September 15, 1998.
(10) Has not commended operations as of the date of this Part B.
On October 31, 1998, the total net assets of Pooled Trust, Inc. were
$1,769,284,150 broken down as follows:
98
<PAGE>
The Large-Cap Value Equity Portfolio $117,858,330
The Mid-Cap Growth Equity Portfolio $4,879,498
The International Equity Portfolio $616,228,981
The Global Fixed Income Portfolio $660,740,708
The Labor Select International Equity Portfolio $103,350,327
The Real Estate Investment Trust Portfolio $70,888,256
The Real Estate Investment Trust Portfolio II $5,762,546
The Intermediate Fixed Income Portfolio $30,210,729
The High-Yield Bond Portfolio $20,705,567
The Emerging Markets Portfolio $34,030,343
The Global Equity Portfolio $3,092,554
The International Fixed Income Portfolio $87,996,539
The Diversified Core Fixed Income $3,215,869
The Limited-Term Maturity Portfolio $21,000
The Core Equity Portfolio $2,111,771
The Mid-Cap Value Equity Portfolio $2,724,084
The Small-Cap Growth Equity Portfolio $3,317,805
The Aggregate Fixed Income Portfolio $2,149,243
Delaware and Delaware International are indirect, wholly owned
subsidiaries 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 expenses 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.
Distribution and Service
Delaware Distributors, L.P., located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor for each Portfolio
under separate Distribution Agreements dated as follows:
The Large-Cap Value Equity Portfolio April 3, 1995
The Mid-Cap Growth Equity Portfolio April 3, 1995
The Intermediate Fixed Income Portfolio April 3, 1995
The International Equity Portfolio April 3, 1995
The Global Fixed Income Portfolio April 3, 1995
The International Fixed Income Portfolio April 3, 1995
The Real Estate Investment Trust Portfolio November 29, 1995
The Mid-Cap Value Equity Portfolio November 29, 1995
The Labor Select International Equity Portfolio November 29, 1995
The High-Yield Bond Portfolio November 29, 1995
The Emerging Markets Portfolio April 14, 1997
The Global Equity Portfolio October 14, 1997
The Real Estate Investment Trust Portfolio II October 14, 1997
The International Mid-Cap Sub Portfolio December 23, 1998
The Aggregate Fixed Income Portfolio December 24, 1997
The Diversified Core Fixed Income Portfolio December 24, 1997
The Asset Allocation Portfolio August 31, 1998
The Small-Cap Growth Equity Portfolio August 31, 1998
99
<PAGE>
The Core Equity Portfolio August 31, 1998
The Small-Cap Value Equity Portfolio March 1, 1999
Delaware Distributors, L.P. is an affiliate of the investment advisers
and bears all of the costs of promotion and distribution.
Delaware Service Company, Inc., an affiliate of Delaware, is Pooled
Trust, Inc.'s shareholder servicing, dividend disbursing and transfer agent for
each Portfolio pursuant to an Amended and Restated Shareholders Services
Agreement dated August 31, 1998. Delaware Service Company, Inc. also provides
accounting services to the Portfolio 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.
The Portfolios have authorized one or more brokers to accept on its
behalf purchase and redemption orders in addition to the Transfer Agent. Such
brokers are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Portfolios. For purposes of pricing, a
Portfolio will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Investors may be charged a fee when effecting transactions through a
broker or agent.
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<PAGE>
OFFICERS AND DIRECTORS
The business and affairs of Pooled Trust, Inc. and Foundation Funds are
managed under the direction of its Board of Directors or Trustees, as
applicable.
As of January 31, 1999, no one account held 25% or more of the
outstanding shares of any of Pooled Trust, Inc.'s Portfolios or Foundation
Funds' portfolios. As of January 31, 1999, the directors and officers of Pooled
Trust, Inc., 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 January 31, 1999, the trustees and officers of
Foundation Funds did not hold any shares of the Portfolios.
As of January 31, 1999, management believes the following accounts held
of record 5% or more of the outstanding shares of a Portfolio. Management has no
knowledge of beneficial ownership.
Delaware Pooled Trust, Inc.
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Large-Cap Value Northern Trust
Equity Portfolio TRST PHH Group
P.O. Box 92956
Chicago, IL 60675 1,459,392.050 19.22%
Mac & Co.
A/C LNFF5033902
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230 552,795.520 7.28%
State of Georgia Employees'
Deferred Compensation Group Trust
200 Piedmont Avenue
Suite 1016 West
Atlanta, GA 30334-9010 509,223.700 6.70%
Amsouth Bank TTEE FBO
Lloyd Nolan Foundation Retirement Plan
Attn: Trust Operations - Mutual Funds
P.O. Box 11426
Birmington, AL 25202 446,047.380 5.87%
Commerce Bank of Kansas City
Trust Burns & McDonnell
Employee Stock Ownership Plan
P.O. Box 419248
Kansas City, MO 64141 419,608.220 5.52%
LaSalle National Bank Trustee
FBO Metz Baking Company
P.O. Box 1443
Chicago, IL 60690-1443 407,638.330 5.37%
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Large-Cap Value Strafe & Co.
Equity Portfolio For Consolidated Products
Profit Sharing Plan
P.O. Box 160
Westerville, OH 43086 399,800.660 5.26%
Cherrytrust & Co.
FBO Colorado Open Shop
Employers Pension Trust
C/O The Bank of Cherry Creek NA
3033 E. First Ave
Denver, CO 80206 393,644.430 5.18%
The Mid-Cap Crestar Bank
Growth Equity Cust the College of William and Mary
Portfolio P.O. Box 8795
Blow Memorial Hall
Williamsburg, VA 23187 265,017.830 29.78%
NCSC Staff Pension Plan
Defined Benefit
8403 Colesville Rd. Ste 1200
Silver Spring, MD 20910 209,060.000 23.49%
The City of Groton
295 Meridian Street
Groton, CT 06340 160,598.230 18.05%
Philadelphia Association of Zeta Psi
Fraternity U/T/A E W Weil
613 Kirsch Avenue
Wayne, PA 19087 114,717.540 12.89%
Our Sunday Visitor, Inc.
200 Noll Plaza
Huntington, IN 46750 48,396.790 5.44%
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The International Norwest Bank Minnesota NA Cust.
Equity Portfolio FBO Father Flanagan's FDN FD
P.O. Box 1533
Minneapolis, MN 55480-1533 3,133,929.620 7.76%
The Salvation Army
Eastern Territory
440 West Nyack Road
West Nyack, NY 10994 2,901,730.180 7.18%
The Intermediate Byrd & Co
Fixed Income Portfolio c/o First Union National Bank
Mutual Funds Div. Processing PA4905
530 Walnut Street
Philadelphia, PA 19106-3620 408,989.710 20.59%
The City of Groton
295 Meridian Street
Groton, CT 06340 381,104.730 19.19%
Crestar Bank
Cust The College of William and Mary
Room 224 Private Funds Office
Blow Memorial Hall
P.O. Box 8795
Williamsburg, VA 23187 345,525.630 17.39%
Our Sunday Visitor, Inc.
200 Noll Plaza
Huntington, IN 46750-4304 213,718.660 10.76%
Fleet National Bank Trustee
FBO International Terminal
Operating Pension
P.O. Box 92800
Rochester, NY 14692-8900 166,374.830 8.37%
Philadelphia Association of Zeta Psi
Fraternity U/T/A E W Weil
613 Kirsch Avenue
Wayne, PA 19087 153,596.970 7.73%
Iron Workers #28 Pension Fund
501 E. Franklin Street, Suite 206
Richmond, VA 23219-2330
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Global Fixed Public School Retirement System
Income Portfolio of the City of ST Louis
One Mercantile Center
Suite 2607
St Louis, MO 63101 6,912,343.190 11.39%
Bankers Trust Co
FBO SLU Delaware Fund
Attn: Julie Druhe
500 Washington Avenue
St. Louis, MO 63101-1261 4,565,294.280 7.52%
Saxon & Co.
FBO Western Pennsylvania Teamsters
& Employers Pension Fund
P.O. Box 7780-1888
Philadelphia, PA 19183 4,508,997.570 7.43%
Bost & Co.
Mutual Funds Operations
P.O. Box 7780-1888 4,169,273.290 6.87%
Washington Suburban Sanitary Commission
Employees Retirement Plan
14501 Sweitzer Lane
Laurel, MD 20707-5902 3,320,785.370 5.47%
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The International Montgomery County Public Schools
Fixed Income Portfolio Employee's Pension & Retirement System
850 Hungerford Dr. Rm 154
Rockville, MD 20850 1,909,008.550 22.52%
Adventist Health System Sunbelt
Healthcare Corp.- Core
111 N. Orlando Ave.
Winter Park, FL 32789 329,135.120 3.88%
Comerica Bank Trustee
Oakwood Pension Plan
P.O. Box 75000 M/C #3446
Detriot, MI 48275 1,392,537.850 16.43%
El Paso Firemen & Policemen's
Pension Fund Policemen's Division
8201 Lockheed Drive Ste. 229
El Paso, TX 79925 1,260,514.040 14.87%
El Paso Firemen & Policemen's
Pension Fund Policemen's Division
8201 Lockheed Drive Ste. 229
El Paso, TX 79925 787,821.270 9.29%
The Bank of New York ITF
Unisource Group Trust 12/29/97
One Wall Street 12th Fl.
New York, NY 10005 779,703.990 9.20%
</TABLE>
105
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Mid-Cap The Lincoln National Life Insurance Company
Value Equity Portfolio 1300 South Clinton Street
Fort Wayne, IN 46802 358,455.880 99.99%
The Labor Select Maritime Association ILA
International Equity Pension Fund
Portfolio 11550 Fuqua St Ste 425
Houston, TX 77034 2,166,634.150 27.95%
Operating Engineers
LCL 101 Pension
301 E. Armour Blvd. Suite 203
Kansas City, MO 64111 1,058,481.190 13.97%
Carpenters' Pension Fund of
Western Pennsylvania
495 Mansfield Avenue
Pittsburgh, PA 15205-4376 803,435.930 10.61%
Local 25 S.E.I.U. & Participating
Employees Pension Trust
111 W. Jackson Blvd Ste 2102
Chicago, IL 60604 582,772.510 7.69%
Inlandboatmen's Union of the
Pacific National Pension Plan
1220 SW Morrison Street, Suite 300
Portland, OR 97205-222 468,051.550 6.18%
Keystone District Council of Carpenters
Pension Fund
524 S. 22nd Street
Harrisburg, PA 17104 430,607.740 5.68%
Illinois Trust Company
Cust. Plumbers & Steamfitters
Local 137 Pension TR Int'l Portfolio
P.O. Box 4042
Kalamazoo, MI 49003-4042 390,161.280 5.15%
</TABLE>
106
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Real Estate Charles Schwab & Co, Inc.
Investment Trust Special Custody Account for the
Portfolio A Class Exclusive Benefit of Custodians
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104 158,679.370 13.77%
The High-Yield The Bank of New York ITF
Bond Portfolio Unisource Group Trust 12/29/97
One Wall Street 12th Fl.
New York, NY 10005 741,321.100 33.12%
Schwartz 1996 Charitable Remainder Unitrust
c/o TCS Group, L.L.C.
1200 Shermer Road Suite 212
Northbrook, IL 60062 380,099.630 16.98%
Chicago Trust Co.
FBO Lincoln National Corp.
Employees Retirement Plan
c/o Marshall & Ilsley Trust Co.
P.O. Box 2977
Milwaukee, WI 53201 379,143.080 16.94%
Mac & Co LCWF
Mutual Funds Operations
P.O. Box 3198
Pittsburgh PA 15320 236,958.500 10.58%
Melhorn & Co. FBO Shopmen's
Iron Workers' Union #502 Pension Fund
c/o PNC Bank
1600 Market Street
Lower Level 2
Philadelphia, PA 19103-7240 196,288.640 8.77%
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 136,598.300 6.10%
</TABLE>
107
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The High-Yield Trust Four Hundred Thirty
Bond Portfolio U/A/D 4/2/94
c/o TCS Group, L.L.C.
1200 Shermer Road Suite 212
Northbrook, IL 60062 136,598.300 6.10%
The Emerging Congra Master Pension Trust
Markets Portfolio One Congra Drive
Omaha, NE 68102 1,715,881.890 28.76%
Burlington Northern Santa Fe
Retirement Plan
1700 E. Golf Rd.
Schaumburg, IL 60173 1,048,476.100 17.57%
Father Flanagan's Trust Fund
14100 Crawford St.
Boys Town, NE 68010 925,928.260 15.52%
Mac & Co
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230 602,240.900 10.09%
Chicago Trust Company
FBO Lincoln National Corp.
Employees Retirement Trust
1000 N. Water St. TR 4
Milwaukee, WI 53202 562,257.760 9.42%
M.J. Murdock Charitable Trust
703 Broadway, Suite 710
Vancouver, WA 98660-3308 304,705.220 5.10%
The Global Lincoln National Life Insurance Company
Equity Portfolio 1300 S. Clinton Street
Fort Wayne, IN 46802 366,910.330 99.99%
</TABLE>
108
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
REIT Fund B Class MLPF&S For the Sole
Benefit of its Customers
4800 Deer Lake Drive E 2nd Fl.
Jacksonville, FL 32246 252,500.400 23.27%
REIT Fund C Class MLPF&S For the Sole
Benefit of its Customers
4800 Deer Lake Drive E 2nd Fl.
Jacksonville, FL 32246 38,306.320 16.77%
REIT Fund DMC Employee Profit Sharing Plan
Institutional Class Delaware Management Company
1818 Market Street
Philadelphia, PA 19103 103,072.280 74.57%
Chase Manhattan Bank C/F
Delaware Group Foundation Funds-
Income Portfolio
Attn: Marisol Gordan-Global Inv. Serv.
3 Metrotech Center, 8th Floor
Brooklyn, NY 11201-3800 31,200.160 22.57%
The Real Estate The Lincoln National Life Insurance Company
Investment Trust 1300 S. Clinton Street
Portfolio Class Fort Wayne, IN 46802 1,381,090.120 42.47%
The Lincoln National Life Insurance Company
1300 S. Clinton Street
Fort Wayne, IN 46802 1,244,394.230 38.27%
American States Insurance Company
500 Meridan Street
Indianapolis, IN 46204 625,797.400 19.24%
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
The Real Estate The Philadelphia Orchestra Association
Investment 1420 Locust Street Ste 400
Trust Portfolio II Philadelphia, PA 19103 131,435.140 30.72%
Lincoln National Life Insurance Company
1300 S. Clinton Street
Fort Wayne, IN 46802 130,253.930 30.45%
City of Groton
295 Merdian Street
Groton, CT 06340 75,832.330 17.72%
Marian and Speros Martel
Foundation, Inc.
1001 Fannin Street
Houston, TX 77002 67,053.230 15.67%
Family Health Council, Inc.
Money Purchase Pension Plan
2400 CNG Tower
Pittsburgh, PA 15222 23,138.990 5.40%
The Aggregate Fixed NCSC Staff Pension Plan
Income Portfolio Defined Benefit
8403 Colesville Road, Suite 1200
Silver Spring, MD 20910-6322 408,358.420 57.12%
Lincoln National Life Insurance Company
1300 S. Clinton Street
Fort Wayne, IN 46802 241,287.210 33.75%
NCSC Contract Employees Pension Plan
Defined Contribution
8403 Colesville Road, Suite 1200
Silver Spring, MD 20910-6322 65,147.020 9.11%
The Diversified Core Lincoln National Life Insurance Company
Fixed Income Portfolio 1300 S. Clinton Street
Fort Wayne, IN 46802 394,786.900 99.99%
</TABLE>
110
<PAGE>
Delaware Group Foundation Funds
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
Income Portfolio RS DMTC 401
A Class Hoag Memorial Hospital Savings Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638 2,072,129.100 95.42%
Income Portfolio NFSC FEBO #OKS-998419
B Class NFSC/FMTC IRA Rollover
FBO Jonathan J. Williams
1122 Sinclair Way 13,691.770 31.42%
NFSC FEBO #OKS-467138
NFSC/FMTC IRA Rollover
FBO Judith Ann Bianco
5012 Alan Court
Carmichael, CA 95608-0916 7,873.490 18.07%
Prudential Securities, Inc., FBO
Mr. Arthur L. Harbin
IRA Rollover Dtd. 6/23/98
725 W. 104th Street
Los Angeles, CA 90044-4405 4,579.180 10.50%
Prudential Securities, Inc., FBO
Mrs. Jamesetta M. Brazile
IRA Dtd. 10/1/98
3523 S. Redondo Blvd.
Los Angeles, CA 90016-5222 3,412.970 7.83%
Prudential Securities, Inc., FBO
Mr. Willie G. Hughes
IRA Rollover dtd. 5/18/98
8812 Priscilla Court
Lanham, MD 20706-3540 2,868.350 6.58%
Prudential Securities, Inc., FBO
Ms. Georgia M. King
IRA Rollover dtd. 5/18/98
8812 Priscilla Court
Lanham, MD 20706-3540 2,868.350 6.58%
NFSC FEBO # BQ7-019119
R. James Benninghoff
5601 Coldwater Road
Fort Wayne, IN 46825-5450 2,508.360 5.75%
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
Income Portfolio H. Dale Zimmermann
C Class Norma J. Zimmermann JTWROS
775 Stone Hill Road
Shoemakersville, PA 19555-9046 2,279.970 14.35%
DMTC Custodian for the IRA of
Barbara J. Turner
485 Martic Heights Drive
Holtwood, PA 17532-9683 2,009.030 12.65%
Ruby D. Miller
6451 County Road 407
Millersburg, OH 44654 1,937.180 12.19%
RS DMTC 401K Plan
Shore Line Contruction, Inc.
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638 1,924.350 12.11%
Donaldson Lufkin Jenrette
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052 1,742.830 10.97%
DMTC Custodian for the IRA of
Amos A. Bricker
2754 Mount Pleasant Road
Mount Joy, PA 17552-8728 1,513.110 9.52%
Income Portfolio Delaware Management Business TR-DIA
Institutional Class Attn: Joseph Hastings
1818 Market Street, 16th Floor
Philadelphia, PA 19103-3691 6,057.440 100.00%
Balanced Portfolio RS DMTC 401(k)
A Class Hoag Memorial Hospital Savings Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638 1,992,000.270 87.80%
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
Balanced Portfolio Attn: Mutual Funds
B Class BHC Securities Inc.
FAO 45021199
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103-7042 9,160.570 12.12%
Sara A. Anthony
RR 3 Box 137
Kunkletown, PA 18058-9521 9,015.180 11.93%
DMTC C/F The Rollover IRA
of Dewey H. Moon
2832 Fannie Thompson Road
Monroe, GA 30656-3445 5,495.210 7.27%
NFSC FEBO # OKS-998419
NFSC/FMTC IRA Rollover
FBO Jonathan J. Williams
1122 Sinclair Way
Roseville, CA 95747-5814 5,449.860 7.21%
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
Balanced Portfolio Diabetes Foundation of
C Class Rhode Island, Inc.
1007 Waterman Ave.
East Providence, RI 02914 14,617.580 15.03%
Elaine J. Avery
1789 E. 91 St.
Brooklyn, NY 11236-5405 11,093.350 11.41%
DMTC C/F The Rollover IRA of
Joan F. Sylvander
1757 E. 26th St.
Brooklyn, NY 11229-2405 8,047.930 8.27%
DMTC C/F The Rollover IRA of
Catherine A. Horch
133 Henry St., Apt. 8
Brooklyn, NY 11201-2250 6,473.880 6.65%
DMTC C/F The Rollover IRA of Josephine Benfatti 2017
Kimball St.
Brooklyn, NY 11234-5021 5,567.450 5.72%
Paul K. Graybill & Grace H. Graybill
Ten ENT
4 Bomberger Road
Lititz, PA 17543-9510 4,997.490 5.14%
Balanced Portfolio Delaware Management Business TR-DIA
Institutional Class Attn: Joseph Hastings
1818 Market Street, 16th Fl.
Philadelphia, PA 19103-3691 6,009.330 100.00%
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
Growth Portfolio RS DMTC 401(k) Plan
A Class Hoag Memorial Hospital Savings Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638 1,138,786.940 82.69%
Growth Portfolio DMTC C/F the Rollover IRA of
B Class Louis E. Meador
1301 Camden Place
Lawrenceville, GA 30043-5206 16,762.570 10.66%
DMTC C/F the Beneficiary IRA of
Jeanne Milner
300 Turner Road
Concord, GA 30206-2611 12,279.350 7.81
NSFC FEBO # BQ5-00540
Carolyn W. Shay
9 North Marsh Rd.
Savannah, GA 31410-1036 8,745.150 5.56%
Growth Portfolio Benuel A. Stoltzfus
C Class Regina Stoltzfus JTWROS
255 California Road
Morgantown, PA 19543-9444 8,209.260 26.72%
RS DMTC 401(k) Plan
Warren S. Kumick, M.D., 401(k) Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638 3,946.470 12.84%
Richard K. Morford
1109 Tall Pines Court
Petoskey, MI 49770-3200 3,336.360 10.86%
RS DMTC 401(k)Plan
Shore Line Construction, Inc.
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638 2,720.870 8.85%
DMTC Custodian for the IRA of
Roger D. Clinard
2367 Barnsbury Road
East Lansing, MI 48823-7770 1,879.870 6.12%
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
Portfolio Name and Address of Account Share Amount Percentage
- --------- --------------------------- ------------ ----------
<S> <C> <C> <C>
Growth Portfolio RS DMTC 401(k) Plan
C Class GENFED Federal Credit Union
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638 1,819.210 5.92%
Growth Portfolio Delaware Management Business TR-DIA
Institutional Attn: Joseph Hastings
1818 Market Street, 16th Fl.
Philadelphia, PA 19103-3638 5,962.100 99.99%
</TABLE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Management Company, Inc., Delaware Investment Advisers, (a series of Delaware
Management Business Trust), 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 Retirement
Financial Services, Inc. are direct or indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. 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 Pooled Trust, Inc. and Foundation
Funds hold identical positions in each of the other funds in the Delaware
Investments family. Directors or Trustees, as applicable, and principal officers
of Pooled Trust, Inc. and Foundation Funds 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.
116
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*Jeffrey J. Nick (45)
Chairman, President, Chief Executive Officer and Director and/or Trustee of Pooled Trust, Inc.,
Foundation Funds and the other 32 investment companies in the Delaware Investments family,
Delaware Management Company, Inc., Delaware Management Business Trust, Delvoy, Inc., DMH
Corp. and Founders Holdings, Inc.
Chairman, Chief Executive Officer and Director of Delaware Distributors, Inc., Delaware International
Holdings Ltd., Delaware International Advisers Ltd.
Chairman and Chief Executive Officer of Delaware Management Company (a series of Delaware Management
Business Trust)
Chairman and Director of Delaware Capital Management, Inc. and Retirement Financial Services, Inc.
Chairman of Delaware Investment Advisers (a series of Delaware Management Business Trust) and Delaware
Distributors, L.P.
President, Chief Executive Officer and Director of Lincoln National Investment Companies, Inc. and
Delaware Management Holdings, Inc.
Director of Delaware Service Company, Inc.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National UK plc and from 1989 to 1992, he
was Senior Vice President responsible for corporate planning and development for Lincoln National
Corporation.
*Wayne A. Stork (61)
Director and/or Trustee of Pooled Trust, Inc. and Foundation Funds and the other 32 investment
companies In the Delaware Investments family
Chairman and Director of Delaware Management Holdings, Inc.
Prior to January 1, 1999, Mr. Stork was Director of Delaware Capital Management, Inc.; Chairman, President
and Chief Executive Officer and Director/Trustee of DMH Corp., Delaware Distributors, Inc. and
Founders Holdings, Inc.; Chairman, President, Chief Executive Officer, Chief Investment Officer and
Director/Trustee of Delaware Management Company, Inc. and Delaware Management Business Trust;
Chairman, President, Chief Executive Officer and Chief Investment Officer of Delaware Management
Company (a series of Delaware Management Business Trust); Chairman, Chief Executive Officer and
Chief Investment Officer of Delaware Investment Advisers (a series of Delaware Management Business
Trust); Chairman and Chief Executive Officer of Delaware International Advisers Ltd; Chairman, Chief
Executive Officer and Director of Delaware International Holdings Ltd.; Chief Executive Officer of
Delaware Management Holdings, Inc.; President and Chief Executive Officer of Delvoy, Inc.; Chairman
of Delaware Distributors, L.P.; Director of Delaware Service Company, Inc. and Retirement Financial
Services, Inc.
In addition, during the five years prior to January 1, 1999, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.
</TABLE>
- ----------------------
* Director/Trustee affiliated with the Portfolio's investment manager and
considered an "interested person" as defined in the 1940 Act.
117
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Richard G. Unruh, Jr. (59)
Executive Vice President/Chief Investment Officer of Pooled Trust, Inc., Foundation Funds, the other 32
investment companies in the Delaware Investments family, Delaware Management Holdings, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust) and Delaware Capital
Management, Inc.
President of Delaware Investment Advisers (a series of Delaware Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management Company, Inc. and Delaware Management
Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive capacities at different times within
the Delaware organization.
Paul E. Suckow (51)
Executive Vice President/Chief Investment Officer, Fixed Income of Pooled Trust, Inc., Foundation Funds,
the other 32 investment companies in the Delaware Investments family, Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business Trust) and Delaware Management
Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and Delaware Management Business Trust
Director of Founders CBO Corporation
Director of Delaware Offshore Funds Limited
Director of HYPPCO Finance Company Ltd
Before returning to Delaware Investments 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 Delaware Investments.
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
David K. Downes (59)
Executive Vice President, Chief Operating Officer, Chief Financial Officer of Pooled Trust, Inc.,
Foundation Funds, the other 32 investment companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Founders CBO Corporation, Delaware Capital Management, Inc., Delaware
Management Company (a series of Delaware Management Business Trust), Delaware Investment Advisers
(a series of Delaware Management Business Trust) and Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Trustee of Delaware
Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of Delaware
Management Company, Inc., DMH Corp., Delaware Distributors, Inc., Founders Holdings, Inc. and
Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of Delaware International
Holdings Ltd.
Chairman,Chief Executive Officer and Director of Delaware Management Trust Company and Retirement
Financial Services, Inc.
Director of Delaware International Advisers Ltd.
Vice President of Lincoln Funds Corporation
During the past five years, Mr. Downes has served in various executive capacities at different times
within the Delaware organization.
Richard J. Flannery (41)
Executive Vice President of Pooled Trust, Inc., Foundation Funds and the other 32 investment companies in
the Delaware Investments family.
Executive Vice President and General Counsel of Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, L.P., Delaware Management Trust Company, Delaware
Capital Management, Inc., Delaware Service Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Investment Advisers (a series of Delaware Management
Business Trust, Founders CBO Corporation and Retirement Financial Services, Inc.
Executive Vice President/General Counsel and Director of Delaware International Holdings Ltd., Founders
Holdings, Inc. and Delvoy, Inc.
Senior Vice President of Pooled Trust, Inc., Foundation Funds and each of the other investment companies
in the Delaware Investments family
Director, HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various executive capacities at different times
within the Delaware organization.
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Walter P. Babich (71)
Director and/or Trustee of Pooled Trust, Inc., Foundation Funds and the other 32 investment companies in
the Delaware Investments family
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from 1988 to 1991, he was a partner
of I&L Investors.
John H. Durham (61)
Director and/or Trustee of Pooled Trust, Inc., Foundation Funds and 17 other investment companies in the
Delaware Investments family
Partner, Complete Care Services
120 Gibraltar Road, Horsham, PA 19044
Mr. Durham served as Chairman of the Board of each fund in the Delaware Investments family from 1986 to
1991; President of each fund from 1977 to 1990; and Chief Executive Officer of each fund from 1984
to 1990. Prior to 1992, with respect to Delaware Management Holdings, Inc., Delaware Management
Company, Delaware Distributors, Inc. and Delaware Service Company, Inc., Mr. Durham served as a
director and in various executive capacities at different times.
Anthony D. Knerr (60)
Director and/or Trustee of Pooled Trust, Inc., Foundation Funds and the other 32 investment companies in
the Delaware Investments family
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and Treasurer of Columbia University,
New York. From 1987 to 1989, he was also a lecturer in English at the University. In addition, Mr.
Knerr was Chairman of The Publishing Group, Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven (58)
Director and/or Trustee of Pooled Trust, Inc., Foundation Funds and the other 32 investment companies in
the Delaware Investments family
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of
the Smithsonian Institution, Washington, DC, and from 1975 to
1992, she was Adjunct Professor of Columbia Business School.
W. Thacher Longstreth (77)
Director and/or Trustee of Pooled Trust, Inc., Foundation Funds and the other 32 investment companies in
the Delaware Investments family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman.
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Thomas F. Madison (62)
Director and/or Trustee of Pooled Trust, Inc., Foundation Funds and the other 32 investment companies in
the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications Holdings, Inc. since 1996.
From February to September 1994, Mr. Madison served as Vice Chairman--Office of the CEO of The Minnesota
Mutual Life Insurance Company and from 1988 to 1993, he was President of U.S. WEST
Communications--Markets.
Charles E. Peck (72)
Director and/or Trustee of Pooled Trust, Inc., Foundation Funds and the other 32 investment companies in
the Delaware Investments family
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of The Ryland Group, Inc., Columbia,
MD.
George M. Chamberlain, Jr. (52)
Senior Vice President, Secretary and General Counsel of Pooled Trust, Inc., Foundation Funds and each of
the 32 other investment companies in the Delaware Investments family. Senior Vice President and
Secretary of Delaware Distributors, L.P., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of Delaware Management Business
Trust) and Delaware Management Holdings, Inc.
Senior Vice President, Secretary and Director of Founders Holdings, Inc.
Senior Vice President, Secretary and Director/Trustee of DMH Corp., Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Retirement Financial Services, Inc.,
Delaware Capital Management, Inc., Delvoy, Inc. and Delaware Management Business Trust
Senior Vice President, Secretary and Director of Delaware Management Trust Company
Senior Vice President of Delaware International Holdings Ltd.
During the past five years, Mr. Chamberlain has served in various executive capacities at different times
within the Delaware organization.
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Joseph H. Hastings (49)
Senior Vice President/Corporate Controller of Pooled Trust, Inc., Foundation Funds, the other 32
investment companies in the Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware Management Holdings, Inc., DMH Corp.,
Delaware Management Company, Inc., Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc., Delaware International Holdings Ltd., Delvoy, Inc. and
Delaware Management Business Trust
Chief Financial Officer/Treasurer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company Senior Vice President/Assistant Treasurer of
Founders CBO Corporation Treasurer of Lincoln Funds Corporation
During the past five years, Mr. Hastings has served in various executive capacities at different times
within the Delaware organization.
Michael P. Bishof (36)
Senior Vice President/Treasurer of Pooled Trust, Inc., Foundation Funds, the other 32 investment companies
in the Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business Trust) and Delaware Service Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting of Delaware Distributors, L.P. and
Delaware Investment Advisers (a series of Delaware Management Business Trust)
Senior Vice President and Manager of Investment Accounting of Delaware International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice President for Bankers Trust, New York,
NY from 1994 to 1995, a Vice President for CS First Boston Investment Management, New York, NY from
1993 to 1994 and an Assistant Vice President for Equitable Capital Management Corporation, New York,
NY from 1987 to 1993.
George E. Deming (56)
Vice President/Senior Portfolio Manager of The Large-Cap Value Equity Portfolio.
Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust).
Before joining Delaware Investments 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.
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Gerald S. Frey (52)
Vice President/Senior Portfolio Manager of Pooled Trust, Inc., of the other 33 investment companies in
the Delaware Investments family, Delaware Management Company (a series of Delaware Management
Business Trust) and Delaware Investment Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 1996, Mr. Frey was a Senior Director with Morgan Grenfell
Capital Management, New York, NY from 1986 to 1995.
Gary A. Reed (44)
Vice President/Senior Portfolio Manager of Pooled Trust, Inc., of the 33 other investment companies in
the Delaware Investments family, Delaware Investment Advisers (a series of Delaware Management
Business Trust), Delaware Management Company (a series of Delaware Management Business Trust) 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 (40)
Vice President/Senior Portfolio Manager of Pooled Trust, Inc., of the 33 other investment companies in
the Delaware Investments family, Delaware Investment Advisers (a series of Delaware Management
Business Trust) and Delaware Management Company (a series of Delaware Management Business Trust)
Vice President of Founders Holdings, Inc.
Treasurer/Assistant Secretary and Director of Founders CBO Corporation.
During the past five years, Mr. Nichols has served in various capacities at different times within the
Delaware organization.
Paul A. Matlack (39)
Vice President/Senior Portfolio Manager of Pooled Trust, Inc., of the 33 other investment companies in
the Delaware Investments family, Delaware Investment Advisers (a series of Delaware Management
Business Trust) and Delaware Management Company (a series of Delaware Management Business Trust)
Vice President of Founders Holdings, Inc.
President and Director of Founders CBO Corporation.
During the past five years, Mr. Matlack has served in various capacities at different times within the
Delaware organization.
Babak Zenouzi (36)
Vice President/Senior Portfolio Manager of Pooled Trust, Inc., of the 33 other investment companies in
the Delaware Investments family, and Delaware Management Company (a series of Delaware Management
Business Trust)
Vice President/Assistant Portfolio Manager of Delaware Investment Advisers.
Before joining Delaware Investments 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.
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Roger A. Early (45)
Vice President/Senior Portfolio Manager of Pooled Trust, Inc. and the 33 other investment companies in
the Delaware Investments family, Delaware Investment Advisers (a series of Delaware Management
Business Trust) and Delaware Management Company (a series of Delaware Management Business Trust)
Before joining Delaware Investments, Mr. Early was a portfolio manager for Federated Investment
Counseling's fixed-income group, with over $1 billion in assets.
Frank X. Morris (37)
Vice President/Portfolio Manager of Pooled Trust, Inc. and the other 33 investment companies in the
Delaware Investments family
Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust) and the other 32
investments companies in the Delaware Investments family, Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 1997, he served as vice president and director of equity research
at PNC Asset Management. Mr. Morris is president of the Financial Analysis Society of Philadelphia
and is a member of the Association of Investment Management and Research and the National
Association of Petroleum Investment Analysts.
J. Paul Dokas (38)
Vice President/Portfolio Manager of Pooled Trust, Inc. and Foundation Funds and the other 32 investment
companies in the Delaware Investments family
Vice President/DIA Equity of Delaware Investment Advisers (a series of Delaware Management Business
Trust) and Delaware Management Company (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 1997, he was a Director of Trust Investments for Bell Atlantic
Corporation in Philadelphia.
George H. Burwell (37)
Vice President/Senior Portfolio Manager of Pooled Trust, Inc., the other 33 investment companies in
Delaware Investments, Delaware Management Company (a series of Delaware Management Business Trust),
and Delaware Investment Advisers (a series of Delaware Management Business Trust)
During the past five years, Mr. Burwell has served in various capacities within the Delaware organization.
Christopher S. Beck (41)
Vice President/Senior Portfolio Manager of Pooled Trust, Inc. and the other 33 investment companies in
the Delaware Investments family, Delaware Management Company (a series of Delaware Management
Business Trust) and Delaware Investment Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 1997, Mr. Beck managed the Small Cap Fund for two years at Pitcairn
Trust Company. Prior to 1995, he was Director of Research at Cypress Capital Management in
Wilmington and Chief Investment Officer of the University of Delaware Endowment Fund.
</TABLE>
124
<PAGE>
With respect to Pooled Trust, Inc., the following is a compensation
table listing for each director entitled to receive compensation, the aggregate
compensation received from Pooled Trust, Inc. and the total compensation
received from all Delaware Investments funds for the fiscal year ended October
31, 1998 and an estimate of annual benefits to be received upon retirement under
the Delaware Investments Retirement Plan for Directors/Trustees as of October
31, 1998. Only the independent directors of Pooled Trust, Inc. receive
compensation from the Fund.
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Annual from 33
Compensation Accrued Benefits Delaware
from Pooled as Part of Upon Investment
Name Trust, Inc. Fund Expenses Retirement(1) Companies(2)
<S> <C> <C> <C> <C>
W. Thacher Longstreth $3,729 None $38,000 $60,384
Ann R. Leven $4,207 None $38,000 $66,499
Walter P. Babich $4,127 None $38,000 $65,384
Anthony D. Knerr $4,127 None $38,000 $65,384
Charles E. Peck $3,729 None $38,000 $60,384
Thomas F. Madison $3,898 None $38,000 $62,467
John H. Durham(3) $2,221 None $31,180 $25,935
</TABLE>
With respect to Foundation Funds, the following is a compensation table
listing for each trustee entitled to receive compensation, the aggregate
compensation expected to be received from Foundation Funds during its fiscal
year and the total compensation expected to be received from all funds in the
Delaware Investments family during the Trust's fiscal year and an estimate of
annual benefits to be received upon retirement under the Delaware Group
Retirement Plan for Directors/Trustees during the Trust's fiscal year. Only the
independent directors of Foundation Funds receive compensation from the Trust.
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Annual from 33
Compensation Accrued Benefits Delaware
from Pooled as Part of Upon Investment
Name Trust, Inc. the Trust Retirement(1) Companies(2)
<S> <C> <C> <C> <C>
W. Thacher Longstreth $777 None $38,500 $63,447
Ann R. Leven $795 None $38,500 $69,609
Walter P. Babich $792 None $38,500 $68,447
Anthony D. Knerr $792 None $38,500 $68,447
Charles E. Peck $777 None $38,500 $63,447
Thomas F. Madison $792 None $38,500 $65,115
John H. Durham(3) $777 None $31,180 $24,189
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the time of
his or her retirement from the Board, has attained the age of 70 and served
on the Board for at least five continuous years, is entitled to receive
payments from each investment company in the Delaware Investments family for
which he or she serves as a director or trustee for a period equal to the
lesser of the number of years that such person served as a director or
trustee or the remainder of such person's life. The amount of such payments
will be equal, on an annual basis, to the amount of the annual retainer that
is paid to directors/trustees of each investment company at the time of such
person's retirement. If an eligible director/trustee retired as of the
periods noted above for Pooled Trust, Inc. and Foundation Funds, he or she
would be entitled to annual payments
125
<PAGE>
totaling the amounts noted above, in the aggregate, from all of the
investment companies in the Delaware Investments family for which he or she
served as director or trustee, based on the number of investment companies
in the Delaware Investments family as of that date.
(2) Each independent director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,000 for serving as a director or
trustee for all 34 investment companies in Delaware Investments, plus $3,145
for each Board Meeting attended. John H. Durham currently receives a total
annual retainer fee of $31,180 for serving as a director or trustee for 19
investment companies in Delaware Investments, plus $1,810 for each Board
Meeting attended. Ann R. Leven, Walter P. Babich, and Anthony D. Knerr serve
on the Fund's audit committee; Ms. Leven is the chairperson. Members of the
audit committee currently receive additional annual compensation of $5,000
from all investment companies, in the aggregate, with the exception of the
chairperson, who receives $6,000.
(3) John H. Durham joined the Board of Directors/Trustees of Pooled Trust, Inc.
and Foundation Funds and 17 other investment companies in Delaware
Investments on April 16, 1998.
126
<PAGE>
GENERAL INFORMATION
Delaware furnishes investment management services to The Large-Cap
Value Equity, The Mid-Cap Growth Equity, The Intermediate Fixed Income, The
Aggregate Fixed Income, The Mid-Cap Value Equity, The Small Cap Value Equity,
The Real Estate Investment Trust, The High-Yield Bond, The Diversified Core
Fixed Income, The Asset Allocation, The Small-Cap Growth Equity and The Core
Equity Portfolios. Delaware International furnishes similar services to The
International Equity, The International Mid-Cap Sub, The Labor Select
International Equity, The Global Fixed Income, The International Fixed Income,
The Emerging Markets and The Global Equity Portfolios and also serves as
sub-adviser to The Diversified Core Fixed Income Portfolio. Delaware and
Delaware International also provide investment management services to certain of
the other funds in the Delaware Investments family. While investment decisions
of the Portfolios are made independently from those of the other funds and
accounts, investment decisions for such other funds and accounts may be made at
the same time as investment decisions for the Portfolios.
Delaware or Delaware International also manages the investment options
for Delaware Medallion (SM) III Variable Annuity. Medallion is issued by
Allmerica Financial Life Insurance and Annuity Company (First Allmerica
Financial Life Insurance Company in New York and Hawaii). Delaware Medallion
offers various investment series ranging from domestic equity funds,
international equity and bond funds and domestic fixed income funds. Each
investment series available through Medallion utilizes an investment strategy
and discipline the same as or similar to one of the Delaware Investments mutual
funds available outside the annuity. See Delaware Group Premium Fund, Inc., in
Appendix B.
Access persons and advisory persons of the Delaware Investments funds,
as those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to Delaware, Delaware International or their affiliates, are permitted
to engage in personal securities transactions subject to the exceptions set
forth in Rule 17j-1 and the following general restrictions and procedures: (1)
certain blackout periods apply to personal securities transactions of those
persons; (2) transactions must receive advance clearance and must be completed
on the same day as the clearance is received; (3) certain persons are prohibited
from investing in initial public offerings of securities and other restrictions
apply to investments in private placements of securities; (4) opening positions
may only be closed-out at a profit after a 60-day holding period has elapsed;
and (5) the Compliance Officer must be informed periodically of all securities
transactions and duplicate copies of brokerage confirmations and account
statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for each Portfolio and for
the other mutual funds in the Delaware Investments family. The Distributor
received net commissions from REIT Fund on behalf of Class A Shares, after
reallowances to dealers, as follows:
REIT Fund
Class A Shares
Total
Fiscal Amount of Amounts Net
Year Underwriting Reallowed Commission
Ended Commissions to Dealers to Distributor
----- ----------- ---------- --------------
10/31/98 $254,157 $211,644 $42,513
10/31/97 N/A N/A N/A
10/31/96 N/A N/A N/A
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<PAGE>
CDSC Payments
The Distributor received no aggregate Limited CDSC payments with
respect to Class A Shares of REIT Fund for fiscal year ended October 31, 1998.
The Distributor received aggregate CDSC payments in the amount of $7,643.30 with
respect to Class B Shares of REIT Fund for fiscal year ended October 31, 1998.
The Distributor received CDSC payments in the amount of $291.26 with respect to
Class C Shares of REIT Fund for fiscal year ended October 31, 1998.
The Transfer Agent, an affiliate of Delaware and Delaware
International, acts as shareholder servicing, dividend disbursing and transfer
agent for the Portfolios and for the other mutual funds in the Delaware
Investments family. The Transfer Agent's compensation for providing services to
the Portfolios of Pooled Trust, Inc. (other than The Real Estate Investment
Trust Portfolio effective October 14, 1997) is $25,000 annually. The Transfer
Agent will bill, and Pooled Trust, Inc. (in the case of The International
Mid-Cap Sub Portfolio, Delaware International) will pay, such compensation
monthly allocated among the current Portfolios (other than The Real Estate
Investment Trust Portfolio) based on the relative percentage of assets of each
Portfolio at the time of billing and adjusted appropriately to reflect the
length of time a particular Portfolio is in operation during any billing period.
The Transfer Agent is paid a fee by The Real Estate Investment Trust Portfolio
for providing these services consisting of an annual per account charge of $5.50
plus transaction charges for particular services according to a schedule. The
Transfer Agent is paid a fee by The Asset Allocation Portfolio for providing
these services consisting of an annual per account charge of $11.00 plus
transaction charges for particular services according to a schedule.
Compensation is fixed each year and approved by the Board of Directors/Trustees,
including a majority of the disinterested directors. The Transfer Agent also
provides accounting services to the Portfolios. Those services include
performing all functions related to calculating each Portfolio's net asset value
and providing all financial reporting services, regulatory compliance testing
and other related accounting services. For its services, the Transfer Agent is
paid a fee based on total assets of all funds in the Delaware Investments family
for which it provides such accounting services. Such fee is equal to 0.25%
multiplied by the total amount of assets in the complex for which the Transfer
Agent furnishes accounting services, where such aggregate complex assets are $10
billion or less, and 0.20% of assets if such aggregate complex assets exceed $10
billion. The fees are charged to the Portfolio, including the Portfolios, on an
aggregate pro-rata basis. The asset-based fee payable to the Transfer Agent is
subject to a minimum fee calculated by determining the total number of
investment portfolios and associated classes.
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Pooled Trust, Inc.'s or
Foundation Funds' advisory relationship with the Manager or its distribution
relationship with the Distributor, the Manager and its affiliates could cause
Pooled Trust, Inc. or Foundation Funds to delete the words "Delaware Group" from
Pooled Trust, Inc.'s or Foundation Funds' names.
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<PAGE>
Custody Arrangements
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn,
NY 11245 serves as custodian for each Portfolio. As custodian, Chase maintains a
separate account or accounts for a Portfolio; receives, holds and releases
portfolio securities on account of a Portfolio; receives and disburses money on
behalf of a Portfolio; and collects and receives income and other payments and
distributions on account of a Portfolio's portfolio securities.
With respect to foreign securities, Chase makes arrangements with
subcustodians who were approved by the directors/trustees of Pooled Trust, Inc.
or, as applicable, Foundation Funds 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 Portfolios, and the
reputation of the institutions in the particular country or region.
Capitalization
Pooled Trust, Inc. has a present authorized capitalization of two
billion shares of capital stock with a $.01 par value per share. The Board of
Directors has allocated fifty million shares to each Portfolio.
Foundation Funds currently consists four portfolios of shares.
Foundation Funds has an unlimited authorized number of shares of beneficial
interest with no par value allocated to each portfolio.
While all shares have equal voting rights on matters affecting Pooled
Trust, Inc. or Foundation Funds, as applicable, 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.
Effective December 24, 1997, the name of The Defensive Equity
Small/Mid-Cap Portfolio was changed to The Mid-Cap Value Equity Portfolio, the
name of The Fixed Income Portfolio was changed to The Intermediate Fixed Income
Portfolio and the name of The Defensive Equity Portfolio was changed to The
Large-Cap Value Equity Portfolio. Effective October 7, 1998, the name of The
Aggressive Growth Portfolio was changed to The Mid-Cap Growth Equity Portfolio.
Effective March 1, 1999, the name of The Growth and Income Portfolio was changed
to The Core Equity Portfolio.
Noncumulative Voting
Portfolio shares have noncumulative voting rights which means that the
holders of more than 50% of the shares of Pooled Trust, Inc. 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.
129
<PAGE>
PERFORMANCE INFORMATION
From time to time, Pooled Trust, Inc. may state each Portfolio's total
return and each Portfolio class' 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 or the Portfolio class' average
annual total rate of return over the most recent one-, five-, and ten-year
periods or life-of-portfolio, as relevant. Pooled Trust, Inc. may also advertise
aggregate and average total return information of each Portfolio and Portfolio
class over additional periods of time.
Average annual total rate of return for each Portfolio and Portfolio
class 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, after deduction of
the maximum front-end sales charge
in the case of REIT Fund A Class of
The Real Estate Investment Trust
Portfolio;
T = average annual total return;
n = number of years;
ERV = redeemable value of the
hypothetical $1,000 purchase at the
end of the period, after deduction
of the applicable CDSC, if any, in
the case of REIT Fund B Class and
REIT Fund C Class of The Real Estate
Investment Trust Portfolio.
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 total return for REIT Fund A Class of The Real Estate Investment
Trust Portfolio at offer reflects the maximum front-end sales charge of 5.75%
paid on the purchase of shares. The total return for REIT Fund A Class at net
asset value (NAV) does not reflect the payment of any front-end sales charge.
The Limited CDSC, applicable only to certain redemptions of those shares, will
not be deducted from any computation of total return. See the Prospectus for
REIT Fund A Class for a description of the Limited CDSC and the limited
instances in which it applies. The Fund may also present total return
information for The Real Estate Investment Trust Portfolio that does not reflect
the deduction of the maximum front-end sales charge with respect to REIT Fund A
Class.
The performance, as shown below, is the average annual total return
quotations for each Portfolio through October 31, 1998, other than The
International Mid-Cap Sub Portfolio, The Asset Allocation Portfolio, The
Small-Cap Value Equity Portfolio, The Small-Cap Growth Equity Portfolio and The
Core Equity Portfolio. Securities prices fluctuated during the period covered
and the past results should not be considered as representative of future
performance.
130
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return(1)
- ---------------------------------------------------------------------------------------------------------------------------------
1 year ended 3 years ended 5 years ended Life of Fund
10/31/98 10/31/98 10/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Large Cap Value Equity Portfolio 13.50% 21.55% 18.36% 18.39%
(Inception 2/3/92)
- ---------------------------------------------------------------------------------------------------------------------------------
The International Equity Portfolio 4.96% 11.30% 9.85% 10.83%
(Inception 2/4/92)
- ---------------------------------------------------------------------------------------------------------------------------------
The Mid-Cap Growth Equity Portfolio 1.47% 10.59% 10.17% 9.39%
(Inception 2/27/92)
- ---------------------------------------------------------------------------------------------------------------------------------
The Global Fixed Income Portfolio 6.28% 9.31% 9.37% 10.81%
(Inception 11/30/92)
- ---------------------------------------------------------------------------------------------------------------------------------
The Labor Select International 6.18% N/A N/A 13.91%
Equity Portfolio
(Inception 12/19/95)
- ---------------------------------------------------------------------------------------------------------------------------------
The Intermediate Fixed Income 7.06% N/A N/A 6.92%
Portfolio
(Inception 3/12/96)
- ---------------------------------------------------------------------------------------------------------------------------------
The High Yield Bond Portfolio 0.30% N/A N/A 9.16%
(Inception 12/2/96)
- ---------------------------------------------------------------------------------------------------------------------------------
The International Fixed Income 5.96% N/A N/A 8.46%
Portfolio
(Inception 4/11/97)
- ---------------------------------------------------------------------------------------------------------------------------------
The Emerging Markets Portfolio (35.30%) N/A N/A (28.52%)
(Inception 4/14/97)
- ---------------------------------------------------------------------------------------------------------------------------------
The Global Equity Portfolio 8.31% N/A N/A 3.30%
(Inception 10/15/97)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1 year ended 3 years ended 5 years ended Life of Fund
10/31/98 10/31/98 10/31/98
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Mid-Cap Growth Equity Portfolio 1.47% 10.59% 10.17% 9.39%
(Inception 2/27/92)
- ---------------------------------------------------------------------------------------------------------------------------------
</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.
132
<PAGE>
Average Annual Total Return(1)
The Real Estate Investment Trust Portfolio
The Real Estate Investment Trust Portfolio Class (2)
1 year ended 10/31/98 (10.73%)
Period 12/6/95(3)
through10/31/98 18.80%
(1) Certain expenses of the Portfolios have been waived and paid by the
investment adviser. In the absence of such waiver and payment, performance
would have been affected negatively.
(2) Shares of The Real Estate Investment Trust Portfolio class were made
available for sale beginning November 4, 1997. Pursuant to applicable
regulation, total return shown for the class prior to commencement of
operations is that of the original (and then only) class of shares offered
by The Real Estate Investment Trust Portfolio. That original class has
been redesignated REIT Fund A Class. Like The Real Estate Investment Trust
Portfolio class, the original class, prior to its redesignation, did not
carry a front-end sales charge and was not subject to Rule 12b-1
distribution expenses.
(3) Date of initial sale of the original class (now REIT Fund A Class).
Average Annual Total Return(1)
The Real Estate Investment Trust Portfolio
REIT Fund REIT Fund
A Class(2) A Class(2)
(at Offer) (at NAV)
1 year ended
10/31/98 (16.09%) (10.98%)
Period
12/6/95(3)
through 16.29% 18.69%
10/31/98
(1) Certain expenses of the Portfolios have been waived and paid by the
investment adviser. In the absence of such waiver and payment, performance
would have been affected negatively.
(2) The total return presented above is based upon the performance of the
original (and then only) class of shares offered by The Real Estate
Investment Trust Portfolio, which did not carry a front-end sales charge
and was not subject to Rule 12b-1 distribution expenses. That original
class has been redesignated REIT Fund A Class. Effective November 4, 1997,
a front-end sales charge of 5.75% was imposed on sales of those shares and
effective November 11, 1997, a 12b-1 distribution fee of up to 0.30% has
been assessed annually. All performance numbers for REIT Fund A Class (at
Offer) are calculated giving effect to the sales charge. For periods prior
to November 11, 1997, no adjustment has been made to reflect the effect of
12b-1 payments. Performance on and after November 11, 1997 includes the
effect of such 12b-1 payments. REIT Fund A Class is subject to other
expenses (at a higher rate than applicable to the original class) which
may affect performance of the Class.
(3) Date of initial sale of the original class (now REIT Fund A Class).
133
<PAGE>
Pooled Trust, Inc. 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.
The above formula will be used in calculating quotations of yield,
based on specific 30-day periods identified in advertising by a 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 30-day yields for
The Global Fixed Income Portfolio and The Intermediate Fixed Income Portfolio as
of October 31, 1998 were 4.35% and 5.34%, respectively. Each yield reflects the
waiver and reimbursement commitment by its investment adviser.
Investors should note that income earned and dividends paid by The
Intermediate Fixed Income Portfolio, The Global Fixed Income Portfolio, The
International Fixed Income Portfolio, The High-Yield Bond Portfolio, The
Aggregate Fixed Income Portfolio and The Diversified Core Fixed Income Portfolio
will also vary depending upon fluctuation in interest rates and performance of
each Portfolio.
The net asset value of these seven 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, except for REIT Fund A Class, REIT Fund B Class
and REIT Fund C Class of The Real Estate Investment Trust Portfolio. 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.
Pooled Trust, Inc. may promote the total return performance of The Real
Estate Investment Trust Portfolio II by comparison to the original class (prior
to its redesignation as REIT Fund A Class) of The Real Estate Investment Trust
Portfolio.
From time to time, each Portfolio may also quote its actual total
return performance, dividend results and other performance information in
advertising and other types of literature. This information may be
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compared to that of other mutual funds with similar investment objectives and to
stock, bond and other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance of a Portfolio may be
compared to data prepared by Lipper Analytical Services, Inc., Morningstar,
Inc., or to the S&P 500 Index, the Dow Jones Industrial Average, the Morgan
Stanley Capital International (MSCI), Europe, Australia and Far East (EAFE)
Index, the MSCI Emerging Markets Free Index, or the Salomon Brothers World
Government Bond Index. Performance also may be compared to data prepared by
Lipper Analytical Services, Inc., Morningstar, Inc. or the performance of
unmanaged indices compiled or maintained by statistical research firms such as
Lehman Brothers or Salomon Brothers, Inc.
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which a Portfolio
may invest and the assumptions that were used in calculating the blended
performance will be described.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare a Portfolio's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The S&P 500 and
the Dow Jones Industrial Average are industry-accepted unmanaged indices of
generally-conservative securities used for measuring general market performance.
Similarly, the MSCI EAFE Index, the MSCI Emerging Markets Free Index, and the
Salomon Brothers World Government Bond Index are industry-accepted unmanaged
indices of equity securities in developed countries and global debt securities,
respectively, used for measuring general market performance. The total return
performance reported for these indices will reflect the reinvestment of all
distributions on a quarterly basis and market price fluctuations. The indices do
not take into account any sales charges or other fees. A direct investment in an
unmanaged index is not possible.
Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. The Consumer Price Index, as
prepared by the U.S. Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of a representative
group of consumer goods. It does not represent a return from an investment.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H.15), may also be used. As well, current industry rate and yield
information on all industry available fixed-income securities, as reported
weekly by The Bond Buyer, may also be used in preparing comparative
illustrations.
A Portfolio may also promote its yield and/or total return performance
and use comparative performance information computed by and available from
certain industry and general market research and publications, such as Lipper
Analytical Services, Inc. and Morningstar, Inc.
The performance of multiple indices compiled and maintained by
statistical research firms, such as Morgan Stanley, Salomon Brothers and Lehman
Brothers, may be combined to create a blended performance result for comparative
purposes. Generally, the indices selected will be representative of the types of
securities in which a Portfolio may invest and the assumptions that were used in
calculating the blended performance will be described.
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<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 Pooled Trust, Inc., peer group
comparison composites for each Portfolio. 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. Wellesley
Group will also be preparing performance analyses of actual Portfolio
performance, and benchmark index exhibits, for inclusion in client quarterly
review packages.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. A Portfolio may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Portfolio. A Portfolio may also compare performance to that of other
compilations or indices that may be developed and made available in the future.
A Portfolio may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Portfolio (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments or global or international investments),
economic and political conditions, the relationship between sectors of the
economy and the economy as a whole, the effects of inflation and historical
performance of various asset classes, including but not limited to, stocks,
bonds and Treasury bills. From time to time advertisements, sales literature,
communications to shareholders or other materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Portfolio), as well as the views as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Portfolio. In addition, selected indices may be used to
illustrate historic performance of selected asset classes. The Portfolio may
also include in advertisements, sales literature, communications to shareholders
or other materials, charts, graphs or drawings which illustrate the potential
risks and rewards of investment in various investment vehicles, including but
not limited to, domestic and international stocks, and/or bonds, treasury bills
and shares of a Portfolio. In addition, advertisements, sales literature,
communications to shareholders or other materials may include a discussion of
certain attributes or benefits to be derived by an investment in the Portfolio
and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning (such as information on Roth IRAs and Education IRAs) and investment
alternative to certificates of deposit and other financial instruments. Such
sales literature, communications to shareholders or other materials may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
Materials may refer to the CUSIP numbers of a Portfolio and may
illustrate how to find the listings of a Portfolio in newspapers and
periodicals. Materials may also include discussions of other Portfolios,
products, and services.
A Portfolio may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Portfolio may compare these
measures to those of other funds. Measures of volatility seek to compare the
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be. Measures of volatility and correlation may be
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<PAGE>
calculated using averages of historical data. A Portfolio may advertise its
current interest rate sensitivity, duration, weighted average maturity or
similar maturity characteristics. Advertisements and sales materials relating to
a Portfolio may include information regarding the background and experience of
its portfolio managers.
The following tables are an example, for purposes of illustration only,
of cumulative total return performance through October 31, 1998 for each
Portfolio, other than The International Mid-Cap Sub Portfolio, The Asset
Allocation Portfolio and The Small-Cap Value Equity Portfolio. For these
purposes, the calculations assume the reinvestment of any capital gains
distributions and income dividends paid during the indicated periods.
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<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return (1)
- -----------------------------------------------------------------------------------------------------------------------------
3 months 6 months 9 months 1 year 3 years 5 years Life of Fund
ended ended ended ended ended ended
10/31/98 10/31/98 10/31/98 10/31/98 10/31/98 10/31/98
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Large Cap Value (1.42%) (4.28%) 5.66% 13.50% 79.60% 132.24% 212.22%
Equity Portfolio
(Inception 2/3/92)
- -----------------------------------------------------------------------------------------------------------------------------
The International (5.40%) (5.73%) 3.37% 4.96% 37.89% 59.98% 100.01%
Equity Portfolio
(Inception 2/4/92)
- -----------------------------------------------------------------------------------------------------------------------------
The Mid-Cap Growth (7.67%) (11.08%) 2.76% 1.47% 35.26% 62.32% 82.10%
Equity Portfolio
(Inception 2/27/92)
- -----------------------------------------------------------------------------------------------------------------------------
The Global Fixed Income 6.42% 6.32% 7.02% 6.28% 30.63% 56.50% 83.62%
Portfolio
(Inception 11/30/92)
- -----------------------------------------------------------------------------------------------------------------------------
The Labor Select (7.15%) (6.82%) 3.31% 6.18% N/A N/A 45.31%
International Equity
Portfolio
(Inception 12/19/95)
- -----------------------------------------------------------------------------------------------------------------------------
The Intermediate Fixed 2.35% 4.07% 4.76% 7.06% N/A N/A 19.32%
Income Portfolio
(Inception 3/12/96)
- -----------------------------------------------------------------------------------------------------------------------------
The High Yield Bond (9.77%) (7.33%) (4.01%) 0.30% N/A N/A 18.28%
Portfolio
(Inception 12/2/96)
- -----------------------------------------------------------------------------------------------------------------------------
The International Fixed 8.14% 7.28% 8.03% 5.96% N/A N/A 13.49%
Income Portfolio
(Inception 4/11/97)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
138
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
3 months 6 months 9 months 1 year 3 years 5 years Life of Fund
ended ended ended ended ended ended
10/31/98 10/31/98 10/31/98 10/31/98 10/31/98 10/31/98
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Emerging Markets (20.00%) (38.33%) (29.98%) (35.30%) N/A N/A (40.48%)
Portfolio
(Inception 4/14/97)
- -----------------------------------------------------------------------------------------------------------------------------
The Global Equity (3.97%) (5.01%) 4.18% 8.31% N/A N/A 3.47%
Portfolio
(Inception 10/15/97)
- -----------------------------------------------------------------------------------------------------------------------------
The Real Estate (6.75%) (12.86%) (14.94%) N/A N/A N/A (12.27%)
Investment Trust
Portfolio II
(Inception 11/4/97)
- -----------------------------------------------------------------------------------------------------------------------------
The Mid-Cap Value (7.10%) (17.35%) (8.75%) N/A N/A N/A (9.18%)
Equity Portfolio
(Inception 12/29/97)
- -----------------------------------------------------------------------------------------------------------------------------
The Aggregate Fixed 3.28% 5.18% 6.04% N/A N/A N/A 7.41%
Income Portfolio
(Inception 12/29/97)
- -----------------------------------------------------------------------------------------------------------------------------
The Diversified Core (0.44%) 2.36% 5.56% N/A N/A N/A 7.18%
Fixed Income Portfolio
(Inception 12/29/97)
- -----------------------------------------------------------------------------------------------------------------------------
The Core Equity N/A N/A N/A N/A N/A N/A 5.53%
Portfolio
(Inception 9/15/98)
- -----------------------------------------------------------------------------------------------------------------------------
The Small-Cap Growth N/A N/A N/A N/A N/A N/A 10.59%
Equity Portfolio
(Inception 9/15/98)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
139
<PAGE>
(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.
The cumulative total return for Class A Shares of The Real Estate
Investment Trust Portfolio at offer reflects the maximum front-end sales charge
of 5.75% paid on the purchase of shares. The cumulative total return for Class B
and C Shares of the Real Estate Investment Trust Portfolio including CDSC
reflects the deduction of the applicable CDSC that would be paid if the shares
were redeemed at October 31, 1998. The cumulative total return for Class B and C
Shares excluding CDSC assumes the shares were not redeemed at October 31, 1998
and therefore does not reflect the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
Cumulative Total Return(1)
The Real Estate Investment Trust Portfolio
The Real Estate Investment Trust Portfolio Class (2)
3 months ended 10/31/98 (6.39%)
6 months ended 10/31/98 (12.32%)
9 months ended 10/31/98 (14.30%)
1 year ended 10/31/98 (10.73%)
Period 12/6/95(3) through 10/31/98 64.94%
(1) Certain expenses of the Portfolio have been waived and paid by the
investment adviser. In the absence of such waiver and payment,
performance would have been affected negatively.
(2) Shares of The Real Estate Investment Trust Portfolio class were made
available for sale beginning October 14, 1997. Pursuant to applicable
regulation, total return shown for the class prior to commencement of
operations is that of the original (and then only) class of shares
offered by The Real Estate Investment Trust Portfolio. That original
class has been redesignated REIT Fund A Class. Like The Real Estate
Investment Trust Portfolio class, the original class, prior to its
redesignation, did not carry a front-end sales charge and was not
subject to Rule 12b-1 distribution expenses.
(3) Date of initial sale of the original class (now REIT Fund A Class).
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<PAGE>
Cumulative Total Return(1)
The Real Estate Investment Trust Portfolio
REIT Fund REIT Fund
A Class Institutional
(at Offer)(2) Class (3)
3 months ended
10/31/98 (11.83%) (6.39%)
6 months ended
10/31/98 (17.51)(5) (12.32%)
9 months ended
10/31/98 (19.34%) (14.30%)
1 year ended
10/31/98 (16.09%) N/A
Period 12/6/95(4)
through 10/31/98 55.02% N/A
Period 11/11/97(3)
Through 10/31/98 N/A 64.94%
(1) Certain expenses of the Portfolio have been waived and paid by the
investment adviser. In the absence of such waiver and payment,
performance would have been affected negatively.
(2) The total return presented above is based upon the performance of the
original (and then only) class of shares offered by The Real Estate
Investment Trust Portfolio, which did not carry a front-end sales
charge and was not subject to Rule 12b-1 distribution expenses. That
original class has been redesignated REIT Fund A Class. Effective
November 4, 1997, a front-end sales charge of 5.75% was imposed on
sales of those shares and effective November 11, 1997, a 12b-1
distribution fee of up to 0.30% has been assessed annually. All
performance numbers for REIT Fund A Class (at Offer) are calculated
giving effect to the sales charge. For periods prior to November 11,
1997, no adjustment has been made to reflect the effect of 12b-1
payments. Performance on and after November 11, 1997 includes the
effect of such 12b-1 payments. REIT Fund A Class is subject to other
expenses (at a higher rate than applicable to the original class) which
may affect performance of the Class.
(3) REIT Fund Institutional Class commenced operations on November 11,
1997.
(4) Date of initial sale of the original class (now REIT Fund A Class).
(5) Cumulative total return at net asset value was 1.68% for the six months
ended October 31, 1998.
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<PAGE>
Cumulative Total Return
The Real Estate Investment Trust Portfolio(1)
<TABLE>
<CAPTION>
REIT Fund REIT Fund REIT Fund REIT Fund
B Class B Class C Class C Class
(including (excluding (including (excluding
CDSC) CDSC) CDSC) CDSC)
<S> <C> <C> <C> <C>
3 months ended 10/31/98 (11.25%) (6.60%) (7.53%) (6.60%)
6 months ended 10/31/98 (17.03%) (12.71%) (13.57%) (12.71%)
9 months ended 10/31/98 (19.11%) (14.91%) (15.75%) (14.91%)
Period 11/11/97 (2) through 10/31/98 (15.31%) (11.31%) (12.11%) (11.31%)
</TABLE>
(1) Certain expenses of the Portfolio have been waived and paid by the
investment adviser. In the absence of such waiver and payment,
performance would have been affected negative
(2) Date of initial sale; total return for this short of a time period
may not be representative of longer term results.
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<PAGE>
In addition, information will be provided that discusses the overriding
investment philosophies of Delaware Management Company ("Delaware"), (the
investment adviser to The Large-Cap Value Equity, The Mid-Cap Growth Equity, The
Mid-Cap Value Equity, The Real Estate Investment Trust, The Intermediate Fixed
Income, The Aggregate Fixed Income, The High-Yield Bond, The Diversified Core
Fixed Income, The Asset Allocation, The Small-Cap Growth Equity and The Core
Equity Portfolios), and Delaware International Advisers Ltd. ("Delaware
International"), (an affiliate of Delaware and the investment adviser to The
International Equity, The International Mid-Cap Sub, The Labor Select
International Equity, The Global Fixed Income, The International Fixed Income,
The Emerging Markets and The Global Equity Portfolios and the sub-adviser to The
Diversified Core Fixed Income Portfolio) and how those philosophies impact each
Portfolio in the strategies Pooled Trust, Inc. and Foundation Funds employs in
seeking respective Portfolio objectives. Since the investment disciplines being
employed for each Portfolio are based on the disciplines and strategies employed
by an affiliate of Delaware and Delaware International to manage institutional
separate accounts, investment strategies and disciplines of these entities may
also be discussed.
The Large-Cap Value 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 Large-Cap
Value Equity Portfolio strategy.
GENERAL INFORMATION
The Asset Allocation, The Small-Cap Growth Equity Portfolio and The
Core Equity Portfolio reserves the right to operate in a "master-feeder"
structure, that is, to invest its assets in another mutual fund with the same
investment objective and substantially similar investment policies as those of
the respective Portfolio. Each Portfolio has no present intention to operate in
a master-feeder structure; however, should the Board of Directors or Trustees
approve the implementation of a master-feeder structure for a Portfolio,
shareholders will be notified prior to the implementation of the new structure.
Lincoln National Corporation Employees' Retirement Trust (the "Trust")
made an investment in The Emerging Markets Portfolio, which could result in the
Trust owning approximately 100% of the outstanding shares of The Emerging
Markets Portfolio. Subject to certain limited exceptions, there would be no
limitation on the Trust's ability to redeem its shares of the Portfolios and it
may elect to do so at any time.
Lincoln National Life Insurance Company ("LNLIC") made an investment in
each of The Global Equity Portfolio, The Real Estate Investment Trust Portfolio,
The Real Estate Investment Trust Portfolio II, The Diversified Core Fixed Income
Portfolio, The Aggregate Fixed Income Portfolio and The Mid-Cap Value Equity
Portfolio, and will make an investment in each of The Asset Allocation, The
Small-Cap Growth Equity Portfolio and The Core Equity Portfolio, which could
result in LNLIC owning approximately 100% of the outstanding shares of the
respective Portfolios. Subject to certain limited exceptions, there would be no
limitation on LNLIC's ability to redeem its shares of the Portfolio and it may
elect to do so at any time.
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<PAGE>
European Economic and Monetary Union
Several European countries are participating in the European Economic and
Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the "Euro." It
is anticipated that each such participating country will replace its existing
currency on January 1, 1999. Additional European countries may elect to
participate after that date. If the Fund is investing in securities of
participating countries it could be adversely affected if the computer systems
used by its major service providers are not properly prepared to handle the
implementation of this single currency or the adoption of the Euro by additional
countries in the future. The Fund is taking steps to obtain satisfactory
assurances that the major service providers of the Fund are taking steps
reasonably designed to address these matters with respect to the computer
systems that such service providers use. There can be no assurances that these
steps will be sufficient to avoid any adverse impact on the business of the
Fund.
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<PAGE>
FINANCIAL STATEMENTS
Ernst & Young LLP serves as independent auditors for Delaware Pooled
Trust, Inc. ("Pooled Trust, Inc.") and, in its capacity as such, audits the
financial statements contained in Pooled Trust, Inc.'s Annual Reports. The Real
Estate Investment Trust, The Real Estate Investment Trust Portfolio II, The
Large-Cap Value Equity (formerly known as The Defensive Equity), The Core Equity
(formerly known as the Growth and Income), The Mid-Cap Growth Equity (formerly
known as The Aggressive Growth), The Mid-Cap Value Equity (formerly named the
Small/Mid-Cap Value Equity Portfolio), The Small-Cap Growth Equity, The
Intermediate Fixed Income (formerly known as The Fixed Income ), The Aggregate
Fixed Income, The High-Yield Bond, The Diversified Core Fixed Income, The Global
Equity, The International Equity, The Labor Select International Equity, The
Emerging Markets, The Global Fixed Income, and The International Fixed Income
Portfolios' Statements of Net Assets, Statements of Operations, Statements of
Changes in Net Assets, Financial Highlights and Notes to Financial Statements as
well as the reports of Ernst & Young LLP for the fiscal year ended October 31,
1998 are included in Pooled Trust, Inc.'s Annual Reports to shareholders. The
financial statements, financial highlights, the notes relating thereto and the
reports of Ernst & Young LLP listed above are incorporated by reference from the
Annual Reports into this Statement of Additional Information.
Ernst & Young LLP serves as the independent auditors for Delaware Group
Foundation Funds and, in its capacity as such, will audit the annual financial
statements of The Asset Allocation Portfolio.
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<PAGE>
APPENDIX A--RATINGS
Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged to
be the best quality. They carry the smallest degree of investment risk;
Aa--judged to be of high quality by all standards; A--possess favorable
attributes and are considered "upper medium" grade obligations; Baa--considered
as medium grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time; Ba--judged to
have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.
Excerpts from Fitch's description of its bond ratings: AAA--Bonds
considered to be investment grade and of the highest credit quality. The obligor
has an exceptionally strong ability to pay interest and repay principal, which
is unlikely to be affected by reasonably foreseeable events; AA--Bonds
considered to be investment grade and of very high credit quality. The obligor's
ability to pay interest and repay principal is very strong, although not quite
as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+; A--Bonds considered to be
investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances that
bonds with higher ratings; BBB--Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings; BB--Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements; B--Bonds
are considered highly speculative. While bonds in this class are currently
meeting debt service requirements, the probability of continued timely payment
of principal and interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity throughout the life of
the issue; CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment; CC--Bonds are minimally
protected. Default in payment of interest and/or principal seems probable over
time; C--Bonds are in imminent
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<PAGE>
default in payment of interest or principal; and DDD, DD and D--Bonds are in
default on interest and/or principal payments. Such bonds are extremely
speculative and should be valued on the basis of their ultimate recovery value
in liquidation or reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents the lowest potential
for recovery.
Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the "AAA" category.
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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APPENDIX B--INVESTMENT OBJECTIVES OF THE FUNDS IN THE DELAWARE INVESTMENTS
FAMILY
Following is a summary of the investment objectives of the funds in the
Delaware Investments family:
Delaware Balanced Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
Trend Fund seeks long-term growth by investing in common stocks issued
by emerging growth companies exhibiting strong capital appreciation potential.
Small Cap Value Fund seeks capital appreciation by investing primarily
in common stocks whose market values appear low relative to their underlying
value or future potential.
DelCap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
Decatur Equity Income Fund seeks the highest possible current income by
investing primarily in common stocks that provide the potential for income and
capital appreciation without undue risk to principal. Growth and Income Fund
seeks long-term growth by investing primarily in securities that provide the
potential for income and capital appreciation without undue risk to principal.
Blue Chip Fund seeks to achieve long-term capital appreciation. Current income
is a secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Social Awareness Fund seeks to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium- to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.
Delchester Fund seeks as high a current income as possible by investing
principally in high yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities. High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Corporate Bond Fund seeks to provide investors with total return by investing
primarily in corporate bonds. Extended Duration Bond Fund seeks to provide
investors with total return by investing primarily in corporate bonds
U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
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Tax-Free Money Fund seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while maintaining
a stable net asset value.
Tax-Free USA Fund seeks high current income exempt from federal income
tax by investing in municipal bonds of geographically-diverse issuers. Tax-Free
Insured Fund invests in these same types of securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due. Tax-Free USA Intermediate Fund seeks a high level of current
interest income exempt from federal income tax, consistent with the preservation
of capital by investing primarily in municipal bonds.
Tax-Free Pennsylvania Fund seeks a high level of current interest
income exempt from federal and, to the extent possible, certain Pennsylvania
state and local taxes, consistent with the preservation of capital. Tax-Free New
Jersey Fund seeks a high level of current interest income exempt from federal
income tax and New Jersey state and local taxes, consistent with preservation of
capital. Tax-Free Ohio Fund seeks a high level of current interest income exempt
from federal income tax and Ohio state and local taxes, consistent with
preservation of capital.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Income Portfolio seeks a combination of current income and preservation of
capital with capital appreciation by investing primarily in a mix of fixed
income and domestic equity securities, including fixed income and domestic
equity Underlying Funds. Foundation Funds Balanced Portfolio seeks capital
appreciation with current income as a secondary objective by investing primarily
in domestic equity and fixed income securities, including domestic equity and
fixed income Underlying Funds. Foundation Funds Growth Portfolio seeks long-term
capital growth by investing primarily in equity securities, including equity
Underlying Funds, and, to a lesser extent, in fixed income securities, including
fixed-income Underlying Funds.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Equity Fund seeks to achieve
long-term total return by investing in global securities that provide the
potential for capital appreciation and income. Emerging Markets Fund seeks
long-term capital appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries.
U.S. Growth Fund seeks to maximize capital appreciation by investing
in companies of all sizes which have low dividend yields, strong balance sheets
and high expected earnings growth rates relative to their industry. Overseas
Equity Fund seeks to maximize total return (capital appreciation and income),
principally through investments in an internationally diversified portfolio of
equity securities. New Pacific Fund seeks long-term capital appreciation by
investing primarily in companies which are domiciled in or have their principal
business activities in the Pacific Basin.
Delaware Group Premium Fund, Inc. offers 16 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return Series seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. Delchester Series seeks as high a current
income as possible by investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves Series seeks a high
stable level of current income while minimizing fluctuations in principal by
investing in a diversified portfolio of short- and intermediate-term securities.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Small Cap Value Series seeks
capital appreciation by investing primarily in small-cap common stocks whose
market values appear low relative to their underlying value or future earnings
and growth
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potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
Trend Series seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective. Global Bond
Series seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed-income securities that may also
provide the potential for capital appreciation. Strategic Income Series seeks
high current income and total return by using a multi-sector investment
approach, investing primarily in three sectors of the fixed-income securities
markets: high-yield, higher risk securities; investment grade fixed-income
securities; and foreign government and other foreign fixed-income securities.
Devon Series seeks current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on common stocks that
the investment manager believes have the potential for above-average dividend
increases over time. Emerging Markets Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of issuers located or
operating in emerging countries. Convertible Securities Series seeks a high
level of total return on its assets through a combination of capital
appreciation and current income by investing primarily in convertible
securities. Social Awareness Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in securities
of companies primarily engaged in the real estate industry.
Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.
Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide
a high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Florida Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. Delaware-Voyageur
Tax-Free Kansas Fund seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas intangible
personal property tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the Missouri personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free New Mexico Fund seeks to provide a high level of current income exempt
from federal income tax and the New Mexico personal income tax, consistent with
the preservation of capital. Delaware-Voyageur Tax-Free Oregon Insured Fund
seeks to provide a high level of current income exempt from federal income tax
and the Oregon personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Utah Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.
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Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level
of current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
California Fund seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Iowa Fund seeks to provide a
high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Idaho Fund seeks to provide a high level of current
income exempt from federal income tax and the Idaho personal income tax,
consistent with the preservation of capital. Delaware-Voyageur Minnesota High
Yield Municipal Bond Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. National High Yield
Municipal Fund seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. Delaware-Voyageur Tax-Free New York Fund seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Wisconsin Fund seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level
of current income exempt from federal income tax and the Colorado personal
income tax, consistent with the preservation of capital.
Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.
Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high level
of current income exempt from federal income tax and the Minnesota personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free North Dakota Fund seeks to provide a high level of current income
exempt from federal income tax and the North Dakota personal income tax,
consistent with the preservation of capital.
For more complete information about any of the funds in the Delaware
Investments family, including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in the Portfolio's prospectus(es).
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